SPEECH BY CHIEF MINISTER OF PENANG IN THE FORUM OF BRAIN DRAIN – WHO GAINS? WHO SACRIFICES? AT AUDITORIUM PSDC ON 21 JUNE 2014
Good afternoon, ladies and gentlemen.
Today, Malaysia is at a crossroads. We share the collective dream of transforming this nation into a high-income country. But to become a high-income nation, Malaysia needs to move up the value chain. Simply put, we need to create higher value goods and services. This requires innovation, efficiency gains and advancement in technology.
To have innovation, we need to leverage on the ideas of our highly skilled labour force. However, Malaysia is plagued with high rates of skilled emigration. Our high-skilled emigration rate is 10.5% according to the World Bank. In contrast, the global average is only 6.5%. As a result, Malaysia is plagued by the phenomena commonly known as the brain drain and Malaysia is at risk of being stuck in the middle-income trap permanently.
The urgent need for high-skilled workers is becoming increasingly apparent to everyone. We can no longer afford ourselves the luxury of gradualism. If we are truly serious and committed to the goal of achieving high-income status by 2020, we need to realize that talent is Malaysia’s true capital, and start acting accordingly and decisively.
Because of the increasing number of high-skilled emigration, we find that our supply of high-skilled workers is not enough for the growing demands of an economy looking to be a high income economy like Singapore, Germany and Japan amongst others.
When a country is not capital-intensive, it has to retain its competitiveness by turning to labour. And this is precisely what Malaysia is doing. Our lack of high-skilled workers has slowed down the rate of innovation in Malaysia compared to other developed countries. Our less optimal GDP growth rate results not only in a wider gap with the high-income countries, but also a reliance on foreign low-skilled workers.
The overwhelming population of these foreign workers have ultimately suppressed wages for locals as found by a report by the World Bank released only a few weeks ago in June 2014. Using the Malaysian Labour Force Survey, the authors, Ozden and Wagner, find that a 10% increase in low-skilled immigration has a net negative effect on average wages of 0.35% - meaning that wages are depressed for local and immigrant workers.
Being a state in Malaysia, Penang also suffers from the brain drain phenomena. According to the National Labour Survey, 30% of occupations in Penang are high-skilled positions. Because of the larger proportion of high-skilled occupations in Penang, this figure is noticeably higher than the national average of 25.3%. Therefore, the shortage of skilled workers does affect Penang. So apart from having the right infrastructure, human capital is Penang’s most important economic driver. So, the State government is serious about curbing it.
We are doing this because the Penang state government has been troubled by the Federal government’s failure to reverse or even arrest the brain drain problem. Over 2 million Malaysians have left the country since Merdeka in 1957, driven not just by higher pay but also attracted by more humane policies overseas that are centred on justice, human rights, democracy, integrity and rewarding hard work.
All these skilled and talented Malaysians are our best and brightest or else they would not have been accepted by foreign countries. Unfortunately they have been replaced by up to 5 million unskilled workers from Bangladesh, Indonesia, Myanmar and Vietnam who cause not only depressed wages and social problems but also contribute towards huge foreign exchange losses.
The loss in exchange value in skill gaps and management expertise from the 2 million Malaysians leaving our shores is compounded by these unskilled foreign migrants sending back RM20 billion in remittances in 2012, a figure expected to increase to RM30 billion last year.
Therefore, we have made it a priority to increase the number of high-skilled job opportunities available in Penang. In the last few years, we have concentrated on growing, developing and deepening our manufacturing and services sector. Penang continues to be the location of choice for investors, with Penang as the top Foreign Direct Investment (FDI) state in Malaysia from 2010 to August 2013, contributing RM 19.7 billion or nearly 20% of Malaysia’s total FDI during that period. This success can be seen when Penang seeks at least 20,000 more workers and companies are advertising for staff at all levels.
Tourism has also enjoyed double-digit growth with heritage, medical tourism, food and the unique Penang experience helping hotel occupancy to reach record levels.
Further, we also recently launched the RM3.3 billion BPO-ITO or Business Process Outsourcing Information Technology Outsourcing Hub on 1 March 2014 to establish Penang as one of the world’s BPO hubs of the future. Last week, Penang created history by inking a joint-venture arrangement with the Singapore government through Temasek, valued at RM11.3 billion to grow both manufacturing and services sector, particularly the BPO sector.
Ladies and gentlemen,
All these projects require human talent. Therefore, the state government has adopted a 3-pronged approach to build human talent by giving annual allocation to schools, attracting world-class universities and introducing vocational education with industry, as well as building Learning Centres and Science Cafes to stress on STEM teaching of Science, Technology, English and Maths.
Hence, one of our goals is to turn Penang into the next education hub in the country, if not in Southeast Asia. The number of tertiary level institutions proves our relentless efforts in building human capital. There are a total of 48 colleges and institutions of higher learning in Penang. Many of them, like University Sains Malaya (USM) and the Japan Malaysia Technical Institute (JMTi), offer courses that prove extremely relevant to Penang’s main sectors, such as E&E, and Services.
And soon, in 2017, we can add University of Hull from the UK to the list of prestigious universities in Penang. The franchise will be situated in a 5-acre piece of land in Batu Kawan, Seberang Perai and shall offer courses in engineering, business, law, and accountancy. Apart from having a variety of education institutions, the Penang State government is also targeting top world-class universities to set up campuses in Penang.
Furthermore, each year, the state government allocates annual allocations to local schools. The state is also focused on providing vocational courses as an option for those who have a flair for working with their hands. Separate to the Federal government, the State government also has Program Skim Pelajar Emas, which distributes cash aid to all Standard 1 and 4; plus Form 1 and 4 students in Penang.
Ladies and gentlemen,
Finally, the State government of Penang is also striving to expand our horizons in the manufacturing and services sectors. We also want both MNCs and SMEs to flourish in Penang, so much so that infrastructure is constantly being upgraded to fit the rigorous demands of international as well as local companies.
I am pleased to say that our efforts have not been in vain. In 2013, capital investment in the electronics and electrical sector, where Penang dominates in the whole of Malaysia, grew by 56% compared to 2012. New sectors such as ‘rubber products’ grew by an astonishing 7,431%, and ‘scientific equipment’ by 5,786%. We expect to see this trend to continue in 2014. Avionics and aeronautics is another sector that Penang is currently exploring.
Penang pioneered the concept of industrial parks and has long enjoyed the success of its key industrial park in Bayan Lepas. And now, I am very proud to say that the new 1,500 acres industrial park in Batu Kawan will be another feather in our cap. Already, 3 renowned firms: Boon Siew Honda, VAT Manufacturing, and Bose Corp, have pledged a total of RM 10 billion to the manufacturing site. This site is expected to create more high-income job opportunities, and the State government is determined to promote sustainable living in the town, as well as in the whole state of Penang.
Ladies and gentlemen,
In conclusion, talent is the capital of the future. First and foremost, we have to recognize, build and appreciate human capital. Then, we need to enlarge the talent pool of ours. When there is critical mass in the number of talents, then more innovation and ideas will start to be realized. This is not rocket science and that is how Silicon Valley becomes so successful – having a critical mass in talent. Eventually, new innovation will lead to a rise in wages, which is led by productivity and not because of rising cost of living or inflation.
At the same time, the government has to ensure that Malaysia progresses in an all-rounded and sustainable manner. It is not the easiest of tasks, but it will be worth every step of the way. In this manner, I believe Penang is setting up a good model for the rest of the country to emulate.