Keynote address by Minister of Finance Lim Guan Eng
Ladies and Gentlemen
A very good evening to everyone.
THE CENTURION CLUB 2019
I would like to thank Datuk Tong Kooi Ong and The Edge for inviting me to the inaugural The Edge Malaysia Centurion Club Corporate Awards 2019 and gala dinner.
While the market capitalisation for The Edge Malaysia Centurion Club member companies is below RM1 billion, this does not mean that they are less important. I was informed that the winners of The Edge Malaysia Centurion Club Corporate Awards 2019 have recorded encouraging performance in the various indicators on returns on equity, returns to shareholders and profit after tax.
These mid-cap companies should be given due attention as they have great potential of becoming much larger conglomerates. It adds vibrancy and competition in the private sector, while promoting a more inclusive economy with fairer sharing of the nation’s prosperity.
REFORMING THE GOVERNMENT
Malaysia has been undergoing a series of reforms following the 2018 political transition. For example, the government of Malaysia has adopted open tenders in the public sector procurement, which has increased the government’s spending efficiency. At the moment, we are also busy migrating the public sector towards accrual accounting from cash-based accounting, which will be implemented by 2021. This will further raise the level of accountability and transparency in the government.
We have cleaned-up the public sector from scandals of the past, which required painful measures to be taken. However despite the various challenges, the government has been successful in managing our fiscal position. This is proven by the maintenance of Malaysia’s sovereign credit ratings at A3 or A- with a stable outlook.
Furthermore, we are on a consolidating path. The fiscal deficit is expected to be reduced to 3.4% of GDP in 2019 from 3.7% last year. We are aiming to cut the deficit further to 3.2% in 2020.
We had earlier aimed to cut it further to 3.0% in 2020, but the global environment has convinced the Government to adopt a more accommodative fiscal policy without jeopardising our medium-term fiscal consolidation plan. Jobs and cost of living matter. High-quality economic growth is important for our social stability and we must always take heed of events abroad, be it in Hong Kong, Chile or Lebanon.
GLOBAL GROWTH CHALLENGES
Domestic fiscal challenges come at a time when the global economic outlook is weak. The trade tensions between China and the US is reorienting the global supply chain. The IMF expects the global economy to grow only 3.0% this year, a downgrade from 3.9% when the global body made it projection back in July 2018. If the IMF is right, this would be the slowest global growth since the global finance crisis in the late 2000s. However, the IMF is more positive about the global economic growth next year, which is expected to expand faster at 3.4%.
Malaysia’s growth has been more resilient than others. When some of our rivals are lucky to even experience growth, Malaysia is expected to grow 4.7% this year, after our GDP rose 4.9% in the second quarter, which is better than the first quarter of 4.5%. And recently, the Malaysian manufacturing PMI rose to 49.3 points in October 2019, from 47.9 points in September 2019, and this points towards a healthy fourth quarter GDP growth.
READJUSTING MALAYSIA’S GROWTH TRAJECTORY
Meanwhile, Malaysia has been suffering from premature deindustrialisation since year 2000. Our high-tech share to the GDP has been declining and replaced by low-skill and low-cost industries. Indeed, from 1988 to 1997, Malaysia’s economy on average grew 9.3% yearly but from 2000 until 2018, the average has come down to 5.1% only. We know this is not sustainable and we need to change our economic trajectory in order to become a fully industrialised advanced economy.
The trade war between China and the US provides us with a rare opportunity to reverse the premature deindustrialisation and readjust our growth trajectory. The trade tension is reorienting the global supply chain and this is a chance for Malaysia to attract new high-value, high-tech investments from companies adversely affected by the trade tension.
As one of the safe havens for legitimate trade together with skilled workforce, excellent physical infrastructure, socio-political stability and strong rule of law, Malaysia is attracting strong interest from abroad. For the first half of the year, approved foreign investment across all Malaysian sectors rose 97% to RM49.5 billion from RM25.1 billion. And according to MIDA, the US was the top source of approved manufacturing foreign investment during the same period, with plans to invest as much as RM11.7 billion, followed by China at RM4.8 billion.
As Malaysia’s biggest trade partner, there is still room to grow for Chinese investment. In this light, we have a special dedicated channel for Chinese firms interested in investing in Malaysia, especially within the context of the trade war.
To increase overall high-value, high-tech investment further, the Government has established the National Committee for Investment (NCI) jointly chaired by the Minister of International Trade and Industry, and I as the Minister of Finance. The NCI will meet monthly to shorten the investment approval process, whereas before it could take 6 months for the final approval to be given.
DIGITALISING AND SUPPORTING SMEs
We need to raise our productivity of our domestic economy. This is why the Government is embarking on initiatives to encourage the transition to digitalisation and incentivising businesses to invest in high-tech, high-value sectors while exploring new markets abroad. Digitalisation has a big role in improving Malaysia’s productivity, and our growth trajectory. Economic growth is essential in fulfilling the Shared Prosperity Vision 2030 that aims to close the inequality gap among Malaysians.
SME participation in crucial in raising national productivity as the sector contributed 37% to the 2017 Malaysian GDP and that figure is expected to rise to 41% by 2020. Furthermore, SMEs employed two-thirds of all workers in Malaysia, and made up 98.5% of all business establishments in the country.
And so next year, we are encouraging SMEs to adopt digitalisation. The government will provide a 50% matching grant of up to RM5,000 per company for the subscription of electronics point of sale system (ePOS), enterprise resource planning (ERP) and electronic payroll system. This matching grant will be worth RM500 million, limited to the first 100,000 SMEs applying to upgrade their systems.
We are also allocating RM550 million to provide Smart Automation matching grants for 1,000 manufacturing and 1,000 services companies to automate their business processes. This grant will be given on a matching basis up to RM2 million per company.
RM50.2 BILLION TO PUT MALAYSIA BACK TO BUSINESS AND MALAYSIANS BACK TO WORK
This is part of the government’s bigger plan to provide RM20.7 billion worth of cash and non-cash incentives over 5 years to raise Malaysia’s productivity. The RM20.7 billion include RM3.7 billion for the digitalisation of SMEs, RM5 billion for large local companies to become regional and global champions, RM5 billion for multinationals to invest in high-tech, high-value sectors in Malaysia, RM0.5 billion for digital stimulus for consumers to encourage digital adoption in the domestic market, and RM6.5 billion to create job opportunities for Malaysians through the [email protected] programme amid the digital disruption.
This is on top of various loan guarantee schemes provided by the government under its agencies. For SMEs, there is the RM3 billion Automation Process Guarantee Scheme under the government-owned Syarikat Jaminan Pembiayaan Perniagaan Bhd (SJPP) to encourage automation, digitalisation and the modernisation of business process. There is also the RM3 billion Industry Digitalisation Transformation Fund by Bank Pembangunan Malaysia Bhd providing term financing for the adoption of Industry 4.0 technology like Artificial Intelligence and Robotics.
Besides these schemes, the government has set aside RM1.4 billion worth of measures for bumiputera entrepreneurs. Furthermore, a RM200 million fund has been reserved specifically for women entrepreneurs, with another RM300 million reserved for bumiputera SMEs to becoming regional champions, particular in the halal export market.
We are investing RM21.6 billion through Public-Private Partnerships (PPP) over five years from 2019 to 2023 in the National Fiberisation and Connectivity Plan (NFCP). The NFCP will widen the coverage of high-quality high-speed broadband internet nationally while providing Malaysians with affordable services. This will lay the groundwork for a comprehensive implementation of 5G in Malaysia, and give the country a first-mover advantage in the era of Industry 4.0.
These incentives, grants, funds and loans to business, as well as the RM21.6 billion NFCP will put RM50.2 billion as the total sum the government is providing at least over five years to put Malaysia back to business and Malaysians back to work.
PUSHING SMEs FOR THE EXPORT MARKET
I trust that as business owners and entrepreneurs, all of you here knows best what works and what does not. And your company’s success and growth will in turn translate into more jobs, higher wages for the people, increased tax income for the government and a more resilient economy.
I would like to encourage you to be brave in taking calculated risks and invest more especially in high value areas that can help unlock productivity growth. We need you to be at the forefront in creating new growth drivers to propel the economy forward.
The government will be with you. Apart from the digitalisation incentives, Malaysia for instance is helping SMEs explore the export market. In the 2020 Budget, the Government is raising the ceiling per company for the Market Development Grant (MDG) initiative by Malaysia External Trade Development Corporation (MATRADE) from the current RM200,000 to RM300,000 yearly. This would subsidise SMEs’ participation in trade fairs. Additionally, the Government is allocating RM50 million to support SME export promotion activities.
The government has reduced SME income tax rate by 1 percentage point to 17% in 2019. In 2020, the chargeable income subjected to the 17% will be increased to RM600,000 from RM500,000, subject to the company having paid-up capital of no more than RM2.5 million and annual sales of no more than RM50 million.
Finally, I wish to congratulate all the award recipients tonight. You have proven your ability to add value and deliver superior returns to your shareholders in a sustainable manner. Together, let us work towards a stronger and better Malaysia for all Malaysians.
See the other winners in The Edge Malaysia Centurion Club Corporate Awards 2019 here.