Manufacturing sector needs new master plan to enhance competitiveness
30 Dec 2020
By Tan Sri Dr. Sulaiman Mahbob
Manufacturing will continue to be a major source of output increases and diversification in many emerging economies, Malaysia included. But this sector has begun to decline in its importance to total employment and output, estimated at 22 per cent of the gross domestic product compared with about 28 per cent a decade ago.
Researchers say this “premature deindustrialisation” is taking place too early as our per capita income is about US$10,000. Our economy has not moved into technology-intensive industrialisation, while our services have yet to be export-oriented.
In part, this was because our labour-intensive industrialisation strategy may have reached its limit of comparative advantage, implying that we have to develop new strategies based on competitive advantage. The latter was mooted by Michael Porter about two decades ago.
Another idea recently suggested by economists was that countries like ours should no longer rely on import substitution and export-oriented industrialisation, but move towards open economy industrialisation based on global competitiveness and market-based competition.
Malaysia’s prime mover for industrialisation, the Malaysian Investment Development Authority (Mida), will have to work out different strategies now if Malaysia is to become attractive to new industrial location possibilities, after the United States-China trade tension and the Covid-19 pandemic. Choosing technology-based and globally competitive firms for this country is the only way for further economic restructuring, which will release us from the middle-income trap.
Malaysia may have to offer a different set of industrial incentives for technology-based industries, including those related to the digital economy, in the forthcoming 12th Malaysia Plan document to be released early next year. What new incentives can be promised by Mida must be announced in the plan.
For a start, Mida chairman Datuk Majid Khan must work with state governments, requesting them to offer a new set of strong state-based incentives over and above the traditional incentives offered by it in the past decades. Sarawak, Sabah, Johor, Pahang, Selangor and Penang can offer more incentives based on their resource potentials, such as land, energy, water, forestry and human resources, as well as institutional infrastructure. These, if added to Mida’s traditional offers, can be far-reaching in attracting many industries in search of new locations.
Government-linked companies must promise more attractive utility support and other new assistance during these trying times.
These, in combination with what Mida has to offer, will boost Malaysia’s attractiveness as an investment hub during the 12th plan period. In this regard, we have to think of extraordinary strategies in this unusual time. The long-term economic interest of the nation must prevail.
Having got a new set of strategic incentives, Majid must be authorised to negotiate with the industries for him to make offers directly to them, including their potential locations and new immigration-related measures befitting the new industries we aim to attract. Majid has to act fast, and we all need to support him.
The news that a few internationally renowned firms bypassing
Malaysia in favour of neighbouring countries may not be a surprise. Those
may have special incentives which we do not have as yet. Let us design targeted special incentives to enable them to come to our shore.
In fairness to Mida, it did commit many high-tech industries to locate their new investments here. These include international firms such as Smith and Nephew, Bruker Corp, LAM Research, Devcom, and Ultra Clean Holdings, Bosch, B. Braun, and Eppendorf.
A core of related firms can be developed to create a new cluster of industries through interfirm linkages. Our experiences in this networking and alliances can be further promoted. In Penang, the initial success in developing electronics-based industrialisation was due to the success of the state leadership in following the strategy of building its competitive advantage based on the industrial cluster approach of the second industrial master plan initiated in 1995.
Lest I am late, let me suggest that the forthcoming 12th Malaysia Plan recommends the formulation of a new long-term industrial master plan to overcome the structural weakness of our industries, namely a smaller value-addition contribution to the economic growth notwithstanding the large volume of manufacturing exports and imports.
The writer is adjunct professor at INPUMA, Universiti Malaya, and also at USM and Unirazak