Narrowing disparity / inequality

1. High-performing Bumi SMEs (HPBS) To roll out HPBS programme that will develop the next generation of world-class Bumiputera entrepreneurs across all 12 National Key Economic Areas (NKEAs) championed by TERAJU. SMEs need to scale up, accelerate their growth and must be able to compete in the open market, without heavy reliance on Government contracts.

"However, the NEM does strongly seek to modify the manner in which the interests of all Malaysians are promoted through pro-poor, inclusive growth by means of market-friendly and transparent affirmative action," the NEAC said in its second and final report on the NEM.

The council said affirmative action had progressed successfully with an exemplary reduction in absolute poverty and notable advances in reducing economic functions by race. But the progress had also entailed fundamental negatives. "The implementation of affirmative action has propagated and embedded a distributive and entitlement culture and rentier behaviour.

"An insufficient number of qualified Bumiputera firms with the requisite capital resources have encouraged the establishment of spurious fronts.

"Excessive use of ethnic quotas has descended into acceptance of less qualified recipients and bred inefficiency. Preferential pricing and quotas have led to rent-seeking market distortions or perversion of the objectives," it added. The NEAC said recipients of share capital had sold off their allotments and reaped unearned windfall benefits. Deserving entrepreneurs had been marginalized with little access to finance, while rent-seekers had not really created wealth or added to economic growth.

In light of the persistent inequalities, the economically disadvantaged should be given the opportunity to overcome their disadvantaged position through the continuation of the affirmative action policy, it said.

But affirmative action must be revised and reformed by drawing lessons from and by removing the negatives and flaws from past practices.

The new approach will ensure, wherever possible, that its implementation will not undermine the functioning of the market. "The NEMs inclusiveness objective is focused on reducing disparity and uplifting the bottom 40 per cent of households," the NEAC said.

Programmes to assist the bottom 40 per cent shall be ethnically blind without any market distorting elements such as quotas or preferences or entitlements to access to financial resources, jobs, contracts and licences.

The programmes will be implemented based on the needs and merit of the applicants and will be focused on capacity and capability building, it added.

The New Economic Policy (NEP) and its successors over the years have succeeded in transforming the Bumiputera community in terms of reducing inter-ethnic income disparities, increasing participation in corporate equity, increasing the number of Bumiputera professionals and overall representation in management as well as eradicating poverty. While there have been major achievements since the introduction of the NEP, there is still a significant need to address existing imbalances in income levels and ownership of economic assets. The Bumiputera share of the economy is still small in proportion to the Bumiputera population. There are significant opportunities to improve Bumiputera representation in highvalue added occupations, management positions and high-income jobs. Bumiputera households

make up 65 per cent of total households and also represent a higher proportion of households in the lower income groups. Bumiputera ownership of share capital (at par value) of limited companies remains at 21.9 per cent in 2008, which is still short of the 30 per cent target for corporate equity ownership set at the macro level. The NEP has also led to unintended outcomes within the Bumiputera Commercial and Industrial Community (BCIC) such as the issue of quantity versus quality; small number of high calibre Bumiputera entrepreneurs and small number of regional or global Bumiputera players among others. NEM and Narrowing Disparity SRI The New Economic Model (NEM) introduced by the National Economic Advisory Council (NEAC) builds on the work of previous policies such as the NEP, with an emphasis on developing Bumiputera Small and Medium Enterprises (SMEs) and accelerating the BCIC development. The NEMs recommendations clustered in the Narrowing Disparities SRI are intended to address existing imbalances in income levels and ownership of economic assets. This is done through two policy measures to establish specific programmes for Bumiputera SMEs and to focus on capacity building programmes. In the first policy measure, the NEAC proposes that these programmes should be market friendly and transparent, and be granted on the basis of needs and merit. The Bumiputera SMEs that are products of these programmes should be self-sufficient and able to compete in a liberalised environment independently, making these Bumiputera SMEs more competitive. The second policy measure proposes that capacity building programmes should be provided to Bumiputera as well as non-Bumiputera SMEs on the same market-friendly principles, with a focus on building talent, identifying new technologies and enhancing collaboration between Bumiputera and nonbumiputera firms, as well with government linked companies (GLCs) and multinational companies (MNCs). Bumiputera-support institutions such as Majlis Amanah Rakyat (MARA), Perbadanan Usahawan Nasional Berhad (PUNB), Permodalan Nasional Berhad (PNB) and others also play an important role in identifying possible opportunities for Bumiputera participation in the 12 National Key Economic Areas (NKEAs).

ETP Workforce Requirement

ETP will create 3.3 million new middle class jobs, of which half will require diploma or vocational qualifications. The projected data based on available information would produce an annual average first degree graduates of 90,000 and vocational school graduates 60,000 for a total of 150,000; which in 10 years would produce slightly less than half the 3.3 million qualified workforce needed under ETP. However, we can find that the quality of our workforce is based on the following characteristics: 30% of Malaysians obtained higher education qualifications (2005), compared to Singapores 46%, Thailands 41% and South Koreas 89%. 80% of Malaysias workforce only received secondary level (SPM) education (2007). Malaysia has 25% high skilled workers and 75% low skilled workers (2007), compared to Singapores 49%, Taiwans 33% and South Koreas 35% highly skilled workers percentages. Workforce productivity for Malaysian labour is an average of 2.9% (1998-2007), compared to Chinas 9.2%, Indias 4.4%, Thailand 3.1% and Indonesias 3.0% labour productivity for the same period. The low quality of our workforce is compounded by: Inefficient education services delivery

In 2007, the percentage of Malaysia education expenditure as % of GDP was 4.5%. Compared to Philippines 2.6%, Singapores 2.8%, Hong Kongs 3.3% and South Koreas 4.2% our students outcome for the workforce has been low. Rising tertiary education costs and lower education quality trends

Malaysia has 20 public universities and 627 institutes of higher learning. Under the 10th Malaysia Plan, selected public universities will be corporatized and combined with private institutions of higher learning, the fee-paying structure will see fees increase from an average of RM10,000 to RM50,000 per student and it is projected that 90% of tertiary education students will enrol not in public but private institutions. This makes accessibility and affordability for quality education (only 4% of private institutions compared to 33% of public institutions academic staff has a Phd) a challenge in producing an educated workforce.

Furthermore, with 70% public institutions enrolment are bumiputeras while 95% of private institutions enrolment are non-bumiputeras, unless more proactive measures such as more scholarships and not PTPTN loans and drastic investments along with improvements in primary and secondary education are taken, the racial disparity trend will create its own set of challenges. Low world university ranking Malaysias oldest and premier university, Universiti Malaya (UM) has dropped from the top 200 of the prestigious 2010 QS World University Rankings, slipping to 207 this year compared to 180 in 2009. This would indicate that more has to be done to improve the overall quality of Malaysias tertiary education capacity to meet ETP workforce requirements. Question 8: How do we determine that the high quality of qualified workforce needed is available for the ETPs? Question 9: Are we going to welcome qualified immigrants to join our workforce? ETPs Innovation Key Success Factor

Innovation is one of the most critical factors to move up the economic value-chain and escape the middle income trap.

However, Malaysia currently has a low research and development (R&D) capacity based on the following statistics: 2006 World Bank data indicates that Malaysias R&D expenditure as a % of GDP was 0.6%. Compared to South Koreas 3.2%, Singapores 2.3%, Australias 2.2% and Chinas 1.4%, Malaysia has a lot more to do to prioritise its spending. And based on the number of R&D researchers per million population, Malaysia had 372 researchers per million population. Compared to South Koreas 4,187, Singapores 5,736, Australias 4,231 and Chinas 927 per million population, again Malaysia has to prioritise its human capital development.