Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily on August 28, 2017

KUALA LUMPUR: Malaysia’s labour productivity levels have shown resilient growth over the years with an average rise of 2% a year. But, to meet the country’s average growth target of 3.7% per annum by 2020 would require a more micro assessment of certain issues, in particular the rationalisation of government programmes, said the World Bank.

In fact, a thorough rationalisation of government programmes, in particular research and development, should be a critical focus to achieve better efficiency in both the public and private sectors to support labour productivity growth, said the country manager of the bank’s Group Global Knowledge and Research Hub in Malaysia, Faris Hadad-Zervos.

The same goes for training programmes to upskill human capital. The focus should be on quality and not quantity, said Hadad-Zervos.

“There are a lot of research and development programmes in the government. But we need to take a look at the impact. Do we need so many or do we need just a few?” Hadad-Zervos told The Edge Financial Daily in an interview after the AIF International Symposium 2017 on talent and innovation.

The lack of skilled workers has been raised time and again as a structural issue hindering labour productivity, as the country aspires to upgrade its workforce to be highly skilled in the future.

Addressing this gap has also been highlighted in the Malaysia Productivity Blueprint that was launched in May. The blueprint outlines targets to raise labour productivity levels in order to reach the 11th Malaysia Plan (11MP) target of RM92,300 per worker (or 3.7% per annum growth) by 2020.

According to the Malaysia Productivity Corporation’s Productivity Report 2016/2017, Malaysia’s labour productivity expanded 3.5% in 2016 to RM78,218 from RM75,548 in 2015, mainly driven by the manufacturing sector, with a growth of 1.4%.

The 2016 growth puts the labour productivity achievement to date at 84.7% of the 11MP’s targeted level. Moving forward, the report concluded, the country needs to experience a quantum leap of 4% to 4.5% in annual productivity growth — from now to 2020 — to achieve the country’s productivity goal.

Hadad-Zervos believes this is achievable, though in addition to assessing the impact of existing government programmes, he also calls for better policies to support innovation in both the public and private sectors.

“Malaysia has had a lot of innovations. But if you look at the type of innovations that have happened, [while] a lot of it is very good, it is [also] sort of technical — process re-engineering rather than the type of innovation that would actually raise productivity,” he said, adding that firms that innovate beyond process re-engineering tend to be more productive.

In its December 2016 issue of the biannual Economic Monitor Report which focused on the quest of productive growth, the World Bank said 44% of Malaysian firms invest in organisational and commercial innovation — including improved distribution systems and improvements in marketing methods and business and administration — compared to the 30% average in other Asean countries.

“So that’s pretty good. However, only 17% of Malaysian companies invest in new technologies. [And] it’s process re-engineering rather than bringing in new technologies. So this is where I think there has to be a focus,” said Hadad-Zervos.

“It’s important for Malaysia to look at its whole storyline from 1960 to now and to see how far you have gotten. I’m not saying you should be complacent [because] Malaysia is on a good track. It should continue to focus on the good direction it is on, but hone it down further to tackle some of the issues of human capital [and] research and development, making sure you have a level playing field that encourages innovation,” said Hadad-Zervos.

Other important issues which need to be highlighted to fast-track productivity growth include improving data collection and increasing women employment, he said.

According to the statistics department, the female labour force participation rate only stood at 54.3% in 2016, a marginal 0.2% rise from 2015.

In comparison, developed countries outside of East Asia, on average, have a female labour participation rate of between 63% and 77%, said Hadad-Zervos.

“Malaysia has done a lot. If you look, over the years, there have been a lot of improvements in the role of women. There has been an increase from a little bit over 40% a few years ago to 54% now. There’s also been considerable improvement in women’s health and education.

“[However, to achieve a] high-income country status with an average ratio of 63% to 77%, Malaysia still has a long way to go,” he said.

The age of digital disruption, he added, is a wonderful opportunity for Malaysia to boost its female labour participation to as high as 80%. “We can consider options like the role of the Internet in helping women to work from home or even for men on paternity leave. We should [not miss out on the opportunity] to use this disruptive technology to tackle this issue,” he added.

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