Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : AUDITORIUM, BANK NEGARA MALAYSIA
(BNM), KUALA LUMPUR (K.L)
Tarikh/Date : 06/01/92
Tajuk/Title : THE SECOND EXECUTIVE PROGRAMME ON
PROJECT APPRAISAL AND RISK
ANALYSIS MANAGEMENT
I would like to thank the organisers for inviting me to
open this Second Executive Programme on "Project Appraisal
and Risk Analysis Management" organised by the Harvard Club
of Malaysia, the Institute of Bankers Malaysia and the
Harvard Institute for International Development. I am de-
lighted to be here this morning and to have the opportunity
to meet all of you.
2. I note with interest that this course programme has
brought together once again a diverse group comprising sen-
ior members from the banking community, the insurance indus-
try, the public service, the universities and the private
sector as well as participants from neighbouring ASEAN coun-
tries. The course is timely as it meets a specific need -
i.e. the acute shortage of professionals well-versed in the
art of appraising and evaluating projects for financing and
those skilled at managing risk analysis, including the reha-
bilitation of non-performing projects. Given that the total
flow of fixed investment by both the public and private sec-
tors will amount to about $284 billion in nominal terms over
the Sixth Malaysia Plan, the need for such technicians to
ensure that we only invest in ventures that are commercially
viable and financially sound cannot be over-emphasised.
3. The Malaysian economy has been on a strong up-swing
since 1987. In 1990, real economy expanded at 9.8%, one of
the highest rates of growth in the world. In fact, the out-
turn for 1990 was the highest since 1976 and even outpaced
the performance for that year of the four Asian Tigers, as
well as most of our ASEAN neighbours. The outstanding per-
formance in 1990 was particularly encouraging because it was
realised at a time of global uncertainties, and recession in
several major industrial economies. More importantly,
growth in 1990 was achieved in a stable environment with low
inflation.
4. Since then, another year has come and gone. Latest in-
dicators suggest that the pace of domestic economic activity
had remained strong in 1991. Despite the continuing uncer-
tainty regarding the world economic environment, real GDP
growth in Malaysia accelerated rapidly to 8.8% in the third
quarter, from 7.5% and 8.4% in the first and second quarters
respectively. And, indications are that real GDP growth for
1991 as a whole should reach 8.5% or higher, and is expected
to be in excess of 8% for 1992. As in previous years, much
of the impetus for growth will continue to emanate from the
strength of domestic demand, particularly private fixed in-
vestment spending. During the first nine months of 1991,
MIDA has already approved a total of $22.7 billion in new
investment projects, almost matching the record of $28.2
billion approved for the whole of 1990. The rapid pace of
investment activity should sustain Malaysia through another
year or two of reasonable economic growth, at the very
least.
5. As in most things in life, there is a price to be paid
for rapid growth, particularly when growth has been sus-
tained at a high rate over an extended period of time. In
our case, the main issues at present concern inflationary
pressures and a weaker balance of payments position. These
are essentially the problems of managing economic success.
6. On the issue of inflation, it is important that this is
viewed in the proper perspective. It is true that prices
have been creeping up gradually, from a low of 0.4% in 1985
to just over 3% in 1990. Latest data showed that the CPI
has increased further to 4.4% during the first ten months of
1991. To a large extent, this latest round of price in-
crease is the result of the sharp rise in consumer spending,
which, coupled with record levels of private investment out-
lays, is clearly putting a strain on our limited resources.
To ease the situation, the Government has already put in
place a contractionary monetary package to discourage con-
spicuous consumption and promote savings. Bank Negara's
actions to restrict the growth of bank liquidity and the
tightening of access to consumer credit will go a long way
towards moderating consumption growth in the country. At
the same time, efforts to expand the nation's infractructure
facilities will be intensified during the Sixth Malaysia
plan period to overcome supply bottlenecks and prevent ris-
ing costs.
7. The other problem concerns the external payments posi-
tion, an issue which has generated considerable public de-
bate lately. Here again, it is imperative that we view the
deficit problem in its proper perspective. To begin with,
we expect the 1991 current account deficit to reach 8-9% of
GNP at most; certainly nowhere near the record deficit of
14% in 1982. More importantly, the deficit that you see to-
day reflects largely the sharp increase in imports of capi-
tal plant and equipment associated with the inflows of
direct foreign investment. After a reasonable gestation pe-
riod, these investments in new productive capacity should
generate higher growth in exports and help strengthen the
current account position over the medium term. I should
also point out that, unlike the situation in the early 1980s
when the deficit was funded by heavy Government borrowing
abroad, today's deficit is being financed entirely by in-
flows of direct foreign investments and reinvestments.
8. In contrast, the nation's outstanding external debt has
declined progressively, so much so that by the end of 1991,
the debt service ratio should be reduced to about 6.5%. In
any case, what matters most, in the final analysis, is the
overall balance of payments position, which covers both the
current account as well as the capital account. On this
score, the strength of the country's balance of payments is
beyond reproach. It has been in surplus in 1991, as in
1990, as evident by the recent substantial accumulation of
international reserves held by Bank Negara Malaysia. Seen
in this perspective, the problem of the current account def-
icit becomes much less daunting. And with the expected re-
covery in some major industrial countries in the year ahead,
our exports can be respected to rise faster. All these de-
velopments should contribute positively towards a manageable
current account deficit position in 1991/92, with the strong
possibility of a turnaround into a surplus current position
over the medium term.
9. Associated with the issue of the current account defi-
cit is the problem of the shortfall of domestic savings over
investment. This underscores the need to push really hard
on the policy to increase the mobilisation of private
savings in the country. At the same time, one should not be
unduly worried over the existing savings-investment gap in
the short run, as this gap needs to be seen also in the
proper perspective. The gap arose simply because Malaysia
has become such an attractive investment centre that domes-
tic savings were just not able to keep pace to finance all
the investments that had been generated in recent years. As
a result, we had to supplement domestic savings with foreign
savings which are readily forthcoming. This reasonable re-
source gap, can be tolerated in the short run, particularly
as the rapid rise in imports is associated with the inflows
of direct foreign investment. It is expected that foreign
investors bring in a fair share of their own funds to fi-
nance their investment projects in Malaysia. When invest-
ments were small domestic loans can be expected to support
foreign capital. But with large increases in investments,
reliance should not be placed on the limited domestic re-
sources. The bottom line is that, like fire, the resource
gap is not dangerous when it is small and properly managed
(especially when fully financed by private capital flows),
but can be threatening when it is large and persistent.
10. What is of urgent concern, therefore, is the declining
trend in the national savings rate. Traditionally,
Malaysians have always been big savers: over the last two
decades, the annual savings rate exceeded 30% of GNP, on av-
erage. Lately, however, the savings rate has declined to
just under 30% in 1990, from as high as 33.6% of GNP in
1987. For 1991, the rate is expected to have declined fur-
ther to about 28% of GNP. To a large extent, the decline in
savings reflected the boom in consumer spending, triggered
by rapid real growth and improved incomes. Given continuing
high and rising incomes, private consumer spending has been
expanding at nearly 15% in real terms over the three years
ending in 1990. Although there appears to be some moder-
ation in consumer spending in 1991, the current rate is
still well beyond the historical norm of 6-7% annually.
Changes in Government pension schemes will also affect
savings as Government employees will be placed on
pensionable establishment 7 years earlier than before. Con-
tribution to the EPF will be reduced accordingly.
11. Clearly, higher consumption cannot continue indefi-
nitely. While I have nothing against people enjoying a good
thing while it lasts, I think it is vital for our economic
sanity that we save. Above all we must not spend beyond our
means.
12. It is said that credit cards spending involves only a
minute amount of the total loans extended. However the
habit is catching and once a society gets used to easy cred-
its the tendency to spend beyond one's means will become a
habit. What is small to-day will become sizeable later and
once it is sizeable controlling the habit is not only dis-
ruptive but can actually affect the livelihood of a consid-
erable section of the community. Thus the recent squeeze on
credit by Bank Negara Malaysia has affected many traders ad-
versely.
13. This Second Executive Programme of the Harvard Club is
perhaps a useful occasion to reflect on the importance and
role of human resource development in nation-building, and
in particular, in achieving developed country status by the
year 2020. Much has been said and written on this subject.
Nevertheless, I feel it would be worthwhile to stress once
again on certain important aspects of the development of the
nation's human resources. In our attempt to move vigorously
ahead, nothing is more important than the purposeful devel-
opment of our human resources. From the experience in the
last four decades of the economic successes of countries
poor in terms of natural resources, it is obvious that the
most important resource of any nation is the talents,
skills, creativity and dedication of its people. In other
words our people must be our most important resource. If
the nation is to succeed in its quest for economic and so-
cial development, its human resources will need to be highly
developed. Human resource development not only helps to in-
crease the productivity factor, but will bring about a bet-
ter distribution of income and assist in achieving the
restructuring objective of our National Development Policy.
14. In our pursuit to attain the goals of Vision 2020, both
the Government and the private sector will need to success-
fully implement an effective human resource development
programme. The current rapid industrialisation, spurred on
by an influx of foreign direct investment, specifically will
require an increasingly more sophisticated manpower skilled
in appraising and evaluating these investments to ensure
that only the financially sound and commercially viable
projects are screened through. Once on going, these
projects will also need sufficiently skilled personnel to
manage them and the associated risks. As such, there is a
need for the various sectors to carefully identify and
meticulously plan for their current and prospective manpower
requirements in order to meet their needs in the future.
15. Manpower plans should address skills shortages, staff-
ing needs, career development, attitude change and produc-
tivity. Emphasis should be on building the level of
professionalism and enhancing the quality of the labour
force. The ingenuity, innovativeness and capacity to absorb
and adopt technology, and the motivation to compete would
need to be nutured and developed in our labour force. In
this regard, the private sector will need to also play its
part to ensure a constant supply of technical and managerial
skills, by effectively mobilising and training the available
pool of talents.
16. For its part, the Government, through its basic educa-
tion and training programmes, will continue to upgrade fa-
cilities to provide an educated and trainable workforce with
skills in science and technology, who are usable across all
sectors and industries. In addition, the private sector
could seek the use of Government facilities to carry out
their own training programmes, during periods when such fa-
cilities are available.
17. While we are on this subject, we cannot afford to neg-
lect the importance of entrepreneurship and entrepreneurial
development which goes beyond mere education and training.
I should call upon all bankers to be more supportive of
innovators in the business field when appraising their
projects, particularly from those entrepreneurs with the vi-
sion, dynamism and fighting spirit to follow through with
their ambitions and dreams. Although bankers, as the custo-
dians of public funds, are expected to be conservative,
there are times when there is a need for bankers to be more
adventurous and to be more forthcoming with venture capital
or seed money for selected projects that badly need and de-
serve financial assistance. In short, I would like to call
on the banks to practise innovative banking to support local
entrepreneurship. I am sure this can be done without undue
sacrifice of traditional banking prudence. At the same
time, of course, bankers need to always maintain the highest
sense of honesty and integrity in all their endeavours. The
taking of calculated risks and prudence are not incompat-
ible. What I am asking is for the banker to get out of his
comfortable "safe cocoon" and venture into the exciting
world of "creation" - to put his special skills in project
evaluation and the management of risks to bear on the fi-
nancing of creative enterprises, where ideas and not phys-
ical assets form the collateral; where project feasibility
is sufficient ground for him to commit his bank, and where
the longer term interest of the bank over-rides short-term
gains.
18. In this connection, it is also important for our
Malaysian workforce in general, to be inculcated with posi-
tive attitudes, the right ethics, the willingness to work
hard, and the motivation to serve. The will to work, to
serve, to make personal sacrifice in the pursuit of national
goals, which in fact coincides with personal goals are the
sine qua non of success. As such, apart from imparting
knowledge and skills, training institutions should also
instil in the workforce the will, the discipline and the in-
spiration to serve. I should stress here the importance of
conducting "spirit-building" courses to develop the
resilience and perseverance needed for hard work and to give
workers the confidence to face new challenges at their
workplace. The workers of the dynamic eastern nations use
all their working hours for work. Preparations and cleaning
up are not done during working time. Additionally all work-
ers are prepared for daily overtime in order to make up for
labour shortage. Workers who are able to suggest changes to
improve productivity should be fully encouraged to do so.
In many instances they know better their working conditions
and how they can be improved for greater efficiency.
19. Quality is the by-word in all products and services
now. We have moved from minimal defects to no defect and
then on to total quality. We have also moved from product
quality to total quality management i.e. maximum quality
throughout the whole activity of a company. The next step
must be maximal national quality in which the Government
sector and the private sector must optimise quality.
20. The Government has launched the Q campaign which
emphasise quality in every aspect of national life.
21. Improving the quality of manpower must, in turn, help
towards raising productivity. Looking at the world economy
and the growing competition to attract scarce capital and
foreign investments, Malaysia has no choice but to devote
greater efforts at ensuring the maintenance of a productive
and high quality labour force if we are to remain compet-
itive. The National Development Plan requires increases in
the efficiency of all sectors, and with it, rising produc-
tivity, i.e. higher costs of labour and capital are matched
by the production of goods and services which compensate for
the cost. Increased production with increased cost cannot
be equated with increase in productivity. Not only will
competitiveness be lost but inflation will follow. An exam-
ple of technologies contribution to lowering cost and in-
creasing productivity is the hand-held calculator which can
do the work of the room-sized first computer with greater
efficiency. In the process labour and capital costs per
unit are vastly reduced while markets are increased.
22. As a result of the rapid economic growth in recent
years (1988 - 1991), the strong demand for manpower had re-
sulted in the escalation of wages. This is only natural.
But we need to ask ourselves what we mean by wage increase.
Is it merely an increase in the number of ringgits we get or
an increase in our purchasing power?
23. It is obvious that more money which buys the same
amount of goods as less money is quite meaningless. Worse
still is more money which buy a lesser amount of goods.
24. Yet it is well known that the more money there is
available to wage and income increases the higher will the
price of goods be. And why not? The seller of goods too
wants a higher income and so do his employees. His higher
profit and his increased cost of labour will have to come
from higher prices for his goods, which of course reduces
the purchasing power of his customers. A 10 % increase in
pay will not cover a 10 % increase in cost and profits of
all the goods and services he used to buy. Only a lesser
increase in price would do this but why should others have a
lesser increase than the wage-earner?
25. I know I am tediously repeating what all of you know.
We all know why some countries have inflation rates of thou-
sands of percent per year. We all know why some units of
currency like the lira or the pesos of Latin America are now
worth fractions of their original value. We all know why
national budgets run into trillions of billions of currency
units when the noughts really mean nothing in terms of
wealth.
26. We can get pay packets of millions of ringgit too but
it would be quite meaningless, for we will be no richer than
we were when we received $100 per month. It will be like
saying that our pay is 10,000 cents.
27. Our thinking on income is based on conventional ideas
of reward for service. Despite much talk of wage price
spirals we still demand for higher wages as if we will be
richer simply because the number of noughts are more.
28. In some countries which seem incapable of getting out
of recession and becoming competitive, the pay for top
excutives is ridiculously high. Executives get double or
treble annual increments, a percentage of the profits and
stock options. Shareholders don't seem to mind as long as
they too get good dividends.
29. Consequently executives strive to show profits every
quarter while the long-term fate of the business is ignored.
Research and Development, re-investment of profits to update
facilities, marketing and promotions and other steps to en-
sure the continued health and competitiveness of the company
are all ignored in order to show the highest quarterly pro-
fits possible. Executives and workers literally rob the
company blind. Yet these companies seem suprised when they
cannot seem to do well.
30. In Japan the pay of executives after tax is approxi-
mately 7 times the average wage of the rank and file. Perks
are given in the form of lavish entertainment allowances to
promote the companies' interest. Visits abroad on company
business with more wining and dining are encouraged. There
are no stock options. Bonuses paid, if any, are at the same
rate as for other employees.
31. Shareholders get little by way of dividends. They can
make excessive capital gains if they sell. They can play
the stock market. But they can rest assured that their com-
panies are healthy, are expanding and are accumulating mas-
sive assets.
32. Clearly we need to rethink the basis of reward for ser-
vice. Our present practice will lead to inflation and re-
gression of the national economy and in time our own
personal wealth. It is fine to follow a system that seems
to promise unlimited reward but in the long term the whole
system will turn sour.
33. Company and bank executives and employees should ponder
on the different philosophies of East and West. We are
still a part of the dynamic economies of East Asia. How
long will Malaysia remain a member of this elite group de-
pends not only on how the Government manages the economy but
on the understanding of the working of the economy by work-
ers, managers, directors and the shareholders. A free en-
terprise system does not guarantee economic success. It is
how we apply the system which will.
34. In conclusion, let us remind ourselves that we should
always strive to attain the highest standards when it comes
to human resource development -- be it the development of
skills of our people, or their quest to upgrade knowledge
and understanding of the economic fundamentals, or the
inculcation of good work ethics and discipline, or the main-
tenance of excellence, or the fostering of the
entrepreneurial spirit. So long as we keep improving in ev-
ery field, we shall remain competitive.
35. To sum up, I should say once again, regardless of
whether you are in the Government or in the private sector,
that you should always:-
- Train your own manpower;
- Improve their understanding of economic fundamen-
tals;
- Equip them well to cope with changing tasks and
changing times;
- Look after their interests;
- Upgrade their skills;
- Manage them well;
- And, reward them for their contribution.
36. On this note, it is with much pleasure that I offi-
cially declare open "The Second Executive Programme on
Project Appraisal and Risk Analysis Management" organised by
the Harvard Club of Malaysia, the Institute of Bankers
Malaysia, and Harvard University.
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