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Malaysia’s Prime Minister launches the Madani Economy Framework

04 August 2023

The Prime Minister of Malaysia, Dato’ Seri Anwar Ibrahim, launched the Madani Economy: Rakyat Empowerment Framework (“the Framework”) on 27 July 2023.1
 
The Framework seeks to elevate the dignity and status of the country with two main areas of focus- restructuring the economy to make Malaysia a leader in Asian economies to ensure that the enlarged wealth is benefitted equitably by the Rakyat. It is intended to be a comprehensive and meticulous plan to address various challenges, including: 
  • Long-term issues related to competitiveness and the country's appeal as an investment destination; and 

  • Current issues that need to be immediately addressed, such as the impact of the rising cost of living on the people. 
The targets under the Framework are as follows:
 
Short-term targets: To address pressing issues that affect the Rakyat: 
  1. the implementation of projects for schools and dilapidated clinics will be accelerated; and 

  2. hardcore poverty is to be eradicated this year. 
Medium-term targets: Seven intermediate indicators that are to be achieved within the next 10 years, namely:
 
First: Malaysia to be ranked among the Top 30 largest economies in the world;
 
Second: Top 12 ranking in the Global Competitiveness Index;
 
Third: The percentage of labour share of income to reach 45% of the total income;
 
Fourth: Increase in Female Labour Force Participation Rate to 60%;
 
Fifth: Top 25 ranking in the Human Development Index;
 
Sixth: Improve Malaysia’s position in the Corruption Perceptions Index to Top 25; and
 
Seventh: To move towards fiscal sustainability by targeting a deficit of 3% or lower.
 
The initiatives and policies that will be implemented to achieve these aspirations include the following:
 
Focus 1 : Malaysia – Leading Asian Economy
 
To achieve this, the economic structure will have to be revamped.
 
a) A Regional (ASEAN) Agenda : Initiatives to help Malaysia to become a regional powerhouse and to attain an annual growth of 5.5% (or even 6%) include the following: 
  • establishing greater economic integration with neighbouring countries and nurturing more high-competitive local companies to penetrate the ASEAN market; 

  • going beyond Free Trade Agreements; for instance, trade diplomacy and strategic arrangements can enhance bilateral and multilateral market integration and facilitate the movement of goods, capital, skilled workforce and technology sharing with neighbouring countries; 

  • focusing on activities that offer high-added value or economic sophistication; for instance, the cluster in Penang should focus on high-value E&E activities such as Integrated Circuit (IC) design and the chemical sector, petrochemical and oleochemical companies should prioritise manufacturing specialty chemicals; and 

  • introducing outcome-based tax incentives to support and reward companies focusing on high-impact activities. 
b) Malaysia as an Investment Destination : Reforms must be implemented so that Malaysia can be ranked among the world’s 12 best economies in terms of competitiveness and ease of doing business. Efforts are to be intensified to ensure more people choose Malaysia as an investment destination. The focus will be on: 
  • strengthening Investment Promotion Agencies under MIDA to attract investment and facilitate investor affairs proactively; 

  • reviewing investment incentives to focus on encouraging investments that generate high-income jobs and are sourced locally; and 

  • upgrading industrial areas with complete infrastructure and increasing human capital development to meet the needs of investors, including the petrochemical sector in Kerteh, Terengganu, the data centre in Sedenak, Johor and the downstream rubber industry in Kuala Nerang, Kedah. To start with, RM100 million will be allocated to complete the infrastructure of the industrial area, focusing on the green concept. 

Simultaneously, Domestic Direct Investment (“DDI”) will be set as one of the key performance indicators (KPI) for the country's investment achievements.
c)
Businesses: Startup Company – MSMEs – Listed Firms : Local startups and SMEs must be internationalised. To this end, the Government’s efforts will include:
 
First: Spawn more successful companies by encouraging Bumiputera startups and SMEs to venture into new growth areas. GLCs and GLICs should continue to drive DDI's investment and support the development of local vendors in strategic sectors, such as E&E, the digital economy, and aerospace.
 
Second: An additional funding of RM20 million will be allocated to boost export growth, including the Mid-Tier Companies Development Programme (MTCDP) and the Market Development Grant (MDG) by MATRADE.
 
The Securities Commission Malaysia will develop Financial Market Reform Policies that will: 
  • facilitate investment by retail investors; 

  • attract more investors to finance MSMEs as well as the country's new growth activities; and 

  • increase the level of competitiveness of the capital market at the international level. 
Measures that will be introduced in 2023 include making investments more affordable by reducing trading lot sizes and enabling fractional share trading.
 
The Securities Commission Malaysia will also introduce changes to provide for the automatic transition of companies listed on the ACE Market to the Main Market of Bursa Malaysia.
 
The fiscal measures that will be introduced to boost the Malaysian startup ecosystem will include: 
  • the Government and GLICs investing RM1.0 billion of additional funds to match with private funds to support local startups and encourage technopreneurs; and 

  • allocating an additional RM100 million to intensify the research, development, commercialisation, and innovation ecosystem with a focus on industrial needs, renewable energy, food security and new growth activities as part of the effort to achieve a Gross Domestic Expenditure on R&D (GERD) of 3.5% of GDP by 2030 and to improve Malaysia’s position to the top 20 in the Global Innovation Index (GII) by 2025. 
A matching grant for digitalisation will be increased by RM100 million to assist MSMEs in accelerating their shift towards a more digital business model.
 
d) Leader of Global Islamic Economy : To further strengthen Malaysia’s Islamic financial system and enhance its position as a leader in the global Islamic economy, Malaysia should move from not only Halal but beyond that, to something more sustainable and effective by embracing the Halal and Tayyib principles. This effort will emphasise equity financing, including venture capital, equity crowdfunding, the Islamic digital economy, Islamic social finance, including zakat, waqf, and sadaqa, as well as blended finance methods.
 
e) Green Growth for Climate Resilience : In recognition of the need to change the economic landscape to a more sustainable one, the Government launched Part 1 of the National Energy Transition Roadmap (NETR) on 27 July 20232 to accelerate energy transition and change the way energy is generated in Malaysia to improve climate resilience. The main efforts will include increasing renewable energy generation capacity, installing solar panels on Government buildings and implementing renewable energy trading policies through the electricity market system.3
 
f)
Land Use and Food Security : To improve the Self-Sufficiency Level (SSL) and enhance food security, the Government will focus on: 
  • increasing the area of crops but optimising the use of existing plantation lands; 

  • increasing the resilience of the agro-food sector through the application of agricultural technology to increase productivity for the benefit of small farmers. This includes regenerative agriculture approaches, climate-resistant crops and the use of AI technology; 

  • improving the irrigation infrastructure in the MADA areas of Kedah and Perlis to increase paddy production productivity to five seasons within a 2-year period; and 

  • providing support to the local food industry and increasing production by allocating RM200 million under Agrobank to help provide financing facilities, particularly for modern agricultural technology applications. 
Focus 2 : Elevating the Quality of Life for the Rakyat 
Recognising the need for social protection of all, and to build a more equitable and prosperous society and ensure that the increased national income in future is distributed fairly to the low and middle-income groups, the Government proposes to introduce, among others, the following measures:
 
a)
Job opportunities with Meaningful Wages : Measures to create more jobs with meaningful wages include the following: 
  • to achieve a more balanced economic sharing, the Government will implement policies that support increasing wages relative to GDP to reach the level of 45% in line with more advanced countries; 

  • reviewing the minimum wage level and introducing laws that guarantee a safe and comfortable working environment. In addition to minimum wage, the Ministry of Economy and the Ministry of Human Resources are exploring a progressive wage model that directly co-relates an increase in income with an increase in productivity; and 

  • reducing dependence on low-skilled foreign labour and implementing tiered foreign worker levies, where part of the levy increase will be allocated to automation and training programs for local workers. 
b)
Equal Opportunities : Proposals to provide equal opportunity to the poorest citizens, regardless of gender, race or background, include the following: 
  • uplifting the Rakyat from poverty by giving priority for scholarships and full boarding school education to low-income groups; 

  • supporting entrepreneurial opportunities by intensifying training and financing programs for specific groups, including women and youth. This includes allocating an additional RM400 million for micro-loans under agencies such as SME Corp, TEKUN, MARA, and Teraju; 

  • reducing the development gap between regions and states by implementing an industrial policy according to geography through specialised activities and investment by region that is aligned to the comparative advantage and level of development of the respective regions; 

  • continue strengthening the development of Iskandar Malaysia in Johor by establishing a competitive special financial zone to attract international investors and knowledgeable workers to settle in Malaysia. Facilities offered to eligible companies and individuals will include special tax incentives, a 15% tax rate for knowledgeable workers, and fast-track immigration facilities to ease the entry of skilled professionals from abroad; and 

  • narrowing the gender gap in the labour market by introducing legislative and regulatory measures and supporting programmes to encourage mothers to return to work. 
c)
Social Protection for All : The Government will expand the social protection network to safeguard the Rakyat under a comprehensive Social Protection Programme that comprises the following three pillars: 
  • Prevention through Social Insurance. Coverage of EPF and SOCSO will be gradually expanded to the whole working-age population in phases; 

  • Sustainable Retirement Savings. Improvements will be made to ensure that the level of retirement savings is sufficient for Malaysians in their retirement days; and 

  • Protection through Social Assistance. Various cash assistance programmes and Rahmah Programme have been announced to provide a higher social protection floor. 
The employment insurance system and retraining programmes will be strengthened to provide job opportunities for the unemployed.
d)
Healthcare Service Reforms : The proposals for healthcare service reforms include: 
  • commitment by the Government to achieve a target of 5% of GDP for healthcare expenditure by optimising the public and private healthcare systems, in line with the recommendation in the recently released Healthcare White Paper; and 

  • introducing a paradigm shift in the approach to healthcare by transitioning from treating patients to disease prevention. 
e)
Reforming Education and Human Resource : The proposals for education and human resource reforms include: 
  • shifting the emphasis in the education system from being supply-driven to being more demand-driven to better meet the needs of development, especially in strengthening cooperation with industries and employers, particularly in the implementation of TVET; and 

  • upskilling programmes for informal workers, including gig workers with qualifications of SPM and below. To this end, the Government through SOCSO has allocated RM42 million for the Bina Kerjaya Programme. 
f) 
Affordable Housing for All : Measures include: 
  • the proposal to introduce a National Housing Action Plan which includes the provision of housing supply based on metrics such as the ratio of the median house price to median income; 

  • continuing the development of public housing along with boosting the rental market to meet housing needs; and 

  • enhancing the loan scheme under the Housing Credit Guarantee Corporation (HCGS) by providing financing guarantees of up to 120% of the house price, valued up to RM300,000. The 120% guarantee will cover all home ownership costs through the loan, including the principal financing amount, legal fees, valuation fees, insurance, furniture purchase and renovation costs. In this regard, a Government guarantee of up to RM5 billion will be provided.
Other interesting initiatives announced by the Prime Minister under the Framework include: 
  • rebuilding Malaysia’s fiscal capacity as the top priority in the near term; 

  • reaffirming the Government’s assurance to continue cooperating with Parliament, including the proposal to repeal any Act that may have served its purpose in the past but is now outdated and conflicts with the Malaysia MADANI aspirations; 

  • improving subsidy mechanisms so that the limited income is allocated to those who need it most; 

  • offering more incentives and tax services to develop the social enterprise sector into a meaningful economic sector and reassessing the existing concept of Public-Private Partnerships (PPP) to become Philanthropic-Public-Private Partnerships (PPPP); 

  • relaxing the Malaysia My Second Home (MM2H) requirements and facilitating tourist entry through Visa on Arrival (VOA); and 

  • streamlining the delivery of services by the Government and fully maximising the digital agenda to its highest level. 
Comments
 
The Framework is a bold and ambitious statement of the Prime Minister’s aspirations for the country in the coming decade. It sets immediate and near-term targets that the Unity Government must strive to achieve to validate its tenure in office. Vision must be supported by credible action to fulfil the avowed aspirations. Otherwise, the vision will be but a mirage. This is the litmus test for the Prime Minister and his Unity Government.
 
Article by Kok Chee Kheong (Partner) and Siti Sarah binti Iskandar (Associate) of the Corporate Practice of Skrine.
 
1 Madani is an acronym in Bahasa Malaysia for a policy that embraces six core values – keMampanan (Sustainability), KesejAhteraan (Prosperity), Daya Cipta (Innovation), hormAt (Respect), keyakiNan (Trust) and Ihsan (Compassion).
2 Our Alert on the NETR Part 1 can be accessed here.
3 NETR Part 2 will be launched at a later date within this year.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

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