By Boo Su-Lyn
The Malaysian Insider
October 25, 2010
KUALA LUMPUR, Oct 25 — Putrajaya’s focus on mega construction projects instead of key reforms in its economic plans — symbolised by the 100-storey Warisan Merdeka tower — will hamper the country’s goal of becoming a high-income nation, analysts have said.
They have stressed that economic and institutional reforms to increase market efficiency and human capital development were the crucial elements to lift Malaysia out of its middle-income trap.
“It is not sustainable as we will have first-class infrastructure and facility and third-world work ethics and mentality,” RAM Holdings group chief economist Dr Yeah Kim Leng told The Malaysian Insider.
“The soft part of the development, which is the human capital, will have to take centre stage for the high-income transformation drive to be successful,” he added.
Yeah noted that Prime Minister Datuk Seri Najib Razak’s reform commitments in his New Economic Model (NEM) have been eclipsed by the mega construction projects announced in Budget 2011 and the Economic Transformation Programme (ETP).
The RM5 billion Warisan Merdeka project has been derided by the opposition and ordinary Malaysians online as a wasteful initiative, with an anti-Warisan Merdeka page on Facebook called “1M Malaysians Reject 100-storey Mega Tower” garnering 156,612 fans as at 7am today since the proposal was mooted on October 15.
Budget 2011 that features other projects such as the RM43 billion new KL MRT project and the RM26 billion KL International Financial District has also been denounced by Pakatan Rakyat (PR) as an election budget honed to win votes over resolving fundamental economic issues. Analysts have also criticised it for neglecting key reforms and ignoring plunging foreign direct investment (FDI).
Various projects in the ETP include the “River of Life” Klang River beautification project in the Greater KL region, future 1 Malaysia malls in China and Vietnam, as well as a huge oil storage facility next to Singapore to form a regional oil products trading hub.
“They have overshadowed the reform agenda, which is the more important element of transformation. Without it, we cannot achieve high-growth momentum and sustain high-growth momentum,” said Yeah, adding that the construction projects were merely supposed to jumpstart economic development by stimulating growth in other sectors like the services sector.
Investment in education was needed for long-term progress, analysts said. — Reuters pic
“Once these projects are underway… we should refocus our economic agenda on reforms, regulatory reforms, how we can enhance the business and investment climate to unleash private sector dynamism, entrepreneurship, and raise market efficiency and competitiveness.”
OSK Research head of research Chris Eng echoed Yeah’s views and noted that the government needed to shift its attention to soft infrastructure like education in the future to upgrade the economy.
“In the long run, there needs to be focus on software elements… like education, policies to encourage entrepreneurship and investment,” said Eng.
Political analyst James Chin pointed out that most of the mega projects would not spur the economy as they relied on funds from government-linked companies (GLCs) instead of actual private investors that were meant to drive most of the government’s ambitious projects.
“In all the mega projects, all the private counterparts are GLCs. They are not the real private sector,” said Chin, honing in on the Warisan Merdeka project where government-linked investment corporation Permodalan Nasional Berhad (PNB) said it had sufficient funds to complete the project.
“There is no real FDI (foreign direct investment) and no real money coming in. It is internally-generated money,” he added.
Previously, the Performance Management and Delivery Unit (Pemandu) identified investments worth RM1.38 trillion over 10 years for the ETP, of which 60 per cent would come from the private sector, 32 per cent from GLCs and eight per cent from the government.
The investment aims to double Malaysia’s per capita income and push the country into the ranks of “developed” nations by 2020, rebalancing Asia’s third-most export-driven economy towards domestic demand and the service sector.
Chin, a Monash University professor, called on the government points its attention instead on developing a services and knowledge economy in a bid to achieve Vision 2020.
“It (construction) won’t help us with a high-income economy. Refocus on the services and knowledge economy, like bringing back talented people from overseas,” he said.
Najib had announced in his Budget 2011 speech that a Talent Corporation will be set up early next year to arrest the country’s growing brain drain problem that is threatening his vision of turning Malaysia into a high-income nation by 2020.
About 700,000 Malaysians are currently living abroad, with half of them in Singapore, while the rest can be found mostly in Australia, Britain and the United States.
The number of Malaysian migrants rose by more than 100-fold in a 45-year period, from 9,576 Malaysians in 1960 to 1,489,168 Malaysians in 2005, according to the World Bank.
Political analyst Lim Teck Ghee was similarly critical of Najib’s grandiose construction projects, pointing out that such projects were unsustainable and likely to rack up higher bills than initially estimated.
“Not only are they not sustainable, but so called iconic projects often turn out to be white elephant projects which have massive costs overruns and take much longer to complete,” said Lim, citing the Istana Negara project as an example.
The cost of the new palace project in Jalan Duta has ballooned to more than RM935 million from the RM400 million figure originally announced by the government in 2006.
The Centre for Policy Initiatives director also highlighted several skyscraper projects in Osaka, Japan that failed to draw investors and resulted in massive public bail-outs in 2002.
“There are plenty of examples from cities such as Osaka where three huge skyscraper projects — the Asian Trade Centre, the World Trade Centre and the Minatomachi Distribution Centre — were forced to seek protection from their creditors. The projects also failed to attract investor support and businesses shunned moving into them,” said Lim.