SEPT 26 — The quote "we have met the enemy and he is us" comes from the cartoon strip Pogo, in 1971. In our desire to be a developed nation by 2020 with a nominal GDP per capita north of US$15,000 (RM47, 475) per annum, the main potential stumbling block may be ourselves.
The truth, as I hope to demonstrate below, is that it is not difficult for us to achieve our targets but we must work together to reach that outcome. Most of statistics quoted below were gleaned from Malaysia's Statistics Department or from the CIA's World Fact Book.
Benchmarking GDP against developed Singapore
At the end of 2010, Singapore's GDP was US$223 billion whereas Malaysia's was US$238 billion. Bearing in mind that Malaysia's population is about six times that of Singapore, it appears that Singapore generates six times more per capita in GDP than Malaysia.
However, when we account for Purchasing Power Parity (PPP), Singapore's GDP (PPP) per capita per annum is US$62,100 whereas Malaysia's is US$14,700. Singapore beats us by 4.2 times but this is not the whole picture.
Malaysia's workforce for 2010 numbered 11.63 million whereas Singapore numbered 3.15 million. A more meaningful comparison would be to compare GDP per worker and not per capita. On this basis we find that Malaysia's GDP per worker is US$20,465 whereas for Singapore it is US$70,790.
On a PPP basis, Malaysia's GDP per worker is US$35,600 and Singapore's US$92,700. Singapore now only beats us on a GDP per worker basis by 2.6 times.
Thus a Singapore worker produces on average 2.6 times more GDP than a Malaysian worker and not six times as nominal GDP per capita would indicate. Bearing in mind that Singapore is a world financial centre with many regional offices and highly-paid professionals and expats, differences are bound to be there.
That is not to say that Malaysians shouldn't improve, just that we must direct them to improvements which can lift up our overall GDP. We could of course simply merge with Singapore if both sides agree and become a developed nation pretty soon after but that I suppose is another matter altogether.
Demographics
The median age in Malaysia is 27 whereas in Singapore it is 40. The Singapore population is about 4.75 million with a workforce of 3.15 million or 66 per cent of the population. Malaysia's population for 2010 (latest revised) was 28.3 million: 26 million citizens and 2.3 million non-citizens. Overall our available workforce is only 41 per cent of our population. For Malaysian nationals, the percentage in the workforce is obviously even less.
Of course our demographics will not allow us to reach Singapore's rate for some time. In the 0-to-19 years old category, we have around 10.6 million citizens, in the 55 years and over category we have about 3.3 million citizens. Thus at the moment in the 20-to-55 years old category which is, in the main, the age range of our workforce, we have 12.1 million citizens.
We could add another 1.9 million citizens in the 55-to-65 year old range and also perhaps one million in the 18-to-20 year range. This would bring us to about 15 million citizens who are available to work but these are issues of policy and involve things like the official retirement age as well as at what age we want our youth to enter the workforce. But I would say that with just under 10 million citizens employed, it would not have been easy to improve this number much for 2010.
However from 2011 to 2020 we can expect a net addition of another three million citizens into our workforce. If we moved our retirement age up to 65, we may be able to add another two million additional citizen workers by 2020.
At current birth and mortality rates, I would estimate that we would have about 30 million Malaysians by 2020. If by that time 15 million Malaysians are working and our non-citizen workforce remains at about two million, it is a good bet that we will have reached our nominal US$15,000 or more GDP per capita. To prove this I work it backwards.
Assume in 2020 we have 30 million citizens and two million non-citizen workers, giving us a total population of 32 million. If we aim for GDP per capita of US$15,000 then our total GDP based on a 32 million population will be US$480 billion.
With 17 million workers having to make up the US$480 billion GDP, it works out to a GDP per worker of US$28,235 in 2020. The GDP per worker now is US$20,465 as shown above. The GDP per worker need only grow at three per cent per annum over the next 10 years to achieve the target which I believe should be fairly simple.
Income
As an aside, I read in a mainstream newspaper on Saturday that according to a quasi-government agency, the government is taking steps to increase the average household income from RM1,500 to RM4,000 per month to combat inflation. I really had to laugh. Don't they know that the average household income in Malaysia, according to the Statistics Department, was RM3,686 per month... in 2007?
Anyway, even our median household income is RM2,830 for 2010. The average monthly household income should be at least RM4,000 for 2010. There are around six million households in Malaysia, thus the total monthly income for Malaysian households should be about RM24 billion.
On a yearly basis that is RM288 billion. If we divide that by our 11.6 million workers we get an average yearly income of RM24,827 per worker. Let us say approximately US$7,880 per worker per annum.
As the GDP per worker in Malaysia is US$20,465, the ratio of GDP to income is 2.6 (20,465/7,880). In the US the GDP per available worker is about US$95,000. The average income per worker in 2009 is US$27,000 per annum. The US ratio of GDP to income is 3.5 (95,000/27,000).
The point here is that for paying a worker US$1 in Malaysia, it adds US$2.6 to GDP whereas in the US for the same amount, US$3.5 is added to its GDP. Our workers need to value add more or move to industries which allow for that to keep us competitive.
Tax
The latest Malaysian government statistics show that only 1.7 million workers pay income tax. That is not too surprising if one looks at the Malaysian monthly household income distribution for 2007. There were a total of about 5,750,000 households in Malaysia in 2007.
Those households earning less than RM1,000 per month numbered around 500,000, those earning between RM1,000 and RM3,000 per month numbered around 2,850,000 and those earning between RM3,000 and RM5,000 per month totalled about 1,250,000. That already covers 80 per cent of Malaysian households.
For those earning RM5,000 to RM10,000 there are 900,000 of them whereas for the income range RM10,000 to RM20,000 there are 210, 000 and for those earning above RM20,000 per month, they number 50,000 in total.
Basically, 20 per cent of Malaysia's households earn 50 per cent of the monthly income in Malaysia. It is within this group, mainly, that you will find the country's taxpayers. Under the current tax system, the Inland Revenue Board (IRB) may have missed a few hundred thousand taxpayers but I don't believe there would have been much more than that from the current 1,700,000.
The real problem is those who pay tax feel that they are paying too much, especially when they compare the tax paid on the same income in neighbouring Singapore. (In some cases the difference can be more than double.) This has to some extent contributed to Malaysia's loss of talent abroad.
In Singapore the taxes and other revenue collected by the government amount to about 14.7 per cent of GDP, whereas for Malaysia the figure was 20.8 per cent.
At the same time, Malaysia is running a budget deficit of close to six per cent of GDP and this is not sustainable in the long run. Malaysia's budget is just under RM200 billion for 2010 of which less than RM50 billion is for salary and emoluments. There is certainly room to trim the budget to balance it without having to let people go.
Conclusion
In Malaysia's case I believe that the government should focus itself on making things simpler for everyone. To be a developed nation by 2020 requires more than just a high GDP per capita.
Cutting the proverbial red tape will go a long way. Providing things like a free, efficient and clean bus service in the urban areas will be money well spent if it reduces congestion and cuts the need for the general public to have to own a car.
I am always sad to hear when someone new to the workforce who earns around RM2,000 per month has to spend 40 per cent of that income on car repayments and fuel as there are no practical alternatives to owning a car in Kuala Lumpur at the moment.
The government should also try to provide whatever training and education to upgrade the skills of our youth coming into the labour force to make them more employable. It should also take steps to attract Malaysia's own talent from abroad to return home. Certainly the move to enhance civil liberties in Malaysia will go a long way to make us a truly developed nation.
Our demographics will be the main driving force to give us a GDP per capita of at least US$15,000 by 2020. Whether Malaysia can address the other requirements to be a developed nation by 2020 remains to be seen.
* The views expressed here are the personal opinion of the columnist.
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