1. I would like to thank the United Nations Trade and Development (UNCTAD) and the Khazanah Research Institute (KRI) for the opportunity to speak at the National Consultation on Green Industrialisation in Malaysia with the theme of “Integrated Policy Strategies for a Sustainable Future”.
Challenges of our time
2. First, between the fall of the Berlin Wall in 1989 and the Covid-19 pandemic in 2020, the main assumption in manufacturing was “just-in-time”. Especially from the time China joined the World Trade Organisation in 2001, China was the factory of the world, and many other countries experienced premature deindustrialisation. Malaysia was no exception.
3. However, the governing assumption now is “just-in-case”, in which risks become a major consideration, therefore nations and corporations now care quite a bit about supply chain resilience, both from a logistics point of view and from a national security perspective.
4. As corporations move away from the idea of China as the sole factory of the world, Malaysia benefits from China+1, Taiwan+1, and many other +1 or -1 formulas due to its strategic geographical location and relative developed industrial clusters, especially in the semiconductor sector.
5. Second, since the end of the Second World War, Asia has been seeing the United States as the importer of the last resort, starting with Japan and the Flying Geese that followed the Japanese production model, and later China.
6. Today’s Asia has a huge and rapidly expanding productive capacity while the United States’ ability to consume has shrunk due to a shrinking middle class. Asian economies must be very clear that not only we have to industrialise further, we must also create the market to consume. Otherwise, we will be left with excess production due to reduced consumption in traditional markets like the United States.
7. To be able to consume means to be able to build a middle class, which in turn will call into question the old export-oriented industrialisation model which was premised upon the unending supply of cheap and young labour pool. Workers in this part of the world need to be put into high skill jobs with better pay.
8. Third, societies will need a much stronger care economy to deal with aging as well as to ensure that there will continue to have jobs to go around during the era of AI and high technology, which has the potential of removing jobs. This is why we need to build a stronger care economy that will create high quality and high-skilled job opportunities, which cannot be easily replaced by technology.
9. Fourth, the challenges of climate change and food security are genuine concerns that societies will have to solve, and potentially through industrialisation.
Industrialisation for problem solving
10. Thus, industrialisation cannot be just about export. Instead, it has to come with some forms of mission to solve societal problems.
11. The New Industrial Master Plan 2030 (NIMP 2030) lists down four missions: i) Advance economic complexity; ii) Tech up for a digitally vibrant nation; iii) Push for Net Zero; iv) Safeguard economic security and inclusivity, which are all key to transforming Malaysia’s industry into one that is of high productivity, high skill, and most importantly, high wage.
12. As Professor Kuen Lee pointed out earlier, comparing the semiconductor sectors in Taiwan, Shenzhen and Penang, both Taiwan and Shenzhen had acquired much more technologies and innovations while Penang is still mainly driven by foreign firms. Shenzhen also has more patents filed per capita compared to Malaysia. This shows a high level of innovation and R&D happening there.
13. I would like to highlight that although investments, including foreign direct investments (FDI), are important to drive economic growth, these investments are not an end in themselves. Investments should be a means for Malaysia to tap into the knowledge and technology brought in to build more technologies and innovation capabilities.
14. I am also glad to see government-linked investment companies (GLICs) paying more attention to the semiconductor industry in Malaysia.
15. I have just returned from a semiconductor industry tour in Penang, joined by senior officials of Khazanah Nasional Berhad and other GLICs. You might have noticed that the Ministry of Finance recently announced that six GLICS, Khazanah being one of them, have pledged to invest RM120 billion in domestic direct investments (DDI) over the next five years on high-growth, high-value industries, including the energy transition sector and advanced manufacturing, particularly in semiconductors.
16. The semiconductor industry used to be treated as a private-driven investment. Now, the industry has been thrust into the spotlight amid the current geopolitical fight between China and the US, due to the growing necessity of having access to advanced chips to power everything from smartphones to electric vehicles. Clearly, the ability to think critically about the way to position and accelerate advancements in semiconductors will have significant implications for trade, investment and geopolitics in the years to come.
17. It is also crucial to develop horizontal industrial linkages within Malaysia. For example, the mature semiconductor industry in Malaysia should form a basis to develop the automotive industry, including electric vehicles (EV) and agritech.
18. All in all, Malaysia is at the brink of a second economic takeoff, built upon the development of a high productivity, high skills, high wage model.
Thank you.