12 MP: COVID-19 acts as the catalyst for Malaysia's IR4.0

Malaysia is one of the countries forging ahead with Industry Revolution 4.0 (IR4.0). The objective is to modernise our industrial capability, and transform the economy from a low-cost manufacturing country into a high-value competing manufacturer. The Malaysian government has recently emphasised transforming the local manufacturing sector to focus on high value-added and knowledge-intensive industries. The main focus is to shift from input-driven to productivity-driven growth to garner a higher contribution from total factor productivity. At present, the COVID-19 pandemic has certainly helped in shaping a new generation of manufacturing industry which is attentive to emerging opportunities arising from the low-touch economy. While the ripple effect the pandemic caused across many levels around the globe is serious, there are some silver linings too. In fact, Malaysia is now a lot more prepared for the IR4.0 with the pandemic being the major catalyst. According to the Malaysia Digital Economy Corporation's (MDEC), Malaysia is seeing five years of digital transformation in just one year, whereby it has already made major headway in its efforts to future-proofing itself, mainly in talent development and next-gen infrastructure for the coming of IR4.0. We're immersed in the era of technology from going cashless, generating income through digital means and exploring new revenue streams through e-commerce. To recall, IR4.0 is expected to increase the productivity in the manufacturing sector per person by 30% from USD24,486 to USD33,132. This would elevate the absolute contribution of the manufacturing sector to the economy by 54% from USD61 billion to USD94 billion. Achieving this will require developing an economy that relies heavily on skills, innovation and knowledge, especially post-COVID-19. In conjunction with that, there must be a clear overarching policy and coordination by the government to provide an enabling ecosystem for the manufacturing sector to thrive by adopting new technologies, while strengthening on-going structural reforms. To do this, harnessing the IR4.0 should be remained as the government’s one of the main priorities in its 12th Malaysia Plan. Malaysia needs to proliferate the culture of innovation by expanding the current capacity and capability to benefit from the pandemic and continue to embrace the intensification of the digital revolution. A thorough review should be done to the existing policies and programmes to identify gaps and design appropriate intervention. The government might want to consider providing further assistance to SMEs by measuring their gaps and readiness, and guiding them to adopt IR4.0 technologies. Many small and medium-sized enterprises (SME) and micro enterprises have quickly embraced digitalization spanning end-to-end system integration for their businesses. Before the COVID-19 pandemic, information technology (IT) and digital infrastructure such as ecommerce among SMEs were beginning to accelerate. However, the adoption of technology is not significant. Hence, the government is expected to be of assistance for SMEs to further expedite their business digitalisation transformation to survive the post economic crisis that has led to disruption in many sectors. Innovation and technology adoption would assist SMEs reap productivity gains, drive efficiency and boost growth through lower operational costs and enhanced supply chain continuity. Despite that, the Malaysian education system should also be imperatively realigned for global recognition and relevance. The formation of Centre of Excellence (CoEs) in polytechnics by Malaysia Technical University Network (MTUN) as an effort to cultivate and improve the quality and multidisciplinary of R&D pertinent to IR4.0 is highly appreciated. It is also important for private firms to invest in re-skilling and up-skilling their employees, and new entrants into the labour workforce. This is to sharpen the skillsets of the workers in tandem to the new operating landscape – consistent with the policy’s target to increase the number of high-skilled workers in the industry from 18% to 35%. In a nutshell, Malaysia’s future productivity growth is highly dependent on the ability of enablers and adaptors to apply advanced knowledge and technologies associated with the revolution to ensure a sustainable economic growth. The rapid technological development necessitates Malaysia to have a paradigm shift from being a mere user to become a co-creator of technology. To drive this shift, any strategies and action plan to be announced under 12th MP should contribute towards higher adoption of the IR4.0 -related technologies, particularly among SMEs. This article is written by Manokaran Mottain Alliance Bank Malaysia Chief Economist