I was recently invited to speak at a CEO’s Luncheon hosted by The Economist on the current state of our economy.
My message to the room of senior analysts and fund managers was clear. We are on the road to transforming Malaysia to become a high income economy, in a way that is inclusive and sustainable. Low oil price and the weakening of the ringgit are examples of the continuing challenges and shocks we are bound to encounter along the way. There will be more to come. We must be prepared to face them. This is the test of our resilience.
Indeed, Malaysia is one of the first countries in the world that has publicly announced a revision of its annual plan and budget and that shows our agility and responsiveness.
There is a method to the madness.
Every Monday, the Prime Minister chairs an Economic Council where several Ministers and the Central Bank Governor deliberate on economic and financial areas critical to the country. They come to the table prepared with data, research and insights, and are focused on getting a firm grip on percolating issues.
In reading news culled from the past few weeks, we have plenty of naysayers drilling in only on the negatives. I have always said that if you are gung-ho on seeing the doom and gloom, by golly, you will find it.
As the Prime Minister announced in the 2015 Budget Review, the economy is not in crisis. Yes, we are undergoing tough times but we are able to confront the unfolding scenario from a position of strength – with solid fundamentals and pragmatic policies.
In his speech, he was frank about what we could achieve as a nation, and equally direct about what we cannot.
The Budget 2015 was set with Dated Brent prices at US$100 per barrel but with crude changing hands at dramatically lower prices beginning this year, the Budget was recast to reflect a more realistic level of US$55 per barrel.
If we continued with business as usual, we would miss our 3.0% fiscal deficit target for 2015 to record a 3.9% deficit of GDP. So what do we need to do? A number of measures were implicitly put forward for 2015:
• GDP growth was revised from 5%-6% to 4.5% to 5.5% taking into account tougher external economic conditions
• Fiscal deficit target has been revised to 3.2% of GDP from 3%, which is still lower than last year’s 3.5%
• Operational expenditure cut of RM5.5 billion required the government to rein in some of the government-linked companies and agency grants
• In providing funds for rebuilding of the flood-devastated regions without incurring additional costs, the government has deferred the National Service programme to channel the RM400 million savings to victims
I also want to correct one big misperception.
Many believe that Malaysia will suffer the brunt of the oil price slide because we are a major oil exporter. This belief is wrong.
Malaysia is not a major oil exporter (see chart 1). From January to November 2014 we exported RM87.6 billion worth of crude and petroleum products, whilst imports of the same was at RM92.5 billion. This makes us a net petroleum importer.
If anything, we are a net LNG exporter at RM58 billion with a very low volume of imports. Yes, Malaysia is a gas and oil country, in that sequence, and not the other way around.
As part of the industrialisation of our economy in the 80s, Malaysia was able to successfully diversify its economy from being agricultural and mining-based, to manufacturing and services-oriented. This created a more sustainable and stable base so that we do not end up putting all our eggs in the commodities basket.
To further support this diversification, the Economic Transformation Programme is meant to shore up competitiveness of the 12 top economic sectors. It is also aimed at restructuring the economy towards becoming more services-oriented because this is what creates better paying jobs.
The results of the cumulative efforts are clear. Today, the oil and gas industry contributes 17% of GDP, while the other sectors make up the rest (see chart 2).
But we must not get too comfortable with the positives and lose our hunger for growth.
The lack of global brands from Malaysia is a looming concern. Malaysian companies must start to build superior products and services capable of earning recognition the way Samsung and Apple have become household names across the world.
We cannot continue to squabble over government contracts and rely solely on domestic consumption. This is petty and unsustainable. A healthy appetite to conquer the bigger world will spur local companies to be innovative, creative and competitive.
To blaze this trail, the National Export Council has been set up to pave the way forward for good companies to start taking on the world stage.
Human beings are a resilient lot. History has proven repeatedly that when our backs are against the wall, the intestinal fortitude to do the right thing rears its head. Maybe it starts first with developing the right attitude to look beyond the gloom.
Malaysia GDP Structure, based on NKEA Sectors (FY2013) (Data source: Department of Statistics Malaysia)