PETALING JAYA: Economists expect Malaysia’s competitiveness to improve next year after declining in the competitive ranking this year but agree this will depend on various factors, which to a certain extent will determine the nation’s progress in this area.
They also expressed confidence in the various measures that corporate Malaysia has undertaken to improve fiscal position, which would translate to improve competitiveness.
UCSI University Malaysia associate professor of finance Liew Chee Yoong told StarBiz whether Malaysia’s competitiveness would improve in 2025 requires specific analysis of various factors, including economic policies, global economic conditions and domestic reforms.
The decline from the 27th position in 2023 to the 34th spot in 2024 is concerning but it is not irreversible, he said, adding that the nation’s ability to bounce back depends on how effectively it addresses the identified challenges and implements strategic measures.
There are several factors which determines whether Malaysia can bounce back.
“Firstly, if the country implements effective economic policies and reforms, particularly those that focus on innovation, technology adoption and business environment improvement, its competitiveness could improve.
“Secondly, the global economic environment plays a crucial role. A favourable global economic climate, including robust trade conditions and stable commodity prices, can positively impact Malaysia’s economy and competitiveness.
“Thirdly, the efficiency and effectiveness of the government and institutions in implementing policies, combating corruption and ensuring a conducive business environment are critical.
“Lastly, the agility and resilience of the private sector in adapting to new technologies, investing in research and development (R&D) and enhancing productivity will significantly influence competitiveness,” said Liew, who is also a research fellow at the Centre for Market Education.
Last month, Switzerland-based International Institute for Management Development (IMD) released its World Competitiveness Ranking (WCR) 2024 report, which showed Malaysia’s competitive ranking fared poorly after it slipped seven places to rank 34th position out of 67 countries.
In 2023, the country was ranked in the 27th spot. Singapore retained its first rank while Thailand and Indonesia overtook Malaysia in 2024.
The ranking comprised of four “factors”, namely, business efficiency, government efficiency, economic performance and infrastructure.
The top five positions in the 2024 World Competitiveness Ranking were grabbed by Singapore, followed by Switzerland, Denmark, Ireland and Hong Kong.
The report listed five challenges for Malaysia, namely increasing investment in R&D to boost business resilience, optimising the labour market to maximise workforce productivity, updating policies and regulations to improve global competitiveness, leveraging advanced technologies to accelerate productivity growth, and mitigating increasing costs through strategic productivity enhancements.
Bank Muamalat (M) Bhd chief economist Mohd Afzanizam Abdul Rashid expects the country’s competitive ranking to improve next year, adding the government has been focusing on restoring its fiscal position.
“We have seen unpopular measures implemented such as the low-value goods tax, high-value goods tax, capital gains tax, the raising of service tax rate from 6% to 8% and rationalising the subsidies in electricity and diesel, among others.
“All these will improve the fiscal space and allow the government to spend on productive matters such as education, healthcare and infrastructure.
“This ultimately will improve the country’s competitiveness as more funds are being directed to promote quality growth. Hence, we shall see better traction in the competitiveness level next year,” he said.
Bank Muamalat (M) Bhd chief economist Mohd Afzanizam Abdul RashidWhile this ranking is important for the government to take note, he said Malaysia needs to be reasonable in expecting the materialisation of the outcome.
“At least, we have seen positive responses from the credit rating agencies such as S&P and Fitch where they have maintained their outlook for Malaysia’s sovereign rating.
“This is important as the credit risks are low for the country, which would translate into better risk appetite among foreign investors,” he said.
Centre for Market Education chief executive officer Carmelo Ferlito said the decline in Malaysia’s competitiveness ranking is not good news, signalling both a domestic deterioration and a more aggressive “behaviour” from neighbouring countries.
Besides deterioration in terms of business efficiency, in particular with reference to loss of productivity, another declining area is in terms of technological infrastructure.
Particularly worrying, he said, is the weaknesses with regard to government intervention, noting that Malaysia scored badly in terms of tariff barriers, price controls and state ownership of firms.
Ferlito said: “It is imperative to reduce interference such as price controls and the dominant role of the state in many industries.
Centre for Market Education CEO Carmelo FerlitoThere is a need to liberalise the labour market, reduce the level of discretion of government officials in procedure approvals, improve the fairness of taxation (now foreign firms pay higher taxes, in violation of all the principles of fiscal equity).
“In a nutshell, simplify rules and get back to the role of ‘referee’ rather than active player in the economy – a pro-market revolution. So, it does not matter if I see the index is improving or not, it has to be seen if the government will be brave enough to introduce the reforms, which are necessary to improve the nation’s competitiveness.”
Meanwhile, economics professor Geoffrey Williams said there is a general consensus among economists that the WCR is not very informative about real underlying competitiveness.
He said there are no real implications of this annual private survey, noting that there is always variation from year to year and it has no impact in terms of business and investment.
“The competitiveness indicators are affected by many short-term issues. We only really have a Madani Economy approach in Budget 2024 while the earlier budgets under the previous finance minister were very poor in many respects and this may be a factor.
“It has nothing to do with lack of reform. The government is well on the road for economic reform with new fiscal frameworks, the Padu database for targeted subsidies and the subsidy rationalisation already underway.
“These targets are political issues and are for the long term. Short-term issues do not affect them so much.
“The government should abandon these rankings and stop drawing attention to it or making it seem more important than it is. Actually they are mostly uninformative from an economic perspective,” Williams added.
Economics professor Geoffrey Williams
Recently, Investment, Trade and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz said the recovery of exports, inflow of investments and better fiscal management are expected to improve Malaysia’s competitiveness, going forward.
Commenting on the WCR 2024 Report, he said the ringgit had been one of the biggest impacts on the country’s ranking in the index, noting that many items were affected as the value of the ringgit translates to stability concerns and influences the valuation of investments, productivity and efficiency.
With the strengthening of the ringgit, he hopes the country’s ranking in 2025, which is based on 2024 numbers, would be better.
Tengku Zafrul said the subsidy rationalisation initiatives this year – targeting subsidies to the right sectors and the right people – would help improve the country’s ranking to some extent.
