Maintaining the Edge

Malaysia

Economic News

22 Jul 2010
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Malaysia's favourable business climate and ongoing reform programme rank it in the top 25 countries in the world in terms of competitiveness, according to the World Economic Forum (WEF).



Malaysia took 21st spot in the WEF's Global Competitiveness Report 2008-2009, which was published on October 8. Malaysia scored 5.04 out of seven overall, within sight of the United States, which topped the table with 5.74. Malaysia's position remained the same as last year, which is a good performance as it faces a challenge from countries that have strengthened their reform processes recently.



Taking 21st place puts Malaysia ahead of China and Thailand in 30th and 34th place respectively, as well as Indonesia and the Philippines (55th and 71st). The country outperformed highly developed economies such as New Zealand, Luxembourg and Spain, and all the nations of the oil-rich and ascendant Gulf.



The only Asian countries ranking above were Singapore, Japan, South Korea and Taiwan.



A breakdown of the WEF's figures shows that the financial sector is particularly strong. "The financial market continues to perform well, having clearly recovered well from the 1998 financial crisis," the Forum stated. "It is now ranked 16th internationally for its sophistication marked by a sound banking sector and relative ease of access to various forms of finance for business development."



This endorsement should be reassuring to the authorities and investors alike, given the current turbulence affecting the global financial system. Malaysia appears to be well positioned to withstand the buffeting.
The WEF also judges the labour market to be very flexible by[MSOffice3] global standards, with Malaysia ranking 19th, while low taxes and high levels of competition put the goods market at 23rd spot internationally. Infrastructure and innovation were also deemed as key strengths, ranking 23rd and 22nd respectively.



There is significant room for improvement, however. Secondary and tertiary education ranked 95th and 71st respectively, while Malaysia scored poorly on the prevalence of diseases including tuberculosis and malaria. With highly-skilled workers much in demand globally, further improvements in the education system may be necessary if Malaysia is to stay ahead of the curve. A healthier workforce less at risk from preventable diseases should lower losses due to worker illness.



Malaysia came in at 38th overall for macroeconomic stability but dragged down by rankings of 74th for government indebtedness and 109th for fiscal balance (i.e. it has a high fiscal deficit, which equalled 3.2% of Gross Domestic Product in 2007). With the global economy slowing, potentially lowering tax intake as well as making lenders more wary, the pressure to balance the budget is arguably stronger than ever.



Government bureaucracy topped the list of concerns for respondents to the WEF's survey for the report. This complaint has been noted by the authorities, which are moving to tackle the issue through the Business Licensing Electronic Support System (BLESS) launched on September 5. According to Tan Sri Khalid Ramli, director general of the Prime Minister's Department Implementation Coordination Unit (ICU), there are currently 75 different agencies involved in processing 78 different types of business licence. For companies, the red tape can be a real time and cost burden; the licence application process takes an average of 185 days - down from 393 days since the introduction of "one stop shops" a few years ago - but still excessively long.



Khalid has highlighted the need to reduce the bureaucratic burden on business as the key to pushing Malaysia's WEF competitiveness ranking up into the top 10 league internationally by 2010. While it is by no means the only factor, cutting bureaucracy should help reduce costs and incentivise business creation and expansion, while also trimming the state budget.



Last year, Nor Mohammed Yakcop, the Second Finance Minister stated at a joint meeting with the IMF that "the Government continues to push for reform in its delivery system with the view to making Malaysia an attractive and competitive destination to invest and conduct business. Removing red tapes and streamlines rules and regulations are among the key initiatives undertaken to reduce cost of doing business and to improve investment climate."



The WEF's report confirms that the reform programme has been bearing fruit, and now may be the time for it to be stepped up.

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