Speech by THE HON. DATO DR. AWANG ADEK BIN HUSSIN DEPUTY MINISTER OF FINANCE II At The Malaysia Africa High-Level Knowledge Exchange Seminar Kuala Lumpur, Malaysia. 21 st September 2006 Putrajaya International Convention Center, Putrajaya ------------------------------------------------------------------------------- The Honorable Ministers of Finance from the African and Asian Countries, H.E. Mr Paul Wolfowitz President, The World Bank Excellencies, Ladies and Gentlemen, 1. I am pleased to be here and bid you all a very warm welcome to Malaysia. I like to thank you for taking the time to be with us in Kuala Lumpur, even after a busy schedule in Singapore at the World Bank/IMF Annual Meeting. We are honored that Malaysia is chosen to host this seminar to exchange knowledge and experiences in our respective countries, in our continuous efforts to bring economic
development to our peoples. Thus the theme of today s Seminar Moving from a Natural Resource-Based towards a Developed Economy is apt and timely. We are thankful to the World Bank for suggesting and organizing this seminar, and we believe it augurs well for a stronger South-South cooperation. We also hope that you will all have a pleasant stay in Kuala Lumpur. 2. Tan Sri Nor Mohamed Yaacob, the Second Minister of Finance, has asked me to convey his warmest regards and best wishes as he is required to be in the Parliament at this time to wind up the debate on our own Budget 2007. This annual Budget was tabled for debate in Parliament by the Prime Minister, as the First Minister of Finance, on 1 st September this year. 3. In fact we are very pleased that our 2007 Budget has been well received by virtually all sectors of the economy and all segments of our society. Many have even openly declared that it could easily pass as one of our best Budgets in the history of our country. Among the major initiatives introduced are as follows: 2
i) Progressive reduction in corporate income tax by 2 percentage points from 28% currently to 27% next year and down to 26% in 2008; ii) Extensive tax incentives for the promotion of Islamic Financing activities, especially those carried out in international currencies, in order to continue promote Malaysia as an International Islamic Financial Centre; iii) Various measures to improve the welfare of employees in the Government Sector especially those in lower categories; and iv) the abolition of examination fees for all students in primary and secondary government schools, as well as increasing the scholarships to poor students and those achieving excellent results. 4. In Malaysia, the focus of the Government, among others, has always been on creating a conducive business environment to promote economic growth; improving the standards of education and access by poor students to education; and improving the civil service 3
to enhance government delivery system, in order to ensure that development projects reach the people in a timely manner. 5. We believe now our corporate tax rate is one of the most attractive in the region. On education, the government has religiously allocated 20% of our annual budget on education, come rain or shine, especially when our Prime Minister has now placed the development of our human resources top on the agenda in our development strategy towards achieving our Vision 2020, i.e, for Malaysia to attain developed country status by then. Similarly, the efforts on improving the government delivery system has been redoubled. While our civil service has been recognized as one of the more effective in implementing development policies of the Government in the past, the Government has recently set up the National Implementation Task Force (NITF), headed by the Prime Minister himself, to ensure all projects identified for implementation in our 9 th Malaysia Plan, covering the period 2006-2010, will be implemented speedily without delay. The Task Force has been meeting every two weeks, monitoring project implementation and resolving ongoing issues which may arise. The Government has allocated RM220 billion or 4
USD61 billion for development expenditure over the next five-year Plan period, compared with an amount of RM170 billion or USD47.2 billion in the 8 th Malaysia Plan. Excellencies, Ladies and gentlemen, 6. Malaysia has come a long way since Independence in 1957. At that time, 75% of our population was under poverty. 80% of our economy was based on two commodities, namely tin and rubber. We were not a banana republic, but we were not far better. And many would not expect us to make it as a country, as we were, and still are, a multiracial, multi religious and multi-cultural country. There were too many divides, imbalances and disparities among races, communities, regions and states. While we had to maintain national unity and bring about economic change and develop the country, we were confronted and tested fully by communist insurgencies, which went on for several decades after independence. Despite these challenges we endured successfully, and we had hoped the trickle down effects of our market economy would overcome the numerous 5
imbalances and disparities which existed. But that was not to be. The glaring imbalances finally caved in and sparked racial riots in May 1969. It killed many people, pushed economic development many years backward, and brought the country into Emergency rule in place of democracy. As a nation we were on the verge of losing everything. 7. In our effort to regroup and restart the economy, it was clear to all that economic growth alone was not sufficient. The wealth of nation must not only be created, but must also be distributed to a wider population. The trickle down effects were too slow and too little. In Malaysia, the Government decided to take the bull by the horns, when it introduced the New Economic Policy in 1970. Underlining this policy was a deliberate move to pursue the policy strategy of growth with equity. The objectives of The New Economic Policy or NEP was two-pronged: to eradicate poverty irrespective of race, and to restructure the Malaysian society so that no single race can be identified largely by their professional and economic functions. At that time, the Malays and other indigenous people known as the Bumiputera were mainly in the rural areas, 6
involved mainly in the agricultural sector, as well as in the civil service; the Chinese were predominantly in business and modern professions; and the Indians in estates and as professionals. 8. The measures to eradicate poverty were many and varied. The opening up of new agricultural land through FELDA and rehabilitation of idle land through FELCRA have been extremely successful. This was closest to land reform in Malaysia as landless farmers were given land to work on, in the FELDA Scheme, and now the monthly income of FELDA settlers averages USD978.00 per month for rubbers smallholders, and USD352.00 per month for oil palm. But the most significant measure perhaps was through education, as a means to bring out the children of the poor from inherited poverty. This was done through various aids extended to poor students in primary and secondary schools, such as free text books, free breakfast to students to ensure their stomachs are not empty when they try to follow lessons in school, and free school uniforms as well as scholarships for poor students. For good students, they were selected to study in boarding schools set up by the Government all over the country, with modern facilities and proper environment to 7
excel in theirs studies. For students who obtained excellent results, many were sponsored to study overseas in sciences, engineering and medicine. Thousands were sent abroad every year since the 70s, and when they returned they were able to hold good positions in both the government and private sectors, not only placing them above the poverty line, but they subsequently helped their families especially brothers and sisters to get better education to likewise come out of poverty. I am tempted to admit that I was one among the many who benefited from this policy on education, as I came from a poor fishing family in a remote fishing village in Kelantan. I managed to get a place in a government boarding school, and subsequently obtained scholarships to study in the United States for my first degree, Masters Degree and finally a PhD in economics from the University of Pennsylvania in Philadelphia. Probably not many countries exist anywhere, where so many children of the poor have been so fortunate and so well taken care of by the Government to improve themselves through education, and they in turn worked and served in the country with full dedication, to make it a better place for all, including the less unfortunate that came after them. 8
9. I should also mention another successful programme to help the poor, at the same time helping the Bumiputera group to participate in the corporate sector, which is through the National Unit Trust Scheme. The Government set up a National Unit Trust Corporation (known as PNB) to mobilize savings from Bumiputera to be invested in various Unit Trust Schemes managed by this Corporation, with the total fund today amounting to RM46 billion or USD13 billion. The Corporation in turn invests these savings in the shares of listed companies, and gives returns to unit trust holders by way of dividends. When a company lists its shares on the stocks exchange, as part of the NEP, 30% of the shares to be listed are required to be held by Bumiputera, including by the Unit Trust Corporation I mentioned earlier, holding in trust for the Bumiputera through the unit trust schemes. In the 1970s until the Asian Financial Crisis 1997, the share prices had gone up substantially and the dividends given to unit trust investors were very attractive, benefiting the poor and Bumiputera investors a great deal. This at the same time brought greater number of Bumiputera into the main stream economy, and became more familiar and involved with the finance 9
industry in the country, as investors, employees or even operators of finance related companies. 10. The government had even introduced a special unit trust scheme for the hard core poor. Each selected poor family was given a loan by the government of RM5,000 to buy unit trust for investment through Unit Trust Corporation. Dividends paid annually were deducted in part towards settlement of the loan, and the balance amount is given back to the hard-core family as dividend for them to supplement their income. Of course the family cannot redeem the Unit Trust before the loan is paid off fully. 11. Through education and other measures the government has been able to reduce poverty from almost 50% in 1970 to about 5% at present. Hard core poverty is now only 1%. The Government has made it clear in the 9 th Malaysia Plan, it intends to eradicate hardcore poverty by the year 2010, and reduce the overall rate of poverty by half during the same period. 10
12. In terms of the restructuring of society the success has been equally encouraging. In 1970 the Bumiputera holding of corporate equity in the country was a mere 2%. Today it amounts close to 20%. While this falls short of the 30% target set out in the NEP, the Government has restated the objective to achieve the 30% target by the year 2020. At the same time, Malaysians of all races are better represented across all professions in the country, although in some areas improvements must continue to be made. Furthermore, the size of the middle class has increase substantially from 1.2% of the total households in 1970 to almost 40% in 2004. 13. Perhaps because of the NEP and liberal Government policy, social mobility has been a strong point for Malaysia. The poor and less fortunate can dream to be successful and many have succeeded. The women in the country can be as successful as men, be it in the government sector or out there in the market place. There is no barrier to gender mobility and certainly no glass ceiling. Malaysia has benefited a great deal from this half of the population, working productively in various sectors of the economy, hand in hand with the men, and they are not marginalized to the informal sector as 11
happened in some countries. Ministers, Secretaries General of Ministries, senior government officials, company managers and professionals, indeed many of them are women.. The female labour force participation rate in Malaysia rose to 45.7% in 2005. Moreover 60% of the students in Malaysian universities today are women. Ladies and Gentlemen, 14. Overall, the NEP has done well for Malaysia. The sharing of economic cake by major races in the country has become more evident. Economic growth during the NEP period 1970-1990 averaged close to 7% a year in real terms. Inflation has always been under control at around 3% annually. The balance of payments has traditionally been strong, with international reserves amounting to US75 billion today, enough to sustain 7 months of retained imports. The exchange control regime put in place during the Asian financial crisis has been uplifted. The ringgit has since appreciated against major currency. Fiscal deficit is low at 3.5% today and the country never fails to record operating surplus every year. Government financial discipline has always been another hallmark of our public 12
policy. Our external debt is less than 10% of the total federal debt, and much of the new borrowing is sourced domestically, facilitated by the ample liquidity situation in the country currently. 15. Our economy too has undergone substantial structural change for the better. From a near banana republic at the time of independence it is more much diversified now. Our major exports comprise manufactured goods 81.6 %(including electronic, electrical machinery, and appliances 53% and chemical 14%), palm oil 6 %, and crude oil and gas 9.6 %. International trade represents 240% of GNP, and Malaysia is now the 18 th largest trading nation in the world. The quality of life has likewise improved with the average life span increasing to 71 years for men and 76 years for women. Literacy rate has gone up to more than 95% compared with 85.0% in 1991 and 76.0% in the year 1980. The country s per capita income, adjusted for purchasing power parity, has exceeded USD11,000. 16. There are certainly many factors, which contributed to the success of the Malaysian experience. It will be impossible to list out all of them. But among the major ones must necessarily include the 13
ability of the country to remain peaceful and stable, which formed the very foundation upon which the economy can growth and prosper. Political stability has always been preserved, as evident by the fact that the same political party has been in power since independence. Malaysia has been blessed with capable leaders and Prime Ministers who have been consistently and totally committed to bringing about economic development and improvement in the welfare of the people. Equally important is the wisdom of political leaders representing the ruling parties in the National Coalition Front, to work together and resolve amicably whatever political problems that arise from time to time to ensure political stability remains intact and development agenda vigorously pursued. There have been political problems in the past confronting various political parties at different times in our history. But in the end, the interest of the country, the welfare of the people and the unity of the party prevailed, brought to bear by the wisdom of the leaders and strong sense of loyalty by the people. None of these political problems could not be resolved in the past, and with such outstanding track record and cumulative wisdom, I am sure whatever exists today will be addressed and overcome successfully by the present leadership. 14
17. Finally, on the economic front, Malaysia will continue to work doubly hard to ensure its competitive edge will be maintained, and even enhanced, in the face of increasing global and regional competition. Malaysia has successfully been able to attract foreign investment in large numbers, which helped to drive the manufacturing sector especially in the earlier years. On average, FDI has contribute 30-40% of the total investment in the country annually. While this will continue to be welcome, Malaysian companies too are encouraged to go out and operate in the global and regional markets. Domestically, new growth areas have been identified in modern agriculture, biotechnology, ICT, biodiesel fuel, R&D activities and halal industry. The economic structure is expected to change further into greater depth in the services sector, as well as into higher value-added manufacturing activities. Malaysia s leading position in Islamic finance, ICT development through multi media super corridor, and Halal Hub will be more aggressively promoted. All these policies, strategies ad programmes will be supported by a strong policy push on education and training, towards generating enough qualified and skilled manpower to meet the rising and diverse demands of industry, 15
particularly in technical and professional areas. The policy on human resource development could well hold the key to the ability of the country to achieve fully its Vision 2020. On that note, I wish everyone a fruitful seminar. Thank you. Ministry of Finance Malaysia, Putrajaya 21 st September 2006 16