Tag: Malaysia

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Economics

[3007] Finance would be the Dutch disease in a 14-state Malaysia

It is August coming into September. It is a month of feverish nationalism across Indonesia, Malaysia and Singapore. For the latter two, history is so intertwined that it is almost impossible to celebrate each other national day (days in case of Malaysia) independently and without dishing out minor insults across the Causeway. Over BFM just the other day, the hosts and guests were talking out loud how grateful they were to be Malaysians because of the food… which is better than Singapore’s. Some Singaporeans regularly express how grateful that Singapore is no longer part of Malaysia.

Beyond these banters, there are discussions of what-if. What if Singapore were still the 14th state of Malaysia? Would Malaysia be more prosperous than it is now?

I am in the opinion that the separation is for the best. A what-if Malaysia with Singapore in it would likely be worse for both parties: both Malaysia and Singapore would not be as prosperous as they are now. Both would pull each other back.

From an economic standpoint, the what-if Malaysia would be a Malaysia suffering from a kind of Dutch disease. We are accustomed to the Dutch disease through by overreliance on petroleum. But the Dutch disease can really be generalized into a sector that gobbles up so much resources that it raises cost across the economy, which in turn causes other sectors—especially manufacturing—to be uncompetitive.

In our what-if scenario, that sector would be finance (on top of petroleum).[0]

A strong and big financial sector works in the usual Dutch disease way: higher-than-average wages, which sucks talent away from other sectors. It would also suck other resources and reallocate capital towards short-term profitability instead of enabling greater investment that things like manufacturing usually need.

The well-being of the financial sector does not necessarily align with that of the economy (and within the context of industrialization, manufacturing). In How Asia Works, author Joe Studwell suggests that the financial sector must be put on a short leash to make industrialization works. In clearer terms, that means forcing banks to lend cheaply to manufacturers and having the financial sector bears more risks that it is willing to shoulder. There are other ways to counterbalance the influence of finance but an influential financial sector will make that harder if not impossible to do.

Finance was and is a big part of the Singaporean economy. While it is difficult to obtain clear data from the mid-20th century, as far as reliable and comparable records are concerned, financial services as a share of GDP in Singapore has been higher than it is in Malaysia since 1980.

Some rights reserved. By Hafiz Noor Shams.

The trend possibly began much earlier if we consider Singapore’s role as the financial and trading hub of colonial Malaya: the 1960s Singapore was not the swampy kampong some would claim it to be. In 1905, Singapore already operated a network of electric trams, which is shown below (in fact, Singapore had had steam trams as early as the 1880s):[1]

Koh Seow Chuan Collection, courtesy of National Archives of Singapore

So, if Singapore was still a Malaysian state and the growing finance GDP share trend held up as it did in the 1980s and all the way to the 2020s, I would think other sectors would be competing in a losing battle for resources. This is also part of the reason (in the real world) why some Singaporean more industrial firms have been relocating to Johor: it is too expansive for more and more industries to operate on the island state.

Additionally, the difference in the make-up of the Singapore economy and that of the Peninsula, and even more of the Bornean states, means economic interest and policy would diverge in a world where Singapore remains as a member state. In 1966, Singapore’s GNI per capita was already almost twice as large than that of Malaysia’s.

A concrete example of diverging interest could be seen from 1963 until 1965, there was major disagreement between Kuala Lumpur and Singapore over developmental funding: KL wanted Singapore to contribute more to support development not just in the Peninsula but also in Sabah and Sarawak, while Singapore thought it was being bullied into doing so. In fact, financial disagreement and questions regarding customs union between the federal Finance Minister Tan Siew Sin and Singapore’s Finance Minister Goh Keng Swee over the financial arrangement between Singapore and the Federation had played a role in the separation.

The divergence in policy could also be rationalized through monetary policy. The different stages of development between the member states means each component would need different policy treatment. The Peninsula, Sabah and Sarawak in the 1960s would likely need looser monetary policy relative to Singapore. A monetary authority trying to juggle the needs of such diverse economies would have a headache. Imagine the European Central Bank during the European debt crisis, where they had to satisfy the inflation-phobic German authorities while trying to save the Greece and other southern European economies. European authorities in the end resorted to painful internal devaluation for the already troubled economies.

Similarly for a what-if Malaysia, the benchmark rate would likely be too low for Singapore but to high for everybody else. In this case, the what-if Malaysia would grow slower than real-life Malaysia (making industrialization process harder than it should be) while a Singapore in Malaysia would likely face greater financial stabilities than real-world Singapore.

The fact that Singapore’s monetary policy regime today is so different from Malaysia’s just shows how difficult to run monetary policy in the what-if Malaysia.

And so, as far as development is concerned, separation was likely the best outcome we could hope for.

Hafiz Noor Shams. Some rights reservedHafiz Noor Shams. Some rights reservedHafiz Noor Shams. Some rights reserved

[0] — On Dutch disease, it is impossible to not mention oil & gas in real-world Malaysia. But I think Malaysia did well in managing petroleum resources due to other strong sectors such as agriculture and also due to strong effort to diversify and industrialize (that is industrialization in spite of petroleum but there are signs of petroleum crowding out other sectors there in Terengganu, Sabah and Sarawak). This is evident from the falling oil & gas since it peaked in the mid-1980s, in contrast to the rising prominence of finance in Singapore today. But the relevant point is, imagine having to deal with two sectors that would suck resources away from manufacturing. Would that Malaysia able to deal with two cost-rising sectors all at once? 

[1] — Electric tram at Collyer Quay, Singapore. Following the failure of steam trams in Singapore, electric trams were introduced in 1905 but eventually phased out by trolley buses in 1925-1927. [COLLYER QUAY, SINGAPORE. Seow Chuan Koh. National Archives Singapore. Extracted August 30 2025]

Categories
Books & printed materials Politics & government Science & technology

[2983] Reading Chip War and some questions for Malaysia

I had expected it to be a technical reading but I was pleasantly surprised at the ease I read through Chris Miller’s Chip War: The Fight for the World’s Most Critical Technology. It is a 400-page book published back in 2022 at a time when chip availability was still a big problem that caused delays in delivery of everything that had semiconductors in it. Those goods included small electronics like cell phones and gaming consoles as well as large items such as cars. I had to wait for almost two years for the delivery of a new car from Japan. Even as the semiconductor market conditions improved by 2023, the issues discussed by Miller in his book remain relevant as the China-US tech war heats up further and as the use of AI among the public spreads.

For most parts, Chip War goes through the history of semiconductors and it is less so about contemporary contest between China and US. In this sense, I feel the title is a slight misnomer. When I first thought of the book title, I had imagined a little bit of reading notes from my work place: supply chain, industry interlinkages, international trade, policies, tariffs, war. While the author discusses these topics, they are all subsumed under the historical narrative that covered industry development during World War II and right up to the present day. And the historical narrative, in many ways, is written around multiple personalities (scientists, engineers, military men and politicians) who played (and still play) a role in the development of semiconductors. Contemporary issues are covered in a few chapters close to the end.

The author does provide brief technical description for things like early transistors, modern chips, and advanced equipment needed to make those chips. But that does not affect the readability of the book negatively, which is good thing. It is just not that technical. Some may find the non-technicality as a negative, since more than one engineer in multiple reviews have criticized Miller for oversimplifying various processes.

The United States is the main focus of the book, given its centrality in developing and the marketing semiconductors. Several other countries are mentioned extensively too. Soviet Union/Russia for its failure. Taiwan, South Korea and Japan for their successes. And China for being the new kid on the block and how the country is challenging US technological supremacy in a way the Soviet Union never could.

Malaysia has two or three mentions throughout the book, as the country plays major roles in testing and packaging of semiconductors. Those roles are not as sexy as designing or fabricating chips, but it is still essential in keeping the industry running.

Here, I want to touch something discussed in the book that has a direct impact on a specific Malaysian policy: the development of Malaysia’s 5G infrastructure within the context of China-US tech war.

Malaysia through its state-owned entreprise Digital National Berhad (DNB) is building the country’s 5G network with equipment and expertise supplied primarily by Ericsson. The selection of Ericsson is not without controversy, with the other contender being Huawei of China. The current government under Pakatan Harapan however appears unhappy with the DNB-Ericsson arrangement and has hinted that Malaysia should have a second network built by Huawei.

Of relevance here is that Huawei has come under strict restrictions imposed by the US, restrictions which have deprived the company from the latest chips needed to run 5G network. This has forced China to hasten the development of its own indigenous chip industry and indeed since 2020 when the US first tightened export controls on Huawei, the company and the general Chinese semiconductor industry have made progress in advancing its own chip design and manufacturing capability. Yet China is behind that of the US and its allies in terms chip technology. These allies include Taiwan that run the world’s most advanced chip manufacturing facilities (TSMC’s), and the Netherlands that makes the world’s most advanced chipmaking machinery (ASML’s). China is now able to design and manufacture 5nm chips (as of 2023?) but struggles to close the gap with 2nm chips that US-centric supply chain is now focusing on.

In more general terms, China might be 3-5 years behind the US chip technology. The 3-5 years gap might sound small, but for an industry governed by Moore’s Law, it is not something someone could shrug off.

Under these conditions, my question is, would it make sense to turn to Huawei for Malaysia’s 5G infrastructure (assuming building a second 5G network makes sense at all)?

From the way Miller described it in Chip War, Huawei faces difficulties in securing advanced chips needed for 5G equipment, unlike Ericsson.

And if Malaysia does get a second 5G network to be built by Huawei, would that 5G infrastructure be inferior to the first one due to restrictions faced by Huawei ?

Or is Chinese chip technology, wherever it is on the trailing edge, good enough for Malaysian purposes?

From Malaysian perspective, this does not sound like a geopolitical concern (Sinophobia?) that some in government make it out to be. Rather, it is a practical technological concern.

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Economics WDYT

[2873] Guess the 2Q18 Malaysian GDP growth

I have been extremely busy and I have just realized the last time I updated this blog was just slightly more than 3 months ago.

I still want to keep this going, except this time, no real commentary. But the second quarter was quite a quarter, externally and especially domestically. These events had added significant short-term uncertainty that might have affected growth.

How fast do you think did the Malaysian economy expand in 2Q18 from a year ago?

  • Below 3% (8%, 1 Votes)
  • 3.0%-3.9% (8%, 1 Votes)
  • 4.0%-4.5% (23%, 3 Votes)
  • 4.6%-5.0% (38%, 5 Votes)
  • 5.1%-5.5% (15%, 2 Votes)
  • 5.6%-6.0% (8%, 1 Votes)
  • More than 6.0% (0%, 0 Votes)

Total Voters: 13

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Politics & government Society

[2847] We care because we are capable of empathy

It’s a big, big interconnected world out there. And that interconnectedness, ironically, makes the world smaller is a non-physical sense. Economically, socially and politically. Our lives are no longer affected purely by domestic matters. To some, the foreign affairs segment in the newspapers is an abstraction but for some others, the lines demarcating domestic and foreign concerns are blurry.

These remain the days of globalization still, however the Trumps, the Le Pens, the Farages and all those who long for a smaller world are trying to rewind the clock. They may yet be successful but for now they have a lot to undo. In the meantime, many have multiple homes and multiple affiliations with friends traversing national boundaries, opposing such undoing and rewinding.

For Malaysians, the war in Ukraine so far away across the Asian continent painfully proves the fact foreign affairs are home affairs too. Many Malaysians could not find the country on the map, but it still has an impact on the Malaysian psyche. And Malaysians did care for development in Bosnia during the Balkan War and in Kosovo. They do care about the conflicts in Palestine, in Syria and in Iraq. And to take a trivial example, there are Malaysians who care about the fate of foreign, English Premier League teams, despite not being English themselves.

The refugee crisis in Myanmar is also a Malaysian concern, because these oppressed men, women and children are coming to or passing by Malaysia. Whether we like it or not, we have to act in one way or another. Pretending the imaginary lines on a 2-dimensional map as an impregnable wall ensuring that is not our problem will not help by one bit. And to turn back the boats is not just an illiberal policy, it is heartless.

In the several years after the 9/11 attack, I became a victim of profiling at US airports, just because of my nationality and my Arab-sounding name. Security personnel would put me under extra security measures and screening. That discouraged me from leaving the US for home for the next four years for fear I would face immigration troubles upon reentry at the airports. I knew of other international students who needed to report to the Homeland Security office regularly, and I feared being subjected to the same requirement as an entry condition.

And so, I spent my entire time as a student in Michigan travelling throughout the US, reaching New York, DC, Miami, San Francisco, St Louis, Chicago, Sioux Falls and more. I remember how it felt like to drive the car through the Great Plains from the Great Lakes, or how peaceful it was staring into the night sky from the bottom of the Tuolumne Canyon just north of Yosemite in California. I learned to love America for the wonders it brought to my young mind.

Indeed, my political beliefs to a large degree were shaped in the US. However flawed the US is with all of its hypocrisies, it is still the greatest liberal democracy that the world has. It is the Athens, the Rome, the Baghdad, the Cordoba and the Delhi of our time. Just because of that, I looked up to it. Because of this and because I spent a significant portion of my early adult life there, if I had a second home, the US would be it.

When Trump and his followers do what they do, and among others equating the US to Russia, I feel that is an undoing of what the United States of America is supposed to be in my eyes, a foreigner, who looks kindly to the east across the Pacific. Trump is killing the US that I know, and by that, threatening the idea of liberal democracy all around the world (even in Malaysia where our democracy is becoming increasingly flawed and more authoritarian). That makes me angry.

The Trump’s ban, now challenged in the courts, adds further to the anger. My alma mater, the University of Michigan, is celebrating its 200th anniversary this year. And I am entertaining thoughts of returning to Ann Arbor to catch the festivities and walk down the memory lane. Trump’s ban, could potentially affect me. I still remember my experiences at various US airports during the Bush era. I thoroughly dislike the discrimination and I do not wish on others what I went through.

So, I do care for things that if happening in the US. The world is interconnected enough that I have real attachments to the US. Needless to say, I have friends in the US too.

But one does not need to have personal ties to the US to be worried about development in the US. It is just like how some of us are concerned about the oppression in Xinjiang, or in Iran, or in Egypt, or in the Philippines or anywhere else without the need to have any personal connection.

Even if we cannot think of ways which a reclusive, protectionist US could affect Malaysia — it will by the way: HSBC economists think Malaysia will be one of the top four economies to be worst affected by a protectionist US — we can still care because we have empathy for other human beings. Injustice or discrimination anywhere is still wrong and we can take a position on the matter. We can make personal judging based on our values. We have enough room for empathy those near and far beyond our shores.

Because of our capacity of empathy and because of the interconnectedness of the world we live in, it is outrageous to think we have to choose between caring US-based or Malaysia-based issues. Both are causes for concerns. I care for the deplorable things happening in the US, and at the same time, I care about the 1MDB corruption scandal, or the blockade in Kelantan, along with other injustices in the Malaysian society I am living in.

Indeed, it is a false dichotomy having to choose the US or Malaysia. There is no reason why a Malaysian needs to choose between the two. We can be concerned for both, and more.

More importantly, there are liberal values and among them are that we all are created equal and all should have the same fundamental rights. This applies all around the world, not just in and around your small neighborhood.

In time when anti-liberal populists are turning national policies inward, it will be most disappointing to have liberals retreating to a small-world cocoon as well. Such inward retreat would be a betrayal of liberal belief, that liberal values are universal in nature and not provincial. We fight racism, discrimination and everything bad out there by staying true to our liberal values, not by abandoning it.

Categories
Politics & government

[2802] I am ashamed to be a Malaysian

I think I am well-exposed to foreigners’ opinions about Malaysia beyond the editorial stance of various foreign newspapers. I have friends of diverse national origins and I work for a global organization where many of my colleagues are not Malaysians. I keep in touch with them regularly and so I get to learn of their personal and professional views about the country.

Everybody has an opinion. But do they know Malaysia?

They might be able to tell you where it is on the map. They would know the Petronas Twin Towers. They might know who Mahathir Mohamad or Anwar Ibrahim is.

But if you dig a little deeper you will realize most of them usually do not track our news closely.

Sure, they would remember reading some odd news like how naked hikers supposedly angered the spirits up on Mount Kinabalu. Sometimes, some third-rated politicians — even ministers — would say the darnedest thing and make it to the news.

These friends and colleagues would turn these trivial snapshots of Malaysian life into joking jabs at me. I would not protest too much as these embarrassing episodes would pass quickly. These kinds of news are light reading of no real consequence written to amuse the world on a slow news day.

But something more serious and lasting is hogging the headlines of some of the world’s finest newspapers in the past few months. Our prime minister and his troubled brainchild 1MDB are regularly mentioned in the context of corruption and power abuse across the world. As the prime minister’s reputation is left in tatters, so too is Malaysia’s.

Foreigners are becoming more aware of the grave trouble besetting Malaysia. A London colleague told me his unsophisticated English mother living all the way up north in Newcastle had begun asking about 1MDB and Najib. That is a sign of how widely known the corruption scandal is.

My friends from abroad have also begun asking me about the situation here. The questions asked make me feel ashamed of being a Malaysian.

Not too long ago, I always felt a little bit proud talking about Malaysia. We have achieved so much over the years. I sensed a kind of economic optimism that might even match the 1990s boom years. Socially, politically and economically, I felt we were almost there with the challenges ahead of us very surmountable. As a member of that generation who sang the song Wawasan 2020 at the top of our lungs every Monday morning during our school assembly, ”there” was well within our lifetime.

Sadly, that optimism is fading fast. Whenever I talk about Malaysia today, it is no longer about that country on the cusp of something grander. Instead, I feel like I am referring to a Third World country with its Third World regime where power abuse is common and might is right.

At one time, it was the in-thing for government supporters to say that Malaysia was better than many Third World countries and we should be grateful for that. The joke now is we are directly comparable to some corrupt Third World regime out there.

The joke hurts because it is true in a substantive way. All those joking jabs are no longer petty. It saps our pride away.

I know who to blame for that. I put the blame squarely on the prime minister and 1MDB. They are an acute source of embarrassment for me.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in The Malay Mail on September 28 2015.