Speech by the Lim Guan Eng, Penang Chief Minister in the investPenang Industry Dinner (en/cn)

Speech by the Lim Guan Eng, Penang Chief Minister in the investPenang Industry Dinner at Penang Golf Club on 10th April 2014

Emerging Penang In An Emerging Asia: Escaping The Middle-income Trap

A very Good Evening,

It is indeed a pleasure speaking to you in this special occasion tonight on Business and Investment Updates in Penang.

Penang is one of the top three tourist destinations and investor location of choice in Malaysia. For the first two months of this year Penang airport domestic arrivals recorded a 33.4% increase compared to the same period last year whilst foreign airport arrivals recorded a 8.23%. Penang was the top foreign direct investment (FDI) state in Malaysia for the period of 2010 to August 2013 amounting to RM 19.7 billion or nearly 20% of Malaysia’s total FDI of RM 103 billion.

Apart from being the investment location of choice of almost all of the top electronics, L.E.D., medical devices and aerospace companies in the world, Penang has been recognised as a cost-competitive location by the International Institute for Management Development 2012 World Competitiveness Yearbook. There is no doubt that Penang is slowly emerging in an emerging Asia.

However is this enough to escape the middle-income trap? Following the World Bank’s definition of middle-income status (countries with per-capita income of US$1,036-US$12,516 (RM41,052), there are eight countries that fall into this category in East and South Asia: Malaysia, Thailand, Indonesia, the Philippines, Vietnam, China, India and Sri Lanka.

In the simplest sense, the middle-income trap denotes a situation where developing economies that have achieved middle-income status find it challenging to compete with low-income economies whose resource-driven growth is backed by low-cost labour and capital, and advanced economies whose productivity-driven growth is supported by innovation.

Sandwiched between the two, prior economic strategies no longer remain effective at producing economic growth of yesteryears. Coupled with governance problems that impede the necessary institutional and policy changes needed to graduate into the ranks of advanced economies, the result is a steady decline and an eventual stagnation in economic performance.

Further challenges also emerged, such as social cohesion, a sizeable group of young population in search of employment, as well as the failure to eradicate poverty, primarily in lagging countries. Fundamentally, the middle-income trap is an economic governance issue. Undeniably, policy paralysis is the biggest impediment to growth, especially the failure to address issues of public integrity, Social justice, economic prosperity, democratic accountability, political dignity.

The Penang state government has worked hard to implement people-centric policies to address these socio-economic justice issues and recognising political rights to allow us to live with dignity. Most importantly we believe that national unity can only be achieved and social harmony can only exist when we celebrate our diversity and respect our differences.

A more inclusive and sustainable growth strategy will be needed, and this essentially means exercising economic reforms are crucial. Some key structural challenges facing emerging markets include; infrastructure investment, increasing innovation through research and development and promoting entrepreneurship, and investing in human capital by way of revamping education systems in order to produce highly-skilled workers and professionals, among others to effect productivity on a broader scale.

Preparing Penang For The Future.

External shocks will bear significant impact on Malaysia and Penang, being that our economy is still largely dependent on export-oriented manufacturing. Whilst it is impossible for anyone to predict the financial markets, it is important to remember two things:

1. A rising tide lifts all boats; and

2. Only when the tide recedes do you discover who is swimming naked.

As a responsible government in Penang, we believe in being prepared. For when the day comes that the tide turns, we do not want to be caught naked but instead be the best equipped amongst our peers. In other words, I am talking about strengthening our financial position.

Since taking over in 2008, the Penang state government established a budget-based administration and governance based on the principles of CAT (Competency, Accountability and Transparency). Through the implementation of open competitive tenders for all public procurements and tenders, requiring all state elected representatives to make public declaration of assets and full disclosure of government contracts signed with the private sector, making CAT governance of competency accountability and transparency our core values.

Thus Penang have been able to record budget surpluses every year without increasing any rates, increase our state assets by 50% from RM800 million to RM1.2 billion, rescue a local government(Seberang Perai Municipal Council) from bankruptcy within only one year and more importantly reduce our state debts by 95%. These achievements have been corroborated by Transparency International as well as the annual Auditor-General’s reports.

As we move forward, the government is upgrading from a budget-based administration that plugs leakages and cuts waste or inefficiencies to an outcome-based administration which stresses on positive impact and difference to the stakeholders that generates economic growth (pro-growth), creates employment opportunities (pro-jobs) and foster equitable justice (pro-poor).

Penang believes that economic growth alone is not enough if income inequality is not reduced through equitable distribution of wealth. 40 years after Arthur Okun’s book of “Equality and Efficiency:The Big Tradeoff”,International Monetary Fund’s economists have concluded that reducing inequality accelerates not reduces economic growth not in occasional spurts but sustained growth.

Hence, Penang is not only the first state in Malaysian history to wipe out corruption but also the first state to wipe out poverty. Adopting the unconditional cash transfer or UCT model of topping up all families whose monthly household incomes are below the poverty line of RM790 per month, Penang has managed to free itself from absolute poverty. Now, we are focusing on reducing relative poverty through cash aid and providing affordable home ownership by building 20,000 affordable housing units throughout the state in addition to another 20,000 units more from the private sector supply.

Penang has relied on the twin economic engines tourism whether medical, education or recreation in nature and manufacturing in electrical and electronic sectors, automation, medical devices and aerospace. However, the key to future economic success is not an over-reliance on one sector but to seek convergence of not only the manufacturing sector but also both the services and government sector.

Penang is investing in the shared services sector through a RM 3.3 billion Business Process Outsourcing and Information Technology Outsourcing(BPO-ITO) hub that will see the creation of tens of thousands of high-paying and knowledge-intensive jobs. Already, global financial services firm Citibank has opened their Global Citigroup Transaction Services centre here, employing more than 1,000 local employees with an annual volume of 20 million transactions worth USD5.8 trillion.

In addition to Citigroup, other companies that have set up their shared services here include Wilmar, Air Asia, HIS, Atmel, Toll Forwarding and Jurong Shipyard. In total, the IT-BPO Hub will comprise of 74 acres of IT-BPO Park in Bayan Lepas, a planned development of 7 acres BPO Prime in Bayan Baru for ICT companies and a 100,000 sqft Creation Animation Triggers (CAT) in the George Town heritage enclave.

In pursuit of our goal to become an international and intelligent city, we have taken the important steps of institutionalising the fundamentals of rule of law, good and clean governance, as well as integrity in leadership. Following on from that, we have established outcome-based administration that focuses on creating a rising tide that lifts all boats. However building and retaining human talent will be critical.

Decentralization Of Education To Give More Power To Schools To Decide How To Improve On Their Students’ Performance.

Malaysians should be “alarmed” that their children were doing worse in school than children in Thailand and Vietnam, which are poorer than Malaysia. The Programme for International Students Assessment or PISA 2012 ranked Malaysian students at 52 out 65 as compared to Vietnamese students ranking of 17 out of 65.

Malaysia’s poor PISA results contradicted BN’s claim that Malaysia has a world class education system on par with United Kingdom highlighting instead the weakness of our school system despite education receiving the largest share of national budget annually. Global management consulting firm McKinsey suggested what schools need to do after studying 25 of the world’s school systems, including the top performers in PISA tables.

As reported in The Edge, schools need to do three things:

• get the best teachers;

• get the best out of teachers; and

• step in when pupils start to lag behind.

This is where the Malaysian Education Ministry needs to invest in if Malaysia wants to meet its objective of being in the top third in the PISA ranking. Based on the total amount spent on education per student in the six to 15 years age range, over a 10 year period(eduex) that is above the per capita GDP.

Almost all of the performers in the top third spend more than 100% in eduex above their pcGDP. The OECD average is 147%. Malaysia on the other hand is at the bottom of the PISA spectrum and spends the least amount compared with all the countries listed in the chart – a mere 12% on eduex above pcGDP. Even Thailand with a lower pcGDP than us, spends 43%. It is ironic that Malaysia’s education budget allocates a huge amount for education, but lags behind. It is time we give some attention to students in the 6 to 15 years range.

Malaysia must be bold on decentralisation to give more power to schools to make their own decisions based on their local circumstances. There is no one six-fit-all education system. After you cannot teach a fish how to climb trees. Further, schools can be more efficient by grading them on performance and merit which will compel them to seek better trained teachers. Ultimately it is the school teachers that makes the difference and can inspire students towards excellence.

Education is our lifeboat to the future. Not only can it reduce inequality, it can provide mobility and opportunity to all. Only a sound education foundation can provide ladders of opportunity and escalators to mobility. Penang state government is adopting a 3-prong approach towards strengthening our education system:-

Giving annual funding to existing half-funded vernacular and religious schools;

Building Learning centers that focus of STEM teaching of science, technology, English and Mathematics; and

Attracting world class universities as well as adopting the German vocational school system within multi-national corporations.

These are huge challenges and success is yet uncertain. But we must be willing to try and invest in education. For only when we boldly invest in the future then can we win the future. In summary winning the future for Penang requires 5 critical success factors.

Good governance that is competent, accountable and transparent (C.A.T.);

Encourage human capital formation;

A functioning rule of law;

Building up communications infrastructure

A livable Penang with a dynamic art and cultural environment that is cleaner, greener, safer and healthier

Making Penang cleaner, greener, safer and healthier will be crucial towards realizing our vision to transform Penang into an international and intelligent city. Our ambitious plans will be reliant on our one and only resource, our human talent. We believe in your energy, expertise and entrepreneurship will help Penang escape the middle-income trap and provide high paying jobs.

LIM GUAN ENG

— CN Version —

槟州首席部长兼槟州绿色机构主席林冠英于2014年4月10日晚上8时在槟城高尔夫球俱乐部出席《投资槟城工业晚宴》之演讲稿的部分概要 :

槟城在崛起的亚洲中露出光芒:逃离中等收入陷阱。

槟城是我国三大旅游景点及投资首选地。今年首两个月从槟城机场的国内班机人次比去年同时期上升了33.4%。而外国航班入境人次为8.23%。槟城在招商引资方面在2010年及2013年8月期间,排名全国第一,达197亿令吉,占了全国外国投资额1030亿令吉接近20%。

除了是世界级电子电气丶LED丶医疗仪器丶航天仪器及投资者首选地,槟城也被2012年管理发展国际机构世界竞争力年刊视为最具价格竞争力的地点。无疑地槟城正在崛起的亚洲中露出光芒。

但是,这是否可以让人们脱离中等收入陷阱?世界银行针对中等收入的定义是:人均收入为1036美元或1万2516美元(4万1052令吉),在东亚及南亚地区共有八个中等收入国家:马来西亚丶泰国丶印尼丶菲律宾丶越南丶中国丶印度及斯里兰卡。

更简单地说,中等收入陷阱代表一个情况那就是发展中国家经济体已经达到中等收入地位,要与那些由资源主导成长丶廉价劳工及资本的低收入经济体,或者由生产力驱动成长丶具创新能力的先进经济体皆比上不足丶比下有余。

夹在上述两个经济体之间,前几年那些经济成长的策略已经无效。加上施政问题,妨碍在晋升成为先进经济体所需要的体制及政策的改变,结果,不进则退最终让表现停滞。

各种挑战也应势而生,例如社会内聚力丶一大群年轻人在找工作,扶贫政策的失败,特别是落后国内。基本上中等收入陷阱是经济管理问题。无可否认,政策瘫痪是成长的最大阻碍,特别是他们没有办法应对公共廉正丶社会公义丶经济繁荣丶民主问责及政治尊严。

槟州政府已经更加努力推行以民为本的政策,来应对这些社会经济公义及承认经济权利来允许我们活出尊严。更重要的是,我们相信唯有发扬多元丶尊重差异,我们才能达到国民团结及社会和谐。

我们需要包容性及永续成长的策略,这意味着经济改革是至关紧要的。在崛起的市场面对的关键结构性挑战包括:基建的投资丶通过研发及推广企业精神鼓励创新丶改革教育制度投资在人力资本,以栽培高技术工人及专业人士,创造更高价值的生产力超越其他人

下放教育权力,让各自学校有更多的权力决定如何提升学生的表现。

大马人必须要警觉他们的小孩在校的表现已经落后比大马更贫穷的泰国及越南小孩。2012年国际学生能力评估计划(PISA)中,大马学生在65个国家名单中排在52名,越南则排在第17名。大马在这项评估获得这么差的结果,与国阵声称马来西亚的教育制度是堪比英国,属于世界级的言论自相矛盾。即使我们的教育每年获得大量预算,但是我们的学校制度却依然一团糟。

根据财经报章《The Edge》报导,全球管理顾问公司麦肯锡在研究全世界包括在PISA评估名列前茅的25个教育系统之后,做出如下3点学校必需如何做的建议:

• 找最好的师资;

• 再从好的师资中找出更杰出的;

• 一旦学生开始落后马上介入

如果马来西亚想要在PISA评估中排名前三份一的前列位置,以上就是马来西亚教育部必须要投资的领域。每位6岁到15岁学生的十年累积教育开销,得高于国民人均生产总值。

几乎全部在评估中名列前三份一的教育系统,他们的累积教育开销都比国民人均生产总值高出100%。

经济合作与发展组织(OECD)的平均为147%。另一方面,马来西亚则在国际学生评估计划垫底的部分,与其他国家相比之下,我国花在每名学生累积支出的钱是最少的(请参考图表)– 仅仅超越人均国内生产总值的12% 。即使是人均生产总值比我国逊色的泰国,也花43%。讽刺的是,马来西亚的教育预算拨出巨额的教育拨款,却表现落后,是时候我们必须关注6至15岁年龄层的学生了。

大马必须大刀阔斧下放教育权力,让学校有更大权力针对各自地方环境自行决策。世界上没有一个万能通用的教育系统。你不可能教鱼如何爬树,因此,透过受到更良好训练的师资,让学生的表现及绩效提升,学校应该可以更有效率。说到底,学校的师资最终可改变一切,可以启发学生精益求精。

教育是我们未来的救生艇。它不仅可以减少不平等,同时他可以提供流动性和机会。只有拥有教育基础可以取得机会的梯子和流动性。槟州政府正采取3个步骤,三管齐下加强我们的教育体系:-

每年制度化拨款给半资助和宗教学校。

增设学习中心,专注于STEM学,即科学和科技丶英语和数学;和

吸引世界顶尖大学,以及透过跨国公司采纳德国职业学校的制度。

这些都是巨大的挑战,成功与否仍是个未知数。但是,我们一定要愿意尝试, 投资在教育领域上。只有勇于尝试,我们才能赢得未来。槟城要赢得未来的5项成功因素:

一个好政府备有 能干丶公信和透明(CAT)的施政方针;

鼓励增加人力资本

法治运作

增设基设通讯系统

一个充有活力艺术和文化环境的宜居城市槟城将会更清洁丶更环保,更安全和更健康

塑造更清洁丶更绿意丶更安全和更健康的槟城将成为我们朝向实现槟城为国际及智能城市愿景关键。我们雄心勃勃的计划依赖于我们唯一的资源,我们的人才。我们相信,您的活力丶专业知识和创新的精神将帮助槟城逃离中等收入的陷阱,和提供高收入的工作。

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