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How bureaucracy is destroying Malaysia’s agricultural sector

Prof. Murray Hunter

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Over the last 30 years, Malaysia has miraculously grown into a middle income country, transforming itself from a primary producer of minerals and commodities, to a multi-sector economy.

The Malaysian Government has skilfully attracted foreign investment in high technology industries like electronics, multimedia, medical technology, and pharmaceuticals, service sector industries like Islamic finance, and urbanized the country with a rich retail service industry. However, agriculture has been allowed to slip well behind the rest of these sectors within the economy.  

This is normally the case when an economy transforms itself from the status of ‘developing’ to ‘developed’. However the case of Malaysian agriculture characterizes a number of mistakes. These mistakes have cost the country in terms of better food self-sufficiency, rural and community development, regional development, employment, poverty alleviation, and missed some of the great agro-based sunrise industry opportunities of this millennium.

What more, rural infrastructure and agro-based expertize is drastically lacking in Malaysia, since the Mahathir led drive to modernization back in the 1980s.  

This is particularly dangerous with a gloomy global outlook ahead, where Malaysia must become buoyant enough to internally withstand any deep international recession approaching, if it is to stave off great hardship on its citizens.

According to Malaysian statistics cited over various Malaysian Plans, the agriculture sector in 1970 represented 28.8% of national GDP. As of 2013, agriculture represented only 9.33% of GDP. However in some states like Perlis, Kelantan, and Sabah, agriculture still makes up 20-30% of the total economy.

Employment in the sector has fallen from 13% of the total workforce in 2007, to only 9.3% in 2014. However 66% of the people involved in working within the agriculture sector are over 50 years old. The estate sector is primarily staffed with foreign labourers bringing little income benefits to local communities.

The bulk of Malaysia’s agricultural land is utilized for the production of industrial crops, which has risen from 2.1% in 1960, to over 87% of land use today. Palm oil and rubber dominate, with paddy production and declining cocoa production running far behind. Timber is still a major primary product, where reforestation is lagging behind, making the industry unsustainable. Sarawak for many years has enjoyed a successfully developed a pepper industry, and there are pockets of fruit and market vegetables, around the nation.

However, less land is being utilized for agriculture today, as it is more valuable for industrial and housing developments. The composition of industrial crops, and industrial and housing development for land is steadily driving up the costs of food production in Malaysia. Paddy farming is also facing challenges due to declining productivity, increasing fragmentation of land plots, and poor response to changing consumer desires within the marketplace. Even the production of palm oil is expected to decline based upon recent industry predictions.

The push to industrial crops in the 1960s although rapidly developing the agricultural sector, rapidly decreased the diversity of agriculture within Malaysia. Even settlement schemes like FELDA and FELCA shied away from food and cash crops towards the palm oil and rubber because of the relatively large returns available with little need to market and sell their crops. As smallholder farmers have aged, with the youth reluctant to follow in their parents’ footsteps, the production of crops such as coconut, tropical fruits, vegetables, and other cash crops has been declining.

Estate production of industrial crops is now the mainstay of Malaysian agriculture, which is mainly in the hands of Malaysian Government Linked Companies (GLCs) like Sime Darby. Smallholders have been grossly neglected where little has been done by Malaysia’s agricultural research institutions and universities to modernize and develop appropriate technologies, new hybrids of cash crops, and assist in developing modern smallholder business models through the infusion of entrepreneurial thinking in rural communities. In addition, finance for smallholders is extremely difficult to obtain, and farm extension has all but died out two decades ago. The smallholders have been left to themselves, where they face acute labour shortages and little access to markets that would help make their efforts viable.

If one also factors in poor basic infrastructure such as access to irrigation and roads, the poor level of education of most smallholders, resulting in an attitude towards being production orientated rather than entrepreneurial, “conmen” taking advantage and promising big returns to smallholders if they buy seeds from them, and the condescending attitude many government bureaucrats have towards small holders, it’s not hard to understand why this sector is so much in decay.

The Malaysian agriculture situation has reached a point where the estate business model that was once so successful for the production of commodity crops is now stagnating. Malaysia is losing its dominance as the major producer of palm oil, and palm oil itself is under threat from international health concerns, and also concerns from the international community about the environmental record of Malaysia’s palm oil producers. Rubber prices are facing a slump, and paddy production is primarily insufficient to feed the total population, i.e., 35% of Malaysia’s rice needs to be imported from Myanmar, Thailand, Vietnam, India, and Pakistan.

There is little evidence to see where local communities have benefitted from the presence of Malaysian GLCs, yet state Governments have been eager to transfer state land to them for development with virtually no transparency. Picturesque pieces of virgin jungle are still being ripped up to make way for new palm plantations, to replace those developed into housing and industrial estates, where the GLCs are making mega-profits.

Malaysia’s agricultural direction was planned through a series of 5 year plans. The Malaysian political/bureaucratic elite have always presented rosy forecasts and gained publicity through staging MOU ceremonies, to announce projects which never happen, or fail through mismanagement.

Part of the problem in the Malaysian agriculture sector is that the politicians and bureaucrats have been thinking big, at the cost of thinking small. For example, the Ministry of Agriculture has developed a list of agro-based industries that should be national priorities. The Malaysian Agricultural Research and Development Institute (MARDI), and the Forest Research Institute of Malaysia (FRIM) restrict their research to these national priorities, while leaving a void in research on crops needed to spur on the growth and development of small local communities. Consequently, Malaysia’s research efforts have benefitted few communities, which still remain in relative poverty today, particularly in the agricultural dominant states like Perlis, Kelantan, Sabah, and Sarawak. There are a lot of potentially viable crops that should be researched and developed, but are being ignored.

Institutions like MARDI and FRIM have become showpieces to please the politicians.

Further, the bureaucrats involved in these plans implementation have appeared to lack the zeal and commitment to see these plans progress into reality. Managers on the ground have focused upon building hard infrastructure where favoured contractors can be employed to build these projects and facilities, rather than ploughing resources and money into education and extension. The result has been a number of ‘white elephants’ that litter the country.

Corruption, via land grants, misallocation of funds, and building irrelevant facilities, is a major issue hampering effective rural development in Malaysia today.

Malaysia, as an economy skewed towards state planning and intervention has attempted to “pick winners” and develop them through the state apparatus. In the case of herbs and biotechnology, massive funds were allocated in the pursuit of achieving success in these “sunrise” industries, where the funds were predominately channelled into developing ineffective and costly bureaucracy.

The Malaysian Herbal Corporation was formed in 2001 with much fanfare, where it was considered within the bureaucracy to be the driver and ‘flagbearer’ for the industry. The corporation undertook many initiatives, with the staff travelling widely and luxuriously around the world. Today, the Malaysian Herbal Corporation is now defunct.

With former Malaysian Prime Minister Abdullah Ahmad Badawi’s focus on biotechnology as a ‘sunrise industry’ midway last decade, the Malaysian Biotechnology Corporation (MBC), along with various state funded biotechnology companies such as Melaka Biotech, J-Biotech in Johor, K-Biocorp in Kedah, and Kelantan Biotech, were all well-funded with hundreds of millions of Ringgit in grants, but have little, if anything to show for it. Most of, if not all of the grants given out by MBC to commercial companies failed to produce any commercialized intellectual property, as university research also failed to do.

Technology Park Malaysia (TPM) built biotech labs around the country in places like Perlis, which are mostly empty. The East Coast Economic Regional Development Council set up herbal parks in Pahang and Terengganu which are basically inactive in regards to their original purpose.

FELDA opened up the FELDA Herbal Corporation which is now replaced with another attempt at developing biotechnology through Felda Wellness. Biotropics was set up by Khazanah Coropration and is basically only producing some cosmetic and herbal products. The Ministry of Health set up NINE BIO to produce Halal vaccines and herbal products.

The Malaysian-MIT partnership hailed as being an example of a smart-partnership, cost the Malaysian taxpayer USD20 Million with absolutely nothing to show.

The Malaysian Government rather than be a driver of the industry became a participant with drastic results.

Just about all these Government interventions into business have failed dismally, losing hundreds of Millions of Dollars for the Malaysian taxpayer.

What is tragic is that there has been no transparency in the way the Malaysian Government handed over responsibility to personnel within these government corporations, and no accountability.

Top down planning with no consultation with local industry, local communities, and local scientists, has led to Malaysian agriculture falling well behind its neighbours within the Asian region. Top down planning has allowed bureaucracy to overrun market considerations in Malaysia’s agricultural and agro-based industry development.

Development programs like the agropolitan schemes in Sabah are conceptualized and developed within the bureaucrats’ paradigms. GLCs are asked to take up large swabs of land, plant palm oil, and develop a small corridor for local villagers. They have been of large benefit for these GLCs, but local villagers have been short changed where GLCs partaking in these projects fail to live up to their responsibilities.

Likewise, other bureaucrat concepts such as combining fragmented land holdings into paddy estates run by anchor GLC companies, as promoted by the Performance Management Delivery Unit (PEMANDU) within the Prime Minister’s Department disempower local land owners who are expected to work as labourers on their own land. These types of projects have failed in their conceptualization, let along during the implementation stage.

As a consequence opportunities to alleviate poverty in rural communities have been missed, and opportunities to develop new crops, and create new industries have been ignored.

Many successful programs like entrepreneurship mentorship schemes run at Agricultural Institutes around the country, are starved of funds, because of the preference for the bureaucratic ‘white elephants’ that benefit policy implementers financially.

Malaysian agriculture is now in crisis and there is a need to reinvigorate the sector, particularly with the expected global economic slowdown.

Malaysia is currently importing up to 60% of its current food needs. With the level of national debt, falling foreign reserves due to a low Ringgit, and a potential slow-down in exports due to a sluggish international economy, food self-sufficiency may become more important than ever.

Food self-sufficiency would create an important buffer for rural Malaysia to withstand any deep recession. Without food self-sufficiency the population within the Malay heartlands will suffer immensely. As mentioned, Malaysia imports much of its rice needs, milk, beef and mutton, flour, and fruits.

Within this problem, lays an opportunity. Malaysia’s Neighbour Thailand has been reinventing itself as the ‘kitchen of the world’. Malaysian agriculture with modern farming methods, utilizing appropriate technology, and adopting new branding paradigms through merging GAP and Halal practices into say a “HalalGAP” protocol could enter and prosper in the rapidly growing Halal market worldwide.

Malaysian agriculture needs new farming practices, business models, and reinvented supply/value chains. The decline of the value of the Ringgit will help Malaysian farmers find a new era of competitiveness that the sector has never had.

Now is the time to take this opportunity.

Innovator and entrepreneur. Notable author, thinker and prof. Hat Yai University, Thailand Contact: murrayhunter58(at)gmail.com

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Southeast Asia

Will Mahathir Reset China-Malaysia Trade Relations?

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A shock electoral upset has just returned 92-year-old Dr Mahathir Mohamad to the prime ministerial chair in Malaysia. The run-up to this climax was muddled by a miasma of fake news, lurid allegations and outright conspiracy theories from eitherside of the political divide. China-baiting was inevitably drawn into this tawdry mix despite mainland investments being a stabilizing main stay of the local economy.

According to an Economic Intelligence Unit report last year, Malaysia was the fourth-largest recipient of mainland Chinese direct investments – right behind Singapore, United States and the autonomous Chinese province of Hong Kong. Although the sum total of Chinese investments in Malaysia has not been adequately tallied,the US$100 billion Forest City project provides a snapshot of the staggering amounts being invested into the local economy.

While former Prime Minister Najib Razak hailed these investments as an imprimatur ofhis government’s investor-friendly policies, the opposition camp (and new government) accused him of “selling out to China”. In reality, one doubts whether foreign consortiums canmatch the scale, cost-effectiveness and speed of execution of many Chinese-led projects in Malaysia.

Business Compradors

Dr Mahathir has particularly taken issue with the inadequate number of local jobs created by Chinese investments in Malaysia. It is an argument not without merit.Overseas Chinese infrastructure projects are known for their heavy reliance on mainland labour, machines and supplies – of the lock, stock and barrel variety – tokeep costs, graft and middlemen interference to the lowest possible scale.

Curiously, the backbone of Dr Mahathir’s electoral tsunami came from the ethnic Malaysian Chinese community who openly hailedthe global ascent of China. That was until theydiscovered thatmainland business models accommodated as few middlemen as possible.It was Alibaba on a massive scale, missing 40 thieves and in perennial need of 40innovators.

Many Malaysian consumerssave thousands of ringgit each year by purchasing a variety of consumer products directly from China instead of forking out a hefty mark-upat local stores.Unsurprisingly, there are now growing calls to tax online purchases from China. This is not going to help budget-strapped Malaysians who voted in the new administration on the back of complaints over rising living costs. Malaysia’s shadow economy has been estimated by various studies to range between 30 percent and 47 percent of its GDPup till 2010.

The anti-China narrative therefore may be couched in terms of multifaceted grievances like jobs and the South China Sea but it primarily boils downtoincentives for middlemen who contribute little or nothing in terms of value-additions to projects, productsor services offered by mainland companies. These modern-day compradors have an ally in another area bereft of value – added or otherwise.

Media Compradors

The biggest impediment to the Malaysian economy is not China, its business modus operandi or the lack of local talent. It is the Malaysian media which has abjectly failed to relay grassroots ideas and innovations to national policy-makers for decades.

The author himself vividly remembers the lament of Dr Mahathir’s former national science advisor on the dearth of science journalists in Malaysia. This translates to recurring losses in taxpayer money.There is an oft-told account of how a fact-findingdelegation to the United States, seeking particular expertise in renewable energy technology,were told that the expert they were looking for was a Malaysian academic back in Kuala Lumpur!

Researchers needing critical economic or scientific data on Malaysia are likely to get them from foreign sources as even google cannot cope with the bottomless insipidity and juvenile meanderingsof the local media. Publicity-seeking experts with dodgy backgrounds are routinely sought for their banal insights and quotes in return for guaranteed filler spaces in a lack lustre media.Malaysia is gradually losing its economic and intellectual competitiveness due to the entrenched practise of mediocrity promoting mediocrity – egged on by Western interests.This forms the main backdrop to the current anti-China narrative.

Local media stalwarts privately blame politicians, in particular Dr Mahathir himself (during his previous 22-year reign) for the lack of media vigour and freedom in Malaysia. While media restrictions undeniably exist, one wonders how proposed articles on topics such as Open Governance could be seen assubversive.

It is high time to drain the swamp in Malaysia. Dr Mahathir has already indicated that the bloated 1.6 million-strong civil service in Malaysia would be pruned to promote economic and government transparency. For decades, successive governments had rewarded personal loyalty with plush posts and contracts. Malaysians now have another chance to demand efficient, meritocratic and transparent governance. Not mass-mediated bogeymen, viral passions and pies-in-the-skies.

The billion-dollar question now is whether the new administration will be able tousher in a transparent and vibrant media – one that can explore greater synergies within and abroad.Otherwise, Malaysia’s relations with its neighbours and trading partners are bound to deteriorate, along with its economy.

An abridged version of this article was published by CCTV’s Panview on May 14, 2018

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Changing dynamics of China-India and China-Japan ties

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Over the past year, there has been a growing interest with regard to the vision of a Free and Fair ‘Indo-Pacific’. While this term has been used in recent years by policy makers from the US and Australia and has been pushed forward by a number of strategic analysts, a number of developments since last year have resulted in this narrative gaining some sort of traction.

US President Donald Trump during his visit to South East Asia and East Asia in November 2017, used this term on more than one occasion, much to the discomfort of China (which prefers ‘Asia-Pacific). On the eve of his visit to India last year, Former Secretary of State, Richard Tillerson while speaking at the Centre for Strategic and International Studies (CSIS, Washington DC) spoke about a larger role for India in the Indo-Pacific, and the need for India and US to work jointly. Said Tillerson:

     ‘The world’s center of gravity is shifting to the heart of the Indo-Pacific. The U.S. and India, with our shared goals of peace, security, freedom of navigation, and a free and open architecture, must serve as the Eastern and Western beacons of the Indo-Pacific, as the port and starboard lights between which the region can reach its greatest and best potential’.

In November 2017, the Quad grouping (Australia, US, India and Japan) met on the sidelines of the ASEAN Summit pitching not just for a rules based order, but also in favour of enhancing connectivity. Commenting on the meeting, US Department of State had said that the discussions were important and members of the Quad were:

‘committed to deepening cooperation, which rests on a foundation of shared democratic values and principles.”

Earlier too the four countries had coalesced together, but as a consequence of Chinese pressure, the grouping could not last.

There have also been discussions of coming up with connectivity projects. While this was discussed during Australian PM, Malcolm Turnbull’s meeting with Donald Trump in February 2018. In April 2018, representatives of Japan, US and India met in New Delhi and committed themselves

Indo-Pacific and China factor 

While members of the Quad continuously denied, that the Indo-pacific was specifically targeted at China, it would be naïve to believe, that this assertion. In fact, during a visit to Australia, French President Macron who is trying to position himself as one of the frontline protagonists of liberalism in the Western world, spoke about the need for India,  Australia and France to work together in order to ensure a rules based order.  Commenting on the need for India, France and Australia to jointly work for a rules based order, and checking hegemony (alluding to China), the French President, Emmanuel Macron, stated:

   ‘What’s important is to preserve rules-based development in the region… and to preserve necessary balances in the region….It’s important with this new context not to have any hegemony,”

Changing dynamics of China-India and China-Japan ties

While it is good to talk about a rules based order, and Free-Fair Indo-Pacific, it is important for members to do a rational appraisal, of ensuring that the Indo-Pacific narrative remains relevant . especially in the context of two important events. First, the reset taking place between India-China, and second the thaw between Japan-China.

This has already resulted in some very interesting developments.

First, Australia was kept out of Malabar exercises in June (Japan, US and India will be participating).  Australia is a member of the Quad alliance, and has been one of the vocal protagonists of a Free and Fair Indo Pacific Narrative, and a greater role for India in the Indo-Pacific.  Australia has on more than one occasion, expressed its desire to participate in the Malabar Exercises.

Many argue, that the decision to exclude Australia from the exercises, is a consequence of the significant shift taking place in India-China relations. Though India has been dismissive of this argument,

Second, Japan has expressed its openness to participate in the (Belt and Road Initiative) BRI,  as long as international norms are met. During meetings between the Chinese and Japanese Foreign Ministers (Wang Yi, in April 2018, such a possibility was discussed. During Wang Yi’s meeting with Japanese PM, Shinzo Abe too this possibility was discussed. The Japanese PM who is seeking to improve ties with China, reiterated the potential of the Belt and Road Initiative in giving a boost to the regional economy.

It would be pertinent to point out, that a number of Japanese companies are already participating in countries which are part of the Belt and Road Initiative.

Interestingly,  Japanese led Asian Development Bank ADB which has been funding many projects (spearheaded by Japan) which have been projected as a component of the Indo-Pacific strategy has even gone to the extent of stating, that it does not perceive AIIB as a threat. Commenting on the possibility of cooperation between ADB and AIIB, President of ADB, Takehiko Nakao  stated:

“AIIB, it’s not the kind of threat to us. We can cooperate with AIIB because we need larger investment in Asia and we can collaborate.”

Where does Indo-Pacific go from here?

In terms of strategic issues, especially ensuring that China is not unfettered influence in the region, the narrative is relevant. The Chinese approach towards Indo-Pacific and Quad as being mere froth is an exaggeration. Addressing a press conference on the sidelines of the National People’s Congress, Chinese Foreign Minister, Wang Yi had stated, that there was:

‘no shortage of headline grabbing ideas” but they were “like the foam on the sea” that “gets attention but will soon dissipate”,

Similarly, in terms of promoting Democratic values it certainly makes sense. The real problem is in terms of connectivity projects (beyond India-Japan, none of the members of the Quad have elaborated a coherent vision for connectivity). The US has spoken about an Indo-Pacific Economic Corridor, but given the Trump Administration’s approach, it remains to be seen to what extent this can be taken further. While Australia has been steadfast in its opposition to China’s growing economic clout, it has its limitations, in terms of funding any concrete connectivity projects. Possible regions where Australia could play a key role should be identified. It has been argued, that Australia could play a key role in important infrastructural projects in the South Pacific.

Conclusion

It is fine to speak in terms of certain common values, but to assume that China can be the only glue, is a bit of a stretch, especially given the fact that it has strong economic ties with key countries pushing ahead the Indo-Pacific vision. It is also important, for the Indo-pacific to come up with a cohesive connectivity plan. Currently, the narrative seems to be driven excessively by strong bilateral relationships, and the individual vision of leaders. In the ever evolving geo-political and economic dynamics in Asia, with China re-examining its relations with both Japan and China, the key stakeholders in the Indo-Pacific region need to do some serious thinking.

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Southeast Asia

Infrastructure Drive, Strong Domestic Demand to Sustain Philippine Growth

MD Staff

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The Philippines’ economic growth is expected to sustain its quick pace in 2018 and 2019 as the government’s infrastructure program is rolled out, says a new Asian Development Bank (ADB) report.

In its new Asian Development Outlook (ADO) 2018, ADB projects Philippine gross domestic product (GDP) growth at 6.8% this year and 6.9% in 2019, up from 6.7% in 2017. Rising domestic demand, remittances, and employment, in addition to infrastructure spending, will drive growth. ADO is ADB’s flagship annual economic publication.

“Along with domestic demand, the government’s infrastructure investments will fuel the country’s growth in the next few years, supported by a sound economic policy setting,” said Kelly Bird, ADB Country Director for the Philippines. “We expect this growth to further lift wage employment numbers, add to household incomes, and benefit more poor families across the archipelago.”

The Philippines remained one of the strongest growing economies in Southeast Asia in 2017. Domestic investment recorded 9% growth last year, moderating from a brisk 23.7% in 2016, although growth in fixed investment in industrial machinery, transport equipment, and public construction remained robust. Household consumption grew by 5.8% in 2017, from 7% in 2016, on the back of higher remittances and employment, with the unemployment rate falling by 1.3 percentage points to 5.3% in January 2018 as 2.4 million jobs were added. Public spending rose by 7.3% last year from 8.4% in 2016.

Consumer price inflation reached 3.2% last year from 1.8% in 2016 due to strong economic growth, higher international fuel prices, and Philippine peso depreciation, but well within the 2% to 4% target by the Bangko Sentral ng Pilipinas—the country’s central bank. The country’s external debt further declined to 23.3% of GDP in 2017, from 24.5% of GDP in 2016.

Moving forward, ADB projects services will continue to drive GDP growth, along with manufacturing and construction industries. The approval of the Tax Reform for Acceleration and Inclusion law in December 2017 will augment tax revenues and provide additional fiscal space for more progressive public spending. The policy reforms are expected to yield additional 90 billion to 144 billion Philippine pesos ($1.73 billion to $2.76 billion) in tax revenue collection in 2018 and 2019, respectively.

With economic growth gaining momentum, inflation is projected to reach 4% in 2018 as global oil and food prices rise, and higher excise taxes on some commodities take effect. In 2019, meanwhile, inflation is expected to marginally decline to 3.9%.

The report notes there are external risks to the Philippines’ growth outlook from heightened volatility in international financial markets and uncertainty about global trade openness, although the country’s strong external payments position would cushion these effects.

A major policy challenge to the country’s growth outlook, according to the report, is managing the rollout of the government’s “Build, Build, Build” infrastructure program, which is expected to raise public infrastructure spending to 7.3% of GDP by 2022 from 4.5% in 2016. The report provides suggestions on ways to enhance government capacity, including strengthening coordination between government agencies and improving technical capacity of staff within these agencies, and fostering stronger partnerships between government agencies, the private sector, and development partners.

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