50 drivers of change in the public sector - Malaysia COUNTRY REPORT: ACCA Global
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COUNTRY REPORT:
Malaysia
Professional accountants – the future:
50 drivers of
change in the
public sector
About ACCA Part of our ground-
ACCA (the Association of Chartered Certified Accountants) is
breaking Professional
the global body for professional accountants, offering accountants – the future
business-relevant, first-choice qualifications to people of
application, ability and ambition around the world who seek series, this is one of a
a rewarding career in accountancy, finance and management.
series of country reports,
ACCA supports its 198,000 members and 486,000 students following on from our
in 180 countries, helping them to develop successful careers
in accounting and business, with the skills required by global report 50 drivers of
employers. ACCA works through a network of 101 offices change in the public sector.
and centres and more than 7,291 Approved Employers
worldwide, who provide high standards of employee learning It focuses exclusively on
and development. Through its public interest remit, ACCA
promotes appropriate regulation of accounting and conducts identifying the 50 drivers
relevant research to ensure accountancy continues to grow in of change in Malaysia
reputation and influence.
that are expected to have
Founded in 1904, ACCA has consistently held unique core
values: opportunity, diversity, innovation, integrity and
an impact on the public
accountability. It believes that accountants bring value to sector and the likely
economies in all stages of development and seek to develop
capacity in the profession and encourage the adoption of timing of these. It also
global standards. ACCA’s core values are aligned to the
needs of employers in all sectors and it ensures that through
assesses how professional
its range of qualifications, it prepares accountants for accountants will need to
business. ACCA seeks to open up the profession to people
of all backgrounds and remove artificial barriers, innovating continue to play a pivotal
its qualifications and delivery to meet the diverse needs of role in the decade ahead.
trainee professionals and their employers.
More information is here: www.accaglobal.com
© The Association of Chartered Certified Accountants
August 2017
Introduction 3
The global public sector is changing, with the study to explore which emerging drivers of
The public sector is as complex landscape being reshaped by a combination change could have the biggest impact and
as it is diverse and it is not the of factors: a growing and ageing population, to highlight the skills that will be required
same in any two countries; the need for better infrastructure and over the period to 2026.
what is considered to be part increasing concerns over sustainability and
consumption. At the same time, demands The recently launched global report 50
of the public sector often varies
are growing for greater transparency and drivers of change in the public sector is
from one country to another. accountability for public funds. These part of our ground-breaking Professional
challenges are heightened by advances in accountants – the future series and is the
technology and by economic and political first report to focus exclusively on
uncertainty. As the social and economic identifying the 50 factors that will impact
environment shifts, all these factors will have the public sector, the likely timing of these
serious consequences for public sector and how they will shape the future.
organisations and their finance professionals.
The global study draws on a survey of
The public sector is as complex as it is diverse ACCA’s global forum for the public sector,
and it is not the same in any two countries; ACCA members and members of other
what is considered to be part of the public professional accountancy bodies working in
sector often varies from one country to the public sector. This was complemented
another. For example, in some countries, with a series of roundtable events held
such as the UK and Scandinavian countries, across 12 countries, from the US in the west
health care is deemed to be a public sector through to China in the east, and high-level
function, while in some others it is a hybrid interviews with key public sector figures.
between the public and private sectors.
This particular report focuses specifically
For professional accountants working in the on the results from the global report for
public sector, the challenge is twofold. First, Malaysia and follows a recent roundtable
they need to understand the key forces held in the country to discuss these key
shaping the future and how these could issues. This report explores the drivers of
affect public sector organisations and the change that are particularly affecting
country they serve. Secondly, they need to Malaysia’s public sector. These include the
provide support and influence financial quality and availability of the talent pool;
decisions that will ensure that public funds the use of public private partnerships;
are deployed cost-effectively and efficiently. business leaders’ responsiveness to
change and disruption; foreign direct
To help professional accountants and investment (FDI); competition for limited
leaders in the public sector prepare for an natural resources; economic growth; and
uncertain future, ACCA undertook a global clarity in financial reporting.
Malaysia: Drivers of change 4
Malaysia is one of the recent economic Malaysia economy continues to transform
Malaysia’s economic situation success stories of South East Asia. it will also need to invest in service
is broadly favourable, though According to the World Bank, in the past 30 industries and digital technology to
there are some challenges years: ’Malaysia has successfully curtailed compete effectively. There are also
with debt management. Public high poverty rates and reduced income opportunities for further improvement of
inequalities. Its goal is to attain high governance frameworks, the rule of law
service delivery models continue
income status by 2020 while ensuring that and the regulatory environment, to
to shift, and the quality and growth is sustainable’ (World Bank 2017a). continue to attract inward investment.
availability of talent is identified It is one of the 13 countries identified in Income inequality is also a challenge;
as the biggest driver of change The Growth Report by the Commission on according to the World Bank the
in the public sector. Growth and Development (2008) as having government’s focus has ‘shifted to
recorded ‘average growth of more than 7 addressing the well-being of the poorest
percent for 25 years of more’. 40% of the population’ which is ‘vulnerable
to economic shocks as well as increases in
Malaysia is an increasingly significant the cost of living.’ (World Bank 2017a)
economic hub and a key part of the
infrastructure for the South East Asian Within the context of a relatively successful
economy and the broader Asian market. economic story, the public sector in
Its economy has become increasingly Malaysia continues to undergo significant
diversified, producing a wide range of transformation. This report suggests that
products and services across varying sectors. the adoption of effective technologies and
The financial services sector continues to transition to digital working will be
expand, and financial markets continue to increasingly important. Public service
liberalise. Yet it is also a significant producer delivery models must continue to transform,
across many other different industries, from too. Public private partnerships could be a
chemical products, textiles, electrical key to future success, but, as with the wider
appliances, to car production. It is also a public sector services framework, such
major economic player in many traditional activities must be underpinned by
products such as palm oil and rubber, as adoption of good technologies and better
well as being a strong exporter of oil- and exploitation of data and information. Access
gas-based products. In more recent years it to talent is also identified as a critical driver
has enjoyed growth through significant of change in the Malaysian public sector. To
innovation and adoption of free market seize the opportunities for driving significant
economic policies. It has also been a leading value in the sector in Malaysia, professional
player in the privatisation of many previously accountants will need to continue to ensure
state-owned industries, notably airlines and that their skills are future proof – here, too,
telecommunications. In the wider economy, professional education and technology
it is a prominent member of the Trans- developments will play a critical role.
Pacific Partnership free trade negotiations,
which seek to drive economic growth and The 50 drivers of change are ranked in
reduce poverty by job and wealth creation Table 1 and the top three drivers for the
through innovation and competitiveness. public sector in Malaysia are:
Even in the face of relatively good longer- 1. Quality and availability of the global
term prospects for the economy, Malaysia talent pool
nonetheless faces a number of future 2. The level of economic growth
challenges and these could all have an
impact on future performance of the public 3. Use of public private partnerships.
sector and the role of the Malaysia
economy in the wider region. Attracting Each of the drivers in Table 1 are grouped
new talent to the country is a critical into one of the following categories:
priority, particularly if growth in the services economy; politics and law; society and
sector is to continue and to ensure that demographics; business of government;
Malaysia capitalises on its pre-eminent role science and technology; environment,
in the South East Asian economy (and to energy and resources; the practice of
ensure that the public sector also has accounting; and the accountancy profession.
access to the right talents). It also needs to Each of these categories will be elaborated
continue to invest in education to develop in a later part of the report with the top three
home-grown talent effectively. As the drivers identified for each of the categories.Professional accountants – the future: Malaysia: drivers of change 5
50 drivers of change in the public sector
Country report: Malaysia
Table 1: Ranking of the top 50 drivers of change for the public sector for Malaysia
The drivers of change are categorised into eight key themes: Economy; Politics and law; Society and demographics; Business of
government; Science and technology; Environment, energy and resources; The practice of accounting and The accountancy profession.
RANK DRIVER OF CHANGE THEME
1 Quality and availability of the global talent pool Business of government
2 The level of economic growth Economy
3 Use of public private partnerships (PPPs) Business of government
4 Manageability of national and international debt Economy
5 Big data: the development and exploitation of large organisational databases, data mining and Science and technology
predictive analytics
6 Stability of the global economic infrastructure Economy
7 Stability of national revenue bases Economy
8 Balance between external financial accounting and internal managerial accounting The practice of accounting
9 Spread of diversity in society and the workplace Society and demographics
10 Accounting skills capacity in transitional economies The accountancy profession
11 Speed and duration of business cycles Business of government
12 New industries and production models Science and technology
13 Opportunities arising from adoption of global regulation The practice of accounting
14 Rate of democratic transition Politics and law
15 Competition for limited natural resources Environment, energy and resources
16 Clarity in financial reporting and defining the audit function Practice of accounting
17 Business leaders’ responsiveness to change and disruption Business of government
18 The workplace expectations of Generations Y, Z and beyond Society and demographics
19 Level of entrepreneurial skills in the accountancy profession The accountancy profession
20 Carbon tax and other environmental market mechanisms Environment, energy and resources
21 Defining the scope of the accountant’s role Practice of accounting
22 Non-financial information and integrated reporting The practice of accounting
23 Cost and ease of access to higher education Society and demographics
24 Focus of global governance institutions Politics and law
25 Global climate change Environment, energy and resources
26 Experimentation with and adoption of new business models Business of government
27 Level of international political volatility Politics and law
28 Cybersecurity challenges for government Science and technology
29 Flexibility, suitability and cost of accountancy training The accountancy profession
30 Public perception and attractiveness of the accountancy profession The accountancy profession
31 Workforce age structure Society and demographics
32 Extent of foreign direct investment in developed and developing economies Business of government
33 Crowd sourced funding for innovation: the consumer as investor Business of government
34 Enterprise risk management capability Business of government
35 Evolution of corporate governance regulation and practice Business of government
36 Societal expectations and definitions of accounting The accountancy profession
37 Governance and delivery of outsourced public services Politics and law
38 Advances in genetic science, Impact of nanotechnology advances and robotic science across Science and technology
business sectors
39 Adoption of globally accepted accounting standards The practice of accounting
40 The digitisation of work Science and technology
41 Consideration of alternative economic perspectives Economy
42 Scale of take-up in alternative energy by business Environment, energy and resources
43 Scale and distribution of global population growth Society and demographics
44 Total scale and distribution of global inequality and unmet needs Economy
45 Broadening measurement of public sector value and progress Economy
46 Size and complexity of the CFO’s remit The practice of accounting
47 Scope and diversity of expectations of external stakeholders Business of government
48 Pressure to manage reputation as part of business strategy Business of government
49 Adoption of integrated systems thinking to manage business complexity Business of government
50 Level of investment required to maintain national physical infrastructure EconomyProfessional accountants – the future: Malaysia: drivers of change 6
50 drivers of change in the public sector
Country report: Malaysia
MALAYSIA: PERSPECTIVES ON THE According to the World Bank, Malaysia has
Malaysia, like other growing PUBLIC SECTOR – GLOBAL THEMES increasingly sought to bring in immigrant
and advanced economies, ACCA’s global report 50 Drivers of Change
workers as its economy expands. Malaysia
continues to face significant in the Public Sector outlines a number of
has the fourth-largest number of migrants
economic challenges and the seventh-highest ratio of migrants
core themes facing governments across
to total population in east Asia Pacific
though its economy is the globe. Across both advanced and
(World Bank 2015a). Yet as the economy
faring relatively well. maturing economies, governments are
matures, the skills requirements of many
increasingly challenged on a number of
advanced economies (and growing
different fronts. Technology is having a
economies such as Malaysia will continue
significant impact as the public sector
to evolve. The World Bank suggests that if
seeks to adopt new emerging technologies
Malaysia is to achieve ‘high income’ status
to drive value and better service
by 2020, it will be reliant on both high- and
propositions. Demographics in most
low-skilled labour.
countries continue to shift, and there are
threats to revenue in markets that are
increasingly globalised and competitive. In recognition of a challenging economic
climate and pressure on government
budgets, there is growing expectation that
Demographics and the financial
private citizens will pay more for public
implications of a rapidly changing
services, particularly through privatisation
population profile represent the one of the
measures. One of the most common ways
most severe challenges facing many
this has been achieved has been through
countries, and Malaysia may no longer be
the use of public private partnerships (PPP);
an exception. According to the United
many governments in South East Asia have
Nations Economic and Social Commission
used these initiatives to secure funding and
for Asia and the Pacific’s 2016 population
create improved customer value, and
sheet, Malaysians aged 60 or over comprise
Malaysia has been a leading player in
9.5% of the population (Straits TImes 2017).
adoption. Supporters of PPP have
On current trends it is suggested that by
advocated the benefits of reduced risk,
2050 almost one-quarter of the population
away from full government ownership,
will be over 60, officially defining it as an
reduced costs, improved financial
‘aged’ society. Advances in health care also
management and better service delivery,
mean that people are living longer. The
yet critics argue that these schemes often
proportion of the population aged over
result in pressure to cut costs and,
100 is growing evermore rapidly and this
consequently, potential job losses.
now represents the fastest growing
Historically, this has led to higher levels of
demographic of all (Goodman 2017).
productivity and improved efficiency, which
in turn have created demand for new
As more people live longer, however, so
workers at a rate that has compensated for,
too do more of them live longer with
or exceeded, the job losses.
chronic illnesses, which in itself will create
significant challenges for both the
Whether all the benefits accruing from PPP
operational provision of health care and its
can be sustained in the Malaysian context
funding. Health care in Malaysia is funded
is less sure. Malaysia, like other growing
through four main primary channels:
and advanced economies, continues to
general taxation, private health insurance,
face significant economic challenges
social health insurance and paid by
though its economy is faring relatively well.
individuals directly. In countries where
In the fourth quarter of 2016 the Malaysian
health services are paid for out of taxation,
Economy expanded at 4.5%, although
this places enormous pressure on state
across the year the rate was 4.2% versus a
budgets. Health care and social care must
higher rate of 5% in 2015 (Chin 2017).
inevitably then take an increasing share of
national spending.
Beyond the economic landscape, the
ascent of digital technology may have an
Diversity is another dimension of the
even broader impact on the public sector
changing demographics in growing and
in advanced and growing economies alike,
advanced economies, and Malaysia is no
particularly if workers are replaced by
exception here. People in deprived
machines in some vocations. The advance
countries, particularly those in conflict,
of automation, artificial intelligence and
seek a better and safer life in wealthier
machine learning could have significant
nations. And, in recent years, both growing
implications for the labour force, with one
and advanced economies have sought to
study suggesting that as many as 38% of
tap into an immigrant workforce.Professional accountants – the future: Malaysia: drivers of change 7
50 drivers of change in the public sector
Country report: Malaysia
jobs in the US could be at risk (Berriman 2008) as having recorded average growth
‘60% of the government and Hawksworth 2017). According to a of more than 7% per year for 25 years or
revenue comes from tax and recent report by the Khazanah Research more. Economic growth was inclusive, as
customs. When I talk about Institute, more than half of all jobs are at risk Malaysia also succeeded in nearly
tax and customs, it’s related of being lost to automation over the next eradicating poverty (World Bank 2017a).
two decades in Malaysia (Kok Leong 2017).
to economic growth…That’s
GDP growth was 4% in 2016 and is
why the level of economic All these issues go beyond social and expected to be the same in 2017, whereas
growth is very important to financial dimensions. Across the public in 2014 it reached 6%. A prudent fiscal
the Malaysia perspective’. sector in all countries they illuminate what policy has limited the consequences of low
Malaysia roundtable participant citizens believe their government ought to oil and gas prices, by raising tax income
be doing and what they expect their state and abolishing subsidies on fuel and sugar.
to provide. Should a government act to That said, the goal of a balanced budget in
protect its citizens, or is its role to enable 2020 will probably be reached later
markets to service the needs of people as (Atradius 2017). The roundtable
consumers? Where does the balance lie? respondents in Malaysia supporting this
And in a period of challenging revenue study recognised the importance of
streams for governments, how should economic growth as a key driver in the
public services be funded in the future, and public sector, but also pointed to the
what role can technology play in changing critical role of the government in creating
the face of public service provision? While appropriate policies to influence the level
these are significant issues to consider, of economic growth.
perhaps for finance professionals they also
present new opportunities to add value in The manageability of national and
their careers. Particularly in the public international debt also remains a
sector, there is no doubt professional challenge, according to this study. Moody’s
accountants will have a key role to play in Investors Service, in its latest report, stated
many of these developments. that Malaysia had a much higher external
debt to GDP ratio than the other large
ECONOMY economies in the region, at 66 % in 2015
compared, for example, with 32 % in
Thailand. The ratio has also grown 11
The level of economic growth
2 percentage points since 2009 and Malaysia
now has the second highest external
vulnerability indicator (EVI) in the region,
Manageability of national after Mongolia (Damodaran 2016). In
4 and international debt
addition, Malaysia’s household debt-to-
GDP ratio remains high, according to the
Stability of the global IMF, and increased to 89.1% in 2015 from
6 economic infrastructure 86.8% the previous year. The government
has implemented reforms and macro-
economic measures to contain this debt,
Malaysia´s economic growth slowed down particularly among the lower-income
in 2016 owing to lower oil prices and group. The IMF has noted that ‘domestic
decreased demand from China, and both risks are primarily related to the public
factors will continue to affect GDP growth sector and household debt, along with
in 2017, although exports are expected to pockets of vulnerabilities in the corporate
pick up slightly. The level of economic sector, adding that although the household
growth is mainly driven by private debt-to-GDP ratio was likely to decline,
consumption and investment. While oil and household debt remained high, with debt
gas exports are important for the Malaysian servicing capacity growing only
economy, low prices do not necessarily moderately’ (Star Online 2017a).
pose a risk for growth prospects in the long
term. The economy is diversified, and while
exports of oil and gas account for about
‘Government policy is one of the
22% of total exports, those of machinery
most vital aspects of economic
and transport equipment account for 45%.
growth. Policy determines the
Malaysia was one of 13 countries identified
direction of the economy’.
by the World Bank’s Commission on Growth
and Development in its Growth Report Malaysia roundtable participant
(Commission on Growth and DevelopmentProfessional accountants – the future: Malaysia: drivers of change 8
50 drivers of change in the public sector
Country report: Malaysia
POLITICS AND LAW
‘As an accountant you know ‘The government need[s] to inject
you can’t draw a budget if CAPEX for national economic growth’.
Rate of democratic transition
you don’t know where the Malaysia roundtable participant 14
money’s coming from. So
the stability of your national Focus of global governance
revenue base is important’.
Even so, the World Bank overview
maintains that, despite some risks, 24 institutions
Malaysia roundtable participant Malaysia’s near-term economic outlook
remains broadly favourable, reflecting a Level of international
well-diversified economy (World Bank 27 political volatility
2017a). Domestic demand is expected to
continue to anchor economic growth,
supported by continued income growth Malaysia is a moderate and democratic
and a stable labour market, while expected state. The country is a parliamentary
improvement in global trade would democracy with a federal constitutional
contribute positively to the external sector. monarchy. It is a multi-ethnic, multi-religious
The government has implemented a series federation of 13 states and three federal
of reforms and remains committed to fiscal territories. The Barisan Nasional (BN)
consolidation, with the fiscal deficit target coalition led by the United Malays National
set at 3% of GDP for 2017. Organisation (UMNO) has been in power
since Malaya achieved independence in
As in many other countries, the stability 1957 (the enlarged state of Malaysia being
of the global economic infrastructure formed in 1963). Despite growing electoral
is important for Malaysia’s continuing successes by opposition parties, UMNO
economic progress. The country has felt remains firmly in power (Atradius 2017).
the impact of global commodity prices Some external commentators have called
and financial market volatility, but the IMF for the rate of democratic transition to be
has attributed the country’s economic further progressed and this survey suggests
resilience to its diversified production and it is seen as an important driver affecting
export base, strong balance sheet position, the public sector.
flexible exchange rate, responsive
macroeconomic policies and deep financial
markets (Star Online 2017a). Malaysia relies ‘The rate of democratic
on five countries – Singapore, China, Japan, transition is maybe [identified]
Thailand and the US – for approximately as a concern because [the
half of its imports and exports (Atradius perception is] it is growing
2017). The main risk for Malaysia is negatively rather than positively’.
arguably a ‘hard landing’ of the Chinese Malaysia roundtable participant
economy, as China is a main export
destination. The stability of the global
economic infrastructure and the stability As an increasing economic force, Malaysia
of the national revenue base were also needs to be conscious of how the
recognised by the roundtable participants governance of global institutions and the
as key influences on the public sector. level of international political volatility
could possibly affect the economy and,
therefore, the public sector. Perhaps of
‘If there is movement in the global most note here are the recent
economy it will affect our economy developments with the Trans-Pacific
in terms of rising cost[s] [and] Partnership (TPP) trade agreement
inflation’. following the election of President Trump.
Malaysia roundtable participant Malaysia is part of the TPP, which includes
Australia, Brunei, Canada, Chile, Japan,
Malaysia, Mexico, New Zealand, Peru,
Singapore, Vietnam and, until 23 January
2017, the US. The signatories of this
multilateral trade deal have to seek a way
forward for the agreement after the US
stated its intention of withdrawing from itProfessional accountants – the future: Malaysia: drivers of change 9
50 drivers of change in the public sector
Country report: Malaysia
shortly after President Donald J. Trump’s facilities, while only 35% offered some sort
By putting less emphasis on inauguration (Panda 2017). Following the of flexible work arrangement.
age, companies could also withdrawal of the US it has been argued in Approximately half the respondents said
widen the talent pool and Malaysia that If TPP is going to proceed they planned to enhance their work–life
attract quality candidates without US participation, the country needs benefits (48%) and approximately one-third
to ensure that its interests remain planned to introduce family-friendly facilities
into the public sector. protected and that the benefits derived (37%) and flexible work arrangements (34%)
from it still outweigh the costs (Babulal (TalentCorps and PwC 2013). A recent
2017). Many of the Southeast Asian TPP survey by Hays noted that: ‘Although
members had hoped that the TPP would Malaysia leads from the front compared
help them to carry out reforms involving with many other countries in terms of
liberalisation and regulation. female ambition for the most senior roles,
there are still fewer women aspiring to a top
Nonetheless, a more positive indicator for leadership position in their career than men.
stability and trade is the establishment of Employers should ensure opportunities are
the ASEAN Economic Community (AEC) in communicated to all and recognise and
2015, which includes Malaysia (ASEAN draw out the skills and ambitions of those
n.d.a). AEC describes itself as a milestone around them’ (Hays 2016).
in the regional economic integration
agenda in ASEAN, offering opportunities The April 2017 survey by Michael Page
in the form of a huge market of US$2.6 noted above also said that meritocracy
trillion and over 622 million people. In should be the only basis for rewarding
2014, AEC was collectively the third-largest employees, not their years of service (New
economy in Asia and the seventh-largest in Straits Times 2016). By putting less
the world (ASEAN n.d.b). emphasis on age, companies could also
widen the talent pool and attract quality
SOCIETY AND DEMOGRAPHICS candidates into the public sector. The
workplace expectations of Generations
Spread of diversity in society Y, Z and beyond may also have
9 and the workplace implications for the public sector and these
were highlighted by a recent global ACCA
report, Generation Next (ACCA 2016) –
The workplace expectations implications particularly for talent retention
18 of Generation Y, Z and beyond risk. Malaysian respondents to this study
across all sectors indicated high levels of
Cost and ease of access to mobility, with 28% suggesting they wanted
23 higher education to change role in one year and 83%
suggesting they would desire a role in a
different country or region in the future.
A survey of Malaysian businesses in April This puts significant strain on public sector
2017 by recruitment firm Michael Page attraction and retention strategies.
found that companies were supporting the
spread of diversity in society and the Other concerns about talent have been
workplace (New Straits Times 2016). The raised elsewhere – a Deloitte survey on
top three diversity areas identified were Millennials found that in South East Asia
gender, age and minority ethnic groups (the survey considered Singapore and
(Ismail 2017). Diversity and inclusion (D&I) Thailand as well as Malaysia) respondents
efforts were supported by 94% of said that their ‘leadership skills are not
companies, a finding on a par with that for being fully developed’ (Deloitte 2016).
six other Asian countries in the survey. The There are also broader talent problems –
survey concluded that the government’s particularly graduate and youth
support for the advancement of women in unemployment, which is an increasing issue.
the workplace had created a conducive In 2017 youth employment in Malaysia, at
environment for addressing work–life 10.7%, was three times the average
balance challenges for female employees. unemployment (3.1%); of the 405,000
youths with tertiary education, 15.3% were
In a 2013 survey of Malaysian public listed unemployed (Shanmugam 2017).
companies, it was found that 92% of board
positions were occupied by men, while This is not helped by problems with the
men occupied 76% of top management cost and ease of access to higher
positions. The same survey found that education. The Malaysian government has
fewer than one-third offered family-friendly realised that the present education systemProfessional accountants – the future: Malaysia: drivers of change 10
50 drivers of change in the public sector
Country report: Malaysia
needs further development if the country is BUSINESS OF GOVERNMENT
‘If the cost to obtain to transform itself into a knowledge- and
education is high, then innovation-based high-income economy. Quality and availability
the public sector may be The Malaysia Education Blueprint 2013– 1 of the global talent pool
deprived of talents…but 2025 was launched in September 2012 as
the government’s latest initiative for
generally Malaysians still transforming the education system into
Use of Public Private
have access to education’ one that produces the thinking and 3 Partnerships (PPPs)
Malaysia roundtable participant innovative workers required to meet the
needs of the new economy (Ministry of Speed and duration
Education Malaysia 2013). 11 of business cycles
At the higher end of the education scale, a
recent survey found that Malaysia had the The quality and availability of the global
fifth-highest education cost to income ratio talent pool is an urgent problem for
– Malaysian parents expect to spend 55% Malaysia and in this study it was identified
of their salary on sending their children to as the top driver of change in the public
university (Leigh-Morgan n.d.). The sector. The quality of talent will have a
roundtable participants in Malaysia as part huge impact on the public sector’s ability
of this study suggested that cost and ease to provide value in the future. In the
of access to higher education could on Malaysian roundtable supporting this
reflection be considered to be the greater report, one of the key themes attenders
driver of change for society and identified impeding talent development
demographics. While the sentiment was that was the structure of government
at present the situation was stable, some departments. It was noted that succession
concerns were expressed about the future. planning was often challenging owing to
the poor availability of roles at a senior
level within different ministries and public
sector departments.
‘Our education is still relatively cheap
and free compared to many other
More broadly, the OECD suggests that
jurisdictions where access to higher
Malaysia will need to address some
education is not cheap or free’.
important long-standing economic
Malaysia roundtable participant
weaknesses in the medium term in order to
continue to progress towards becoming an
advanced economy within the next
Considering broader demographics, decade. Skill shortages and the challenges
Malaysia has a population of 31m of whom in the education system that underlie
29.6% are under 15; 65.4% are between 15 them, together with the relatively low
and 64; and only 5% are over 65. The participation of women in the workforce,
dependency ratio of population is the ratio are recognised issues (OECD 2013).
of people who are generally not in the
labour force (the dependants) to those in The World Bank estimates that female
the workforce of a country (the productive participation in the workforce was 49.3% in
part of a population). Research by 2015 (Department of Statistics Malaysia
Countrymeters (2017) shows that the total 2016), up from 43.8% in 2010. Currently, the
dependency ratio of Malaysia’s population talent base of the workforce of Malaysia is
is 52.9 %. The value of more than 50% lagging behind the standard found in
shows that the pressure on the productive high-income nations, according to the
population in Malaysia is slightly high. OECD (2013). The country suffers from a
general shortage of skilled workers, and is
heavily reliant on unskilled and low-wage
‘I think cost and ease of access to migrant workers. In 2010, 58% of the
education is going to be a problem Malaysian labour force had only a
[in the future]. As the government secondary-level education, 13.2% had only
budget is cut for education, primary-level and 2.6% had no formal
universities have started to look into education. That implies that nearly
the possibility of increasing the fees’. three-quarters (73.8%) of the Malaysian
Malaysia roundtable participant labour force in 2010 was relatively low-
skilled. Another noteworthy point is thatProfessional accountants – the future: Malaysia: drivers of change 11
50 drivers of change in the public sector
Country report: Malaysia
more than 47% of non-Malaysian citizens in was established for the 2011 to 2015
In Malaysia, the development the labour force, ie migrant workers, had planning period where development
of toll highways, ports, only a primary-level education. covered the areas of transportation, waste
airports, flood tunnels, management, health care and hospitals,
and government office Employers’ over-reliance on unskilled and master planning, education and other
cheap foreign labour has led to inadequate public infrastructure and services. The
buildings, among others, government has sought to change its role
growth in the number of skilled workers in
has been made possible the labour market. As a result, only from an active participant to a supporter
through PPP arrangements. approximately 25% of Malaysia’s labour and facilitator of private-sector-led growth.
force is composed of highly skilled workers, It is envisaged that private sector
as compared with significantly higher investment will account for 92% of the
proportions elsewhere in Asia: for instance, MYR1.4 trillion investment required and
the figure in Singapore is 54% (Ang 2015). public funding will account for only 8%.
This has a natural impact on access to
talent for public sector entities in Malaysia. According the World Bank, in Malaysia the
average annual investment in PPP over the
As well as talent challenges, public sector five year period 2011 to 2015 was US$883m
delivery and financing models are also but the 2015 investment was much higher
changing, and these were identified as a at $2,675 million, a 203% increase (World
key driver of change in this sector. In May Bank Group 2015).
2017, the World Bank held a conference in
Kuala Lumpur, Malaysia to discuss Islamic In Malaysia, the development of toll
Finance and the use of public private highways, ports, airports, flood tunnels,
partnerships for infrastructure and government office buildings, among
development (World Bank 2017b). others, has been made possible through
According to the OECD, there is a wide PPP arrangements. Projects such as the
recognition that many developing countries North South Highway, Port of Tanjung
currently face a substantial infrastructure Pelepas, and government office buildings
deficit, with many people lacking access to in Putrajaya spurred Malaysia’s economic
good-quality infrastructure and reliable growth and created new areas of
basic services. Recent estimates indicate development as well as improved
that, in low- and middle-income countries, accessibility and mobility. To date, 31 toll
an additional $1 trillion to $1.5 trillion of highways and toll bridges have been built
annual investment will be required globally using the Build-Operate-Transfer (BOT)
through 2020 to meet the infrastructure method, involving varying concession
demand from industry and households. periods from 30 to 50 years. Under this
method, the private sector suppliers, as
Particularly in Malaysia, the use of Islamic concessionaires, are allowed to collect toll
finance for infrastructure development has charges in return for funding the projects.
been receiving increased attention in the These highways include North South
past few years. Islamic finance instruments Highway (PLUS), Puchong-Damansara
such as Mudarabah (trust financing), Highway (LDP) and Elite Highway. Apart
Musharakah (equity financing), Ijara (lease from facilitation of movement of
financing) and Istisna’a (work-in-progress passengers and goods, new highways
financing) have inherent features of risk- create spill-over effects by creating new
sharing and asset-backing that make them townships and industrial areas. By
suitable for infrastructure projects. The December 2014 Malaysia had implemented
increased use of Sukuk (Islamic bonds) has 698 PPP projects (Chief Secretary to the
also opened up an important potential new Government of Malaysia 2015)
source of funding for infrastructure projects
that require large capital outlays with long The main sectoral distribution of PPP
construction and amortisation periods. programmes is in the fields of construction
(27.8%), transportation and communication
In Malaysia, the wider PPP model has been (12.3%), manufacturing (10.0%), wholesale
seen as one of the key instruments in and retail, trade, hotel and restaurant
implementing government projects (RSM (11.2%), finance, real estate and business
Malaysia 2017). The 10th Malaysia Plan services (8.3%), government services (7.0%)
(10MP) set out 52 projects worth MYR and other services (8.3%).
62.7bn (US$14.7bn). A Facilitation FundProfessional accountants – the future: Malaysia: drivers of change 12
50 drivers of change in the public sector
Country report: Malaysia
Early detection of a turning point in a SCIENCE AND TECHNOLOGY
‘This is where the business cycle is crucial, as information
expectation of external about the changing phases in business Big Data: large organisational
stakeholders comes in. cycles enables policymakers, the business databases, data mining and
The public has to community and investors to cope better 5 predictive analytics
with unexpected events brought about by
demand a certain level economic and business situations.
of accountability’. New industries and
Malaysia roundtable participant
Malaysian business can continue to expect
further uncertainty with the speed and
12 production models
direction of business cycles identified as a
key driver in this survey for Malaysia, Cybersecurity challenges
although these factors differ across the 28 for government
South East Asia region (Damodaran 2017).
For 2016, although growth in the ASEAN
economies increased, economic cycles Advances in science and technology lie at
within the region continued to diverge. the heart of many of the developments
Moody’s noted that the Malaysian that will shape the public sector over the
economy was under pressure from weak next decade as they offer the potential for
external demand for its exports, but this disruptive innovation in literally every
has now eased, with higher commodity aspect of human life, society and work. Big
prices, especially for oil, and the tech cycle Data: the development and exploitation
enjoying an upswing. of large organisational databases, data
mining and predictive analytics is actively
Capital spending has been fairly subdued being explored by Malaysia and its impact
owing to business uncertainty about future will be significant. It was identified as the
economic conditions (Moody’s Analytics fifth-biggest driver of change for the sector
and Economy.com 2017). Yet investment is in this study, with one roundtable
key: as technologies such as the internet respondent suggesting that it could be the
compress time and distance, organisations greatest influence.
are under pressure to adapt their structures,
processes and systems on an almost
continuous basis. As a result, there is a ‘[The biggest challenge] for the
growing emphasis on the need for speed, public sector is actually big data…
flexibility, adaptability and responsiveness. government data is enormous and
These in turn demand rapid decision- voluminous. We are talking about
making and shortening cycles for the billions of ringgit or dollars and so
execution of change, all of which are on. So how can we actually [make]
factors entirely relevant to the future public it more integrated? The data must
sector in the country and which they will have integrity’.
need to factor this into policy development Malaysia roundtable participant
and implementation. Sound delivery here
is also highly dependent on good
corporate governance in the relevant Malaysia is one of the few countries with a
public sector organisations. It was structured Big Data Analytics (BDA)
interesting to note from the roundtable roadmap for exploiting the value of big
discussion with Malaysian participants that data. Big data can be used to describe a
the evolution of corporate governance problem, assess a situation, forecast results
regulation and practice was also argued to and prepare solutions. Business owners,
be a key driver of change in the sector as government and citizens all stand to gain
this affects overall delivery capability. from Malaysia’s vision as ASEAN’s leading
BDA hub (MDEC 2017).
The communications and multimedia
ministry (KKMM) is committed to ensuring
the development and comprehensive use
of the big data in the country to enhance
the government’s ability to provide best
service to the people (MDEC 2017).
In May 2017 deputy secretary-general
(operations), Datuk Dr Mohd Ali Mohamad
Nor said that the government’s ability,Professional accountants – the future: Malaysia: drivers of change 13
50 drivers of change in the public sector
Country report: Malaysia
especially in decision-making based on facts many government computer systems being
‘The government security and information, could also be enhanced targeted, it is pivotal that governments
system is very effective… with the implementation of the big data keep their critical infrastructures secure
but it will be (Increasingly) pilot project. To realise this goal, the ministry from intruders and hackers (Kumar 2017).
challenging…[because] the has worked closely with the International
Telecommunication Union (ITU) to support
hackers are evolving’ the development and comprehensive use ‘Cybersecurity is a major
Malaysia roundtable participant of big data (Star Online 2017b). issue, because the reliance on
digitisation is going to grow, it’s not
Malaysia is also working with the Open going to get less’.
Data Institute, an international body that
Malaysia roundtable participant
promotes open-source data and big data
analytics, to help improve the country’s
rating on the e-government index at I think it’s not just about breach of
international level as developed by the security but I think, for example,
United Nations (UN 2016; Scott 2017). now there’s a lot of government
KKMM is also in collaboration with the services now delivered through
Malaysian Administrative Modernisation technology.
and Management Planning Unit and the
Malaysia roundtable participant
Malaysian Digital Economy Corporation to
drive the implementation of National Big
Data Analytics by implementing its pilot
project for big data in the public sector. ENVIRONMENT, ENERGY AND
Development and progress in information RESOURCES
and communication technologies has
apparently brought many benefits Competition for limited
(MAMPU 2017). 15 natural resources
As the development of big data Carbon tax and other
demonstrates, one of the key drivers of environmental market
change is the potential of new industries
and production models. If the country is
20 mechanisms
to transform itself into a knowledge and
innovation-based, high-income economy, Global climate change
the ability to embrace change and 25
innovation will be crucial. Advances in
science and technology are yielding radical This study suggests that Malaysia is in the
new industrial processes that could be the competition for limited natural resources
basis of major future industries. In many and this is identified as a potential key
cases, new industries are also introducing driver of change for the public sector. For
new business models and distribution example, it has recently faced a number of
approaches. For Malaysia, introducing new water scarcity challenges. The country also
models of production could help to boost appears to be experiencing higher
productivity. One relatively new industry of temperatures, with estimates suggesting
particular note is the environmental sector. that average temperatures could rise by 3.1
degrees centigrade by the end of the
One area where the country does appear century as an effect of global climate
to be productive is in addressing the change (Clean Malaysia 2016a). A recent
cybersecurity challenge for the survey suggested that 81% of Malaysians
government, which was identified as a key were concerned about the issue (Malay
driver of change in the public sector in this Mail Online 2017; MalaysianDigest.com
report. Malaysia could become a leading 2017). Apart from water, Malaysia is well
player in Asia for cybersecurity, along with endowed with other natural resources.
its neighbour Singapore. A PwC survey Malaysia is rich in mineral resources, and
reported that 42% of Malaysian mining (including petroleum extraction)
organisations have seen an increased risk accounts for a significant portion of GDP.
of cyber threats, yet their approach to risk The major metallic ores are tin, bauxite
mitigation is reactive at best (PwC Malaysia (aluminium), copper and iron. A host of
2016). Cybersecurity is also a critical issue minor ores found within the country
for governments across the world. With include manganese, antimony, mercury,
cybercrimes constantly increasing and and gold (Encyclopaedia Britannica n.d.).Professional accountants – the future: Malaysia: drivers of change 14
50 drivers of change in the public sector
Country report: Malaysia
According to data published by the World
‘I think in the context of Bank, ‘East Asia’s Changing Urban ‘Global climate change is a lot
Malaysia, we have been Landscape: Measuring a Decade of Spatial more significant than we think.
relying on fossil fuel…much Growth’, Malaysia is among the more In Malaysia we are still very
urbanised countries of East Asia, and its agricultural. And every climatic
[has] been said about fossil report I’ve seen would suggest that
urban population continues to increase
fuel in terms of the market, rapidly (OKR 2017). Even so, urban areas in we won’t have enough water for
in terms of price drops. But the country are among the least dense in our oil palm trees, orour dairy and
in term[s] of the reserves, East Asia. The Kuala Lumpur urban area is everything else’.
it’s depleting. So now one of the largest in the region as measured Malaysia roundtable participant
actually the urge must be to by area, but not as measured by population
(World Bank 2015b). Its urban population
go into alternative sources’. ‘Climate change is already here
increased during the period 2000–2010
Malaysia roundtable participant from 10.2m (43% of the total population) to because Kelantan [a rural state
15m (53%), making it among the more in the northeast of Peninsular
urbanised countries and economies in the Malaysia] was hit by a big major
region in demographic terms. Growing flood which had never happened
urbanisation naturally has implications for for many, many years. And that had
pressure on natural resources. a lot of economic consequences’.
Malaysia roundtable participant
Malaysia is on course to reduce its carbon
dioxide emissions significantly in its bid to
help tackle the global threat of climate THE PRACTICE OF ACCOUNTING
change, which was also identified as a key
driver of change in the public sector in the Balance between external
country. Malaysia seeks to reduce those financial accounting and
emissions by 40% overall by 2020 and has 8 internal managerial accounting
already succeeded in reaching the 33%
mark (Clean Malaysia 2016b). The Opportunities arising from
government has a range of tax incentives to
encourage green technology, and eco parks
13 adoption of global regulation
to encourage water recycling (MIDA 2017).
According to EU Gateway, the business Clarity in financial reporting
platform which helps to establish business 16 and defining the audit function
partnerships between Europe and Asia, The
government also has ambitions for Malaysia
to be a green technology hub by 2030, Trust in public institutions is key, as
when the industry is expected to reach a underlined by the publication of The
target contribution of €13bn of the national Report on the Strengthening of the
GDP. The focus is on technologies such as Accountancy Profession in Malaysia by the
green public transport (electric buses), Committee to Strengthen the Accounting
electric vehicles, solar rooftops, green ICT, Profession (CSAP 2014). The report noted
green building, and ways of converting that it is important that governments
waste into energy (EU Gateway 2016). provide accurate and complete information
on expenditure and transactions, in order
Modelling in the OECD’s 2016 Economic to demonstrate accountability and
Assessment has suggested that stewardship, and to reinforce their
introducing a carbon tax with an credibility. This means providing clear,
appropriate redistribution of revenue gains comprehensive information about the
would not only reduce CO2 emissions but financial consequences of economic,
would also promote growth in Malaysia political, and social decisions. This
(Koen et al. 2017). The 11th Malaysia Plan information should look at the longer-term
notes that economic instruments such as a impact of decisions, which cannot be
‘green’ or carbon tax, and reducing communicated through the reporting and
emissions from deforestation and forest disclosure of cash flows alone.
degradation, will be considered but this
has yet to occur (Chapter 6 of the 11th This type of information is best
Malaysia Plan 2016–2020) communicated through a high-quality,
robust, and effective accrual-based
financial reporting system where
government assets and liabilities are
appropriately recorded and reported and,Professional accountants – the future: Malaysia: drivers of change 15
50 drivers of change in the public sector
Country report: Malaysia
hence, effectively monitored. The most
‘When we are going globally accepted high-quality accrual- ‘[Of the] six capitals…I think one of
to accruals, there’s a based financial reporting system is the the [key ones] beside financial is the
complexity in terms of International Public Sector Accounting human [capital]. I think on talent
Standards (IPSAS). It provides for the development…the information
accounting treatments. But [around this] is quite crucial’.
disclosure of assets, liabilities, and
I’m worried about whether contingent liabilities: vital for assessing the Malaysia roundtable participant
the top people understand economic implications of public sector
accruals. And how do we financial management. Malaysia saw the
impact the decision-making opportunities arising from adoption of ‘I think the demand for nonfinancial
global regulation in this case and fully information has been there for
or the policymakers at [a]
implemented accrual accounting for the many years. The only thing is
very high level?’ [this]: can the profession meet the
public sector in 2015 for financial reporting.
Malaysia roundtable participant challenge [of providing this]’.
As part of this bid for clarity in financial Malaysia roundtable participant
reporting and defining the audit function
in its financial reporting, Malaysia has
already adopted IFRS Standards and the ‘You can’t do outcome-based
IFRS for SMEs Standards for all companies budgeting if you have no way of
(IFRS 2017). Although more work may be collecting non-financial information
needed. A recent survey suggested to assess your outcome’.
companies need to strengthen their internal Malaysia roundtable participant
audit function (Hafidz Mahpar 2017). A
2016 academic paper also suggested that
internal audit in the public sector could be A constant challenge for accountants is
improved, identifying weaknesses including striking the right balance between external
poor-quality work, work not completed to financial reporting requirements and
the specification and delays in completing internal management accounting, and this
the work (Yusof et al. 2016). was identified as another key driver of
change in the public sector in Malaysia.
Global regulation also presents an Both are expected to become more
opportunity, through integrated reporting. demanding and complex over time and this
There has been growing realisation that issue is particularly relevant to the public
traditional financial reporting provides sector in the country. The CSAP (2014)
insufficient information for decision-making. report (The Report on the Strengthening of
The integrated reporting, , movement, the Accountancy Profession in Malaysia)
advocated by the International Integrated notes how the global financial crisis
Reporting Council (IIRC), goes further than demonstrated the need for the public
the financial resources captured on the sector to strengthen its financial
balance sheet to include other resources management and accountancy practices to
that are less easy to measure, such as cater for more sophisticated economic
human, natural and intellectual capital, needs; in short, more accurate and
which have a bearing on the value of an meaningful financial information is valuable.
organisation. As a result of these
considerations, is being championed
by many regulators, professional bodies ‘We need the financial information
and corporates as a significant to be much…clearer and more
improvement to current, mostly financial- transparent’
based, reporting practices (Williams 2017).
Malaysia roundtable participant
In 2014 an analysis of the Bursa Malaysia’s
top 30 companies’ annual reports by PwC
against the IIRC’s Integrated Reporting ‘There needs to be more focus on
Framework found that while Malaysian the information that the ministries
companies had covered the basics of themselves use to manage
reporting, their reporting did not yet meet themselves. The question is: do the
the IIRC’s definition of ‘integrated’ (PwC ministries have relevant, accurate,
2014). Similarly, ACCA and MIA’s Integrated and timely information to be able
Reporting Survey 2016 found that over half to make managerial decisions?’
the respondents (51%) had little or no
Malaysia roundtable participant
knowledge of while only a small
minority (13%) suggested they had good
or ‘in depth’ knowledge.You can also read
