Identifying workforce requirements for an economic transformation towards the next stage of growth.
[ continuing from the UNDEREMPLOYMENT of Youth ]
Mismatch in the skills required by industries but the qualifications of graduates are so wide that it is impacting on foreign direct investments (FDI) in the country.
Though Foreign Direct Investment (FDI) in Malaysia registered higher net inflow of RM$48.1 billion in 2021 as compared to RM13. 3 billion in the previous year (with the services sector, accounting for almost 43% of total FDI inflow followed by the manufacturing sector, which makes up less than 43% of total FDI inflow (theedgemarkets 4 March 2022).
Even though following a gradual recovery in the global economy from the after effects of the COVID-19 pandemic, Malaysia is still in a poor performance compared to her ASEAN peers.
Malaysia currently records the lowest FDI in Southeast Asia. In 2021, Malaysia attracted just RM$48.1 billion while Indonesia had RM$130 billion, Thailand received RM90 billion, Vietnam closed RM$130 billion and the Philippines signed up RM$48.5 billion, (UNCTAD, World Investment Report 2021).
Statistically FDI has been behind the huge growth of the Malaysian economy since the 1970s. On one aspect, FDI does not only create an expansion of capital, but it transfers the technology and skills to developing countries. The fluctuation of FDI inflows in Malaysia from 1995 to 2014 which is significantly affecting the economy of the country.
The country's industry is currently facing a critical skilled labour shortage, which is a pressing issue, adding that there has been an acceleration in technological transformation, especially during the Covid-19 pandemic when many companies were forced to implement digital strategies to adapt to the “new normal” over a short period to maintain competitiveness, (theedgemarkets, 3/08/2022l).
The prime issue, as expressed by Sunway University economist Prof Dr Yeah Kim Leng, that while the country currently is embracing the digital economy, it requiring highly skilled workers where educational institutions have yet to meet the challenges.
This is because Malaysia’s digital economy transformation needs more than great headlines.
Indeed, an inadequate skills suite in the workforce have seen in 2020, net FDI inflows (% of GDP) for Malaysia was only 1.3 %. Though Malaysia net FDI inflows (% of GDP) fluctuated substantially in recent years.
While FDI has long been a mainstay of our economy – there are concerns by some quarters as to whether it can be sustained or could its decline, if it is the case, be arrested and reversed. Although, in terms of investment value, FDI’s contribution to our economy does not seem impressive enough, the multiplier spread effect cannot be strongly de-emphasised.
In an article, “FDI & Growth: What Causes What?” (The World Economy, Vol. 29, No. 1, Jan 2006), Abdur Chowdhury and George Mavrotas suggested that in the case of Malaysia, there seems to be strong evidence of a bidirectional causality between gross domestic product (GDP) and FDI - meaning that FDI growth impacts GDP growth as much as vice-versa.
On the other hand, other scholars like Mohammad Sharif Karimi and Zulkornain Yusop have argued in “FDI and Economic Growth in Malaysia” (Munich Personal RePEc Archive, 2009) that there is no clear empirical correlation in terms of causing mutual growth.
In reality, the gross figure should be about 20% to 25% of GDP if there are sufficiency in trained workers to meet industry needs. As it is, local investments hover in the region of 16% to 17% of gross domestic product (GDP) that are insufficient to maintain fast and sustainable growth trajectory.
One needs to say that if there is no action being taken to provide the defined and requisite types of skilled workers, the structural integrity of the nation’s economy would be impaired.
Presently, there is a mismatch whereby universities are producing more liberal arts and general degree graduates instead of those who are technically qualified.
“This is where technical and vocational education and training (TVET) comes into play. Technical schools can produce skilled students who focus on industry needs. It is also important for such schools to constantly upgrade their programmes and adapt to the ever-changing needs of a skilled workforce.”
It is important for TVET institutions to pay close attention to industry needs, as the inability of the country to provide a highly skilled workforce, as stated, has seen a drop in FDI.
One needs to emphasise that investors are unwilling to allocate capital to targetedcountries if they are unable to get the workforce they require.
FDI have remained relatively low in Malaysia compared with the rest of Southeast Asia due to the scarcity of skilled labour in specific segments of industries.
Federation of Malaysian Manufacturers president Tan Sri Soh Thian Lai said a high quality, relevant and TVET-trained workforce has a key role in the realisation of the nation’s economic and industrial transformation goals, adding that a globally competitive labour force that can adapt and adjust to IR4.0 technologies is critical to driving economic growth.
“TVET is pivotal in providing the skilled workforce required for economic transformation and next stage growth. A pool of highly trained TVET graduates will be a key determinant in attracting investments, supporting the knowledge-based manufacturing ecosystem and driving innovation and productivity in a high-technology and high-value-added manufacturing environment”
For the country to become a high-income economy, a skilled workforce is vital. Increasing enrolment in TVET and raising the training quality is the key to supporting economic growth, (World Bank Report, 2021).
The immediate consequence is a shift towards a higher demand for specigic skilled manpower. As the country moves towards a more knowledge-based, high-technology and high-value-added economy, there is added demand for this type of specialised-skill labour.
Therefore, reliance on TVET workers is increasing as specific skilled ones are required in almost all sectors.
An appropriate approach is to adopt an ongoing effort in promoting TVET education, and that career pathways must be identified, enhanced and intensified through collaborative initiatives between skills institutes and industries. In this was such initiatives will help to build up a pool of skilled manpower with the right fit that industry requires.
Whether the Budget 2023 shall be able to sustain this pool of skilled manpower is debatable because among the initiatives under the last Budget 2022 is the JaminKerja Keluarga Malaysia, which aimed to guarantee 600,000 job opportunities with an allocation of RM$4.8 billion, but as of April 2022, only 149,000 workers had secured jobs through this scheme (2023 Pre-Budget Statement, Ministry of Finance Malaysia, 3 June 2022).
Therefore, though the industries are trying to increase their efforts in collaborating with TVET institutions to train students to improve their employability and provide skilled workers on this economic growth path - it is more than doubtful any direction towards a post-2020 political economy is visible.
Are we there yet?
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