Are mega projects necessary?

Despite some misgivings from certain quarters, many would view the government's launching of mega projects as an attestation of its commitment towards transforming the economy.

Malaysia's economic performance will be affected by many factors including its economic and monetary policies as well as external and domestic demands.

In the past, most Asian countries prospered by adopting explicit industrial policies that focus on building its manufacturing prowess.

Apparently, the contours of the new industrial policy seem quite different today. There are four key policy parameters that the government needs to consider when designing new economic strategies - establishing sound industrial policies that cater to global demands; enhancing its human resource and capital development; adopting aggressive economic policies to strengthen its economic performance; and improvising the nation's physical and social infrastructure.

The goal of the government's economic strategies is simple - create jobs and increase its per capita income by accelerating the economy.

The Asian experience tells us that no country can accelerate its economic growth unless it is willing to invest in major infrastructure projects.

The major allocation to better roads, power supply, transportation and physical infrastructure is part of the government's grand strategy designed to stimulate the economy and restore both the private and public sector's confidence.

The multiplying effect will lead to more jobs being created as a result of the huge investments.

Indeed, investment spending in construction projects have a strong correlation to the rate of economic growth and future prospects.

Economists will agree that demand for construction projects reflects a healthy economy while declining growth implies an economy that is declining.

The construction of tall skyscrapers across many major cities such as South Korea's world tallest twin towers due for completion by 2014, Shanghai with its 121-floor skyscraper, and Mumbai with the 125-storey India Tower and 117-floor World One is a testimony of the importance of the construction sector as a measurement of a vibrant economy.

Since construction is often financed by borrowings that comprise short-term bank credit and long-term bond markets, the aggressive transactions within the capital market will rejuvenate market activities and ultimately lead to opportunities for reforms in the financial system, including improvement of corporate governance, reinforcement of regulatory and supervisory arrangements.

There will also be several visible effects on the economy. The government's active participation in the physical development of the nation directly implies the government's commitment towards improving the country's standard of living. The investments will also stabilise the investment climate while signifying a message of economic vibrancy to foreign investors.

The government has also not lost sight on other factors that contribute to economic growth. Economic growth can only occur when a country has sufficient human capital.

In today's industrial era, accumulation of a nation's wealth is no longer created by machines but human labour, thus the need for the economy to be knowledge-driven.

The knowledge to complement the government's economic agenda combined with the depth of technology embedded in the nation's human capital will decide on the success or failure of the economy. To instil a knowledge-driven economy is no mean feat because it involves major reforms that pervade at every facade of the economy - its social, educational and economic policies.

The ultimate mission is to create a "learning economy" where new technologies are applied and innovation remains the primary goal.

No efforts should be spared to ensure that the country's vision to foster life long learning is rigorously enforced at every level of our society.

The construction sector is seen as the first "battleground" for the government to instil its knowledge-driven economy agenda because of the massive manpower that will be utilised during the projects.

Already more than RM100 billion has been allocated for construction development that comes hand-in-hand with an additional RM1.5 billion on researches and development.

The government has also directly fostered competition among local construction firms by increasing the size of the construction sector while bringing pressure for organisations to innovate because technologies are needed in the wake of fierce competition among local companies.

Firms that aspire to win government-initiated projects will be forced to acquire and utilise advance technological know-how to compete locally, which in turn will mould local firms to be more internationally competitive in addition to generating higher returns and greater growth potential.

Competition will also breed innovation while technological knowledge will spread quickly across many firms to innovate.

In economic terms, the focus on construction development is seen as an attempt by the government to avoid "market mismatch" when supplies cannot fulfil the demand, as the economy becomes more vibrant.

In anticipation of future needs, the onus will be on the government to provide better quality residences to cater to the growing population of city dwellers that is expected to exceed more than 10 million over the next 10 years. There will be more demands for new commercial and retail properties, including better amenities, comprehensive civic facilities and an efficient transportation system.

There is a clear consensus that Malaysia needs an explicit industrial strategy to pursue its economic agenda and the government has identified 12 new key economic areas that need encouragement including the construction sector. The development of the city's physical infrastructure through investments in mega projects has been identified as the first thrust, a process that will revitalise the construction sector, spur the growth of SMEs, offer massive employment opportunities, increase net capital stock, improve labour efficiency and enhance the robustness of the capital market. Are these not enough reasons to justify the need for mega projects?

By Hassan Ali. (The writer is an associate professor with the Graduate School of Business, Universiti Sains Malaysia.)