Readers have recently been flooded with news on the East Coast Economic Region (ECER) recently – over radio, television and the newspapers. Some of the claims made for what is possibly the most ambitious development project packaged for the country are the following:
- The implementation of 189 projects with an estimated value of RM112 billion to be carried out between now and 2020
- Improvement in the quality of life for 3.9 million people (2005 data) or 15% of the country’s total population
- Eradication of hard core poverty by 2010
- Enabling the economy to move up the value chain
- Raising the capacity for knowledge and innovation and inculcating a “first class??? mentality
- Addressing persistent socio-economic inequalities constructively and productively
- Strengthening the institutional and implementation capacity
Projected growth under the ECER Master Plan is listed as
| 2005 |
2020 | |
| GDP Growth (%) | 5.7 |
7.2 |
| GDP Growth (in RM billion) | 23.1 | 65.9 |
| Average monthly household income (RM) | 5,860 | 13,510 |
| Projected number of New Jobs Created | 560,000 | |
| Total Population | 3.9 mill | 4.9 mill |
To enable it to accomplish its mission, the transformation of the ECER into a fully developed region by 2020 is to be defined by three main characteristics: distinctive, dynamic and competitive.
Getting away from the nice rhetoric, the beautiful graphics and the impressive statistics found in the promotional materials advertising the ECER, how realistic are these objectives? Can the Prime Minister’s vision of “a world class economic region and a choice destination for investment, work and quality of life??? materialize? Or is it just a pipe dream that is being sold to the Malaysian public?
Firstly, let’s look at the figures of growth. We have seen that Malaysia has entered into an era of low growth despite the Government’s optimistic projections of a high growth rate. This low growth rate was already evident even before the arrival of the global financial crisis in the last quarter of 2008. Between 2000 and 2005, the average annual real GDP growth rate was only 4.5, and had increased marginally to 6.1 percent in 2006-2007. This slower growth rate will certainly carry forward from 2009 to part of 2010 at the very least.
As for the period after 2010, all the figures on growth are simply guesstimates. There is simply no way anyone can predict the extent of recovery in the global economy after 2010. Even if that recovery takes place, there is little agreement on whether the global economy can return to an era of continued long-term growth or whether we will see further stagnation or a series of sharp upturns and downturns in the next decade.
Whoever has done the calculations for the Government on the ECER’s targets of GDP growth, income increase, job creation, etc. should have added the important caveat – this is, that the high growth rate calculation and the other positive outcomes are based on the best case scenario both internationally and nationally. Also that this crystal ball gazing exercise is based on a whole lot of unsupported assumptions that could very well go horribly wrong.
Now, let us look closely at the other unstated assumptions in the ECER’s ambitious target. For now, the Government has allocated $2.6 billion under the mid-term review of the 9th Malaysia Plan for some 78 projects. Depending on the state of public finances, it will also invest substantial sums in the ECER during the 10th and 11th Malaysia Plan.
But there is a limit to what the Government can squeeze from the public treasury. The country is already running a large budget deficit of over 7% in 2009 which is more than two times the average deficit figure of 3% in the past seven years. With oil revenues expected to stagnate if not decline in the future, it is difficult to see how the public share of investment can comprise the major or even a substantial proportion of the estimated RM112 billion total investment worth of projects expected to be carried out in the next 11 years.
Already, soon after the ECER was rolled out, the Government was forced to announce a mandatory 15% cut in the government’s operating expenditure which is to begin next year.
The main driver of the projected growth has to be private investment capital. But recent trends have seen private investment in Malaysia also slowing down noticeably, with many foreign and local investors preferring to take their money out of the country to invest in other countries where they can obtain a higher rate of return on their capital.
Perhaps the recent corporate equity reforms announced by the Prime Minister may restore some of the confidence that foreign and local investors in Malaysia have lost in the country. But even if that confidence returns, it is difficult to see how the private flow of investment capital can reach the extremely ambitious total targeted for ECER.
There is another critical constraint to realizing the ECER dream. This is the issue of the human capital stock found in the region. Investors and businesses are not going to move in unless there are skilled workers to man their factories and plants.
The core of the ECER is the Special Economic Zone, patterned along the lines of similar zones in China. It is to be a concentration of “high impact projects within an integrated development zone … of high technology, knowledge based industries and the service sector’. This SEZ is expected to produce 50% of all jobs and 80% of the output of the ECER.
And who will produce the skilled workers? Twelve Centres of Excellence will be established, including
- the Centre for Industry-Academia Collaboration
- Regional Centre for Halal Products
- Centre for Innovativeness and Product Creativity
- Centre for Biotechnology and Herbal Research
- Biodegradable Products and Biofuel Research Centre
- Skills Training and Accreditation and Certification Centre for Wood Based Products.
All these centers — with impressive names — appear to be entirely public sector institutions. Located in the public universities, they are part of the old NEP institutional framework emphasizing Bumiputera human resource development with very little evidence of private sector involvement. This could be a recipe for disaster.
There is a real doubt that this approach in generating the human capital resources needed to carry out the transformation of the East Coast states can meet the key criteria of relevance and quality.
In the worst case scenario, we may see a recurrence of the same problem that we are presently witnessing in relation to many graduates trained in the public universities and their associated agencies — a failure to meet the standards and requirement of the labour market.
In some countries, it is often the public sector institutions and civil servants set up to facilitate in development work that turn out to be the main beneficiaries of the public expenditure rather than the population that is being targeted. This happens when they use up for themselves or divert into other hidden agendas much of the resources that should go towards the important work of empowering the poor.
This problem is compounded by leakages through inefficient or corrupt practices. Hence, so-called incubation centres become transformed into parasitic centres. There is a Malay expression that succinctly expresses this phenomenon — ‘Harapkan pagar, pagar makan padi’. Hopefully this will not happen in ECER.
Note: This article is a revised version of one that first appeared in the ‘Red Tomato’ Chinese magazine on Aug 14, 2009.