Malaysia’s Planners See Yet Another Mirage – Analysis
Government must focus on the rural heartland, not Industry 4.0
Although Malaysia’s government wants to move the country’s manufacturing base from low-end assembly and labor-intensive production towards lean manufacturing, utilizing, AI, and automation within a digital cloud enterprise environment between 2024 and 2026, it isn’t going to be easy, and the goals may be too ambitious. There are alternatives such as rural development that would pay better dividends for less money.
The government has embraced “Industry 4.0,” a concept for business and manufacturing that has become the new buzzword. More than RM45 billion (US$10.8 billion) has been allocated over the next five years to ready companies to embrace Industry 4.0 and roll out a National Digital Network (Jendels), to facilitate the vision. To critics, it appears a weary repeat of many of the white elephant industrial products embraced by former Prime Minister Mahathir Mohamad that ended in disaster, endemic corruption and wasted billions
The government’s initiative commenced in 2019 with RM 210 million allocated for companies to undertake Readiness Assessment Programs. This was done on the premise that worker productivity would be increased 30 percent, skilled workers as a percentage of the workforce from 18 to 35 percent, and an enhanced manufacturing contribution of RM254 billion to RM 392 billion. So far, the beneficiaries of this scheme have been a small select group of consultancy companies.
In the National Digital Blueprint, released last February, prime minister Muhyiddin Yassin claimed that the digital economy would make up 22.6 percent of GDP and create 500,000 new jobs by 2025. The blueprint is expected to assist 875,000 micro, small and medium enterprises with Amazon, Google, Microsoft, and Telekom Malaysia establishing data centers.
A flurry of government-linked companies are being utilized to drive this initiative. The Malaysian Digital Economy Corporation (MDEC) will be responsible for the digital aspects of the vision, and the Malaysian Productivity Corporation (MPC), responsible for promoting lean manufacturing, and cloud-based management and marketing channels for businesses. MPC activities are to organize seminars, undertake study tours both locally and internationally, and educate the “players.”
This is all reminiscent of the now-dormant Malaysian Multimedia Corporation, Malaysian Biotech Corporation, and the Badawi-era regional development corporations during their time in the limelight.
Industry 4.0 is not a magic bullet
The fact is that extremely high capital investment costs, long learning curves and payback periods that will take years associated with implementing industry 4.0 technology and developing the associated systems configurations make it unlikely that Malaysian SMEs would be able to adopt these concepts., especially the case given the typical short production runs that SMEs undertake due to the small markets they serve, and short product-lifecycles of what they manufacture and market.
Some of these systems are not agile as claimed, and the expense of changing systems for products can be exorbitant. Industry 4.0 production concepts are just not suitable for 99 percent of Malaysian SMEs, most of which still rely on manual labor, rudimentary production lines and shoestring finance. Establishing big-tech branded data centers won’t have many direct benefits. The centers would be regional data storage hubs that require well-funded, large employers, as they are operated and maintained by small numbers of highly skilled technicians.
Few multiplier effects are likely. Foreign investors are to be given 10-year tax holidays by the Malaysia Industrial Development Agency (MIDA), so the government wouldn’t gain any tax revenue. Industry 4.0 employers won’t employ large numbers of domestic workers, so it is difficult to see where 500,000 new jobs could be created. Foreign companies would likely bring their own proprietary technologies and wouldn’t transfer industrial trade secrets.
Local communities wouldn’t benefit as there would be few employees to spend money in the local economy. Profit would be repatriated overseas. It is also unlikely that they would attract and nurture networks of local suppliers, such as happened in the auto industry with sub-components of cars made locally.
The 5G cloud environment would benefit both companies and consumers. However, there won’t be any revolutionary business transformation. The adaptation of digital technologies by SMEs will be slow and incremental. A final impediment for domestic investment is the current credit squeeze. Most SMEs live hand to mouth and many suffer liquidity problems, while bank lenders are over-prudent. Most SMEs are facing higher solvency stress due to the continuing Covid-19 pandemic, making future planning and investment very difficult. A few SME proprietors contacted complained to Asia Sentinel that, although there are schemes to support SMEs affected by the Covid-19 outbreak, it’s extremely difficult to obtain these loans due to strict collateral requirements.
Alternatives for scarce resources
Poverty in Malaysia is estimated at 5.6 percent. Based on this official figure, the incidence of poverty affects more than one in 20, or upwards of 1.7 million people and is on the rise due to the long-standing Movement Control Orders (MCO) implemented as a result of the coronavirus crisis and a deteriorating economy. Officially, 1.3 million people domiciled in rural areas are considered to be living in poverty.
Rural poverty in Malaysia requires urgent attention, a crisis that could be partly eased with the government focusing on creating enterprise opportunities within rural areas. Alleviating rural poverty is an alternative to allocating massive financial resources to drive Industry 4.0 that would benefit only a few, while there is growing financial stress across all communities.
With the extent of rural poverty after 64 years of development, and many more requiring assistance to boost their livelihoods, other approaches to driving Malaysia’s economy may yield greater economic and social benefits. The Muhyiddin government has be almost totally silent on alleviating the growing poverty in the country.
Urgent need for rural programs
The transformation of the rural heartlands to meet aspirations of becoming a high-income nation have been sadly neglected. There has been infrastructure development, and the facilitation of corporations exploiting natural resources through logging and oil palm plantations. Citizens of these regions have been left out and continue to slip behind their urban counterparts.
On a micro-scale, people in the rural heartlands generally lack the ability to perceive entrepreneurial opportunities. They lack access to markets, financial capital, good advice, business knowledge, raw materials, the ability to pick up required skills, and networking. Outstanding social problems need addressing including high youth unemployment, youth crime, drug dependence, teenage pregnancies, and a general feeling of hopelessness, particularly with male youth.
This is where policy focus is desperately required – not in corporate offices in Kuala Lumpur, but around the kampongs, building a new economy to benefit those most in need. Rural people need to be facilitated into creating new business ideas according to the opportunities they can perceive. Potential enterprises need to be visualized, products and services developed, production methods to produce the products, raw materials sourced, finance raised, and networks, either people, or clouds, to seek and supply customers. This all has to be done within the cultural framework of rural people, not the textbook vision of a high-growth entrepreneur, that business schools like to sell to their cohorts.
This means community-based enterprises. These enterprises empower communities through encouraging the re-acquisition of traditional cottage industry skills to create products of exceptional quality. These include going back to basic market gardening, without the hype of ‘smart farming.’ Boutique dairies, local meat production and supply, and micro-aquaculture. New crops need to be developed, new foods and a basis for local trade.
Markets have to be created for these often-remote communities. Products can be distributed through newly created supply chains, first around local area, later around the country, and through the internet internationally.
This community enterprise initiative could connect urban communities with the most remote rural communities and bring a new face to consumerism. This means enhancing and diversifying farmers’ markets, running roadshows, finding urban stockists, and creating branded websites and social media selling.
New paradigms – not exploitation
Too often, government agencies try to develop these communities through “textbook strategies,” ignoring the value of traditional skills, cultural integrity and the social fabric of local communities.
Development has to date been primarily concerned with the development of factories, plantations and other corporate for-profit endeavors. The appropriation of paddy land by corporations to build paddy estates, with the land owners becoming laborers doesn’t work culturally. Too often government rural development initiatives have been aimed at giving land to government-linked companies to exploit, with only secondary considerations given to the local population.
This culminates in dramatic costs to traditional communities in terms of deforestation, erosion and loss of the means to live off the land. The peninsula’s Orang Asli (indigenous peoples), have a long history of having their land taken away from them, as customary title is not recognized.
Community development visions and implementation strategies must not come to communities as top-down plans. Too many “connected” consulting firms have been given projects they can’t competently manage. The communities involved must determine their own visions and future paths, with the state as facilitator. Facilitators must be practically skilled and passionate. Vocational education must become mobile and come to the kampong, rather remaining in fixed campuses.
Across the nation, rural community empowerment through entrepreneurial development would create more than the 500,000 jobs the government aims to create through Industry 4.0. It would go a long way in tackling Malaysia’s rural poverty and other social issues that need addressing. The greatest ignored form of poverty is the absence of opportunity, on one’s own terms, within one’s own cultural persona.
The industry 4.0 initiative is likely to make some consultants rich and allow a small number of bureaucrats to travel around the world in the name of studying the Industry 4.0. concept. History shows what happened to Malaysia’s multi-media and biotech initiatives. Industry 4.0 is likely to go the same way. Resources must go to the communities to make any real economic and social difference.
Originally published in the Asia Sentinel, Murray Hunter’s blog can be accessed here
