Tengku Zafrul Aziz.
I recently attended the World Economic Forum’s Annual Meeting 2023 in a very snowy Davos, Switzerland. It was a meaningful gathering not only because it brought together more than 2,700 global heads of state and government, policymakers, business leaders, academics, and civil society activists, but also because the global landscape has been significantly disrupted since its last meeting just over 6 months ago, in May 2022, which I had also attended.
Since then, the war in Ukraine has taken its toll globally by spiking energy prices and driving inflation, including thousands of miles away in Malaysia. To stem inflation, the US increased their interest rates, driving many other markets to do likewise to close the gap on capital flight back to the US. But as the US hiked rates by 4.25% in 2022 alone, this strengthened the greenback against many other currencies, including our Ringgit.
Malaysia responded by increasing subsidies to cushion the impact of rising prices on the rakyat, especially the most vulnerable. While we managed to keep inflation to below 4% in 2022, this came at a huge fiscal cost, as well as opportunity cost for development.
It was against this bleak economic backdrop and an equally sombre 2023 outlook that the WEF gathered. There were concerns that the cataclysmic events post-2020 and even before that meant that globalisation was in retreat, with nations and regions fragmented rather than coming together.
Despite the gloomy global outlook, Asia offers a bright spot, with China’s re-opening, India’s strong growth trajectory, and of course, ASEAN’s stable prospects.
Returning as Minister of International Trade and Industry, I had the opportunity to present Malaysia’s views on international trade and investment as an emerging, open, and trading economy on the multiple WEF platforms and surrounding events.
These were my five key takeaways from Davos:
I. Re-globalization is a strategic imperative
Unsurprisingly, there was much debate about whether the world was experiencing deglobalization or even “slowbalization”. For Malaysia, where our trade-to-GDP ratio is more than 130% — which I suspect is similar for many Asian countries —“reglobalization” is the only option.
However, we must learn the right lessons from the world’s first foray. We must go back to the fundamentals of international trade, where nations trade goods and services that they have comparative advantages in to enhance their prosperity.
Emerging nations must be coherent and united to have a say in determining clearer and fairer frameworks for international trade, so that domestically, all layers of their supply chain can benefit from access to wider markets, especially SMEs. On this, trust and confidence can only be restored by re-committing ourselves to a fairer globalization agenda.
II. Mitigating strategies are key to manage increasing and evolving risks
We must learn to live with ever-changing and ever-increasing risks. The WEF’s Global Risk Report 2023 highlights cost of living, food and energy security, rising inflation and cyberattacks on critical infrastructure as major risks the world is currently facing, with failure to manage climate change seen as a long-term danger. In short, the world is facing not just a polycrisis, but perhaps also a permacrisis situation.
This will require us to devote our resources to build supply chain resilience. We have learnt that geopolitical crises thousands of miles away can negatively impact our cost of living. By investing in ASEAN-wide supply chains or even stockpiles for critical products such as food, medical supplies and energy, we can mitigate the impact of imported inflation from outside the region.
Another major evolving risk is geopolitical, which key global leaders must manage before they escalate to full-blown conflicts with irresolvable repercussions. In the past decade, we have seen enough geopolitical rivalries playing out in the form of trade wars that the possible re-escalation of the US-China trade war had already forced businesses to rethink their supply chain strategies to minimise business disruptions.
Living with risk has become a new tenet for both governments and businesses, which must have both the flexibility and agility to deal with existing and emerging risks.
III. Re-opening of China may uplift global economic outlook but…
The reopening of China is welcome, but China, might not be the global economic saviour it once was post-Global Financial Crisis of 2008, and we must acknowledge that Beijing may alter its policies to address the imbalances that the pandemic has exposed and exacerbated. Furthermore, the surge in demand in certain sectors due to China’s reopening may drive the global inflationary pressures back up.
As such, diversification is crucial as China cannot be looked upon as the sole source feeding into global economic growth. Even so, strong China engagement strategies are still needed. For example, we must still pursue prospects of higher-value chain trade and business opportunities with China.
IV. ESG is a mainstay
ESG is here to stay and its principles are increasingly embraced by consumers, whether in the East or West. Ignore it, and we risk getting ourselves shut out of ESG-concerned markets.
Unfortunately, meeting ESG standards is neither easy nor cheap. Even multinationals struggle with it, let alone SMEs. This is why the developing world ought to band together to ensure that ESG is not determined only by the developed world’s policies and precepts. On that score, we need to ensure that there is a just transition towards ESG especially in emerging and developing economies. Such transition costs are different for each country depending on its economic composition and level of development.
That aside, Malaysia’s agenda must be to ensure that companies of all sizes are able to respond to the ESG challenge. To that end, MITI has already begun its iESG initiative, to guide SMEs on embracing ESG considerations into their core. ESG will also be an integral part of all our industrial policies, moving forward. But to move the needle, this must be a whole-of-nation effort, with the government, GLCs, GLICs, the private sector and all Malaysians also making the leap.
ESG can drive industrial policies to be more future-ready. But it must never be disguised as a non-tariff barrier for trade and investment, something which the developing world ought to band together to prevent.
V. Global investors appreciate stability and policy consistency
This sounds like a no-brainer, but investors appreciate stability. Even when policies remain consistent, “revolving doors” rarely inspire confidence or interest.
So-called “politicking” is natural in a democracy—but it must never be at the expense of the national interest.
The Unity Government’s stability post-GE 15 in Malaysia must be strengthened, so that investors feel secure to invest and re-invest in our country.
While fragmentation, political and economic, will be a challenge facing us in the immediate term, another key takeaway from my time in Davos is that there is still great interest in Malaysia and what we have to offer—as evidenced by the many business visitors we received at the “Malaysia House” set up there.
Both the current and prospective investors that I met were excited about our country’s prospects. I am proud of our team and how they were able to present the best of Malaysian hospitality and opportunities to a global audience. It was also heartening to meet young Malaysians in Davos who are champions of important agendas such as digitalization, gender parity or climate change. Collectively, all of us proudly carried the Malaysian flag, and successfully showcased our nation as a committed advocate of cooperation in a fragmented world.
If we can do this on the world stage, we can also do this at home. All of us must subscribe to a unity of purpose and keep putting our best foot forward so we can achieve a better year ahead, and a better Malaysia in the long run.