Addressing the middle income trap issue in Malaysia

Dato’ Praba Thiagarajah was invited to speak on one of the episodes of Who Controls Your Money, an economics and finance talk show which airs over 13 episodes on RTM (Radio Television Malaysia).

Addressing the middle income trap, a situation where a middle-income country fails to transition to a high-income economy due to rising costs and reduced competitiveness, Dato’ Praba shared his thoughts on Malaysia’s place within the global economy. The 40-minute discussion, moderated by Jaswinder Maan, also featured Associate Professor Andrew Kam Jia Yi from Universiti Kebangsaan Malaysia

Highlights of a few key points discussed include:

Addressing structural issues

No nation desires to be stuck in a particular income bracket of per capita income and, within Malaysia, there are a number of structural challenges which need to be addressed including racial and other types of discrimination, representation, the rising divide between the rich and the poor.

Resolving these challenges means addressing the issues relating to our political landscape and the capabilities of the leaders behind the agencies seeking to make a difference.

It is about addressing the elephant in the room: Malaysia’s economic problems which result from unaddressed political and social issues. We also fight against a colonial mentality which affects home-grown entrepreneurship.

These unaddressed issues are a few of the reasons why we continue to suffer a nationwide brain drain. While the government has, over the years, laid down good initiatives such as the free trade zones and the development of Cyberjaya as a technology hub, one of our biggest challenges has been execution and ensuring that the interests of all our people are protected.

Working to find our niche
 Economies need not always follow the path of transitioning from agriculture to manufacturing, and then to services, adding value along the way. This is not the only path forward.

While there is value in welcoming foreign-owned businesses into the country, innovation need not only surface in established ecosystems such as the Silicon Valley in the United States.

It is about challenging the average, looking within, changing our mindset, and understanding that we do not always have to take small steps. We can leapfrog. We can figure out our niche and focus on local consumption, as we have seen successfully implemented in China.

Further, we do not need to necessarily choose agriculture, manufacturing or services or even attempt to do all of it. Perhaps, a hybrid is what is needed, and within that, an identified niche. When we choose to compete at a higher level, we change the game for ourselves and others.
 

Greater appreciation of DDI
 As a country, we need to support and encourage more DDI (domestic direct investment).

FDIs (foreign direct investments) come, and as easily, leave. They do not always have a sense of loyalty to the country they enter, as understandably, it is not their domicile.

That said, there is significant value and education to be gained by attracting multinationals into our ecosystem but we need to ensure some stickiness in terms of the knowledge transfer approach.
 

Drive innovation

DDI retains the interest locally and keeps investments growing locally. Export businesses should be supported as should the sustainability of an ecosystem where our businesses create our own value, create our own home-grown brands supported by unique competitive advantages.

An informative dialogue, you can watch the interview in full.
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