The world is currently going through a serious global crisis, triggered by the COVID-19 pandemic. It is not just a health crisis. It is rapidly imploding into societal, economic and business crises. The critical question is: how long will this global
Riddled with competing demands for road construction but with a shrinking budget, a Transcontinental Agency needed a strategy to deliver more roads, improve safety and optimise its
By Tengku Nurul Azian Tengku Shahriman, Executive Vice President & Partner
It is a sign of growth when countries start talking about raising the minimum wage. It demonstrates confidence in the resilience of the economy, and the need to prioritise the wellbeing of low-earning workers in the country. Malaysia had increased its minimum wage to RM1,200 earlier this year as part of a policy to address the country’s growing urban poverty and combat income inequality. However, it was met with outcry from some quarters who pointed out the lack of due warning and absence of a clear implementation programme for companies to adequately prepare themselves ahead of the wage hike. Others raised the issue that a RM100 increase was still not enough to cover basic expenses.
Malaysia is now under a different government, with a new Prime Minister at its helm. There is an opportunity here for the new administration to pick up where the former left off and turn the minimum wage increase into a positive and actionable policy. But first, it is important to understand the argument around minimum wage in its entirety, from its impact on the economy to how businesses can cope with the increase.
1. Why raise the minimum wage at all?
Setting a minimum wage protects workers against unduly low pay. It allows the government to set the terms of employment and working conditions.[1] With the right policies in place, the minimum wage can be a tool for the government to overcome poverty and reduce income inequality.
Malaysia first set a minimum wage in 2013. This was done as part of a larger programme aimed at ensuring inclusivity and boosting the economy to high-income status. It was calculated based on a variety of factors: the poverty line, productivity growth, consumer price index, unemployment rate (actual, region), average wage per household and medium wage. At the time, the wage was estimated to benefit about 27% of workers nationwide.
By right, the minimum wage should reflect increases in the cost of living to ensure that workers can afford to buy basic necessities. However, the minimum wage has only been increased a couple of times since its introduction in 2013 – first in 2016 when it was raised to RM1,000 a month, to RM1,050 a month, and then to RM1,100 a month in 2019. This year would be the fourth time.
This mismatch between the minimum wage and rising cost of living has had the biggest impact on low-income households. Since 2014, the monthly income of the bottom 40% (B40) has grown by 5.8% annually – but after accounting for the increase in the cost of living, the growth is actually at around 3.8%.[2] At the same time, household expenditure grew at a faster pace of 6%, leaving these households with very little money to spend.[3]
In 2018, Bank Negara Malaysia (BNM) introduced the concept of a ‘living wage’[4]. Defined as a wage level that could afford the minimum acceptable living standard, a living wage would allow individuals to sustain a decent standard of living beyond just the basic necessities such as food, clothing and shelter. It should also provide for personal and family development, social participation – such as occasionally being able to purchase gifts for family members – and financial security.
The report calculated the estimated living wage for Kuala Lumpur as follows:
Even with the RM100 increase, the current minimum wage of RM1,200 is still much lower than Bank Negara’s projected living wage.
To compare, the monthly income in 2016 for B40 households living in Kuala Lumpur was reported by the Statistics Department as RM5,344[5] – lower than the estimated living wage of RM6,500. This has made it challenging for such families to afford basic necessities, much less a home, car or other consumer goods, causing many to look for supplementary sources of income. More people are resorting to working two jobs or deriving income from a side business just to make ends meet, contributing to the rise of Malaysia’s gig economy.[6]
Increasing the minimum wage can provide these communities with a safety-net, allowing them to afford more than just the absolute basic necessities. It is also important to ensure that the minimum wage stays relevant. This can be done by holding an annual review, checking the set wage against current cost of living and overall health of the economy, and make the appropriate adjustments.
2. How will the increase impact the economy?
The biggest risk raised is that the wage increase would be set too far above the rate that employers can afford to pay their employees, forcing them to lay off workers if they can’t offset that cost in some other way.
However, research suggests otherwise. Studies have found that increasing the minimum wage is often beneficial. The University of Washington has been studying the impact of raising the minimum wage in Seattle on its economy; a recent report shows that low-income workers were better off as a whole after the increase.[7]
This is no different for developing countries. North Macedonia underwent a bold reform of its minimum wage system in 2017, increasing the minimum by 19% and introduced the same wage in all sectors. The International Labour Organisation (ILO) found that it was successful in reducing wage inequality without negative impact; after the reform, only 4.3% of wage earners were in the low wage category (compared to 14.7% before the reform), and the bottom 10% received a share of 4.6% of all wages in the country which is well above the European Union’s average of 3.6%.[8]
One of the challenges ahead for the new government will be to revive the national economy. Malaysia is currently facing various threats, from the Covid-19 outbreak to international trade wars, and is coming off the back of a slow fourth quarter growth. This is compounded by the recent political uncertainty which has caused the Malaysian stock market to plummet. One way to spur the economy is by increasing purchasing power of the rakyat; this can be done by increasing wages and thus providing them with a little more disposable income. It could also boost overall purchasing power and contribute to household consumption. [9] Higher basic wages to the low wage earners could boost the income of small- and micro-businesses in Malaysia. Even modest rises in the national minimum wage could make a big difference to disposable income.
3. What does this mean for businesses?
A gradual increase in minimum wage provides the opportunity for business leaders to review their operations and make the necessary adjustments or optimisation to balance the higher cost of employment. It may even stimulate a larger transformation in the organisation’s strategy or operations that will make their business stronger in the long run.
For businesses that might be impacted by the raise, preparation is key. Here are some ways they can ready themselves:
A minimum wage increase isn’t a death sentence for businesses. Rather, it can be an opportunity for companies to transform their organisation into one that is agile, productive and digitally-forward.
4. How can the government manage the shock to the economy?
When the RM1,200 minimum wage was first announced late last year, businesses were taken by surprise by the increase and resistant to any change to the minimum wage. Representing one of the major industries in Malaysia, the Federation of Malaysian Manufacturers has stated that the industry is not against the increase in the minimum wage, but there should be a “clear and certain roadmap for the phases of increase, including the areas of coverage, to provide clarity and certainty to the business community for their respective budgeting and planning purposes”[10].
As with any socio-economic policy, it is important that both the public and the private sectors are aware ahead of time about what is being planned and how it would be rolled out, as well as any support that would be available to ease its implementation. This could be done by publishing a public roadmap, followed by an annual review of its implementation and effectiveness.
To raise or not to raise?
Over 20% of Malaysian households earn below the relative poverty line.[11] Increasing the minimum wage – perhaps even to over RM1,200 – is a good idea and one that has the potential to help a lot of B40 communities. However, any increases to the minimum wage should be done gradually and openly.
Much of the resistance to raising the minimum wage was due to the suddenness and perceived lack of planning on a key socio-economic issue as opposed to the increase itself. A clear implementation plan, with a condition to review the set minimum wage each year to ensure its relevance given the current economic landscape, would help to clarify the issue and let the public know what to expect.
This is an opportunity for the new administration to take the lead on a popular issue and work together with both businesses and unions to deliver a truly transformative policy.
[1] International Labour Organisation (ILO), 2020
[2] ‘The Living Wage: beyond making ends meet’, Bank Negara Malaysia, 2018
[3] New Straits Times, 2018
[4] ‘The Living Wage: beyond making ends meet’, Bank Negara Malaysia, 2018
[5] The Star, 2019.
[6] Ibid.
[7] Evans School of Public Policy & Governance, 2020
[8] ILO, 2019
[9] The Edge Markets, 2019
[10] The Edge Markets, 2020
[11] The Star, 2019
Having gone under a tremendous level of political, social and economic strain lately, Malaysia and its new government will need to robustly review the national agenda set after GE14, the policies that were implemented, programmes that were previously scrapped and measures that had been put in place since the transition of power – two times over.
The task of governing and implementing the right public policies, while not an easy task to begin with, is doable. What the new Prime Minister, YAB Tan Sri Dato’ Muhyiddin Yassin requires is an astute list of prioritised initiatives that can be implemented by our able civil service to steer our socio-economic landscape towards the right horizon. Having stepped up to the mantle, he now needs to regain the trust and belief of Malaysians that he, as Malaysia’s 8th Prime Minister, can deliver.
I urge you to support me to undertake this huge responsibility entrusted on me. Give me a chance to utilise my 40 years of experience in politics and government. I give you my heart and soul.
Give me some time to outline a path under this new administration which I will explain to the people as soon as possible.”[1]
Unfortunately, time is a premium rarely accorded to politicians. The new Cabinet of 32 Ministers and 38 deputies has just been formed – there’s even more pressure now to hit the ground running and live up to the Prime Minister’s promise of forming “a Cabinet that can really give the best service to the people, a cabinet that delivers.”[2]
Here are the top five possible initiatives vis á vis his pledges that he should immediately focus on, in no particular order.
Your To-Do List, Mr Prime Minister
1. “The priority is to increase administrative integrity and management. Fight corruption and abuse of power.”
It is unfortunate that the first week of YAB Tan Sri Dato’ Muhyiddin Yassin’s administration has been fraught with two back-to-back resignations. One from the Attorney General (AG) and the other, the MACC Chief Commissioner. Both posts are integral to instilling administrative integrity, fighting corruption and abuse of power. They have since been filled; Idris Harun is the new AG and Azam Baki has been named the new MACC Chief Commissioner. We can only hope that they will be uncompromising and tireless individuals with a record of advocating against corrupt practices, irrespective of the position or political allegiance of the perpetrators.
2. “I also know what people want is a government that is sensitive and efficient in solving the people’s problems and have the means to meet their daily needs”
The Prime Minister has appointed his cabinet. They should collectively take lessons learnt from the previous administration. Some may not be popular. Some may be a surprise. Some may be begrudgingly accepted by the rakyat. More critically, many Malaysians are expecting them to deliver regardless of party affiliation and hoping that they did not come to power for the sake of assuming power. Because the Prime Minister will need such individuals to help him combat the trust deficit that existed prior to GE14.
3. “I also know the need for quality healthcare services at affordable cost”
This noble pledge is far more complex than it seems. With the Covid-19 Outbreak, the Prime Minister has his work cut out for him. There is an immediate need to stabilise and protect the health of the rakyat before Covid-19 becomes a pandemic.
The Ministry of Health has the second-highest number of civil servants with the second-highest budget allocation in Budget 2020.[3] This was to ensure that Malaysia’s public healthcare industry could keep up with new advances in technology, facilities and outbreaks of undesired viruses.
In a recent article by Dr. Khor Swee Kheng, he offered useful and valid suggestions to the new Prime Minister that the time may well have come for him to consider the unprecedented motion of appointing specialised technocrats who are results-driven, non-partisan and non-ideological to the Ministry of Health.[4]
4. “With my six-year experience as Education Minister, I promise to strengthen the country’s quality of education. I will ensure our children will receive an education which standards are on par with developed nations”
During his term as the Education Minister, YAB Tan Sri Dato’ Muhyiddin Yassin had stepped up, defied critics and went against the grain to implement the dual language programme (DLP). While the use of English in Malaysian schools has always been a subject of debate, the DLP was implemented to preserve the use of Bahasa Malaysia while ensuring that the population’s grasp of the English language continues to improve. English by far is still the language of commerce and communication around the world. While there is continued pushbacks from certain quarters, their criticisms shouldn’t be allowed to jeopardise the aspirations of parents who wish to have their children be proficient in English but may not have the resources to send their children to private or international schools.
Studies have shown that 15% of rural students exposed to DLP (compared to 2% without DLP) reached intermediate English proficiency, and on the other end of the spectrum, only 4% of DLP students (compared to 25% without DLP) fell below the basic proficiency target at the end of preschool.[5] Many teachers have noted that the DLP was able to capture students’ interests in STEM subjects and prepare them for future careers in those fields.[6]
Mohd Radzi Md Jidin has been named as Minister of Education in YAB Tan Sri Dato’ Muhyiddin Yassin’s new cabinet. We hope he will continue his Prime Minister’s good work in paving the way towards improving Malaysian’s English proficiency.
5. “I am a brother to the Malays, the Chinese, the Indians, the Sikhs, the Ibans, the Kadazans, the Dusun, the Murut and those of various ethnicities. I am your Prime Minister. Even if you are a farmer, a fisherman, a trader, a civil servant or a private sector employer, I am your Prime Minister.”
For too long, populist statements of such nature have become standard inclusions into a politician’s manifesto without bearing the conviction and necessary will to come down hard on those who readily play the racial card and assume bigotry. Too often we promote the ideals for Malaysians to be seen as one. Too often we speak of embracing our diversity. Too often we claim that this diversity makes us collectively great, and that we will become a society that will prosper and progress together.
But it is glaringly obvious, that some have not received the memo. If indeed, we aspire for a better Malaysia for our children and our children’s children, then this new leadership needs to start walking the talk.
The rakyat was promised a repeal of draconian acts or laws as part of Pakatan Harapan’s winning political manifesto. This has not quite happened. But why go so far as to enact a law and then find ways to repeal it, when Malaysia already has the well-established Rukun Negara developed and enshrined 50 years ago?
The Rukun Negara has two parts. The first, a pledge that reads,
“Whereby Our Country, Malaysia nurtures the ambitions of: achieving and fostering better unity amongst the society, preserving a democratic way of life, creating a just society where the prosperity of the country can be enjoyed together in a fair and equitable manner, ensuring a liberal approach towards the rich and varied cultural traditions, and building a progressive society that will make use of science and modern technology.”[7]
The second outlines the five principles – Belief in God; Loyalty to the King and Country; Upholding the Constitution; Rule of Law; and Good Behaviour and Morality.
Sadly, these values to teach, construct and mould a Malaysian society that is free from corruption, vengeance, envy and prejudice have been largely ignored and even forgotten by our leaders in recent times – if you can even call over three decades recent.
Perhaps, now is the time for our new Prime Minister and modern day government to return to these principles and construct a manifesto or policy of delivery that do not consist of race or religion-based voter appeal, and is more in line with what the average Malaysian politician wants. The question then becomes, does the new Prime Minister desires to be an average politician or a transformational one? For the sake of a new Malaysia, I hope his answer is the latter, because then we can dream of a united Malaysia once again.
YAB Tan Sri Dato’ Muhyiddin Yassin, you have stood up before the rakyat. Asked all Malaysians to give you a chance and to join you in rebuilding our country and restore its glory. Our faith – and the future of our country – rests in your hands. We sincerely hope you will make the right decisions befitting that of the people’s Prime Minister.
Alex Iskandar Liew, EVP & Partner at PEMANDU Associates and Managing Director of COMMUNICATE by PEMANDU, is a communications activist, who strongly believes that all public manifestos and government plans should be distilled into 3 feet programmes with clear outcomes, tasked to individuals who are driven and willing to be held accountable for their implementation and delivery.
[1]New Straits Times, 2020 [2] Free Malaysia Today, 2020 [3] The Edge Markets, 2019 [4] The Star, 2020 [5] The Malaysian Insight, 2017. [6] International Journal of Recent Technology and Engineering, 2019 [7] MyGovernment, 2016.
In the past few years, the world has seen the growth of many movements that champion gender equality and diversity, both inside and outside of the workplace. Despite these efforts by advocacy groups, a recent report shows that women remain underrepresented at every level in the office; making up less than 50% of the workforce [1]. In addition to this, some industries, including consulting, remain heavily skewed towards men.
In response to the trend, we talked to three consultants in PEMANDU Associates to have them share their experiences in the male-dominated industry. What stood out from their reflections is their mutual agreement in the importance of building and extending support systems in order for women to empower each other.
Cheryl Lim, Executive Vice President & Partner
Cheryl has been in consulting for the most part of her career. Throughout her past ten years with PEMANDU Associates, whilst rising to the ranks of Executive Vice President & Partner, she also became a mother.
Based on her own experience, Cheryl observes that the field offers equal opportunities to both women and men. She explained, “Consultants are selected for projects predominantly on the basis of their expertise and their contribution to the expected outcomes. It’s a case of the best person for the job.”
There are, however, different roles that women and men play in various phases of life, and at times, expectations towards both genders vary in this respect. Having said that, one changing trend that she noticed in the workplace is that employers today are making more conscious efforts to acknowledge that people have other responsibilities outside of the workplace. “I can see that among the leadership team, we are making an effort to appreciate and accommodate personal needs where possible, without putting work at risk. Everyone brings a different perspective to the table, and work outcomes benefit from this diversity.” Accommodating personal needs has also resulted in staff going the extra mile to get the job done.
Within the office confines, Cheryl pushes for women to be more proactive to find the support that they need, and this was, she believes, to be a key factor in the growth of her career. She sees value in building both formal and informal mentor-mentee relationships as the insights shared can benefit both parties. She shared, “I have also been inspired by my mentees as it is a symbiotic relationship.” And as a leader, it is paramount for her to create an inclusive working culture. For her, this means emulating and extending the support that she received from her peers when she became a mother.
At the end of the day, for female consultants to make their mark in the industry, Cheryl believes that it is all about doing great work and intentionally building relationships with people inside and outside of the office to help one flourish and grow.
Ilham Fadilah Sunhaji, Senior Vice President
For Ilham, empowering women takes a different form – advocating for progressive policies to be institutionalised within Malaysian corporations.
She has been a consultant for more than ten years with eight spent at the firm. Apart from consulting, she has also led projects in other typically male-dominated industries such as Oil & Gas and Manufacturing. The hard truth is that unconscious gender biases do occur, and in male-dominated industries, females have to work far harder in order to prove themselves due to persisting perceptions that males are more suitable for the job.
However, Ilham’s perspective is that showing direct resistance to behaviours like this will not bring about change nor alter perceptions. What she believes in is channelling her energy to the right causes, which was what drove her to help establish Malaysia Women in Energy (MyWIE), a platform that strives to give equal opportunities to women in the Energy industry.
MyWIE’s initiatives encompass all levels in the organisation – from entry-level positions to C-Suites, and up to those at the highest decision-making positions in the company. She has worked on providing policy recommendations to companies on how to create a more inclusive culture for women at work and also on ways to create a healthy environment where there is a level playing field for women to climb up the career ladder in the Energy industry.
Apart from MyWIE, she is also part of the 30% Club Investors Community Working Group (ICWG) that calls for a more gender-balanced board, especially in public-listed companies. This is aligned to the policy under the Malaysian Code of Corporate Governance whereby all 959 public-listed companies should have at least 30% female representatives on the Board. To date, the percentage of women directors appointed as Board Members in these companies has increased from 7.5% in 2008 to 16.3% in 2019. Moving forward, she plans to intensify her efforts in promoting best practices of gender diversity in corporate governance to the Institutional Investors Council and the Investment Group under ICWG.
Ilham believes that it is efforts like these that would make an impact to the society, consequently subtly fighting the unconscious discrimination that some may have towards women. She also advised for one to be patient and to be strategic on how to deal with these situations. “I believe that having patience and compassion in the face of adversity will only enrich the individual,” she said.
As a member of the firm, Ilham is glad that the company does not stop her from championing causes that are close to her heart. In fact, the company’s CEO, Idris Jala, goes to the extent of providing coaching to her as well as other potential women board directors. This is part of the PEMANDU Associates DNA in terms of Situational Leadership. By getting involved in activities to uplift women’s position in the workplace, this will inspire others to do the same.
An avid hiker, Ilham concludes that regardless of the industry they are in, women must be aware of their own strengths, and to not let society dictate the roles that they should play. In her words, “Know your value, and if you want things to change for the better, pursue the right channels to do so.”
Qaleeda Talib, Associate
Qaleeda describes herself as fortunate. Throughout her three-year stint as a consultant, she has not experienced any form of discrimination based on her gender. However, this does not mean that she should be turning a blind eye to those who have.
Fresh out of school, the University of Oxford graduate joined the firm as an intern, which then turned into a full-time job. The supportive and healthy culture at the firm has been one of the reasons why she chose to continue her career path here, alongside being surrounded by highly-skilled-yet-understanding seniors who are always helping her to grow. “My seniors see my gaps as an opportunity to nurture me to become a better version of myself,” she said.
She added that what she also liked about working in the firm is that she has not been impeded by her gender when it comes to participating in or leading projects. Based on her experience, with everyone’s mind set on achieving big and fast results, it leaves little space for gender-based prejudices to influence the delegation of work and responsibilities. “I have had the opportunity to collaborate with excellent male and female team leads, and this suggests to me that people are selected to do the job because they are able to deliver quality outcomes, and not because of their gender.” A former student of History, she recently pitched a project related to deliver business turnaround for one of the museums in the country. But little did she realise how much support she’d get from her seniors and peers! “What I can see is that people here will recognise you for your passion and your hard work. Nothing else comes into the picture.”
Even though her experiences as a female consultant may have been very positive, she’s cognisant of the fact that not all may feel the same. On one of the projects that she was on, a female teammate was treated badly by a client. Noting her teammate’s distress, Qaleeda extended support and help by escalating this issue to her Team Lead to ensure that the matter was managed. For Qaleeda, part of empowering female consultants is also providing a safe space for each other so that everyone can have equal access to a healthy and conducive work culture.
She also shared her two cents about today’s movements that are geared towards ensuring equal opportunities for women. To her, it is about ensuring individuals getting the right recognition for what they do more than it being a gender supremacy issue. Furthermore, she can see that the movements that started off with women-rights agenda are now extending their support to the opposite sex. “There are women organisations out there that now fight for paternity leaves. At the end of the day, people just want a better quality of life for everyone.”
To thrive at the workplace, particularly as a woman, focus on building your network of supporters, said Qaleeda. Just like other female consultants, she believes in recognising one’s own value and having the right people around who would support your aspirations. And for her, is it also crucial for one to always be mindful of what is happening to others, and to extend help whenever it is needed.
[1] McKinsey & Company, 2019
Since we established PEMANDU Associates, our client engagements have taken me across over 20 countries. And while the socio-economic or business contexts can differ greatly from country to country, what I’ve noticed to be a constant are the questions I’m frequently asked about on what PEMANDU Associates does. In light of this, I thought it would be good to share my quick-fire responses to 10 of the most frequently asked questions from both governments and businesses worldwide.
Question 1: What is the value proposition of PEMANDU Associates to your clients?
Our value proposition is simple – we help our clients transform in order to achieve Big Fast Results.
I think transformation is only a worthwhile venture if it delivers results. Any leader who pursues large scale change has to justify this often painful process of change by delivering quick and significant results. Our emphasis on the speed of delivery is key to ensuring that those involved do not lose interest through a lack of progress toward the big goal.
Question 2: What do you think are the critical success factors for successful transformation to achieve big fast results?
For any transformation to be successful, I believe that two critical success factors must come into play. Firstly, transformational leadership – requiring a paradigm shift in leaders where all decisions and actions are anchored towards effecting transformational change. Secondly, a new way of working (which includes a new way of communicating). There is no way that an organisation can transform unless it puts in place a radically new way of doing things. These two things are the prerequisites, without which transformation will not deliver big fast results.
Question 3: How does PEMANDU Associates help clients navigate their transformation journey so that the two critical success factors exist in their organisation?
At the firm, we have developed our own proprietary methodology to help organisations take their transformation journey forward. These are our 6 Secrets of Transformational Leadership© and our Big Fast Results (BFR) Methodology – 8 Steps of Transformation©. The former creates that behavioural shift to lead transformation, while the latter provides the practical framework to operationalise transformation at an extremely granular level.
Question 4: How important is the delivery of results as a measure of success for transformation?
It is critical. I believe that if the transformation work does not deliver tangible results, it is a failure. In fact, I will push this point even further; if it does not deliver tangible results in the first year of implementation, I consider it a failure. For this reason, at PEMANDU Associates, we are fixated on big fast results.
Question 5: Can you give an example of a company where your approach has been successfully implemented to achieve big fast results?
When I was appointed as CEO of Malaysia Airlines (MAS) in December 2005, the company was on the brink of bankruptcy and had just recorded the biggest financial loss in its corporate history. By applying the methodologies that I just described, in my first year, we successfully turned the airline around and recorded the company’s highest ever profit of RM840 million in the second year.
Question 6: Do you have another example in a different industry?
When I was appointed Managing Director of Shell Middle Distillates Synthesis (SMDS) Malaysia in 2003, the company had been unprofitable for 10 years. Shell MDS was the first Gas to Liquids (GTL) company in the World.
I recall on my Townhall session with staff, observing a huge sense of desperation and hopelessness. Absolutely convinced that it couldn’t be done, someone actually challenged me with a small wager that if the company became profitable within the timeframe I was given, he would pay me RM100 (a very modest bet for someone so sure of the outcome). But applying the methodology, we successfully turned the company around in just 6 months. I held the gentlemen to his word and to this day, the RM100 note can be found, framed in the Bintulu office with a note from him! We registered record profits year-on-year for 3 consecutive years.
By the way, there are many other case studies where PEMANDU Associates have helped clients succeed in their transformation programme to achieve big fast results. For example, we helped two universities successfully improve their profitability and their global ranking in the first 2 years of implementation. Another example is an unprofitable railway company that was successfully turned around in just the first year of implementation.
Question 7: Many of the examples you quoted are businesses. How about Governments in countries around the World, where the methodologies have been successfully implemented?
At PEMANDU Associates, we have been engaged to help many Governments around the World to help them increase investments in their economy. Our lab methodology, which involves a collaborative and meticulous approach to mapping out socio-economic transformational plans have helped many countries secure massive private investments in their first year of implementation.
For example, from the 8-week labs in Malaysia conducted in 2010, there were 131 projects with $406 billion of private investments, creating 3.3 million jobs.
In Oman, the 6-week labs generated 121 projects worth $42 billion investments.
In Nigeria, the 6 weeks labs generated 133 projects worth $51 billion investments, creating 692,000 jobs.
Question 8: Can you give social, non-economic examples in Malaysia where your methodology has been successfully implemented?
Using the methodology, under its Government Transformation Programme during the period of 2010-2017, Malaysia was able to reduce its crime index by 53%. Prior to this, the crime index increased by 43% over 4 years. In addition, the methodology was able to improve literacy and numeracy rates amongst primary schools (year 3) from 60% to 98%. Furthermore, urban public transport ridership modal share increased from 12% to 25%, while rural infrastructure (water, electricity and roads) benefited 6.6 million rural people with cash payments given to people whose incomes were in the bottom 30%.
Question 9: What are the pitfalls that might derail the transformation work from being successful?
The biggest pitfall is leadership commitment. This must be an enduring commitment, even in the face of resistance to change.
The second pitfall is the failure to institute a new way of working. There is a lot resistance from people who are not prepared to let go of the old ways of doing things. It requires relentless discipline and intervention to institutionalise the new way of working so that it becomes second nature.
Question 10: The case studies you refer to are impressive. How do you ensure that the methodology and lessons are shared more broadly so that other countries can learn and apply these transformation techniques?
The World Bank has written a case study on the PEMANDU approach in Malaysia. This case study document is one of the top hits within the World Bank’s report, which raked in the highest downloads. In addition, Princeton and Harvard have also separately written case studies of our methodology.
Apart from that, together with an excellent team of experts, I have been lecturing at the Harvard Ministerial Leadership Programme for the last 4 years. Held twice a year (April and June) in Boston, ministers from around the World attend this intensive leadership programme. I use this opportunity to share our methodology and encourage ministers to undertake their own transformation journey in their respective countries and contexts.
In spite of being a household name in the private education industry, Education Co was struggling with declining profits and student enrolment over the last four years. Meanwhile, its competitors were catching up with newer facilities and fresh entries to the market. The company needed to boost its profitability while remaining true to its purpose of delivering holistic education. PEMANDU Associates dove in to deconstruct the problem and find the best solutions to meet their objectives.
The Story
As one of the private oldest education providers, Education Co had maintained its strong brand heritage through decades of operations, with its university ranked among the Top Tier of Private Higher Education Institutions in its country of operations, and the Top 250 universities the QS: Asia University Ranking. The company’s operations now span business units across a university, college and schools.
Despite its reputation for academic excellence, the company’s net profits had been declining at a 5.1% CAGR over the last four years:
Out of the three business units, its college operations in particular had suffered, risking insolvency in two years if it continued operating in the status quo.
PEMANDU Associates was tasked to employ its Big Fast Results (BFR) – 8 Steps of Transformation Methodology© to help the company achieve a quantum leap in their profitability.
Our Approach
Over the course of six weeks, PEMANDU Associates undertook the following steps:
1. Establishing the Lab’s True North
The True North sets out the overarching goal that aligns all the initiatives identified at the labs. At a Strategic Management Workshop involving the CEO and key decision makers, the True North was determined as: “Delivering holistic education by operating at optimal capacity to achieve the targeted profit by 2020.” Success in optimising capacity and profitability would validate Education Co’s value proposition of delivering “whole life education”.
2. Structuring the Lab to support the True North – Workstreams
The True North was broken down into two focus areas for the labs:
a) Holistic Education – Fulfilling its value proposition
To ensure that holistic education relates to tangible outcomes, a framework was developed to clearly define the delivery of holistic education for the organisation
b) Capacity Optimisation – Achieving this requires a function of:
3. Landscape analysis
This would benchmark Education Co against their competitors in the industry. A study of the industry landscape revealed:
4. Internal assessments
To have an in-depth understanding of its operations, the business streams mapped out their programmes based on Gross Profit (GP) Margin vs. Capacity Utilisation (CU). This enabled a high-level assessment of the appropriate strategic action for each programme:
The mapping revealed:
5. Identifying key initiatives and opportunities to achieve the True North
This final step began with brainstorming by workstreams for ideas to achieve the True North. These ideas were then prioritised according to their potential impact and related issues. Prioritised initiatives were fully developed into detailed implementation plans, outlining the action items and timelines, persons in charge, the stakeholders involved, resources required and potential issues and mitigation plans. Based on these plans, the initiatives underwent a final prioritisation assessment according to their overall impact on the True North and feasibility of implementation.
The solution: Key recommendations
59 initiatives were developed and prioritised for Education Co across several key areas. Among the key initiatives were:
The outcome
The initiatives developed at the lab aimed to yield an increase in profit after tax by 178% in 5 years:
Providing quality education to generations of students is no easy task. Faced with competition from newer institutions, Education Co sought to boost its profitability while still remaining true to its mission of delivering holistic education.
By performing a landscape analysis and company-wide internal assessment, PEMANDU Associates was able to identify certain projects that could be turned into quick wins and deliver the lab’s true north – enabling Education Co to deliver holistic education by operating at optimal capacity to achieve the targeted profit by 2020.
By Serene Tan Zheng Xiew, Manager at PEMANDU Associates
Speak to a management consultant and what becomes apparent very quickly is not only the maddening work hours, but the constant travel. While this may bring about glamorous images of consultants with their customary Tumi bags working out of airport lounges, the constant travel can take quite a toll on – both physically and mentally.
Throughout my almost two-year stint here with PEMANDU Associates, our work in government transformation and my expertise has provided me with opportunities to not only work in a host of countries but to collaborate with people from different cultures. Projects would usually take ten to twelve weeks and throughout that time, we’re just working tirelessly to ensure that we can facilitate and develop strategies that will help achieve a business’ or government’s True North. And given the firm’s belief in delivering Big Fast Results, we often hit the ground running from the moment we land.
I’ve learned very quickly that one of the keys to a fruitful engagement is to quickly adapt to the people and the work culture of the country you’re in. There are no playbooks for this, so you have to be nimble enough to adapt on the job. This may sound trivial but acclimatising to new work cultures is important in ensuring that you can successfully manage project stakeholders and produce results. This is all part of the Big Fast Results approach that we at PEMANDU Associates consultants anchor our work on – in other words, to deliver tangible results in the quickest, most effective way possible.
To date, I have been assigned to projects in three different countries across three different continents, so you can imagine the vast differences in cultures. However, in preparing myself for the trips, I usually stick to a few ‘rituals’ which have been a lifehack of sorts, regardless of where I’m headed to.
Do Your Research!
Preparation begins way before you take-off!
Like a true consultant, every trip begins with an obsessive flurry searches into available databases shared by the Engagement Manager to study the country, its people and its customs. Next, I’d look out for information about the specific industry related to my assigned workstream and speak with our colleagues who have experience in similar industry experiences.
I’ve been involved in quite a few socio-economic transformation projects so my pre-reading also helps dig up insights on the country’s laws and policies. The last thing you would want to happen is to devise strategies based on policies that didn’t work before!
Call it old-fashioned, but appearances matter. Getting familiar with a culture’s dressing etiquette is another great step to ensure that you adhere to cultural boundaries. Prior to one of my work trips to Oman, I made sure my wardrobe was prepared to suit the Muslim-majority Sultanate to avoid offending my counterparts. Being outcome oriented, the last thing we’d want is for wardrobe mishaps to discount or hinder our work delivery.
Get Off on the Right Foot
My first two days in a new country will determine how the rest of the project will turn out. Ergo, it’s extremely important for me to make the right impression to my counterparts. The early stages of an engagement allow working teams to establish working processes, hours and norms. Use this time to communicate with your counterparts to understand the issues they have been facing so that they know you are here to help. One of the firm’s leadership principles is ‘building a winning coalition’ to ensure alignment towards a common outcome. And taking a people-first approach has been key to helping me achieve this!
R-E-S-P-E-C-T!
Aretha Franklin’s famous lyric has never rung more true. Respect is the foundation to being able to work well with people who are from different backgrounds. Afterall, you’re on their home turf so you have to play to their rules.
In St. Lucia, the people adhere strictly to their working hours (9am-5pm). This means any e-mails or work requests sent after 5pm will need to wait until the next day. For us Asians with a habit of working through ungodly hours, this means, if you promise to deliver something ‘by EOD’ it doesn’t mean end of day by your standards.
The good news is, the firm believes in rigorous planning (we call it a ‘3 feet plan’) which favours granular activity plans toward an outcome or deliverable. This makes it easy for us to plan our time efficiently to ensure that things are done with a clear direction and on time.
Keeping Your Mind on the End Goal
With the limited timeframe that we have on a given project, you need to maintain a razor-sharp focus on the project’s true north. There will be roadblocks in reaching the finish line and when they do appear, there are times where a stand has to be taken, and perhaps unpopular decisions made to move the needle. Problem solve the issue by finding alternatives, and in my case, I would seek information from other individuals who might also have access to stakeholders with greater authority. If there is a need to bypass individuals, seek help from your team lead or Engagement Managers, to get some time with the stakeholder in question (but remember to do so diplomatic in your approach!).
In the business of Big Fast Results, we don’t have the luxury of time to entertain prolonged inaction on a matter. So carry out your tasks relentlessly, monitor progress, and when faced with difficulties, continuously find solutions that can help you overcome them.
Build Camaraderie
Your work assignment is probably going to be the only time you will be visiting the country so why not make friends out of it?
One of the key components of PEMANDU Associates’ Big Fast Results (BFR) Methodology – 8 Steps of Transformation© is to hold a Lab. This is an intensive process where cross-functional groups of stakeholders are brought together over a period of 6-8 weeks to identify prioritised initiatives and action plans toward a common goal. A Lab can get very intense for everyone involved so to lighten up the mood, I usually utilise break times to chat with my stakeholders. Sometimes, we even play simple games just to break the ice! This actually helps build my relationship with my counterparts, which will consequently result in better working relations.
Spend time with your stakeholders, and get them to share more personal things. It will make adapting so much easier once you have newly made friends who can guide you on how to navigate around their culture.
Challenges abound when you carry out work in a different country. And while we may sometimes learn things the hard way, the key is that we learn. Our CEO, Dato’ Sri Idris Jala says that in the pursuit of a goal, even if we slip up the important thing is that we’re transformed along the way. And boy have I learned and transformed!
By Alex Iskandar Liew, EVP & Partner of PEMANDU Associates, and Melissa Wong, Senior Associate
From stories of people taken ill from eating cooked bats and infected mandarin oranges, to reports of biological warfare and sick children being abandoned in airports, the internet has been bombarded with fake news and disinformation arising from the coronavirus. Some are even tips that have been proved to be misleading or false. One such claim, shared over 16,000 times on Facebook, claims that the virus can be prevented by keeping your throat moist and avoiding spicy food. The post claims to be from a Department of Health (DOH) Bulletin issued in the Philippines, but the information does not match the advice posted on the official DOH website which instead advises people to practice proper handwashing and cough etiquette as ways to prevent the virus’ spread.
Today, we live in a world where everyone has more or less equal access to information. On the internet, anyone is a creator of content. This totals up to a lot of voices. Voices that can be very loud due to the viral nature of social media. Voices that are dissenting due to misinformation. And, voices that bears factual inaccuracies. The Verge calls it an epistemic crisis, where large groups of people “muddle along with very different understandings of reality, undermining the ability of elected officials to govern.”[1]
In times of crisis, it’s more important than ever that the voices of public sector agencies and governments be heard over everyone else’s. But even when things are calm, maintaining open communications between the government and the public is a good habit to practice.
The role of communications in governance
The key to good governance is effective communication. While pushing out information is still necessary to government communications, it needs to be paired with the willingness and ability to engage with the public.
Thanks to technology, modes of communications has allowed for the public to be notified about changes in policies and be able to understand the need for such changes. The public wants to be engaged. They also want lightning-fast responses and user-friendly interfaces. And they want to be able to know who will be accountable when things go wrong.
It’s a lot like practicing customer service excellence in the public sector. While being informative and supportive to citizens has always been the duty of the public sector, governments today need to think of the public as a customer – looking at ways to deliver on their promises to a demanding demographic as quickly and as accurately as possible.
This is where a communication strategy can come in. A well-crafted public sector communications programme can:
The basic principle of any effective communications is trust. Just like businesses, citizens must be able to trust not just what the government is telling them but that the government will engage with them and place them at the core of any policy. In return, public trust makes it easier to build up support for the continuing process of economic and social transformation.
Increasing trust in the government would also help ensure that the government becomes the public’s first point of contact when it comes to sourcing for information. When the people don’t feel that the government is quick enough to respond to current events, they tend to seek out and believe alternative sources of information. This leads to the rapid spread of fake news on social media sites.
How can we create effective public sector communications?
Let’s say that a government has decided to embark on a transformative agenda to improve national development. They’ve done the work to come up with a list of initiatives that need to be implemented to reach their goal. Some of these initiatives are relatively painless to the public. Others are not. So how can they justify themselves to the public?
Good communication starts with a programme. It needs to be connected to a strong identity and a clear message from the start – like a roadmap, for example. A roadmap is a detailed implementation document that defines a goal or desired outcome and includes detailed steps and milestones needed to reach it. It also serves as a communication tool, highlighting and articulating the strategic thinking behind the implementation programme – the how’s, what’s, who’s, when’s and why’s – behind both the goal and the plan for getting there.
But just establishing a true north isn’t going to be enough if the outcomes aren’t being communicated to all stakeholders and benefactors. Keeping details of a project quiet in case performance turns out to be underwhelming does little to inspire trust. Instead, it should be presented through all available mediums of communication available to the government. And be consistent – ensuring that a government speaks in unison by ensuring narratives are streamlined helps establish clear and succinct messaging in today’s cluttered and noisy media space.
Communicating progress and explaining challenges faced along the way does not weaken a government. Rather, it inspires belief and promotes transparency in the discipline of action. It also reassures that public that there has been progress made, even when it’s not immediately visible.
Know your audience
It’s also about tailoring the message to the audience – in this case, the public. The key to effective communications is knowing exactly who the target audience is and what they’re interested in. For example, Metro Trains Melbourne released a multi-platform public service awareness campaign in 2012 called ‘Dumb Ways to Die’ to promote rail safety. The train agency knew that a traditional ‘doom and gloom’ PSA would only repel Australians, which is why they decided to go down the road of making the campaign entertaining, with a catchy song and bright animation, as well as sharable, publishing the video in short bite-sized chunks across multiple platforms. The campaign went viral, racking up millions of views and resulting in a 20% reduction in rail-related accidents year on year.[2]
Knowing your audience and demonstrating that knowledge is one of the most effective ways to connect with and persuade them. Taking the time to consider their situation, analyse their needs and putting forward policies that confront their particular problems shows the public that their needs are being heard and respected.
Be agile
There’s no question that technology has made it easier for public sector agencies and governments to engage the public. Governments today have more means of communication at their disposal than they had fifty years ago. Social media channels like Twitter and Facebook have joined more traditional channels like print and television, offering more options and platforms that could be used for direct, unmediated communications with the public.
Accustomed to fast, frictionless interactions, the public now expects the same level of service quality and communication timeliness from their government. This is the new challenge faced by many public sector agencies. Public sector communication needs to be as good as the best in any industry. It needs to be fast, accurate and able to reach the audience wherever they are.
This is done by knowing what kind of content is best pushed on what channels. Each has their use. Old school government press releases may not reach as many people but are useful for media outlets to get information. In contrast, posting infographics or short videos on sharable platforms like Facebook and Twitter are great ways to disperse information across the general public. Pushing targeted reminders on social media and airing educational videos that promote behaviour change can be the difference between pushing information that can change decisions, outcomes and lives – and advice that goes ignored.
Leverage on social media
One platform in particular that governments should leverage upon is social media. Why? Firstly, platforms like Twitter and Facebook give public sector agencies and governments the chance to engage in direct dialogue with the public. It also gives the people a chance to engage back.
In addition, traditional media platforms are expensive. Social media can be a more cost-efficient platform to communicate, seed and amplify issues that the public needs to know about on a platform that they are already frequenting – and the ability to leverage on data allows governments to tailor content and messaging to a target audience. Studies have found that about half of people in the UK[3] and two-thirds of Americans[4] get their news on social media – and we expect the rest of the world isn’t any different. However, the downside of social media is that a lot of the news circulating on such platforms tends to be inaccurate and unreliable, encouraging the spread of fake news.
Herein lies an opportunity for governments and public sector agencies to step up and assume the lead in delivering both factual and authoritative information. An edge that government social media accounts have over private ones is their access to a massive amount of information such as socio-economic data and research – making it easier for people to recognise their accounts as credible. For example, the World Health Organisation (WHO) has turned its Twitter page into an FAQ resource on the coronavirus, debunking myths like eating garlic to prevent infection. Given widespread global anxiety over the coronavirus, this is both in line with the WHO’s mandate of promoting good healthcare as well as addressing an issue that people are actively searching for on social media.
What has been done?
The role of effective public sector communication is to establish foundation support. With a strong foundation of awareness and understanding, the public will find it easier to distinguish fact from fiction.
The UK has adopted a ‘digital by default’ model in 2012 to make government services so easy to access online that it becomes the natural place for people to go to.[5] It also means being open, transparent, collaborative and being open to service-users (the public) helping to shape the services offered and decision-making processes.[6] For communications, this means designing communications tactics and approaches around the web as a core channel rather than as an afterthought.
Malaysia has also followed suit, launching a multi-pronged approach to address concerns about the coronavirus. Since news of the virus spread, all government channels have been broadcasting information about the disease and preventive measures citizens could take to combat the spread of the disease. This information has been pushed on television, radio, social media as well as through an online news portal, Sebenarnya.my, which had been set up to debunk fake news stories.
Combatting the spread of fake news is one thing. Creating effective public sector communications is still an ongoing process for many governments and agencies around the world. But the prevalence of fake news on the coronavirus has taught us one thing: information (fake or otherwise) spreads extremely quickly on the internet. Effective public sector communications needs to be just as quick and agile to reach the public wherever they are. It needs to be tailored to specific audiences and clearly articulated. And above all, it needs to be engaging and interesting.
An engaged public is a happy one. And when governments keep the public engaged, it’s easier to build trust and assure the public that Big Brother is listening in the right manner and not being offensively intrusive.
[1] The Verge, 2020
[2] AdAge, 2013
[3] Ofcom, 2019
[4] Pew Research Centre, 2018
[5] UK Government Digital Strategy, 2012
[6] NCVO, 2014
By Endry Lim Zhen Wen, Associate Vice President of PEMANDU Associates
The recent 2020 Budget was meant to elevate the country’s financial well-being and reduce the fiscal deficit – starting with a reform of the current fuel subsidy system. In the announcement, a new fuel subsidy would be introduced to target the B40 group. As part of the government’s drive on delivering shared prosperity, the Petrol Subsidy Programme (PSP) was intended to be implemented together with a gradual float of RON95 petrol and diesel prices.
In many developing countries, subsidies and price controls have been a key feature of the policy toolkit as a way to foster socio-economic growth. However, as economies become more developed, the costs of maintaining such policies increasingly outweigh the benefits. As a result, we’re seeing more countries choosing to scale back on subsidies in favour of more liberalised policies after reaching a certain level of growth.
Malaysia has maintained a blanket subsidy on fuel for the better part of the last decade to foster economic development. However, the end goal is to eventually move to a market-price system to encourage fiscal and environmental sustainability – and the first step to doing so is to scale back on subsidies. The intent of the PSP was to enable healthier fiscal responsibility but still protect those who needed the help the most.
The lead up to the PSP
At its core, subsidies are benefits given to individuals, businesses or institutions by the government. They’re used to offset market failures and externalities in order to achieve greater economic efficiency. There are two types of subsidies:
In the past, Malaysia used a managed float system implemented in 2014. Under this, pump prices for fuel and diesel were set by the government based on an automatic pricing mechanism formula. However, Malaysia has been grappling with a long-running budget shortfall that stretches all the way back to the 1997 Asian Financial Crisis – to illustrate, Malaysia’s fiscal deficit had reached RM35 billion in the first trimester of 2018.
With concerns over Malaysia’s national debt rising, the government has made reducing national debt and improving its fiscal rating a priority. This priority is reflected in the 2020 Budget. Described as a ‘fiscally disciplined’ budget, Budget 2020 aimed to trim Malaysia’s budget deficit to 3.2% of GDP this year. To do so, the budget proposed plans for fuel subsidy reform by announcing the PSP and eventually removing the cap on RON 95 petrol prices (with the exception of Sabah, Sarawak and Labuan where the price would remain fixed at RM2.08 per litre). It was calculated that a total of 2.9 million people can expect to benefit from the PSP should it be implemented.
Subsidies. Boon or bane?
It has been argued that subsidies and price controls carry negative effects on the economy – it introduces distortions in the allocation of resources and can have long-term repercussions on economic efficiency. It also adds to a country’s fiscal deficit.
However, subsidies do play an important part in supporting initial growth. When a substantial part of a country’s population is living under the poverty line, subsidies help to ensure that daily necessities remain affordable and that vulnerable communities remain protected from price fluctuations. In addition, in countries where most businesses are still in an infancy stage, subsidies can act as a support for fledging businesses, enabling them to compete on a more level playing field and grow into established brands. Due to the cost and complexity of setting up an effective targeted subsidy, it stands to reason that countries in the earliest stage of development would prefer a more widespread intervention like a blanket subsidy. However, as the country develops, subsidies become less vital to the development of the economy.
Before 2014, Malaysia was using a blanket fuel subsidy, capping the pump prices of diesel, RON92 and RON97 petrol. At the time, Malaysia’s development was still uneven, and the government decided to ensure all communities were protected equally and encourage the growth of the transportation and industrial sectors by keeping fuel prices predictable.
Bank Negara Malaysia did a study on the fuel price control mechanism in Malaysia and found that the existing subsidy had incurred large fiscal cost and was disproportionately subsidising the rich much more than the poor.[1] The study, which was based on the Household Expenditure Survey 2009/2010, showed that the top 20% of households received a significant 42% of the subsidy. In contrast, the poorest 20% received only 4% of the fuel subsidy.
A blanket subsidy therefore allows every segment of society, regardless of their financial background, to be entitled to the same savings. In a way, the largest beneficiaries of blanket subsidies are upper-income households who tend to be the largest consumers of petrol. The subsidy has also led to reports of fuel smuggling[2] as the bigger the price difference between global market price and Malaysia’s pump prices, the more attractive Malaysia’s fuel is to smugglers.
Benefits of a targeted subsidy
With less than 1% of Malaysian households below the poverty threshold, the government’s focus has shifted towards addressing the well-being of the B40. The B40, unlike middle and high-income households, are still vulnerable to economic shocks and increases in the cost of living. Hence, we’re seeing a trend towards more targeted measures to support the B40 mainly in the form of cash transfers to low-income households for daily necessities.
Targeted subsidies are a good way to encourage more fiscal responsibility while still protecting those who need the most support. There are examples of countries who have managed to smooth the transition from a blanket subsidy by employing targeted subsidies as compensation. For example, the Philippines successfully reformed its fossil fuel subsidies by using targeted cash transfers to help build a national safety net alongside lifeline tariffs to protect their low-income communities during the reform process.[3]
A targeted subsidy can help:
1. Rebalance government spending
Attempting to keep the prices of resources low amidst rising global market prices and overconsumption creates a heavy burden on government expenses. This can negatively impact a country’s fiscal position. To put this into perspective, every RM1 billion spent on subsidies could have built 5 hospitals, 20 schools or 50km of roads.[4]
One country who has demonstrated what can be achieved by redirecting resources spent on subsidies towards investing in useful development projects is Indonesia, who underwent a reform in 2015. The International Institute of Sustainable Development (IISD) looked at which parts of the budget was increased as a result of cutting back on fuel subsidies. The study found that the budgets for some ministries were increased – agriculture received a 106% increase, public works and housing 40% and finance 37% – to be used for certain priority programmes targeted for national development such as a programme to provide housing for 60,000 poor households or access to clean water for 10.3 million households.[5]
In Malaysia, the cost of maintaining subsidies on petrol and diesel alone cost up to RM4.89 billion for the first 11 months of 2018[6] – making up a large chunk of the budgeted operating expenditure that year. In contrast, the PSP is estimated to cost the government about RM65.4 million a month – a significant decrease from the RM133 million a week it currently spends in fuel subsidies.[7]
2. Boost competitiveness in the long-term
From a structural perspective, subsidies and price control mechanisms can hinder efforts to improve productivity and efficiency, thus holding back long-term economic development.
The IMF has found that subsidy reforms boost competitiveness over the long term by stimulating private investment, encouraging productive spending and promoting efficient use of scarce resources. In a fully deregulated fuel retail market (the end goal of subsidy reforms), petrol stations would be allowed to set their own prices; this will encourage healthy competition between vendors as they each try to attract consumers by setting the lowest prices or offering the best deals.
In the Philippines, deregulation of the downstream oil industry in the 1900s succeeded in attracting new players to the industry. While major oil companies like Petron, Shell and Caltex still controlled a significant share of the market, new players and small independents have increased their share in the market by offering lower prices or better services.
3. Encourage more environmentally friendly choices
Because fuel is cheap, people and businesses start to use more fuel-based machinery and vehicles and end up becoming heavily reliant on fossil fuel. However, the world is currently under pressure to reduce greenhouse gas emission and move towards more environmentally friendly practices. A number of countries have started to tax fossil fuel as a measure to reduce consumption; however, Malaysia is amongst the few who still subsidises fossil fuel.
A targeted subsidy would encourage more people to take alternative means of transport – for example, take advantage of the integrated public transport system or carpool to get to work. It would also help to direct investment towards more environmentally friendly projects such as towards developing renewable energy or upgrading the existing public transport system. In Indonesia, the consumption of petrol and diesel in the first half of 2015 following subsidy reforms fell by 9% and 6% respectively, and vehicle trips on toll roads were reduced by 10%.[8]
The road ahead
In the words of Milton Friedman, ‘there is nothing so permanent as a temporary government programme.’ Reforming a fuel subsidy is no easy task. There will be roadblocks along the way that will require slight adjustments and judicious recursive problem-solving. Having a clear implementation plan in the form of a roadmap will help to keep everyone focused on the overall end goal. The key is to be clear, transparent and responsive to the people’s needs – this will build trust that the government has the public’s best interests at heart.
We hope that this isn’t the last we see of the PSP. There will be a period of adjustment or growing pains as Malaysians get used to expecting changing petrol prices but ultimately, the reform will lead to a healthier, competitive and more fiscally responsible Malaysia.
[3] IISD, “Lessons Learned: Fossil Fuel Subsidies and Energy Sector Reform in the Philippines” (2014)
[5] One of the challenges of tracking subsidy allocation is that most governments, including Indonesia, do not explicitly link savings in one area with additional spending elsewhere. However, in Indonesia’s case, the country’s large subsidy savings made it possible to reasonably assume that any substantial increases in the budget were made possibly because of the reform.
[6] New Straits Times (2019)
[7] Paul Tan’s Automotive News (2019)
