Q & A

From the beginning and throughout its implementation the ETP's target has been towards achieving a high-income nation status for Malaysia. This is a target set by the World Bank, an independent world body. The World Bank classifies all countries with a Gross National Income ("GNI") per capita of above a fixed threshold as "high-income" countries. By 2020, the value of this threshold is projected to be USD15,000. This was used as the target GNI per capita for Malaysia in 2020 to reach high income nation status.

This means that Malaysia must grow from a GNI per capita of USD6,700 in 2009 to USD15,000 in 2020 to achieve this vision. With a population growth of 1.2% and expected currency appreciation of 1.0%, this means that Malaysia would have to grow from USD 190 billion to USD 475 billion at 6% above inflation (i.e. real growth in USD) in order to reach its objective. The derived target GNI per capita, and GNI growth were based on a few key assumptions; that the Ringgit would appreciate against the US dollar from 3.5 to 3.2 RM per USD, and that population would grow from 27.9 million to 31.6 million by 2020.

The GNI per capita target has always been an aspiration and we have always said that this is the line in the sand we need to cross, rather than an actual quantitative forecast. This was pointed out almost immediately by a member of the online community who said that 'There are just too many variables with too high a degree of uncertainty involved to forecast economic numbers eight years into the future with any kind of accuracy... trying to fine tune the 2020 RM GNI target to get exactly double the real income from 2009 is a bit of a fool's errand.' Our focus is on ensuring that we are implementing and tracking with rigour rather than continuously refining what is at best a subjective target.

Much ado has been created over the purported lack of transparency of the data coming from Pemandu. We acknowledge that this needs improvement on and are striving to do so. We also acknowledge that the ETP has been in implementation mode for just over a year. Our monitoring and tracking systems are new, and will need fine-tuning. We know we have to improve, and we are doing this on a daily basis. Our results were validated by an independent third party, PricewaterhouseCoopers, and were reviewed by an independent International Performance Review committee consisting of experts and senior representatives from around the world.

The level of public-private collaboration in the ETP is unique and extensive. However, our private sector owners do have an obligation of confidentiality because some are privately owned, or listed on foreign bourses which have strict governance structures. Information is shared with us under highly confidential terms and we do our best to be as transparent as circumstances will allow us.

Throughout the implementation of the ETP, Pemandu's role is one of monitoring and tracking of progress, providing problem-finding solutions where they arise. Pemandu facilitates interaction and communication between all relevant stakeholders, identifying bottlenecks and attempting to put in place processes to ensure smooth flow. Construction takes a finite amount of time and Parliament sits at defined dates to read laws. Projects that come under the purview of the ETP are selected based on criteria set out in the labs, GNI impact, feasibility of implementation and ability to create high valued-added jobs.

One IFC, which is responsible for the project, had an agreement with St Regis, which was at risk to expire should the project not be completed by 2014. Over the course of getting approvals, One IFC was required to adhere to several policy requirements imposed by the Ministry of Federal Territories. Amongst these was the Green Building Index (GBI) requirement which was imposed during the Building Permit approval stage. To conform to the GBI Gold standard, significant changes to the design were needed and a re-application of permits had to be done, risking further delays.

PEMANDU was asked to step in to facilitate a solution that satisfied all parties. Upon syndication between representatives from One IFC and the GBI Accreditation Panel (GBIAP), it was determined that GBIAP had yet to calibrate its tool to account for Luxury Hotels within a tropical environment. As such GBIAP, with full cooperation from One IFC to ensure that the project, will have enough environmental features to be certified by the GBI. So while there was no speeding up of the project timelines, PEMANDU's assistance brought the project timelines back on track.

Amongst the purposes of the lab were to take examples of 'best practises' from the private sector and determine if there was scope for additional growth. In the case of the premium outlet sector, representatives from the Johor Premium Outlets were brought in and the lab saw that there was potential room for an additional two outlets to capitalize on demand. Work done by Genting Plantations and Simon Property Group was used in determining a template for additional private sector players to take up.

In addition to this, the lab identified additional strategic benefits to make this project an EPP. There was significant work done in aligning work on the Tourism NKEA's EPP1: Positioning Malaysia as a Duty-Free Shopping Destination for Tourist Goods, with various stakeholders including JPO. This was done to ensure that a strategic outlook was taken in ensuring the exception of products popular with tourists from import duties would have a maximum impact. In addition to this, the setting up of JPO would contribute significantly to the Tourism NKEA's target of attracting more tourists with higher yields, their presence in the labs also contributed towards providing an aligned outlook with sign-off from major players.

The NKEA labs may have favoured existing business plans. Each lab seems to end up promoting the interests of the most vocal of the private sector participants, which might not necessarily be the most transformative projects. Wouldn't it be correct to assume that good ideas which require more intensive research and analysis are likely to be jettisoned in favour of projects for which groundwork is already in place.

The NKEA labs were an eight-week session to bring together over 500 of the best minds from the private and public sectors together. It represented a radical departure from a typical work environment. The full-time lab participants were fully engaged eight hours daily, five days a week for eight weeks, with part-time members participating as their schedules allowed or when brought in to provide specialized opinion. For example, the Greater KL lab consisted of 35 full-time participants from 27 organisations, with anywhere between 5-7 part-time participants at any point in time, supporting specific EPPs. The labs were designed to encourage and enable transformational ideas and a fresh approach to economic development in Malaysia. They had several key features that distinguish them from a typical working approach including:

• War room working environment: In an environment without traditional organisational hierarchy or protocol, a full-time, cross-functional team – comprised of representatives from across the public and private sector – was responsible for developing detailed delivery plans that specify end products, targets, timelines and accountability of outcomes. In the lab environment, lab members were typically opinion leaders who are willing and able to provide and receive feedback and to challenge each other. A member of the lab team with strong leadership qualities (not necessarily the most senior person) was appointed as the lab leader to keep the team focused on ambitious goals, break down silos and ensure that the correct stakeholders were engaged. Facilitators helped provoke, challenge and shape some of the ideas ;

• Co-creation of ideas with stakeholders: Rather than simply reacting to progress reports, the senior leaders and decision makers, including the relevant Lead Ministers, participated in the solution-development process through the scheduled and unscheduled visits. Additionally, lab members started syndicating ideas among key stakeholders early and often, and all relevant stakeholders must have signed off on any finalised plans; and

• Heavy bias toward execution: Labs used a rapid decision-making cycle and were heavily biased towards execution acknowledging that changes can and will be made during implementation. The 80/20 rule was applied in the lab, with multiple rounds of checks and balances in place.

Fundamentally all EPPs were required to meet two conditions; deliver significant GNI impact within the 2010 to 2020 timeframe and have passed through a rigorous challenge process with multiple rounds of stakeholder syndication, validation and challenge. If the EPPs met these criteria, they were, in principle, open to any qualified private sector investor who has the capacity, willingness, credibility and competitive advantage to invest in and deliver on the project.

Selection of EPPs was typically prioritised along 2 dimensions: impact (e.g. incremental GNI) and feasibility (e.g. time to impact and ease of implementation). Throught the lab process, there were multiple layers and filters to safeguard against attempts to unfairly prioritise projects as EPPs. The process of selecting and prioritising EPPs can typically be divided into five steps:

• Prioritise initial ideas: The lab typically started with a no-holds-barred brainstorming session to generate a list of potential EPPs (typically 30-50 initial EPPs). Once the brainstorming session was done, idea originators then needed to present their case for the initiative with the entire lab which then prioritises the potential EPPs in terms of impact (i.e. GNI contribution) and feasibility based on consensus;

• Develop and test business case: A business case was developed for each shortlisted EPP which included the case for the EPP and estimates of the EPP's GNI contribution, job creation and investment requirements based on industry benchmarks, interviews with industry experts (both within and outside the lab) or in some cases existing business plans. An important point to make is that in the labs, "the perfect is the enemy of the good" with an expectation that major changes can and will be introduced during implementation of these ideas;

• Multiple rounds of syndication with relevant stakeholders: Lab members started syndicating ideas among key stakeholders early and often. This was because at the end of the labs, all relevant stakeholders must have signed-off on finalised plans and early syndication and input is crucial to gain buy-in. For example, the tourism lab syndicated with a broad range of stakeholders including Ministry of Tourism, Ministry of Finance, MIDA, MITI, Air Asia and MAS, tour guide associations, travel agents and hotel associations. Senior leaders and decision makers participate actively in the process through scheduled (e.g. weekly visits from the PEMANDU CEO or Lead Ministers) or unscheduled visits providing input and challenging the initiatives;

• Checks and balances across NKEAs: The Central Modelling Team collated the results across and conducted consistency and sanity checks across the GNI, jobs and investment estimates for each of the EPPs as well as across NKEAs. Every lab was required to fill up a detailed EPP template which was updated and stress-tested by the Central Modelling team on a weekly basis; and

• Approval from EPU and MoF for projects requiring public funding: All EPPs that required public funding required approval from MoF and EPU. Each lab was required to present a case to senior representatives from these two agencies, who challenged the assumptions and prioritised the projects based on the incremental GNI per public investment request. For example in the tourism lab, the EPP on targeting more international events through the establishment of an agency required 100% public funding which was evaluated and approved by EPU and MoF given that GNI impact from the EPP would be high.

In a few cases, it may seem that an EPP is closely linked to specific parties. These are exceptional cases, and happen because:

• Industry structure is not open: some industry structures are, by design, monopolistic or possess high barriers to entry resulting in limited competition. Regardless of the industry structure, the EPPs identified deliver significant GNI contribution and were deemed important for the development of the NKEA. Examples include:

  • OGE NKEA: Upstream Malaysian enhanced oil recovery and exploration where PETRONAS is vested with the sole responsibility for developing and managing Malaysia's oil and natural gas resources. These EPPs are significant in, totalling ~RM8.5 billion in GNI impact, and represent an important economic initiative for the oil and gas industry, which holds the largest share of GNI for Malaysia both in 2009 (17%) and 2020 (14%); and

  • Tourism NKEA: Increasing flight frequency through a transparent and liberalised air rights allocation framework mainly affected MAS and AirAsia. This EPP was critical in ensuring connectivity for tourist arrivals and is estimated to contribute RM 3.3 billion in GNI impact.

• Existing or planned high-impact projects: in some cases, the labs evaluated projects which were already in development at the start of the labs or were close to commissioning. Again, these projects were included because they were deemed significant to the growth of the NKEA, regardless of when they were originated as long as the GNI impact that the project is expected to deliver occurs within the lab's planning timeframe of 2010 to 2020. Examples include:

  • Greater KL/KV NKEA: In the case of the Greater KL MRT EPP, the lab evaluated an existing business plan from Gamuda-MMC to construct an MRT system for Greater KL. At the time the labs started, this particular project had already been highlighted in the 10th Malaysia Plan as well as the media and was in advanced stages of planning and approval. The labs reaffirmed the need for the MRT and proposed approached to reduce overall cost of construction through value management and pursuing a rail+property model to offset construction costs; and

  • Education NKEA: As at the launch of the labs, EduCity@Iskandar had secured investment commitments from five international educational institutions, including Marlborough College and Newcastle University of Medicine. As part of the NKEA, the EPP benefited from the interlinkages across the Education NKEA which included initiatives to champion Malaysia's international education brand and the development of disciplined clusters, strengthening its value proposition as a world-class education cluster.

• In cases where the EPPs were developed leveraging proprietary information, the protection of intellectual property was managed depending on degree of sensitivity towards public disclosure on a case-by-case basis. In some cases, private sector participants openly provided access to data. In other more sensitive cases, restricted-access labs were run in parallel with the NKEA containing the EPPs deemed sensitive. These "White Labs" restricted access to the initiative owner, facilitators from PEMANDU and supporting consultants if required. Only a selected number of NKEAs had a White Lab attached to it such as the OG&E, Wholesale and Retail Lab and the Greater KL lab and only EPPs that were deemed critical to the NKEAs were allowed to undergo the White Lab process, such as in the case of the upstream oil recovery and exploration initiatives led by PETRONAS in the OG&E lab. While other lab participants were restricted from accessing the information in the White Lab, the initiatives and ideas were still subject to the same level of challenge, syndication and validation as the other EPPs from the lab facilitators as well as with key decision-makers (e.g. in the case of OG&E, the Prime Minister was also the Lead Minister).

Throughout the formulation of the ETP, there was a clear, methodical, and quantitative method in every decision made. There were four distinct phases in the selection of the NKEAs and its targets:

• Setting aspirations and top-down targets – the aspiration was laid out in the New Economic Model (NEM), written by the National Economic Advisory Council (NEAC) which was set up with a mandate to formulate a New Economic Model (NEM) that will transform Malaysia into a high income economy by 2020.

• Detailed sectoral analysis – 32 broad sectors were defined by re-classifying the 71 National Account sectors (as reported by the EPU). 12 of these sectors were removed from the list as they either contributed less than 1% of GDP or were fragmented. The projected GNI contribution of each of these sectors was determined based on three sources; historical sector growth rates in Malaysia, forecasted sector growth rates globally and a qualitative assessment of Malaysia's competitive advantage relative to sector best practice.

• Input from 1000-Person Workshop - The findings of the sector analysis were then syndicated with top leaders in the public and private sector including the Prime Minister and his Ministers, KSUs from the civil service, C-level executives from large corporations and SMEs, representatives from NGOs and business/trade associations in a one-day 1,000-Person Workshop. The participants were briefed on the overall objectives and approach towards the ETP and provided with a fact pack of the initial sector assessments across the 20 sectors. The attendees were then broken up into 20 working groups. Each group was asked to agree on a growth projection for the sector, drawing on the fact pack and their industry knowledge and expertise. The groups then reassembled in a plenary session in which the NKEAs were chosen based on the projected incremental economic growth to 2020.

• Syndication from PM and Cabinet - Based on the sector analysis (refer to Step 2) and the input from the 1,000-person workshop, a revised GNI forecast for the sectors was developed resulting in the final list of 11 potential economic sector NKEAs: Oil, Gas and Energy; Palm Oil; Financial Services; Tourism; Business Services; Electronics and Electrical; Wholesale and Retail; Education; Healthcare; Communications Content and Infrastructure; and Agriculture. In addition to the 11 economic sectors, Greater KL was also defined as an NKEA given the importance of Greater KL in the national economy – bringing the total number of NKEAs to 12. The recommendation on the NKEAs and sector-level growth targets were then put forth to and endorsed by the Prime Minister and the Cabinet

There have been 110 announced projects. Some of the projects are extremely large in size and, in the case of a project like the MyRapid Transit (MRT), are publicly funded. What is the private sector's response to the ETP?

• It has been made clear that the funding ratio of the ETP is projected to be 8:32:60 by the public sector, GLCs and private sector respectively. Of the 110 announced projects, the MyRapid Transit (MRT) project is by far the single largest public sector investment, with the others falling far behind. As seen in the ETP Roadmap, much of the projected public sector investment is contingent on a similar or higher investment from the private sector.

• The NKEA teams are in constant contact with a selection of private and public sector project owners. Our Progress Updates represent a snapshot of progress and are by no means representative of the entire NKEA universe. Similarly, to track individual investment, job creation and GNI impact of hundreds of companies is a herculean task, and duplicates many of the tasks undertaken by institutions such as the Department of Statistics and the Ministry of International Trade and Industry. Due to finite resources, we believe in focusing on ensuring smooth implementation of these projects rather than duplicating work in tracking granular data. The macroeconomic indicators show that private investment is well up in 2011, rising 19.4 percent from 2010 to RM94 billion in 2011. Similarly, GDP growth is healthy at 5.1 percent, and the government's fiscal deficit was reduced to five percent, beating forecasts of 5.4 percent.