Transforming the Malaysian Economy to a Sustainable and Green Model – Part 2

This article is part two of a condensed version of an economic speech that I delivered at the first ever Unity Government National Convention on 14^th May 2023. Part one was published in SJ Echo last month.

On the mining sector, Malaysia has been blessed to have discovered oil and gas since the late 1970s. Now we are in the cusps of yet another mineral boom; rare earth and in particular, lanthanide.

Rare earth is increasingly becoming a very important element needed for the manufacturing of green technology products, such as lasers, magnets for wind turbines and batteries for electric vehicles.  Most recently, YB Nik Nazmi, the Minister of Natural Resources, Environment and Climate Change made a startling announcement that Malaysia has an estimated RM809 billion worth of rare earth deposits.

While I am fully aware that Malaysia has had extremely bad environmental records with rare earth mining and processing, I believe that with the adoption and implementation of global best standards and professional enforcements, we can safely store the processed rare earth waste. In particular, I believe that we can and must adopt the best practices of rare earth mining and processing from Canada, a country famed for having the highest environmental standards.

From rare earth mining, we can then move on to the issue of manufacturing rare earth into final products. If we enforce an economic policy of allowing 50% of our rare earth to be exported but then require the remaining 50% to be processed into final green tech goods, we will then be able to create our first proper foray into the world of green tech industrial manufacturing.

How much is this manufacturing sector worth in terms of economic injection into our economy? If we manufacture the raw materials into finished products, we could potentially generate about RM2.8 trillion in finished goods from the base of RM400 billion of rare earth (using a conservative multiple of 7 in value add from raw material to finished goods).

Assuming this new industrial sector has a pre-tax manufacturing margin of 10% ROI, this new industry will be able to generate about RM280 billion pre-tax profit; of which at a 25% corporate tax rate, the government will be able to generate RM70 billion in corporate income tax alone. This number has not considered personal income tax from employment, consumption and sales tax from the direct exports of rare earth. In a simple back of envelope calculation, I am confident that this industry could provide a bonanza of at least RM120 billion of all taxes collected. This princely sum can then be utilise to reduce the national debt.

More importantly, Malaysia would have taken a big step into green tech manufacturing and this will go some way to bolster our reputation as the pre-eminent green hub in ASEAN, if not the whole of Asia.

At this juncture, I come to the very last sector of the economy; services and in particular green services. If our country reaches net zero and has green tech manufacturing capacity; what follows naturally will also be a boom in green services.

I am talking about a complex eco-system of services such as carbon trading, sustainability consulting, environmental standards, due diligence verifications, academia, research and development, and green engineering services. I am also talking about Malaysia being the regional HQ hub for all green tech companies, be it from the East or the West.

It is my dream to see Malaysia transform itself from an economically struggling country caught in the middle-income trap, to be a green technology and services global power house. We need to be at the forefront of fighting climate change and commit to doing universal good.

With proper planning and political will to support this vision, we will be able to stop capital flight, encourage domestic and foreign investments to return and most importantly, stop the brain drain of our professionals and youths by creating new and exciting jobs. For the sake of Malaysia and the world, we can and must take these next big steps now.

Last month’s report https://sjecho.com.my/community/transforming-the-malaysian-economy-to-a-sustainable-and-green-model-part-1/