The success of powerhouse regional economies such as China has given rise to the notion of the ‘Asian Tiger’ — nations whose economies have enjoyed rapid growth over an impressively short timescale.
According to Tan Sri Datuk Kamal bin Mat Salih, Chairman of The Malaysian Institute of Economic Research (MIER), there’s no reason Malaysia can’t rebound to become a Southeast Asian Tiger following COVID-19.
“To become the fifth Tiger, you put this emphasis on reindustrialisation. Core technology-based industrialising, for growth and economic restructuring. Renewable energy, including the hydrogen economy, and digital economy, are the two most important pillars.”
While ‘Asian Tiger’ has gained a more colloquial place in global economic dialogue, there’s a more fundamental meaning to this phrase. This technology-based industrialisation for growth and economic reform (TIGER) forms the basis of MIER’s own ‘Crouching Tiger’ plan.
Malaysia’s economy has traditionally relied heavily on oil and gas, contributing a significant amount to national income. At the height of oil prices, Tan Sri Datuk Kamal Salih suggests national energy company PETRONAS contributed as much as 40% of Malaysia’s budget.
The challenge in that scenario is that every US$1 drop in the oil price reduces the sector’s contribution to the economy by an estimated US$300 million. Current national budgets rely on a forecasted fuel price of around US$65. COVID-19 has significantly suppressed that figure, with prices now hovering between US$35-US$40. That raises important questions about Malaysia’s economic future and as Tan Sri Datuk Kamal Salih says, diversifying out of oil and gas is a very critical economic issue that the government has to take into account as part of the restructuring of the economy away from both agriculture and oil and gas.
Now is the time to embrace new opportunities, according to Tan Sri Datuk Kamal Salih, using the disruption of COVID-19 as a springboard for a more visionary future for Malaysia. He highlights seven core technology enablers that could provide a pathway to the rise of the nation as a Southeast Asian Tiger — electric vehicles, the renewable and hydrogen economy, digital and 5G, bio jet fuel, high-tech agricultural technology, hyperloop transport, and financial technology.
There are undoubtedly some eye-catching opportunities in that list. Hyperloop technology for instance, championed by controversial US tech-visionary Elon Musk, promises a future of super-fast train travel through frictionless pressurised tubes.
More familiar opportunities in emerging digital technologies are also fundamental to future success. Tan Sri Datuk Kamal Salih points out that 5G alone could have a huge impact if rolled out nationally, with the digital economy growing to become 40% of Malaysia’s GDP.
That’s not to say that Malaysia should move away from oil and gas fully he notes, just that the modern understanding of an energy-driven economy should evolve. Downstream elements of oil and gas will have growing importance, with a predicted shift away from oil towards greater reliance on cleaner gas. The emerging realm of hydrogen technology also offers a fascinating picture of opportunity.
Emerging energy opportunities could provide the foundation for the next stage of Malaysia’s growth
Hydrogen has enjoyed increasingly vocal support from economists and environmentalists in recent years. This technology combines hydrogen and oxygen, creating low-carbon energy that could revolutionise everything from transport to power. Hydrogen is the most plentiful element in the universe, but requires technology to process and capture it for large-scale adoption. Despite broad use for industrial purposes, the technology remains relatively expensive today, but increasing investment could see it become a true value multiplier for economies willing to embrace it.
With a world-class global energy industry, Malaysia is well positioned to pioneer such opportunities. Just as the existing energy ecosystem has been fundamental to the historical growth of the nation’s economy, these emerging energy opportunities could provide the foundation for the next stage of Malaysia’s growth.
In discussion with Tan Sri Datuk Kamal Salih, it is clear how interlinked Malaysia’s future opportunity might be. Malaysia’s palm oil industry — another traditional mainstay of the national economy — offers a synergy to amplify the potential of these growth sectors. At the same time as new technologies could deliver a more efficient, sustainable agricultural industry, the palm oil industry itself will act as a foundation to other high-technology growth areas.
Palm oil products can be used as a source to produce affordable domestic hydrogen, providing a connected technology ecosystem throughout Malaysia. The palm oil industry is also an enabler of Malaysia’s bio jet fuel opportunity, with agricultural byproducts providing a platform to create low-emissions jet fuel to power the future of aviation.
As with any future investment opportunity, the question of financing investment remains the greatest hurdle according to Tan Sri Datuk Kamal Salih. That’s a particularly pressing challenge with the full economic impact of COVID-19 still to be realised.
“The bottlenecks are of course finance. The Government has no more fiscal space to manoeuvre, either to borrow, or in fact generate internal funds. As well as the private sector will have to kick in. And whether the private sector is willing to move into the higher risk technologically-based investment, as against the traditional markets of property investment or retail and wholesale, that kind of thing. Even tourism, was such a, the previous model so to speak. Going into industries is an issue of threshold, and issue of skill, an issue of technology innovation. An issue of finance.”
These investments will represent a significant transformation of Malaysia’s economy. While the energy ecosystem will remain fundamental to this evolution, kickstarting this Southeast Asian Tiger will require repositioning our focus away from acquiring technology assets overseas, to becoming a domestic producer of industrialised technological opportunities according to MIER’s Crouching Tiger plan. That will require an equally important transition in Malaysia’s labour force.
“So if we can improve our efficiency, our transport system, and more important now which is also the finance bottleneck, is our skillsets, our labour force skill labour force. Because the system is now a big change, to be able to orient towards producing highly skilled workers, managers and professional managers,” said Tan Sri Datuk Kamal Salih.
Malaysia, now more than ever, must learn to succeed in a connected global world. COVID-19 has accelerated transformations to a more digital global economy. That has created new avenues for finance and commercial opportunity. It emphasises the need for a global approach according to Tan Sri Datuk Kamal Salih. Malaysia must look beyond domestic markets, with electric vehicles offering a prime example of MIER’s focus on global market opportunity.
Malaysia can also stand to benefit from a relatively positive international position according to Tan Sri Datuk Kamal Salih. The nation is well considered globally when it comes to current borrowing status, with the domestic market boasting around US$100 billion of liquidity to tap.
The evolving US-China trade war means global players are increasingly looking to third-party countries for their technology and manufacturing needs. That places Malaysia in a favourable position in the eyes of international business, offering both a positive investment environment, but also an enviable geographical position at the fulcrum of China’s multitrillion-dollar Belt and Road initiative.
COVID-19 undoubtedly raises short-term challenges for this evolution. Tan Sri Datuk Kamal Salih argues Malaysia should not be intimidated by this challenge, with predictions of a strong recovery to follow. MIER projects Malaysia will enjoy growth of between 3%-5% in 2021, with predictions by the International Monetary Fund (IMF) and World Bank more bullish yet, setting growth as high as 7%.
In its Crouching Tiger plan, MIER lays out its roadmap for a technology-enabled industrial future. The passion of Tan Sri Datuk Kamal Salih in speaking of this potential is clear. What remains to be seen is if political and business decision makers will invest in this vision to see Malaysia’s Southeast Asian Tiger roar.