Economic Transformation Programme (ETP) was launched with much fanfare on Sept 21 last year. The ETP report outlined in very specific terms the roadmap by which we would achieve the status of a high-income nation, with a gross national income (GNI) per capita of RM48,000 by 2020.
Its focus was on the 131 Entry Point Projects (EPPs) and 60 business opportunities identified in the 12 National Key Economic Areas (NKEA). This was the product of eight weeks’ worth of discussion and brainstorming involving 500 experts from the public and private sectors. One year later, how can we objectively evaluate the performance of the ETP? An objective perspective is needed since there are ample ways in which one can unfairly criticise the performance of the ETP.For example, one can point to the exorbitant fees running into tens of millions of ringgit paid to consultants to set up Pemandu, the government agency in charge of driving the ETP, and to run the NKEA labs. These should be considered sunk costs and could potentially be paid back many times over if the ETP is indeed successful in significantly increasing economic activity in the country.
One can also easily criticise the charismatic CEO of Pemandu. Datuk Seri Idris Jala, as a good salesman who is able to cover up the lack of substance in the ETP by hyping up the many EPPs during each of the seven ETP updates. But this assumes the “hollowness” of these EPPs without going through the due diligence of examining their individual economic potential. Along the same lines would be the criticism that these projects would have been carned out regardless of the ETP.
This ignores the implicit role of Pemandu as coordinators between the private and public sectors to clear away unnecessary red tape so that some of these projects can be expedited. In addition, the very public nature of a project being named as an EPP may also help focus the energies and budgetary commitments of the stakeholders (the government, government-linked companies (GLCs) and the private sector) to drive these projects through to completion in a timely fashion.
Finally, one can also get overly obsessed with small, individual projects such as Myemail.my which comprise only a small fraction (in GNI contribution as well as investment) of the overall ETP.
A more objective way would be to evaluate the ETP on its own terms by looking at the objectives and plans outlined in the ETP roadmap document. By doing this, one can examine the ETP using a framework which the ETP team, the government and the interested public can refer to in the context of having a constructive debate. If the ETP roadmap promised certain transformational EPPs in certain NKEAs, why haven’t these been announced yet?
What is the distribution of the EPPs announced thus far among the 12 NKEAs? What is the breakdown between the necessarily public and private investment outlays? In this short piece, I can only highlight a limited number of points using this evaluation criterion. The results after the seven ETP updates have certainly been impressive, at least on paper.
Some 84% of the 87 EPPs announced in the first six updates are already under way in various stages. A total of 95 EPPs with a planned investment ofRMl7l billion with an estimated GNI contribution of RM230 billion and over 350,000 new jobs by 2020 have been announced. The planned investment, if it continues on the same trajectory path, will mean that the investment target of RM1.4 trillion by 2020 will be easily exceeded.
But when one examines the distribution of these investments, it becomes clear that a handful of projects contribute to the bulk of the headline figures. The RM60 billion Refinery and Petroleum Integrated Development (Rapid) project is an ambitious undertaking funded by Petroliam Nasional Bhd (Petronas) with the aim of significantly expanding the country’s refining capacity and increasing the range and value of petrochemical products.
The RM40 billion MRT project under the Greater KL NKEA is the second largest EPP by value. Both these EPPs combine to contribute almost 60% of the announced RM171 billion in investments. By this measure, the split of a 60%, 32% and 8% investment ratio between the private sector, the GLCs and the government outlined in the ETP roadmap seems difficult to achieve.
Of course, if the number of EPPs is used as a measure, rather than investment value, private sector investment does reach the 60% mark although the number of government-initiated EPPs is closer to 20% of the total rather than the desired 8%.
Another point worth highlighting is that the EPPs for the oil, gas and energy sector seem to dominate the other NKEAs when measured by value. The 17 EPPs under this NKEA make up more than 50% of total EPP investments (by value) announced thus far. Seven out of the top 10 investments all costing RM3 billion and above are oil, gas and energy EPPs.
The ETP roadmap anticipated the highest incremental GNI contribution from this NKFA. This economic sector is expected to make up 19% of total GNI in 2020.
The contracts given out to private companies to develop marginal oilfields will not only give domestic production a much needed boost but more importantly, develop the capacity of the local service providers to compete internationally. There is certainly a lot of buzz and excitement among local players in this sector of the economy.
But it does raise concerns of being overly dependent on oil and gas to drive future economic growth, especially with the uncertainty over oil prices.
What is more worrying is the fact that there have been zero EPPs announced under the Financial Services NKEA which is projected to be the second largest economic contributor in 2020. This could be because many of the initiatives under this NKEA require the implementation of what Pemandu calls key police “enablers” before the necessary investment can come in.
Here, Pemandu may be teartul of stepping on the two existing regulators, Bank Negara Malaysia and the Securities Commission, which already have developed comprehensive plans to slowly but surely expand this sector of the economy.
Of greater concern is how the proposed Kuala Lumpur International Financial District (KLIFD) by 1MDB fits into the ETP given that it was not featured in the roadmap but was later named as an EPP under the Greater Kiang Valley/KL NKEA.
While not directly featured in the roadmap, the incorporation of 37 policies identified in the New Economic Model (NEM) clustered under six Strategic Reform Initiatives (SRI) into the overall ETP seems to make sense. Many of these policies can be likened to the “enablers” identified in the ETP.
These structural changes will spur the growth of the already and yet to be announced EPPs under each of the NKEAs. However, because of the longer time frame and higher political hurdles involved, it would be difficult to expect Pemandu to give similar ETP updates with regard to the SRI policies (reducing subsidies and introducing the goods and services tax (GST) under the Public Finance SRI, for example).
Even if one does not think much of the ETP, it cannot be denied that it has generated a positive buzz among potential foreign investors that the government is serious about tackling existing barriers to economic growth in the country.
Many of them are adopting a wait-and-see attitude to see if the much needed reforms can be implemented, as are many domestic companies with investment funds available. Only if Pemandu can keep up this momentum can the big ship that is the Malaysian bureaucracy and the economy be slowly steered towards the path of a high- income nation. For now, it’s the best hope we have.
Ong Kian Ming holds a PhD in political science from Duke University. He is currently pioneering a Masters in Public Policy (MPP) programme at UCSI University. He intends to use Pemandu as a case story in the MPP.
This article first appeared in the PEMANDU website.