By Yasmin Ramlam
Selangor’s strong fundamentals will attract investors, but it must not stray from its plans, says economist.
SELANGOR has recently been recognised as a high-income state by the World Bank, a significant milestone that reflects the Selangor government’s effective governance and strategic planning.
According to Apurva Sanghi, the World Bank’s lead economist for Malaysia, Selangor has surpassed the high-income threshold with a gross national income (GNI) per capita of US$14,291 (approximately RM63,000). This accomplishment not only nods to Selangor’s robust economic framework but also highlights the state’s commitment to fostering an environment conducive to growth and innovation.
The announcement is a testament to Selangor’s resilience and adaptability, especially in the face of challenges such as the Covid-19 pandemic and economic fluctuations.
Under the leadership of Menteri Besar Dato’ Seri Amirudin Shari, the state has implemented comprehensive development initiatives that span various sectors, including manufacturing and services, which are crucial for sustaining the economic momentum.
Speaking to Selangor Journal, Apurva projected that Selangor’s high-income status reflects its strong economic fundamentals that will attract firms and investment.
He explained that the World Bank revises its income thresholds annually to account for inflation and economic conditions.
“Hence, reaching high-income status does not automatically bring immediate changes to Selangor.
“Rather, we view it as a recognition of a reasonably well-run economy with strong fundamentals, and it is a good signal for Selangor to send to investors,” he said.
However, he emphasised that it remains essential that Selangor stays on its trajectory of modernising its investment ecosystem. This includes, for example, automating the incentive regime and simplifying the investment promotion network. “Of course, Selangor is not alone in this journey. Providing inputs and coordinating with the Federal level and its policies in a synergistic manner is also important,” he said.
Quality over quantity
Aside from Selangor, four other states have exceeded the minimum threshold for GNI per capita. They are Kuala Lumpur (US$29,967/ RM130,500), Labuan (US$19,117/RM83,200), Penang (US$16,600/RM72,200), and Sarawak (US$16,560/RM72,100). Kelantan, Perlis, and Kedah remained the bottom three with GNI per capita of US$3,850/RM16,700, US$5,490/RM23,900, and US$6,027/ RM26,200, respectively.
Apurva clarified that as Selangor advances into the next development phase, it should adopt its policies and strategies more forcefully to sustain its high-income status and address the challenges associated with higher levels of income and development.
“Notably, enhancing its digital connectivity, innovation, and technology adoption would serve Selangor well.
“It is also worth noting that merely accumulating resources is no longer sufficient to maintain growth, let alone ensure its benefits are shared equitably.
“A sustained increase in private investment, coupled with productivity improvements, will be necessary to maintain a sustainable economic growth trajectory. It is more about quality of growth than quantity of growth,” he said.
Congratulating Selangor on its achievement, Apurva highlighted that only a handful of Malaysian states and Federal Territories have crossed the high-income threshold. Therefore, achieving high-income status is a key milestone for Selangor.
“Our global experience shows that sustaining high-income status requires a transition to more knowledge-intensive and productivity-driven growth, closer to the technological frontier, as well as more inclusivity and sustainability,” he said.
He also pointed out an example of a positive development in Selangor — the recently launched integrated circuit (IC) design park.
If implemented well, Apurva said, it will be capable of attracting high-quality investment, fostering innovation, and creating high-value jobs.
Boosting worker productivity
Apurva said Selangor’s new status has led to a widening of absolute income gaps.
He explained that this situation is not surprising because, as an economy grows and household incomes rise, the income gap between the rich and poor typically widens.
This is largely because wealthier households start from a higher base, resulting in greater absolute income gains.
“For example, a 10 per cent increase in income for a household earning RM2,000 versus RM10,000 will result in a RM8,800 gap between both households, which is larger compared to the RM8,000 gap prior to the increase.
“However, a singular focus on eliminating absolute income gaps could undercut potential income growth across the income spectrum,” he said.
Apurva further noted that a more effective measure is relative income inequality. In Selangor, this has improved between 2019 and 2022, as evidenced by a decrease in the GNI coefficient from 0.393 to 0.361 during this period.
For reference, the GNI coefficient measures income inequality, with a lower value indicating reduced inequality.
“So incomes of low-income households in Selangor can still catch up to higher-income households as long as relative income inequality declines.
“Relative income inequality refers to the average disproportionality of income. If the income of the poor grows faster than that of the rich, relative income inequality decreases.
“It should be possible to accelerate the ‘catch-up’ process through improving access to the B40 to more remunerative employment.
“Therefore, even if absolute income gaps increase, those gaps will diminish in importance as the B40’s base effect grows and their share of total income increases,” he said.
Recognising that a high-income status doesn’t always correspond with low poverty rates, he recommends that Selangor implement strategies to tackle existing poverty.
These include boosting labour incomes and productivity and addressing human capital gaps at an early stage.
“Higher labour incomes through greater worker productivity could be achieved via investment policy to attract investments in new and existing enterprises that will create more skilled jobs, especially high value-added jobs in the services sector.
“It is crucial that the new progressive wage policy, when it applies to Selangor, is backed by improvements in productivity. Meanwhile, human capital gaps can be addressed earlier in the life cycle,” he said.
Additionally, he said adequate healthcare, including antenatal care and early childhood education, provides the foundation for a productive life and is far more effective than remedial measures later in life.
“Paying explicit attention to these aspects can only further strengthen Selangor’s economic and societal fundamentals. Again, working closely with the Federal level will be important,” he said.
This article first appeared in the Selangor Journal September 2024 special edition, published on September 7, 2024.
