(Jan 14): The peaceful revolution by the people through the ballot box, which threw out a 61-year-old governing party on May 9, 2018, means different things to different people.
For me, it was an immediate relief. Relief in the knowledge that had it been otherwise, my life would be more miserable with more intimidation and threats and we were already warned that The Edge might be closed down.
For others, they may have voted against Barisan Nasional (BN) out of anger, or a desire to improve their lives, on issues of governance, fairness and freedom, against corruption and many other reasons.
And many may now feel entitled that their reasons for voting for the change in government should now be addressed. This will inevitably lead to conflicting demands and disappointments.
To mitigate the above risks, it may be useful for us to consider Maslow’s Hierarchy of Needs in terms of prioritising what needs to be urgently addressed and what could perhaps be deferred.
Personally, I believe the imposition of the Goods and Services Tax did the most damage to BN. It was the manifestation of the pain imposed on the people, made necessary by the mismanagement and theft of the country’s resources by the then ruling party, as exemplified by 1Malaysia Development Bhd (1MDB).
Many may not fully understand 1MDB, but they understood “theft” and the resulting hardship it caused the people when funds and resources had to be directed to cover-up these losses. Their anger was compounded by the publicity given to how the stolen money was lavishly spent.
Herein lies, perhaps, the prescription of how the country should proceed to meet the various and diverse needs and aspirations of the people, in line with Maslow’s Hierarchy of Needs.
The most basic and fundamental is the physiological needs for human survival, of food, shelter and clothing. Next is safety, security, law and order, and freedom from fear. This is followed by the need for interpersonal relationships of friendship, trust, acceptance and family. Then comes the need for esteem, respect, recognition and freedom. And finally self-actualisation of the desire to become the most one can be.
The first necessary step for the Pakatan Harapan (PH) government to take is to create jobs and lower the cost of living.
How can it be done?
Since 1960, the economic growth of Malaysia can be roughly broken up into four stages (see Chart 1).
From 1960 to 1980, the drivers of growth were investments into infrastructure and commodities. From 1980 to 2000, growth was led by investments in manufacturing, which resulted in industrialisation and urbanisation. The country benefited from a commodity price boom from 2000 to 2008.
Finally, government spending and private sector consumption were the main drivers of economic growth from 2008 to 2017. This resulted in fiscal debt already in excess of RM1 trillion ($329.7 billion) while household debt has also risen significantly. What this means is that many of the levers of growth have been exhausted.
Net exports (as a percentage of GDP) have also been falling, with imports growing at a faster rate than exports. A comprehensive analysis is necessary to understand and reverse this trend.
A look at the major export components provides a quick perspective. Exports of electrical and electronic goods, liquefied natural gas and palm oil have all stagnated. While overall exports of manufactured goods have risen slightly, some sub-sectors have contracted, such as wood products, furniture, textiles and wearing apparel.
It is natural that old sectors may decline over time. But new industries must be found, supported and encouraged by the government. What are these industries? Competitive advantages are rarely natural but require a concerted effort to identify and execute, by both the private and public sectors.
My hypothesis is that these areas are likely to be in digital technologies, the food industry (especially halal food), tourism and leisure, renewable energy, packaging industries, mobility and certain new commodities such as coconuts. And I am sure there are many more possibilities.
Surely, job opportunities are going to be challenging with declining net exports caused by stagnating manufacturing and commodities sectors, which in turn is related to the relatively weak growth in loans to the private sector to fund investments (see Chart 2).
More and better paying jobs are only going to be available if the private sector makes the necessary investments. The government can help with the right incentives and regulatory frameworks to allow the marketplace to operate competitively and innovatively and to facilitate change.
The government-linked investment companies can help too. Here is where I believe is the true role of the GLICs — to be the catalyst for and to help crystalise these new investments and industries. Holding major stakes in and running companies that compete directly with the private sector only serves to crowd out the private sector and discourage new investments.
Besides better employment opportunities to improve the lives of the people, it is also necessary to reduce the cost of living.
For Malaysians earning above RM10,000 a month, their average monthly savings is around RM250. This drops to below RM100 a month for those with incomes of between RM4,000 and RM10,000 monthly. Savings fall further, to just about RM40 a month for those with incomes below RM4,000 a month. These are numbers according to the Department of Statistics Malaysia.
It is shocking that discretionary income in Malaysia is this low. Why is it so? It is because household debt is high, especially since 2008.
About 40% of disposable incomes are used to service loans for homes and vehicles (see Chart 3). Another 35% or so goes to food.
To address the cost of living, therefore, we need to focus on these three areas.
How can we reduce the costs of housing, transportation and food?
I believe the answer lies in driving supply-side changes using digital technologies. That is, we need to digitalise the economy, which will result in deleveraging the household through the co-sharing and subscription models. This will, in turn, reduce the cost of borrowings and effectively give each household a major boost in discretionary income.
These savings will either increase our national savings rate (which has fallen from 40% to 30% since 2008) or stimulate demand and economic growth.
It is in the above context that EdgeProp Sdn Bhd recently launched the FundMyHome solution. Homeowners only need to pay 20% to fully own and use their homes. The balance of 80% is funded by investors, in return for a share of the eventual capital gains (much like Islamic financing). As there is no loan involved, homeowners have no mortgages or interest costs to pay.
Similarly, I believe increasing the application of digital technologies into other aspects of our everyday life can help reduce the cost of mobility and food. For example, Grab recently introduced a monthly subscription for frequent users of its rides and food delivery services, which offers savings of up to 55%.
If we raise the utilisation rate and efficiency of our transport and logistics assets through digitalisation, costs will fall and the result is lower fares for users. When that happens, the cost of living drops, leaving the people with higher disposable incomes, even if their wages do not go up or go up by a little.
A clear blueprint on digitalising the important pillars of the economy must be quickly put in place by the PH government or it could end up disappointing those who have high hopes that their lives will improve after May 9.
Tong Kooi Ong is chairman of The Edge Media Group, which owns The Edge Singapore. This story appears in The Edge Singapore (Issue 864, week of Jan 14) which is on sale now. Subscribe here
