Economy 101: Seriously, What Drives The Big Economy?

Despite one can dismiss this as another dumb statement from the PAS leader where he openly says that the liberalisation of the capitalist-based economy & not an Islamic one is the root of the suffering of the people, the question is what makes or breaks the economy of the country like how it did in Venezuela? Image source: Malaysiakini/Twitter

Read these first:-

• Economy 101: Seriously, Is Malaysia’s External Debt As Bad As Sri Lanka?
• Economy 101: The Truth Behind Malaysia’s Chicken Shortage
• Economy 101: Is This Why Cooking Oil Price Insanely High in Malaysia?
• Economy 101: Pakistan & Sri Lanka Economy Screwed By Dumb Policies & Mismanagement
• Environment 101: Clueless Kelantan PAS & Humourless Water Resource Management

Economy & Kelantan

PAS president Datuk Seri Abdul Hadi Awang has blamed the economic problems faced by the country on the capitalism-based economy. He is known to make statements in the past which does not have any substance or real solutions:-

The woes started, he said, when the Government began to get involved in business in the 1980s and compete with the rakyat, leading to leakages as well as cronyism with the country’s wealth staying in the hands of the rich.

PAS, said Abdul Hadi, whose party split from the Opposition on acrimonious terms, was willing to come up with a solution to the Government leaders of the 1980s, who are now in Pakatan Harapan.

(Source: NST)

And another:-

PAS president Datuk Seri Abdul Hadi Awang has lumped Pakatan Harapan (PH) parties and non-Malay parties in Barisan Nasional (BN) together as those who control the economy and who contribute the most to corruption.

(Source: The Vibes)

If PAS truly have a good solution to our economic woes, then why cannot implement it in the state of Kelantan where they have been the State Government since the 1990s? it is a fact that Kelantan has a relatively high poverty rate compared to the national average.

According to data from the Department of Statistics Malaysia, Kelantan’s GDP per capita was MYR 13,290 (approximately USD 3,200) in 2020, which is lower than the national average of MYR 51,039 (approximately USD 12,300) in the same year. In addition, Kelantan’s unemployment rate was 4.7% in 2020, which is slightly higher than the national average of 4.5%.

So why not implement your ideas since you claim it will resolve the issues that the country is facing? Otherwise, it is nothing but empty talk.

For a political party that claims that they can do better with their kind of managing economy, they are not even in the top states with the most investment received in the year 2018. In 2022, Kelantan registered a GDP of USD 7 billion against the national GDP of USD 408 billion. Image source: Invest Selangor Twitter

Islamic Based Economy

Hadi claims that an Islamic-based economy will resolve the economic crisis in the country but what does it mean by an Islamic-based economy?

Islamic economy is an economic system that is based on the principles and teachings of Islam. It is a system that is designed to promote social justice, equality, and economic well-being in accordance with Islamic principles and values.

One of the fundamental principles of Islamic economics is the concept of “riba,” which prohibits interest-based transactions. This means that lending and borrowing money with interest is not allowed in Islamic finance. Instead, Islamic finance utilizes profit-and-loss sharing (PLS) models such as Mudarabah (partnership), Musharakah (joint venture), and Murabaha (cost-plus financing) as alternative means of financing.

Another key principle of Islamic economics is the concept of “Zakat,” which is a form of mandatory charity. Muslims who are financially able to are required to give a portion of their wealth to help those in need. In addition to Zakat, there is also the concept of “Sadaqah,” which is voluntary giving to those in need.

Islamic economics also emphasizes the importance of ethical behaviour and social responsibility in business practices. This includes avoiding harmful and exploitative practices such as gambling, speculation, and monopolies.

Overall, the goal of Islamic economics is to create a fair and just economic system that benefits all members of society, particularly the poor and disadvantaged.

Well on paper, the concept looks ideal but in action, it is not because the profit & loss sharing quantum in the end is computed as the conventional interest amount. Some may even call it a scam. The end receiver does not gain just by opting for an Islamic-based economy. The fact is fundamentals of the economy whether it is capitalism-based or Islamic are the same.

When one talks about the economy, it is a fact that there is no one factor that drives the economy. It is the same with the business in getting more customers. Image source: Concept Draw

What Drives the Economy?

So what really drives the economy of a country?

What are the key factors to be considered to ensure that the country has good economic growth? Running through some websites, some of the key drivers of a country’s economy are as follows:-

1. Natural Resources: Natural resources, such as oil, minerals, and agricultural products, can be important drivers of a country’s economy. Countries with abundant natural resources can benefit from exports and generate significant revenue.

2. Human Capital: The skills, knowledge, and education of a country’s workforce can significantly impact its economic growth and development. Skilled workers can help increase productivity, innovation, and competitiveness, which can drive economic growth.

3. Infrastructure: Access to transportation, communication, and other infrastructure can facilitate trade and commerce, making it easier for businesses to operate and for goods and services to be exchanged.

4. Political Stability: Political stability can attract foreign investment, encourage business development, and provide a stable economic environment for growth.

5. Monetary Policy: Monetary policy, such as interest rates and the supply of money, can impact economic growth, employment, and inflation.

6. Fiscal Policy: Fiscal policy, such as government spending and taxation, can impact the overall demand for goods and services, as well as investment and economic growth.

7. Globalization: Globalization and international trade can drive economic growth by increasing the flow of goods, services, and capital across borders, expanding market opportunities, and promoting innovation and specialization.

Malaysia is blessed with a huge abundance of natural & agricultural resources such as high-grade petroleum, timber, rubber & palm oil of which Malaysia is one of the largest producers in the world. It is also home to many industries, especially from the IT & electronic sector with hubs namely in the states of Penang & Selangor.

The education rate in Malaysia is high with top-notch universities located locally which is able to produce a range of workforce required by these industries. Another factor is that most Malaysians are able to speak English naturally which is an added factor for foreign-based investors. Malaysia also has a first-class infrastructure with good highways, railway tracks, airports & ports connecting the major hubs in the country & to the rest of the world.

To some extent, we have general stability when it comes to politics and government although it was a mess in 2020 when the country was hit with the COVID-19 pandemic. Hopefully, with the unity government that is in place now, this can mark a more stable platform of governance.

Monetary & fiscal policies still require a major revamp, especially with the race-based policies which allowed abuse & mismanagement of taxpayers’ money in the past. The general basics are in place and government agencies such as BNM (Central Bank of Malaysia) continue to keep vigilance & ensure monetary & fiscal controls remain intact.

Attracting Foreign Investments

Malaysia needs to ensure all effort is made to attract foreign direct investment (FDI) as the local investment is limited & will not bring in the required cash flow, capital, technology or expertise that can help to stimulate economic growth. Some strategies that countries can use to attract foreign investment have been implemented in Malaysia as well namely:-

Incentives to investors such as tax breaks, subsidies, or regulatory exemptions are designed to minimise the risks and costs associated with investing in a new country.

Infrastructure such as transportation networks, communication systems, and utilities, can make it easier for businesses to operate and can increase the attractiveness of a country for foreign investment.

A ready-made skilled workforce is necessary to run the investments & the industries that have been set up in the country.

Openness to trade and having low trade barriers can be more attractive for foreign investment.

A large and growing market with strong growth potential Malaysia is also able to stand as the source point for the other markets in the SEA region.

According to DOSM, Malaysia registered a total FDI of RM875 billion which dropped to RM19.3 billion in the 4th quarter of 2022. The decline is due to intense cost pressures, high borrowing costs, and worries over the potential of a global recession in 2023. The manufacturing sector remained the largest sector of FDI, followed by services largely in information & communication and mining & quarrying. The main FDI sources were the US, Switzerland, and Singapore.

Final Say

So does an Islamic-based economy really solve the economic issues of a country as claimed by Hadi Awang?

The fact is some countries may have some Islamic policies in place for the distribution of wealth from the government to the people but there is no one country including Islamic countries that can be said to be using pure Islamic policies & standards as their economic benchmark for a simple reason – capitalism is more preferred & is established at the international level.

Further to be able to sell an idea, it must be demonstrated that the idea actually works – so saying that the Islamic way of managing the economy is the best solution, requires a live confirmation. And what is better to do this than applying the same for the State-level administrations under PAS? Why this was not done and why year after year, does it remain a poor state?

Malaysia has the right fundamentals and it remained strong despite the recent challenges but it still needs improvement. Monetary and fiscal policies are still slacking especially those with race-based policies which will not instil any confidence in foreign investment.