Ong: Reforms needed for Malaysia to speed in global value chain

by DASHVEENJIT KAUR/ pic by MUHD AMIN NAHARUL

MALAYSIA needs more institutional, regulatory and structural reforms to support global value chain (GVC), including incorporating safeguards to address unexpected phenomena like the coronavirus outbreak.

Deputy International Trade and Industry Minister Dr Ong Kian Ming (picture) said more stringent reforms are needed for Malaysia to benefit from the GVC.

“Even during this disease outbreak, we should ensure that right policies are in place to make sure the GVC is not disrupted,” he said after the launch of World Bank’ World Development Report 2020 in Kuala Lumpur yesterday.

According to the report, a GVC breaks up the production process across countries. Companies are largely specialised in one specific task and do not produce the whole product.

A GVC is a series of stages in the production of a product or service for sale to consumers. Each stage adds value, and at least two stages are in different countries.

The report includes an example of a bike — which is assembled in Finland with parts from Italy, Japan and Malaysia, and exported to Egypt — as GVC.

The report also highlighted the steps countries could take to attract GVC investments.

The report cited Malaysia’s success of attracting transformative GVC investments and transitioning a commodity-based country to advanced manufacturing over the past 30 years.

But the country’s next challenge is to make the leap to greater innovation-driven activities.

The report said Malaysia must strengthen its competitiveness in attracting high-quality investments and improving the targeting and return on tax expenditures to maximise the gains from investments, which will be key for economic upgrading, high-value job creation and inclusive growth.

The report noted that human capital reforms will also be needed to build and retain advanced workforce skills, while deepening trade agreements to cover investment and services for the purpose of boosting competition is key.

World Bank country manager for Malaysia Firas Raad said Malaysia operates at the heart of GVCs in key sectors such as electronic and electrical products, trading well over 100% of its GDP.

“But to move forward, the country needs to make the leap from advancing and manufactured services, which are common in successful middle-income economies, to innovative activities seen in successful high-income economies.

“To do so, this will require several new policies and institutional reforms in areas such as human capital and skills, investment and competition policy, and digital adoption,” he said.

Meanwhile, Ong said it was too early to measure the impact of coronavirus on the country’s trade with China, the ground zero of the current global flu-like outbreak.

China, the world’s second-biggest economy, is Malaysia’s largest trading partner.

“It has only been two weeks, too early to decide if there has been any impact on our economy.

“But it is notable to know that, it is common that during the Chinese New Year period, trade activities with China will usually slow down and it is reflective on the first quarter figures that are due for announcement next week,” he added.

Ong said most factories in China were on a long break due to the festive season, but admitted activities had slowed down since the outbreak.

“I doubt the impact would be significant towards us. Nevertheless, it is too soon to decide,” he added.

However, should the outbreak worsened over the coming weeks, his ministry, according to Ong, will monitor and decide the next course of actions.

Last year, Malaysia-China trade hit a new record high of US$124 billion (RM507.16 billion).