Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : THE HILTON HOTEL, KUALA LUMPUR
Tarikh/Date : 17/07/84
Tajuk/Title : THE OPENING OF THE SEMINAR ON
MALAYSIAN-BRITISH INVISIBLE TRADE
LINKS JOINTLY ORGANISED BY THE
BRITISH INVISIBLE EXPORTS COUNCIL
AND THE COUNCIL ON MALAYSIAN
INVISIBLE TRADE
Yang Berbahagia Tun Ismail Ali, Chairman of the Council of the Malaysian
Invisible Trade; Chairman of the British Invisible Exports
Council; Distinguished guests;
Ladies and gentlemen.
It is a pleasure for me to address this Seminar, jointly organised by the
British Invisible Exports Council and the Council on Malaysian Invisible
Trade. I have been informed that the Chairman of the British Invisible
Exports Council came three days ahead of this Seminar to spend a holiday
here with his wife. To them and other visiting members of the British
Team, welcome to Malaysia and thank you for contributing personally to our
invisible earnings.
I hope the beauty of our land and the friendliness of our people have made
you feel that the visit has been well worth it. The real test of this lies
in the future -- on whether you will be back again for another visit. It
must be obvious to you, certainly our British visitors, that the area of
invisible trade is a very important aspect of an economy, otherwise the
British Invisible Exports Council and its Malaysian counterpart would not
have been formed.
However, I am afraid most Malaysians have but a vague notion of the
invisible trade and what they mean to the economic life of a nation. In
that regard, this Seminar is most timely in raising national awareness of
the significance of the invisible trade and its role in nation building.
2. Malaysia exports a wide range of commodities and imports mainly
manufactured goods. To bring this about, we need ships to transport the
goods and underwriters to insure them; we need to pay dividends on foreign
investment and interest on loans contracted to help finance the
infrastructure for development; we also need to pay for the education we
seek abroad; we need to pay foreign consultants and contractors for their
expert services; equally important, rising affluence inculcates new
desires to spend money, sightseeing and shopping around the world. All
these represent payments for invisibles, or expenditure for services
rendered. What is particularly significant is that most of them are needed
to support the trade in goods. As you know, Malaysia traditionally enjoys
a healthy merchandise trade surplus, that is, a surplus in the visible
trade in goods. Unfortunately, we do not do as well in trading in
services. Indeed, we run a sizeable deficit in the services trade and this
deficit is rising annually.
Over the years, we have been able to export sufficient goods, not only to
finance the imports we need, but have sufficient left over to finance the
purchase of services as well. Infact, we felt so comfortable in exporting
goods that we found little need to build up our capacity and capability to
export services. As our appetite for foreign services grew faster than the
rate at which our visible exports could expand, it was a matter of time
before we found ourselves in the position of not being able anymore to
afford importing services at the rate we did. This realisation assumed
serious proportions in the 1980s, as the onset of global recession teaming
up with a compelling need to continue developing the economy to meet
rising expectations, led to a considerable shrinkage in the merchandise
surplus. By then, the invisibles deficit had built up a momentum of its
own -- growing like a cancer regardless of whether there was a sufficient
surplus in the visible trade account to finance it. By 1983, the
invisibles deficit amounted to M$8.3 billion. It is expected to rise to
M$9.5 billion this year. Ten years ago, this deficit was only about M$1
billion.
3. The persistently rising services deficit and the increasingly
unfavourable external trading conditions did come to a head with the
recent recession. Our current account has since recorded large deficits of
M$5.4 billion in 1981, M$7.3 billion in 1982 and M$6.7 billion in 1983.
Measured against our income, these deficits represented 10% in 1981, 12.4%
in 1982 and 10.5% in 1983. This means that each year, our expenditures
abroad exceeded our external income by an amount equal to at least 10% of
our annual income. Such a situation cannot go on forever. I see no real
problem in meeting deficits of this size for a year or two, or even three
or four years, provided effective measures are taken in the interim to
reverse the position.
The grim story of indebtedness in Latin America today provides an
important lesson for all of us. Malaysians, therefore, must find in
ourselves a resolve to be prudent in our spending abroad, for the import
of both goods and services, and to launch new initiatives to increase
foreign receipts from the export of not just goods, but our services as
well.
4. Make no mistake. A large current account deficit simply means that
Malaysians are spending well beyond their means. This excess spending has
been the result of a growing appetite for things foreign, be they goods or
services. When we live beyond our means, we must borrow.
Basically, there is nothing wrong with borrowing so long as the borrowed
monies are put to productive use, to generate new foreign exchange
receipts. Indeed, so long as the stream of foreign exchange income exceeds
the amount needed to service the debt, we can proceed to borrow more. What
worries me is borrowing to finance consumption and that is what a deficit
in the current account really means. As a medical doctor, I know only too
well the danger of self-deception, whether by the patient or the
doctor. The truth must be faced and proper treatment initiated.
Reassurance is fine but it is no substitute for treatment, especially
where specific treatment is needed. In tackling the problem of invisibles,
the key lies in being productive.
This means hard work and efficiency and the ability to seize new
opportunities to sell more and buy only what you really need from the
income generated from prudent investment.
That is why I have urged Malaysia to Look East -- to learn from the
Japanese and the Koreans how to deny themselves the luxuries while they
build up their exports. From the devastation of World War II, the Japanese
have managed -- through sheer hard work, initiative and entrepreneurship
-- to build up a dynamic export oriented economy that is able to generate
year after year, surpluses in both their goods and services accounts with
the rest of the world. Indeed, they have been so successful that they are
now penalised for being too competitive. Malaysians must realise that
there is no such thing as a free lunch -- it is merely a matter of whether
you pay now or later. The trade-off for Malaysians lies in the classic
choice between the immediate short term luxuries and the more distant but
more permanent affluence that comes with early sacrifices. Wisdom tells us
to choose the latter but there will always be detractors who will urge us
to live it up now, to eat, drink and be merry, for tomorrow we die. For
Malaysians, as for most others, wisdom usually takes a back-seat. And when
a country is democratic the front seats are always full.
5. Let me illustrate. It is always easier to buy c.i.f and sell
f.o.b. because then you need to do very little.
Others will have to handle the goods, find cargo space and ships and pay
for insurance and a host of agencies and people involved in the transport
and delivery business. And then, of course, the nation will moan over the
fact that Malaysian goods are not carried by Malaysian ships or insured by
Malaysian companies. Why should foreigners who are buying f.o.b. or
selling c.i.f. bother to use our ships or our agencies or our insurance
companies. We will not help them. Why should they help us make more
money. If Malaysians want to earn the maximum profit they should try to
deliver their goods right up to the door of their customers and pick up
their purchases right at the factory door if possible. This means hard
work and greater risks.
But if others can, why can't we. If we can't or won't then let us quit
moaning about invisible deficits.
6. I should say that the British are at the diagonally opposite end from
the Malaysians in their attitude towards the invisible trade. The United
Kingdom pioneered and dominated the world services trade for more than 150
years.
In fact, apart from the North Sea oil, services income is probably still
the single most important pillar of the British economy and balance of
payments. Invisible earnings add billions of pounds to the British coffer
every year.
And yet, the British still felt the need to improve upon their position in
the invisibles trade. So, the Committee on Invisible Exports was set up in
1968 and it became the British Invisible Exports Council in 1983. The
Council, and the Committee before it, must have done an excellent job in
charting new courses of action and promoting earnings worldwide on the
invisible trade of the United Kingdom.
Today, as part of this effort, it is even trying to sell more services to
Malaysia! I wish you the best of luck, if you still need it.
Ladies and Gentlemen,
7. The irony is that Malaysia is already running a very big deficit in the
services trade with the United Kingdom.
In 1983, the estimated services deficit with the United Kingdom amounted
to M$1.2 billion. Although the United Kingdom is now only a distant
seventh as a trade partner of Malaysia, it enjoys the third largest
services surplus among Malaysia's trading partners.
8. Of course, the Government is concerned over the large services and
current account deficits with the United Kingdom. It should be. In the
same way, we are concerned about the nation's overall large and rising
services account deficit as well as the compulsive desire among Malaysians
at all levels for things imported. As a matter of policy, the Government
will not approach the problem of its services deficit with a protectionist
attitude. Instead we will aim for greater efficiency, particularly in the
production of import substitutes and competitively-priced and quality
exports. If protection is required, it should be minimal and it should not
be too much at the expense of local consumers or of efficiency. Since its
formation in 1981, the Council on Malaysian Invisible Trade has worked
quietly to advise Government on the broad strategies as well as specified
policies to promote this critical area of economic activity in
Malaysia. But let us admit that we are not going to be able to reverse the
balance overnight.
Dependent as it is on private and public sector efforts and the close
cooperation between the two, the long haul towards reducing our invisible
deficit must take time. If we throw in Malaysian habits and attitudes as
factors contributing to the invisible trade, then the time required will
be even longer. Given the best will in the world, you cannot make good the
years of neglect by the mere announcement of new policies and
strategies. The issues involved are complex and complicated, involving
large investments and high risks, and touching on the policies of foreign
Governments. But a start has been made. In recent Budgets, the Government
has already provided liberal tax incentives to encourage domestic
investment in ships, and the writing of inward insurance, freight
insurance, and reciprocity in quality reinsurance. The Industrial
Development Bank, has been charged with the responsibility to provide
financial assistance to encourage private investment in shipping, as well
as to raise the capacity and capability of existing shipyards to undertake
ship repairing and the building of ships, to meet both domestic and
international demand.
Strategies are now being formulated to raise the dynamism of the national
shipping lines to import and export shipping services. To ensure that
shipping is being promoted in an effective manner, a National Shipping
Advisory Council will soon be set up to advise the Government on all
matters related to shipping and the national shipping lines.
Payments on freight and insurance cost the nation close to M$3 billion in
1983. Against this, we earn only about M$600 million. There is much to be
done to improve the situation.
Indeed, we need to formulate a national shipping policy to enable the
private sector in particular to play a positive part in promoting
shipping.
9. Returning to the broad issue of invisibles, I must admit that the
Government machinery is not geared at this time to meet the many
challenges posed by the invisibles deficit. I see merit in charging an
agency or unit in Government with the responsibility of streamlining the
process of policy design, decision making and policy implementation in the
many areas of the invisibles trade.
It is important that the Government machinery is appropriately structured
to bring about early improvements in the invisibles deficit. Close
monitoring of performance and timely measures to reduce administrative
bottlenecks and to assist the private sector in playing its part in this
national efforts, will definitely help to progessively strengthen the
nation's capacity and capability in meeting the invisibles threat.
Ladies and gentlemen,
10. Among the many invisibles, the aggressive promotion of tourism offers
by far the best prospects for significant and early results. Excluding
passenger fares, Malaysians spent M$2.1 billion on travel and education
abroad. Inward tourism earned about one-half this amount last year.
Compared with the ASEAN countries, Malaysia has yet to overseas
travellers, but from Malaysian travellers as well as through import
substitution, thereby saving valuable foreign exchange. To approach this
vast area effectively, much planning and original work will need to be
undertaken at a national level to ensure that the two-edged sword of
tourism is promoted systematically and purposefully, consistent with the
preservation of national values and the nation's cultural heritage. The
promotion of tourism as a matter of national priority is set in the
context of a balanced promotion to attract domestic travellers, regional
tourists and long distance tourists. Decisions have been taken to improve
the appropriate infrastructure for travel between Malaysia and her
neighbours, as well as to provide for quality accommodation and recreation
facilities in Malaysia. A necessary ingredient of the tourist promotion
programme is the expansion of the flight frequency and connections between
Malaysia and the rest of the world. It is therefore of the highest
priority that our national air carrier, the Malaysian Airline System, is
allowed to mount regular services to major destinations of the world,
including London, Tokyo, Sydney, and both coasts of the United States. The
present system of calculating flight frequency demands based on
performance without proper consideration of a multitude of other equally
important factors will not bring about equitability for countries like
Malaysia. When we had no airline everyone was free to carry our passengers
and goods. Now that we have an airline, the rules of the game have been
changed again and again to our disadvantage.
11. To our British friends in the invisibles trade, we seek your
understanding of our desire to improve our services trade imbalance. We
ask you to examine our tax incentives and our needs, and help us meet our
aspirations through joint ventures. We recognise, of course, your
expertise in the areas of financial services, underwriting and
reinsurance, and shipping. We seek to co-operate with you for mutual
benefit. We also need to learn from your experience in privatisation. Of
course if we succeed, it may cost you. But even your diminishing share of
a more prosperous Malaysian trading partner would be more substantial than
the big share of a less affluent country.
You have only to count the number of Britishers in independent Malaysia
and the total amount of business you do with us now, to appreciate what I
mean.
12. To all Malaysians, my message is simple. If we want to continue buying
imported goods and services, sustain it by we wish to continue travelling
overseas year in year out, we need to attract more non-Malaysians to visit
our scenic beaches and our National Parks, taste our variety of foods and
enjoy our cultural diversity. We need inflows of tourist receipts to pay
for our tourist spending abroad. No country and no people can afford to
import and enjoy the good life without putting in the necessary effort and
investment to earn the means to pay for them. Indeed, the biggest
challenge before us rests crucially on our ability to first contain, and
later reduce, the growing services deficit. Our strategy in meeting this
problem involves a two-pronged approach -- the first involves a continuing
process to substitute the wide range of services we now import, notably by
buying f.o.b. instead of c.i.f. to save freight charges, by encouraging
Malaysians to travel more in Malaysia rather than abroad, and by building
up local expertise to replace over time the role of foreign contractors
and consultants. The second involves the aggressive export of invisibles
-- by carrying more and more of our exports to earn freight, by attracting
more and more foreign tourists (especially our neighbours) to visit
Malaysia, and by selling our services in contracting and consultancy
abroad.
Ladies and gentlemen,
13. This Seminar cannot be more timely, as we in Malaysia begin to
revaluate our own approach in meeting the problem of the invisibles
deficit. With much pleasure, I now declare this Seminar open.
Thank you.
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