Boosting Malaysian innovation economy to empower people and country

The fundamental of Madani Economy is to internationalise SMEs as one of its main transformation agenda 

WHEN the Prime Minister (PM) Datuk Seri Anwar Ibrahim launched the Madani Economy: Empowering the People on July 27, he outlined two focus areas in the early part of his speech. 

Madani Economy aims at restructuring the economy to ensure Malaysia becomes a leading economic powerhouse in Asia and to lift the quality of life of the people with the booming economy, as well as encouraging investment and strengthening local industries to become more innovative and competitive to be able to penetrate the global market. 

To further elaborate the vision of Madani Economy, we interviewed renowned economist Dr Nungsari Ahmad Radhi on how the economic framework can empower the people and country. 

Nungsari hopes the attitude to improve oneself and lifelong learning will become the norm in our society (pic: TMR)

Q: What is Madani Economy: Empowering the People in its simplest definition and its benefit to the people, especially the ordinary people? 

A: First we must understand the meaning of Madani Economy. It is based on the philosophy that economic development and growth originate from the people, values and norms. Thus, any concept and economic development must be based on the people factor, which is the civilisation factors as propagated by Madani Economy. 

It is clear that Madani Economy stresses on values and development as well as social institutions supervision — whether it’s a social institution or economic institution. The civilisation aspects must be on par with the inception of Malaysia as envisioned by the late Tunku Abdul Rahman Putra Al-Haj and outlined in the Federal Constitution. 

We must also learn from past policies which were aimed at developing Malaysia but failed to achieve their goals; from Vision 2020 to the New Economic Model (NEM) — which not only their quantitative development goals fell short of the targets, but they also failed to distribute the wealth equally. 

We have to ask what are the fundamental goals of Madani Economy? 

Realising that the country’s economy is on a slower growth path especially the growth rate which is becoming more critical, unequal distribution of wealth and income as well the weakness in the economy to attract foreign investors, the framework of Madani Economy aims to reform the country’s economy for the better. 

It is not only about stimulating the economy but also genrating growth which will allow the people to enjoy a better quality of life and enhance the country’s competitiveness. 

The Madani Economy framework aims to rebuild Rumah Malaysia by strengthening its foundation, reinforcing the floors, raising the ceiling and building strong pillars. 

The foundation is the governance and supervision framework. The floor is to provide the social safety net to all citizens. The ceiling is to generate growth and our competitiveness. The pillars which will move this “Rumah Malaysia” are the public sector, private sector and the third sector that is stressed in this framework is the voluntary sector, non-profitable as well as trust and waqf. 

Q: Some economists said there are little differences between Madani Economy and the NEM proposed by former PM Datuk Seri Mohd Najib Razak, and both policies will not bring benefits to the people. Are there any grounds to these arguments and if not, how does Madani Economy differs from the NEM? 

A: I will not respond to the facts they use (from the Department Of Statistics Malaysia) as the basis to create Madani Economy. What we will certainly deny is their claim that Madani Economy is the same as NEM. 

NEM is not based on social and civilisation aspects. NEM is also not executed correctly. Najib implemented the Economic Transformation Programme which is based on projects and not NEM. 

The people of Malaysia have heard repeatedly each year that the country’s economy, or in technical term GDP, expanded every year. However, the benefits are not felt by the people who face challenges everyday. 

Why is this happening and can Madani Economy provide the solution to the inconsistency between GDP and quality of life? 

The PM himself questioned — what is the purpose of growth if the benefits are not distributed equally? It is getting slower and it is made worse with the unequal distribution. 

This is the premise of Madani Economy that I am trying to explain. If we look at the economic activities that are generating growth, we can see a few features that can explain the generally low salary and unequal distribution of benefits. 

First, the country’s economy is stuck with activities in the agriculture and commodity sectors inherited since colonial days. These activities use little capital and technology. It depends on large areas and a huge labour force. The wages that are paid to these workers are low. The manufacturing sector, which involves assembling, has little value. Thus, the wage is also low. 

The same with the construction sector. The use of technology is low and so is the wage. To make things worse, the unskilled foreign workers who are brought into the country further depress the wage structure. 

The service sector in Malaysia, besides tourism, depends solely on domestic demand, a domestic market which has a low buying power. We have entered into a cycle where our economy becomes domestic and is dependent on domestic demand that is lowly paid. 

As long as we do not change this structure, improve our competitiveness, increase the presence of Malaysian companies abroad, increase our trade abroad, we will not be able to put Malaysia on the right path, the path which will benefit the people and the prosperity of the nation. 

Another big problem faced by the people is the increase in the cost of food which has risen significantly. Although the Madani government stressed that inflation has tapered off after the change of government, the reality is, when there is inflation, the price of essential goods will continue to rise. What can the government do to reduce the cost of living? 

Inflation is caused by many factors. First, it is a global trend triggered by the Russia-Ukraine war which has disrupted global food trade, besides the sudden increase of interest rates in the US. 

This forces the dollar to strengthen compared to other currencies including ringgit. The weakening of the ringgit makes all imported goods and services more expensive. 

As Malaysia imports a lot of food, the prices of food also increase. But the inflation phenomena has peaked. The pressure for prices to increase has softened, but prices have already surged in the past. 

To control inflation, the government has acted diligently to ensure market confidence in the future of the country. 

The government had stressed on governance and improving the management of the country’s finances. The launch of Madani Economy is also one of the efforts by the government to put all the initiatives under one complete framework. 

If it was not done, investors would pull their money out and would not invest in the country, and subsequently will further weaken the ringgit. 

The government continues to control the prices of essential goods. Subsidies are maintained. The target groups continue to receive cash incentives to increase their buying power due to inflation. 

The most important thing is for the government to manage the economy and generate meaningful growth which will create jobs. The weakening of the ringgit compared to 10 and 20 years ago had forced the increase in prices of food due to our heavy dependence on imports. 

Q: Can Madani Economy help to boost the ringgit value and what are Madani Economy initiatives to reduce the cost of food? 

A: As I had said the short-term factor had influenced the value of the ringgit. In the long term the value of the ringgit will largely depend on the demand of the local currency. 

What would be the reason for people or companies to hold on to ringgit? If the holding drops, the value also drops. What happened in the last 20 years, the country’s economy is domestically oriented. The source of growth largely has been domestic. The service sector, the biggest sector, is almost entirely domestic. 

Our international trade against the percentage of the economy had shrunk. Before the Asian economic crisis of 1998, trade was more than twice (200%) the size of the economy. Today, it is only 20% bigger. As trade shrinks, so does the ringgit. The country’s capital and stock market had also lost its importance. 

The Kuala Lumpur Stock Exchange is no longer the main market in Asia like before. The inflow had shrunk. One of the reasons is because Malaysia had failed to create new companies that could attract foreign investors. FDI (foreign direct investment) had also relatively dropped. All these factors had contributed to the weakening of the ringgit in the last two decades. 

One of the ways to strengthen the ringgit requires structural change. We must create competitive companies that can export to foreign markets. We must internationalise our economy and change our SMEs (small and medium enterprises) into big companies. 

The growth of international trade will increase the demand for the ringgit and strengthen its value. That is included in Madani Economy. When we have competitive companies, the local bourse will also become more exciting and attract foreign inflows, subsequently improving the value of ringgit. 

Q: The government recently announced many new FDIs. However, ordinary people do not feel the benefit of these investments. This is even more true to the Malays who are largely Grab drivers and sidewalk hawkers. Realistically, will the ordinary people fall further behind if Malaysia is able to become a high-income nation? 

A: I have explained some of it above. Realistically each investment, especially large FDIs, will take time to complete and create more jobs later. What is important is to prepare ourselves in terms of the needed skills to fulfil the requirements of these companies. 

One of the main reasons investors invest in Malaysia or in any other country is the presence of skilled labour. If we do not have enough skilled workers, they will not expand their business in Malaysia. 

The issue of many Malay youths not pursuing higher education or skilled courses after leaving school is very worrying. 

Involvement in the gig economy or social media is not a lasting career or sustainable entrepreneurship. It is true the digital phenomena including artificial intelligence (AI) will change the landscape at the workplace extensively, including replacing many jobs and tasks. But what is clear is that those who are without any skills or higher education will be punished severely later. 

That is why Madani Economy stresses on the social aspect to gain economic rewards. I hope the attitude to improve oneself, lifelong learning will become the norm in our society. 

Q: PM Anwar did touch on expanding SMEs. How can the government and Madani Economy help to turn these SMEs into regional champions? 

A: The PM had stressed to make these SMEs into international companies. The focus and changes are meant to make these businesses and entrepreneurs competitive enough to enter the international market. 

The focus to internationalise these SMEs is not solely of creating “regional champions” based on size. Madani Economy puts the vision of creating innovative products among the smaller firms. Thus, size is not the measurement. The ability to compete and enter the international markets are the measurements. 

The government has signed many free trade agreements (FTA) with many countries. Access to many markets are readily available but it is not benefitting SMEs. 

This must change. At the same time, closer economic cooperation between our neighbours must be forged beyond Asean cooperation. The economic minister had announced the creation of a cooperation economic zone with Singapore. This economic zone will allow the freedom of goods and workers between the neighbouring countries as well as the markets. 

Q: Madani Economy stresses on increasing the wage of workers to become a larger part of the country’s GDP. In simple terms, the government wants wages to increase. What is the government’s plan to achieve this target? 

A: Madani Economy aims to increase the contribution of wages to the country’s economy. Besides amendments to the law like minimum salary, much of this effort must be based on productivity and a company’s competitiveness. 

This requires changes to how a company operates. If an estate with seven million hectares continues to operate as before, wages will not change. Maybe just to mini- mum salary. But if there are innovations, new technologies which require fewer workers to collect the produce, wages will definitely increase. If we continue to sell products or services to the domestic market, wages will not increase. 

If we are able to compete and enter other markets that would pay a higher price, wages will increase. That is the fundamental of Madani Economy — to internationalise SMEs as one of its main transformation agenda. Local companies who focus on the domestic market can only pay a limited amount. 

Q: Madani Economy is not Malaysia’s first economic framework to increase the participation of women into the workforce. What is the main reason for the low participation of women today compared to men and what can Madani Economy do to increase the participation of women? 

A: I have answered on the previous economic framework. On the participation of women, it has not gone down. It is low and has not increased. Although there are more females in comparison to males in schools and institutes of higher learning, the participation of women in the labour force remains low. The participation of women in the workplace drops further when they have children and it would not increase later. 

Subsequently, Malaysia will not be able to use the best human capital in the economy. It is about social attitude and norms. The main reason is the role of women as mothers and their value in raising children are not taken into account. 

Support for working women at the workplace who have children is insufficient. The attitude of employers against mothers who are raising their children does not help and more often than not discriminates against these mothers. 

Thus, Madani Economy proposes to increase women participation in the job market through law and incentives. If giving birth and raising children have economic value, laws and policies must not discriminate against working mothers. Working mothers should be supported to ensure they remain at the workplace with the availability of childcare centres while they work. 

Q: Can the people hope that Madani Economy will be able to be realised in the future? What are the risks that can jeopard {ll not be easy. Those with vested interest will fight to maintain the status quo. It will also be opposed by those who do not have any better ideas. 

A: Every policy decision will have a price. There will be benefits and disadvantages. There will be parties who will benefit from certain decisions and parties who will lose. No policy decision is without pros and cons. Understanding this and the ability to evaluate data is needed throughout this transformation process. Without it, critics who promise the moon and the stars will derail this effort. 


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