The Malaysian Insight

PUTRAJAYA should put mega-infrastructure projects on hold and focus on spurring exports, domestic consumption and purchasing power to drive a recovery, said economists.

Though the call to freeze big infrastructure projects is contrary to calls by the construction sector, which believes that large projects will have a multiplier effect, economist Hoo Kee Ping said this would not be the case in projects where workers and materials are mostly from foreign countries.

Citing the East Coast Rail Link (ECRL) project as an example, Hoo said since most of the workers and materials are sourced from China, only 20% to 30% of the cost would have been spent in Malaysia.

“It would have been better to leverage on the ECRL in the past. Now, it might only yield negative effects as most of the resources are imported.”

As such, Hoo said it would be more fruitful to empower the lower-income groups with more money to cope with daily needs and to prepare for an uncertain future.

With Budget 2021 to be tabled on November 6, Hoo is expecting Putrajaya to continue giving financial assistance, which will have a stronger and more direct multiplier effect on the economy compared with allowing large-scale infrastructure projects to continue.

Universiti Tunku Abdul Rahman’s associate professor in economics Wong Chin-Yoong said relying on mega-projects to spur economic recovery would not be a wise move.

Even if projects are announced, they cannot commence immediately due to the pandemic and it would take a longer time for the benefits to materialise, Wong said.

The government must clearly spell out the future direction for the economy in the 12th Malaysia Plan, he said.

In a pandemic, he said, activities such as research and development and technology are more valuable than tangible assets, such as buildings and roads.

The government should dedicate more attention to such fields to unlock value, Wong said.

“If we want to transform, we have to go down this path.

“If (promoting infrastructure projects) is to drive the economy, then conditions of the pandemic must be considered, as construction is a human resource-intensive industry.”

Focus on exports

Hoo said the government should focus on boosting exports as the prices of commodities, such as palm oil and rubber, are currently favourable, as well as for electronic and electrical products.

Boosting exports is a good move as domestic sectors, such as real estate and automotive industries are still weak, he added.

Exports of certain goods can also help cushion the overall economy from the hit taken by certain sectors, such as tourism.

“The record profits recorded by glove makers can make up for the losses in the tourism industry.

“Our worst time has also become the best time, as record earnings of the glove industry has balanced the losses from tourism.”

As a trading nation, Malaysia should focus on promoting exports as this had proven successful in the past, such as the 1997 Asian financial crisis and 2008 global financial crisis.

Exports were then the main driving force of an economic recovery, as they did not decline amid the depreciation of the ringgit in 1998, and large-scale unemployment in 2008.

“Our country is a trading nation and the total amount of imports and exports is about twice the gross domestic product (GDP),” said Hoo. – October 31, 2020.