Competitveness: Low Down Limbo

Let us read Lee Wei Lian's news article on the global competitiveness survey results just out.

Sadly, we are doing the limbo rock once more, falling by another 2 spots in the World Economic Forum (WEF) competitiveness index. We came in  26th out of 132 countries, with security, productivity and higher education identified as areas for improvement. How obvious given what is on the news, day in and day out!

This is the second year in a row Malaysia has dropped in the rankings after falling from 21st to 24th spot last year.

The WEF noted in its report, however, that the country’s four-year decline in the quality of institutions that pushed Malaysia from 17th in to 43rd has finally come to a halt, with the country remaining stable at 42nd place in that category this year.

“The main drag within this pillar remains the security situation (80th, up five),” said WEF.

“In order to improve its competitiveness further, Malaysia will need to improve its higher education system, with particularly low enrolment rates at the secondary and tertiary levels.”

The report also pointed out that Malaysia would be well-served by encouraging greater technological adoption — particularly the use of ICT — for productivity enhancements.

Malaysia’s aggregate score also remained fairly stable, up slightly to 4.88 from 4.87 last year.

Switzerland continued its reign as the most competitive country in the world, followed by Sweden, Singapore, US and Germany. Among the Asian giants, Japan climbed from eighth to sixth position, while China improved from 29th to 27th. Korea, however, fell from 19th to 22nd.

RAM Ratings chief economist Dr Yeah Kim Leng said that this year’s ranking will be a baseline to see if Malaysia’s transformation efforts will boost its competitiveness globally.

“Given that we launched the Government Transformation Programme (GTP) and Economic Transformation Programme (ETP), we should see ranking improve over the coming year,” Yeah told The Malaysian Insider. “If there is no improvement next year, that means we are not even harvesting any low-hanging fruits and we need to relook at policies.”

Yeah pointed out that the index was useful as it allowed Malaysia to assess its global standing.

However, he expressed concern that Malaysia’s ranking slipped even though initiatives to improve governance like Pemudah have been launched. So, are they calling our bluff?

“It shows other countries are improving and there is greater urgency to implement transformation initiatives quickly and arrest the continuing decline.”

He said that a look at the top ten most competitive countries confirmed that they had become developed by being competitive.

“The bottom line is we need to redouble our efforts to address the critical challenges,” he said. “Malaysia’s issues are long term structural challenges that require policy consistency to address.”

WEF said that Switzerland retains its first place position thanks to an excellent capacity for innovation and a very sophisticated business culture, noting that it is ranked fourth for its business sophistication and second for its innovation capacity.

“Public institutions in Switzerland are among the most effective and transparent in the world (fifth), receiving an even better comparative assessment this year than in past years,” said WEF. “Governance structures ensure a level playing field, enhancing business confidence; these include an independent judiciary, strong rule of law, and a highly accountable public sector.”

WEF said that Singapore’s institutions continue to be assessed as the best in the world, ranked first for both the lack of corruption in the country and government efficiency.

“Singapore also has world-class infrastructure (ranked fifth), with excellent roads, ports, and air transport facilities,” said WEF. “In addition, the country’s competitiveness is buttressed by a strong focus on education, providing individuals with the skills needed for a rapidly changing global economy.”

Japan continues to enjoy a major competitive edge in the areas of business sophistication and innovation ranked first and fourth, respectively in the categories.

“Company spending on R&D remains high and the country benefits from the availability of many scientists and engineers buttressing a strong capacity for innovation,” said WEF.

China’s two-place jump is mostly due to its better performance in the financial market (up 24 places to 57th) category, historically its weak spot.

“This is the result of easier access to credit and financing through equity markets, banks, and venture capital, which has been accompanied by a slight improvement in the perceived soundness of the banking sector (60th, up six places),” said WEF.

The US fell two spots to fourth place this year due to its deteriorating of its institutions, lack of public trust in politicians and concern about the ability of the government to maintain arms length dealings with the private sector.

“There is also increasing concern related to the functioning of private institutions, with a measurable weakening of the assessment of auditing and reporting standards (down from 39th last year to 55th this year), as well as corporate ethics (down from 22nd to 30th),” said WEF.

It noted, however, that the US still enjoys an economic structure that makes it highly competitive — including companies that are highly sophisticated and innovative, supported by an excellent university system that collaborates strongly with the business sector in research and development.

Responding to the report, Minister of International Trade and Industry Datuk Seri Mustapa Mohamed said while the ministry acknowledged there were a number of areas for improvement, it was happy to see the report highlighted a number of positive elements about the Malaysian economy.

Mustapa said Malaysia was also assessed to have a well-developed financial market development with ease of financing through local equity, ranked 11th from 15th previously, and ease of access to loans position at 10th.

“Venture capital availability, soundness of banks, transparent regulations of security exchanges have also contributed to financial market development in Malaysia,” he said.

On the concerns which contributed to the country’s slide, he said, the government has already launched nationwide initiatives to tackle them.

“Among the proactive measures to enhance Malaysia’s competitiveness are the New Economic Model, which emphasises achieving high income, the Government Transformation Programme to enhance government efficiency, and the implementation of initiatives under the 10th Malaysia Plan.

“As these initiatives begin to take effect, we can expect to see improvements in Malaysia’s overall competitiveness soon,” he said.

Diffuse the property bubble before it is too late

Jagdev Singh of the on-line STAR advocates diffusion. Property developers says, "No!". The controversy will rage on until a decision is made by Bank Negara Malaysia (BNM).

The subject of property prices and financing has gathered momentum ever since news broke that BNM is assessing the situation to determine if new measures should be instituted to cool down fast escalating property prices.

Lobby groups for the industry have been busy making their case heard, saying that any move to impose higher downpayments for houses would hurt the property market.

Their concerns come at a time as a growing number of people have complained that prices of houses, especially in the hotspots in the country such as the Klang Valley and Penang, are spiralling beyond affordability.

The last thing everybody needs is such speculation spreading to other areas where for the moment, speculative activity appears to be contained for the moment in the hotspots as 94% of houses sold in the country are priced below half a million ringgit and 85% of houses launched in the past nine months cost below RM500,000.

Dealing with speculation is tough and the last thing anyone should do is to make genuine buyers suffer, especially first time buyers.

Suggestions that houses costing below RM500,000 should not be subject to the new higher downpayment requirement makes sense.

Also first-time house buyers or owner occupied houses should be given the most ease of financing to allow them to fulfil the dream of owning a home.

It’s also hard to clamp down on speculative activity as the wealth creation process is an allure that developers, banks and policy makers might find hard to turn away.

After all, the money generated from flipping houses adds to the bottomlines of companies and the money in the hands of people could well filter down to other consumption activity that would go a long way to help spur economic activity.

But the profit from speculating activity, this time driven largely by cheap and ready financing, is unsustainable and history is full of examples of the dire consequences of a property bubble gone burst.

It’s then not surprising that the authorities in other countries in the region, where a property bubble has formed, are working hard to manage and diffuse the situation. Rules introduced in China, Hong Kong and Singapore are far more drastic that what the authorities here are reported to be contemplating.

In fact the new rules that are talked about are tame compared with what has been done in the past. In 1995, reports said that Bank Negara imposed a maximum 60% loan for residential properties priced above RM150,000 to put the brakes on the then fast rising house prices.

Furthermore, a real property gains tax of 30% was imposed on foreigners selling their properties irrespective of the holding period of the property.

Those measures were met with a huge hue and cry from the lobby groups, and developers who claimed that such draconian measures would maim the market. A couple of years later Malaysia entered its worst-ever recession, and as they say the rest is history.

The point is, just as the saying goes, those that fail to learn from history are doomed to repeat it, and for Malaysia, failing to deal with any property speculative bubble would spell trouble for the banks that have grown to rely more and more on households to drive their lending activity.

In the interest of financial stability and common sense, the move to act should be made soon.