Review of the ETP 2013

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A Note from the Prime Minister

Three years into the Economic Transformation Programme (ETP), we are pleased to present this report of progress achieved up to 2013.

The Malaysian economy continued to expand steadily in 2013 despite external uncertainties from volatility of capital flows, weak global recovery and slow economic growth in key advanced economies, among others. During the year, our economy recorded GDP growth of 4.7 per cent, coming in within earlier projections of between 4.5-5 per cent growth1.

Much of the economy's resilience has been driven by private sector investment, which now accounts for close to 60.9 per cent2 of total investment. As we move towards 2020, the private sector is slated to continue in its role of providing impetus to the country's economic growth, in line with the ETP's main objective of returning the private sector to the driver's seat of the economy.

ETP 2013 Review Chapters
National Transformation Programme: The Foundation for Growth
Economic Transformation Programme: Reaching High-Income Status through Focus and Competitiveness
ETP Turns 3: The 10 Points of Success
Maintaining Focus through NKEAs
Global Competitiveness through SRIs
2020: Achieving the Vision




The robust level of investment has succeeded in stimulating job creation, with employment increasing 17.81 per cent since the start of the ETP (from 1Q 2010 to 4Q 2013 (November 2013)). This clearly demonstrates that our efforts are on track to achieve the creation of 3.3 million new jobs by 2020.

The continued momentum in private sector investment and job creation has been reflected in the growth of our Gross National Income (GNI) per capita in 20133, which has risen to US$10,060 from US$7,059 in 2009.

Over and above the presentation of facts and figures, the ETP has been working in the background to reinforce the structure of our economy; evolving towards a model that is more resilient, sustainable and globally competitive. Our focus now is to remain on the right path towards the creation of a high-income economy by 2020, and we must bear in mind that there is much to be done towards achieving our goals.




National Transformation Programme: The Foundation for Growth

The ETP represents one component of the National Transformation Programme (NTP), designed to elevate Malaysia towards high-income status. The NTP embodies the implementation of Malaysia's New Economic Model, mooted by Prime Minister YAB Dato' Sri Mohd Najib Tun Hj. Abdul Razak and formulated by the National Economic Advisory Council in 2010 as a response to the 2008/2009 global financial crisis and its implications for the future of national competitiveness amidst rapid globalisation.

Review of the ETP 2013

In tandem with the socio-economic reforms targeted by the ETP, the NTP also features the implementation of the Government Transformation Programme (GTP), which institutes public service reforms crucial in supporting our high-income aspirations.

Despite representing two distinct programmes of change, the ETP and GTP are complementary, working synergistically to achieve high-income status for the nation in a sustainable and inclusive manner. With this in mind, the NTP was designed to promote balanced development throughout the country, ensuring inclusiveness and sustainability. The programme was built around a model of sustainable economic growth that is designed to last beyond 2020.

It is also important to note that the programme has set out identifiable targets and outcomes through a clear allocation of resources. Additionally, the NTP takes into account the social aspects which support the achievement of our goals, such as quality of life, cost of living, public safety and security, and social values.


Economic Transformation Programme: Reaching High-Income Status through Focus and Competitiveness

The ETP is anchored on the two pillars of focus and competitiveness, embodied by the 12 National Key Economic Areas (NKEAs) and six Strategic Reform Initiatives (SRIs), respectively. The NKEAs represent selected industries; focussed growth clusters chosen by virtue of their existing competitive advantage given Malaysia's unique resources and expertise. While industries which have not been classified as NKEAs are in no way excluded from economic growth and development, the 12 NKEAs represent our areas of priority.

Review of the ETP 2013

To ensure that Malaysia continues to strengthen its global competitiveness, the SRIs include measures to create conducive conditions for business. In this respect, the private sector represents the driving force behind key reforms aimed at attracting private investment and raising the competitiveness of Malaysian companies, both locally and abroad.

The goals of the ETP are to raise Malaysia's GNI per capita to US$15,000, create 3.3 million jobs and secure US$444 billion in investments by 2020. Our target for GNI is based on the World Bank's GNI per capita threshold for a high income economy of US$12,2764, and takes into account the organisation's historical global inflation benchmark figure of 2 per cent until 2020.

In order to achieve the desired level of private investment, the ETP aims to strengthen private sector participation in the economy. This will be achieved through the implementation of Entry Point Projects (EPPs) under the NKEAs which are driven by the private sector.

Review of the ETP 2013 Through these measures, private investment is targeted to account for 92 per cent of Malaysia's total investments, driving economic growth. Public spending, which will make up the remainder of total investments, will meanwhile be focussed on catalytic projects such as the Mass Rapid Transit (MRT), River of Life (ROL) and the Pengerang Integrated Petroleum Complex (PIPC).

This approach, which places the private sector in the driver's seat as the main engine of growth, with the Government as an enabler, was designed to create farreaching multiplier effects that will not only stimulate the 12 NKEAs, but also foster growth opportunities within the entire Malaysian economy.

1 GDP growth projection from Ministry of Finance (MOF) Economic Report 2013-2014
2 Department of Statistics (DOS) 3Q 2013 GDP report
3 Source: Bank Negara Malaysia
4 World Bank's high-income threshold figures of 2009


ETP Turns 3: The 10 Points of Success

The year 2013 is a significant milestone, marking the third year since the launch of the ETP. External measurement and validation of the KPI achievements before and after the introduction of the programme clearly indicate that substantial headway has been made towards achieving the country's goals for 2020.

The results that have been reaped over the past three years demonstrate the ETP's effectiveness in working towards economic sustainability and resilience.

NKEAs and SRIs stay the course

NKEAs and SRIs stay the course

Since the launch of the ETP in 2010, we have established 196 projects under the NKEAs with a total committed investment of RM219.3 billion. This is projected to contribute RM144 billion to GNI and create 437,816 new jobs. In the past three years, the factors within the NKEAs have created a total of 1.3 million additional employment opportunities5.

The SRIs, too, have played their part in catalysing business activities. Among key reforms introduced by the SRIs include the transformation of the public sector, which has paved the way for the rationalisation of 50 per cent of business licenses and increased the ease of conducting business in Malaysia.

On 1 January 2012, we enforced the Competition Act 2010 with the main objective of inculcating a competitive spirit within the private sector. The Government has also announced the liberalisation of 18 sub-sectors to further foster competitiveness within the Malaysian economy and ensure our companies are sufficiently equipped to compete on the global stage.

Continued growth in GNI

Continued growth in GNI

GNI per capita has climbed steadily from US$7,0596 in 2009 to US$10,060 in 2013, representing a growth of 42.57 per cent during the period. Based on this growth trajectory and barring major unforeseen disruptions, we are able to report that Malaysia is not only on track to reach its high-income target by 2020, but may even satisfy this goal earlier than planned.

GDP expands at firm pace

GDP expands at firm pace

While uncertainties remain in developed markets, causing ripple effects throughout the global economy, Malaysia’s economic growth has remained resilient. This is evidenced by continued expansion of the country’s GDP, which rose 4.7 per cent in 2013.

We have also seen the structure of the economy shift from one that was very much public sector driven to one that is fuelled by private sector activities. Most importantly, the continued economic expansion is testament to the ETP’s model of sustainability, not just from an environmental perspective, but also in the management of Government spending.

Government revenue on the rise

Government revenue on the rise

The Government has made great efforts in moving towards a revenue structure befitting a high-income economy. In this respect, we have taken enormous strides to increase the efficiency of tax collection and broaden the tax base. These measures are vital in allowing us to administer targeted socio-economic programmes to promote economic inclusiveness. Since 2010, Government revenue has risen 38.1 per cent to RM220.4 billion8.

Fiscal deficit on the decline

Fiscal deficit on the decline

In tandem with increasing the Government’s revenue, we have also recorded encouraging performance in reducing the fiscal deficit. From 6.6 per cent of GDP in 2009 to 4 per cent in 20139, we are on target to reduce the fiscal deficit further to 3 per cent in 2015 and achieve a balanced budget by 2020.

A key aspect of narrowing the fiscal deficit is increased prudence in managing Government expenditure. In tandem with this, the Government has implemented a phased rationalisation of subsidies to ensure a more targeted approach in providing financial assistance. Reducing our fiscal deficit is paramount to maintaining the health of Malaysia’s credit rating. High deficit levels can result in a downgrading of the national credit rating, making government debt more expensive with detrimental implications for the national economy.

We have paid careful attention to the hard lessons now being learnt by those countries which avoided fiscal reforms, resulting in dramatic and dangerous slowdowns in their economies. By contrast, we are taking disciplined action towards growing Malaysia’s economy while instituting fiscal reform, putting in place measures to ensure that we do not fall into the same trap. At this time, it is crucial that our Government retain clarity and remain focussed on trimming the deficit; broadening our revenue base and optimising expenditure. This will ensure that we can continue to assist with the rakyat’s burdens in a more equitable and sustainable way.

Robust private consumption

Robust private consumption

The ETP’s success in raising incomes of the rakyat and creating more job opportunities has been reflected in continued growth of domestic private consumption, which now accounts for 51.2 per cent10 of GDP. In 2013, growing consumer confidence in the Government’s reforms contributed to a 7.6 per cent growth in private consumption11, compared with 6.9 per cent in 2010.

Vibrant capital market activity

Vibrant capital market activity

The FTSE-KLCI has reached new historic highs 66 times in the past three years, bearing testament to the vibrancy of the country’s capital market activities and resilient investor confidence in the Malaysian stock market. In 2013, the stock market scaled as high as 1,873 points12.

Strong investment growth

Strong investment growth

As an extension of the vibrancy of our capital market, Malaysia has enjoyed a steady tide of investments in the last three years. Most heartening has been the strong surge in private investment which grew 15.313 per cent for the period between 2010 and 2013 compared to 4.7 per cent between 2008 and 2010, thus tripling the CAGR following the implementation of the ETP. Also, in 2013, private investment reached RM161.1214 billion surpassing its target of RM148.4 billion by 8.6 per cent.

While private investment has been, and should be, the driving force of the country’s total investment, public investment will remain an important part of economic development. In this respect, the Government will continue to provide the basic infrastructure, such as roads and utilities, to pave the way for private sector investment.

This is most visibly manifested in the administration of the country’s five Regional Economic Corridors of Iskandar Malaysia, the Northern Corridor Economic Region, the East Coast Economic Region, the Sarawak Corridor of Renewable Energy and the Sabah Economic Development Corridor. In these corridors, the Government has opened economic zones and provided the infrastructure and facilities for the private sector to leverage on and inject valuable private investment.

On the back of the Government’s investments in the Regional Economic Corridors as well as in other catalytic projects, public investment amounted to RM105.5 million in 2013. This accounted for 39.1 per cent of total investments during the year.

Global recognition

Global recognition

Malaysia’s transformative progress has not gone unnoticed on the global stage, with independent global agencies continuing to recognise the improvements we have achieved. For two consecutive years, we have been ranked in the top 10 of the World Bank’s Ease of Doing Business Index15, coming in at 6th position for 2014 and 8th in 2013. This puts us ahead of developed economies such as the United Kingdom, which was ranked 10th and 11th for 2014 and 2013, respectively. The index also shows how we have improved the business landscape in Malaysia by leaps and bounds since the start of the ETP, having been ranked 18th in 2012, 21st in 2011 and 23rd in 2010.

Encouraging KPI results

Encouraging KPI results

As a programme that is very much goal-oriented, the ETP’s Key Performance Indicators (KPI) remain a vital measure of its achievements. During the year, our overall KPI results for the NKEAs remained on track with 102 per cent achieved on average, while the SRIs recorded 95 per cent of KPIs achieved. True to the ETP’s emphasis on transparency and accountability, the KPI results have been externally validated by global audit firm PricewaterhouseCoopers (PwC).

5 Based on employment by NKEA from DOS. Up to 3Q 2013, employment in NKEA sectors was 8.561 million, in 2010 it was 7.232 million; an additional 1.329 million
6 GNI per capita using SNA 2008
7 Using SNA 2008. Growth will be at 50 per cent if calculated using the SNA 1993 figures for GNI in the year 2009 to 2011 (when ETP was launched). Beginning 2014, PEMANDU will use the SNA 2008 as a reference point for GNI related calculation
8 Forecast based on MOF economic report 2013/2014, as of 31 Oct 2013
9 Based on MOF estimate
10 DOS 4Q 2013 GDP report
11 DOS 4Q 2013 GDP report
12 Closing high as reported by Bloomberg for 30 Dec 2013
13 Source: DOS, Private Investment in Constant 2005 Prices in RM
14 Source: DOS, Private Investment in Current Prices in RM
15 Malaysia’s 2013 ranking was adjusted from 12th to 8th to reflect topics used and data corrections made for the entire 2013 index


Maintaining Focus through NKEAs

The ETP’s 12 NKEAs continued to record encouraging results in 2013, demonstrating our sustained focus in improving our capabilities, competitive edge and in moving higher up the value chain within these industries. The following is a snapshot of the activities of each NKEA during the year. Detailed reporting of each NKEA’s KPIs, targets and achievements are disclosed within the respective chapters of this report.

 

 

Global Competitiveness through SRIs

The six SRIs were formulated from policy recommendations from the NEM and represent the components required for Malaysia to achieve global competitiveness.

 

 


2020: Achieving the Vision

As we move closer to 2020, we have much to be thankful for. Malaysia’s economic fundamentals remain strong, with a current account surplus, ample international reserves and an improving fiscal position, all of which put us in good stead to weather uncertain conditions in the external economy. To preserve these advantages, we must remain cognisant of further improvements that can be made to our economic structure.

We must be reminded that in implementing the ETP, we are focussed on transforming the whole of the Malaysian economy. With the launch of the 196 EPPs since 2010, we believe that we are now achieving a sufficient critical mass of projects to catalyse transformation. Our focus going forward will be on the management of the broader economy, as the EPPs have now translated into significant realised investments that will create further knock-on effects.

The most important thing for Malaysia now is staying focussed on our strategic goals. Just as an athlete can only succeed by concentrating on improving his talents in his specialised field, we must remain aware that the target of a high-income nation can only be achieved by focussing on specific sectors for our growth. The key challenge for any Government in such an endeavour is the eternal economic question of limited resources. The solution is conscious fiscal discipline and the will to remain focussed in implementing the ETP.

Of paramount importance is the private sector’s role in driving the ETP. While the Government will provide support to catalyse private investment, assisting in infrastructure spending to promote the viability of private sector projects, by and large we will rely on collaboration from the private sector to ensure our targets are brought to fruition.

This spirit of collaboration is paramount in all of the Government’s initiatives, and is embodied in the relationship between the Economic Planning Unit (EPU) and PEMANDU. It is often overlooked that like the ETP and GTP, the EPU and PEMANDU are separate yet complementary, working together to realise the country’s economic ambitions.

In this regard, PEMANDU’s mandate centres around coordinating, assisting and monitoring the implementation of both the GTP and the ETP, while the EPU is tasked with formulating the medium and long-term plans, policies and strategies to ensure sustainable socio-economic growth. It is in these areas that PEMANDU and the EPU have built a partnership to drive implementation; assessing the progress and delivery of the country’s development programmes.

On PEMANDU’s part, there remain four critical pressure points for which we must provide support until we achieve our goals for 2020. These are:


On PEMANDU’s part, there remain four critical pressure points for which we must provide support until we achieve our goals for 2020.


Other countries are nipping at our heels, gaining a competitive advantage on the global stage. This makes it even more crucial for us to promote a culture of quality and innovation within our economy to ensure we do not lag behind other countries, especially the fiercely competitive emerging markets which have materialised as the global economy’s new engine of growth.


Committed Investment, GNI and Jobs till 2020


Nonetheless, with the necessary groundwork already in place to catapult our transformation into a high-income economy, we remain confident that together, we will be able to enjoy the rewards of our efforts not just in 2020, but for many years to come.