Malaysia’s Brain Drain Hinders its Economic Progress

By webadmin on 09:33 am Apr 29, 2011
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Leslie Lopez – Straits Times Indonesia

Kuala Lumpur. There are common threads that connect Tang Kok Yew, chief executive of Affinity Capital, with Richard Ong of RRJ Capital and Cheah Cheng Hye of Value Partners.

All are stars in Asia’s financial marketplace. All are Malaysian-born. And all left the country long ago.

The three represent one of the more serious problems facing the Malaysian economy: an accelerating brain drain.

“Malaysia needs talent to meet its goal of becoming a high-income economy. But the problem is that talent is leaving,” said Philip Schellekens, World Bank senior economist and chief author of its latest report on Malaysia released yesterday.

Many analysts blame Malaysia’s decades-old race-based policies, which eschew competition and discriminate in favor of its politically dominant ethnic Malay community, for the serious hemorrhaging of home-grown talent.

To be sure, brain drain is a global phenomenon and it is not necessarily bad, economists argue.

Places like Singapore and Hong Kong suffer from large outflows of citizens. But this is compensated by larger inflows of skilled workers seeking well-paid jobs and a safe and comfortable environment.

Countries which connect effectively with a diaspora spread across many others can also boost trade links and attract much-needed foreign direct investment.

The talent leaving Malaysia is also being replaced, but by inflows of largely unskilled workers.

The World Bank’s report offers a very disturbing picture of the brain drain. Consider these statistics:

One million out of the country’s 27 million citizens live abroad, and at least a third of them are considered part of the brain drain, described in the report as the emigration of highly skilled individuals.

While this number is not necessarily large in itself, the problem is considered serious when compared with other countries. One in 10 Malaysians left the country in 2000, double the world average.

Malaysia’s skilled expatriate community fell by 25 percent between 2004 and last year, largely due to the sharp drop in the Japanese community as Japanese companies relocated to other countries.

By contrast, 60 percent of all immigrants in Malaysia have primary-level education or less. Of its roughly 2.4 million immigrants, about 1.4 million are Indonesian-born, making the Indonesia-Malaysia corridor one of the largest migration strips in the world.

Malaysia acknowledges that it has a problem. Prime Minister Najib Razak’s administration recently established Talent Corp, a state firm taking the lead to entice Malaysian-born experts in various fields to take up jobs at home.

Among the incentives offered is a flat income tax of 15 percent for five years, compared with the nearly 30 percent rate that Malaysia’s highest-paid individuals pay in annual income tax.

“Talent Corp and the tax incentives are good. But targeted approaches like this aren’t very successful,” Schellekens said. Malaysia needs to come up with policies that help raise productivity and wages while reducing the push factors of migration, he added.

The World Bank report states that Singapore is the main magnet for skilled migrants from Malaysia, accounting for roughly 40 percent of all those who left in 2000, a marked increase from 19 percent a decade earlier.

The report also states that Singapore last year hosted 57 percent of the Malaysian diaspora and 54 percent of the brain drain. Malaysian-born residents make up 47 percent of the overseas skilled talent in Singapore, according to the report.

Another interesting facet is that Malaysia’s brain drain is concentrated in just a few places, with Singapore, Australia and the United States accounting for 80 percent of the recipient nations.

The wave of Malaysians leaving for greener pastures abroad is likely to intensify. And financial big wigs like Ong make unlikely role models.

The former Goldman Sachs banker has lived in the US, Singapore and Beijing. He currently lives in Hong Kong where he manages a $2 billion fund. At this point, he said, coming back is not on his mind.

Reprinted courtesy of Straits Times Indonesia. To subscribe to Straits Times Indonesia and/or the Jakarta Globe call 2553 5055.