Governance, Innovation and Digitalisation

Governance, Innovation and Digitalisation

Governance, economic transformation and digitalisation of the Malaysian economy are three areas for transformation that are required in fundamental restructuring for economic resilience.

Read more about it in an article titled, ‘Governance, innovation and digitalisation’ by the Vice-Chancellor of AIMST University, Professor Datuk Dr. John Antony Xavier.

The article got featured in the columnist section of NST on 15 February 2023:


The fear of a recession in advanced economies is fast fading. After big interest rate hikes, inflation is climbing down.

A recovering world has helped stabilise our ringgit and propped up our competitiveness.

The better news, of course, is China’s resurgent economy. The lifting of its zero-Covid policy has restored fractured supply chains, auguring well for the world economy.

Research at the American Federal Reserve suggests that a one per cent expansion of China’s gross domestic product (GDP) will increase global growth by about 0.25 per cent.

With China’s growth rate expected to rise by 2.5 per cent, we can witness a ripple effect on the global economic growth of roughly 0.6 per cent.

Malaysia is an export-driven economy and China is our largest market. Accordingly, Malaysia can expect the spillover effect from China’s buoyancy to lift our economic boat. However, that should not cloud us from a fundamental restructuring for economic resilience.

Here are three areas for transformation.

First is governance. In their 2012 book Why nations fail, Daron Acemoglu and James Robinson argue that the main determinant of prosperity is the strength of a country’s institutions. That the United States and Europe are economically more advanced than Latin America is because the former have good institutions.

The public sector represents one such institution. The speed and efficiency of the public sector determine the agility, cost-effectiveness and productivity of the private sector. The latter’s competitiveness in turn contributes to national prosperity.

We have made inroads to becoming business-friendly. The World Bank puts Malaysia at 12th in its global ease-of-doing-business ranking.

This is commendable, but we have some distance to go to achieve the top spot or enter the top-10. This includes shortening the time to start a business (ranked 126th among 190 countries), paying taxes (80th) and improving the efficiency of the judiciary.

For instance, it takes more than a year for contractual disputes to grind through the legal system.

Our perceived level of public-sector corruption ranks 61st out of 180 countries, as surveyed by Transparency International.

The “Madani Malaysia” or civil-society concept aspires to fight corruption and foster trust in public institutions.

The second economic transformation is improving the competitiveness of companies through investment in research and development (R&D).

Increased R&D leads to greater innovation and high-technology adoption. The richest countries owe their wealth creation to innovation.

Take the US, Switzerland, South Korea and the Scandinavian countries. They spend as much as four per cent of their GDP on R&D. If we want a vibrant economy, we need to quadruple our R&D expenditure from the current one per cent of GDP.

Third is the digitalisation of the economy. The 12th Malaysia Plan (2021-2025) focuses on digitalisation of the public sector and small firms to catalyse growth.

These efforts require high-performance networks across the country and integration of the fragmented databases across the three levels of government: federal, state and local.

At 38th in the world, Malaysia lags world leaders such as South Korea, Japan and the Scandinavian countries in electronic government, Internet quality, digital infrastructure and cyber security. Specifically, Malaysia ranked 45th in the world for mobile Internet speeds and 36th for fixed broadband speeds in December 2022.

As 98 per cent of our businesses are SMEs, we need to increase digital use among them as only 45 per cent do it now.

Recently, I went to Australia. I did not use any hard currency as all transactions were digital. While travelling in South Korea some years ago, I marvelled at the massive Internet coverage there in buses, boats and at rest stops.

Strengthening institutions, increasing spending on research and the digitalisation of processes are long-term measures to put the country on a sturdier footing.

These policy options are well known. The crux is implementation.