MALAYSIA’S competitiveness ranking dropped by seven notches to 34th in 2024 from 27th in 2023.

It was the worst ranking on record as the last lowest score was 32nd placing in 2022 based on the available data since 1997.

The country’s ranking also slipped four rungs to 10th out of 14 countries in the Asia-Pacific region, marking the first time Malaysia ranked lower than Thailand (25th from 30th in 2023) and Indonesia (27th from 34th in 2023).

We must view rationally Malaysia’s slipped competitiveness ranking, identify areas for improvement and undertake necessary actions to improve the ranking.

Throughout the period 1997-2024, it was observed that Malaysia’s ranking had declined 14 times as opposed to 13 increases while remained unchanged one time. Based on a long-term trend analysis, however, Malaysia’s competitiveness ranking had been slipping since 2010.

The government has eight years to work on to achieve the Top 12th spot in the Global Competitiveness Index, one of the seven key performance indicators target under the Madani Economy Framework.

We have to analyse objectively the factors and components attributing to the competitiveness trends so as to identify areas for improvement. Policymakers must use findings of this report to benchmark progress, stimulate policy debate and identify potential challenges.

Looming challenges

On the competitiveness landscape, the ranking for “Government Efficiency” dropped by four notches to 33rd in 2024 from 29th in 2023. The ranking for “Business Efficiency” dropped by eight notches to 40th in 2024 from 32nd in 2023.

As for the “Economic Performance” competitiveness, it was ranked eighth (from seventh in 2023) mainly due to a pullback in real GDP (gross domestic product) growth to 3.6% in 2023 (8.7% in 2022) on a normalisation of domestic demand post the COVID-19 pandemic as well as exports contraction.

We believe that the ranking for “Domestic Economy” will improve in 2024-2025 as the economy is expected to strengthen by 4.5%-5.5% over the medium-term, underpinned by continued expansion of domestic demand and stronger momentum of exports recovery.

However, we caution that domestic economic growth outlook remains subject to downside risks, mainly from the worsening of geopolitical tensions, stubborn inflation as well as higher and longer interest rate in the US economy.

On the domestic front, any delay and execution risk in the implementation of approved investment projects and fiscal projects as well as slower consumer spending inflicted by the subsidy rationalisation’s cost adjustment would temper domestic economic growth.

Malaysia remains a sweet spot to investors. The respondents of the Executive Opinion Survey have ranked the following as Top 5 key attractiveness factors for the economy.

They were Business-Friendly Environment (61.8% of total respondents), followed by Cost Competitiveness (58.8%), Reliable Infrastructure (52.9%), Skilled Workforce (44.1%) and Economic Dynamism (39.2%).

By fostering a more business-friendly environment and thriving ecosystem, Malaysia can unlock the full potential of its investment opportunities, entrepreneurial spirit and innovative capabilities. Both public and private sectors have to step up efforts in the re-skilling and up-skilling of workforce.

Remedial measure

The Malaysia Economy Madani Framework, New Industrial Master Plan (NIMP) 2030 and National Energy Transition Roadmap (NETR) has laid the direction, initiatives and policy thrusts to transform the economy and manufacturing industries into high technology as well as green sustainability.

Malaysia has embarked on a series of incremental reforms to address competitiveness issues related to subsidies, transparency in public procurement, over-reliance on foreign workers, technological capacities as well as skills development.

Nevertheless, the following Bottom 5 indicators with the lowest percentage of respondents are Effective Labour Relations (17.6%), Competitive Tax Regime (17.6%), Competency Of Government (16.7%), Strong R&D Culture (15.7%) and Corporate Government Quality (11.8%).

The taskforce comprising of representatives from public and private sectors not only need to sustain the improvements or even raise their ranking higher but also work on improving the components and factors that contribute to a decline in competitiveness ranking.

Through the Special Task Force to Facilitate Business (PEMUDAH) platform, the government is drafting a document entitled “New Deal for Business (NDFB)” to boost business confidence and stimulate economic growth.

In an increasingly complex economic and business environment, we have to re-double our efforts to reduce business paint points, address structural impediments and situational challenges as well as undertake reforms towards dealing with bureaucratic red tape, inefficient and outdated regulations and undue regulatory burden faced by investors and businesses when doing business in Malaysia.

The pain points for businesses, among others, are problems of lengthy processes for registration, inconsistency application processes across states and lengthy approval time for incentives, the difficulty in complying with regulations, complexity in getting a construction permit, layering at various agencies and departments, burden of providing the same information multiple times as well as outdated rules, regulations and laws.

Priority actions

Delivering a new deal for business must go beyond “business as usual (BAU)” and “government knows all” while requiring a long-term commitment to maintain a cordial and clean relationship between government-business to create a conducive ecosystem where business feels empowered to invest, to innovate and to create good jobs.

The six priority actions are as follows:

#1 - “Act, Enable, Influence” framework which offers a comprehensive approach to outline a defined sustainable and meaningful relationship between government and businesses with a culture of collaboration to achieve common goals to grow our economy.

#2 - Maintaining an effective open, inclusive and honest engagement between business and government (federal, state and local authorities) with innovative and critical thinking can provide certainty and consistency for businesses as well as break down barriers to efficiency and high productivity.

#3 - Developing new ways to oversee and assess the impact of regulations on business, including a full review of existing and new government’s policies and regulations are developed to ensure businesses are consulted at all stages.

#4 - Three Rs of effective REGULATORY REFORMS: Firstly, RETAIN regulations that support the basic rules of a market economy.

Secondly, REPLACE regulations that have legitimate aims but also have harmful unintended consequences. Thirdly, REPEAL regulations that are motivated primarily by the manipulation of public policy for unproductive rent-seeking.

#5 - PEMUDAH to monitor and assess the competitiveness performance of federal, state and local authorities in reforming processes and regulations for making them more efficient, accessible and simple as well as to avoid costly regulations for businesses and investors.

#6 - Provide a central dashboard as policy tool to monitor and analyse the performance of government websites and digital services (eg tracking website traffic, automated reports with key metrics to inform the progress of KPI and benchmark performance compared to other government websites).

Lee Heng Guie is the executive director at Socio-Economic Research Centre (SERC) Malaysia. 

https://focusmalaysia.my/malaysias-faltering-competitiveness-ranking-a-rationality-focused-perspective/