PRESS STATEMENT BY DATO’ SERI LEE KAH CHOON
24 DECEMBER 2021
GEORGE TOWN, PENANG
2022: The year of cautious recovery for Penang
If one’s business is still intact, 2022 will be the year of cautious recovery.
As the world economy continues to open up, there is high expectation that the worst may be over.
On the Penang perspective, there are many opportunities in the horizon as backlog of supply created by the supply chain disruption will continue at least for another year before normalising. The challenge is to fulfill order rather than short of order. Companies that have local supply chain will be winners.
Other favourable factors are:
The technology transformation from 4G to 5G; Industry Revolution 3.0 to 4.0; the drive for automation due to labour shortages, all these factors will keep the demand of semiconductor, electronic components and finished products elevated for the medium term. As part of the global semiconductor supply chain, Penang’s electric & electronic industry, together with companies in the supply chain will continue to do well.
The impact of trade tension and the Covid-19 pandemic has seriously impacted the global supply chain. The ‘Just in Time’ manufacturing process under globalisation is now replaced by regionalisation that prioritises supply security over time and cost efficiency. This new normal gives Penang companies great opportunities to fill-in the broken supply chain which was previously denied to them.
However, the road to normalcy may be long, winding and full of challenges too.
Talent: As Penang moves up the technology value chain, the demand for talent will become more acute. This challenge is multidimensional which covers the quantity and quality of the young workforce that enters the market; the need of imported labour to supplement the local workforce; the outward migration of talent which is not matched by inbound migration, are just but a few major contributions towards the human resource crunch that plague the Malaysian economy post-pandemic. While waiting for the federal government to put together an inter-ministerial holistic national human resource plan, the Penang state government has embarked on the journey to attract talents to the State. With the resort environment striking a work life balance lifestyle, the State is working towards attracting 150,000 talents to the State for the next five years to sustain its economic growth. A point to note is that as Penang moves up the technology value chain, a shift in the type of talent the State needs has become obvious. As the competition for talent intensifies, production cost is expected to rise unless the increase is matched by higher productivity.
Increase costs of doing business: Apart of increase in labour costs, other costs of doing business have increased too. Raw materials, freight and holding costs for inventory have also increased. All these will eventually feed into the higher costs of the end products, which higher price may or may not be passed on to the consumers, depending on the elasticity of the demand.
Self-harm narratives: The Government’s decisions to force local logistics companies to divest 51% of the equity to Bumiputeras; raising the bars for MM2H visa holders; taxing monies repatriated from overseas are sending the wrong signal to the international investment community about the suitability and security of investment into Malaysia. These negative narratives will definitely affect Malaysia and Penang as a destination of choice for investment.
Shift in business ideology:
Environmental, Social & Governance (ESG) issues have increasingly become more important in the corporate world.
As most of the Penang companies, be they local large companies or small medium enterprises, are in some way part of the global supply chain, ESG compliance will be mandatory for them to stay in business. Further, ESG compliance will ensure that these companies will not be shut out from the capital market to raise the necessary fund for expansion or getting the necessary financing from financial institutions.
Further, ESG compliance will be favourably regarded by the millennials as companies they wish to associate with in terms of employment or products preference.
As we emerge from the pandemic, 2022 presents Penang with fresh opportunities as well as challenges. On the investment perspective, growth will be led more by reinvestment of existing companies rather by new foreign direct investment into the State.
Companies that take the opportunity to strengthen and improve their internal control; subscribe to the ESG business ideology; adopt and adapt digitalisation processes will stand in good stead to reap the benefit in the new normal environment.
DATO’ SERI LEE KAH CHOON
Special Investment Advisor to the Chief Minister of Penang