Page 40 - CMP3

2.2.1 STRUCTURAL UPGRADE OF THE ECONOMY: THE NEED FOR PRODUCTIVITY-DRIVEN GROWTH
Since the early 2000s, the share of Malaysia’s manufacturing sector, in particular the high-tech manufacturing sector, had been gradually declining as a percentage of GDP. However, this trend of deindustrialisation was not accompanied by a shift towards high value-added services, such as information technology and robotics. Instead, there was growth in the share of traditional services sectors such as wholesale and retail as well as food and beverages.
In addition, the past two decades also witnessed the continuous decline in labour productivity growth rates and increasing low-skilled foreign labour dependence within the existing economic sectors. As such, the Government has recognised the urgent need for a structural upgrade of the economy to deliver high value-added growth for the nation. In this regard, the next phase of Malaysia’s economic transformation would be focusing on strong and meaningful shifts within the economy to be more productive and technology-driven. As the pandemic recedes in the future, this structural change will be critical to support Malaysia’s longer-term economic growth and the livelihood of all Malaysians.
Today, Malaysia’s dominant economic contributors are largely domestic-centric, resulting in its growth potential being constrained by its comparatively small market. To transform and grow, it is essential for the economy to cultivate and build internationally competitive, home-grown enterprises which are strongly embedded within global value chains, aided by high value-added technological developments to drive structural transformation.
This would require more effective resource allocation towards the internationalisation, digitisation and technological upgrading of Malaysian firms, especially unlisted MTCs. Today, the core intermediation of the savings-investment channel, dominated primarily by the banking system and government-linked investment companies (GLICs), has not been able to serve these segments of companies meaningfully. The conventional equity and bond markets mainly cater to listed companies, which contribute to only an estimated 15% of GDP12, resulting in a shortage of access to capital within the wider economy. To cater to the broader needs of enterprises in the economy, including MTCs and MSMEs, Malaysia would require a more inclusive capital market – one that provides a more comprehensive financing ecosystem across the spectrum of funding needs. To that end, the SC could strengthen the scale and maturity of the alternative markets ecosystem to cater for higher-risk capital and to see greater deployment of patient capital through market-based financing for national development.
2.2.2 FAST AGEING NATION: THE NEED TO AUGMENT THE EXISTING RETIREMENT SAVINGS LANDSCAPE
By 2030, Malaysia is expected to become an ageing society, with people aged 60 and above making up 15% of the total population13. Structurally, this poses a challenge for the Malaysian retirement savings landscape. Currently, about 40% of the Malaysian population is estimated to be uncovered by any form of social protection, and many under the formal retirement system are expected to face insufficient funds for retirement. The future of work, brought forth by the pandemic, could also see significant growth in self- employment and gig economy workers – adding to the coverage challenges of the retirement savings system. In addition, the pandemic has also negatively impacted domestic household income, whereby a
12 Internal analysis, SC, 2019.
13 DOSM, 2020.
38 SECURITIES COMMISSION MALAYSIA