KUALA LUMPUR (May 30): Malaysia’s reliance on foreign cheap labour has become the biggest policy issue in the country's aspirations to move up the value chain, attract foreign direct investment (FDI) and exit the middle-income trap, according to a prominent economist.

Tan Sri Andrew Sheng has warned that Malaysia “has no time to be complacent” as it faced fierce competition for FDI from neighbouring countries amid a “tectonic shift” in the world order.

“The real problem with the middle-income trap is this: can you continue to develop your country based on foreign cheap labour? The foreign cheap labour is the biggest policy issue in Malaysia in my view,” he told the audience here at the Affin Conference Series 2023.

“Why? Because if they are cheap, our young people cannot get their wages up. This is why the middle-income trap is broken by every country that stops their reliance on cheap labour. South Korea and Singapore are the classic example, they pay higher wages and force their companies to move up the value chain,” he explained.

Sheng, formerly chairman of the Hong Kong Securities and Futures Commission, also opined that for Malaysia to attract quality FDI, the country should have domestic investment into strategic sectors to uplift national competitiveness in research and development and develop its own market niche.

“The idea of copying [other countries] is gone,” declared Sheng, emphasising the importance for Malaysia to develop its own competitive advantage that delivers sufficient return on equity to attract higher FDI into the country.

Sheng highlighted green energy and technology as among the sectors that Malaysia could focus on in developing its own strengths.

https://www.theedgemarkets.com/node/669162