Can Malaysia reform fast enough to meet challenges?

LET'S face it. The fact that talented professionals and even less-skilled Malaysians have left (and leaving) for better economic prospects and a less ethnically- and religiously-polarised environment over the past three decades or more is not new.

After all, who among Malaysians do not have family members and friends working and living abroad?
Brain drain and migration in general is a controversial and complex topic in this country, largely due to the ethnic overtones - a lot more non-bumiputras than bumiputras have left. Even so, in recent years, talented bumiputras have also become part of the million-strong Malaysian diaspora.

Ong Kian Ming says targeted measures such as those suggested by Talent Corp may not be sufficient to attract skilled Malaysians home.

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In years past, the human capital flight was something that was tacitly acknowledged by the Government. That has now been made known - very clearly - backed by volumes of data by the World Bank in its fourth edition of the Malaysia Economic Monitor.

That human capital flight is not new to Malaysia is acknowledged by the Washington DC-based international financial institution. But what is troubling is the observation by Bangkok-based senior economist Philip Schellekens and team, which produced the report, of the difficulty in implementing the more comprehensive and in-depth reforms under the Economic Transformation Programme (ETP) namely those under the New Economic Model (NEM) announced by Prime Minister Datuk Seri Najib Tun Razak last year.

The NEM outlines eight strategic reform initiatives aimed at greater private initiative, better skills, more competition, a leaner public sector, pro-growth affirmative action, a better knowledge base and infrastructure, the selective promotion of sectors, and environmental as well as fiscal sustainability.

According to the report, the project-based initiatives of the ETP as represented by the National Key Economic Areas (NKEAs) have “demonstrated notable progress” but there is skepticism about the impact of the cross-cutting reform announcements under the NEM. The report recommends that the NEM cross-cutting reforms be accelerated despite the apparent difficulty in implementing such reforms.

It notes that to be successful, the NEM route will require a comprehensive overhaul of policy frameworks, where success may show itself only after a period of many years of steady implementation for example, there are few quick wins in strengthening the country's education system.

Schellekens says in a recent interview that sentiment is definitely warming up to Malaysia going from recent discussions that the World Bank team had with foreign investors. “At the same time, almost all the investors that we talked to have not really accounted for the NEM in their medium-term forecasts as they're skeptical,” he adds. Schellekens says investors feel that the Government will not really tackle the underlying cross-cutting issues as quickly and comprehensively as it is keen on boosting investment growth through the NKEA projects.

“That's the perception issue. It's partly unjustified because initiatives are being formulated but there's a sequencing problem. NKEA projects are moving quicker while the NEM reforms are moving slower. That's affecting sentiment,” he says.

Schellekens says the World Bank has had the benefit of working with the Government and has seen a number of positive developments (including those under the Government Transformation Programme, which together with the ETP form part of the comprehensive reform agenda) which are not reflected in the perceptions of investors.

Different picture
“We told the Prime Minister of this, that investment bankers are not going to tell you the truth when they come here because they rely on you for the business; so they're not going to be bearish on Malaysia. But when we talk to them, we've a different picture,” he says.

Meanwhile, underscoring the importance of the NEM reform, UCSI political analyst and lecturer Dr Ong Kian Ming says in an email reply that the surveys of those who have left clearly show that only sincere structural changes including a shift away from an ethnic-based to a needs-based policy of affirmative action and “evidence of fundamental and positive changes in the government” can entice them to return.
“This is not surprising since one presumes that these individuals do not return to Malaysia just for the short term but do so because they think that this country is the right place to bring up their children and for their children to have suitable economic opportunities,” he says.

Ong adds that it also shows that targeted measures such as those suggested by Talent Corp may not be sufficient to attract skilled Malaysians home or minimise their rate of leaving the country. He observes that the Government needs a “Singapore” policy since the city-state absorbed 57% of the diaspora and 54% of the brain drain as at 2010. “Without addressing the issues and concerns of the Malaysians who have moved, it will be challenging to stem the brain drain and to attract skilled talent to return to Malaysia,” Ong says.
As the World Bank report observes: To support the acceleration of reform implementation, policymakers could consider reprioritising the reform agenda, refocusing on the critical binding constraints to growth first and attempting to overdeliver on these. The good news is that, in the face of Malaysia's vast unrealised potential, the critical bottlenecks also present significant opportunities to accelerate growth. In this respect concrete policy actions that support productivity and inclusiveness should attract first priority.