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Prime Minister Datuk Seri Anwar Ibrahim introduced the groundbreaking Madani Economy framework on July 27th with the aim of empowering the people and elevating the nation’s economic status.

Key initiatives include restructuring the economy, enhancing citizens’ quality of life, fostering innovation, and expanding our global market presence. In an exclusive interview, economist Dr. Nungsari Ahmad Radhi  (pic) sheds light on the Madani Economy and its transformative potential.

Q: In simple terms, what is the Madani Economy, and what benefits can it bring to the common people?

A: The Madani Economy embodies the philosophy of economic development and growth originating from societal factors, values and norms. 

For example, the societal approach needs to align with the founding principles of Malaysia as envisioned by the late Tunku Abdul Rahman Putra and enshrined in the Malaysian Constitution.

Given the slow economic trajectory with unequal income and wealth distribution, and a weakened competitive position to attract investors, the Madani Economy framework is a timely move to reform and transition our economy to a better path by fostering growth that enhances the well-being of the people and the nation’s competitiveness across different sectors.

Q: Some economists argue that the Madani Economy isn’t significantly different from the New Economic Model (NEM) and Economic Transformation Program (ETP), claiming that tangible benefits to the people are questionable. What is your take on this? 

A: First of all, the New Economic Model isn’t based on societal and community factors. It also wasn’t properly implemented. The project-based Economic Transformation Program (ETP) did not deliver the intended results too.

Malaysians may have frequently heard about the economic grow each year, however, the real benefits are not felt by the people facing daily challenges.

Q: How can the Madani Economy provide a solution to the mismatch between Gross Domestic Product (GDP) and the quality of life?

A: The Prime Minister himself used this argument – what’s the point of growth if its benefits are not distributed evenly? 

When looking at economic activities that drive growth, we observe certain characteristics that explain the overall low wages and imbalanced distribution of benefits.

For example, much of the manufacturing sector involves assembly with low value-added components, resulting in low wages.

The same applies to the construction sector, where low technology utilization and the influx of low-skilled foreign workers further suppresses wages.

Another example is the services sector in Malysia – excluding tourism-related activities – that relies heavily on domestic demand. To put it simply, domestic markets with lower income levels and purchasing power limit the growth potential.

This creates a cycle where the economy becomes increasingly domestic-focused, depending on domestic demand with low income and low wages.

Until we improve the country’s competitiveness, increase the presence of Malaysian companies in international markets, and expand foreign trade, without a structural economic change, transitioning to a new path that benefits the people remains an uphill task.

The Madani Economy is premised on economic transformation towards a competitive nation. 

Q: When inflation occurs, prices of essential goods and food will rise as a result. What can the government do to reduce the cost of living?

A: Inflation is caused by various factors including the Russia-Ukraine conflict, which impacts global food trade, along with sudden interest rate hikes in the United States.

This strengthens the dollar against other currencies, including the Malaysian Ringgit. Consequently, all imported goods and services become more expensive.

Efforts to control inflation include prudent fiscal policies to instill confidence are underway and the Madani Economy helps consolidate all government initiatives into a comprehensive framework.

Apart from creating new growth and jobs, the government is continuing the subsidy programmes for target groups while enforcing price ceilings on essential goods to counter the loss of purchasing power due to inflation.

Q: How can the Madani Economy help strengthen the Ringgit?

A: Malaysia’s economy has become increasingly domestic-driven in the last 20 years. The services sector, being the largest sector, reflects such a dire situation. Prior to the 1998 Asian economic crisis, trade exceeded double (200%) the size of the economy; now, it’s only slightly larger by 20%.

The sharp reduction in international trade means demand for the Ringgit will drop, hence weakening our currency. Furthermore, the KLSE is no longer a major Asian stock market with declining fund inflows and Foreign Direct Investment (FDI), which contribute to Ringgit’s weakening over the past two decades.

There’s one way to structurally uplift it. Develop competitive companies capable of exporting to international markets. We need to internationalize our economy from a small- and medium-sized enterprise (SME) perspective to a large company perspective. 

Increasing international trade will bolster demand for the Ringgit and strengthen its value as a result. This is inherent in the Madani Economy. With competitive companies, the stock market is expected to flourish, hence attracting capital inflows to elevate the Ringgit.

Q: Will ordinary people fall further behind if Malaysia upgrades to a high-income economy? How can young Malaysians benefit from large investments?

A: All large investments including FDI take time to realise their full potential including job opportunities. There must be skill preparation to meet the future demands of those companies. Without a sufficient skilled workforce, investors won’t expand their business to Malaysia.

The fact that many young Malays don’t pursue further education or skill training after leaving school is concerning. Being engaged in the gig economy or social media isn’t a sustainable career or entrepreneurship path. Those lacking specialized skills or advanced education will face hardships.

In this context, the societal aspect of Madani Economy emphasizes a continuous improvement mindset of lifelong learning.

Q: The Madani Economy aspires to make micro, small, and medium enterprises (MSMEs) regional champions. How can it be achieved?

A: Internationalization of MSMEs is key. Transforming businesses or entrepreneurship into competitive entities in the international market is the way forward. 

The Madani Economy aims to foster innovation within small firms, not just large ones. The ability to competitively penetrate international markets will be the yardstick.

The government’s Free Trade Agreements (FTAs) with many countries provide a pathway to diverse markets. Stronger bilateral economic cooperation beyond the ASEAN level of collaboration with neighbouring countries should be established.

For example, the economic cooperation zones with Singapore that allow goods and workers to move freely between the two countries will open up more bilateral markets.

Q: The Madani Economy emphasizes increase in wages to contribute more to Malaysia’s GDP. How achievable can that be?

A: This requires companies to change their practices. If certain economic activities are still conducted in traditional ways, wages won’t change much. The potential change is limited to the minimum wage. Companies driven by domestic market will only be able to afford limited wages.

However, if innovations and new technologies that require fewer workers to yield results are introduced, wages will naturally rise. Selling products or services to higher-paying international markets will help increase wages too. 

This explains why the Madani Economy emphasizes the internationalization of MSMEs as the main agenda for economic transformation. 

Q: How can the Madani Economy help increase women’s economic participation as compared to previous economic frameworks?

A: Due to the general societal norms and attitudes towards women, plus the declining participation after having kids, Malaysia isn’t utilizing its human capital effectively in its economy. 

Therefore, support for working women, especially those with children, is a key driver. Employers’ attitudes towards mothers who give birth and care for their children leaves much to be desired. 

The Madani Economy suggests increasing women’s participation in the workforce through legal means and incentives for employers. Having workplace childcare facilities is a good move. 

And of course, laws and policies must ensure no discrimination against working mothers. 

Q: What could undermine the Madani Economy from becoming a reality?

A: Institutional and economic reforms are not an easy task at all. They will be opposed by those with vested interests in maintaining the status quo. They will also be opposed by those who oppose for the sake of opposing, without offering better alternatives.

Every policy decision has costs and benefits. There are winners and losers. There are no policy decisions without trade-offs. Understanding this, along with the ability to evaluate facts and data, is necessary to navigate the reform process.