Despite election budget, Malaysia still needs to tackle long-term structural problems: Experts

IPOH — Ms Siti Nursyazalina Zailani is the face of a deep, long-standing problem of the economy that threatens Malaysia’s aim of becoming a sustainable high-income nation – youth unemployment.

After failing to get a job with her engineering degree, the Ipoh woman became a maid to make ends meet.

It is problems like these that economists say must be tackled in Budget 2018 even though it’s likely be filled with “election goodies” targeted at the ruling coalition’s traditional supporters.

Aid and handouts are important for a significant portion of the population in 2018, but structural reforms to solve issues like youth unemployment and stagnant wages are critical for the country in the next five years.

“It will be timely for Budget 2018 to catalyse the shift towards private sector-led and market-based approaches,” said Dr Yeah Kim Leng of Sunway University’s Business School.

“(This is) to address the stagnant wage, weak employment growth, low productivity and over-dependence on unskilled foreign workers.”

Other issues that experts said the government needs to deal with include being disciplined with how it spends public funds and reducing barriers to business to drive more investment.

Although the government is expected to spend more in 2018 over expectations that revenue will increase, it should not overspend, said Dr Yeah.

“The budget should continue its prudent and disciplined path of fiscal consolidation and deficit reduction as this will ensure sustainable growth, enhanced investor confidence.”

Economist Lee Heng Guie said whatever extra money that is earned should be spent efficiently.

“The government should stay the path of fiscal consolidation to ensure optimal deployment of resources and preserve fiscal stability,” said Mr Lee, who is with the Socio-Economic Research Centre.

“With a broad-based consumption tax (the goods and services tax), the federal government does not suffer from a lack of revenue (so) it’s important not to overspend and to plug leakages,” he added.

This year, the economy grew at a stronger pace after a slump of two years, said Mr Lee, powered by consumer spending, rebound in private investments and a strong surge in exports.

“Real GDP (gross domestic product) growth roared back to expand strongly by 5.7 per cent year-on-year in the first half of 2017.”

This has allowed the overall unemployment rate to remain low at 3.3 per cent.

But the youth unemployment rate hit 10.6 per cent in 2016 and about 23 per cent of university graduates are unemployed, said Mr Lee, which is a worrying figure.

“The youth employability must be tackled both at the supply- and demand-side equations. It is not just a simple mismatch between training and job requirements.”

It is a problem that is closely tied with the rapidly changing technological landscape, the quality and investment in universities and industries’ addiction to cheap, unskilled foreign labour, experts said.

Mr Lee noted that getting more youths back in the job market requires more money and emphasis on technical and vocational education and developing entrepreneurs.

Economist Raja Rasiah of Universiti Malaya said that the government should consider introducing incentives for the creation of a dual-training system like how Germany does it.

The renowned German education system sees vocational schools and small and medium companies work together to produce highly skilled workers for industries. It has been credited for keeping youth unemployment low.

Dr Rajah added that more money should be spent on creating entrepreneurship programmes in public and private universities.

Mr Lee said policies to help companies to invest in the “Fourth Industrial Revolution” will also create new skilled job opportunities.

“The revolution is essentially about ‘smart factories’, leveraging on robotics, digitalised data censoring, the internet of things to reap cost savings in real-time quality control and maintenance.”

This calls for targeted incentives and grants, investment capital allowance and high-tech Industrial Adjustment Fund to facilitate more manufacturers, especially small and medium enterprises to automate and embrace industrial internet, he observed.

Upgrading the country’s industrial base will also help deal with another economic bugbear – addiction to low-skilled foreign workers.

Manufacturing firms need to be pushed more to upgrade their operations so that they relied less on low-skilled foreign workers, Dr Rajah stressed.

Lawmakers such as Mr Liew Chin Tong, said that Malaysia’s unchecked use of low-skilled foreign workers had led to depressed wages for everyone.

“(An) influx of unskilled foreign labour hurts the wages of Malaysians at all levels, not just for labour,” Mr Liew wrote on his blog.

“Since there is abundance of supply of labour, workers have no bargaining power to demand better pay and conditions in the ‘race to the bottom’ for wages.”

The use of less-skilled foreign labour in export-oriented firms has also reduced the pressure on firms to upgrade, said Dr Rajah. THE MALAYSIAN INSIGHT