Malaysia announces new economic framework, 'MADANI Economy: Empowering the people'

The framework will focus on two areas: becoming a leading Asian economy, and elevating quality of life for the nation.

Prime Minister Anwar Ibrahim has announced an economic framework that will outline two main focuses for Malaysia's economic policies — MADANI Economy: Empowering the people or Ekonomi MADANI: Memperkasa Rakyat. 

In his speech on Thursday (27 July 2023), PM Anwar has affirmed that the Rakyat’s economy will cater to every segment of Malaysia's society, from traders & entrepreneurs to public servants, professionals, workers, as well as urban, rural, and inland poor communities. The Government’s efforts also aim to provide assistance and support to those in need, ensuring that everyone can enjoy the benefits of the country’s economic development comprehensively, he shared.

As such, the policy framework was explored with economists, planners, and civil servants. It gained further clarity from obtaining the perspectives of workers, farmers, women, settlers, and youth through a series of continuous discourse. PM Anwar also shared that he had several meetings held at mosques, warungs, and universities to strengthen it.

The initiative to be introduced is a new planning involving various sectors and economic aspects. This planning includes steps towards enhancing economic growth, promoting investment, and strengthening the local industries to become more innovative, competitive, and capable of expanding into the global market.

Malaysia's economic landscape and the new framework

Setting the background, PM Anwar shared: "The fact is that we are caught in a vicious cycle of high costs, low wages, low profits, and a lack of competitiveness."

As a result of an increase in income that did not match the economic surges, the bottom half of households have become burdened with debt. In tandem, the government also faced the same dilemma. In response, PM Anwar believes that the benefits of growth must be distributed equitably, and wages must be commensurate with their work output.

Currently, the average salary and wage of the workforce is "still low" at approximately 35%.

The Poverty Line Income was also revised in 2019, and following the COVID-19 pandemic, the poverty level surged to double digits. This complication has widened the gap and resulted in the emergence of the "super rich" rather than a decrease in the number of people living in poverty with diminishing savings.

Citing the 2021 Salaries & Wages Survey report, this has resulted in predicaments caused by low wages, particularly concerning the younger age group of 24 years and below. Half of the workers in Malaysia earn less than RM2,250 per month. 

As such, PM Anwar has proposed the newly launched framework as a platform to elevate the nation's status by restructuring the economy towards making Malaysia a leader in the Southeast Asian region. The framework will address various challenges, including:

• Long-term issues related to competitiveness and the country’s appeal as an investment destination; and
• Current issues that need to be immediately addressed, such as the impact of rising living costs on the people.

The framework will serve as the foundation for several other specific policies that will be announced later, including the National Energy Transition Roadmap, the New Industrial Masterplan 2030 (NIMP 2030), and the Mid-Term Review of the 12^th Malaysia Plan.

It has also set short-term targets that are already in motion to address pressing issues affecting the nation. These include:

• Accelerating the implementation of projects for schools and dilapidated clinics
  • Various efforts have been made, such as increasing allocations, simplifying procurement procedures, and delegating implementation powers to expedite the execution of school and dilapidated clinic projects.
• Eradicating extreme poverty this year
  • Efforts have been launched through the Inisiatif Pendapatan Rakyat (IPR) to provide opportunities for severely poor households to increase their income and not solely rely on direct cash assistance. The Payung RAHMAH concept has also been introduced and will continue to be strengthened to address the challenges of rising living costs.

Lastly, the framework also sets seven intermediate indicators as medium-term targets to be achieved within the next 10 years:

1. Malaysia to be ranked among the top 30 largest economies in the world;
2. Top 12 globally in the Global Competitiveness Index ranking;
3. The percentage of labour share of income to reach 45% of the total income; (note: the 12^th Malaysia Plan target is 40% by 2025);
4. Increase female labour force participation rate to reach 60%;
5. Rank within the top 25 globally in the Human Development Index;
6. Improve Malaysia’s position in the Corruption Perceptions Index to reach top 25; and
7. Targeting a deficit of 3%, or lower towards fiscal sustainability,

Focus one: Malaysia as a 'leading Asian economy' 

The framework aims to make Malaysia a leader of the Asian economy. To achieve this aspiration, PM Anwar recognises that the economic structure needs to be revamped.

Among the issues plaguing the economic system is the problem of premature industrial contraction. Citing an example, the manufacturing sector has declined to less than 25% of GDP. The NIMP 2030, to be announced next month, aims to revitalise the industrial sector and drive new economic growth.

PM Anwar breaks it down into the following:

a. A regional (ASEAN) agenda

PM Anwar stated: "We need to think globally and internationalise the economy to generate prosperity. With that, we will be able to achieve the targets set for the top 30 largest economies in the world in the medium term."

Simply following the status quo, Malaysia's economic growth is expected to grow between 4 to 5%. However, with efforts towards implementing reforms aligned with Ekonomi MADANI, it is possible to reach 5.5%, or possibly even up to 6%, the Prime Minister shares.

To accomplish this, Malaysia would need to establish greater economic integration with neighbouring countries, especially considering the world is facing supply chain constraints. Therefore, PM Anwar urged to nurture more high-competitive local companies to penetrate the ASEAN regional market.

"Our efforts now need to go beyond Free Trade Agreements. For instance, trade diplomacy and strategic arrangements can enhance bilateral and multilateral market integration and facilitate the movement of goods, capital, skilled workforce, and technology sharing with neighboring countries."

The Government will introduce outcome-based tax incentives to support and reward companies focusing on high-impact activities.

b. Malaysia as an investment destination

To be ranked among the 12 best economies in terms of competitiveness and ease of doing business, there must also be reforms. PM Anwar urged to intensify efforts to ensure more people choose Malaysia as an investment destination. The focus will be on:

• Strengthening investment promotion agencies under MIDA to attract investment and facilitate investor affairs proactively;
• Reviewing investment incentives to focus on encouraging investments that generate high-income jobs and are sourced locally; and
• Upgrading industrial areas with complete infrastructure and increasing human capital development to meet the needs of investors. 

At the same time, domestic direct investment (DDI) will be set as one of the key performance indicators for the country’s investment achievements.

Efforts will also focus on internationalising local startups and SMEs, which includes:

• Spawning more successful companies through encouragement for Bumiputera startups and SMEs to venture into new growth areas. The GLCs and GLICs should continue to drive DDI’s investment and support the development of local vendors in strategic sectors, such as E&E, the digital economy, and aerospace; and
• Additional funding of 20mn ringgit will be allocated to boost export growth, including the Mid-Tier Companies Development Programme (MTCDP) as well as the Market Development Grant (MDG) by MATRADE.

To liven up the capital market, Malaysia aims to bring in more company listings, thus making way for new local ‘unicorns’. PM Anwar calls on the banking system and capital markets to act quickly to meet business financing needs. The Securities Commission will develop financial market reform policies by:

• Facilitating the investment of retail investors;
• Attracting more investors to finance MSMEs as well as the country’s new growth activities; and
• Increasing the level of competitiveness of the capital market at the international level.

Initial steps have been implemented starting July 2023, including reducing stamp duty on stock transactions listed on Bursa Malaysia. Further measures this year includes making investments more affordable by reducing trading lot sizes and enabling fractional share trading. The Securities Commission will also enable the automatic transition of companies listed on the ACE market to the Main Market Board of Bursa Malaysia.

Malaysia currently ranks 20^th globally based on the Global Startup Ecosystem Report 2023, with the value of the Malaysian startup ecosystem reaching US$46bn for the first half of 2020 to 2022. As it advances, the Government will:

• Invest RM1bn of additional funds to match with private funds in order to support local startups and encourage technopreneurs. This includes ensuring the provision of funds for each phase of high-growth companies.
• Expand the implementation of programmes such as Corporate Hackathon and MYHackathon under SUPER 2021-2030 to bring people and creative startups closer to overcoming their problems; and
• Allocate an additional RM100mn to intensify the R&D&C&I ecosystem (research, development, commercialisation, and innovation) with a focus on industrial needs, renewable energy, food security, and new growth activities.

This is also part of the effort to achieve a Gross Domestic Expenditure on R&D (GERD) of 3.5% of GDP by 2030 and to increase Malaysia's position to the top 20 in the Global Innovation Index (GII) by 2025.

To drive digital economic reforms, the implementation of Digital ID will foster the expansion of online businesses and applications. A matching grant for digitalisation will be increased by RM100mn to assist MSME in accelerating their shift towards a more digital business model.

d. Leader of the global Islamic economy

PM Anwar explained: "Holistic and MADANI national development efforts can only be achieved with a financial system that is fair, courteous, and based on maqasid sharia. Since the establishment of Bank Islam 40 years ago and Lembaga Tabung Haji 60 years ago, our Islamic finance has been recognised as the best in the world by independent analysts."

Today, the Islamic banking market share of financing is 44.5% (RM974.1bn). The Islamic capital market remains the main component of the Malaysian capital market, accounting for 64.3% (RM2,322bn).

Even though Islamic finance has been established for a long time, PM Anwar has set efforts to transition towards being more sustainable and effective. This effort will emphasise equity financing, including venture capital, equity crowdfunding, and the Islamic digital economy; Islamic social finance.

e. Micro entrepreneurs and the informal sector

About 79% of MSMEs consist of micro-businesses. Belanjawan MADANI 2023 contains over 70 initiatives for micro and small businesses focused on access to loans and financing guarantees.

Still, PM Anwar believes much more needs to be done. The Ministry of Economy has initiated the Inisiatif Pendapatan Rakyat aimed at strengthening the business supply chain. The Government welcomes Malaysian start-up companies, which can act as catalysts of change in the MSME sector by offering alternative financing options, such as equity crowdfunding.

MSME entrepreneurs rely on domestic demand to increase revenue. The successful implementation of the eBeliaRahmah (eBR) Programme not only benefits 2mn youths, but also helps the business sector generate income while building a cashless society. Recognising the success and significant impact of the e-cash programme on the community, the Government has decided to provide an e-cash credit of RM100 to all Malaysians with an annual income of RM100,000 or below.

The number of eligible recipients is estimated to exceed 10mn people, including the B40 and M40 groups, with funds totaling RM1bn.

f. Green growth for climate resilience

Low-carbon development is essential to change the economic landscape to a more sustainable one. In line with this, Malaysia has launched the National Energy Transition Roadmap (NETR). The goal is to accelerate energy transition and change the way energy is generated in Malaysia in order to improve climate resilience.

Among the main efforts are increasing renewable energy generation capacity, installing solar panels on Government buildings, and implementing renewable energy trading policies through the electricity market system. We should also take inspiration from Sarawak’s pioneering efforts in the bus project that utilises hydrogen energy and CCUS (carbon capture, utilisation & storage). To promote these new green growth activities, the government plans to provide specific incentives.

g. Land use & food security

Malaysia's plantation sector and downstream industries are essential contributors to the economy, but there is a need to reassess the nation's approach to land use. Currently, 5.7mn hectares of land in Malaysia are used for palm oil cultivation, while almost another 2mn hectares are dedicated to rubber plantations.

One of the efforts is to create biodiversity assets in the carbon trading market through conservation and reforestation efforts.

To improve the self-sufficiency level (SSL) and enhance food security, the Government will focus on:

• Increasing the area of crops but optimising the use of existing plantation lands.
• Increasing the resilience of the agro-food sector through the application of agricultural technology to increase productivity for the benefit of small farmers.
  • This includes regenerative agriculture approaches, climate-resistant crops, and the use of AI technology
• A commitment to improve the irrigation infrastructure in the MADA areas of Kedah & Perlis to increase paddy production productivity to five seasons within a two-year period, involving infrastructure worth RM3bn; and
• Allocating a total of RM200mn under Agrobank to help provide financing facilities, particularly for modern agricultural technology applications, to provide support to the local food industry and increase production,.

Focus two: Elevating quality of life for the nation

With the higher returns from the country’s economic targets, the second focus of the framework is to improve the lives of all Malaysians. This includes the need for social protection for all, employment with meaningful wages, and wealth-sharing to build a more equitable and prosperous society.

Taking into account the income and wealth of the country that has been concentrated among the wealthy elite, it is important that the increased national income in the future is also distributed fairly to the low and middle-income groups.

a. Job opportunities with meaningful wages

According to PM Anwar: "The success of economic structural reforms should be assessed in terms of how far it can create more jobs with meaningful wages for all Malaysians."

For the year 2022, the wage and salary rate compared to the total income in Malaysia is 32.4%. To achieve a more balanced economic sharing, the Government will implement policies that support increasing wages relative to GDP to reach the level of 45% in line with more advanced countries.

Efforts include a review of the minimum wage level and the introduction of laws that guarantee a safe and comfortable working environment. In addition to implementing the minimum wage, the Ministry of Economy and the Ministry of Human Resources are exploring a progressive wage model towards achieving more comprehensive income growth. 

Lastly, the Prime Minister also recognises the need to reduce dependence on low-skilled foreign labour, which contributes to the overall low wage levels. This also reduces the morale and incentive for employers to innovate and improve competitiveness. The Government aims to implement tiered foreign worker levies, where part of the levy increase will be allocated to automation and training programs for local workers.

b. Equal Opportunities

PM Anwar acknowledges that the majority of citizens in poverty are the Malays and Bumiputeras. However, we also have a small group of other communities who are facing difficulties.

"On the principle of social justice, we need to provide equal opportunities, especially through giving more assistance to marginalised groups."

In line with this, scholarships and full boarding school education will prioritise low-income groups.

To support entrepreneurial opportunities, training and financing programs will be intensified for specific groups, including women and youth. The Government will allocate an additional RM400mn for micro-loans under agencies such as SME Corp and TEKUN.

To reduce the development gap between regions as well as between developed and less developed states, the Government will also implement an industrial policy according to geography through specialised activities and investment by region that is aligned to the comparative advantage and level of development of the respective region.

The Klang Valley will continue to be developed to enhance its competitiveness as one of the major urban centres in Asia. Emphasis will be given to raising liveability and urban sustainability, enabling it to function as a hub for leading companies in the ASEAN region.

The Government will continue to strengthen the development of Iskandar Malaysia in Johor through the establishment of a competitive special financial zone to attract international investors and knowledgeable workers to settle in Malaysia. Facilities offered to eligible companies and individuals will include special tax incentives, a 15% tax rate for knowledgeable workers, and fast-track immigration facilities to ease the entry of skilled professionals from abroad.

Lastly, there is also a need to narrow the gender gap in the labour market. Currently, Malaysia's female labour participation rate is at 55.5%, compared to 80.9% for males. More efforts will be focused into placing legislative and regulatory measures as well as supporting programmes to encourage mothers to return to work. This includes addressing systemic issues such as unpaid care work, gender discrimination, and family support policies.

As part of the care-economy initiative, immediate efforts include establishing affordable childcare centres to increase women’s workforce participation. The Government will streamline the registration process and expand the childcare centre and nursery whitelisting programme nationwide with an allocation of RM10mn.

Through this, the goal is to increase the female labour force participation rate to reach 60%, making it more comparable with the regional economy.

c. Social Protection for All

The Government will expand the social protection network to cover everyone and safeguard the citizens in unforeseen circumstances. 

The three pillars of its Social Protection Programme include:

Prevention through social insurance. The Government has allocated RM100mn for the year 2023 to provide an 80% grant to fund Social Security Organisation (SOCSO, or PERKESO) contributions for gig workers. However, according to EPF data, more than 40% of the workforce do not have proper retirement savings protection, especially among informal workers. Therefore, as a starting point to ensure protection for all citizens, the Government will gradually expand the coverage of EPF and SOCSO to the working-age population in phases.

Sustainable retirement savings. Improvements will be made to ensure that the level of retirement savings is sufficient for Malaysians in their retirement days.

Protection through social assistance. Various cash assistance programmes have been announced to provide a higher social protection floor.

d. Reforming healthcare services

Allocations will be increased in line with the Government’s financial capacity to improve access to quality healthcare and education. In line with this, the Government aims to improve Malaysia’s ranking to the 25^th position in the UN Human Development Index, which takes into account health and education achievements. Per the Healthcare White Paper's suggestion, the Government is committed to achieving a target of 5% of GDP for healthcare expenditure by optimising the public and private healthcare systems.

The Ministry of Health recently released the Health White Paper, which encompasses a 15-year strategy aimed at creating a more sustainable, resilient, and quality healthcare system to improve the well-being of the nation and provide universal access to healthcare. Among the approaches to be taken is a whole-of-society primary healthcare approach.

The provision of quality healthcare access is manifested through the construction of the National Disease Control Centre with a project cost of RM305mn in Negeri Sembilan. 

In addition, the new paradigm shift includes a transition towards treating patients with a disease prevention concept, where individuals’ self-reliance will be strengthened to maintain, protect, and improve their own health.

e. Reforming education and human resource

PM Anwar empahsises that efforts must be undertaken to address the rising number of children dropping out of the education system.

With this, the Government will continue to provide a conducive school environment and facilities for children. Various efforts have been made in this area — particularly, increasing allocations, streamlining procurement procedures, and decentralising implementation authority to accelerate school projects and improve dilapidated schools.

For a long time, education has been supply-driven. To better meet the needs of development, the country’s education system needs to be more demand-driven, especially in strengthening cooperation with industries and employers, particularly in the implementation of TVET.

Recognising the constantly changing and challenging global economy, PM Anwar calls for a more progressive lifelong learning approach for all Malaysians. "We need to provide lifelong learning pathways in whatever skills the nation want to learn, whether it’s in universities, TVET institutions, or through necessary micro credentials."

For this purpose, the Government through SOCSO has allocated RM42mn for the Bina Kerjaya Programme, which includes upskilling programs for informal workers, including gig workers with qualifications of SPM and below.

f. Infrastructure and public transportation

The integration of land public transportation management aims to optimise all existing assets by focusing on efforts to build a better public transportation network between and within cities; as well as improving last-mile connectivity through cost-effective methods, including the use of electric buses.

In terms of improving air connectivity network, Malaysia has announced plans to expand the Penang and Subang airports.

Lastly, the Government is also committed to improving transport infrastructure in major cities, including the implementation of bus rapid transport in Johor Bahru and LRT in Penang. 

g. Basic facilities

PM Anwar pledges to ensure that all citizens enjoy universal access to basic infrastructure, be it water or electricity supply. As of 2022, 97% of Malaysia’s population has access to treated water supply.

Still, residents in the areas of Kelantan and Sabah do not have access to consistent and quality water supply. The Unity Government has agreed to allocate an additional total of RM800mn for short-term solutions in both states.

Furthermore, the Government will expedite the implementation of flood mitigation projects, in order to protect the local communities from being affected by flood disasters.

h. Affordable housing for all

Lastly, PM Anwar identifies housing as a basic need that must be given attention. Currently, there is a mismatch between the supply of new homes and the affordability level in terms of demand.

The Ministry of Local Government Development is working on the National Housing Action Plan, which includes the provision of housing supply based on metrics such as the ratio of the median house price to median income. The development of public housing is also being continued, along with boosting the rental market as an effort to meet housing needs.

The Government acknowledges the grievances regarding the postponement of their desire to own their first home due to the inability to provide a house purchase deposit. Therefore, Malaysia will enhance the loan scheme under the Housing Credit Guarantee Corporation (HCGS) by providing financing guarantees of up to 120% of the house price, valued up to RM300,000. The 120% guarantee will cover all homeownership costs through the loan, including the principal financing amount, legal fees, valuation fees, insurance, furniture purchase, and renovation costs. In this regard, the Government guarantee of up to RM5bn will be provided.

Ending off his speech, PM Anwar stated: "The framework is to empower the people. The Government, non-governmental organisations, the Rakyat, and the private sector; we all need to embrace all the strength and effort to make this endeavour successful.

"Starting today, each ministry will announce more specific initiatives to welcome the launch of the Ekonomi MADANI: Memperkasa Rakyat."

Lead image / Prime Minister Anwar Ibrahim Facebook