This article first appeared in Forum, The Edge Malaysia Weekly on April 22, 2024 - April 28, 2024

In the third and fourth instalments of our four-part series on the economy, we are focusing on mission-based policy packages that Malaysia can embark on to realise our vision of Malaysia Madani. As a recap, the first article — “Taking a systems approach to fuel subsidies” (Issue 1515, March 18) — talked about how fuel subsidy rationalisation is a contractionary but necessary move for Malaysia. The second article — “Breaking out of the handout mentality” (Issue 1516, March 25) — explored how Malaysia needs to graduate from reliance on our resource windfalls and develop our human capital to break out from the handout mentality to truly progress. Here we propose mission-based policy initiatives that address our need to: (i) improve our fiscal balance; (ii) to go green; and (iii) to improve our socioeconomic outcomes.

Mission Madani is a concept that we would like to introduce. It will consist of two broad policy packages, the first is Madani-Hijau (discussed here) which leverages the global sustainability revolution. The second is Madani-Bersama (discussed in Part IV of the series) which focuses on what we believe is the lowest hanging fruit to unlock further growth — by addressing the regional economic disparities and labour market inefficiencies to unleash a second wind of economic potential for Malaysia. They overlap and mutually reinforce the other and tie in with the principles and aims of the Madani framework, Malaysia’s National Energy Transition Roadmap (NETR) and New Industrial Master Plan 2030 (NIMP2030) together. Both consist of significant investment outlays in the short term while the benefits will fully play out over the medium to long term. That being said, they also contain short-term measures to unlock fiscal bullets for us to deploy for the short-term investment outlays.

Madani-Hijau basically means transitioning Malaysia to a clean growth model, where growth is fuelled mainly by low carbon and low polluting economic activities (or a green economy). Before going further, it will be useful to clarify what we mean by “green”. For the purposes of policy crafting, we propose a few criteria that need to be fulfilled before something can be categorised as “green”: low carbon, low polluting or clean waste and sustainable. Green industry can be as simple as a cleaner and lower carbon version of any industry that is in existence in the world today. Excitingly, it can also be an innovation of an existing industry (example electric or hydrogen vehicles) or a completely new industry borne out of the pressing environmental needs of today, such as biodegradable seaweed packaging and sustainable aviation fuel.

For Malaysia to truly build world-class players and move up the value chain, we need to develop our own technologies in this sustainability revolution. We need to do this strategically and build on our existing strengths. Petroliam Nasional Bhd is to be credited for knowing where its niche is in this industry as it is focusing its resources on developing carbon capture and storage technologies. Other areas that Malaysia should naturally focus on are in the palm oil industry, and by extension biofuels and biochemical; semiconductors and its downstream products (for example innovations in operational energy and waste efficiency); solar- and hydro-powered processes, products, vehicles and their storage; as well as logistics (especially maritime and ports). A country should naturally develop green industries from its existing strengths and natural capital. Incidentally these sectors are also the focus of our NIMP 2030, while bioenergy is a key component of our NETR.

Madani-Hijau policy tools should consist of some blanket instruments but, more importantly, very specific sets of policies that are tailored by the needs of each industry. For example, within the palm oil industry — at this point in time our palm oil byproducts command a higher price in markets like South Korea and Japan, so there is never enough to develop a thriving local biofuels industry. Studies need to be conducted on whether this warrants an intervention or whether we should look into other sources of feedstock to develop the market, tying in nicely with policies to develop food self-sufficiency as discussed in Part IV. In fact, without fuel subsidy reforms where prices of diesel reflect their true costs, biofuels will never take off, which is a shame as we have the prerequisites to develop not only the industry but our own research and development in this sector.

Madani-Hijau calls for coordinated policies within all of the government to ensure a harmonious and mutually reinforcing approach that pushes every facet of the economy towards the same goal of carbon, pollution and waste reduction. Imagine a situation where the gradual withdrawal of fossil fuel subsidies and energy price caps is timed with an increase in the quality and availability of green public transport, the rolling out of cheap and reliable green energy options for households and businesses, coupled with incentives for investments into green options (solar power, electric vehicles) as envisioned in our NETR. Imagine that households and businesses also anticipate a carbon tax ahead as outlined in our NIMP. This would certainly push up demand for energy-saving, green and clean solutions to everyday needs of both consumers and businesses. This drive up in demand will in turn facilitate the growth of green industries, such as in electric vehicles (EVs), the recycling of electric batteries, the production, installation and maintenance of solar power systems, as well as in energy-saving solutions.

To catalyse further growth to our gross domestic product (GDP), incentives should be given to local small and medium enterprises (SMEs) to enable them to fulfil this uptick in “green demand”, to develop our own home-grown green technologies or to innovate/adapt existing ones to our local needs. We need to nudge these companies to hire local labour, and for consumers and businesses to use local firms and technologies. These incentives need not always be monetary. For example, if the main concern for going local is reliability, the government and private sectors can address this through certification programmes, audits and guarantees. Policies should be crafted to encourage an ecosystem of green service providers in the market for talent, products and solutions. Programmes can incorporate a social angle as well, especially in the less academic areas of the value chain such as installation and maintenance, whereby programmes are tailored for the B40 and unemployed to upskill and retrain them for new sectors, ensuring just growth, a key goal of the Madani framework. Policies should be designed around enhancing walkability, increased availability, reliability and comfort of public transport, coupled with other policies that discourage polluting and congestion-causing private vehicle use. Imagine the numerous benefits from increased pedestrian mobility, and improvement in air quality for our health, productivity and subsequently GDP, not to mention our government finances through reduced cost of healthcare.

How do we push our local businesses to adopt technology upgrades and innovate? We argue that the removal of subsidised energy and sources of cheap foreign labour are measures that will impose the necessary constraints on the private sector to raise their game (of course, this statement is very generalised and requirements will differ from sector to sector). An additional constraint that domestic companies can only receive grants or tax incentives if they use domestic labour can be designed to initiate an uptick in demand for local talent, which the education industry needs to respond to. While these are sticks, carrots are provided in the form of policies to encourage support for local SMEs as discussed earlier. This way, we push our domestic companies to become more resource efficient in their operations due to increased input costs, and to upgrade their technologies to automate and utilise Artificial Intelligence/predictive technologies. In turn, this supports demand for higher skilled workers and wages. This pairs well with initiatives in upskilling and retraining to provide a quality pool of labour to feed our companies, with incentives for the B40 group. These constraints will not be easy to digest, as some SMEs may need to rethink their business model and marketing strategy, and others may need assistance to make the necessary investments. Here various private and public financing options should be made available to assist.

To recap, this article proposes properly designed policy tools across the governing apparatus — fuel subsidy rationalisation, a push for green innovation and technology upgrades in the local SMEs, incentives to choose local, labour market reform, educational initiatives in Science, Technology, Engineering and Mathematics and Technical and Vocational Education and Training, training and upskilling, as well as sector-specific tools to correct market failures. Planned and executed together as a policy package, these can synergise to push our economy towards carbon neutrality, or Madani-Hijau as the overarching objective. In addition, these will also build better domestic companies, and increase the availability of well-paying jobs and higher skilled talents with the secondary aim of improving wages of Malaysians. When paired with incentives for the B40 to participate, this will provide an uplift to our socioeconomic outcomes. The policies should be designed to induce a measurable improvement in wages, for example by adopting a goal to have at least 50% of Malaysians in formal employment earning more than RM5,500 per month by 2035 instead of the current paltry 20%. A more robust SME sector and bigger middle class will go a long way to improve the resilience and size of our tax revenue base, helping to fulfil a key Madani objective to improve fiscal sustainability.

Madani-Hijau calls for bold moves in calculated investments into our economic potential. We argue that this is absolutely necessary just to keep up with the competition today. However, the best laid plans will go to waste without careful sequencing and execution. The actions of our Ministry of Economy demonstrate an understanding of this — the timing and management of expectations ahead of the fuel subsidy withdrawal, in tandem with the rolling-out of Central Database Hub (Padu) is to ensure that we are adequately prepared and that the poor are sufficiently cushioned with targeted subsidies, notwithstanding execution issues that are currently adding risks to this timeline. Nonetheless, their sequencing reflect wisdom, as we need to conserve capital for resilience as well as have the means to make the large investments needed to transition to green. The push by Ministry of Investment, Trade and Industry into EVs and for labour market reform are other good examples. While our leaders are not shy on tackling the hard reforms that are needed to address the structural issues of our economy today, a more coordinated whole of government approach is needed to fully unlock synergies.

Lim Li Lian is an economist and  deputy director of Research for Social Advancement, a progressive think tank promoting social advancement in Malaysia

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