Moving Selangor Forward with a Knowledge Economy

Special Luncheon Address by YAB Dato’ Menteri Besar Selangor at 17th Malaysia Strategic Outlook Conference organised by ASLI on 27th January 2015 at Sunway Resort Hotel, Selangor

Honourable chairman, distinguished guests, ladies and gentlemen, welcome to Selangor. Thank you for inviting me to give this luncheon address. I am greatly honoured.

Let me first commend ASLI for having made an excellent choice in Selangor as the venue for this conference.
Selangor is, after all, the most developed state of the nation. We have a stable economic environment, the biggest talent pool and an infrastructure that is by regional standards well-developed.

Selangor has been called the nation’s economic powerhouse and that is no exaggeration. We contribute almost one quarter of the nation’s GDP. Selangor is also a driving force of innovation, and while our economy depends on a strong inflow of FDIs, it is also the most diversified in the country.

For more than three decades, our symbiotic relationship with foreign investors has moulded the economy to what it is now. We will continue to build on this strength but at the same time, we are responding positively to the changing dynamics in the structure of investments.

Indeed, we welcome smaller projects of value-added manufacturing. Some are highly automated and require increasingly skilled labour. This trend is in line with our goal of creating a knowledge economy.

Higher learning institutions

On the subject of knowledge workers, the numbers are impressive: With more than 100 institutions of higher learning, some 30 international schools and several international colleges and universities, Selangor produces over 10,000 knowledge workers yearly.

However, I concede that numbers alone aren’t good enough. From institutional feedback, we gather that, broadly speaking, the current quality of graduates, vocational training and the education sector as a whole has not been rated favourably.

There are exceptions of course but in terms of the general picture, much more still needs to be done.
As we are talking about a Malaysian strategic outlook, so, going beyond Selangor, I believe higher education in this country needs major and drastic reform. It is not just about rankings although international standings are crucial.

It is about general competency as well as specialized capabilities. The question is: Are our educational institutions producing graduates who are able to enrich the resource pool of human capital? This is essential not just for problem-solving scenarios but anticipating problems ahead and proactively devising solutions for the future.

To my mind, this requires us to re-examine our underlying assumptions about higher education. What we need is nothing short of a paradigm shift in our approach, outlook and strategies with the emphasis on qualitative enhancement in all aspects.

In terms of competencies and technical expertise, we are already seeing some tangible progress in skill enhancement programs and further collaborations with existing networks from developed nations. We need to have more.

Indeed, there is still much to be done in the area of R&D facilities and attracting organisations willing to conduct R&D within the state. With sustained and consistent skills and technological transfer and a strong publicly funded research institute network, Selangor could assume a leading position in regard to R&D and pave the way for innovation strategy.

In our 2015 budget, we have allocated RM60 million for state-run university Unisel to upgrade its facilities and infrastructure. I have been told that while this is indeed important, the problem of brain drain must still be addressed.

In this regard, we are looking at setting up a higher education foundation to provide full scholarships for bright Malaysians who are able to secure places in the top universities of the world such as MIT, Cambridge, Imperial College, Harvard, UCL, Oxford and so on.

Private donors and companies can work hand in glove with the State government in this enterprise by financing the scholarship fund as part of their corporate social responsibility contributions.

Where do we see Selangor in terms of economic outlook going forward, say, in 5 years?

Selangor has excellent Infrastructure and connectivity. We have the largest port, 2 major airports, extensive highways and public transport systems and fast and reliable internet/telecommunication connections.

Though the economic impact of the soon to be running high-speed rail has not been fully assessed, there is ample reason to believe that it could become a significant boon to Selangor’s economic activities.

Who knows? Large corporations could maintain a regional HQ in Singapore, but move certain functions or manufacturing activities to the state based on improving connectivity and lower costs.

Selangor offers one of the most diverse industrial landscapes of Malaysia, which includes an ecosystem covering important industries such as E&E, F&B, Chemicals, Automotive and Aerospace as well as Machinery & Equipment Manufacturer. Most of these sectors are export-driven and contribute considerably.

In order to envision the future in line with our core clusters, Selangor would have to accomplish many things. The infrastructure has to be improved, education enhanced, research facilities need to be strengthened and the state clearly has to assume an active role. We will also need an efficient management and control system of local authorities.

Our 2015 budget

Given global economic trends as well as the national economic scenario, Selangor’s economy is one that is developmental in nature.

With oil prices dropping to US$50 and below, a weakening ringgit, higher than normal debt levels and foreign currency reserves that are fast depleting, we had expected substantive cuts to the Federal budget particularly the operating expenditure side.

We thought that there should have been a cut of at least RM27 billion to make good the shortfall in revenue but it appears that Putrajaya is not on the same page here.

When we prepared our 2015 budget we read the warning signs and thus factored in the negative effect of global trends. As a result, we came out with a deficit budget of RM2.42 billion focused primarily on development. The thrust is geared towards poverty eradication, alleviating the high costs of living of the ordinary folk, improve local infrastructure. This will empower the people to have better access to housing, education and health care.

That is why we have set aside RM1.13 billion for development and the balance for operation expenditure. In contrast, of last year’s budget of RM1.85 billion, just about one third was for development expenditure, while the other two thirds went to operating expenditure.

There is no need to cut our operating expenditure now because we already cut it ahead of time. This massive jump in development allocation is our way of walking the talk.

For the people’s welfare, we have allocated RM277.3 million for the Merakyatkan Ekonomi Selangor (MES) programmes and RM106.6 million for community service, rural development, the municipal sector and entrepreneur development.
Much has been said about this being a merely populist budget but our detractors have missed the main point.

Ordinary folk are finding it hard to make ends meet. Wage increases are not catching up with rising costs of living. At the prescribed rate, GST will worsen the inflationary pressure on goods and services and the biggest losers will be the ordinary folk.

We are stressing accountability and prudence while being poised to spur the economy and the prosperity of the people. Certainly, fundamental provisos must be realised for a deficit budget to work: high fiscal discipline and the bureaucracy to collect tax revenues and non-tax revenues effectively without leakage.

We want to prioritise housing because the state property prices are increasing, which makes it difficult for the middle to low income group. Our target is to build 15,000 affordable homes (priced below RM250,000) in three years under the Rumah Selangorku scheme.

It’s a win-win situation because for developers, there is a 15% discount on land premiums, exemption on developmental charges, and allowance for higher density, in addition to fast track approvals for regulatory processes.

Real Estates Profiteering / High Land Costs

We know that, in terms of investment attractiveness, the issue of Selangor’s high land costs has been one of the biggest negative factors. Taking a strategic position, we may sometimes have to forego short term gains so that we can reap long term advantages.

In this regard, we may review our existing policy on land premiums with a view of balancing varying interests. The main idea is to ensure that we do not price ourselves out of the investment opportunities while keeping our state owned entities in the black.

Nevertheless, it should be pointed out that rising land and house prices is a matter of concern not just for our economic outlook but also from the social justice point of view.

It is true, our political economy is founded on free market capitalism and in principle, this remains the foundation to drive development and growth.

However, the belief that the ‘invisible hand’ will somehow step in to rectify imbalances and that the State should not intervene in economic affairs is, to borrow a famous analogy “nonsense on stilts”.

We saw how the 2007 subprime crisis unfolded in the United States and many who once were die-hard believers in free market capitalism jumped ship and landed on the Keynesian bandwagon.

Some prominent economists even started waving the social justice flag. It was like they suddenly woke up and realised that there is no such thing as absolute free market and that given half a chance, the philosophy of greed and profit maximization will consume everything in its path.

Having said that, let me reassure all of you that we have no intention of setting up an Orwellian state where the government will poke its nose into every activity, commercial or otherwise.

On the contrary, every effort will be made to ensure that our economy will remain vibrant with consistent and robust growth. I have said on previous occasions before. So, allow me to repeat it here: Economic failure is not an option. My government will remain steadfastly a business-friendly government with a market oriented economy.

Nevertheless, social justice imperatives will continue to prevail and the welfare of the people will remain a priority. We will stay focussed on the priorities of health, housing and education pursued with a policy of governance that is clean, transparent and accountable to the people.

Water resources

We appreciate the legitimate concerns of the business community about water supply at affordable tariffs for all consumers. We are in the final stages of acquiring and consolidating the water concession companies in Selangor.

Once completed, Air Selangor will address the urgent operational issues of production and distribution of treated water as well as Non-Revenue Water to reduce wastage. The quality of our customer service for all consumers must also be improved.

Ultimately, the State must ensure the availability and security of our precious water resources at all times. While efforts to improve the production and distribution network will significantly increase costs, we must not lose sight of our goal of ensuring that water tariffs remain affordable to the people of Selangor.

National unity

I take note that one of the key issues this conference aims to address is: “Will our national unity hold, be strengthened or weakened?”

As Selangor is in many ways a microcosm of Malaysia reflecting the distribution of the various ethnic and religious groups in the community, what happens here in terms of communal and religious relations will have significant national impact as well.

In this regard, let me reiterate that as regards communal and religious harmony, my administration is guided by the overarching approach of “justice and moderation”. The paramount importance of these twin imperatives cannot be overemphasised.

What this means in practical terms is that fanatical and extremist sentiments, hate speeches or acts that provoke communal tension or incite violence will have no place in the administration of the State of Selangor.

We will do our utmost to ensure that the principles of justice and moderation will prevail at all times.

Finally, going forward I can say confidently that Selangor’s economic outlook and prospects are indeed bright. It won’t be long before we unfold our new industrial development plan that will give better insight into our strategic plans, provide milestones for the state of our developmental progress and chart new directions for sustainable growth.

Thank you.