Penang Economic Next Normal

Penang Economic Next Normal

17 April, 2020

17 APRIL 2020

Mounting Uncertainties

2020 has all the makings of a challenging year. The Covid-19 outbreak has sent global industries and economies into a tailspin, post significant threats to the healthcare system and severely disrupting the supply chain and dampening consumer spending. It has overshadowed the yet to resolve US-China trade and technology war.

In Malaysia, the Movement Restriction Order (MCO) started on 18th March has curtailed economic activities severely.

Malaysian needs more than “stimulus packages”

In response to the pandemic, federal and state governments have announced economic packages, providing direct financial assistance to households and businesses to tide them over in the short term.

These economic packages are mainly to ease the cash flow crunch of businesses & to provide wage support to protect jobs. However, these are short term measures.

The longer-term challenge is to put the country back to work soonest possible 

Putting the country into productive mode is the key to financial and social sustainability. Looking at the economy as a whole, the demand disruptions would be here to stay and the ripple effect will be far, wide & deep. To this end, public sector spending and the manufacturing sector will be the economic drivers to sustain us through the difficult time ahead.

While the global export market will be dampened by the weaker demand, the economic implications are varied across countries. Those that react swiftly to Covid-19 situations and put in place a comprehensive EHS (Environment, Health & Safety) protocols to get its manufacturing sector back to work quickly will be the ones that can contain the damage to its economy.

These protocols are needed not only during the MCO but beyond, in order to protect the health and safety of the employees and the public as well as the environment from hazards associated with the workplace.

So, What’s Next for Penang? 

With half a century of industrialisation in its DNA, Penang has navigated numerous up and down cycles and has emerged stronger from each. While the Covid-19 situation is unprecedented in its scale, Penang is versatile enough to navigate these uncertainties and seek out fresh opportunities.

Being a state that drives 30% of the nation’s export and contributes 77% of trade surplus, and being a regional manufacturing hub for medical devices and E&E components & finished products, Penang takes a major role in driving Malaysia’s industry outlook. Through the following focused and distinct strategies, the state government is striving to minimize the damage from the current chaos.

#1 – Helping investors catch up on the progress of their projects

2019 has been a fantastic year for Penang in foreign direct investments and most of these strategic projects are being planned and waiting for the MCO to be lifted so that physical implementation on the ground can proceed.

The state government will facilitate in every possible manner to help these investments catch up on their implementation timeline. Under the leadership of the Chief Minister, Penang Development Corporation & InvestPenang are in close contact with the investors in driving their plans and projects.

#2 – SMEs: Race to recovery

The survival of SMEs is crucial for employment and preserving the manufacturing supply chain. The federal and state governments have already introduced direct financial assistance to SMEs in the form of wage subsidies, deferment of loan repayments and provision of interest-free loans. These assistances would temporarily relieve SME’s cash flow constraint. The conditional operation approval by Ministry of International Trade and Industry (MITI) for qualified SMEs during the CMO period is expected to reduce the financial distress of the SMEs.

#3 – Preparing to help potential job seekers

The current macro environment encompasses too many uncertainties. While the current job market in Penang remains stable, we should prepare ourselves for the worst. The State government, via Penang Career Assistance and Talent Centre (CAT Centre), is ready to offer job-matching facilitation for those who are facing retrenchment due to the shifting of technology.

The new industries in Penang are doing well and are always hungry for talents. With the implementation of all the investments already in the pipeline, Penang is looking forward to creating at least 13,000 new job opportunities. The challenge for us is to match the right skills with the new employment opportunities. In the new norm after Covid-19, there is no lifelong employment, only lifelong employability.

#4 – Strategies for industry development 

To strengthen Penang’s industry base and protect employment opportunities, the State has been diversifying the industries in various forms over the years.

The Covid-19 pandemic created a new normal on how people live and work. The changes include the higher adoption rate of e-commerce and broader acceptance of the work-from-home working model by employers.

The State understands the importance of digital infrastructure to support the new norm in how businesses are to be conducted. The setting up of Digital Penang to enhance the State’s digital infrastructure will further strengthen Penang as the destination of choice for the digital economy.

#4.1 – Continue to entrench Penang’s position in the medical device industry

Leveraging on the strength of the electrical & electronics (E&E) industry, Penang has been focusing on developing the non-glove medical device ecosystem over the past 10 years. The State gains increasing tractions from the global leading medical device players and we expect the trend to continue. The medical device segment provides consistent and non-cyclical growth and the current pandemic will likely expedite the industry’s development.

#4.2 – E&E product portfolio diversification 

In the meantime, the E&E product portfolios in Penang have diversified from consumer electronics products centric to include more industrial application products, such as the components / modules / systems for telecommunication infrastructures and data centers applications. The diversification process is in line with the technology megatrends and will provide cushions on the highly cyclical E&E industry.

#4.3 – Seizing opportunities arising from the paradigm shift of the global supply chain

Since the commencement of the US-China trade war, corporates worldwide re-strategize their manufacturing footprints and recognize the danger of a single location production site. The Covid-19 incident further strengthens the importance of diversification. Hence, a structural change in the global supply chain is in the making. The State government will continue to entice strategic companies that intend to diversify their footprints in Southeast Asia.

#4.4 – To further strengthen Penang’s position as a GBS hub 

The state government will continue to promote the Global Business Service (GBS) industry and to add more GBS Grade-A office spaces for the industry’s expansion.

Penang currently has more than 60 GBS companies providing more than 12,000 high paying positions. Activities covered by these GBS include finance, supply chain management, trading, analytics, R&D, logistics & others.

By having the capabilities in both manufacturing and GBS, Penang is able to offer competitive advantages for MNCs in many aspects, including lower overall costs and higher efficiency in their operations.

#4.5 – Continuous push up the value chain 

Penang’s industries have diversified vertically over time and this effort is ongoing. More companies have opted to expand their higher value research and development and knowledge-based activities here as part of their regional rationalisation initiatives. Malaysia Budget 2020 strategically provides tax incentives on the targeted high value sectors and upstream activities. The Penang State government will continue working closely with the investors and providing industrial feedbacks to the federal government in attracting strategic industries to Malaysia and Penang.

Sustainability is always the top priority of the Penang state government

Extraordinary time calls for extraordinary solutions and self-adjustments. Amid the prevailing headwinds, we must be ready to adapt & embrace the new living, working and learning models.

The state government is committed to ensuring that Penang remains a conducive, desirable and sustainable destination for “work, live, play and invest”.

Special Investment Advisor to the Chief Minister of Penang
Director of InvestPenang