Biennial National Business Conference,

Francistown, Botswana,
9 August -11 August 2004

Ensuring Implementation of National

Policies for Economic Diversification

Key Note Address by

Dr. Wan Abdul Aziz bin Wan Abdullah

Deputy Director General (Macro), Economic
Planning Unit,
Prime Minister’s Department, Malaysia

9 August 2004
 Ensuring Implementation of National Policies for Economic
Diversification

Good Morning
Chairpersons,
H.E. The President of Botswana,
Honourable Ministers,
The Mayor of Francistown,
Distinguished Participants,
Ladies and Gentlemen,

Let me begin by thanking the organizers for inviting Malaysia to

deliver the key note address entitled “Ensuring Implementation of National
Policies for Economic Diversification” at this august 8th Biennial National
Business Conference. It is indeed a great honour and privilege for me to
be here this morning and it gives me great pleasure to address such a
distinguished audience.

2. At the outset, let me emphasize that national policies, however

excellent or good they are, end nowhere unless they are successfully
implemented. In order for them to be effectively implemented and the
intended objectives fully realized, not only must the implementation
machinery be properly in place but more importantly it requires the full
commitment at all levels of government as well as the unwavering support
and participation of the people in the country.

3. At every stage in the whole process, from the early conception of

ideas to formulation of policies and strategies to the transformation of
these broad strategies into specific programmes and the setting of

2
priorities for eventual implementation, there has to be strong and
continuous engagement of all parties and stakeholders concerned. This is
crucial in ensuring ownership and “buy-in” which would facilitate
successful implementation.

4. Before I proceed further, let me outline my presentation today,

which will be divided into three parts:
Part I: The Formulation of National Policies - the Malaysian
Experience
Part II: Policies for Diversification
Part III: The Implementation of Development Plans.

Formulation of National Policies – The Malaysian Way

Ladies and Gentlemen,

5. Let me begin by sharing our experience in the formulation of our

national policies and strategies. As you are aware, Malaysia is a multi-
racial, multi-cultural, multi-lingual and multi-religious country with Malays,
Chinese and Indians the largest ethnic groups. Islam is the religion of the
state but religious freedom in enshrined in the Constitution. Malaysia is a
federation of 13 states and three federal territories, and of course as in
other countries, there are socio-economic disparity between states and
regions within the country. Hence, before any policy is introduced, it is of
paramount importance that these aspects are considered, so that no
particular race, community or region is left out or feel alienated in the
process for growth and development. Malaysia firmly believes in growth
with equity, that the growing economic cake should be shared more

3
equally between all citizens of the country regardless of race, creed or
colour. The concept of shared growth and participation has been
successful as this is widely accepted and has largely contributed to
ensuring peace, harmony and prosperity. Under such an environment, the
Government is able to channel and focus all its energy and resources on
managing the economy to further enhance growth and prosperity for all.

6. Now, how do we manage to formulate policies that are acceptable

to the vast majority of the people? The answer is simple – by consulting
and getting them engaged in the whole development process. In fact since
independence in 1957, Malaysia has been governed by the same coalition
government – the National Front, a coalition of parties representing all the
major ethnic groups, and its predecessor - the Alliance, firmly endorse and
practise power sharing. Consultation and consensus are important
ingredients in the formulation of our national policies. This spirit of
consensus building and partnership are now firmly entrenched in our
society.

7. We recognize that consultations with stakeholders at the very early

stage are important not only to listen to views and new ideas but also to
get them engaged or for them “to buy-in” as part of policy formulation
process. “Ownership” is crucial for successful realization of policies for
development. In Malaysia, consultation with the private sector, chambers
of commerce and industry, various organisations and NGOs exists in
numerous forms. These include, among others, the annual budget
consultation, the MITI dialogue as well as the National Economic
Consultative Council.

4
8. At the official level, proper coordination among government
ministries and agencies has to be established to avoid conflicting
objectives, overlapping functions or duplications of initiatives. These are
done through the inter-agency planning groups (IAPGs) and at a more
technical level, the technical working groups (TWGs). For example, during
the formulation of the five-year development plan, the Economic Planning
Unit, after taking into account the views of the IAPGs and TWGs, submits
the draft Plan to the National Development Planning Committee (NDPC)
for consideration. The NDPC, chaired by the Chief Secretary to the
Government, comprises key government officials who are involved in
finance, education, agriculture, human resource, the public works, public
service and economic planning as well as those involved in
implementation and coordination of projects. The NDPC ensures that the
plan is properly formulated and takes into account pertinent issues that cut
across sectors of the economy. From the official level, the draft policy is
submitted to the Cabinet for consideration before being tabled to
Parliament for final approval and eventual implementation.

Policies for Diversification

Ladies and Gentlemen,

9. Let me now move on to policies for diversification. How do you

formulate them? First the groundwork must be done by the government
to provide a broad proposal framework. Second, the formulation process
itself must be through consultations with various stakeholders. Third,
diversification must take into consideration the comparative advantage of
the economy, in terms of natural endowment - land fertility, natural
resources, geographical advantages as well as other prerequisites such

5
as availability of trained and skilled human resources, the availability of
capital, the level of technology and institutional framework and potential
market, both domestic and abroad. This is linked to the implementation
capacity.

10. The next question is the areas for diversification. Is it from one
sector to the other, such as from agriculture or mining to manufacturing or
services or is it within one sector, say from livestock rearing to commercial
crop plantation or from vehicle manufacturing to producing consumer
durables. The choice must not only depend on the potential for success
but more importantly the likelihood of success which depends on the
above-mentioned prerequisites. While technology can be bought,
technology itself is not sufficient without the human resource to support it
and able managers to ensure its smooth operations. Another major hurdle
is finding new markets for finished products. In this respect the
government can create a conducive environment to enable domestic
industries to compete globally. This includes the provision of funds,
increased promotional and marketing efforts, development of R&D,
provision of logistics services and improved public sector delivery system.

11. In this connection, multinational companies (MNCs) can

significantly contribute to overcoming this hurdle. With their wide network,
it would not be difficult to find the market, provided the products produced
are up to the acceptable standard. Thus, a country would benefit by
having FDI which will bring in capital, new technology and expertise that
would create employment opportunities, boost domestic production and
generate exports. In addition, it would be most desirable if there is strong
forward and backward linkages with local industries, especially small- and
medium-scale industries (SMIs), which would supply these input to MNCs.

6
With the high quality of products demanded by the MNCs, these SMIs
should eventually be able to produce components for industries abroad,
thus becoming global players themselves. Hence, greater emphasis
should be given to developing the SMIs.

12. However, to attract greater flows of FDI, a conducive enabling

environment must be well established. Besides the usual availability of
skilled labour, internal security and excellent infrastructure, the regulatory
and legal framework must also be firmly in place. This is to assure foreign
investors that their investment is safe and secure. If I may relate the
matter to Malaysia, the Government has succeeded in maintaining political
and macroeconomic stability and sustaining prosperity and development
based on the strong solidarity of the ruling National Front. The uniqueness
of Malaysia’s political collaboration that strengthened and fostered unity as
well as racial tolerance has provided a sense of confidence and easiness
among foreign investors in Malaysia.

13. On the comparative advantage of a country, while not much can be

done on the country’s natural endowment, taking advantage of what is
endowed is important. At the same time, other factors of production such
as labour, enterprise, technology and knowledge-content help to enhance
whatever the natural endowment a country already has or compensate for
the lack of it. These can be developed through various measures. For
instance, skilled labour can be further enhanced through education, pre-
employment training as well as through on the job training. Investment in
human resource is an important but not the sole prerequisite for success.
Therefore, it is also important to develop entrepreneurship, acquire
technology and enhance knowledge content in the economy as well as
explore and penetrate new market to ensure the success of diversification

7
programme. And of course, institutional support must be made available to
provide the necessary ingredient for success.

IMPLEMENTATION OF DEVELOPMENT PLANS

Ladies and Gentlemen,

14. Before I delve into implementation issues, let me first mention

about the plans that are currently being implemented in Malaysia. Among
others is the Second Industrial Master Plan (IMP2), 1996-2005, which
focuses on increasing competitiveness, through strengthening industrial
linkages, enhancing value-added activities and increasing the productivity
of the manufacturing sector. IMP2 is based on a cluster approach in
promoting industrial development and provides a basis for the
achievement of a broad-based, resilient and internationally competitive
industrial sector. This cluster- based industrial development approach not
only emphasizes the growth of the manufacturing sector per se but more
importantly the concomitant growth of the supporting industries, which
incorporate the services sector. Various incentives are given in promoted
products and activities under numerous acts or legislations.

15. Another policy currently being implemented is to turn Malaysia into

a knowledge-based economy. Malaysia started to lay the foundation for
the knowledge-based economy in the mid-1990s with the launching of the
National IT Agenda (NITA) and the Multimedia Super Corridor (MSC). The
objective of NITA was to formulate strategies and promote the utilization
and development of IT, the key enabler of a knowledge based economy.
The MSC is to provide the catalyst for a synergistic expansion of IT related

8
industries and products as well as create an enabling environment for the
orderly development of IT. These efforts include the provision of fiscal
incentives, establishment of the Malaysian Exchange of Securities Dealing
and Automated Quotation (MESDAQ) to finance technology companies.
The Multimedia Development Corporation was established as a one-stop
agency to promote and manage the implementation of related
programmes and projects.

Institutional Capacity

16. Let me now share some of my thoughts on the implementation of

the plans and policies that I have just highlighted. A primary requirement
for a successful plan implementation is to have a strong institutional
capacity. The capacity, efficiency and effectiveness of government
agencies have to be constantly strengthened to meet impending
challenges and to ensure that projects are implemented according to
schedule and prevent delays. This will reduce duplication of work and
wastage. At the same time procedures must be streamlined and barriers
that inhibit expeditious project implementation removed. Here in the role
of the civil service is of paramount importance. The civil service has to be
adequately staffed with the kind of skills, expertise and attitude for it to be
effective in implementing national development policy.

17. Institutions will have to be established and put in place to effectively

implement development policy. The type of institutions established will
have to be dictated by domestic considerations and national priorities. In
the 1970’s Malaysia established a number of statutory bodies to
implement its development programmes and in the late 1980’s state-
owned companies were formed as the Government began to implement

9
its privatization programmes. Currently there are plans to decouple the
link between the Government and its own companies in order to make
them more financially viable and less dependent on the state for resources
as well as enhance their competitiveness.

Coordination and Monitoring

18. For effective implementation of national policy, good coordination

between the different tiers of governmental authority is essential.
Although Malaysia is a federation of 13 states, the coordination
mechanism between federal and state is ensured by regular meetings at
the civil service and political level. In fact, in matters of land administration
and local government, there are constitutionally mandated councils have
been established ostensibly for this purpose. Whether a state in federal or
unitary in nature, proper coordination between the tiers contributes to
effective plan implementation, eliminate delays and helps in the realization
of national development objectives.

19. Implementation of national policies must be constantly monitored

and reports of performance must be submitted to the highest level of
authority possible in the shortest possible time. In Malaysia, there is a
special agency called the Implementation Coordination Unit (ICU) in the
Prime Minister’s Department that monitors and coordinates the
implementation of projects. The ICU has branches in every state, i.e. the
Federal Development Office or the State Development Office. In large
states, the ICU even has branches at the division or district level. The ICU
serves as the secretariat to the National Action Council, chaired by the
Prime Minister. The involvement of the highest level of the government
ensures that implementation in given the highest priority.

10
20. To monitor project implementation, the Project Monitoring System
has been installed in all 25 ministries and 13 states. In terms of reporting,
a monthly progress report is submitted the National Development Working
Committee. This committee is chaired by the Chief Secretary to the
Government and comprises of several top government officials. The
committee discusses implementation issues, problems and more
importantly, ways to overcome these problems. Quarterly implementation
progress reports are submitted to the Cabinet. The report also includes
recommendations on how to resolve issues and mitigate problems
pertaining to project implementation.

21. In addition to the normal monitoring system mentioned above, we

also set up specific reporting and monitoring system as and when needed.
For instance, when the Government introduced the Package of New
Strategies Towards Stimulating the Nation’s Economic Growth in May
2003 to cushion the economic slowdown following the adverse global and
regional economic environment at that time, the Ministry of Finance has to
report the progress on the implementation of the Package on a fortnightly
basis to the Cabinet. This was to ensure that the Package was
implemented as planned and achieve the desired objectives.

22. At the political front, each Member of Parliament is also responsible

for monitoring and ensuring the smooth implementation of projects and
programmes within his or her own constituency. The present
Administration now requires each Member of Parliament to submit a report
every three months to the Prime Minister, which among others include an
assessment of physical and financial progress of projects to ensure that
they really benefited the intended target groups. This forms an important

11
component of the key performance indicators to evaluate the effectiveness
of the Member of Parliament.

23. In addition, cooperation between the public and private sectors

must be enhanced in view of the private sector’s role in spearheading
economic growth. Towards this end, more dialogue sessions are to be
held at all levels of government. Feedback and dialogues has enabled the
public sector in Malaysia to further improve its operational efficiency and
quality of its service in line with the demands of the private sector.

Delivery System

24. The success of national development policies and strategies hinges

upon efficient and effective delivery systems in both the public and private
sectors. Improving public sector service both in terms of quality and the
speed of delivery is a continuing agenda and is given greater emphasis by
the present Administration.

25. In ensuring efficiency and timeliness in the delivery system,

standard guidelines for processing of applications for licenses, land and
building plans were streamlined and made more transparent at the
federal, state and local authority levels. These guidelines addressed
matters within the purview of the respective areas of jurisdiction and
focused on the congruence of policies and measures among the various
authorities. The various measures are aimed at reducing red tape and
eliminating unnecessary procedures in processing applications for
approvals, such as the setting up of one-stop agencies to improve
coordination. In the case of the Malaysian Industrial Development

12
Authority (MIDA) for the manufacturing sector, specially appointed project
officers will now assist directly investors in obtaining all necessary
approvals for projects, right up to the operational stage. For SMIs, apart
from the more liberalized terms and cheaper cost of borrowing offered
through DFIs, commercial banks also provide special windows to facilitate
applications, processing and onward approvals for SMI loans.

26. The establishment of e-Government is an initiative towards

improving information flows and processes, focusing on effective and
efficient delivery of Government services to the people. This is made
possible through Internet access to all ministries and departments that
have since established their own Internet homepages. The Internet Civil
Service Link portal also provides public access to the Government
machinery.

Human Resource Development

27. One of the more difficult problems that must be addressed in

effecting national policies of economic diversification is the availability of
human resources. Structural changes in the economy can only be
successful if there is effective manpower participation. In Malaysia, the
drive towards industrialization has led to the establishment of numerous
technical and vocational institutions. The emphasis on enhancing human
resource development was given greater prominence when the country
began to embark on building a knowledge-based economy in mid-1990s.
The relevant legislation was amended to permit the establishment of
degree awarding private institutions of higher learning in selected subjects
such as information technology and engineering.

13
Involvement of the People

28. Successful implementation of national policies to a considerable

extent is facilitated if the beneficiaries of development - the people - are
involved in its implementation feel a sense of ownership. To ensure this,
the consultative process in policy formulation is of essence. It also
ensures better understanding, particularly the reasons for the choice of a
particular policy option.

29. Galvanizing the people into action necessitates a high multi-year

goal that challenges planners and implementors, stirs the imagination of
the people and energizes the nation. In Malaysia, we have since 1991,
through our Vision 2020, set our objective of becoming a developed nation
in our own mould by 2020. In fact the Third Outline Perspective Plan
(2001-2010), which encompasses the second phase of Vision 2020 is
aptly called, the National Vision Plan.

Conclusion

Mr. Chairman,
Ladies and Gentlemen,

30. I have attempted to highlight the Malaysian experience in the

implementation of national policies and the measures that we have taken
to ensure its success. I cannot say with certainty that we have attained all
that we wanted in the manner and within the stipulated time frame but we
have tried as best as we can and in some measure have attained
success. How you rate Malaysia’s experience is a decision that only you
can take. If we can serve as a model we will be most pleased to share our

14
experience. For us, we want all to prosper and always believe in the
policy of “prosper-thy- neighbours”, not only our immediate neighbours but
also far away brothers and sisters. If we can be of help, we will definitely
help to make the world a better place for all.

Thank you.

15