• What is the trend of economic growth in Perak?
• What are the sectors that contribute to Perak’s economic growth?
• What are the measures needed to ensure a sustainable economic growth in Perak?
In the past, measuring economic growth was relatively simple. Economic growth referred to an increase in the amount of goods and services produced per head of the population over a period of time. However, as society progressed new challenges emerged which required a rethink of what economic growth actually is.
Now, new concepts are being introduced in economic growth such as ‘green growth’ and ‘sustainability’ which demand that resources be maintained for the use of future generations. This evolving definition of economic growth has an impact on the future growth of the State. A completely acceptable economic activity today may be deemed unethical or unsustainable one day.
Whatever economic activity which Perak wants to focus on must be aligned with the concept of sustainability. In other words, the economic activities today must enrich and strengthen activities of economic growth of tomorrow. This warrants us to look at the various sectors of economic activities in Perak and their contributions to the state economy.
Perak, located between two industrialised states of Penang in the north and Selangor in the south, has the potential to grow socio-economically. In the past, efforts to elevate the state into prosperity saw the introduction of several programmes at state and federal levels.
There is still much to be done because Perak’s economy has not been expanding over the past four years despite various policies and initiatives undertaken by the state government. Although the state had raked in RM1 billion in revenue in 2016, the state’s economic growth on the contrary has been on a downward trend since 2013 and faces the risk of a further contraction.
The threat of labour migration to other states, laggard investment climate and inability to attract high impact investments are among the factors that contributed to the contraction in Perak’s economic growth.
THE TREND IN PERAK’S ECONOMIC GROWTH
At the national level, Perak’s ranking in terms of economic growth has not been consistent. Its ranking, when compared with other states, fluctuated from 5th place in 2011, 2nd place in 2012, 11th place in 2014 before rising slightly to 9th place in 2016. This was due to inconsistent GDP growth rate which was caused by inadequate economic activities by consumers and industries. Its ranking as a contributor to the national GDP as depicted in Fig.1 was erratic, indicating that the state’s economic growth was unsustainable as it relied on few short-term projects that only generated shortterm growth.
With reference to Fig. 2, Perak’s economic growth had seen some overheating in 2011 and 2012 where a high growth rate of 7% and 7.4% were recorded in these years respectively. This had been attributed to the construction activities of an iron ore plant and a deep-water jetty to support the operations of the plant. In the next two years, growth cooled down to 5.2% in 2013 and 4.6% in 2014. However, it picked up with a 5.9% growth rate in 2015 which resulted from the increase in construction activities particularly the construction of Movie Animation Park Studios (MAPS) which was in full swing during that year. The growth could not be sustained and the figure plummeted again in 2016.
In general, Perak’s GDP growth is showing a worrying downward trend since 2013 indicating that the state’s economic growth is experiencing a slowdown. Although Perak is endowed with natural resources and abundant land, the state lags in creating a comparative advantage for its resource-based industries. Its economy relies greatly on tourism receipts constituting around 60% of GDP with manufacturing and agriculture trailing behind.
Based on Fig. 3, GDP growth by sector was also inconsistent with the mining and quarrying sector recording poor performance in 2015. Although the agriculture, manufacturing, construction and services sectors have posted modest growth in a 3-year period, the absence of infrastructure projects can be deemed as a contributing factor in the slowdown in economic activities in the state.
KEY ECONOMIC SECTORS
Based on the figure given on the left, the services sector has been a major contributor to the state’s economic growth registering a consistent increase in its contribution to the state’s economy from 59% in 2011 to 60.9% in 2016, contributing RM36 billion to the state’s economy in 2016. The manufacturing sector and the agriculture sector are the second and third largest contributors with RM11.5 billion and RM9.7 billion in 2016. In order to have a more impactful growth on the Perak economy these two sectors need to be given attention so that they can stimulate a more sustainable growth.
Based on the above figure, it becomes clear that the utility, transportation and storage and IT sub-sectors were big contributors of growth in the services sector; accounting for 19.7% of total contribution to the sector from 2011-2016. This growth could be attributed to the rapid urbanisation of the population which increased the consumption of utility such as electricity, water, telecommunication and information technology services. In addition, rapid urbanisation also increased the need for a more efficient transport system in the state which brought to the construction of an integrated and centralised Terminal Aman Jaya.
Wholesale and retail trade, food and beverage and accommodation were the second largest contributors during the same period. This could be attributed to the increase in tourism receipts which spurred economic activities in the accommodation, food and beverage and retail sectors.
Perak has been an attractive venue for foreign direct investments (FDI). Despite this, since 2010, the trend for FDI inflows into Perak had not been encouraging as there was a lack of incentives to attract foreign investors plus an insufficient infrastructure linking manufacturing plants to ports and harbours compared with Selangor and Penang. In addition, the lack of FDI in the services sector, particularly tourism, puts the state at a disadvantage in pulling in both domestic and foreign currencies that will help spur economic activities via the circular flow of income.
IMPLICATIONS TO PERAK
The inconsistent economic growth in Perak implies a rendition of the state’s economic status where growth is relatively unsustainable. In its effort to achieve the Sustainable Development Goals (SDGs) by 2030, it is critical that the state’s economic growth is sustainable where income earned through economic activities can be used for development expenditure.
In addition, a laggard economy will be a disincentive for the population to remain in the state, thus encouraging emigration by the labour force to other states in search of jobs and quality living. This will result in a brain drain of the best minds and talents required in attracting FDIs and private domestic investments. As such, Perak risks losing its attractiveness to potential foreign and domestic investors due to the shortage of skilled labour in high-tech and value-added industries.
The various development projects and initiatives that had been put in place may not be sustainable despite the huge sum of money spent by the government and the private sector. To meet the SDGs 2030 requires a sustainable growth that is inclusive of all aspects and sectors of the economy and society as sustainable development can only be achieved when there is sustainable economic growth.
1. Efforts to attract investment into the state were insufficient
Although the government had pledged to attract FDI and domestic investment into new industries in the state in 2013, a study conducted by KUASA discovered that only 30% of such pledges had been fulfilled in 2016. Despite the efforts done by the government, more must be done to attract new investment and retain existing ones. According to the Perak Consumer Association, existing industry players have either moved out of the state or relocated to countries such as Vietnam and China. Increasing operational and materials costs, coupled with insufficient support from the authorities, have been cited as factors that hinder new investments into the state and to retain existing ones particularly for the smallto- medium enterprises (SMEs).
2. Tourism projects did not generate equitable returns
Although the tourism industry is one of the main contributors to the state’s GDP, the tourism projects undertaken by the state did not generate the desired returns as reflected in Fig. 3. The percentage of contribution to the state’s revenue increased meagrely since 2014. Existing marketing strategies to promote the state as an international tourist destination had not gained the attention of international tourists which would have brought in foreign exchange income to the state; and this despite the state possessing attractive eco-tourism, historical and entertainment venues. Such projects and strategies were deemed by industry players as ‘going nowhere’ – putting much pressure on the industry.
3. Insufficient infrastructure to support industries
The current infrastructure is insufficient to support the expansion economy which requires more connectivity in telecommunications and road networks. Industrial parks and tourist attractions in the state are mostly located in the inner and coastal parts of the state rendering them distant from the major highways. Long travelling hours to reach these destinations can be a disincentive for logistics and tourists. Connectivity within Perak has a lot of room for improvement. Currently Perak is relying on trunk roads which is not suitable for domestic commercial industry expansion. Thus, economic growth is limited to areas that are close to major highways. In addition, internet connectivity, bandwidth and speed in the state is unable to cope with the increasing volume of digital traffic that is critical for industries and e-commerce to operate effectively. This in turn will cause a slowdown in construction and related industries.
4. Laggard pace of development of high-tech hub
Although the creation of high-tech and industrial hub was undertaken by the state government, the progress of development of these hubs was rather slow despite these hubs having great potential to help Perak attain sustainable economic growth. Some high-tech hubs focusing on specific industry did not function as planned while the progress of others were hindered due to shortage of high-skilled labour required by these industries. The state seemed to be embroiled in this predicament as it faces other issues on affordable housing and a favourable working and living environment.
5. Lack of attention given to agriculture
Although the state is endowed with vast area of land, the establishment of agricultural land in the state has not been encouraging. From 2013 to 2016, only 16% of the government’s pledges to establish more agricultural land have been fulfilled, which is a far cry from the specified target which was set to be achieved by 2018. As for agricultural products that do get commercialised they are facing barriers to entry by cartels which are protecting their own interests. They have the resources to manipulate prices and supply in order to control their market share.
THE WAY FORWARD
Despite various initiatives implemented by the state, there is still more that needs to be done by the state to achieve higher and sustainable economic growth. The state needs to:
1. Attract FDI for high impact projects
The state needs to have a concerted plan on the inflow of FDI into the state. The inflow of FDI must be channelled to carefully selected projects that can effect transformation and which require skilled labour. This will not only pave the way for knowledge and technology transfer but also the way for the inflow of new money into the system. The inflow of FDI needs to be followed through to the end and come with a condition that it must benefit the local community. One area in which Perak could attract investment is agrotechnological farming such as vertical automated farming. This will increase yield and improve food security not only for Perak but for the country.
2. Strengthen capacity of SMEs in the state
Develop SMEs in the downstream and upstream industries in association with high value investments in the state. The state government and stakeholders need to encourage financial institutions to provide capital and funding for industrial development for SMEs and provide technological support that will increase efficiency of these SMEs. In Perak, 90 percent of the businesses are made up of SMEs. Many SMEs which manufacture agro-based products have difficulties accessing the markets because of barriers-to-entry by big brands and cartels.
3. Diversify source of revenue by industrialising the agriculture sector to spur growth in other sectors of the economy
A study conducted by Institut Darul Ridzuan, entitled The Development of Strategic Clusters in Perak: Targeting Palm Oil, Iron and Steel, discovered that apart from increasing output in the upstream activity of the palm oil industry, production of palm oil related consumer goods has the potential to revive the manufacturing industry in the state particularly in the valueadded manufacturing sector. Firms will acquire new technology to increase the sector’s efficiency and quality of their goods, hence raising the need for the creation of science hubs that will be centres of research and development to improve manufacturing output and yield of palm oil kernel. By industrialising the agriculture sector, downstream activities as well as upstream activities in the state can be enhanced which will create higher demand for palm kernel.
4. Strengthen the construction industry through infrastructure projects
As discussed earlier, the state is in a dire need to improve its infrastructure to support its economic activities. Medium- to long-term infrastructure projects will spur construction activities within the state providing a platform for a sustainable growth to the construction industry and the economy as a whole. To achieve this, the state government needs to reassess its current model of development so that the right infrastructure can be put in place to meet the demands of the public and the business community. Perhaps, Perak can be turned into a hub for medical tourism. By encouraging private medical institutions such as Gleneagles, Columbia Asia, Sunway, Ramsay Sime Darby Healthcare, etc, to set up more hospitals,Perak will attract domestic and international medical tourists. Such infrastructure will boost the tourism, medical and retail industry.
5. Eliminate barriers to entry for SMEs and cottage Industries
The retention of highly-educated and skilled workforce is essential as this will provide sustainable economic growth and development. The state government needs to create quality job opportunities to prevent this group of labour force from migrating to other states which have been capitalising on its skills and talents. The state government needs to create an attractive and conducive business environment in order to encourage and attract more investments from the private sector.