The government has launched the Northern Corridor Economic Region (NCER) covering four states, namely Penang, Perak, Kedah and Perlis, by announcing impressive and ambitious targets. NCER is expected to draw in a total investment of RM177 billion, with 30 percent of government funding, in the next 15 years. The rest will be funded via private finance initiatives (PFI).

Among the targets are to make Penang a regional logistics hub through airport and port expansion and the construction of a central transportation terminal in Butterworth. Penang city centre will undergo major transformations starting with the proposed RM18 billion PFI initiated Penang Global City Centre (PGCC). PGCC will be undertaken by the Equine Berhad and will be located at the current turf club's ground.

Meanwhile, the NCER blueprint aims to extend the electronics and electrical industrial hub from Bayan Baru-Gurun to Taiping. Other sectors that will received major boost are agriculture, tourism and new growth sectors such as halal food production, biotechnology and medical tourism.

There are a few important characteristics of the NCER which are worth further analysis. This article aims to dissect some of these characteristics and to discuss some of its targets which are impressive on the outset but appeared to be quite lofty if properly analyzed.

First, the major prime mover of its development is a GLC, Sime Darby. Ironically, the company is undergoing a merger exercise and will be incorporated into a new listed vehicle, Synergy Drive Berhad. Once the merger is completed, it is not known how the new entity will be able to resume the responsibility of Sime Darby to spearhead the development of NCER. The new entity will also be facing common internal issues post merger such as operations and management realignment and financial consolidation.

Hence, once again Khazanah Nasional has been directed to set up a branch in NCER to support the project. The danger of overloading GLCs with these developments, IDR and NCER, is quite grave. Operating like any other profit oriented companies, these GLCs do have to focus on their own investment portfolio and core businesses. How well the GLCs can cope successfully with the huge responsibility is not known if they do not strengthen their own management and operational teams to cope with the excess demand and high expectation.

500,000 jobs by 2010

Second, the development strategy involves a heavy participation of GLCs and major local corporations. Most of the projects earmarked e.g. logistics and infrastructure required high financial outlay and are not suitable for local small and medium industries. Moreover, due to lack of technical expertise and financial capability some of the local companies involved in the projects are merely acting as fronts for foreign companies e.g. the Penang second bridge and monorail projects. Hence, the economic spill over effect to other local SMEs is not significantly anticipated. What is clearly lacking is a concise plan to develop and promote local SMEs in various industries primarily in manufacturing and services.

The government expected to create additional 500 thousands jobs by year 2012 and another 1.5 million jobs by 2025. The numbers appeared achievable but how many of the positions will eventually be filled up by locals and not cheap foreign labours?

The government has to address the current structural impasse of the economic system. Without strengthening and expanding the economic participation of the local SMEs, many of the employments will be generated via multination companies who are here to take advantage of investment incentives, better logistics and facilities and lower labour cost. In the end, we will never be able to grow our own local champions or global brands.

The government's reluctance to endorse a minimum wage rate for the private sector does not reflect well on its commitment to move away from a cost competitive to a value-added economic structure. If not properly managed, the NCER will become yet another low cost export hub for MNCs.

In order to promote the participation of more local companies and to increase domestic investment into NCER, the government must set the right policy direction which is at present appeared to be unclear, directionless and fragile. Our socio-economic policy is largely driven by a pro-Malay affirmative policy or the NEP which has caused the lack of a national consensus on how to move the national economy ahead.

Worse, the overzealous interpretation and implementation of the NEP had generated several inhibitive policies such as the Industrial Coordination Act, the Distributive Trade Act and other direct interventions which favoured the Malay majority but prejudiced the other communities.

Rhetoric unchanged

As a result, most of the non-Malay businessmen did not see an incentive to commit their investment in the country. Most of their investment went into short and medium term projects such as property development, trading, capital market and others. Professor KS Jomo, in his recent economic lecture, opined that these inhibitive policies were a major prohibitive factor to the growth and development of local industries.

However, the recent government rhetoric appeared to be unchanged. Deputy Prime Minister Najib Razak said that the NEP is needed to help 'pay back' what the Malay had lost and suffered during the 400 years of colonialism. Several Umno leaders have argued for the perpetuation of the NEP in order to promote and defend the Malay Agenda NEP is seen as a key policy to project the Malay supremacism and lordship of the land. It is useful for them to note that all other major communities in the country had suffered the same treatment under several colonial powers in their ancestors' homeland.

Unless the thick communalism in governance and politics is abated, the potential of a project such as the NCER will not be fully realized. The sheer size and financial commitment required to make this project a reality suggests that it takes a binding and solid national effort to make it a success. Hence, the government must move away from an opaque communal centric policy formulation and implementation mindset to a more open, trusting and inclusive national centric mindset.

Third, it is right time to review the current state and federal government relationship. Our overly centralized governance model is detrimental to the development of the proposed regional corridors. At present, almost all economic policy initiatives and direction are made and decided at the federal level. The state governments' role is purely administrative and maintenance centric.

Tax collections e.g. direct and indirect taxes are not shared between the state and the federal government. All collections go to the treasury and then redistributed back to the state in the form of budget allocation. This leaves some states especially Penang with barely enough to pay for its civil servants' salary and other maintenance expenses.

Other expenses to stimulate the economy have to be endorsed and committed by the federal government. Hence, most states do not have the resources to spend on improving their own economic infrastructures and amenities. For example, the public transport problem in Penang dragged on for nearly two decades until the intervention of the federal government via a Ministry of Finance controlled company, RapidKL.

The main obstacle of the current state-federal relationship model is the lack of speed in responding to the regional economic changes and challenges. Some of the emerging regional economies adopted a highly decentralized system such as China and India. This system encouraged internal competition between different provinces to attract investment and businesses which are healthy to the overall development of their country.

Important success factor

In the case of Malaysia, it is difficult to be convinced on how the federal government and its ministries are able to commit their equal attention to the various corridors including several industrial parks eg. Cyberjaya, Port Klang FTZ and others. The right thing for the government to do now is to share some of these responsibilities with various state governments through a proper and effective decentralization and revenue sharing system.

Finally, the most important success factor of the NCER and other regional economic hubs is the ability to nurture skilled, hardworking, committed and capable human resources. Hence, the longer the government intends to make a large segment of our society believe that they still need to walk on clutches the longer it will take for our dream to be fulfilled.

Before we even start to think about the nuts and bolts needed to construct some of the most spectacular structures identified for the NCER, we should first address the important need of a mindset shift. Recent announcement of public project bailouts amounting to billions of ringgit, the negligence of public properties, environmental destruction, poor business ethics, corruption and others must be addressed soonest because these are symptoms of the current culture which must be deconstructed and reeducated. The new culture must put emphasis on meritocracy, transparency, accountability, professionalism and public responsibility.

Most importantly, the billions which are going to be spent on the various regional economic corridors must be justified through the end results or else we will be made to pay through our noses for generations to come for the failure.