Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on January 31, 2020

KUALA LUMPUR: Malaysia is facing a challenge of enticing its human capital to make the leap into innovation-driven activities to attract transformative global value chain (GVC) investments, a World Bank report found.

This is on the country’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”.

Malaysia had yet to develop 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 report’s preparation.

To do so, it needs to enhance its human capital, critically address the quality of education and halt a brain drain resulting in one in every 10 high-skilled workers emigrating in the past, he said at a panel session on the chapter yesterday.

“Deepening trade agreements to cover investments and services for the purpose of boosting competition is also key,” said Mattoo.

GVC’s share of global trade grew from 37% in 1970 to its peak of 52% in 2008, before plateauing to around 48% by 2015, according to the report.

However, the report highlighted how GVC can continue being 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, it is viewed that Malaysia should be opened to more free trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) helping in opening doors to international business opportunities, and “not be held hostage in perpetuity” to the domestic economy’s weaknesses.

Panellist Tan Sri Dr Rebecca Fatima Sta Maria, Asia-Pacific Economic Cooperation Secretariat executive director, expressed how the CPTPP setback was overblown because of the controversy around the investor-state dispute settlement, sparking concerns on how corporations can sue governments if the trade agreement is affected.

“The investment chapter of CPTPP shows policymakers had put in place safeguards before corporations can take governments to court. They 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 models ... look at individual investment treaties, which are more dangerous, in my opinion,” she added.

Additionally, Malaysia could facilitate businesses, including small and medium enterprises locally, before undertaking reforms to internationalise them.

On a related matter, former Federation of Malaysian Manufacturers president Tan Sri Yong Poh Kon, during the panel session, said certain incentives are popular among businesses but other incentives are not due to bureaucracy despite both being beneficial for 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,” said Yong.

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