Published on 22 Sep 2023.
The New Industrial Master Plan (NIMP) 2030 is a potentially transformative albeit ambitious plan to propel Malaysia and its manufacturing sector to its next stage of development. This is complemented by the recently tabled mid-term review (MTR) of the Twelfth Malaysia Plan (12MP) 2021-2025, which realign the near-term action plans and key targets with the vision of the Madani Economy up to 2025. The NIMP 2030’s mission-based approach, which leverages on a whole-of-nation effort, will help focus and guide a more concerted effort to the country’s economic development. While there are arguably quite a few ‘moonshot’ targets in the NIMP 2030, these ambitions are absolutely necessary for Malaysia to catch up and remain relevant in this fast-developing and competitive global arena. All said, the key to any well-intentioned plan lies with implementation, a tall but not impossible task for the unity government to achieve.
NIMP 2030 critical for Malaysia to keep up with global megatrends
A key distinction of the NIMP 2030 is its mission-based approach, unlike previous masterplans’ sectoral-based approach. Given the increasing complexity of world trade and evolving global investment trends, the strategies presented are really a ‘sink or swim’ push towards an accelerated trajectory for Malaysia. The current plan’s focus is very targeted and driven by a few core technologies to achieve integration and allow the target sectors to move up the manufacturing value chain. This is important considering that the manufacturing sector is the only main sector where both backward and forward linkage value is more than one. This means investments in the manufacturing sector will have a higher multiplier effect in driving growth, relative to other sectors. As such, there is a need to build up the whole supply chain and ecosystem, both vertically and horizontally, to drive meaningful industrial transformations.
Figure 1: Only manufacturing sector has both backward and forward linkage value
of more than one
Sources: Department of Statistics Malaysia, RAM
The plan’s focus on high-tech and high-value-added industries is particularly critical as Malaysia has not made significant progress in recent years. This ties in with two of its key missions to advance economic complexity and tech-up for a digitally vibrant nation, which are necessary in today’s technology-driven world. As indicated by the Economic Complexity Index, Malaysia’s improvement in this metric has somewhat stagnated in the last decade and outpaced by the likes of Thailand. Malaysia also has a relatively low prevalence of productivity-boosting machinery and equipment (M&E) investments. The average proportion of M&E capital stock at 12% in 2019, is lower than Thailand (20%) and Vietnam (14%), albeit higher than Indonesia (5%) and the Philippines (7%). Given that these industries are often knowledge-intensive, moving up the global innovation value chain will help to create high-paying jobs.
Figure 2: Malaysia’s economic complexity outpaced by regional peers
Sources: The Atlas of Economic Complexity, RAM
The push for decarbonisation is another critical mission and ties in with the development of renewables and other nature-based industry sectors. Failure to adapt and transition into a low-carbon economy will have a detrimental bearing, not just on physical risks, but on Malaysia’s competitiveness in trade, exports and investments. On a positive note, Malaysia has rich natural resources that can support and attract investments to develop green sectors.
The 12MP MTR lays out near-term targets and plans for socioeconomic development
The mid-term measures under 12MP cover various facets of the economy to provide the foundation to achieve and sustain its long-term vision and targets. This includes ramping up high-value industry developments and undertaking fiscal sustainability enhancements that encompass targeted subsidy reallocation and widening the tax base. The commitment to increasing the total development expenditure (DEVEX) ceiling to RM415 bil (+RM15 bil) translates to around RM90 bil allocation per year between 2023 and 2025, higher than the previous annual average of circa RM48 bil from 2015 to 2019. This is a welcome pledge and augurs well for future growth, which the government projects to come in between 5.0% and 5.5% per annum from 2023 to 2025. We believe this target is plausible; our mid-term forecast indicates a baseline GDP growth of circa 5% for 2025.
Figure 3: Malaysia expects growth to remain healthy while fiscal deficit to narrow
substantially by end-2025
Sources: Mid-Term Review of the Twelfth Malaysia Plan, RAM
Fiscal constraints a key impediment…
The tight fiscal space remains a key impediment to achieving ambitious goals, further exacerbated by the government’s intention to pursue fiscal consolidation, as it targets a somewhat steep fall in fiscal deficit to between 3.0% and 3.5% by end-2025. Assuming no substantial increase in revenue or fall in spending, should DEVEX still be steady at around RM90 bil in 2025, the fiscal deficit is likely to hover at circa 4.0% in 2025, by our estimate. To achieve its deficit target, it is imperative for the government to institute bolder tax reforms and not just rationalise subsidies.
…but Malaysia does have the resources to drive the leapfrog required
So, are the NIMP 2030 goals attainable? Several elements, if worked well, could contribute to their achievement. Firstly, the Malaysian workforce is relatively high-skilled among countries in this region, ranking second in the Human Development Index after Singapore. What is needed now is to pivot the workforce to acquire new skills, particularly in science and technology; short- and long-term initiatives to enhance the education system are already underway. Secondly, as previously highlighted, Malaysia has ample resources to attract the required investments from the private sector and global investors to develop new industries. Business conditions in Malaysia are also relatively good, ranking 12th in the World Bank’s Ease of Doing Business ranking, the second-highest ASEAN country. That said, there is certainly room for further improvement in this aspect, especially in easing regulations to attract world-class investments into the country. The government has the will and the capacity, as shown by recent exemptions made for strategic foreign investors.
Figure 4: Malaysia has competitive edge in this region
Sources: United Nations Development Programme, World Bank, World Intellectual Property Organization, RAM
Execution, execution and execution
As with most things, the attainment of Malaysia’s ‘moonshot’ aspirations boils down to execution. While the political will is strong, the administrative arm of the government must have the capacity and autonomy to implement these plans. Malaysia has had no issues developing good master plans but for various reasons in the past, had lacked the tenacity to stick to agreed paths. Therefore, it is commendable that the government has established a dedicated Delivery Management Unit (DMU), championed by MITI for integrated implementation. With many ministries involved, the alignment of ministry KPIs and coordination amongst them are instrumental to achieving the intended outcomes of the NIMP 2030.
A NIMP 2030 digital dashboard will also be developed to provide periodic progress updates. This intention is positive towards increasing transparency, particularly for disbursements involving public funds and grants. The reporting should be timely and to be credible, published data should stay up to date with sufficient details available to the public. Active monitoring will also enable timely alteration of plans to address gaps, if any, through constant assessment and feedback loop and will be more effective than a major review after an extended period. This would enhance the buy-in and support of all stakeholders, given the whole-of-nation approach required to realise the NIMP 2030.
Woon Khai Jhek, CFA
(603) 3385 2512
(603) 3385 2500
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