Malaysia’s inadequacies in the area of human capital are a major obstacle to the private investment revival and industrial upgrading — Malaysia’s weaknesses in human capital development are nothing new, but they remain one of the country’s most serious structural deficiencies in our view. Despite relatively high levels of income, Malaysia lags behind regional peers in rates of literacy, school enrollment and education attainment levels. The shortage of skilled labour is impeding the development of knowledge intensive sectors, and recent liberalization measures, aimed at kick starting the private investment revival and upgrading the economy, could prove futile if this problem is not addressed effectively.
Measures to upgrade indigenous stock of human capital have proven ineffective…— Despite recent increases in government spending on education, spending remains below levels seen in the first half of the decade. Moreover, spending on education had proven ineffective, as the government has not addressed fundamental problems in the education system, such as a lack of appropriately qualified educators or a lack of consistency in education policies – problems which cannot be addressed by simply spending more money.
…increasing the urgency in reversing the ‘Brain Drain’ and importing foreign talent — The emigration rate of Malaysians is higher than that of Asia’s, and unsurprisingly highly educated citizens form the majority of emigrants moving to OECD countries. Factors behind the exodus of domestic talent include education and employment barriers, exacerbated by affirmative action policies. Unfortunately, easing immigration policies might not necessarily make up for this shortfall in talent, as anecdotal evidence shows Malaysia is not a top destination of choice for foreign talent as its business environment and living conditions fall short on some counts.
Lastly, there is the problem of a shortage in, and dependence of the Manufacturing, Construction and Services sectors on, low skilled, low cost foreign labor — In our view, efforts to reduce dependence on unskilled or semi-skilled foreign labour are understandable from a political standpoint, but have been questionable from an economic standpoint. As local workers are unwilling to fill the void left by foreign workers, the resulting supply bottlenecks have contributed to Malaysia’s underperformance in the regional export recovery.
Markets:
Fixed Income — Trading in the bond markets remained cautious despite the downside surprise in trade data released mid-week.
Interest Rate and Related Derivatives — Rates market sentiment turned rather bullish following the comparatively weaker September trade data.
Download Citi Research’s Malaysia Macro Weekly: 09 Nov 2009
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