New Economic Model and Expectations

Prime Minister Najib Razak is set to unveil part of his new economic vision today, the New Economic Model. Expectations are running high but his sceptics have warned us not to place too high hope on the announcement.

According to several news who had a glimpse of the draft, nothing new or transformation is expected from the NEM. Najib's reform initiatives have yielded limited success so far. His NEM is risking a protest from a newly minted Malay right winged coalition, Perkasa, headed by an ultra independent member of parliament, Ibrahim Ali.

Najib's new initiative will be tested against these challenges:

1) A new strategy and action to plan to jumpstart a mediocre economy. The Malaysian economy is neither cost competitive nor innovative. Suffering from years of brain drain, the industrial development may have collapsed, thus making any efforts to move the economy to a higher value chain a near impossible task in the short and mid terms.

2) NEM needs to work on a thin balance - between satisfying his elite Malay segment and political cronies who enjoy the privileges from the NEP and boosting economic competitiveness by promoting a need and merit based economic model. This morning he announced in his first NEM related speech on his intention to review the affirmative action but stopped short on explaining the review measures and mechanics.

3) He needs to be able to walk his talk. Najib's NEM must not only sound good on paper and publicity campaigns. His administration and PR consultancy are expected to launch a grand campaign trumpeting the attractiveness of his plan. Often these PR initiatives sounded like a policy direction is an end in itself. Based on the current strength of his civil service and administration, there is a danger than none of the more elaborate and grand reform measures can be carried out or implemented.

4) Najib cannot avoid playing coy to an organisation like Perkasa which is prepared to challenge his intention to review the NEP. By announcing a review and not a total retirement of the 4 decades old policy is already a bad PR for Najib's new economic model. Perkasa is already inflicting a deep political and psychological fear in Najib. This is exacerbated by Mahathir's warning against any intention to scrap the affirmative action and not listening to the Malays (read Perkasa).

5) NEM must be able to restore confidence of the business and investment community (both within and without) and skilled workers to give this economy a chance. The government's plan to implement the GST may further erode consumer power. Average salary for a young graduate has not changed much since the post financial crisis in 1997. Inflation has soared a number of times during the oil price spikes. NEM must address the demand issue, otherwise it will become detrimental to local investment.

This blog will discuss and scrutinize the NEM when more details are made available.

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