Investing in smarter cities is smart economics and will help Malaysia achieve High-Income-Country status, says World Bank Malaysia Economic Monitor

November 21, 2011

KUALA LUMPUR, 21 NOVEMBER 2011 -- Malaysia’s economy decelerated over the first half of 2011, with the GDP expanding by 4.4 percent. Private consumption growth continued at a healthy pace but solid domestic demand was not enough to offset a weakening external environment. Malaysia’s highly open economy is expected to slow further during the remainder of 2011 and may pick up only in the second half of 2012. But, while Malaysia’s projected growth is slowing due to external factors, improvements can be made domestically, including by investing in smarter cities, says the November 2011 edition of the Malaysia Economic Monitor released today.

“Cities are central to Malaysia’s high income aspirations. Cities create proximity and facilitate the flow of knowledge that drives innovation,” says Annette Dixon, the World Bank’s Country Director for Malaysia. “In order to achieve high income country status by 2020, Malaysia needs to start creating the environment for smart cities today”, she adds. “Decisions about city development today are locked in for many years to come”.

Malaysia’s goal to become a high income economy by 2020 can be supported, by coordinated policies addressed at making its cities smarter. Smart cities are skilled and innovative, green and sustainable and resilient to natural hazards. A key challenge for Malaysia going forward will be to increase the volume and quality of skilled workers in its cities. This will require improving higher education and quality of life in cities to retain local talent and attract foreign skilled labour that can contribute to innovation. Reducing greenhouse gas emissions and improving solid waste management are also critical challenges to achieve sustainable growth in cities.

Malaysian cities are sprawling, which poses significant obstacles to reducing greenhouse gas emissions and promoting public transportation. Aside from being environment-friendly and livable, offering its inhabitants a good quality of life, smart cities also bring about many economic gains. Programs that reduce greenhouse gas emissions, for instance, generate downstream business opportunities. Meanwhile, demand for “green” products is growing with awareness of climate change and the competitiveness of Malaysia as an FDI destination may increasingly hinge on its ability to curb emissions.

Managing the risks of natural hazards and climate change is also essential to secure Malaysia’s quest for rapid growth.

“As cities concentrate a growing share of the national economy, it is imperative that they have systems to manage natural hazards and prevent them from becoming human and economic disasters,” says Ms. Dixon. “Malaysian cities are especially vulnerable to floods and landslides. To reduce the risks related to these hazards, Malaysia would benefit from environmental restoration and integration of risk reduction into development planning”.

The report notes that the 10th Malaysia Plan, which outlines the country’s push towards becoming a high income economy, recognizes the importance of density and cities to economic growth.

“GDP growth is projected at 4.9 percent for 2012. This forecast hinges on the implementation of the government’s reform agenda as the global economic environment will offer little help,” says Frederico Gil Sander, the World Bank’s Senior Economist for Malaysia and lead author of the report.

The report reiterates the World Bank’s support for Malaysia’s reform agenda under the Government Transformation Programme and the Economic Transformation Programme. It encourages steadfast implementation of the Strategic Reform Initiatives (SRIs), the policy measures which will create an enabling environment for private investments.

“We are pleased to note that implementation of Malaysia’s reform agenda is progressing. Malaysia’s ease of doing business has improved, and the 2012 budget contained new initiatives for liberalizing services sectors. But some SRIs – notably the rationalization of subsidies have been delayed,” says Mr. Gil Sander. “If these comprehensive reforms gain momentum, they could pave the way for higher rates of private investment growth than currently anticipated”, he adds.

The Malaysia Economic Monitor series provides an analytical perspective on the policy challenges facing Malaysia as it grows into a high-income economy. The series also represents an effort to reach out to a broad audience, including policymakers, private sector leaders, market participants, civil society and academia.

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