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Malaysia needs to intensify

investment in human capital
Kamarul Anwar / The Edge Financial Daily
(/author/Kamarul Anwar) (/source/The Edge Financial Daily) April 18, 2016 10:18 am MYT

This article rst appeared in The Edge Financial Daily, on April 18, 2016.

KUALA LUMPUR: With the Asean Economic Community (AEC) coming

online this year, Malaysia needs to have a stronger political will to move the
workforce up the value chain by attracting more quality investments, given
that any of this regions countries can be a home base to produce goods and
services for 600 million consumers in Asean.
 A continuous economic expansion has
lent force to the country as it pounds on
the glass ceiling in attempt to break into
the pantheons of developed economies.
With cost of doing business here already
higher than many other developing
markets, economists say that Malaysia
has to invest in its workforces
betterment, when indicators show that
its skills still leave a lot to be desired for.

The fact that Malaysia has higher

ination relative to thePhilippines,
Thailand, Vietnam or Singapore, if this
persists, is going to be bad. Its making the country less competitive over
time, said Mauro F Guilln, the Zandman Professor of International
Management at the Wharton School of the University of Pennsylvania and
director of the Joseph H Lauder Institute. What Malaysia needs to do is to
attract higher value-added investments. How do you do that? You have to
invest in infrastructure and education. [If I were Malaysias policymaker], I
wouldnt compete with Vietnam necessarily.

The 10-member-country AEC has the intention of creating a single market

for Asean, where movements of goods, services and high-skilled labours will
be liberalised within this region. Since it was mooted in 2003, many member
countries have shown concerns that the trade pact will be a zero-sum game
for certain countries, instead of enjoying a collective growth.

Why Guilln singled out Vietnam was because the country is often called a
rising star in the Asean region. Although its gross domestic product per
capita of US$2,052.30 in 2014 was less than one-fth of Malaysias, he said
that this country should not rest on its laurels or risk playing catch-up with
Vietnam rather than the current developed economies later on.
Foreign direct investment (FDI) in Malaysia often edged its Asean member
countries, sans Singapore and Indonesia, where World Bank data showed
Malaysia was the recipient of an average inow of US$11.48 billion between
2011 and 2014. The non-Singapore Asean countries, on the other hand,
averaged in the range of US$289.12 million and US$22.85 billion.

(Singapores FDI averaged at US$59.24 billion in the same period.)

But Malaysias labour market, which the government even admitted, was still
disappointing. First of all, the percentage of high-skilled workers making up
the countrys workforce, at 25.2% in 2014, was far lower than the top 10
countries with the largest shares.

Luxembourg, which ranked number one last year, had 59.6% of its employees
categorised as high-skilled, while New Zealand, which sat at number 10, had
47.4%. Neighbour Singapore had the second biggest percentage of high-
skilled workers relative to its workforce, at 54.7%, based on the World
Economic Forums Human Capital Report 2015.

Malaysia expects high-skilled vocations to jump by nearly 10 percentage

points to meet employers needs in 2020. But according to the Economic
Report 2015/16, the main reason for the low share of highly skilled workers
was the scarcity of workers equipped with technical and soft skills, such as
communication and English uency.

Besides, the report stated that even employers did not create enough quality
jobs: More than half a million of people doing semi-skilled jobs attended
tertiary education. And employers also often resort to cheap migrant workers
to ll vacancies.

And if education is the root of all success, then Malaysia needs a lot of
cultivating to do, judging by the last edition of the triennial Programme for
International Student Assessment survey, where students of the country
were ranked 52nd out of 65 countries in 2012.
They underperformed on various levels: Average scores were below the
Organisation for Economic Co-operation and Developments member
countries in all categories mathematics, reading and science. The share of
top scorers in maths was in single digit only, and there were drops in average
scores for reading and science from the previous edition.

For now, though, PricewaterhouseCoopers Advisory Services Malaysia

senior executive director Kartina Abdul Latif says Malaysia is the second
most attractive country for talent in the AEC, on the heels of Singapore,
according to the 2016 Global Talent Competitiveness Index.

And compared with many of its Asean cohorts, she said Malaysias workers
are well sought after in the region for their English prociency.

To move up the value chain, they will need to improve [on] their critical
thinking skills, develop a mindset that is open to innovation and change, and
be willing to go the extra mile in their jobs to deliver value to their
stakeholders and customers.

This largely relates to the need to improve our capabilities in innovating and
creating more relevant products and user experiences for customers. For
instance, more emphasis needs to be placed on commercialising our
research and development (R&D) capabilities to meet the needs of the
marketplace, said Kartina.

Employers in Malaysia, too, will benet from the AEC as the country is faced
with a limited pool of skilled workers over the medium term arising from
the growing skill gap, she added.

Kartina said Malaysia should harness the opportunities arising from Asean
integration to attain high-income status, as the agreement encourages more
broad-based, inclusive growth and also utilises the economic
competitiveness of the region.
However, with increasing demand for specialised skills, this may create an
uneven playing eld for businesses, which may not be ready to move up the
value chain, such as manufacturing businesses, which may not have the
technical readiness to invest in R&D eorts.

In theory, the AEC will benet Malaysia and the region if the countries
policymakers have the will to execute it as promised, Guilln said. With
more than 600 million people here, and a lot of people are becoming [the]
middle class, they see their purchasing power increase.

If you remove barriers, you have two advantages. One, you may see
companies that are going to [be] set up in this market will see a large market
as opposed to a few small individual markets. Then they will have [the]
incentive to invest here. That will essentially create competition, which will
be good for consumers, Guillnsaid.

But its still too early to see [the] AECs benets. Politicians like signing
things. But ultimately, you have to deliver on those promises, he added.

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