OBG talks to Mustapa Mohamed, Minister of International Trade and Industry (MITI)

Interview: Mustapa Mohamed

What tools can be used to encourage low-end manufacturers to move up the value chain?

MUSTAPA MOHAMED: The government has been adopting a more targeted approach in investment promotion, focusing on growth areas, value-added sectors and high-tech industries. To this end, the Malaysian Investment Development Authority is working to attract new quality investments and in encouraging existing industries to shift from low-value-added products and services towards high-value-added, knowledge-intensive and capital-intensive industries, especially in the 12 National Key Economic Areas. In 2011 a total of 92 projects each with investments worth at least RM100m ($32.3m) were approved. Moreover, 11 of these involved investments exceeding RM1bn ($322.6m). The government also recognises the need to provide incentives and funds for companies to shift towards more high-value-added activities, for example by modernising and automating their manufacturing processes. Incentives and funding facilities provided by the government for this purpose include reinvestment allowances and the automation fund, among other measures.

How will the manufacturing sector be affected by the pending creation of a minimum wage?

MUSTAPA: In recent years, wages in Malaysia have been decoupled from the cost of living to a point where many workers find it hard to make a decent living. A minimum wage will increase the standard of living for the poorest and most vulnerable classes in society. A minimum wage model that is reasonable, workable and forward-looking would also enhance the growth of the manufacturing and services sectors. It is a fiscal tool to enhance economic growth and productivity improvements, and we must remember that more than 90% of countries worldwide have a minimum wage. A study conducted by the World Bank revealed that a minimum wage rate below RM1000 ($323) per month would not significantly affect firms, employment, foreign direct investment or the migrant inflow into the country.

Beyond this, Malaysia is no longer competing for cheap labour-intensive investments. Moreover, the implementation of a minimum wage is expected to optimise the use of labour and encourage businesses to move up the value chain through investment in technology. This reflects the main goal of the Economic Transformation Programme, that is, shifting to a new economic model that emphasises innovation, creativity and high-value-added activities. This transformation will not take place in the absence of a minimum wage model.

Which areas within the manufacturing sector represent the best opportunities for investment?

MUSTAPA: Under the New Economic Model, growth areas that are being targeted in the manufacturing sector include biotechnology, advanced electronics, optics and photonics, renewable energy, aviation, pharmaceuticals and medical devices. Malaysia is also emphasising the development of the services sector.

Under the Third Industrial Master Plan, eight services sub-sectors have been targeted for attention. These include trade, construction, education and training, tourism, health care and logistics services.

What progress is being made in terms of increasing economic integration across the ASEAN region?

MUSTAPA: Regulatory hurdles remain a key challenge as ASEAN moves to deepen integration to allow for the free flow of factors of production, including human resources. Since 1995, to support greater mobility of professionals, ASEAN has concluded seven mutual recognition agreements (MRAs) covering engineering, nursing, architecture, medical practitioners, dental practitioners, surveying qualifications and accountancy.

The objective of these MRAs is to enable service providers registered or certified in one ASEAN country to be recognised in other member states. ASEAN is also finalising a framework agreement on the movement of natural persons to allow professionals engaged in the conduct of trade to move within the region.