ECONOMIC INDICATORS POINT TO A MELTDOWN OF NAJIB’S ECONOMIC POLICIES

ECONOMIC INDICATORS POINT TO A MELTDOWN OF NAJIB’S ECONOMIC POLICIES

The latest national economic indicators may have a deeper impact on Malaysia besides the obvious economic loss felt especially the billions of ringgit wiped out from Bursa Kuala Lumpur in the past one week.
 
In particular, the downgrading of economic growth forecast recently announced by local research houses and analysts may spell an early doom to the grand economic master plan and targets unveiled by Dato’ Seri Najib Tun Razak’s administration through the Economic Transformation Programmes (ETP), the 10^th Malaysian Plan and the New Economic Model.
 
If Malaysia’s economic growth continues to slide as expected, the ETP would have failed even before it takes off because the ambitious plan requires a steady 6% growth annually to reach the GNI per capita target of USD15,000 (or RM48,000) by 2020. A less than 5% growth for 2011 means ETP has failed to excite the market at the time when the full government focus, resources and machineries were directed to promote it; let alone when all the euphoria wears off 2-3 years down the line.
 
The impact of the economic uncertainties in the USA and Euro-zone countries may add severity to the Malaysian economic prospect; especially when the debt crisis in Euro-zone will begin to pull the third (Italy), second (France) and largest (Germany) economies in Europe into the economic mess. Should the current trend in the Euro-zone continue, there is a possibility that there will be further downgrades of economic growth in the near future.
 
Dato’ Seri Najib Tun Razak’s administration has also failed to meet its own private investment growth target that is a centre-piece of his strategy to rejuvenate growth in Malaysia. PEMANDU/ETP has boldly claimed that 92% of the hundreds of billions worth of investments will be funded by the private sector to reverse a decade’s worth of dependent on pump priming using public coffers.
Unfortunately, the source of funding of flagship ETP projects is still shrouded in mystery. Of the top 10 ETP projects announced (or expected to take off) in between October 2010 and June 2011, 77% of these projects will be carried out by GLCs.
 
The following analysis of the top 10 ETP projects will heighten the sense of economic dejavu as essentially the present administration still employs the same approach of pump priming using public money – though it is now being channelled through the GLCs:
 

FLAGSHIP ETP PROJECT	INVESTMENT ANNOUNCED (RM BILLIONS)	GLC/NON-GLC
Refinery and Petrochemicals Integrated Development (RAPID)	60.0	GLC (PETRONAS)
MRT (investment without rolling stocks and land acquisition)	36.6	GLC (special purpose vehicle set up)
Oil and gas development at Tapis field (enhanced oil recovery) and Teluk field development (due to start in 2013)	10.0	GLC (PETRONAS & ExxonMobil, reinvestment of profits from hydrocarbon resources)
Development of Karambunai Integrated Resort City	9.6	Non-GLC
Small Retailer Transformation Program (TUKAR) to modernise sundry shops	5.43	Unknown
Shell Malaysia’s expansion program (upgrade of refinery/new builts including Shell Middle Distillates, Port Dickson complex and Gumusut deepwater development)	5.1	GLC (PETRONAS & Shell, reinvestment of profits from hydrocarbon resources)
Development of deepwater petroleum terminal in Johor	5.1	Dialog Group (private group with large shareholding by GLICs)
3 new power plants, 2 hydro power plants, 1 coal plant and investment in transmission infrastructure	4.0	GLC (TNB)
Development of Tanjong Agas Oil & Agas and Logistic Industrial Park in Pekan, Pahang	3.0	GLC (under East Coast Economic Region)
Development of MINES Wellness City	3.0	Non-GLC

 
The total investments announced for the top 10 ETP projects are RM142 billion that makes 82% of the total ETP projects announced so far (total investments of RM173 billion).  The fact that 77% of the top 10 ETP projects will be carried out by GLCs or firms with large GLIC shareholdings is a proof that the 92% private investment target set out in ETP is nothing more than a public relations number with no indication that it will ever be achieved.
 
The 3 national economic indicators – the turmoil at Bursa Kuala Lumpur, the growth forecast that looks dimmer as we move closer to the end of the year and the failure of ETP flagship projects to hit the private investment target set out by Dato’ Seri Najib – point to a meltdown of his administration’s economic policies and initiatives.
 
Malaysia’s economic predicament is the complete opposite of the tremendous growth enjoyed by Indonesia. Indonesian economy continues to register a 6.5% growth in the last quarter and expected to grow further at 7% next year. While Malaysia’s inflation hit a two-year high in the last quarter, Indonesia’s inflation recorded a 14-month low for the same period. Stagnated wages that grow only at a snail pace of 2.6% over the last decade for Malaysian workforce is contrasted by the double digit annual rise in wages in Indonesia since 2006.
 
Clearly there is a fundamental difference between Malaysian and Indonesian economies that leads to this divergence.
 
While Indonesia embraced political, economic and social reforms since 1998, the Barisan Nasional government balked at any attempt to spearhead political and social reforms at the detriment of the economy. Therefore, it is a matter of time before the rakyat subscribes to Pakatan Rakyat’s principle that there cannot be an economic reform without a commitment for political reforms.
 
 
RAFIZI RAMLI
DIRECTOR OF STRATEGIES
10 AUGUST 2011