Collaborate And Innovate For Economic Resilience

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As the global rules-based order wobbles, Malaysia cannot afford to be caught short. Every day, we read new announcements and executive orders that make our jaws drop and scramble business as usual.
As an open market economy reliant on flows of maritime trade, such disruptions will have adverse implications.
With growing uncertainty over established trade relationships and patterns, Malaysia needs to identify partners and areas that increase the nation’s economic and trade resilience. We need to be serious about innovation to weather global trade and policy disruptions coming fast and thick.
Neighbourly resilience
We can get an idea of this through the flows of funds into and away from our stock markets. Foreign capital fluctuates rapidly in response to global movements and decisions that affect the domestic market’s attractiveness.
Despite stable fundamentals, there has been a sustained outflow of foreign capital in recent weeks. We can infer that global investors’ changing expectations of international economic and trade trends had more to do with global political shifts than the actual state of the Malaysian business climate.
America’s shift to an anti-establishment unilateralism in its trade, energy, environmental, and foreign policies, and a redefining of “fair trade” to its benefit poses great risks to countries embedded in the middle of global supply chains.
For all of the faults of globalisation, the continuity of the status quo maintains the flow of economic activity that keeps our economy running. It is fortunate that Malaysia has some room to manoeuvre due to the diversity of its exports and trade partners, including its neighbours within the Asean region.
In 2024, Asean accounted for 29 percent of Malaysian exports, although the US was still the single largest export market for Malaysian goods at 13.2 percent.
However, as almost 40 percent of exports are composed of electrical and electronic goods including integrated circuits, tariffs and other trade barriers introduced by the new US administration continue to be a significant threat.
The push to strongly persuade international companies to manufacture in America or face high tariffs throws a spanner in the country’s plans to host the same semiconductor companies to expand their operations and allow Malaysia to climb up the global value chain.
Add in current and future restrictions that prohibit dealings with sanctioned entities for advanced semiconductor components and equipment, it pays to be more neutral with our expectations for a chip-led boost to the nation’s economy.
Support innovations in public and private sectors
The government, financial, and private sectors now have the difficult task of identifying and developing new sectors and markets that can cushion the turbulence from trade redirections and the higher costs of doing business with a long-time trade partner.
The need for innovation across sectors has never been greater.
To give credit where credit is due, successive governments have maintained a pro-innovation policy outlook and maintained an ecosystem where there are sources of support for entrepreneurial innovation especially in high-priority industries.
However, results have been mixed despite the billions of ringgit spent in the area over decades.
There needs to be greater transparency over the performance of these investments to avoid the misuse of public funds as reported recently where five research universities carried out over 1,000 research projects costing RM148 million in 2023 that turned out unsatisfactory.
Likewise, our workforce contains highly skilled talent trained locally and abroad that can be catalysts for industrial innovation. Yet despite good intentions and the availability of talent, progress in the area has been slow.
Perhaps the government should think about doing less and being more judicious with its support for innovation rather than trying to be the driver of innovation.
Instead, it may consider incentivising greater private sector investment into innovative ventures to entrench an ecosystem of innovation, whilst strongly discouraging rent-seeking and unproductive economic activities by both government-linked and private companies. - Mkini
LUTFI HAKIM ARIFF works at the intersection of media, policy, and politics. Currently on an education sojourn in the US.
The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.

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