Download here - The Malaysian Institute Of Certified Public Accountants

MICPA
51st Anniversary Commemorative
Lecture
The New Economic Model and the Role of Accountants
Andrew Sheng
Member, NEAC
Kuala Lumpur
20 April 2010
All views expressed here are personal to author.
Introduction
The NEM principles and policy direction
Five Key Questions:
I.
Where are we? Malaysia is suffering from lacklustre private investment, lack of innovation, a lowskilled labour force, and governance structure which is not conducive to business development.
II. What’s happening around us? The global landscape is changing with leading countries exhibiting a
new set of distinguishing characteristics.
III. Which advantages do we have? Malaysia exhibits a host of advantages, including biodiversity and a
natural resource base, strategic location in a high growth region, a well-established manufacturing
base, and an attractive standard of living.
IV. Where do we want to be? Malaysia wants to be an Advanced Nation, meaning a high income,
inclusive and sustainable economy, by year 2020.
V. How do we get there? The NEM will be enabled by key actions involving political leadership and
Rakyat preparedness, driven by a set of strategic initiatives.
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Section I
I. Where are we?
II.
III.
IV.
V.
What’s happening around us?
Which advantages do we have?
Where do we want to be?
How do we get there?
The NEM Strategic Initiatives
National Economic Advisory Council
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Post Asian Crisis, our growth rate has been mediocre
We are no longer a clear leader in the region
Average annual GDP growth
Pre-crisis
Post-crisis
1990-1997; %
2000-2008; %
China
China
Malaysia
Vietnam
Singapore
India
Vietnam
Malaysia
S. Korea
Singapore
Taiwan
Indonesia
Indonesia
Philippines
Thailand
S. Korea
India
Thailand
Philippines
Taiwan
US
UK
UK
US
Japan
Japan
Average 6.0
Our growth rate is
now equivalent to
that of our
neighbouring
countries
Average 5.0
Source : BCG, The conference Board Groningan Growth and Development Centre, Total Economy Database 2009
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Major concerns voiced out by
potential investors
Mainly on the lack of talent and red tape
Two main recurring themes voiced out by stakeholders during consultative
engagement groups
 Available talent and skills not forthcoming from Malaysia. Potential firms are
finding it hard to justify setting up operations in Malaysia due to the appropriate
lack of skills being available
 Highly bureaucratic administration and overly cumbersome red tape increases the
cost and time invest and do business in Malaysia comparatively
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Talent is lacking and wanting
Human capital has been leaving the country and we are not nurturing enough local talent
Number of skilled expatriates in Malaysia
Graduates from IPTA and IPTS in degree programme
2000-2008; no. of workers
2002-2007; no. of graduates
83,119
82,700
72,065
68,035
# of workers
57,107
9%
12%
32%
62,211
58%
2002
2003
55%
49%
2004
2005
National Economic Advisory Council
57% Arts
52%
2006
2007
1999-2009; no. of graduates
Manufacturing
65,000
Construction
Other
Education
60,000
72,557
70,489
70,026
68,384
69,310
70,000
64,933
64,645
63,875
58,586
57,782
55,000
50,000
49,448
Source : MOE and MOHE
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
45,000
1999
Source : BCG, DOS, NER 2008
26% Science
Graduates from technical and vocational schools
75,000
Services
31%
34%
29%
58%
Total
18% Technical
17%
16%
30%
CAGR
-9%
17%
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Present Malaysian workforce and jobs not conducive for growth
Educational profile of workforce and jobs are cause for concern going forward
Malaysia : 80% of workforce educated up to SPM level only
Jobs : Only 25% of Malaysian jobs are in the higher skilled
bracket. Developed nations have higher proportion
Source : Malaysia DOS, Korea International LabourOrganisation, Taiwan Department of Statistics
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Dominance of low skill levels across almost all industries
This denotes the daunting work to upgrade skills to move up the value chain
Malaysian Labour force 2007 in thousands
1,871
1,807
1,450
1,246
972
858
537
487
257
Source : DOS, EPU Economic Model
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Doing business in Malaysia is difficult thus losing out comparatively
Institutional structures and processes impede investments
Global ranking according to Doing Business 2010 report – Malaysia losing out on all counts
Ease of Doing
Business
Starting a
Business
Dealing with
construction
permits
Registering
property
Trading across
borders
Enforcing
contracts
Singapore
1
4
2
16
1
13
New Zealand
2
1
5
3
26
10
Hong Kong
3
18
1
75
2
3
US
4
8
25
12
18
8
UK
5
16
16
23
16
23
Thailand
12
55
13
6
12
24
Japan
15
91
45
54
17
20
S. Korea
19
53
23
71
8
5
Malaysia
23
88
109
86
35
59
Source : World Bank
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We continue to lose out to our
Asian neighbours
We spend less on scientific research
Country scientific infrastructure ranking
Ranking
1997
2008
China
28
6
Indonesia
35
25
Malaysia
24
28
India
29
29
Expenditure on R&D (% of GDP)
Ranking based out of 55 countries
Source : DOS Malaysia, World Bank and IMD, BNM
National Economic Advisory Council
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Low wage growth for majority of workers constrains consumption
58% of households have income less than RM3,000 per month
Top 20%
earners
Income Gap
Widening.
Greater
Disparity in
Distribution
Middle 40%
earners not
much better
than bottom
40%
Bottom 40%
earners having
the slowest
growth
Source : NEGG various Household Income Surveys, BNM Data. All in 1999 Constant Prices
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These deficiencies are preventing us
from moving forward
Fundamental reform is long overdue
Education sector failing to
deliver talent to the economy
The lower income group
(<RM 3,000) is falling behind and
not realising its potential
contribution
Private sector short-sighted
Perception of high levels of
corruption
Labour market distortion
impeding productivity
We are trying to
compete globally
with significant
handicaps
Ineffective and siloed
government bureaucracy
impeding investment
Controlled pricing system that
results in gross misallocations
Loss of top talent from Malaysia
Ethnic-based economic policies
encouraging rent-seeking and
patronage
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Section II
I.
Where are we?
II. What’s happening around us?
III. Which advantages do we have?
IV. Where do we want to be?
V. How do we get there?
The NEM Strategic Initiatives
National Economic Advisory Council
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Global dynamics
The post-crisis global environment is changing very fast
LEADERSHIP
GOVERNANCE

 Economic epicentres shifting to China & India
 Fast, nimble high-income ICT competitors, e.g.
Korea, Taiwan, Israel

 Resource-rich countries,

such as Canada, Australia,
and Middle East prospering
PEOPLE
PLANET




National governance becoming more bottomup
Public Private partnership collaboration
Trade barriers continue to come down but
bilateral and regional
trade blocs
are increasing
 Internet
changing
information transparency
and discourse
Skills and talent more mobile
Values and incentives clashing
PROFITS / PRODUCTIVITY
Security and well-being jeopardised
Hunger for greater inclusiveness and
equality
 Climate change
 Excess consumption and waste depleting nonrenewable natural resources
 Sustainable growth comes from nurturing
healthy ecosystems
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 Branding, networks,
distribution and supply
chains determine profits
 Technology and innovation drive productivity
and profits for high value services
 Speed to market is critical
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Section III
I.
II.
Where are we?
What’s happening around us?
III. Which advantages do we have?
IV. Where do we want to be?
V. How do we get there?
The NEM Strategic Initiatives
National Economic Advisory Council
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We are blessed and well bestowed with gifts
Rich in culture, biodiversity and natural resources
Mega-diverse countries
 Malaysia has a rich array of
ethnicities, with diverse cultures
spread across the Peninsula,
Sabah and Sarawak
 Malaysia is one of the 17 megadiverse countries identified by
the United Nations Environment
Programme (UNEP) as
harbouring the majority of the
earth’s species. Some 60% of
Malaysia remains forested
 Malaysia is well-endowed with
natural resources in agriculture,
forestry and minerals
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Our country is strategically located in a high growth region
Perfectly located as a potential hub with added speed to market advantage
Real GDP growth
2008; %
 Bilateral trade between Malaysia and China
was US$53.5 billion in 2008, a 15% increase
over 2007
 Bilateral trade between Malaysia and India
set to exceed US$10 billion in 2009
China 9.0
MENA 5.1
Malaysia
4.6
India 7.3
Indonesia 6.1
Australia 2.1
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 China, India and East Asia are likely to be
major sources of new FDI/FPI as they seek
currency stability, access to natural resources
and niche markets that reinforce bilateral
ties
 Malaysia has inherent characteristics (e.g.
language networks) that can develop
tourism and industry links that tap into MCI
growth
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We have reached the current level of development with low poverty
We have a strong foundation to move up the value chain
USD
Per capita GNI at current prices
1970-2007; USD
 All ethnic groups recorded progress in
poverty reduction and average
incomes
Malaysia has been classified as
“upper-middle income” since
1992
 The past approaches have focussed
on the two-pronged NEP –
eradication of poverty irrespective of
race and the restructuring of society
to correct the identification of race
with economic function
Incidence of poverty
1970-2007; %
Gini coefficient
Incidence of
Poverty (%)
Source : EPU and NEAC Analysis
National Economic Advisory Council
 Absolute poverty was above 40% in
1970, but declined to 3.6% in 2007 despite slower growth in the post2000 period
 The income disparity ratio for the last
30 years between the Bumiputera
and non-Bumiputera has narrowed
The Gini coefficient is a measure of statistical dispersion of
income or wealth. The closer the Gini coefficient is to 0, the
smaller the dispersion - or the greater the wealth equality.
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Section IV
I. Where are we?
II. What’s happening around us?
III. Which advantages do we have?
IV. Where do we want to be?
V.
How do we get there?
The NEM Strategic Initiatives
National Economic Advisory Council
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The Goals of the New Economic Model
(NEM)
Aspirations of a united and advanced nation in line with the 1Malaysia concept
Goals of the New Economic Model
Characteristics of
Malaysia in 2020
High Income
Targets US$15,000 - 20,000
per capita by 2020
• Market Led
• Well-Governed
Rakyat
Enables all
communities to
fully benefit from
the wealth of the
country
Quality of Life
Inclusiveness
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Meets present
needs without
compromising
future generations
• Regionally Integrated
• Entrepreneurial
Sustainability
• Innovative
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What it would mean for the Rakyat
With inclusive programmes to support the low income and vulnerable groups affected
Benefits for the Rakyat
 Fulfilling jobs with good wages
 Attractive homes in safe surroundings
with good public facilities
 High mobility with low environmental
impact
 Excellent health care, accessible by all
 Access to high quality education in every
community in the country
 Advancement based on merit and effort
 A better Malaysia for future generations
from a sustainable economy
 Fair and respectful treatment by
government agencies, regardless of
status
 Safety net for the vulnerable, especially
when impacted by national
transformation
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Specific programmes are needed to help
the bottom 40% in particular
 Extra effort is needed to ensure the low income
group, especially those in rural areas, have access to
quality social services –especially education –which
will help improve their livelihood
 A proper social safety net must be created to help
the low income group hardest hit during the NEM
transition period to cope with changes
 Extra efforts to ensure small and micro businesses
have access to funding
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To get there, we need to do things
differently – New Approach
We know where we are & where we want to be, so how do we bridge the gap?
Old Approach
New Approach
1
Reliance on capital accumulation
Productivity and economies of scale drive growth
2
Centralised strategic planning
Grant autonomy with accountability to government
institutions
3
US/Europe/Japan orientation
Expand orientation to Asia and Middle East
4
State-led accumulation/ industry
champions
Private sector-led/ level playing field
5
Equity of outcome/ preferential
access
Equality of opportunity to draw out the best out of all
Malaysians but ensuring the inherently disadvantaged
are given due support to enable them to compete
6
Restrictions on foreign skilled
workers to protect locals
Embrace networks of skilled professionals
7
Picking sectors for growth
Create economic growth by leveraging on the inherent
capabilities of firms
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Advanced countries achieve growth
through K-based activities
To do so, four pre-conditions are required that do not yet exist in Malaysia
Excellence in
institutions of
higher education
Diverse and
highly liquid
capital markets
Mature
legislation and
regulations
Stable
macroeconomic
conditions
Knowledge
Economy
The NEM will result in these conditions
National Economic Advisory Council
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Section V
I.
II.
III.
IV.
Where are we?
What’s happening around us?
Which advantages do we have?
Where do we want to be?
V. How do we get there?
The NEM Strategic Initiatives
National Economic Advisory Council
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The New Economic Model (NEM)
The policies and strategic initiatives
Enabling Actions
Strategic Initiatives
Outcomes
Coherent “big push” to boost transformation and growth
Middle
Income
Trap
Risk
Break logjam of vested
interests through political will
and leadership
Prepare Rakyat for change
1.
Improve functioning of
labour market
2.
Increase private sector
profile
3.
Re-engineer public
institutions
4.
Improve the national
talent base
5.
Transform economic
structure and
technological base
6.
Reform fiscal
framework
High
Income
Rakyat
Quality of Life
Inclusiveness
Sustainability
Feedback: Review, Revise
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The enablers for launching the NEM
Political leadership and Rakyat preparedness
Actions enabling change
Break logjam of vested interests
through political will and
leadership
Resistance to change
Strategic Initiatives of the NEM
1.
Improve functioning of
labour market
2.
Increase private sector
profile
3.
Re-engineer public
institutions
4.
Improve the national talent
base
5.
Transform economic
structure and technological
base
6.
Reform fiscal framework.
Prepare Rakyat for change
Coherent “big push” to boost
growth
1Malaysia attitude: united for
the benefit of the whole country
National Economic Advisory Council
Protected industries, employers
of foreign labour, licence holders,
subsidised input users and experts
at doing business the old way
Politicians, representing constituents
who feel that they are not benefiting
from the NEM
People who have enjoyed subsidies,
government grants, secure jobs and
a stable lifestyle
Me before Malaysia attitude:
looking at own interests first
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Leveraging on Well Placed Sectors
Higher income for business owners and employees
Selected Sectors - Non Exhaustive List
Financial Services
Export Services
Oil & Gas
Export Services
Palm Oil
R&D and
Downstream Activities
Electrical &
Electronics
Design and R&D
Tourism
Eco - Tourism
Agriculture
R&D on Yield
Management
• Financial services are well developed and rank highly in the
region with a global competitive edge in Islamic finance.
We have the depth, breadth and talent to export services
• High demand for O&G services set to continue. Advanced
platform in inherent strength of well developed talent pool
and entrenched industry. Able to compete globally
• Top world producer and exporter. To push for more
downstream activities in the areas of R&D on oleo
chemicals, pharmaceuticals and food derivatives
• Higher value added activities lie in Design and R&D
emphasising on talent and skill resulting in higher output
value, margins and wages
• Natural biodiversity gives Malaysia a competitive edge
against others in the region. New approach is to attract
high value tourist for this segment
• Modernisation of the agro based activities by expanding
and enhancing use of technology in practices and R&D.
Comercialising R&D by PORIM and yield management
National Economic Advisory Council
Sectors with potential to
drive growth and revenue generating higher income
Characteristics would be
industries and sectors of an
advanced stage with a growth
potential based on criteria of
comparative and
competitive advantage both
domestically and regionally
With the exception of Oil & Gas
and Financial Services that are
ready to go, there is work to be
done for the others
Reforms to improve and
private sector investment
imperative to realise and
maximise potential
www.neac.gov.my
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The New Economic Model (NEM)
How best to describe the Nation in 2020
Characteristics of Malaysia in 2020
Market Led
Well-Governed
•The private sector will drive competitive MARKET-LED growth with more investments in
high-value added goods and services
• WELL-GOVERNED and leaner government institutions will be held accountable to
performance-based outcomes, becoming an efficient facilitator with a supportive regulatory
framework. Firms and civil society will adopt internationally accepted governance standards
Regionally
Integrated
• Being REGIONALLY INTEGRATED , the economy will benefit from expansion of production
networks, supply chains and larger markets
Entrepreneurial
• The ENTREPRENEURIAL spirit will make the most of growth opportunities from available
financing, facilitated by a conducive business environment
Innovative
• INNOVATIVE products and services will excite market demand, utilising state-of-the-art
technology from home-grown and global innovation centres. Innovative processes will drive
efficiency to higher levels
National Economic Advisory Council
www.neac.gov.my
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Section V
I.
II.
III.
IV.
Where are we?
What’s happening around us?
Which advantages do we have?
Where do we want to be?
V. How do we get there?
The NEM Strategic Initiatives
National Economic Advisory Council
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Strategic reform initiatives are imperative
Cross cutting Issues across all industries to address the economic downward spiral
1. Institutional Reforms
 Reforming the Government Delivery System
 Legal and Regulatory Framework.
2. Improve functioning of labour market
 Removing Distortions, Impediments and Regulatory Framework.
3. Improve the national talent base
 Foreign : Retention and Attraction
 Domestic : Production of Local Talent to Meet the Demands of the Industries in
the Future.
4. Transform economic structure and technological base
 Fostering Innovation and Managing natural resources
5. Reform fiscal framework.

Reviewing the Pricing, Incentives and Subsidies
6. Increase private sector profile

Balance between public and private sector roles
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Transforming Malaysia
The Two Pillars of the National Transformation Programme
1Malaysia – People First, Performance Now
Preservation and Enhancement of Unity in Diversity
Government
Transformation
Plan (GTP)
Economic
Transformation
Programme (ETP)
High
Income
Rakyat
Quality of Life
Inclusiveness Sustainabiliy
Effective Delivery of
Government Services
New Economic Model
A High Income, Inclusive
And Sustainable Nation
10th & 11th Malaysia Plan Roll-Out
Macroeconomic growth targets & expenditure allocation
Implementation of Government’s Development Programmes
www.neac.gov.my
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Role of Accountants
• The Service Sector is key to development of
the Knowledge Society
• Accountants play a major role in the
Knowledge Economy, from data classification,
verification to data analysis
• Accounting skills are a core competence of
Malaysia, but how much have we leveraged
this?
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Should we Export Accountants or Increase
Outsourcing Income?
• By relying on old model of cheap clerks and smart
partners, we are exporting our talent abroad due
to higher overseas pay.
• Why don’t we invest in clusters of accounting
talent to do outsourcing high value accounting
work in Malaysia?
• Why don’t we do more research in Accounting
Value added services, such as data-base
management and conversion of accounting data
into business data, eg. IFRS and XBRL?
National Economic Advisory Council
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Example: Market Niche in Knowledge
Value Added
• IAS, IFRS, Basle II, IOSCO standards are getting
more complex and do not fit most emerging
markets and SMEs.
• Conversion of raw accounting data into
business and user-friendly language is major
business, e.g. XBRL
• Can we build on IFRS for SMEs to develop
export income from services?
National Economic Advisory Council
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IFRS for SMEs
• On 9 July 2009 the IASB published an
International Financial Reporting Standard
(IFRS) designed for use by small and mediumsized entities (SMEs).
• SMEs are estimated to represent more than
95 per cent of all companies. The standard is a
result of a five-year development process with
extensive consultation of SMEs worldwide.
National Economic Advisory Council
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Why did the IASB undertake this
project?
• Full IFRSs were designed to meet the needs of equity
investors in companies in public capital markets, they cover
a wide range of issues, contain a sizeable amount of
implementation guidance and include disclosures
appropriate for public companies.
• Full IFRS too complex and costly for SMEs, which are more
focused on assessing shorter-term cash flows, liquidity and
solvency.
• Full IFRSs impose a burden on SMEs— a burden that has
been growing as IFRSs have become more detailed.
• IASB’s twin goals were to meet user needs while balancing
costs and benefits from a preparer perspective.
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We can replicate this work across other
areas
• Develop Malaysia as centre of excellence in
accounting and information upgrading
• We need strong research Professors of
Accounting and clusters of accounting R&D
• Just servicing the financial centres in Hong
Kong and Singapore in data
conversion/outsourcing could be a viable
business, let alone capture of new businesses
in Middle East, China and India.
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Accountants can help transform the HR
skills landscape
• Accountants bridge the gap between theorists
(e.g. economists) and ground-level
implementation
• Feedback from the accounting profession crucial
in the area of implementation of NEM key to
transformation of the economy – transparency,
accountability, execution.
• Malaysian accountants must continually upgrade
not only to service, but to lead, national
transformation.
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Questions to
[email protected]
39
National Economic Advisory Council