Thursday, May 21, 2015

11th Malaysia Plan: Productivity-driven economic growth

KUALA LUMPUR: Economic growth in the five-year plan will be driven by significant increases in productivity as the Government seeks to reduce dependence on inputs from capital and labour.

Under the Government’s plan, it wants to see higher productivity where the contribution of multi-factor productivity to GDP growth is to increase to 40%, while that of capital is expected to reduce to 44% and labour to 16%. (Multi-factor productivity refers to output per unit from a combined set of inputs.)

Higher productivity growth will be achieved through comprehensive initiatives at all levels and championed by industry players.

To raise industrial productivity, there will be greater adoption of automation and upgrading of skills. The innovation ecosystem will be enhanced to elevate productivity through new or improved processes and technologies.

Malaysia Productivity Blueprint

At the national level, the Government will put in place a nation-wide productivity agenda and implementation plan with a five-year Malaysia Productivity Blueprint.

This blueprint will strengthen the governance and institutional mechanism for implementation of productivity strategies and establishing a dedicated national productivity portal.

The blueprint seeks to boost public sector productivity by introducing productivity enhancement key performance indicators (KPIs), accelerating regulatory reforms and rationalising government institutions.

It will encourage up-skilling (teaching new skills) and re-skilling (retraining staff) as well as research through increased industry-academia collaboration, more targeted skills training programmes and increased support for industrial and social innovation activities.

At the industry level, the plan will emphasise on productivity across industries and also draw up industry-level productivity programmes.

At the enterprise level, there will be enterprise-level productivity assessments and targets. This will be achieved by promoting productivity performance targets, introducing firm level interventions, promoting health check mechanisms and fostering a productivity-based culture.

Aggregate demand

On the demand side, real private consumption is expected to increase at an average rate of 6.4% per annum.

Underpinning this growth will be higher household income due to stable labour market conditions, increased employment in high-paying jobs, favourable commodity prices, and continued direct assistance by the government to the targeted groups.

It expects public consumption to grow moderately by 3.7% per annum, in line with greater prudence and commitment to achieve a balanced budget by 2020, without compromising on the quality of public service delivery.

As for the private sector, it will continue to play a significant role to help Malaysia become an advanced economy and inclusive nation.

Private investment is expected to grow at 9.4% per annum, with an average annual investment of RM291bil in current prices.

The plan will promote domestic direct investment (DDI) and FDI. As for DDI, small and medium enterprises (SMEs) will be given special focus as they made up 98.5% of total establishments and 59% of total employment in the economy in 2015.

Efforts to increase FDI will focus on attracting investments in higher value added and knowledge intensive employment activities.

The Government will take on more of a regulatory and facilitative role to raise private investment through targeted strategies such as improving access to financing and improving regulations to be more business-friendly.

To ensure these investment targets are met, the five strategies to be implemented are:

Reducing the cost of doing business through increased provision of basic infrastructure and facilities, and reviewing bureaucratic regulations.

Providing performance-based incentives for high-income and knowledge-intensive economic activities by reviewing the current investment incentive programme.

Addressing the talent gap and mismatch by establishing a labour market data warehouse, improving the labour market clearance mechanism as well as re-skilling and multi-skilling programmes.

Public investment

The plan targets public investment to grow at 2.7% per annum, or an annual average of RM131bil in current prices, driven by the Federal Government development expenditure and capital spending of non-financial public enterprises (NFPEs).

These investments are particularly in the infrastructure, transport, utilities as well as oil and gas industries.

Some of the major public sector projects that will be undertaken, include the Pengerang Integrated Complex (PIC) in Johor; Pan-Borneo Highway; KVMRT Line 2 and the roll-out of the High Speed Broadband project phase 2.

The Government will take steps to sequence project implementation to ensure sustainable economic growth.

Sectoral output

The services sector will continue to be the key driver of growth in the plan. The Government expects growth in the sector to increase significantly by 6.9% per annum and its share to the GDP to rise from 53.8% in 2015 to 56.5% in 2020.

Expectations are that the sector will record broad-based growth across all sub-sectors.

The wholesale and retail subsector will continue to be the main contributor, expanding by 5.8% per annum, supported by strategies to modernise the subsector as well as enhance the efficiency and effectiveness of the supply chain.

As for the real estate and business services sub-sector, growth is expected at 7.9%, followed by the finance and insurance sub-sector by 6.1%.

Manufacturing sector will be given a boost with the production of more complex and diverse products and improving productivity by adopting greater automation and upgrading skills. The sector is expected to record a growth of 5.1% per annum during the Plan period, led by the domestic-oriented subsector, which is expected to increase by 4.4% in line with better business confidence and consumer sentiments.

Key industries that will drive growth are food, beverages and tobacco; fabricated metal products; and machinery and equipment.

Given improvements in external demand, the export-oriented subsector is also expected to expand at 5.5%, including the electrical and electronics, petroleum and chemicals, plastic products, and non-metallic mineral products industries.

The construction sector is estimated to expand by 10.3% per annum during the Plan period. This is attributed to continued civil engineering works and a growing residential sub-sector to fulfil the demand for housing, particularly from the middle-income group.

The Government expects demand for affordable housing by the low-income group will also remain favourable. This will be supported by several Government initiatives, such as Program Perumahan Rakyat 1Malaysia (PR1MA), Rumah Idaman Rakyat and Rumah Mesra Rakyat.

Other subsectors such as civil engineering and non-residential will remain robust in line with the development of major projects such as the Tun Razak Exchange, KL118 Tower, Refinery and Petrochemicals Integrated Development (RAPID), and the Pan-Borneo Highway.

The agriculture sector is projected to expand by 3.5% per annum. Emphasis will be on increasing productivity through the modernisation of the sector, supported by greater innovation and research and development.

Focus will be given to the agro-food subsector to ensure the targeted self-sufficiency level of food commodities, such as rice at 100%, vegetables at 95.1%, and beef at 50% are met by 2020.

The oil palm subsector is expected to expand by 2.8% with an increasing number of matured plantations, particularly in Sabah and Sarawak. The rubber subsector is also estimated to grow by 7.6% due to the expected price recovery.

The mining sector is expected to rebound with a 1.3% growth rate per annum during the Plan period. The production of crude oil and condensates is expected to be at a sustainable level of 612,000 barrels per day, while the production of LNG will increase to 29.3 mtpa with the operation of Train 9 in the Petronas LNG Complex in Bintulu, Sarawak beginning by 2016.

The production of crude oil will be supported by anticipated oil discoveries, and marginal fields as well as revival of mature fields made possible with the adoption of new technologies, such as enhanced oil recovery and improved oil recovery, subject to economic viability.

The production of natural gas is expected to expand further on account of increased demand, particularly from petrochemicals.

Based on 2015 estimates, the reserve life for crude oil will be a further 28 years and for gas 42 years.- Thestaronline

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