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Perception about Mala-ysia being a successful middle-income country are increasingly being coupled with concerns about its domestic and exte...

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Perception about Mala-ysia being a successful middle-income country are increasingly being coupled with concerns about its domestic and external vulnerabilities. Malaysia’s vulnerabilities arise from competition for FDI and manufacturing from China; for services from some of its neighbouring countries, such as Singapore; inadequate quality and quantity of human resources for moving to higher value-added activities; and from its domestic institutions and political economy which give insufficient emphasis to economic efficiency.Malaysia’s growth has primarily been inputs driven, with saving and investment rates of generally between 30 and 35 percent of GDP, but approaching to 40 per cent in some years.

Malaysia needs to pro-actively develop strategies to protect not just its current areas of strength (e.g. low to medium end manufacturing, tourism, logistics services, Islamic financial centre), but also to develop several new niches (pharmaceuticals, biotechnology, selected defense sectors, organic farming, and IT services and strategic portfolio and direct investments abroad) each generating between 1 to 3 percent of GDP. It also needs to be even-handed in engaging all the major Asian economies, including India. Deeper engagement with India may assist in addressing Malaysia’s vulnerabilities. Malaysia has resources which India needs, while its resource exploitation and management capacity could find profitable avenues in India.

Malaysia has excess capacity in construction sector which it can further utilise in India through competition bidding for infrastructure projects. Greater connectivity between the two countries, and facilitation of movement of natural persons could help use Malaysia’s excellent infrastructure more efficiently, and help develop growth niches, particularly in IT related services.

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Malaysia’ excess domestic savings and given current trends is expected to reach RM 500 billion by middle of next decade, requires investment outlets abroad. Other Southeast Asian countries in a similar situation, such as Singapore, have found India an attractive destination. Malaysia may consider India as an investment destination for some of its excess savings. Incidentally, Thailand’s state investment agency may also find India a profitable destination.

Indian companies are increasing becoming regional and global Malaysia represents an opportunity for investments by Indian companies, particularly in resources intensive areas, pharmaceuticals, biotechnology and IT related activities. Malaysia Industrial Development Authority (MIDA) may consider setting up an office in India to attract investments. MIDA’s Singapore counterpart, Economic Development Board (EDB) is also setting up an office in India for a similar purpose. The above list is far from exhaustive. But it illustrates the argument that there are considerable complementarities between the two countries with many win-win outcomes. The primary constraint in systematically exploring them lies in the mind-set of the Malaysia policymakers and business elite which inexplicably has not demonstrated sufficient urgency in this direction and thereby help lessen Malaysia’s vulnerabilities.

The writer is professor of Public Policy National University of Singapore E-mail: sppasher@nus.edu.sg