Malaysia Budget 2020 Forum
YB Lim Guan Eng
The Finance Minister of Malaysia
The St Regis, KL
905 AM, 14 October 2019
Putting Malaysia Back in Business And
Malaysians Back to Work
Mr Derrick Lau,
Chairman, CGS-CIMB Securities Sdn Bhd
YBhg Datuk Mohaiyani Shamsudin,
Chairwoman, Maybank Group
YBhg Tan Sri Azlan Zainol,
Chairman, RHB Banking Group
Distinguished Speakers, Guests,
Ladies and Gentlemen,
Good morning, Salam Sejahtera and Salam Harapan,
INTRODUCTION: AN NEW INDUSTRIAL POLICY FOR MALAYSIA
1. The China-US trade war is permanently reorienting the global supply chain. Investment and trade diversion caused by the reorientation has boosted interest in Malaysia. Approved foreign investment in manufacturing during the first half of 2019 rose by 97% from a year ago.
2. But we are barely scratching the surface. There is more to be had and indeed, this is a once-in-a-lifetime opportunity for Malaysia to halt our premature deindustrialisation, and we need to reindustrialise. We need an industrial policy to focus our reindustrialisation efforts and make that one last push Malaysia needs to join the ranks of developed economies.
3. The 2020 Budget I tabled last week outlines the policy direction this Government is taking. My message is simple: Malaysia is reindustrialising by digitalising our economy, by integrating with the global supply chain better, and by incentivising honest work.
4. I am relatively confident you have had the time to study the Budget 2020 in detail over the weekend. So, I will not be going through the details again. Instead, I will share with you the broad thinking behind the big measures taken.
THE GLOBAL ECONOMY: ENTRENCHED UNCERTAINTY
5. The 2020 Budget was designed amid a very challenging global backdrop. If there is a phrase to describe the world economy now, it is ‘entrenched uncertainty,” inflicted in large by the economic conflict between the two largest economies of the world, and peppered by geopolitical flare-ups around the world. The result is weakened global manufacturing and trade activities.
6. A deeper reflection will reveal the seeds of the uncertainty and the troubles besetting the world. First is the shift in global order with the rise of China. And second, the growing chasm between the rich and the poor in the advanced economies. Both trends are not new, but started decades ago. Now they have led to economic tension between US and China, and the rupture of political legitimacy in the US and Europe.
MALAYSIA TODAY: LESSONS AND OPPORTUNITIES
7. For a small trading nation like Malaysia, global developments have significant ramifications. For instance, although we are doing better than most others, Malaysian exports have shrunk 0.4% for the first eight months of 2019 compared to the same period last year, and is expected to record a growth of less than 1% for 2019.
8. But global troubles also offer us with important lessons and opportunities.
9. One, how the reconfiguration of the global supply chain, particularly trade and investment diversion can improve the Malaysian economic trajectory?
10. Two, as evident from experience in Europe and the US, growth without shared prosperity is a recipe for socioeconomic disaster. Economic policy must be embedded with measures to promote outcomes that are more equitable.
11. These points inform the core Budget 2020 measures. Let me go through the key measures one by one.
LEVERAGING ON THE PERMANENT REORIENTATION OF THE GLOBAL SUPPLY CHAIN
12. We reached peak manufacturing in early 2000s and have since been deindustrialising. Our high-tech share to the GDP has been declining, and replaced by low-skill and low-cost industries. This is not sustainable and will prevent us from becoming a developed and innovation-driven economy.
13. Our economic trajectory has been disappointing too. From 1988 to 1997, under the leadership of Tun Dr Mahathir in his first tenure as Prime Minister, Malaysia’s yearly GDP growth averaged at 9.3%. Since 2000 however coinciding with Malaysia’s pre-mature deindustrialisation, our average annual expansion was stuck at 5.1%.
14. To reverse the premature deindustrialisation, Malaysia needs more private investment in high-value areas that could unlock greater productivity growth.
15. This is precisely the rationale behind the first thrust of the Budget 2020. It is aimed at attracting high-quality MNC investment from global unicorns and Fortune 500 companies, with incentives valued at RM5 billion over 5 years. These FDIs can create 150,000 highquality jobs. This will enrich Malaysia’s supply chain by making it more sophisticated in order to handle the production of high-value goods and services.
16. Concurrently, we are upgrading Malaysia’s most promising companies to become regional and global champions in exports through incentives valued at RM5 billion over 5 years. These local companies able to expand the export market can create 100,000 jobs locally.
17. Another key area to spur higher private investment and to upgrade the structure of our economy is for us to fully embrace the digital economy. Private sector adoption of the latest technologies can bring significant breakthroughs for Malaysia, but it also requires significant upfront investments in infrastructure and accompanying ecosystem. The private sector cannot do this alone. Selective state intervention is required to improve competitiveness, prioritise investment in strategic areas, and structure incentives around industrial policy goals. Whilst we favour free markets, it must be fair. Trade liberalisation that does not hamper poorer economies from expanding within a multilateral framework would be welcomed, and deregulated finance that also protects against greedy manipulators, and scrupulous manipulators.
18. We are building Malaysia’s digital backbone infrastructure through the RM21.6 billion National Fiberisation and Connectivity Plan (NFCP). The laying down of the NFCP from 2019 until 2023 is expected to create at least 20,000 jobs. When it is completed, Malaysia will have faster and more affordable broadband internet with wider coverage, ready for the implementation of 5G technology.
19. In the meantime, we are also incentivising the adoption of digital technologies across all spectrum of businesses, especially among the SMEs and mid-tiered sized firms.
20. There are two data-points that are worth remembering. About 60% of our GDP come from local SMEs and mid-tiered sized firms. And more than 98% of all business establishment in Malaysia are SMEs. If all these companies digitalise and thus become more productive, it will be a paradigm shift in the workings of our economy.
21. For the financiers in this hall today, the Government needs you to play your part in reindustrialising Malaysia. Please channel the necessary access to financing to where it is needed.
IMPROVING EMPLOYMENT OPPORTUNITIES FOR ALL
22. This brings us to the second thrust of Budget 2020. Success of businesses is meaningless if it is not shared equitably with all Malaysians, especially hardworking Malaysian workers.
23. Budget 2020 dedicates significant attention to improve employment opportunities for all Malaysians.
24. The core of the second Budget thrust is the Malaysians@Work programme, which encourages the hiring of Malaysians with a special emphasis on women, youth, and unemployed graduates. We expect this RM6.5 billion initiative to create an additional 350,000 jobs over the next 5 years, and reduce our reliance on foreign workers by 130,000. Malaysians@Work benefits both employers and employees. I urge you to take advantage of this programme to its fullest.
25. Another area we are emphasising within the second thrust is the mainstreaming of TVET. A host of measures are in place to make sure that TVET is not a fringe avenue for human capital development, but a mainstream platform. Nurturing our youths’ talents and skills to meet the evolving needs and demands of our industries is necessary to power Malaysia’s industrial renaissance for the new decade.
SUPPORTING GROWTH TODAY
26. This Budget is unmistakably pro-growth. Many of the measures are designed precisely to have the maximum short-term support for growth, and at the same time balancing the need for us to remain on a fiscal consolidation path.
27. Given this, the fiscal target is revised to 3.2% of GDP in 2020, but it remains on track to reach 2.8% in the medium-term. The increase from 3.0% to 3.2% might not sound a lot, but remember – when it comes to spending, it is not only about how much is spent but also on what the spending is on.
28. A lot of the measures that we have in the Budget will not only support growth in the short-term, but also ferment the foundations necessary for Malaysia transform structurally into the decade ahead. The Budget is not only for Malaysians today, but also for Malaysians tomorrow.
BUDGET 2020: RECLAIMING OUR VISION
29. The thrusts of Budget 2020 is in line with the strategies outlined in the Prime Minister’s Shared Prosperity Vision 2030 in creating a competitive and equitable Malaysia for all. But it also captures the spirit of the earlier Vision 2020 to transform Malaysia into a developed economy, which is especially salient since this is the Budget for the year 2020.
30. This growth path towards developed economy status was derailed by huge financial scandals connected to the kleptocratic state involving RM150 billion. We have designed a 3 year financial road-map to put us back on fiscal track and restore our economic health. In the meantime, the Shared Prosperity vision requires the creation of prosperity before there is prosperity to be shared. Incentivising businesses and attracting foreign investment with incentives valued at RM10 billion over 10 years together with the RM6.5 billion job creation programme that will create 350,000 jobs will put Malaysians back to work and Malaysia back in business.