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Clarification Statement By The Economic Transformation Programme (ETP) On The ‘Blindspot’ Blog Post Published May 9 2015

KUALA LUMPUR, 11 MAY 2015 - PEMANDU categorically disagrees with accusations made by a blog on the ETP’s Annual Report 2014. By using anecdotal points, the writers resorted into making the claim that the ETP holds no true value to the Malaysian economy.

The view by BLINDSPOT is short-sighted and its intention only goes as far as to call for the closure of PEMANDU and the ETP. The very act of this engagement merely constitutes a political statement and fails to prove any inefficacies. Cherry-picking data to negatively counter the results adds no intrinsic value in appreciating the purpose and integrity of the work we do at the ETP.

We encourage those seeking to pursue in such a manner to focus on the larger understanding of economic transformation. Within this context, the success of the ETP is best measured by how well the economy continues to grow as a whole, regardless of volatilities, in the journey towards high-income aspirations by 2020.

The evaluation of this progress is by no means a task for anecdotal negations conspired by the politics of keyboard warriors.

In this regard, we hope the clarification statement allows for the opportunity to reconcile perspectives in understanding the true intentions of the ETP, which is to ensure the private sector plays its role as the engine for sustainable economic growth.

We will address each key accusation and make clear our rationale and methodology. We also encourage the public to study the Annual Report for themselves – report – and come to their own appreciation of how the country has fared last year.

Accusation 1: The PEMANDU-backed National Key Economic Areas (NKEAs) has underperformed against the Non-NKEAs

The very fact that the accusations begin with this provides a rather useful premise to lead-off from our earlier point – that overall economic growth is the best measure of the ETP.

It is more useful for us to look at the matter in totality and not pit the growth rates of NKEA against non-NKEA. The fundamental intention of the 12 NKEAs is to provide us with a focused approach to leverage on sectors where we have a natural advantage to successfully compete, and further strengthen the country’s economy and growth as a whole.

With heightened enterprise and investment activities within the NKEAs, multiplier effects will organically cut across other non-NKEA sectors and subsectors, resulting in increased income generation. For example, construction projects under NKEA are captured under the construction sector which falls under the non-NKEA Gross National Income (GNI) portion. The Greater Kuala Lumpur (GKL) NKEA's GNI also do not fall specifically under the NKEA portion of the GNI.

The 12 NKEAs operate at a higher base of more than double the size of its GNI share in comparison to non-NKEAs (Table 1).  It is only logical in economics to assume that smaller sectors will enjoy higher growth rates due to a lower base. 

GNI (RM Billion) 2010 2011 2012 2013 2014 CAGR
TOTAL NKEA 539.4 606.9 621 651.6 702.4 6.8%
Y-o-Y growth rate - 12.5% 2.3% 4.9% 7.8% -
Non-NKEA 231.6 256.6 284.9 301 330.2 9.3%
Y-o-Y growth rate - 10.8% 11.0% 5.7% 9.7% -
TOTAL GNI 771 863.5 905.9 952.6 1032.6 7.6%
Y-o-Y growth rate - 12.0% 4.9% 5.2% 8.4% -

Table 1: Gross National Income (GNI) NKEA / non-NKEA breakdown (2010 – 2014) Source: Department of Statistics Malaysia

Therefore, it is fundamentally flawed to evaluate the success of NKEAs based on statistical comparisons of their growth rates versus non-NKEAs and their growth rates. By devising the claim that the ETP and PEMANDU stifled NKEA growth rates demonstrates BLINDSPOT’s, well, blind spot.

The consideration that ought to take place is that the NKEAs are successful in catalysing the total economy, creating upsides and opportunities across the board, and yes, that will also include non-NKEAs.

Accusation 2: The Entry Point Projects’ (EPPs) contribution to the economy is insignificant 

As we have clearly established that NKEAs allow for focused growth, we move to provide BLINDSPOT the conceptual clarity it needs when it comes to understanding EPPs.

In their second accusation, the bloggers took only the income approach in its evaluation of EPPs and chose not to go further. By doing so, they carelessly missed the evident point which we have repeatedly reinforced – the EPPs are meant to be catalytic to the economy, serving as pathfinders to shape and pave the way for other projects to flow.

By working closely with the EPP business owners, the ETP facilitates, tracks and intervenes in the on-ground implementation of a project. The rigour of our methodology and close collaboration with the civil service allow us to identify and work through obstacles in on-going efforts to create a conducive environment for businesses to flourish.

At the launch of the ETP in 2010, 131 EPPs were announced. We could have just been satisfied with 50 new projects, but we needed enough critical mass to catalyse economic transformation. At that time in the early stages of the ETP, we consolidated investment figures from these projects to provide clarity, confidence and build momentum at the kick-off point.

Today, the ETP no longer needs to emphasise on increasing the pathfinder projects (EPPs). With this initial set of critical mass, we have been knee-deep into execution. It is in this rigour of execution that the pathway is cleared for investments to flow into agencies tasked with attracting investments such as MIDA, MDEC and the Regional Corridors.

The commitment of the Government to economic transformation, demonstrated by the handling of EPPs, has a salutary effect on investor confidence. This is a claim not just backed by the quality of the projects but in the overall macro results.

Malaysia saw another record year in 2014 with new approved direct investments reaching RM235.9 billion (65.4 billion USD) from RM219.4 billion in 2013. CAGR for private investment grew about 2.5 times between 2011 and 2014 compared to 2007 and 2010. These investments will take time to turn projects into fully operational and income generating operations. Thus, it is not unusual for GNI figures to increase further in the coming years with the operations of these projects that generates EBITDA (income).

At this juncture, it will also be useful to correct the understanding of BLINDSPOT on GNI. They are wrong on two fronts:

  1. The usage of GNI data serves as a barometer of impact in the year 2020, being the end-point to determine the achievement of high-income nation status. Every EPP is pegged to a 2020 target
  2. 2. While EPPs serve as pathfinder projects, never was it established that these should bear the significant share of GNI. The fact that EPPs are called “Entry Point” in the first place is to lead the charge of economic transformation within the NKEAs they reside in
What we can observe in the bigger picture is GNI per capita, the leading indicator of our journey to high income of US$15,000 by 2020. This is our true north. Starting at US$7,059 in 2009, GNI per capita grew to US$10,426 in 2014 and is well positioned to meet this 2020 target.

It is interesting though unsurprising to note that no criticism was given to that. This gives evidence to superficiality of the claims of failure of the ETP brought forth by BLINDSPOT’s analyses, which failed to appreciate this merit.

Accusation 3: The NKEA’s productivity growth rate is negative in comparison to the Non-NKEAs

This is another careless accusation by BLINDSPOT. To use questionable data and attributing it to the ETP 2014 Annual Report, we infer that their analyses are blinded by intention. Their chart, which had no proper legends to quantify the figures, is nowhere to be found in all 323 pages of the Annual Report. Let us use this opportunity to clarify.

When thinking about productivity, GNI per capita serves as a useful indicator. An increase in GNI per capita would reflect an increase in the economic productivity in terms of income.

Therefore, in responding to this accusation, we must revisit our rebuttal in Accusation 1 - NKEAs are double the size of non-NKEAs in terms of GNI and both are seeing productivity growth (Table 1). Because of its higher base, NKEAs are at a slightly slower rate. Nevertheless, both sectors have recorded positive growth in productivity and overall, we have improved.

Accusation 4: The ETP Annual Report 2014 covers only 96 EPPs and not all of its 151 EPPs

BLINDSPOT is right to say that proper performance management and delivery accounting procedure was to report on the progress of all 151 EPPs in the ETP. But where they had jumped the gun to was to allege that PEMANDU had falsified actual overall progress of the ETP by excluding EPPs from our reporting.

Let us be clear. All EPPs have been accounted for. If one were to read the report cover to cover, you will see the full list of all the EPPs, which have also been made available for easy reference from page 314 to 318 of the ETP Annual Report.

What the team at BLINDSPOT had scrutinised were just 24 pages of KPI tables of the NKEA chapters. We would encourage them to examine the remaining 299 pages providing a more detailed analysis of each and every single EPP.

Every year, PEMANDU with its stakeholders in the ministries, agencies as well as the private sector will make the decision to release an EPP from the KPI table if we do not consider the project viable upon assessment at the start of the year. However, progress and updates will still be tracked. As this is the case, KPI tables alone are not enough to account for progress. This is why attention has to be paid on the analysis that is published in each and every NKEA chapter.

Accusation 5: ETP Annual Reports method of measuring progress is questionable

We found this observation by BLINDSPOT odd – “Strangely all ETP Annual Reports does not report on cumulative basis”. If the team at BLINDSPOT have awareness of how corporate reporting is done, they ought to know annual reports serve as a publication to disclose on the performance of the past year, and not cumulative years.

Therefore, the ETP 2014 Annual Report discloses only the year’s achievement based on the targets set at the beginning of each year. KPIs are set yearly to consistently keep stakeholders at work and track how well the programmes are progressing. On that note, the KPIs set each year are tagged to the final target for year 2020.

While we have three different methodologies to measure performances or progress, we deliberately chose a measurement methodology which recognizes over and under achievements. The three methods, as captured in the AR are as follows:

  • Method 1: Scoring is calculated by a comparison of achievement against targets. The overall NKEA composite scoring is the average of all scores
  • Method 2: Scoring is calculated by a comparison of achievement against targets with conditions/rules, which are ‘if the score is less than 100%, the result is taken as the actual result’ and ‘if the score is equal or more than 100%, the result will be capped at 100%’. The overall NKEA composite scoring is the average of all scores
  • Method 3: Scoring is calculated by a comparison of achievement against targets with conditions/rules, which are ‘if the score is equal or less than 50%, the result is 0’, ‘score greater than 50% but lesser than 100%, result is 0.5’ and ‘score equal or greater than 100%, result is 1’
Accusation 6: The achievements of the TUKAR EPP is questionable

The bloggers had a bit of a field day in their attacks of TUKAR, which is EPP 2 under the Wholesale and Retail NKEA. Again, they failed to understand the results as articulated in the ETP Annual Report 2014.

Tasked with the objective to modernise small retailers to be more efficient and profitable, the TUKAR programme as at the end of 2014 and in their fourth year of implementation, has transformed 1,914 stores. This translates to 38% cumulative progress of its total target of 5000 stores by 2020.

BLINDSPOT failed to take into account the implementation achievement of 2011 in deriving the figure of 1395. In the ETP 2012 Annual Report, we had clearly reported that since its establishment in 2011, 1,087 stores were transformed.

The number of stores that have been transformed within the TUKAR programme are as follows:

Year Target stores to be transformed No of stores
2011 500 stores 519 stores
2012 500 stores 568 stores
2013 500 stores 522 stores
2014 300* stores (revised target) 305 stores
Total 1914 stores

In 2014, in light the fourth year of implementation, the target has been revised downwards to focus on improving the quality of participation, sustainability, and looking into supply & logistics issues related to the programme.

It is important to also address the question of the GNI and jobs impact within the TUKAR Programme. It was asserted by bloggers that the GNI impact created would remove existing GNI from existing stores while the jobs were assumed to need 10 new workers per store over 5000 stores to achieve the job target by 2020.

The TUKAR programme when envisioned had taken into account multiple factors when calculating the GNI and jobs impact of the programme. It was forecast that the GNI and jobs created would be derived from multiple avenues and not merely due to the progress of the store. The jobs impact of the TUKAR programme takes into account not only the workers physically present in the TUKAR stores, but also includes jobs related to the entire value chain involved, for example, production workers, labourers, transport and logistics operators.

As the programme not only transforms the exterior look of the store but also seeks to improve the backend of such retail stores, this would include supply chain related issues. To this end, this programme will also look into the establishment of distribution centres, tackling suppliers’ issues and increasing logistics support services.

In calculating the forecast GNI and jobs impact of the TUKAR programme, some of the other factors considered were:
  1. Increased income of TUKAR stores
  2. The supply chain demand boost from the TUKAR programme
  3. The usage of co-operatives to encourage the transformation of stores which will benefit a larger cross section of the community instead of just one individual store owner
  4. Increased consumer spending patterns by 2020
Through surveys and on the ground visits, we have seen that the TUKAR programme has improved the livelihood of the TUKAR store owners.

Between 2012 and 2013, Taylor Nelson Sofres Malaysia (TNS) conducted an impact study on the TUKAR Programme. The objective of the study was to measure compliance to the programmes, its financial impact and satisfaction levels of the participants. They sampled 806 stores located throughout Malaysia and found that 45% of the store owners who were operational for more than 13 months post transformation, saw an increase of revenue between 41% to more than 100%.

In a nutshell, to say the achievements of the TUKAR programme are questionable would be unfounded as the benefits of this programme far outweigh the impact of GNI and jobs in the long run.

Accusation 7: Has ETP really created 1.5 million jobs over the last 5 years? If so, for whom?

BLINDSPOT’s methodology of job creation based on calculation based on new EPF registration is flawed as the job creation in the ETP is not intended to tally with new members. It is important to understand that new active EPF members refer to individuals who have registered with the EPF as new members, and do not and cannot be equated to new employment in the NKEAs.

From the 1.5 million new employment in NKEA universe – 1.33mil are Malaysians and 167,000 are non-Malaysians (Chart 1).

Chart 1: Number of employed persons by NKEA, Malaysia, 2010 - 2014 ('000) Source: DOSM // 2014 data is provisional

Accusation 8: The 1.5 million jobs created under the ETP are of the low-income category

The vision of the ETP roadmap was to create additional 3.3 million jobs (page 21), with a composition of 11 % high income, 46 % middle income and 43% low income (page 22).

Note: Salary brackets reflects 2020 nominal RM, 2009 salary brackets adjusted to match this

This was derived from the 2009 projection that composition is based on 4% high income, 39% middle income and 57% low income (page 22).

It is critical to understand that the objective to create 3.3 million new jobs was never intended for only high-income jobs, but the focus was to increase composition of high-income by three times.

In the last five years, construction and services (retail and wholesale) sectors have achieved the highest growth rates. Example, the construction boom for commercial, residential and infrastructure with a significant number of projects launched between the years of 2010 to 2013, will come on stream in 2015 to 2018.

Coupled with oil palm upstream as a key industry focus in the last 15 years, there has been a consistent and high demand for low- and semi-skilled workers due to the type of jobs that are required in these sectors.

When the NKEAs move from development to operational stage, we will see the reduction in the proportion of low-income workers and in tandem, the increase in proportion of middle- to high-income workers.

PEMANDU urges the public and people of good faith, to study the ETP Annual Reports and ETP Roadmap, and not to be blindsided by the mutterings of the politically-skewed. It is in the independent investigation of what holds fair and reasonable that allows individuals to make their own judgements. 2015/05/11
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