Thursday, September 15, 2011

After 54 years independence, Malaysia still sufferring in the middle income trap

After 54 years independence, Malaysia still sufferring in the middle income trap

By Dr Chen Man Hin, DAP life advisor

There is not much to celebrate after 54 years of independence, as Malaysia is still caught in a middle income trap, where 60% of our households are living below the poverty line of RM3000 per month.

In the past few weeks, PM Najib made some moves calculated to impress the people that the economy is resurging and well on the way to full recovery.

The first plan was to announce that FDIs (foreign direct investments) inflow was spectacular. He admitted that the FDI dropped to a low of US$1.5 billion in 2009 but in 2010 it had rebounded by over 500 per cent to US$9 billion. It looks impressive, but the increase was large only because it rebounded from a very low baseline.

However, the US$9 billion was minuscule compared to a FDI of US$38 billion in 2010 for Singapore, US$15 billion for Indonesia and US$105 billion for China.

It is quite clear that Malaysia has a long way to go to convince that there are liberal incentives for foreign investors to park their money in Malaysia.


Najib next strategy to give a better impression of his government was to announce that Malaysia had its Global Competitiveness Ranking rise to 21 in 2011 – 2012 from 26 the year before 2010 – 2011. this is nothing new, as Malaysia’s ranking had been hovering between 21 to 26 during the past four years.

However, looking at the performance rankings of Malaysia it is indeed surprising that better performing economies like New Zealand, South Korea, China could be lower in competitiveness.

Besides Malaysia’s corruption perceptions index stands at 56 way below the standing of S. Korea, or New Zealand. Corruption is so rife in this country that is hurting every aspect of the economy, big or small.


This is the program designed to stimulate the economy with super-gigantic projects in a desperate effort to stimulate the economy after the havoc wrought by the New Economic Policy. Najib tried to introduce a liberal strategy to the ETP by removing the bumi quota on all new investments whether foreign or local. This was gunned down by PERKASA which insisted that the bumi equity quota stay.

Hampered by the bumi quota ruling, foreign investments are still wary about investing in Malaysia. Hence the much lower FDIs to Malaysia compared to other countries like Singapore, Hong Kong and Indonesia. Najib is pouring hundreds of billions to stimulate the economy, in the same way that Tun Mahathir did during his tenure as Prime Minister (1982 – 2002).

All to no avail, as World Bank tabulated a chart which showed that Malaysia’s economy slowed down considerably after 1971 when the NEP was implemented, while other economics like Singapore, Hong Kong, Taiwan and S. Korea boomed.


After 1971, the Tiger economies of Singapore, Hong Kong, Taiwan and S. Korea zoomed upwards while Malaysia’s PCI stagnated. the following figures are explanatory.

MALAYSIA 8,519 47
SINGAPORE 43,324 12
HONG KONG 31,877 19
SOUTH KOREA 20,757 26
CHINA PR 4,393 74
JAPAN 43,161 13

At independence, Malaya had the second highest per capita income, after Japan. These are frank stark figures from World Bank. It depicts just how sorry the Malaysian economy has lagged behind other countries in Asia. Malaysia’s economy was dragged down by the NEP.

Secret of the success of the tiger economies of Singapore, Hong Kong, S. Korea and Taiwan. All these countries practise a market economy and they have a global outlook.

The solution for Malaysia is to be liberal and to be global. If Malaysia keeps the NEP and refuses to embrace globalism, then Malaysia will forever stay as a middle income economy. Most of Malaysian households will stay poor.

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