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Taking the right next step

Written by Carmelo Ferlito, Senior Fellow of IDEAS

First published in The Edge on 18th of May 2020

Implemented to stop the spread of Covid-19, lockdown policies around the world are beginning to show their costs in terms of GDP and job losses. The table summarises some data from Asia and the rest of the world with reference to the first quarter of 2020.

We know that these figures are translated into unemployment jumps. In April, unemployment in the US surged to 14.7% from 4.4% in March. For Malaysia, we do not have the April numbers, but in March, unemployment rose to 3.9% from 3.3%, which means that around 100,000 jobs were lost.

This is all the more significant if we consider that the Movement Control Order (MCO) was implemented only on March 18 and we do not have the number of people forced to take unpaid leave. It is now time for a serious analysis of the trade-offs, and the implementation of different strategies in order to avoid making the wrong decisions. The answer does not need to be the same everywhere in the world — different situations require different answers.

We know that in Malaysia, like in the rest of Southeast Asia, the spread of Covid-19 is limited and the death toll very low, compared with the Western world. In Southeast Asia, those who died from the coronavirus account for about 0.0003% of the population and 0.66% of the total deaths worldwide. The region accounts for almost 10% of the world population.

In this scenario, and with the realisation that we need to move away from a supply chain that is too dependent on China, Southeast Asia is well placed to play a leading role in the post-coronavirus world. However, such an opportunity will not materialise by itself; it needs to be guided.

From May 4, the Malaysian economy was allowed to open to a certain degree. However, a sound exit strategy needs to take into consideration a few important elements. First, the economy is not frozen food; you cannot simply put it away and defrost it when you need it. The partial shutdown caused some businesses to close for good and this means that the capital utilised (financial, human and physical) was lost and cannot straight away be employed in different capacities. This also means that human lives were heavily impacted by job losses.

The second important fact is that the economy is not one-sided: you cannot simply restart production hoping that the system will get back on track. Goods are produced to be consumed but in order for the people to consume them, we need to ensure that people start earning money again; people are allowed to go out and spend their money; and people are confident and optimistic enough to spend their money.

This leads to the third point: the importance of confidence and expectations. The climate of fear that some policy announcements and some media are feeding is not good for consumption, nor for investment. We know from the business community that under the new conditional MCO, the implementation of standard operating procedures (SOP) is not easy and the relevant institutions often communicate conflicting messages.

For example, the authorities have threatened business owners with jail for not complying with SOP and shutdown of firms where a worker is found positive for Covid-19 (as if the virus is only transmitted at work). Who would want to take the risk of running a business within this institutional scenario?

The same goes for consumption, which cannot restart under the authorities’ constant and pressing requests of “going out only if strictly necessary”. The reopening of businesses and partial freedom of movement will not produce the expected results if the general climate and communication strategy remain unchanged. Economic distress will persist if there continues to be lack of confidence and trust.

Other countries, such as Indonesia and Thailand, are using a different strategy that is aimed at creating trust. Thailand, for example, is discussing the reopening of all activities, including tourism. No decision has been made but, at least, the discussion is on the table. More aggressive, Indonesia is discussing how to ease the conditions for foreign direct investment and expatriate workers and launching important economic initiatives such as the Central Java Economic Corridor and the Brebes Industrial Estate, which are designed to attract those businesses that are seeking a better destination after leaving China in light of the Covid-19 outbreak and the trade war between the US and the republic.

Where does Malaysia stand in this struggle for the future? Targeting foreign workers during the coronavirus emergency, for example, may risk increasing labour costs in the future. Threatening businesses with shutdown can push multinational companies (MNCs) to move elsewhere. The good results in fighting the virus, in which the strong healthcare system played a very important role, will be for naught if Malaysia is no longer seen as a business-friendly country and an attractive destination for investment. Job losses, firms closing down, MNCs’ relocation and depressed oil prices are not good for the government’s revenue too.

Malaysia needs to take its next steps very carefully; competition from neighbouring countries is growing and this is not the time to rest on its laurels.

2020-05-27T16:31:07+08:00 20th May 2020|Opinion|Comments Off on Taking the right next step