15 QUESTIONS on the Economic Transformation Programme ( ETP)

Posted on September 24, 2010


The government has recently announced the launching of the Economy Transformation Program or ETP which is part of the New Economic Model (NEM).

As a background, the government’s National Transformation Agenda is based on meeting the Vision 2020 of being an industrialised nation driven by four national transformation pillars of the 1Malaysia inclusiveness concept, Government Transformation Plan (GTP-with 6 National Key Result Areas (NKRAs)), Economic Transformation Plan (ETP- with the New Economic Model goals of High Income, Inclusiveness and Sustainability by having 8 Strategic Reform Initiatives (SRIs) and 11 National Key Economic Areas (NKEAs)) and the 10th Malaysian Plan.

However, I wish to ask a few questions from a lay person’s understanding of the economy to seek clarification on the eventual implementation of the plan and to obtain answers to the many challenges and contradictions facing us today.
Although some of the questions might be obvious, but the answers would lead to a better public understanding of the assumptions used for the projections.
All the data was derived from publicly available information with some interpretation done as best as possible for clarity.

The above opening statements is from Nurul Izzah Anwar ( MP for Lembab Pantai )  and her questions are :


Gross National Income  (GNI) Projections

Overall, the country’s GNI is projected to grow to at least RM1.7 trillion (US$523 billion) from RM660 billion (US$188 billion) in 2009 (using RM3.25 to US$1 exchange rate) for a 178% growth over 10 years (2010-2020).

Question 1: What is the impact to the GNI projections if the Ringgit weakens to RM3.50 and above per US$1?

Question 2: Will floating the Ringgit help in meeting the exchange rate needed to achieve the GNI targets?

6% Annual Growth Rate Target

This would require a 6% annual growth rate for 10 years (2010-2020).
However, from 2000 until 2010, Malaysia’s average annual GDP Growth was 4.72 percent.

Question 3: How are we going to maintain a 6% annual growth rate for the next 10 years with the predicted global economy remaining weak as compared to the preceding 10 year annual average of 4.72% when the global economy was relatively strong (except for the 2008 financial meltdown)?

ETP’s GNI Growth Contribution Target

The ETP projects will provide RM1.258 trillion (US$387 billion) or 74% of the country’s gross national income (GNI) of RM 1.7 trillion (US$523 billion) by 2020. The remaining 26% is expected to come from non-ETP project sectors.

The RM 1.7 trillion GNI growth contributions in 2020 are as follows:
31% from the 133 Entry Point Projects (EPPs), RM527 billion
10% from EPPs multiplier effects, RM 170 billion
33% from the 60 Business Opportunities (BOs), RM561 billion
26% of incremental growth from other non-ETP projects, RM442 billion

The ETP projects are part of the 11 National Key Economic Areas or NKEAs. The four largest NKEAs (oil, gas and energy, financial services, palm oil and wholesale and retail) are projected to generate 60% of the 78% ETP based projects incremental GNI growth from the 11 NKEA sectors.

Question 4: What impact on GNI targets if commodity prices (oil, gas, energy, palm oil) that are the two main NKEAs become lower during the 10 year ETP period?

GNI per capita Target

Gross National Income (GNI) per capita will reach above RM48,000 by 2020 from RM23,700 in 2009, for an increase of 102% over ten years.

For context, the income distribution schedule indicates that there are 5.8 million households in 2007. Of that, 8.6% have an monthly income below RM1,000, 29.4% had between RM1,000 and RM2,000, while 19.8% earned between RM2,001 and RM3,000; 12.9% of the households earned between RM3,001 and RM4,000 and 8.6% between RM4,001 and RM5,000.

Finally, around 15.8% of the households have an income of between RM5,001 and RM10,000 and 4.9% have an income of RM10,000 and above.

Furthermore, increased GNI per capita should take into account the real cost of living situation faced by ordinary Malaysians.

In the 1970s a car may cost only RM7,000 but today it is at least RM45,000. A comfortable house in the 1970s may cost RM50,000 compared to today’s RM350,000. A basic meal in the 1970s may cost RM1 but it is RM5 now. And the starting salary in the 1970s would be RM1,200 compared to RM2,000 today.

And it can be assumed that even with the doubling or tripling of average salaries by 2020, the cost of the above items may have also doubled or even tripled likewise due to inflation.

Question 5: What is the Purchasing Power Parity (PPP) projected by 2020?

Question 6: What is the income inequality GINI index projected by 2020?

Question 7: What is the Poverty Line Income (PLI) projected by 2020?

ETP Workforce Requirement

ETP will create 3.3 million new ‘middle class’ jobs, of which half will require diploma or vocational qualifications.

The projected data based on available information would produce an annual average first degree graduates of 90,000 and vocational school graduates 60,000 for a total of 150,000; which in 10 years would produce slightly less than half the 3.3 million qualified workforce needed under ETP.

However, we can find that the quality of our workforce is based on the following characteristics:

30% of Malaysians obtained higher education qualifications (2005), compared to Singapore’s 46%, Thailand’s 41% and South Korea’s 89%.

80% of Malaysia’s workforce only received secondary level (SPM) education (2007).

Malaysia has 25% high skilled workers and 75% low skilled workers (2007), compared to Singapore’s 49%, Taiwan’s 33% and South Korea’s 35% highly skilled workers percentages.

Workforce productivity for Malaysian labour is an average of 2.9% (1998-2007), compared to China’s 9.2%, India’s 4.4%, Thailand 3.1% and Indonesia’s 3.0% labour productivity for the same period.

The low quality of our workforce is compounded by:

Inefficient education services delivery

In 2007, the percentage of Malaysia education expenditure as % of GDP was 4.5%.
Compared to Philippine’s 2.6%, Singapore’s 2.8%,  Hong Kong’s 3.3% and South Korea’s 4.2% our student’s outcome for the workforce has been low.

Rising tertiary education costs and lower education quality trends

Malaysia has 20 public universities and 627 institutes of higher learning. Under the 10th Malaysia Plan, selected public universities will be corporatized and combined with private institutions of higher learning, the fee-paying structure will see fees increase from an average of RM10,000 to RM50,000 per student and it is projected that 90% of tertiary education students will enrol not in public but private institutions.

This makes accessibility and affordability for quality education (only 4% of private institutions compared to 33% of public institution’s academic staff has a Phd) a challenge in producing an educated workforce.

Furthermore, with 70% public institutions enrolment are bumiputeras while 95% of private institutions enrolment are non-bumiputeras, unless more proactive measures such as more scholarships and not PTPTN loans and drastic investments along with improvements in primary and secondary education are taken, the racial disparity trend will create its own set of challenges.

Low world university ranking

Malaysia’s oldest and premier university, Universiti Malaya (UM) has dropped from the top 200 of the prestigious 2010 QS World University Rankings, slipping to 207 this year compared to 180 in 2009.

This would indicate that more has to be done to improve the overall quality of Malaysia’s tertiary education capacity to meet ETP workforce requirements.

Question 8: How do we determine that the high quality of qualified workforce needed is available for the ETPs?

Question 9: Are we going to welcome qualified immigrants to join our workforce?

ETP’s Innovation Key Success Factor

Innovation is one of the most critical factors to move up the economic value-chain and escape the ‘middle income trap’.

However, Malaysia currently has a low research and development (R&D) capacity based on the following statistics:

2006 World Bank data indicates that Malaysia’s R&D expenditure as a % of GDP was 0.6%. Compared to South Korea’s 3.2%, Singapore’s 2.3%, Australia’s 2.2% and China’s 1.4%, Malaysia has a lot more to do to prioritise its spending.

And based on the number of R&D researchers per million population, Malaysia had 372 researchers per million population. Compared to South Korea’s 4,187, Singapore’s 5,736, Australia’s 4,231 and China’s 927 per million population, again Malaysia has to prioritise its human capital development.

Question10: How do we increase our innovation capacity while facing tremendous challenges in our education system and economic resources misallocations added with economic leakages?

ETP Investment Targets

The Economic Transformation Program (ETP) requires investments worth RM1.376 trillion (US$444 billion) over 10 years (2010-2020) for the following projects:

133 Entry Point Projects (EPPs)
60 Business Opportunities (BOs)

The total investments sources are:

60 percent private sector or RM825.6 billion
32 percent government-linked companies or RM440.32 billion
8 percent government or RM96 billion

However, the current reality makes these targets challenging based on the following facts:

In the past 10 years, private companies invested just RM535 billion and Malaysia’s private investment rate of around 10% of gross domestic product (GDP) is among the lowest in Asia.

The World Foreign Investment Report (WIR) 2010 showed that FDI in Malaysia plunged 81 per cent last year, trailing behind countries like the Philippines, Vietnam, Thailand, Indonesia and Singapore. The Philippines attracted US$1.95 billion (RM6.24 billion) in FDI compared to Malaysia’s US$1.38 billion, while Singapore received the most — more than US$16 billion.

National debt has reached 53 percent of GDP which is an unsustainable level, and according to Idris Jala the government debt stands at RM362 billion and rising and may reach RM1.158 trillion by 2019 with the possibility that Malaysia may go bankrupt like Greece.

Question11: How do we increase our investment attractiveness while facing stiff competition from neighbouring countries?

Question12: Are the GLCs and government sector investment contributions totalling 40% of the investment amount to be obtained by more taxes, borrowings or asking Petronas to do ‘national funding service’ again?

ETP Real Beneficiaries

Who are the real beneficiaries of the ETP and NEM?

Based on our past ‘national expenditure pricing’ experience, could we assume that the following breakdown of the total investment amount of RM1.376 trillion (RM 1,376,000,000,000,000) will be as follows?

Legal Fees: (2%)  RM27.52 billion
Consultancy Fees (8%) RM110.08billion
Facilitation Fees (10%) RM137.6 billion
Overpricing Costs (30%) RM 412.8 billion

Question 13: Does this mean that the total fees and costs payable of RM688 billion or 50% of the investment total is to be considered as a normal economic leakage, leaving the remaining 50% to actually be invested in the ETP projects?

Question 14: Who will become the real beneficiaries that will receive the ‘tax-free’ fees and cost portion of the investment amount?

ETP Viablity Burden Borne by the Rakyat

If the RM1.376 trillion ETP investment amount requires a ROI of 10%, then annually after 2011, the ETPs need profits after tax of RM137 billion and based on a 20% profit margin, means the entire EPP and BO entities must generate RM685 billion in annual gross revenues.

Question 15: Does this mean in 2020, the 30 million Malaysians must spend at least 80% (with the balance 20% being spending by foreigners as tourist or as importers)-which would be RM22,933 per capita that is 47% of the RM48,750 high-income GNI per capita target- to meet the ETP’s gross revenue needs of RM685 billion annually just to remain viable?

In conclusion

It would appear from this enquiry that the rewards for the ETP will benefit the few while the risk and true cost as always will be shared by the rakyat.

As I said earlier, that the government’s comprehensive economic development plan is commendable but if the government is sincere in making it a reality to benefit all Malaysians, then immediately, a fifth pillar to the National Transformation Agenda must be added which is a Political Reformation Plan (PRP) which would also be the ‘Political Contract’ that complements the ‘Social Contract’ of our country.

The Political Reformation Plan or ‘Political Contract’ would include repealing all anti-democratic laws, respecting separation of powers, reforming national elections and restoring local government elections, returning the judiciary’s and other state institution’s independence, fighting corruption, ensuring a free media and by abiding to the true meaning of our constitution, then and only then, will the economic transformation plan become a resounding success for a better Malaysia.

Isn’t that so?


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