Saturday, April 07, 2012

Volume 4 Issue 14: Intelligent Investing

The Malaysian Delusion

It's very difficult to be a Malaysian. One of the reasons is that, very often, we get compared with Singaporeans and are told how well they are doing. I mean, I am one of those people who probably compares Malaysia with Singapore a bit too much.

Very often, people point out that Malaysia is a much larger country compared with Singapore, which is why it is more difficult to manage. Singapore has a much smaller population, so it has less mouths to feed. That's why people there are richer. This is all a bunch of hogwash. 

Let us consider a very simple example. Korea has a population of about 49 million people, about 1.75 times that of Malaysia. It also has a much smaller land area (about 100,000 square km) compared with Malaysia's abundant land space (about 330,000 square km). This also means that Malaysia has more resources and space to grow. Malaysia is also not located next to North Korea, which boasts all sorts of nuclear weapons which can be seen as all kinds of threats to its sovereignty. 

But look at the economic performance of Korea in the last 30 years or so. Korea's GDP per capita was almost at par with that of Malaysia in 1980, but is now almost triple that of Malaysia - see chart 1.

Chart 1
And here we have our Bank Negara Annual Report (White Box - pdf) claiming that the Malaysian economy is doing well as it has managed to diversify further by relying less on manufacturing. This is ridiculous because Korea has an even larger dependence on manufacturing compared with Malaysia - see chart 2.

Chart 2
The real weakness is that Malaysia is becoming less and less competitive and is no longer able to attract low-end manufacturers as wages in Malaysia have kept on increasing without commensurate increase in productivity. Furthermore, it does not have enough skilled workers to attract high-end manufacturers. One of the most impressive achievements that Korea has made over the past 30 years is the little known fact (maybe it is just my ignorance) that Koreans have focused strongly on education. In chart 3 (source: OECD), we can see that more than 60% of young Koreans (25-34 year-olds) have attained tertiary education. This is in contrast with the older generation of Koreans (55-64 year-olds) whereby less than 15% have attained tertiary education.

Chart 3
The improvement is nothing short of tremendous. It is by far the best among all OECD countries. What is interesting to note is that the US actually went in reverse, recording a lower proportion of young people with tertiary education compared with the older generation.

This is one of the core factors that allow high-end manufacturing the thrive in Korea. Of course, in Malaysia, the amount of people with tertiary education has surged, but what kind of graduates are we getting? As Tony Pua wrote in his book, "The Tiger That Lost Its Roar", Malaysia has 20 public universities, 24 private universities and 21 "university colleges" to serve its "small" population of 28 million. That translates to about 430,000 people per university. In comparison, Singapore, which has about 5 million people, has only three universities. This translates to about 1.7 million people per university.

Sadly, the quantity of universities say nothing about the quality of Malaysian graduates. The quality of some of the universities are so bad that the graduates are deemed unfit to enter the workforce. So why is the Deputy Prime Minister still in denial about the poor quality of our education system?

In short, this myth about Singapore being an easier country to manage is just nonsense. Even a much more populated country like Korea which lacks the natural resources that Malaysia has can transform itself into a high income economy. The important lesson here is that in order to improve, we have to stop living in denial and start looking for where we went wrong.