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Human Capital Development in Malaysia

5058 words (20 pages) Essay in Economics

12/06/17 Economics Reference this

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The study intends to look into the Human Capital Development in Malaysia: Challenges and Prospects. In 10th Malaysia Plan, Federal Government is more focus on non- physical development (Human Capital Development). It shows that the ratio of allocation on non- physical projects and physical projects has changed from 22:78 during the 9th Malaysia Plan to 40:60 in the 10th Malaysia Plan. Due to the shift in allocation, we will evaluate the past performance of the 9th Malaysia Plan to the development of human capital development and whether the past performance can affect the sudden shift to the non- physical projects in 10th Malaysia Plan. After that, we will discuss further about the challenges facing by human capital development and its possible solutions. Moreover, we are also focus on the policies implemented, the impacts and also the future directions due to the increment of the human capital development.

Keywords: Human Capital Development, Challenges and Prospects, Past Performance of Human Capital Development, Policies, Impacts, Future Directions.


Human capitals refer to the processes that related to the education, training and other professional initiatives in order to improve or increase the level of knowledge, skills, abilities, values and social assets. Non- physical projects are referring to the human capital development or skills development. Examples of non- physical projects are initiatives to enhance profession attractiveness and improve teacher performance, R&D investments, skill and re-skilling programmed, venture funding geared and nurturing of technopreneurs. Human capital development is getting wider attention due to the globalization. Developing country is more emphasis on the development of human capital towards accelerating the economic growth by putting more efforts on it. Thus, human capital development is playing a very important role in Malaysian economy.

Malaysia appears to be stuck in the middle income trap. It is going to be a challenge for Malaysia to achieve its Vision 2020 by the target year. One of the reason for Malaysia failed to escape from the trap is Malaysia unable to compete with other country such as Taiwan and South Korea. For Taiwan, it has been identified as one of the fastest growing economies for the past 50 years and its improvement also has been honored as “economic miracle”. Taiwan is well known for its high technology industries over the past two decades. It has been identified has the fourth largest information hardware and semiconductor industries in the world presently. Moreover, the high quality and innovative products that “make from Taiwan” are sold worldwide. The other reasons are Malaysia is lack of skilled workers. We are unable to attract skilled foreigners to our country while skilled Malaysians are leaving.

If we compared with those advanced countries such as Norway and Switzerland, both of these countries are more focus on nurturing highly skilled human resources rather than expensive mega projects. However, the development of human capital in Malaysia is not as well-established as these countries. Why does this phenomenon occur? This might happened because of some of the reasons such as the previous administration are more focus on the expensive mega projects that causes the human resource development scheme failed to develop. Moreover, Malaysia is lack of skilled workforce and Malaysia hope can be more productive and innovative. As a result, it can explain that why the government will sudden shift the allocation for non- physical projects from the ratio of 22:78 during 9th Malaysia Plan to 40:60 during 10th Malaysia Plan.

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We are going to discuss the six main objectives in our research paper. First of all, we are going to evaluate the past performance of the 9th Malaysia Plan to the development of human capital. It is to ensure that whether the commitment, outputs and the expected outcomes during the 9th Malaysia Plan can affect the shift in allocation for the non- physical projects (human capital development).

Besides, we want to determine the factors that cause the increment allocation for the non- physical projects. We know that from the previous administration in which the government is more focus on the expensive mega projects, but our country is still stuck in the middle income. We are now in the critical juncture; the government soon realizes that to transform Malaysia into a high income and develop country, the development of the human capital is playing a very important role.

Other than that, we want to identify the challenges facing by human capital development. We are either remaining in the middle- income group or advance to a high- income economy. To doing so, we need to change and seek solutions in addressing the global economic challenges and find its possible solutions. Moreover, the study is going to find out the policies implemented for the development of human capital. Strategy must be come out and implement to improve the human capital development in Malaysia.

Finally, the study is aim to find out the impacts due to the increment of the human capital development to the growth of Malaysian economy and it is also want to identify the future directions of the development of human capital in Malaysia.


In our research, we referred to Secondary Data. Our data had been taken in statistics for skilled human capital, journals, articles and internet sources. One of the example of the materials we referred are the statistics of the skilled human capital during the 9th Malaysia Plan by Ministry of Higher Education, Ministry of Human Resource, Ministry of Youth and Sports and Construction Industry Development Board. Moreover, we are also referred to the Nine Malaysian Plan (2006-2010) and Tenth Malaysian Plan (2011-2015).

5.0 Literature Review

In Malaysia, starting from Ninth Malaysia Plan, innovation capability was given attention. The development of human capital is very important in generating the economic performance in one country. There is a positive linkage between development of human capital and growth of Malaysia.

Many studies had found that human capital affects many aspects at all level. Dension (1962) and Schultz (1961) state that human capital can increase an individual’s wages, firm’s productivity and hence increase the growth of national economy. Besides that, Vinokur et al., (2000) also point out that the employment rate will increase due to the development of human capital. Lepak and Snell (1999) find that firm can strengthen core competence and comparative advantages through development of human capital. Aurora Teixeira & Natercia Fortuna (2003) also confirm that human capital and indigenous innovation efforts are enormously important to the process of Portuguese economic growth during the period 1960-2001, through the R & D. On the other hand, indirectly, through creative and innovation capability, showing that development of human capital is important to enable a country to gain the benefits. Rob A. Wilson and Geoff Briscoe (2004) in their report on vocational training research in Europe: A review of the impact of human capital on economic growth focus on increase of investment in education training will lead to higher productivity. The relation between the investment in human capital and economic performance are reviewed through human resource management and so on.

In our research paper, we will review on the challenges and prospect of the development of human capital. Besides that, we also will focus on the impact of the development of human capital on the short term and long term growth of Malaysia. We admit that there are some challenges in the future, but overall, the impact on investment in education and training on economic growth is positive and significant. Some policies are drawn to achieve the goal. The direction for future also predicted.


Human capitals refer to the processes that related to the education, training and other professional initiatives in order to improve or increase the level of knowledge, skills, abilities, values and social assets. Since independent in 1957, the economic activities of the country depended on the products such as rubber and tin in which it is playing an important role for the economic growth of the country. Under the twenty years plan which starts from 1970-1990, the economic of the country showed a stable growth from being an agriculture-based economy in1970s to industrial-based economy in 1980s. Due to the industrialization, the government soon realizes that human capitals in the industrial sector are the main driving factor for the country’s economic growth. As a result, the government began to develop the human resources in order to maintain economic growth and remain the competition in the global market.

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Human capital is getting emphasis since from the 1st Malaysia Plan until the 10th Malaysia Plan which is the most recent start from 2011-2015. For example, Malaysia’s Eighth Development Plan emphasizes on shifting the growth of the economy from the input driven economy towards knowledge driven economy. Moreover, it is also focusing on increasing the productivity and efficiency through human resources development, increasing R&D as well as utilizing the latest technologies especially information communication technologies (ICT). Furthermore, Ninth Malaysia Plan has placed investments in human capital as the main thrust of its strategy. The aim of the 9th Malaysia Plan is in order to develop the efficiency and talented workforce thus can enhance the national productivity and growth.

Although the government is putting emphasis on the development of human capital, Malaysia still cannot advance to a high-income economy. Malaysia still stuck in the middle-income trap and it is going to be a challenge for Malaysia its Vision 2020 by the target year. Under the 9th Malaysia Plan, 78% of the allocation was set aside for the physical development versus to just 60% for 10th Malaysia Plan. As a result, federal government realized the importance of human development and the improvement in the living standards thus it is more focus on the non-physical projects (human capital development) in the 10th Malaysia Plan. It shows that the ratio of allocation on non-physical projects is 40% versus to just 22% in the 9th Malaysia Plan. Examples of non-physical projects are initiatives to enhance profession attractiveness and improve teacher performance, skill and re-skilling programmes, R&D investment, nurturing of technopreneurs and also venture funding geared.

In the recent budget 2011 that announced by our Prime Minister Datuk Seri Najib Razak, Malaysia needs to move from the middle-income to transform into an inclusive and sustainable high-income developed country by 2020 which emphasizing the high-skilled human capital, efficient public services and also the equal opportunity for all Malaysians. Highly skilled labor especially scientists and engineers are important in order to support the further development of the economy growth. Thus, the government needs to implement the policies in order to enhance the productivity as well as attracting more high-skilled labor from abroad.


During the first half of the 9th Malaysia Plan, the stable development was made in moving up the economy of Malaysia. There is a lot of evolutions were made in the new growth areas of service sector such as Information and Communication Technology (ICT), telecommunication, tourism, Islamic finance and shared service and outsourcing (SSO). Service sector was trying to transforms to the skilled intensive and high technology activities with the support by research and development (R&D). The policy and strategy framework for the mid-term review of 9th Malaysia Plan is actually based on the five thrusts. Two among the five thrusts are related to human capital development.

Thrust1: To move the economy up the value chain.

In thrust 1, government is focus on enhancing productivity and competitiveness of the human capital. The supply of proficient workers with the necessary skills especially in Islamic banking & finance, agriculture & biotechnology will be increased due to the demand of the labor market. Besides, government will increase the intakes into skill training institutes as well as expand the offering of the specialized courses. Not only that, the linkages between university and industry will be enhanced by improving the curriculum design in order to produce graduates with the relevant knowledge and skills that required by industry.

Thrust 2: To raise the capacity for knowledge and innovation and nurture first class mentality.

In thrust 2, government putting a lot of effort in order to develop the human capital and it basically based on the five strategic. The first one is enhancing education quality, followed by making national school as the preferred choice, creating tertiary education institutions of international standing, developing quality R&D and improving scientific & innovative ability.

Evaluation about the human capital development during 9th Malaysia Plan

From the chart 1, we can know that the amount of skilled labor during 9th Malaysia Plan is increasing and the skilled labor in public sector is actually more than the private sector. In year 2005, there are total 76027 skilled labor in Malaysia while in year 2007, the total amount of skilled labor in Malaysia is 83202. Government was expected that the skilled labor in year 2010 will probably reach to 112745 peoples.

Chart 2 shows that the share of labor force with high skill is always high in advanced countries. There are only 25% of the total workforce in Malaysia composed of highly skilled workers in year 2007, compared to significantly higher proportion in Singapore, Taiwan and Korea. Singapore is only a small country without the support of natural resources. However the skilled labor in Singapore is much higher than Malaysia. There are 49% of them are skilled labor in Singapore while for Taiwan and Korea, there are 33% and 35% respectively of them are skilled labor.

Therefore, we can conclude that even though the skilled workers in Malaysia during 9th Malaysia Plan is increasing but it is only increase in a very little amount. Malaysia still cannot compete with others developed countries. The transformation to becomes a knowledge-based economy have increased the demand for knowledge workers. Thus, a lot of effort is needed in order to achieve high income nation and also Vision 2020.


Previous administration focusing on building infrastructure

In the previous administration, the government is more focus on building infrastructures, while various human resource developments failed to transform Malaysia into a high-income and develop country. This can prove during the Mahathir era which was characterized by expensive mega projects such as a $2.4 billion Bakun Dam hydroelectric project; Kuala Lumpur International Airport (KLIA) that cost a $2.36 billion; an $8.1 billion for the building infrastructure of the new administrative capital (Putrajaya); and the $752 million PETRONAS Twin Towers.

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The Bakun Dam is the second largest dam in the world, after the Three Gorges in China. In the process of built this dam, there are about 69,640 hectares of forest ecosystem being completely destroyed when the water is impounded behind the dam. For Mahathir, this kind of expensive mega projects can serve as a catalyst for the economic growth. For us, we will feel that, instead of building such dam that can harm the environment, the government should focus more on the human resources development. For example, government can invest more money in education or skill training programmes. This will be much better because a country’s economic growth is highly depends on a better allocation of human resources.

During the Budget 2011 Plan that announced few weeks ago, our Prime Minister Datuk Seri Najib Tun Razak proposed to build a 100-storey mega tower along with other mega projects. This mega tower is cost about RM 5 billion in which it is a huge of money. The building, named “Warisan Merdeka” or “Heritage of Independence” would be the tallest in Malaysia compare with the PETRONAS Twin Towers that completed in 1998. After our Prime Minister announced the plan during the Budget 2011, many people are voice out against the building of the mega tower. The citizens think that the project as being more detrimental to Malaysia rather than beneficial. If compared with other high income advanced countries such as Norway and Switzerland, both of these countries are much focus on nurturing highly skilled resources rather than all these kinds of building infrastructures.

Based on the chart 3, we can see that the shift in allocation for the non-physical projects and physical projects under the 9th Malaysia Plan and 10th Malaysia Plan. From the pie chart, we can see that during the 9th Malaysia Plan, physical projects are putting emphasis which is 78% versus 60% in the 10th Malaysia Plan. While in the 10th Malaysia Plan, non-physical projects are getting more important which included 40% if compare with 22% under the 9th Malaysia Plan.

Lacking of skilled workforce

Highly skilled labor is required to support the further development of the economy. The Star Online, 6th August 2010 stated that only 23% of Malaysia’s 11 million workforces are skilled, including those with higher education degrees. This make Malaysia as one of the country with the least qualified workers in the region. Besides, Singapore has more than 40% of the skilled labors while the country likes Hong Kong, Taiwan and South Korea, its skilled labors are over around 40%. In the Western Europe, the percentage of the skilled labors is even higher than 70%. The Star Online, 6th August 2010 also stated that the Deputy Human Resources Minister Datuk Maznah Mazlan said that the lacking of the skilled and qualified workers in Malaysia can slowdown the economic growth and the economic progress within the country. Moreover, the low number of the qualified workers would not attract so much foreign direct investment (FDI), thus, it may be challenges for Malaysia to transform into a high income and develop country by its target year.

Other than that, the Minister of the Human Resources also hopes that by the end of the 10th Malaysia Plan, the country’s percentage of skilled workers must increase to 37%. In addition, the government is also plan to increase the salary because with highly skilled it must met with the higher salaries.

To move the economy to high value chain, it is important to develop the potential to innovate and create new technology as well as design much more new products. Our Science and technology and Research and Development were partly constrained by the short of scientists and engineers. The number of scientists and engineers per million populations in year 1998 was 500 compared with 2600 for the country like Singapore and Korea. In addition, during 2004, Malaysia had only 21 research scientists and engineers for every 10,000 workforce. In the 9th Malaysia Plan, the target was set to achieve 50 per 10,000 workforces by the year 2010. Due to this, the government had implemented the National Brain Gain Programmes, it is aim to attract scientists and engineers worldwide to conduct research and development (R&D) in Malaysia. Policies are also very important in order to increase the ability of the education system to enhance the mobility of the workers as well as attracting more highly-skilled labors from abroad.

Malaysia wants to be driven by productivity, innovation and no longer by factor accumulation

Productivity and innovation are needed to drive the economy. To achieve the Vision 2020, Malaysians need to be more productive and innovative. The Vision 2020 sets new and higher goals for the national aspiration and changed the way Malaysians behave. Factor accumulation here is refer to the labor and capital that will produce goods and services in the economy and in the long run, it will produce output thus can increase the economic growth. When the labors are driven by productivity and innovative, it can directly make them to be more productive in order to use the capital and technology more efficiently. Eventually, this will improve their performance towards their jobs. When the labors are become more productive, eventually it can enhance the competitiveness between the firms. Hence, it can stimulate the economic of our country.


The Government of Malaysia is committed to develop the human capital; however, it is still a long journey to go. Malaysia still stands at the starting point of the development of human capital. Malaysia in the way transforming to knowledge based economy, believes that developing the human capital is compelling. Concomitant with development of human capital, there are some challenges have emerged.

The first one is inappropriate of the education system. The education system did not meet with the expectations and demand of the job market. It causes the rising unemployment among graduates. There are total 70% graduates unemployed. Table 1 shows the statistic of the unemployment among university graduates (include foreign graduates).

The statistic shows that there are total 20thousand graduates are unemployed. There are 16.2% are from the University of Technologi Mara, which is double to the second highest one, 7.6% from University Utara Malaysia. Only 0.2% is from the Universiti Pendidikan Sultan Idris. From the data, we can know that the skills they learn are mismatch with the demand of the market.

Malaysia education system is a cap with memorizing without critical thinking and practical or analytic skills to improve creativity. It does not make any sense to the demand of the job market. To face this challenge, it is compulsory to review the school curriculum to generate creativity. Curriculum should be designed to ensure graduates equipped with relevant knowledge and skills that meet the requirement of job markets. Life-long learning should be promoted. Students can gain extra knowledge not only from the school but also from other sources. Habit of study should not be encourages in schooling hours only, but have to maintain among the whole life. Teacher also can use interactive multimedia technology to promote teaching.

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Second challenge is the brain drain problem. There were about 700,000 talented Malaysians working abroad. Below are the statistics about the emigration of employed person.

Table 2 shows that the number and percentage distribution of employed persons by migration status, Malaysia, 1992, 1997, 2002 and 2007. At year 1992, there are 7,047,800 of Malaysians are employed with 0.8% are migrant abroad and at the year of 2007, there are 0.5% of Malaysia are emigrate from the total of 10,538,100 people.

Instead, this phenomenon is due to pull factor such as high wages from overseas and push factor such as unfair problem in Malaysia. Malaysia brain drains problem appears to be picking up speed. According to recent report, 140,000 after the country and this figure more than doubled to 350,000 between 2008 and 2009. We are now losing talented people and one of the main problems is the flight of graduates. To take over the challenge, Dato Sri Najib Tun Razak had announced and formulates policies to encourage highly-educated immigrants to go back, which is Malaysia Talent Corporation. This policy also aimed to seize the country’s growing brain drain problem. Malaysia Talent Corporation is to find out the reason that can make them to consider going back to Malaysia and at the same time generate more business prospects and pay them higher wages than global wages. Besides that, government of Malaysia also can invest in other potential talented people to expand country’s capacity to generate people skilled in enabling technologies that drive the knowledge economy, either in domestic or from foreign.

The third and also the last challenge are workers attitude and mindset toward their job. It found that it is easy for the worker to enhance the skills, but not the attitude. Workers are mainly not committed to the job, not full attendance and traditional thinking. Furthermore, the worst is the employees are found that they are lack commitment in learning and training. To overcome this challenge, first of all, workers have to change their mindset and attitude. The company also can deal the challenge through empowerment. Corporations can humanize the work environment so that management and employees can work together to enhance the productivity and achieve greater personal and professional success. Through the empowerment, it can involve employees in taking responsibility for improve them and encouraging employees to play more active role in their work.


To achieve vision 2020 associated with high income nation, there need some policies and strategies to achieve the outcomes.

Malaysia First Human Capital Development Report launched by Ministry of Science, Technology & Innovation (MOSTI), Malaysian Biotechnology Corporation (BiotechCorp) and global research house Frost & Sullivan to access development of human capital in field of life science and biotech. This Malaysia First Human Capital Development Report targeted to access the needs of the biotech industry in order to meet the qualified and talented Malaysians in biotechnology. The report is an instrumental to move Malaysia forward. The first important step to move it forward is the continued expansion coactions in lab, universities, companies and so on in domestic or international. Besides that, through the report, it can provide the excellent platform for bridge the skills gap in the biotechnology sector. It also can facilitate the professionals through nurturing local talents or sourcing them outside from Malaysia. The report shows the result with evident that there was an increase demand of job in biotechnology sectors. Jobstreet shows a list that 41,000 of people had successful being employed under biotechnology industry. The increased requirement of professionals is the successful of the implementation policies and strategies.

The other policies and strategies that had implemented is National Key Result Area (NKRA). NKRA is introduced by our Prime Minister, Dato Seri Najib Abdul Razak to improve Malaysian’s lives. The education NKRAs is targeted at improving student outcomes and is anchored upon four areas: (i) Pre-school enrolments rates, (ii) High performing schools, (iii) Literacy and Numeracy Screening (LINUS) programme, and (iv) New deal for head teachers and principals. To this end, High Performing Schools (HPS) and the School Improvement Programme (SIP) are two strategies that have been adopted in the part of the NKRA. High Performing Schools is improvement of the learning environment. Through HPS, a well-designed school with adequate facilities will built to perform at a highest level, truly enhance the performance and make the learning become more fun and enjoyable. While School Improvement Programme also aimed to increase the performance of school to international level associated with HPS. Besides that, student outcome can be improving through a quality education such as Government Transformation Programme. There are four imperatives to to improving student outcome, which is ensure every child succeeds, hold schools accountable for changes in student outcomes, invest in great leaders for every school and attract and develop top teachers. Research has found that an improvement in the performance of the school lead to a positive impact on student outcomes.


Malaysia manage to achieve Vision 2020 on the target year

Malaysia is a country which is really very rich in natural resources. However the wealth in natural resources was not sufficient to cause Malaysia to achieve a developed nation status. Vision 2020 will successfully achieve if human resource development is being given top priority by the government of Malaysia. No one could ever deny that investment in human capital is an essential requirement for Malaysia to achieve the status of industrialization. The high educational level of the citizens is one of the characteristics of developed nations. Every child is a national treasure and future leader to our country, despite of which races they are. Therefore, human capital development that is start from childhood is very important in order to raise the children with good values and knowledge. The national education system which is focus on philosophy skills, personality building, creativity, innovation and competitiveness can nurture the citizens who are excellent in morality and qualified in physical and mental. In addition, Malaysia is also not suppose to forget that to put more effort in build more schools, hostels, facilities and equipment modernization, as well as maintain the quality of the teaching profession. If we really could make it, Malaysia can really be a united nation by 2020, with a confident Malaysian society, imbued with strong moral and ethical values, living in a society that is democratic, broadminded, compassionate, and in full ownership of the economy, competitive, self-motivated, trustworthy and sustainable.

Malaysia moving towards high quality human capital

In this increasingly competitive world, most of the nations are putting their attention on the knowledge, talents and skills of the populace. In 10th Malaysia Plan, the allocation for non-physical infrastructure will be increased to 40%, compared with 21.8% in 9th Malaysia Plan. From that we can know that there is a lot of effort which is putting by the government in order to develop the non-physical projects such as skills development and strong innovation capabilities. As to ensure the workers to own the necessary relevant skills and be able to adapt to a speedily and continuously changing global technological and business environment, Malaysia is starting to focus on retraining and upgrading of skills of both employees and employers. Thus, there are more skilled and knowledge-based workers in Malaysia by year 2020. Private sector was also been encouraged to invest in non-physical infrastructure and provide skill training services to their workers. They will emphasis on build a workforce which expertise in technology, management and have entrepreneurial potential. By this, the development of non-physical project will be more efficient since private sector and government work hard together to fulfill the goal to becoming a high quality human capital nation. Skilled labor is an important asset to enhance nation’s competitiveness in the global market. According to the latest IMD World Competitiveness Scoreboard 2010 Report, Malaysia was at 10th position. It was higher than China which was only ranking 18th. This was really a great achievement for Malaysia to motivate the citizens for moving forward and remain competitive on the global front.

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Improvement in R&D sector

R&D is important especially in science and technology sector. For example, if the world wants to reduce its dependence on fossil fuel that causing the global warming, scientists need to find some clean and cheap alternative that require little energy to replace the reliance of the fossil fuel. All of these need a lot of research and experiment to make it a success. The European Commission reported in 1997 that even though Malaysia is the world’s third largest exporter of E&E products, but then Malaysia’s R&D intensity was relatively low and the amount of scientists and engineers

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