Approaching 2020 - Dr.Mahathir

Tun Dr. Mahathir - "Approaching 2020 – Major Trends that will Impact Malaysian Business"

Are we on track?


The following are an extract and summary of Speech by Tun Dr Mahathir bin Mohamad at the Perdana Leadership Foundation Forum at Sime Darby Convention Centre on 8 August, 2008.

The article has been editted and only the Key Points and Key Ideas is highlighted below. For the full article can be view at the link below :-

Approaching 2020 – Major Trends that will Impact Malaysian Business


Trends

2020 is only 12 years away – not a very long period of time. So it should not be too difficult to predict what would happen on the way, and when we reach there.

Trends are things that you can observe happening now but can be expected to progress into the future.

But we can to a certain degree be fairly sure that certain things would happen. Malaysia has, for example a high rate of population growth – some 2.1 percent or 21 per thousand heads of population per annum. Based on this and our knowledge that presently our population is 27 million. By 2020 our population should be around 35 million.

Bigger Market

Population growth is a trend that we can take into account its effects. There would be a bigger market even if per capita does not increase. But the likelihood is that per capita and GDP would increase in tandem. We have seen this in Malaysia’s growth in the past.

A mass consumer market will make local manufacturing more viable. And there are many things that we can produce. Like Korea and Taiwan we would learn to design and manufacture many things not just for our markets but for export as well.

Increase Competitiveness
Against this, expect increased and less restricted imports. We must be more competitive. We must develop skills in hi-tech products and we must pay higher wages. The days of low labour costs would have been over before 2020.

Our workers must be highly qualified and be trained in higher skills. The workers we would need must be able to handle and service automatic machines, not just assemble things. We will learn to design and produce some of these machines.

What all these means is the business of specialised education and training would become big business. The training centres would also cater for foreign students if we use English as a teaching medium.

Malaysia cannot any longer offer itself as a cheap labour country. But the chances are our highly trained workers would still cost less than similarly trained workers in the developed countries. This may mean a shifting of some middle range
hi-tech industries to Malaysia.

Our Advantages
Our advantage today is still the ability to take instructions in simple English.
But there will be a spread of English language capabilities in China, Vietnam and
other competitors of ours.

Accordingly our advantages seem likely to be eroded not only because others are acquiring working knowledge of English but we ourselves would probably downgrade learning of English.

I hope that the teaching of science and mathematics in English would continue. But I am not sure. If the decision is made not to, then the hi-tech industries are going to bypass us.

Development Foresight - Mistake not to be repeated

When we decided to build KLIA, we looked at the demand in a hundred years’ time. Getting a piece of land near the city for a large enough airport capable of future expansion is not easy. When we built Subang we projected 400,000 passengers per annum. But by 1990 it was handling 11.0 million passengers. There was no way we could expand there. We started looking around but we were handling 18.0 million passengers before we found a suitable piece of land.

We never wanted to make the same mistake again, not with airports nor with other infrastructure.


Malaysia Transportation

Malaysia has the best system of expressways and roads in south East Asia.
But still they are clogged. We need to build more and more.

I think we need to change our approach. Instead of building roads we should improve mass public transportation. It is unfortunate that the government decided not to implement the project for double-tracking and electrification of the north-south railways. Had this been implemented we can take off much of the heavy traffic from the highways and there would be less cars clogging the roads as more people travel on medium speed express trains. Now the government may be forced to reconsider this railway project but the cost would be more than double. The longer we delay the higher the cost. Worse still the greater would be the need.

We are putting some half a million motor vehicles on the road every year. The decisions to reduce the price of cars lead to more vehicles clogging the roads, stuck in traffic jams and going nowhere.
Building more roads is not the answer. We should see more railway lines.
Business depends a lot on ground transportation. Road transport will become more and more costly as the price of oil will never go back to the old levels.

Look at it in whatever way, the answer would still be improved and more extensive network of railway lines. Presently our railway lines run north / south. We need to have more east / west lines also.

Oil Price
We have been able to enjoy cheap oil because we have a relatively small population to match our small production. By 2013-2015 we would be producing as much oil as we consume. There would be no excess oil for export at world prices. so there will not be oil export earnings to subsidise local consumption.

We can continue to sell at low prices but Petronas will have to bear the losses as it does now with gas. The other oil companies would need to be compensated if they are forced to sell at low prices. But there would be no revenue from oil exports to pay to the foreign companies. After 2015 production in the country will be less than consumption. Then we will have to import oil at world prices. Again oil prices must creep up steadily.

Petronas has gone abroad to produce oil and gas. Costs of investment for these have shot up threefold. If government takes over all the profits from Petronas to subsidise oil and pay for development. It will not be able to invest in exploration and production abroad. This would be disastrous for Petronas and for the country.


US Currency

After the hedge funds attacked the U.S. Dollar they have been forced to regularise their activities. But the current fall in the value of the US dollar is more due to the intemperate spending by the American government, although there is a currency trading element as well. Loose lending practices involving risky housing financing has created huge losses by banks, funds and institutions.


The United States is bankrupt. It has a debt of 14 trillion dollars and it consistently suffers from twin deficits in its balance of payment and government expenditure. The US dollar is backed by nothing, no gold, no foreign reserves. The only reason why it has not collapsed completely is because people still accept payment in US dollars, especially for oil. If the countries of the world cease to buy US bonds, stop paying for imports in US dollars, then the US will have no money to pay for its imports. The greenbacks would be just useless pieces of paper.

Unfortunately if the US Dollar has no value and its economy collapses, the repercussions will be felt by everyone, including Malaysia which carries 30% of its reserves in USD and sells 20 per cent of its products to the US. The resultant worldwide depression will be worse than in 1929-30. Everyone believes the United States would do something to save itself from bankruptcy. But do not rely on it toomuch. We have to think and act for ourselves. We need to prepare ourselves for a world in deep depression.

Increases in demand by two awakening giants

Today’s oil prices are far too high and will damage the economies of the poor as well as the rich.

Accompanying the rise in oil prices is the increase in the prices of raw materials such as steel, copper, aluminium and some rare minerals. This is due simply to increases in demand by two awakening giants; China and India. China’s and India’s per capita is lower than us at the moment. Imagine the purchasing power of their 2.3 billion people when their per capita doubles for example. They will suck in everything the world produces.


Standard of Living
There are in the world today high cost countries and low cost countries.
Generally the developed countries are high cost countries. Still they are competitive and their standards of living are without exception higher than in low-cost countries.

If we care to remember, we must acknowledge that relative to the past, our own costs are much higher now. I remember the days in my boyhood when 1 sen could buy two items of spices. A plate of noodles (mee) would cost 5 sen.
Today we do not talk of sen anymore. We pay for everything in Ringgit and in multiples of Ringgit

Yet we must know that despite this higher cost of goods and services our standard of living is far higher than in pre-war Malaya. Even in the early years of independence the prices of goods and services were much lower than now.
In 1967, 10 years after independence our population was 10.0 million. Today it is 27.0 million. The per capita in 1967 was 950 USD. Today it is 6,000 USD. Obviously our income growth is higher than population growth.

That is why, despite there being more of us, despite our higher cost of living,
our standard of living has actually improved.
There is something to be learnt here. Can we speed up the process of increasing income, increasing our cost of production and yet remain competitive? I
think we can.

Increasing wages
We talk of the wage price spiral and we are afraid that this might happen to us if we raise wages. We fear that cost of production would increase as wages increase and we would not be competitive. We would not be able to attract investments whether from domestic sources or foreign. But let us work out the percentage that wages constitute in the total cost.

Supposing it is 20% of total costs. If you raise it by 25% it will increase your total cost by only 5%. You can do this once a year or every two years while improving your productivity by other means, by better machines or automation for example.

Think. Malaysian costs are already higher than 30 years ago, higher than those in other ASEAN countries except Singapore. Still we are attractive. One of thegreatest assets we had was political stability and consistency in governmentpolicies. There were other things which made Malaysia attractive. If we improve on these assets, the increase in costs (not just of labour but transport and materials) will not make us any less attractive or our products less competitive.

We must also remember that the pressure of increasing prices will be felt by our competing neighbours as well. They too will have to increase their cost of production. So our cost will not be, comparatively speaking, so high as to make us totally uncompetitive.

But consider the effect of increased income all round. There will be more money to purchase goods and services. However unions must not increase their demands when wages are already being increased. Instead they should cooperate in improving productivity. In the end they will gain more.

I never liked the low wages paid our wage-earners. It restricts their purchase of goods and services. If their purchasing power is increased then retail businesses especially, would enjoy greater sale. More would be spent on leisure. Other businesses such as transportation would prosper. And government would earn more income also.
I don’t often admire Singapore or what it does. But when Singapore gained independence it carried out a programme of steadily increasing wages every year.
Some businesses and industries left Singapore but the efficiency of Singapore’s authoritarian government retained many of the investors and industries. We sometimes wonder why investors go to Singapore when they could come to low-cost Malaysia. I think you know why.



Conclusion

When people generally earn more money, they spend more money and somebody will make a profit and the government will collect more taxes. The so called mega projects contributed much towards the growth of Malaysia’s economy and increased living standards all round.

There is a lot of talk today about the increasing cost of doing business but no
talk about managing and adjusting to a high cost economy. Certainly there is no talk
about deliberately increasing and managing cost. Yet unconsciously this was what
we have been doing all these years. And we have been successful at it. Otherwise
with our higher cost we would be poorer than our low-cost competitors. But we know
we are more prosperous than them.

The world trend today is towards higher cost of everything. Our cost must
increase anyway.
We can just rise with the tide.
But since high cost goes with prosperity, why not rise above the tide by actually creating and managing a higher cost economy.

That way we can achieve our 2020 target.

Thank you.
Tun Dr. Mahathir