Discuss some of pertinent issues and challenges faced by Malaysia in its journey towards a high-income nation

Malaysia is a federal constitutional monarchy that lies in Southeast Asia. It is composed of 13 states and 3 federal territories; the country is separated by the South China Sea into two regions, including Peninsular Malaysia and Malaysian Borneo. Malaysia is a member of Commonwealth of Nations and The United Nations. The power segregates into three parts, including Executive, Legislative and Judiciary. The system of government is modeled on that of the Westminster parliamentary system, but in practice the power is on prime minister`s hands. The head of government is prime minister (The current prime minister is Najib Razak since 2009) and head of state is nominally Yang di-pertuan Agong who is elected to a five-year term from among the nine Sultans of the Malay states. In addition, he also is the leader of the Islamic faith in Malaysia. The country has a bicameral Parliament composed of the Dewan Negara (70 seats) and Dewan Rakyat (219 seats) in which the members are elected by parliamentary election for five year. In addition, the constitution of Malaysia is taken from Indian law and legal system is based upon English common law. In following, some of the characteristics of Malaysia are presented by Exhibit 1. Since achieving independence in 1957, it has been able to be as one of countries that have the best economic records in Asia, and it has been progressing with 6.5% average growth in GDP for 50 years.

Today, Malaysia places among countries as an upper-middle-income country, and intends being high-income nation through the four Pillars of national transformation, including 1Malaysia, GTP, 10th Malaysia plan, and ETP.
These four essential pillars to transform Malaysia to a developed country by 2020 have been demonstrated by Exhibit 2.

  1. 1Malaysia

On April 2009, the Prime Minister of Malaysia, Najib Tun Razak after considering all corners of the nation, introduced the concept of 1Malaysia. It is derived some concepts from 1Malaysia such as culture of excellence, diligence, acceptance, education, integrity, meritocracy, humility, and loyalty. Besides, it evolves NKRAs on Six issues. One Malaysia strives to boost the relations of all Malaysians, regardless of racial, religious or cultural backgrounds. The relevant slogans to 1Malaysia are as follows:

  •       People First, Performance Now (2009)
  •       Generating Transformation (2010)
  •       Transformation Successful, People Prosperous (2011)

One of the significant aspects of 1Malaysia is getting better government efficiency. The exploitation of Key Performance Indicators (KPIs), National Key Result Areas (NKRAs) is a crucial part of the 1Malaysia attempt.

Exhibit 3 indicates a synopsis of 1Malaysia concept.

2. Government Transformation Programme (GTP)

On January 2010, The Government Transformation Programme (GTP) was revealed by the Prime Minister. It is an ambitious, broad-based initiative aimed at expressing National Key Result Areas (NKRAs). The Prime Minister declared the seven KPIs in order to assess and enhance the quality and efficiency in government services and perceive the 1Malaysia concept. Najib (2009) said, “The KPI was not only to measure the performance among civil servants but also how far they could fulfill the wishes of the people.” In addition, he said that the KPI served as a guideline and reminder to members of the administration on the importance of giving priority to the people.

Every six months, the performance of the ministries and government agencies are assessed by a mechanism is prepared by the KPIs. Each ministry has been required to set special KPIs, which concentrate on policy outcomes over the traditional emphasis on inputs generally found in government performance assessments and planning.

Moreover, the six policy areas in which the KPIs employ to encourage the effectiveness of the government were elaborated by Najib Tun Razak. These policy areas are known NKRAs, which previously have been shown by Exhibit 3 and in following a synopsis of every area, is stated.

Reducing crime

After explaining this policy by the Prime Minister, Malaysian police focus was shifted to on-street crime. This policy led to the underlying consequences, which are presented by Table 1.

Table 1- The GTP’s consequences in dropping crime
Source: The GTP Roadmap

16% drop in index crime (from Jan-Sep 2009 to Jan-Sep 2010)

38.1% drop in street crime (from Jan-Sep 2009 to Jan-Sep 2010)

Fighting corruption

The government has been striving to decrease fraud and waste in government procurement, improve public trust in government, and battle with grand corruption. This item led to be published 3716 government contracts on line and 648 individuals were arrested for corruption.

Improving students outcomes

According to GTP Roadmap, there are four extremely important issues to improve students outcome, which are achieved from the world’s top performing school system are as follows:

1)      Making sure all children succeed

2)      Holding schools accountable for changes in student outcomes

3)      Investing in great leaders for every school

4)      Attracting and improving top teachers

According to The World Factbook pertinent to CIA, in 2008, education expenditure was 4.1% of GDP. Under this item of GTP, 54569 million children are benefiting from 1358 pre-school classes; furthermore, 9816 primary and secondary schools have been ranked. CIA announced the literacy rate in Malaysia under Table 2.

Table 2- The literacy rate
Source: The World Factbook, CIA



age 15 and over can read and write

Total Population






Increasing living standards of Low Income Households (LIH)

It intends to empower low-income households in order to get better their social standing, make more income opportunities and create a long-term system that helps create opportunities for the poor. As a result, with creating job opportunities, raising basic wage, tracing business opportunities and providing welfare assistance this target will be achieved. This item led to reduce 49% hardcore poor from January 2010 to September 2010.

Improving rural basic infrastructure

The government’s plan is providing home for the rural poor (50000), making and improving roads (7000 kilometers), expanding electricity (into 140000 houses), and boosting safe water (for 360000 houses) until the end of 2012.

Exhibit 5 indicates improved water source (percentage of population with access).

Improving urban public transport

Due to the many drawbacks in the transportation system, the government is striving to convince people to exploit public transportation system and raise the quality of the system.

Source: World Bank, World Development indicators

In following, the GTP Roadmap is presented by Exhibit 6.

Source: RSM Business strategic Advisors

3. Economic Transformation Programme (ETP)

The Prime Minister launched the ETP programme on September 21, 2010. The country will be transformed into a developed country through ETP in 2020. The Economic Transformation Programme deals with Gross National Income per capita and intends to boost Malaysia’s GNI per capita from RM23700 (USD6700) in 2009 to more than RM48000 (USD15000) in 2020.

In order to achieve high-income nation Malaysia’s GNI must grow at least 6 percent per annum. That means the nation must grow the economic pie in the next 10 years thus everyone in the country can benefit. Successful implementation of this program creates extremely changes, which direct Malaysia to developed countries such as creating 3.3 million new jobs in the country.

ETP significantly concentrates on the 12 National Key Economic Areas. According to definition, a NKEA is a driver of economic activity that has the potential to directly and materially contribute a quantifiable amount of economic growth to the Malaysian economy.

The NKEAs introduce projects that will achieve the Gross National Income. The 12 NKEAs including 11 sectors and 1 Geography are as follows:

  • Oil, Gas and Energy (OGE)

OGE is the key of Malaysian economy because this NKEA contributes 20% of the Gross Domestic Product.

  • Palm Oil

This NKEA is selected to raise total contributions to national income from the palm oil industry by RM125 billion to reach RM178 billion by 2020. There is possibility creation 41,000 new jobs in this sector.

  • Financial Services

This sector constituted 10.9% of Malaysia’s GDP from 2006 to 2009. The lack of diversity, poor liquidity, low levels of financial knowledge, lack of economies of scale, and competition from other regional financial centers are significant problems for this sector. The government intends to raise the financial industry’s contribution to GNI from RM121 billion (2010) to RM180 billion (2020). This sector was selected to make 275000 jobs.

  • Tourism

Tourism is as the fifth largest industry in Malaysia. This NKEA concentrates on increasing tourist arrivals and growing output in terms of receipts. The tourism Entry Point Projects and Business Opportunities (EPPs & BOs) have been developed through five themes to shift important consequences within a 10-year period.

  •       Business Services
  •       Improving Electronics and Electrical
  •       Wholesale and Retail
  •       Education
  •       Healthcare
  •       Communications Content and Infrastructure
  •       Agriculture
  •       Greater Kuala Lumpur / Klang Valley

The underlying Exhibit indicates the amount of contribution of each NKEA in 2020-estimated GNI.

Source: RSM Business strategic Advisors

New Economic Model (NEM)

The New Economic Model through the ETP intends to shift Malaysia en-route high-income nation with inclusiveness and sustainability.

Source: National Economic Advisory Council

The ETP constitutes eight Strategic Reform Initiatives (SRIs) introduced as enablers and 12 NKEAs with the highest potential for growth.

These eight SRIs are as follows:

Source: National Economic Advisory Council

4. 10th Malaysia Plan
The Economic Planning Unit (EPU) prepared 10th Malaysian Plan (10MP) which is a comprehensive blueprint in order to assign the national budget from 2011 to 2015 to all economic sectors in Malaysia. On June 10, 2010 the Prime minister announced 10MP in Parliament.

In following, some of significant key points of 10MP are mentioned:


  • The gap between rich and poor is becoming broad. In the past few decades, Malaysia’s overall poverty levels across all ethnic groups have reduced significantly against the economic growth and the New Economic Policy (NEP). In 2007, Apart from the slower growth of Asian crisis, the poverty continued to decline to 3.6%. Inequality remains to be a challenge for Malaysia. Furthermore, household income surveys show that the income growth has been strong only for the top 20% of Malaysian income earners. The bottom 40% of households have the slowest growth of average income, earning less than RM1500 per month in 2008.
  • There are insufficient efforts to innovate and create. The domestic innovation is weak in Malaysia because of the comparatively low number of researchers. Low R&D expenditure results in a lack of innovation in the industrial and export sectors.
  • The exports are still strong but not generating enough value added. The economy is highly dependent on external markets with an export-to-GDP ratio of 1.2 and a trade-to- GDP ratio of 2.2 in 2008. Malaysia’s export is mainly electrical and electronics (E&E) products and primary commodities such as petroleum and palm oil. However, given the large import content in the manufactured exports, the value added to the final product is low.
  • Low skills jobs come with low wages and skilled jobs come with higher wages. There are not many high wage jobs in Malaysia and in many industries; the share of skilled labor has declined. In many cases, employers do not pay for skills, instead relying on the pool of unskilled foreign workers and underpriced resources which was possible by government policies to generate profits from production of low value added products and services. These factors have also largely slowed down wage growth.

Ethnic-based economic policies have worked but implementation created problems. The NEP reduced scarcity and caused imbalances in inter-ethnic economic. However, its implementation increasingly and unintentionally raised the cost of doing business due to rent seeking, support and often-opaque government procurement. This resulted corruption, which needs a lot of attention.


2 thoughts on “Discuss some of pertinent issues and challenges faced by Malaysia in its journey towards a high-income nation

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