In a statement, Samenta president William Ng said the government could not bear complete blame for the drop in ranking, which he primarily attributed to a low GDP growth per capita due to the rapid increase in unskilled and semi-skilled foreign workers in 2023.
He noted that Malaysia had dropped significantly in five of the 20 sub-factors that provide equal weightage to the ranking: domestic economy, productivity and efficiency, technological infrastructure, management practices, and attitudes and values.
“(The sharp rise in unskilled and semi-skilled foreign worker numbers came) at a time when our GDP growth was hammered both by the war in Ukraine and the conflicts in the Middle East.
“This in turn also impacted our performance in the productivity and efficiency sub-factor, as the ranking took into consideration growth in productivity in various sectors each year,” he said, noting as well that the ranking had placed the said sub-factor at 53rd, down by 17 places from 37th in 2023.
Ng said businesses, including SMEs, must quickly cut their reliance on unskilled and low-skilled foreign workers and government procurement and handouts, urging them to adopt artificial intelligence and digitalisation tools, among others.
In the ranking released last Tuesday, Malaysia dropped seven places to 34th out of 67 countries. It also fell four places to 10th out of 14 countries in the Asia-Pacific region, marking the first time it has ranked below Indonesia and Thailand.
Investment, trade and industry minister Tengku Zafrul Aziz attributed the drop to a fall in electronic communications exports due to lower global demand and increased global competition for electronic communications products last year.
He said the ranking was expected to improve this year, based on the many new investments from electrical and electronics companies in Malaysia as well as from multinational corporations.
However, economist Noor Azlan Ghazali said the drop in ranking was more due to long-term factors involving structural elements such as taxation, productivity and efficiency, trade regulations, the labour market, institutions, infrastructure and education.
While Ng praised the government for reducing bloated subsidies and closing loopholes for tax evasion through initiatives like e-invoicing, he also urged Putrajaya to liberalise labour regulations and hold Malaysians “accountable to individual productivity”.
“(Malaysia) must also move away from the ‘government-knows-best approach’ and learn to trust businesses more while holding them accountable for their actions and results.
“Unless we change the mindset of more agencies from an enforcement/regulatory perspective to one that facilitates businesses and allows for self-checks and self-governance, this disconnect between the government and businesses at large will continue,” he said.