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IDEAS: COVID-19 as a wake-up call to revive economic competitiveness or risk losing out

  • IDEAS organised the 3rd Kuala Lumpur Roundtable (KLR) today to discuss policy choices for Malaysia’s recovery.
  • Malaysia’s high regional supply chain integration enables it to become a regional manufacturing hub for high-tech sectors, boosting long-term industrial development and upgrading.
  • IDEAS recommends that the government should support measures to enhance MNC-SME linkages so that SMEs can transition out of low-value adding activities.
  • Members of the Roundtable highlighted policies to aid in attracting FDI as part of the recovery: better targeting of tax incentives, a sustainable, gradual plan to reduce foreign labour dependence and promote skills and digitalisation, and trade liberalisation, including CPTPP and RCEP ratification.
  • The Roundtable also highlighted that a clear, transparent political process is needed to support good policy-making for the COVID-19 recovery.

Kuala Lumpur, 15 September 2020 The Institute for Democracy and Economic Affairs (IDEAS) hosted the 3rd Kuala Lumpur Roundtable (KLR), attended by several prominent figures in Malaysia’s policy, economic and corporate circles. Given Malaysia’s relative success on the public health front, the discussion centred around Malaysia’s long-term COVID-19 economic recovery strategy, in conjunction with the recent release of IDEAS’ new briefing paper titled “COVID-19 Recovery Strategy: Malaysia as a Regional Manufacturing Hub”.

The paper, co-authored by Lau Zheng Zhou and Natasha Tan, encourages Malaysia to revisit its macroeconomic principles and priorities for post-COVID growth and development. This is especially timely given the current supply-chain relocations, with many firms considering relocating their production hubs, especially to the ASEAN region. Due to Malaysia’s deep integration into existing global and regional supply chain participation, the country is in a good position to attract these FDI flows.

In light of these supply-chain reconfigurations, alongside our competitiveness in specific sub-sectors and relative success in flattening the COVID-19 curve, members of the Roundtable urge the government to take advantage of this window of opportunity to attract much-needed FDI.

Commenting on this issue, Research Manager of IDEAS, Lau, states that “Malaysia should prioritise the development of regionally competitive, high-technology sub-sectors, as attracting FDI in these industries will help form the basis for our long-term development and industrial upgrading. However, investment incentives alone will not be sufficient. We should prioritise a ‘race to the top’ approach in encouraging foreign investment, through fostering good institutions and developing physical and human capital.”

In order to adopt the role of a regional manufacturing hub, there should be a greater domestic focus on nurturing a sophisticated domestic industrial ecosystem in strategic sub-sectors. Yet the lack of compatible SMEs in these industries remains an issue, highlighting the importance of SME upgrading and realignment to better meet the needs of relocating MNCs. The government should continue to support SMEs in transitioning out of low-value adding activities, to better facilitate the creation of a sophisticated supply network.

In addition, the briefing paper draws attention to the weak linkages between MNCs and domestic SMEs. Strengthening the partnership between both types of firms will maximise the spill-over benefits from FDI—including knowledge and technological diffusion—enabling SME supplier firms to increase their competitiveness and resilience.

The KLR members highlighted key action items to achieve this FDI-driven recovery, namely, more explicit targeting of tax incentives, a sustainable, gradual plan to reduce dependence on foreign labour and promote skills and digitalisation, and trade liberalisation, including ratification of the CPTPP and RCEP. The KLR also highlighted that the clarity and transparency of political processes would need to form the foundation for policymaking that can achieve meaningful reform.

CEO of IDEAS, Tricia Yeoh, comments “Malaysia has an opportunity to demonstrate and enhance its economic competitiveness. This will require making the right policy choices on trade and investment, but also deepening and strengthening the institutional framework for policymaking.”

To download the paper, please head to https://bit.ly/recoverystrategy.

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For media enquiries, please contact Lau Zheng Zhou at lau@ideas.org.my.

2020-09-18T08:37:01+08:00 15th September 2020|Media Statements|Comments Off on IDEAS: COVID-19 as a wake-up call to revive economic competitiveness or risk losing out