Malaysia stuck in a perilous middle income trap

Investors will have no incentive to invest in Malaysia if the returns are disappointing 

IN THE 1930s, the average monthly salary in America was US$1,800 (RM7,950), which was globally considered grand at the time. 

Popular Hollywood actors could earn US$1 million per month, bankrolled by the 60 million Americans who visited movie theatres weekly. 

Today, the average monthly salary in the world’s largest economy is US$6,228 or US$74,734 annually. The lowest average monthly salary in the US is US$1,070 per week. 

In Malaysia, the average annual salary is US$18,799 (RM83,035), but the estimated average annual minimum wage is only US$4,735. Even with the new minimum wage of RM1,500, it is only US$340 per month, compared to US$1,070 per week in the US. 

Despite the government’s noble intention to increase the minimum wage, it only benefits the two million foreign workers, who receive an additional income of RM600 million per month or RM7.2 billion per year. 

The bigger problem in Malaysia is the middle-income trap. 

After more than 60 years of independence, engineers in the northern region working in unknown companies or non-multinational companies are known to be receiving a meagre starting salary of RM1,800 per month, which is well below the Poverty Line Income (PLI) of RM2,208. 

According to a CEBR report in 2000, Malaysia’s per capita GDP was US$6,393, while Romania then recorded a figure of US$4,549 and China only US$2,194. 

In 2021, while Romania and China’s per capita GDP increased to US$11,590 and US$11,188 respectively, Malaysians’ income grew moderately to US$10,827 per annum, indicating a stagnant economy since 2017. According to another data, Malaysia’s per capita GDP has actually remained static since 2014. 

Other countries are transitioning from a dependency on cheap labour to high-value investments, but Malaysia languishes in the old mantra, resulting in a lack of improvement in the standard of living for most people. 

The sluggish economy is also seen in the stock market, with most listed companies’ valuations are based on share prices that are much lower than their actual assets. 

Shareholders of Boustead Holdings Bhd have recently announced their interest to take the company private. Listing status is meaningless unless the stock price brings value. 

Investors will have no incentive to invest in Malaysia if the returns are disappointing. 

The new Unity Government, more than 100 days old, must address the middle-income trap conundrum that has plagued the country for almost a decade. 

This problem cannot be solved by talking about monopolies, cartels, concessions and reforms alone. It does not matter, unless the standard of living for Malaysians improves. 

Cutting down the trees will not solve the problem if the roots remain underneath. 

  • Mohamad Azlan Jaafar is the group editor at The Malaysian Reserve. 

  • This article first appeared in The Malaysian Reserve weekly print edition