DEVELOPMENT CHALLENGES FOR MALAYSIA AT MIDDLE INCOMEThe Role of Future Human Capital Development

MINISTRY OF HUMAN RESOURCES 23rd Oct 2018INTAN, Bukit Kiara

Dato’ Amir bin OmarSecretary General

INTAN HUMAN RESOURCES INSIGHTS SERIES 2/2018

01 Background Economic Landscape – Middle Income

02 Human Capital Development Policies Framework & Labour Market Issues

03 Future skills Future Outlook of the Job Market

04 Human resources Policy ReformsStrategic Area

Content

2

3

01 Background Economic landscape – middle income

Malaysia’s journey from upper middle income country to high income

4

Due to the moderation in the economic activity, there’ll be a delay in transition from middle to high income nation

Source: Mid Term Review – 11th Malaysia Plan

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

19

95

19

70

19

75

19

90

19

85

19

80

20

10

20

00

20

05

East Asia & Pacific*

20

17

European Union

High income

Middle income

Malaysia

OECD members

12,056

From middle to high income economy

Based on the minimum threshold of a high-income economy set by the World Bank at US$12,056 for 2017, there was a gap of 21% before Malaysia would graduate from its upper middle-income nation status.

Based on this growth target, per capita income is expected to reach RM47,720 or US$11,700 in 2020, below the estimated minimum income threshold of a high-income nation.

Timeline

Given the current pace of growth parameters, the target of a high-income economy is expected to be achieved post-2020. Malaysia is anticipated to breach the threshold by 2024.

The new dimension

• However, the goal to become a developed and inclusive nation goes beyond attaining a high-income level as it must also be accompanied by higher purchasing power.

• At the same time, the aspiration of becoming a developed nation requires Malaysia to progress in many other dimensions, such as economics, politics, culture, psychology, spiritual and social”

Source: World Bank IndicatorNotes: * excluding high income countries

GNI per capita (current US$)

The Malaysia economic performance and transformation…past achievements

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

0

5

15

10

-5

20

%

Real GDP (% p.a)

CPI (% p.a)

Unemployment rate (%)

Transformed from an agro-based to manufacturing and services-based economy

Diversification of export products from agricultural to manufactured goods

6.2% Real GDP Growth

3.7% CPI

Full employment Unemployment below 4% since 1992

Average 1971-2015 (% per annum)

Sustainable real GDP growth with moderate inflation and full employment

GDP (RM) 1970 and 2015

2015

RM 1.1Trillion

1970

RM 71.1billion

US$23.1bnUS$272.1bn

4%

+25

+14-23

Construction

9% 9% 9%

23%

Services

54%

Agriculture

29%

2%

32%

25%

MiningManufacturing

2015

1970

Oil &

Gas

5%

Palm O

il

4%

10%

Tin

Man

ufactu

res

Forestry

16%

33%

Ru

bb

er

12%

20%

Oth

ers

1%

9%

0%

6%

1%

80%

3%

36% high

technology

manufactures

53% agri &

mining commodities

( In 2010 prices)

38% of GDP (1970)

68% of GDP

(2015)

( In current prices) 5

Demand component

Changes (% per annum)

Original target

Actual Revised target

2016-2020

2016-2017

2018-2020

2016-2020

Real GDP 5.0-6.0 5.1 4.5-5.5 5.0

Consumption 5.9 5.8 5.8 5.8

Private 6.4 6.5 7.0 6.8

Public 3.7 3.2 0.3 1.4

Investment 7.2 4.4 3.7 4.0

Private 9.4 6.8 5.7 6.1

Public 2.7 -0.2 -0.8 -0.6

Net Export 0.4 -0.1 1.7 1.0

Export 2.1 5.3 2.2 3.4

Import 2.3 6.0 2.3 3.7

Inflation 2.8 2.9 2.0-3.0 2.0-3.0

4.5-5.5

6.2

4.8

5.4

0.7

1.5

5.0

6.3

4.5

4.3

0.1

2.0

5.1

5.9

5.2

7.1

1.5

0.8

Sebenar2016-2017

Sasaran2018-2020

RMKe-11 (Dipinda)2016-2020

Changes (2010 price),

% per annum

Agriculture

Mining and Quarrying

Construction

Manufacturing

Services

GDP

… driven by domestic demand, particularly private demand…

… growth led by manufacturing and services sector …

The sources of GDP growth for the next two years (2018-2020)

Source: Economic Planning Unit, MEA 6

In retrospect

economic growth

record in Asia

Absolute poverty

rate, 2014

real GDP growth

per annum

Average household

income 2014

Home ownership

2014

have access to potable water

access to electricity

Malaysia has recorded rapid socio-economic development …

6.2%

95.1% 97.6%

AMONG

THE BEST

76.1%RM6,1410.6%

…But many challenges remain

increase in per capita

income

Most competitive nation 2015

25X

Ranking

18/140

External • Low world price of commodities • Depreciating value of Ringgit • China –US trade war

Home ownership 2014

• Low productivity level• Slow economic structural

transformation • Lack of high-income job and skilled

workers • Declining comparative advantage in

export• Limited fiscal space• Half of the household remain in the

lower middle income group

Internal

~RM~

7

Source: 11MP, EPU 7

02 Human Capital Development Policies framework & labour market issues

Potential growth sectors outlined in various national policy

documents

2015 -

2020

2006 -

2020

2016 -

2020

ELEVENTH MALAYSIA PLANProductivity driven growth

MALAYSIA PRODUCTIVITY BLUEPRINT9 priority subsectors are identified

INDUSTRIAL MASTER PLAN12 key sectors identified to boost manufacturing

Other sector based policies & Strategies

HCD policy at the national level need

to be supported by sectoral study

ELEVENTH MALAYSIA PLAN, 2015-2020•Mismatch in the labour market due to lack of

skilled job creation

MALAYSIA EDUCATION BLUEPRINT, 2013-2025 •Employability remains a challenge due to

skills mismatch

MALAYSIA EDUCATION BLUEPRINT (HIGHER EDUCATION) 2015-2025 •Developing industry led curriculum to solve

skills mismatch

TALENT ROADMAP, 2020•Mismatch of competencies

between skills of local graduates and industry needs

Human

Capital

Policy

Mismatches Oversupply Shortages

Critical needs to strategically integrate the industrial policy with the human capital and skills development strategies for future development.

9

Quality supply of human capital, efficient labour market that is linked to the industry

Human Capital Development as one of the pillar

Labour market efficiency

• Strong pipeline of relevant

workforce into the labour market

• High proportion of skilled

workers~ through up-skilling

existing workforce

• Key growth sectors for Malaysia either

through up-grading within existing sectors

or promoting new sources of growth

• Drive further investments in key growth

sectors identified

• Labour market that able to match demand

and supply

• Effective management of alternative

sources of labour (i.e., expats, foreign

labour, women)

• Effective of current wage system

Sector-driven demand will be aligned with this

Initiative

Supply of human capital

(quality & quantity)Sector-driven demand

Human Capital Initiative

To improve workforce quality, the Human Capital Initiative will tackle supply-

side as well as labour market efficiency issues

Good support system

Wages Job

creation

Industries role in development

Productivity

• States• Regional corridors• Industries

Education and training institutions :• Schools; university; ILKA/ILKS

10

HCD and labour market collaborative framework

The ecosystem of HCD

Labour market

Supply

Macro

Micro

Disequilibrium / imbalances

Businesses IndustryEducation

Skilled workers

Real wages

Foreign workers

Demand

Labour Productivity

• Domestic market supply semi and high-skilled workers• Malaysia diaspora – skilled living the country Business

competitiveness -globally

• Global economic condition (i.e. exchange rate/oil price; trade etc.)

• FDI inflow

2.9%Low unemployment rate

Quantity & quality• TVET supply• Graduate

employability

Economy

• Require more industry insight on – skills requirements, jobs opening from industry/firm to reduce imbalances

• Regular industry engagement – towards systematic approach/ platform / mode of engagement

Migration

• Impact of FTA to labour mobilityImpact of the global economy to HCD

Identify Industry/Occupation Engage employers/industries Review skills demand/shortages

HCD supply and demand

• The ecosystem of HCD that integrates demand & supply addressing issues on labour market imbalances

• Greater participation and collaboration with the private sector in policy matters needed

Environmental scan approachCritical occupation approach

ILMIAValidation from industries of skills shortages

Compile independent firm based data/survey/research

11

Several issues impact supply-side of human capital

Pipeline of human capital supply

School leavers (population 17+)

TVET

University

Direct entry

54%

36%

10%

Skilled

Semi-skilled

Skilled

Semi-skilled

Low-skilled

Semi-skilled

Workforce

Workforce

Workforce

Issues

• Skills and qualification mismatches

• Employability

• Skills shortages• Youth unemployment • Job competition

• Low wage premium • Skills recognition • Public perception

NOSS

NEC

Need job

3.0

2.1

2.0

2000

2010

2020f

Total Fertility Rate –reached replacement level,

contribute to slower population growth

School aged children is expected to register

marginal growth (0.5% p.a. 2000-2020)

Source: 11th MP (EPU, MEA) estimation on percentage of school leavers entering labour market and further education (2013)DOSM – Total Fertility Rate

12

43%

19%

13%

14%

30%

39%

6%

12%

5%13%

0%

20%

40%

60%

80%

100%

20

06

20

04

20

01

20

11

3%

20

00

20

05

20

02

Degree

20

03

20

07

20

14

20

08

20

09

20

10

20

17

20

12

20

13

20

15

20

16

3%

Diploma

STPM or equivalent

SPM or equivalent

PT3/PMR/SRP/LCE/SRA or equivalent

UPSR/UPSRA or equivalent

The supply side is characterised by improvement in the profile of education among the workforce

13

-8

-6

-4

-2

0

2

4

6

8

10

12

14

20001975 201019951980 19901985 2005 2015

%

Real GDP (% p.a)

Unemployment rate (%)

High unemployment period Low unemployment period

-7.4

-1.1 -1.5

Asian Financial Crisis 1997/98

Drop in E&E production 2001

Global Financial Crisis 2008/09

Commodity shock 1985

7.8

5.6

6.0

2.9

0.5

3.1

5.1

Low unemployment over the years even during recessions - robust labour market at aggregate economy seems to be able matching the labour supply-demand

14

However, the labour market mismatches seems on the rise

1,135

3,238

0

500

1,000

1,500

2,000

2,500

3,000

3,500

200820042000 2012 2016

‘000 person

1,5431,714

2,439 +2,102

+7.2%

1,098

3,106

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2000 2004 2008 2012 2016

‘000 person

1,4791,660

2,363 +2,008

+7.2%

140

669

0

100

200

300

400

500

600

700

800

20082000 2004 2012 2016

289

‘000 person

239

490+529

+11.0%

Graduate Labour Force Graduate Employed Qualification Mismatch

• Graduate labour force and employment growing rapidly keeping the graduate unemployment relatively low• However, evidence of trend among graduates employed in semi-skilled/low-skilled jobs – growing faster

over the years (double digit growth)

15

Declining trend of productivity growth –As compared to various labour market strategies improvements in productivity growth benefits both employers and workers simultaneously

• Productivity trend is falling globally.

• Malaysia's gap between labourproductivity growth and GDP growth has been widening – slowing compared to other Asian countries – risk to further slowdown.

• The economy is made up of sectors with low productivity.

• Benchmarks against best-in-class countries suggest we are lagging behind in most sectors

0

2

4

6

8

10

12

14

CAGR (%)

2005-2009

2.1%

3.7%

2.1%

2016-2020 (11MP)

GDP5.8%

2010-2014

2.0%

3.3%

4.9%5.4%

Productivity

Labour3.1%

1999-2004

7.0%

8.7%

12.1%

Decline in

productivity

growth

Increase in

labour

intensity

GDP, Productivity and Employment growth

Source: Finding of Malaysia Productivity Blueprint and 11th Malaysia Plan (EPU, MEA) 16

Coupled with the structural issues on the low wage scenario

2013 2014 2015 2016 2017

1,350

3,700

1,900

3,150

2,000

1,900

1,650

2,000

1,500

3,500

3,100

3,400

3,000

1,350

3,160

4,458

3,000

1,700

1,800

Agriculture…

Electricity...

Mining and quarrying

Wholesale and retail trade…

Manufacturing

Transportation and storage

Water supply…

Financial ….

Construction

Accommodation and F&B service

ICT

Real estate activities

Professional services

Administrative service

Public administration

Education

Health & social work

Arts, entertainment and recreation

Other service activities

2,100Private sector

Sector with high concentration of public employees

RM1,700

RM1,800RM1,942

RM2,000RM2,160

RM610

RM115

6.2%

Wage growth - CAGR (2013-2017)

Net Increase (2013-2017)

Average annual Increase

Median monthly wage, 2013-2017 Median monthly wage & wage recipients by industry, 2017

Sector above national median age

17

03 Future skills Future Outlook of the Job Market

Five megatrends disrupting the way people work

Source: The Future of Work - A Journey to 2022 (PwC, 2015)Deep Shift – Technological Tipping Points and Societal Impact (WEF, 2015)

Rapid Urbanisation

Demographic Shifts

Shifts in Global

Economic Power

Resource Scarcity &

Climate Change

Technological Breakthroughs

1 2 3 4 5

People & the Internet

Computing, communications & storage everywhere

The Internet of Things

Artificial Intelligence (AI) and big data

The sharing economy & distributed trust

The digitisation of matter e.g. 3D printing19

Adapted from:

Comparing Skills Demand : 2018 vs 2022

Source: The Future of Jobs Report (World Economic Forum, 2018)

• Analytical thinking and

innovation

• Complex problem-solving

• Critical thinking and

analysis

• Active learning and

strategies

• Creativity and initiative

• Attention to detail,

trustworthiness

• Emotional intelligence

• Leadership and social

influence

• Analytical thinking and

innovation

• Creativity, originality and

initiative

• Emotional Intelligence

• Reasoning, problem-

solving and ideation

• System analysis and

evaluation

• Leadership and Social

Influence

• Technology design and

programming

• Memory, verbal, auditory and

spatial abilities

• Management of financial and

material resources

• Technology installation and

maintenance

• Reading, writing, math and

active listening

• Management of personnel

• Quality control and safety

awareness

• Coordination and time

management

• Visual, auditory and speech

abilities

Today, 2018 Trending, 2022 Declining, 2022

20Adapted from:

Occupations on the Rise

Source: The Future of Jobs Report (World Economic Forum, 2018)

Among the range of roles that are set to

experience increasing demand in the period

up to 2022 are established roles such as:

Data Analysts and Scientists

Software and Applications Developers

Also expected to grow are roles that

leverage distinctively ‘human’ skills such

as Customer Service Workers and Sales and

Marketing Professionals

Accelerating demand for a variety of wholly

new specialist roles related to

understanding and leveraging the latest

emerging technologies such as AI and

Machine Learning Specialists.

Data Analysts and Scientists

Software and Applications Developers

Ecommerce and Social Media Specialists

Customer Service Workers

Sales and Marketing Professionals

Training and Development

People and Culture

Organizational Development Specialists

Innovation Managers

AI and Machine Learning Specialists

Big Data Specialists

Process Automation Experts

Information Security Analysts

User Experience and Human-Machine Interaction Designers

Robotics Engineers

Blockchain Specialists

21

Malaysian Jobs at Risk of Automation

Source: The Times They Are A-Changin’: Technology, Employment, and the Malaysian Economy; Khazanah Research Institute, Apr 2017

4 out of 5 jobs at high risk of displacement by technology are semi-skilled

0

10

20

30

40

50

60

70

80

90

100

High risk Medium risk Low risk

Skilled Semi-skilled Low-skilled

Low risk,

16%

Medium risk,

30%

High risk,

54%

More than 70% of semi-skilled and

80% of low-skilled jobs – including

clerical support workers, sales

worker, and many semi-skilled and

elementary occupations in

manufacturing, construction and

agriculture

Managerial occupations

and high-skill

professionals

High-skill to low-skill occupations –

including technicians and associate

professionals, personal service workers,

E&E and ICT mechanics and repairers, and

cleaners and helpers

Semi-skilled,

80%

22Adapted from:

04 Human resources Policy ReformsStrategic Areas

…..

24

• Currently 1.8 mil foreign workers or 12% of Malaysia’s workforce

• Reduce reliance on foreign workers

• Multi-tier levi system

• Social Security for foreign workers

• Reviewing / amending policies and acts related

FOREIGN WORKERS

…..

25

• Implementation of Productivity Linked Wage System (PLWS)

• Implementation of RM1,050 as minimum wage beginning 1st Jan 2019

• Standardising minimum wage across Peninsular Malaysia with Sabah and Sarawak – inline with PakatanHarapan’s 100 day promise

• Gradual increase of minimum wage to RM1,500 in 5 years time – inline with Pakatan Harapan’s menifesto

SALARY / WAGES

…..

26

• HRDF fund for workers

• Reskilling & Upskilling – improve employability and marketability of workers

• Decreasing low skilled workers and increasing semi skilled & high skilled workers

• Encouraging senior citizens to continue participating in the workforce

LIFE LONG LEARNING

…..

27

• Assist Malaysians to find relevant jobs – decrease job mismatch ie: JobsMalaysia Portal

• A new portal www.specialjobs.com.my will be launched today by YB Minister of Human Resources. It’s a joint venture between MoHR and Brickfields Asia Collage

• Employee Insurance Scheme (EIS)

• Adherence to International Labour Organization (ILO)

PUBLIC EMPLOYMENT SERVICES

…..

28

• Career Comeback Programme (CCP)

• Increasing female participation in Skim Bantuan Latihan – HRDF

• Support for Housewives Programme (S4HW)

• Work-Life practices – flexi hours, work from home, longer maternity leaves, etc.

WORKPLACE FLEXIBILITY

…..

29

• Encouraging vocational skills to meet industry demands• Harmonizing education pathway for TVET stream and academic stream• Facing the challenge of IR4.0• Upgrading current syllabus and accreditations• Employability and marketability

TVET

www.mohr.gov.my

THANK YOU

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