KUALA LUMPUR: Malaysia has been emboldened by its recent success in suppressing the spread of COVID-19 and can take heart from its increasingly sophisticated health interventions.
It has begun easing movement restrictions with reopening the economy the clear priority – necessitated by the unsustainable RM2.4 billion (US$550 million) a day cost of shuttering non-essential businesses.
With increasing fears of widespread job losses, permanent business closures and the hardship these entail, achieving long-term complementarity between health and economic policy settings is the foremost priority.
THE TIP OF THE ICEBERG
The latest labour market statistics represent the tip of the looming iceberg. The unemployment rate jumped 0.6 percentage points month-on-month in March to a ten-year high of 3.9 per cent, meaning around 112,000 fewer Malaysians had jobs.
A more recent Department of Statistics survey found 68 per cent of businesses had zero revenue during the Movement Control Order (MCO) and almost 70 per cent of businesses will not survive two months while providing employees’ paid leave.
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The outlook is particularly grim in sectors that face prolonged disruption, most notably a tourism industry that accounted for 23.5 per cent of total employment when last estimated.
Meanwhile, economic growth fell sharply in the first quarter as investment and exports contracted, with consumption the final fragile pillar propping up the house of cards.
REINFORCING THE ECONOMY
The government has sought to reinforce the economy with a RM250 billion ringgit stimulus package that draws heavily on public institutions. It focused on immediate needs, providing cash and cost relief for businesses and vulnerable citizens, partial wage subsidies, loan payment deferrals and preferential credit facilities.
Representing around 17 per cent of GDP if fully implemented, it could provide a substantial temporary lifeline for the economy and jobs.
The prevailing strategy falls short on several fronts however, most concerningly its short-term, stop-gap orientation.
The stimulus measures range from one to six months in duration and appear premised on a return to normal within that period, with concerns around the cost of extending these measures reflected in the government’s urgency to reopen the economy.
The emphasis is on putting things back the way they were with heightened operating procedures to reduce infection risks, which ignores the major transition to a new normal facing local and global economies.
This transition could be better facilitated with some savvy policymaking. As Health Director-General Noor Hisham said on May 1 when the conditional MCO was announced: Just as the country managed to flatten the curve, Malaysia must “strike a balance between life and livelihood”.
ARREST WEAKENING CONFIDENCE
The first and overriding objective of the economic response must be to address declining consumer and business confidence.
Consumers will avoid discretionary spending if they fear losing their jobs and businesses will delay investments (or reopening) if they anticipate frequent and prolonged closures under lockdown.
“After two months of lockdown, most businesses are struggling, people are restless, and life has become a cycle of desperate hope and bitter disappointment,” a Malaysian man said, echoing national sentiments on Twitter.
Allaying these fears not only requires effective and healthy operating procedures for periods when the virus appears contained but more efficient and better targeted interventions for when hotspots emerge.
Enhanced MCO procedures must continue to be refined to minimise the areas isolated and maximise the timeliness of testing and quarantine.
PUT SAFETY FIRST
The essential/non-essential business distinction that was fit-for-purpose under the original MCO must now evolve to distinguish between safe/unsafe to operate.
Safe but non-essential businesses need to know that they can operate under enhanced hygiene, social distancing and work-from-home arrangements without facing abrupt closure under another nationwide lockdown.
Stricter operating procedures alone are not enough; federal and state governments need to provide clear expectations around the management of future infection surges.
RETHINK CURRENT GEOGRAPHICAL BUBBLES
A smarter approach to geography should also underpin a more nuanced response. Ordinarily arbitrary state borders in Peninsula Malaysia have become blunt containment lines with limited health benefits and severe economic costs.
The greater Kuala Lumpur area - encompassing two federal territories and Selangor state - is an economic ecosystem built on the cross-border movement of consumers as much as workers, not to mention business inter-connectivity.
The same is true of Johor-Singapore interlinkages, though as an international border this comes with additional challenges.
That residents of areas like Petaling Jaya, Damansara and Ampang cannot cross to the Kuala Lumpur side of their streets but can travel freely to remote border regions over 100km away is incongruous with both health and economic objectives.
Discouraging interactions and movements associated with virus spread can be achieved without maintaining such border restrictions, while developing a travel bubble between Malaysia and Singapore (and other neighbours depending on virus developments) should form part of pandemic period plans.
BOOST THE DIGITAL ECONOMY
Adjusting to the pandemic environment presents an opportunity to boost Malaysia’s digital economy. Online sales and services command an increasing share of the modern economy and are much less vulnerable to virus-related restrictions.
Malaysian e-commerce has grown rapidly in recent years to around US$4 billion, but its significant potential remains largely untapped. The constraints appear mostly supply-side, with broad uptake by consumers but more narrow adoption by businesses.
Building on recent initiatives like the Ramadan e-bazaars to get small businesses online and recognised should be a core strategy for the pandemic and beyond.
A joint effort between governments and commercial landlords (such as shopping malls) to develop centralised online sales platforms and web design services would reduce business dependence on foot traffic and generate IT and logistics jobs for displaced Malaysians.
Broadening the digital economy and pandemic-proofing businesses more generally would benefit from increased investment in supporting infrastructure.
Working and shopping from home raises the demand for internet bandwidth, as illustrated by average mobile internet speeds declining by around a third during the first MCO period.
The stimulus package allocated RM400 million to relieve network capacity constraints where digitisation has been a central pillar of recent budgets. Continuing and where possible accelerating the rollout of the National Fiberisation and Connectivity Plan should be a priority unaffected by budget constraints and COVID-19.
Investments in logistics infrastructure and industry competitiveness are equally crucial to supporting a more delivery-centric economy.
Fast-tracking beneficial infrastructure investments like these would also provide an immediate stimulus for economic activity and a springboard for a stronger post-pandemic rebound.
STRENGTHEN SOCIAL SAFETY NETS
Keeping people employed is crucial to preventing destitution in countries like Malaysia that lack comprehensive social safety nets.
Unemployment protection remains unavailable for 40 per cent of workers and payments to those covered last just six months at a rapidly decreasing monthly rate.
The inadequacy of social protection underpins a potentially harmful government emphasis on Malaysians accepting whatever work they can get and a harder line on foreign workers.
At a time when businesses already face significant disruption and lack the capital to invest in automation and retraining, foreign worker repatriations and mass deskilling of Malaysians could further damage the reopening economy and later recovery.
While the labour market is only beginning to adjust, policies should focus on supporting temporarily unemployed persons to find suitable alternatives and/or invest in new skills.
Malaysia could follow Australia’s lead by funding short courses in priority sectors and expanding temporary social protection, though fiscal constraints may limit the scope of such worthwhile initiatives.
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WHAT REOPENING NEEDS
“We need to adapt to the new norms to survive … The WHO announced yesterday it might be a long haul of five years – an unprecedented challenge in difficult times,” Noor Hisham had tweeted on May 14.
Malaysia’s economic reopening could take a leaf out of the Health Ministry’s playbook in developing a strategic and clearly communicated approach centred on restoring confidence.
One that eliminates unnecessary geographic and definitional barriers, minimises disruption risks, facilitates adjustments to a new normal and invests in digitisation and upskilling - a strategy that empowers and unites Malaysians for the long battle against COVID-19.
Stewart Nixon is a research scholar at the Crawford School of Public Policy, The Australian National University and a research visitor at the University of Malaya.