In the past three decades, only a handful of countries have managed to achieve that status, and importantly, to sustain their position. In fact, the road to becoming a high-income economy is more difficult today, as countries are confronted with challenges and uncertainties like never before. According to the OECD1, the present landscape has “new rules, new environmental constraints, new technologies and more competition”. We will need to adapt to these changes, while managing other shocks that may come our way. What we don’t want is for the economy to take one step forward, only to be pulled two steps back. Along these lines, allow me to share four points on how Malaysia can more confidently transition towards a high-income economy. An economy centred on innovation My first point is on putting innovation at the centre of our economic development. Malaysia has come a long way. From being a commodities-based economy, we have diversified into high-end manufacturing and modern services. This helped us advance into a middle income economy in the early 70s. Yet, since then, we have struggled to achieve productivity- and innovation-driven growth needed to become a high-income economy. Even today, the deficit in the innovation capability of our economy remains. For instance: Malaysia does not spend enough on R&D. In fact we spend less than half of other frontier economies like Korea, Taiwan and Singapore. Our R&D efforts have focused on generating scientific knowledge, but less on applying that knowledge. This has resulted in low commercialisation of R&D.
The education and training system must be more forward-looking and cater to shifts we anticipate over the next 20 – 50 years. The key is to prepare the next generation with 21st century skills to meet these demands. Malaysia must secure innovation-driven growth in all parts of our economy. But we must set our minds to areas where the payoffs are the greatest. Three areas of opportunity come to mind: First, we must make best use of the resources which we are endowed with, such as to process commodities into chemicals and other derivatives to increase economic complexity. Agriculture productivity can also increase by adopting modern farming. Second, addressing climate change offers opportunities to attract investments and create high-quality jobs. The global economy needs USD23 trillion in green assets to meet the climate goals under the Paris Accord.4 Third, Malaysia is among the best positioned within Southeast Asia to embrace the fourth industrial revolution.5 Malaysia already has one foot through the door in each of these opportunities; we are major producers of petro- and oleo-chemicals, solar panels, as well as E&E components that will power future mobility. We must engage in serious conversations on moonshot strategies to build innovative industries and companies. Only then can we set the foundation for a sustainable, dynamic and competitive Malaysian economy. A society that is more inclusive Economic growth does not necessarily go hand in hand with social progress, particularly if growth only enriches the few. Thus, my second point is on improving social inclusivity.