By Datuk Seri Mustapa Mohamed

PARLIAMENT is now back in session and MPs are pouring in from all over the country to debate and discuss matters of national import.

Of course, it is a special session to discuss the National Recovery Plan (NRP), health measures, vaccination rollout and economic stimulus packages.

With parliamentary democracy back in action and vaccination rates outstripping that of most developed countries, including the United States and Japan, we are gradually on our way towards normalcy.

Indeed, on the economic front, more and more economic sectors are opening up. However, looking at the dangers of the nefarious Delta variant, many Malaysians remain wary of opening our economy.

There has been a lot of criticism on the government’s suggestion to gradually open up economic sectors that are considered “non-essential” in the coming phases of the NRP.

However, the demarcation of economic activities into essential and non-essential categories is actually a crude simplification of a more complicated issue.

The truth is economic activities are interdependent on one another. It is almost impossible for an industry to be independent and survive on its own. Industry requires inputs from other industries to be fully operational.

The same is true for countries. We now live in a globalised world and autarky is largely a relic of the past.

In 1980, the famous American economist Milton Friedman used the pencil as an example of the interconnectedness of the world economy.

Wood for the pencil was cut from Washington state, the lead was from South American graphite mines, and the eraser at the top came from Malaysian rubber trees; the manufacturing of a single pencil takes “thousands of people who don’t speak the same language, who practise different religions” to work together in an impersonal way within the global supply chain.

Today, most goods and services are produced and delivered to end users through an extensive network of supply chains. This network includes all sorts of economic activities, entities, people, countries and resources.

Let’s take the education sector as an example. Since schools closed, canteen operators for about 10 thousand primary and secondary schools nationwide have had to stop their businesses and do something else.

Taking into account the multiplier effect of economic activities along the supply chains, the businesses of traders at wet markets and local sundry shops supplying materials to these canteen operators have also been affected.

And, assuming the very conservative estimate that each canteen hires five workers, income of about 50,000 people would have been reduced to almost zero.

Many of them would be out of jobs unless they’ve found something else to do.

Looking globally now, the world is more integrated than ever with growing interdependency among economies through cross-border trade, international investments, and the free flow of people and information.

Countries are specialising in the production of goods and services based on their comparative advantage, making production more efficient and cost effective.

For example, a single car has about 3,000 separate parts – from the engine and wheels to tyres and the tiniest of screws.

While some of these parts are manufactured by the car company, there are many others that are made by outside suppliers.

Malaysia is home to some of these component manufacturers that play a key part in the global supply chain.

Many of these component manufacturers are in the electrical and electronic sub-sector. Indeed, an astounding 7% of the total global semiconductor trade flows through Malaysia.

For example, Apple, the American-based multinational corporation (MNC), has suppliers with about 50 facilities across 11 states in Malaysia.

These facilities produce parts and components for Apple’s products, including the iPhone and Macintosh computers.

These Malaysian firms have an annual export value of about US$2bil, most of which supports module makers that are concentrated in China, Taiwan, South Korea and Vietnam.

Shutting down the operations of these firms have led to major disruptions in production and delays in overseas shipments.

If we do not open up our economic sectors, this may lead to a diversion of investments to other neighbouring countries and a re-routing of orders to production plants outside Malaysia.

Currently, there are thousands of foreign MNCs operating in Malaysia, including thousands of companies from Japan, America and Europe. Thousands of SMEs are part of their supply chains.

Synergies between MNCs and local SMEs in the supply chain ecosystem are important for the survival of many SMEs.

Prolonged disruptions of operations among MNCs could lead to severe business implications on SMEs, resulting in permanent closures and a major loss in the multiplier benefits.

While it is sometimes necessary to implement movement control orders to contain the Covid-19 pandemic, we must also be cognisant of the risks of being overzealous and negatively affecting the globally-connected Malaysian economy.

In conclusion, understanding the dynamic of supply chains is crucial in formulating robust responses to this economic and health crisis.

Minister in the Prime Minister’s Department (Economy)


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