By LIZ GOOCH | NY Times
Published: October 1, 2010

KUALA LUMPUR — With its dazzling skyscrapers, bright lights and ubiquitous symbols of modernity, Singapore has long worked its magic on Rachel Liew, 20.

Even as a young girl visiting the city-state with her family from her native Malaysia, Singapore’s clean streets, convenient public transportation and modern lifestyles made a lasting impression.

As Ms. Liew grew older, she came to believe that Singapore could also offer a better education than her homeland, and in 2008, she packed her bags and headed south across the border to pursue a degree in mechanical engineering at Nanyang Technological University.

“I might return to Malaysia if I had a really good job offer there, which I think would be unlikely, or if I eventually get married to a Malaysian who wants to live in his hometown,” said Ms. Liew, one of about 700,000 Malaysians living abroad. “But other than that, I think I would probably settle down in Singapore.”

That is exactly the kind of sentiment Malaysia’s policy makers are desperate to change.

Many Asian nations have long been concerned about the outflow of human capital to more developed countries, but here in Malaysia, the need to address the problem has assumed a new urgency in the final decade for reaching its long-established goal of becoming a developed country by 2020.

Companies have long complained about a shortage of skilled labor in Malaysia, and economists say it is severely affecting the country’s ability to attract more high-technology industries. The government is acutely aware of the shortage in skills and the potential hurdle it poses to the country’s 2020 goal.

“We don’t get it right, we are in serious trouble,” the human resources minister, S. Subramaniam, said during an interview.

Studying and working overseas have long been considered attractive options for those Malaysians who can afford to make the move. About half of those living abroad can be found in neighboring Singapore. Australia, Britain and the United States are also popular.

Robert K. Chelliah, who runs an Australian immigration agency in Perth, with offices in Kuala Lumpur and Singapore, said by phone that the number of Malaysians contacting his company with inquiries about moving to Australia had soared 80 percent since 2008.

“In the last two to three years, the motivation to acquire Australian permanent residency has sharply increased across all age sectors as well as across racial backgrounds,” he said.

Like Ms Liew, most of the seven people interviewed for this article said that better education, wages and career opportunities could be found abroad, while parents wanted to ensure that their children received an internationally recognized education in English.

Many interviewees, when asked about their concerns about returning to Malaysia, cited racial tensions and the country’s affirmative action policy, which gives special privileges to ethnic Malays, who make up 60 percent of the population. The government has recognized the need to change the policy, which was introduced in the 1970s to improve the economic standing of Malays, who were more highly represented among the nation’s poor than its Chinese and Indian minorities.

Prime Minister Najib Razak has repeatedly emphasized that affirmative action would be made “market-friendly, merit-based, transparent and needs-based” under the country’s latest plan, the New Economic Model, which is designed to steer Malaysia toward its development goals. Ethnic Malays, or bumiputras, still benefit from privileges like discounted housing, and some government contracts are available only to companies they control.

A Malaysian Chinese businessman, who left Malaysia for Canada as a university student in the 1970s and stayed there, said that because of the policy, only a handful of his Malaysian Chinese classmates who also studied abroad had returned to Malaysia. Several other Malay and non-Malay interviewees also described the system as unfair.

Danny Quah, a professor of economics at the London School of Economics and Political Science, says that the brain drain has had a huge effect on the country’s economic and industrial development.

“People have left, growth prospects have dimmed, and then more people continue to leave,” said Mr. Quah, who is also a member of the Malaysian National Economic Advisory Council. “It’s a vicious cycle that the economy has had to confront for the last decade or longer.”

Malaysia’s growth rate dropped to an average of 5.5 percent a year from 2000 to 2008, from an average of about 9 percent a year from 1991 to 1997.

Private investment, meanwhile, has fallen to about 10 percent of gross domestic product in 2008 from more than a third of G.D.P. in 1997, and the World Bank has warned that a lack of human capital is a “critical constraint in Malaysia’s ambition to become a high-income economy.”

Stewart Forbes, executive director of the Malaysian International Chamber of Commerce and Industry, said foreign companies faced difficulties finding skilled workers in fields like electronics, the petrochemical industries and engineering. Some companies complain of poor communication and English skills.

“I don’t think it’s yet reached the stage where companies are saying, ‘I cannot do my business here,”’ Mr. Forbes said. “I think it’s true to say, however, that there’s lost investment opportunities here because of the labor situation.”

Mr. Forbes contrasted the skill shortage in Malaysia, where 80 percent of the work force has only a high school education, with a country like Taiwan, which emphasizes the number of holders of graduate degrees available to investors.

Previous government attempts to lure back Malaysian expatriates, namely the Brain Gain Malaysia and Returning Expert programs, have had little success. Despite financial incentives like importing cars tax-free and efforts to ease access to permanent residency for foreign spouses, they have attracted fewer than 3,000 applicants.

The government now plans to enhance and consolidate those programs under a new agency, to be known as the Talent Corp. Its financing will be announced as part of the country’s 2011 budget on Oct 15. It will recommend ways the country’s education and training systems can be overhauled to produce graduates who better fulfill industry needs, especially in sectors like information technology and financial services.

Muhyiddin Yassin, Malaysia’s deputy prime minister and education minister, is leading a major review of the education system. “There will definitely be a major overhaul of the system,” he said in an interview, adding that the system needed to foster creativity and innovation.

Enhancing the skills of the existing work force, encouraging universities to work more closely with industry and increasing the number of students enrolled in vocational training are also priorities.

Mr. Muhyiddin said that Malaysia needed to record annual economic growth of 6 percent for the next 10 years to achieve its 2020 goal and that a work force with the right skills was a “precondition” for such growth.

Still, enticing Malaysian expatriates home, when salaries there remain lower than abroad, presents a major challenge.

In Malaysia, the average income per capita is currently about $7,000, a figure the government wants to increase to $15,000 by 2020. In Singapore, by contrast, the figure hovers around $37,000, World Bank data show.

Mr. Subramaniam, the human resources minister, says that he expects salaries to rise as more high-technology industries develop and that, in the meantime, improvements in other factors, like work opportunities, may help lure Malaysians home.

“If we give them a good working environment, an area where they can grow, and it’s stimulating and satisfying, they might be willing to take a slight cut in their salary,” he said.

Still, some economists remain skeptical about the government’s initiatives to reverse the diaspora.

Terence Gomez, a professor on the economics faculty of the University of Malaya, said that changing the affirmative action policy remained a highly contentious issue, with the government under pressure from right-leaning groups and members of its own party, the United Malays National Organization, to maintain it.

But he said it was vital that Malaysia become more of a meritocracy if it is to succeed in drawing back the diaspora. For instance, non-Malays need to be assured that they can be appointed to senior civil service positions, and the private sector must be based on transparency and fairness, rather than race, he said.

Otherwise, “professionals won’t come back and work in the public sector, and investors won’t come back and invest in the private sector,” he added.

Mr. Quah of the London School said that it was not affirmative action alone that had driven the brain drain and that higher wages and economic growth, and good schooling opportunities, were vital to enticing expatriates home.

“This is an economically astute middle class, and they will see whether it’s in their interests to return or not,” he said.

Chen May Yee, 39, a Malaysian Chinese journalist who lives in Minneapolis with her American husband and two children, is yet to be convinced that Malaysia can offer the work opportunities and lifestyle she wants for her family. She said she had taken a pay cut each time she had previously moved back to Malaysia after stints in the United States or Singapore — sometimes as much as 50 percent.

“I’d love to move back for family and friends, but I just don’t see how to make it work economically,” she said.