GROWTH & DEVELOPMENT OF THE MALAYSIAN ECONOMY - An overview -

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GROWTH & DEVELOPMENT OF

THE MALAYSIAN ECONOMY

--

An overview

_{An overview}

-

-MOHAMED ARIFF

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–MALAYSIA: GDP GROWTH

-10

-5

0

5

10

15

1

9

5

7

1

9

6

0

1

9

7

0

1

9

8

0

1

9

0

2

0

2

0

1

0 GDP Growth (%)

–%

–Source: DOS

₂

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Factors Contributing to Strong

Economic Growth

• Economic openness

• Stable macroeconomic policies

• High savings rate

• Investment in human capital

• Demographic factors

• Asian values

• Geographical location

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Malaysia’s Winning Strategy

• An outward looking economic strategy

– Liberal trade and foreign investment policies

• Prudent macroeconomic management

– Especially monetary policy

• Active state intervention, business-friendly

– Government plays a developmental role

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Diversification of the Economy

• Reducing over-dependence on primary

commodities ie. Rubber and tin

• Diversifying agricultural exports from rubber

to palm oil

• Petroleum and gas production provided

another primary commodity engine for growth

• Shift from agriculture to manufacturing

– Malaysia is major producer of semiconductor

devices

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• Transition from agriculture to manufacturing

0

5

10

15

20

25

30

35

40

45 Agriculture

40.2

31.5

27.7

20.8

9.1

8.9

8.8

8.7

9.3

8.3

8.7 Manufacturing

8.2

10.4

16.4

19.7

27.1

31.9

30.0

29.9

30.4

29.8

29.8 1955

1965

1975

1985

1995

2000

2001

2002

2003

2004

2005

2006

* Estimates from Ministry of Finance, ** Forecast by Ministry of Finance

Source: Departm ent of Statistics

Change in Composition of Output

(share of GDP)

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Economic Openness

• Adopting outward looking export-oriented

trade strategy to attain higher rates of

economic growth

• Actively seeking foreign investment

• Setting the stage for export and investment-led

growth

• Realistic exchange rate

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Industrialisation

• 1960s: Import substitution

• 1970s: Export orientation

• 1980s: Development in heavy industries

• 1990 onwards: Value-added manufacturing

Widening industrial base

Manufacturing plus-plus

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1960s: Import Substitution Strategy

• Industries produced essentially for domestic

market

• To promote import-substituting industries,

government subsidised the establishment of

new factories and protects the domestic

market.

• Limitations: saturation of domestic market,

failure to penetrate export markets

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1970s: Export Oriented Industrialisation

• Based on export-processing zones (EPZs)

• Foreign firms employ low-wage labour to

assemble imported raw materials and

components for exports

• Major producers in EPZs are E&E, textiles and

garment factories

• Limitations: inability to sustain industrial

expansion, dependence of external demand

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1980s: Heavy Industry Development

• Heavy industrialisation included national

car project, motorcycle engine plants, iron

and steel mills, cement factories, petrol

reining and petrochemical project, pulp and

paper mill

• Look East policy to emulate success in

Japan and Republic of Korea

• Continuing promotion of resource-based

industries

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1990s: Value-added Manufacturing

• Manufacturing ++ strategy with emphasis on full

integration of manufacturing operations through

value chain to enhance industrial linkages, increase

productivity and competitiveness

• Shift from traditional industry-based approach to

cluster-based approach to include development of

industrial clusters, key suppliers and requisite

economic foundations

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DEVELOPMENT STRATEGY:

EVOLUTION

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1971-85: NEP and State Intervention

• Racial riot prompted major rethink in

economic planning

• Economic policy adjustments were made:

strong and direct intervention of the state

• New Economic Policy (NEP) was

introduced, placing interest of the Malay

community

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1986-96: Economic Liberalisation and

Private Sector-led Growth

• Government took a back seat to allow private

sector to be the ‘lead engine’ of growth

• Role of government reduced to providing

necessary infrastructure and conducive

investment environment

• Dismantling investment barriers created new

opportunities from cross borders

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FUTURE TRENDS

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VISION 2020

Objectives:

United Malaysian

Just and caring society

Mature and democratic society

Sustainable development

Fully competitive, dynamic, robust and resilient economy

- Achieve a fully developed nation status by 2020

Strategies:

Export-led growth and free market forces

High-tech and knowledge-intensive

Accelerated growth in manufacturing, services and agricultural

sectors

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Contribution of Factor of Production

• Higher contribution of TFP is expected to

sustain future growth

0

10

20

30

40

50

60 1971-1990

1991-2000

2001-2010

Labour

Capital

TFP

Source: OPP3, EPU

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Manufacturing and Services As

Engines of Growth

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000

2005

2010

2020

Agriculture

Manufacturing

Services

Source: EPU

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GDP by Sector

0

1

2

3

4

5

6

7

8

9

10 2003

2004

2005

2006

2007

2008

0

1

2

3

4

5

6

7 Agriculture

Manufacturing

Construction

Services

Mining

RGDP

Source: MIER

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Scenario Projections for 2006-2020

Worst-case Baseline Best-case

Employment

2.5

2.7

3.0 Capital

4.5

6.1

6.4 TFP

0.8

1.7

2.6 Real GDP

4.2

5.8

7.0 Source: MIER

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TAKE-AWAY MESSAGES FOR

MYANMAR

• Economic openness

• Realistic exchange rate

• Sound monetary policy

• Fiscal discipline

• Good governance

• Economic freedom

• Good infrastructure: physical & institutional

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TAKEAWAY MESSAGES….

• Policy consistency and predictability

• Efficient civil service

• Integrity

• Transparency

• Accountability

• Investment in human capital

• Inclusive growth

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