In my over 25 years of writing about the computing, information and communications technology (ICT) industry in Malaysia and abroad, I've heard no end about Malaysia having to develop a domestic ICT, multimedia content, bio-technology, nanotechnology and other gee-whiz emerging technologies in order toe be able to move up the skills and value chain to increase our competitiveness, productivity in order to become a knowledge-based, information-rich, high-income economy by the year 2020, which was recently postponed to 2024 and now to 2030.
Malaysia's government ministers and officials downplayed Malaysia's existing agricultural and natural resources industries as "First Wave" and Malaysia's manufacturing industries as "Second Wave" as "sunset industries", whilst they touted ICT and multimedia, bio-technology, nano-technology and other sexy emerging technologies as "Third Wave", "sunrise industries" which would move Malaysia up that much touted value-chain.
Whilst, such national aspirations are not wrong in principle, however our neighbours in the region have been moving up the skills and value chain in terms of creating higher value-added agricultural and manufactured products, rather than undergo premature de-industrialisation, or in short, grow Malaysia's degree or economic complexity and diversity.
In his OutSyed the Box blog post reproduced below, Syed Akbar Ali explains economic complexity simply as the extent to which a country's productive, innovative and inventive capabilities have moved up the skills and technological chain to move beyond being a mere commodity raw materials producer to a downstream producer of higher-value products, which can fetch higher prices in world markets and earn the country more foreign exchange, which should enable the country's workers to earn higher incomes.
Syed also explains Thailand's strengthening Baht versus the Malaysian Ringgit as being due to the growth in Thailand's economic complexity.
Back in the 1960s and 1970s, one Malaysian Ringgit would buy 11 Thai Baht and in the late 1990s and throughout the 2000s, the exchange rate was about one Ringgit to 10 Baht.
However, in the past few years, the Baht has strengthened to one Ringgit to around 7.21 Baht, which has got Thailand's central bank worried about about how to keep the Baht's rise under control for fear that it will adversely affect Thailand's exports, according to a Bloomberg article carried by The Star below.
In his blog post, Syed also referred to a report in March 2018 - Complexity and Growth: Malaysia’s Position and Policy Implications, by Brenda Cheah Wenn Jinn and Mohd Shazwan Shuhaimen of the Economics Department or Malaysia's central bank - Bank Negara Malaysia, which shows a direct correlation between a country's degree of economic complexity and national income levels in Gross Domestic Product (GDP) per capita, and also compares growth in Malaysia's Economic Complexity Index (ECI) with ECI growth in our neighbouring Asia-Pacific countries, including Japan, South Korea and Singapore.
Syed's OutSyed the Box blog post follows below, highlighted in blue:-
Here is The Star and Bloomberg.
- tough to stop baht from surging
- baht advanced 0.3% on Friday to 30.187 per dollar
- strongest level since May 2013
- gain 7.8% this year, more than peers except Russia’s ruble
- Why is baht so strong?
- Several factors attracting investors to Thailand
- haven for foreign money
- healthy current account tops them all
- IMF forecasts surplus of 6% of GDP this year, double Japan
- Thailand’s reserves, negligible inflation also provide investors comfort
- foreign reserves stands at US$220 billion
- equivalent of 12 months imports
- inflation 0.3%, below target of 1% - 4% since June
- getting boost from gold
- Thailand hub for bullion trading
- benefited from 17% gain in gold price this year
- How much more can baht appreciate?
- whether baht will breach 30 per dollar
- Bloomberg
My comments :
The Thai Baht has now appreciated to almost 7:1 against the Ringgit (Oops previously I mentioned 6:1, not true).
Over the past year the Thai Baht has appreciated over 7% against the Ringgit. You can see the chart here :
Locals say shopping in Danok or Golok is not attractive anymore.
- Thailand is becoming unaffordable for Malaysians
- Macam dulu orang JB seronok pi shopping di Orchard Road (Like before, Johor Baru (JB) people were comfortable to shop at Orchard Road (Singapore))
- Now with the Singapore Dollar worth RM3.07 orang JB cannot even afford to window shop in Singapore.
Very soon Thais will come to Malaysia to buy things that Malaysians will not be able to afford to buy here. Just wait and see.
There are many things good about Thailand. The Army Junta that
runs the country seems to understand that just letting the economy fix
itself and move forward is a good thing to do. The government stays out
of too much interference in the economy.
The previous Shinawatra business dynasty which ran the country
was too big into cronyism and lining their own pockets - typical for a
Third World country with lax institutions and controls. (Hence the
importance of having strong and independent institutions in any
country).
There is no guarantee that the military Junta now is any
cleaner but perhaps they are less sophisticated in white collar
shenanigans (compared to the previous bunch). Lets hope they stay that
way.
There are other factors. The Thai Chinese business community -
which basically runs the Thai economy - is obviously investing more of
their money in manufacturing. They seem to have more faith in the
future. This is critical for Thailand. The business people must not be
hindered from doing what they know how to do best.
Ok now I would like to thank the
reader (obviously an economist or in some related field) who months ago
sent me an excerpt of a research paper by Bank Negara Malaysia about some comparative analysis of Asian and ASEAN economies, including Thailand. I will be referring to some of that research now.
This paper is by two Bank Negara researchers Brenda Cheah and
Mohd Shazwan. It is about what is called 'Economic Complexity'. Here is a
snapshot about economic complexity.
Simply put this is talking about value added and linkages (or leveraging on that value added).
Lets take our oil palm and palm oil economy. There is very
little technology (on a comparison basis with Singapore, Vietnam and
even Thailand.) Just clear the land, plant the oil palms and six or
seven years later harvest the fruit. Press the oil, put it into tanks
and ship it out.
What are the supporting industries or industry sokongan? Lorry
drivers, grass cutters, weedkillers, plantation workers (Banglas,
Indons), Java Man's brother with Slave Labour Permits to import 1.5
million Banglas etc. Those are the industry sokongan. Almost no value
added (from 50 years ago) and few or no new linkages. So the palm oil
industry lacks any real complexity.
The foreign worker permits business still is the biggest
useless ripoff that our economy has to face. It still costs RM8,000 to
bring in ONE foreign worker. Kula Thengga, LTTE aah?
Each new level of complexity means new value added in that sector.
Each new level of complexity means new wealth creation.
Each new level of complexity means newer, higher paying jobs.
So the more levels of complexity in the economy the more value
added and the more advanced economy. If we can downstream process our
palm oil to greater levels of complexities we may earn much higher
incomes.
Instead of exporting tons of raw palm oil, why not process the
oil and extract all those highly concentrated stuff that goes into so
many higher value products like medicines, cosmetics, food etc? Who
knows a kilo of the downstream products may cost as much as a ton of raw
palm oil.
Anyway here is a comparison of the Economic Complexity of various countries.
Malaysia is now only one step ahead of Thailand. The Thais are fast
catching up. The complexity of the Thai economy is improving. Their
economy is having more complex linkages within industry sectors.
I can tell you about their auto industry. Thailand is now the Detroit of
South East Asia. Producing over ONE MILLION trucks per annum the Thais
are the largest manufacturers of 1 ton pick up trucks in the world. They
also manufacture a huge range of automobiles for major world car
brands. And now the Thai auto industry has really moved up the value
chain where design is also being done fully in Thailand.
Many foreign car manufacturers have design bureaus located inside
Thailand. There is therefore a complete car industry ecosystem - from
design to manufacturing - in Thailand.
This is what is meant by complexity.
Two points to note - the Thais started their car industry AFTER Malaysia and they DO NOT HAVE a Proton Saga.
While the Economic Complexity of Thailand, Vietnam, Bangladesh and other
countries is rapidly increasing our economy is stuck or moving much
less slowly.
That is why the Ringgit is now at 7.21 Baht. The Baht will likely strengthen.
BTW. Besides being a blogger, Syed has served on the Advisory Panel - Malaysian Anti Corruption Commission, a businessman, property developer, author (three books to date), company director, newspaper columnist, NEAC economic consultant and a banker.
To add on my part, the Bank Negara Malaysia report referred to includes a chart which shows slower growth in Malaysia's Economic Complexity Index (ECI) that the Philippines'
In addition to Malaysian's developing our skills, technologies, technical capabilities and expanding the range of higher value-added products our industries produce, firstly our industries, especially our small-to-medium industries and enterprises must commit to a culture of producing high-quality, innovative, lasting and reliable products which can be sold at higher prices to more discerning customers both domestic and overseas, and not selling cheap, low quality products sourced in bulk from original equipment manufacturers (OEMs) overseas, which are domestically rebranded with some cosmetic embellishments and sell them to competed on the lowest price, as some domestic Malaysian rebranders of home appliances and other such items currently do.
For instance, cheap products such a this electric oven from a Malaysian small-to-medium sized company which rebranded it with with an impressive-sounding western name, in which the two heating elements warped upward and touched the metal roof of the oven cavity, causing a short which tripped the mains circuit breaker.
This is the third time it developed a fault. The first was that two of its heating elements failed shortly after the one-year warranty expired and it was sent back to the company for repair for a fee.
The next time, its timer switch stopped turning just before it would cut off resulting in the food inside being burnt and it took about a month for the company's workshop to replace the timer switch.
When it failed for the third time I threw it away and got a comparable replacement from a more reputable Malaysian small-to-medium sized manufacturer and that one has had no problem after over two years or so, though I believe that it too was obtained from a foreign OEM and rebranded with this other other company's brand name.
In order for Malaysian manufacturers to achieve greater economic complexity, they will have to be able to conduct their own research, design, development and manufacture of such products of high quality and reliability.
Otherwise, they can forget about adopting Industry 4.0 production facilities and technologies, artificial intelligence, Internet-of-Things, digitalisation and so forth, since all they will achieve is to produce the same scheiss more quickly and efficiently at lower cost, since Industry 4.0 won't design products for manufacturers.
Yours truly
IT.Scheiss
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