KUALA LUMPUR (Jan 30): Malaysia faces the challenge of enticing its human capital to make the leap into innovation-driven activities, in order to attract transformative global value chain (GVC) investments, a World Bank report found.
This is on the back of Malaysia's success in attracting GVC investments, as it transitioned from commodities to advanced manufacturing in the past 30 years, according to the World Bank World Development Report 2020: Trading for Development in the Age of Global Value Chains.
Currently, Malaysia has not yet developed its innovative capacity enough to facilitate the leap towards an innovation-driven economy, said World Bank Group East Asia and Pacific chief economist Dr Aaditya Mattoo, who led the preparation of the report.
To do so, it needs to enhance its human capital in order to critically address its quality of education and halt the brain drain phenomenon, which had in the past resulted in one in every 10 high-skilled workers emigrating, Aaditya said at a panel session on the chapter today.
“Deepening trade agreements to cover investment and services for the purpose of boosting competition is also key,” he added.
GVC share of global trade grew from 37% in 1970 to its peak of 52% in 2008, but has since plateaued to around 48% by 2015, according to the report.
However, the report highlighted as to how GVC can continue to be a force for sustainable growth, if developing countries undertake deeper policy reforms — including addressing domestic headwinds, and advanced economies pursue open, predictable policies.
In line with that, the view is that Malaysia should open itself to more free trade agreements such as the CPTPP that will help open doors to international business opportunities, and “not to be held hostage in perpetuity” to the weakness of the domestic economy.
Panelist Tan Sri Rebecca Sta Maria, who is Asia Pacific Economic Cooperation Secretariat executive director, expressed as to how the CPTPP setback was overblown, because of the controversy around the investor-state dispute settlement (ISDS) that sparked concerns on how corporations can sue governments, if the trade agreement is effected.
“Investment chapter of CPTPP shows that policymakers have put in place safeguards, before a corporation can take governments to court; there are clearly defined,” Sta Maria said.
“Malaysia has 74 bilateral investment treaties. These are old models; we are exposed to more things under the old model… look at individual investment treaties, that is more dangerous, in my opinion,” she said.
Additionally, Malaysia could facilitate businesses including small and medium enterprises (SMEs) locally, and then undertake reforms to internationalise them.
On a related matter, former Federation of Malaysian Manufacturers (FMM) president Tan Sri Yong Poh Kon spoke during the panel session, on how certain incentives were highly popular among businesses compared to others, due to bureaucracy, despite both highly benefiting recipients.
“At one time, R&D (research and development) incentives did not fly. Applicants needed to come out with a proposal on what they want to research on, when they would rather do their research in secret, before getting the end products patented.
“There was a disconnect between bureaucracy and the method. Simplify incentives to make them easily available,” Yong said.