topic 2 the malaysian economy - growth & structural changes (1).ppt
TRANSCRIPT
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
1/51
All Rights ReservedCh. 1: #
Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Chapter2
The Malaysian Economy:Growth & structural
changes
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
2/51
All Rights ReservedCh. 1: #
Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Learning Objectives
Tracking the changes in agriculture in Malaysia.
Tracking the changes in Petroleum industry inMalaysia.
Tracking the changes in manufacturing in Malaysia.
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
3/51
All Rights ReservedCh. 1: #
Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Before independent, Malaysian economyhad heavy reliance on tin mining andrubber plantation.
In the nineteenth century (1800s), worlddemand for producing tinplate tin rose dueto the discovery of a more efficient
method (for canned food).
Growth & structural changes
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
4/51
All Rights ReservedCh. 1: #
Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Tin mining industry was dominated byEuropean capital,especially colonial British.
Malaysian ownership in Malaysian-incorporated
56.3%Malaysian ownership in United Kingdom-
incorporated tin dredging companies 20.0%.
Total Malaysian ownership in both Malaysian-incorporated and United Kingdom-incorporatedtin dredging companies in Malaysia is 35.1%.
Growth & structural changes
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
5/51
All Rights ReservedCh. 1: #
Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Malaysias tin reserves of tin were exhaustedin the 1980s and prior to which the governmentlay emphasis on alternative source of
economic growth.
Growth & structural changes
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
6/51
All Rights ReservedCh. 1: #
Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Agricultural sectorespecially rubberproductionwas a very important sourceof growth in Malaysian colonial era
Rubber expansion in Malaysia began onestates, being stimulated by:
1) Very high prices.
2) Capital and management from Europe.
Growth & structural changes
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
7/51
All Rights ReservedCh. 1: #
Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
3. Suitable local weather, investment fromthe British.
4. New technologyof extracting the rubberlatex from the trees (called tapping) byan incision with a special knife expeditethe rise of rubber production.
5. Labor from South India
Growth & structural changes
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
8/51
All Rights ReservedCh. 1: #
Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Parallel developmenton independentrubber shareholdings took root, as bothMalay farmers and immigrant Chinese
workers perceived the high income to beearned from the new crop.
Growth & structural changes
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
9/51
All Rights ReservedCh. 1: #
Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Malaysia replaced rubberwith palm oil andmanufacturingas source of growth due to:
1. Manufacturing sector has higher value-added,
2. Rise in rubber production cost. (there wasgrowing labour shortage and consequent rise inreal price of labour in rubber plantation sectoras rubber is a labour intensive crop)
3. Increased in substitution competition fromsynthetic rubber.
Growth & structural changes
: Decline of rubber
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
10/51
All Rights ReservedCh. 1: #
Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Agriculture
Economists agree that agricultureis a keycontributorto overall economic growthandmodernization.
Self reliance in food production in case of war,
embargoes, other forms of conflict is important fornational stability.
Its seen that a strong agricultural sector is importantfor the development of other sectors e.g.manufacturing, services, knowledge economyunless for middle east countries that are endowed withoil deposits and unfavorable climatic conditions.
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
11/51
All Rights ReservedCh. 1: #
Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Agriculture
Initially the agricultural sector included theproduction of livestock, fisheriesand othermiscellaneous crops.
There was transition to valuable cash crops such aspalm oil, rubberand food commodities; owing tothe
increase in earnings from the major commodities.
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
12/51
All Rights ReservedCh. 1: #
Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Sector 1965 1970 1975 1980 1985 1990 1995 2000 2005 2009
Agriculture 31.5 29.0 27.7 22.9 20.8 15.2 12.9 8.6 8.4 9.5
Mining 9.0 13.7 4.6 10.1 10.5 11.8 6.2 10.6 14.4 12.9
Manufacturing 10.4 13.9 16.4 19.6 19.7 24.2 26.4 30.9 29.6 26.6
Construction 4.1 3.5 3.8 4.6 4.8 3.9 6.2 3.9 3.0 3.3
Electricity, gas
and water
1.1 1.1 2.0 1.4 1.8 2.2 2.6 3.0 2.7 2.6
Services 43.9 38.8 45.5 41.4 42.4 44.3 47.8 46.2 44.0 48.3
Table 4.2Composition of GDP by sector, Malaysia, 1965-2009 (%)
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
13/51
All Rights ReservedCh. 1: #
Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Sector 1970 1975 1980 1985 1990 1995 2000 2005 2008 2009
Agriculture 53.5 49.3 39.7 35.7 26.0 19.0 16.0 12.9 12.0 12.0
Mining and
quarrying2.6 2.2 1.7 1.1 0.6 0.5 0.5 0.4 0.4 0.4
Manufacturing 8.7 10.1 15.7 15.1 19.9 25.7 27.1 28.7 28.8 28.4
Construction 2.7 2.9 5.6 6.9 6.3 8.9 9.2 7.0 6.6 6.6
Services 20.5 22.5 23.6 26.2 34.5 35.1 37.2 51.0 52.5 52.6
Government
Services12.0 13.0 13.7 15.0 12.7 10.8 10.0 9.7 10.9 11.0
Total
Employment
(000)
3,340 3,928 4,817 5,625 6,686 8,024 8,547 10,895 11,577 11,585
Primary 56.1 51.5 41.4 36.8 26.6 19.5 16.5 13.3 12.4 12.4
Secondary 11.4 13.0 21.3 22.0 26.2 34.6 36.3 35.7 35.4 35.0
Tertiary 32.5 35.5 37.3 41.2 47.2 45.9 47.2 51.0 52.2 52.6
Table 4.3 Distribution of employment by sector, Malaysia, 19702009 (%)
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
14/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Figure 4.2 Agricultural growth versus manufacturing growth, Malaysia, 19702005
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
15/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Lack of technical change
Greater promotion of manufacturing saw manufacturingovertaking agriculture as the main contributor to MalaysiasGDP and employment in the second half of the 1980s and
the mid-1990s, respectively.
No competitiveness: Old agricultural technology in foodproduction could not sustain the sectors competitivenessand hence this sub-sector began to face growing trade
deficits from the 1980s
The Old Agriculture
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
16/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Agriculture
Agricultural products
1 Palm oil Produces more than ten million tonnes of oil per year, over half ofthe world's supply.
Steadily improved at all levels, including the quality of planting
material, cultural practices, processing methods and marketingstrategies
.
2 Rubber, Malaysia is also the world's leading supplier of natural rubber,80% of which is produced by smallholders in both eastern and
western parts of the country.
Prices and export volume for rubber have both fallen in recent
years owing to huge stocks in the regionand slower demand
from consumers.
Hence government supportfor the smallholder sector with grantsfor planting materials, fertilizers and pesticides
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
17/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Agriculture
Agricultural
products
3 Cocoa, Cocoa has been commercially planted in Malaysia since
the 1950s while cocoa processing began in the 1970s.
Most of the planting areas are situated in Sabah, but
most of the grinding and manufacturing are based in
the Peninsula.
Malaysia is the fifth largest cocoa processor in theworld.
4 Rice, Vietnam still dominates rice imports, with Thailand in
the second spot
The need to increase self-sufficiency level for rice had
prompt the GOM to take few initiatives such as the
Ninth Malaysia Plan (2006-2010).
The Ninth Malaysia Plan supposed to increase self-
sufficiency to 90% by 2010 this however fail tomaterialize .
i l l d
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
18/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Agriculture
Agricultural products
5 Fruitbanana,
pineapple
Fruit production in Malaysia is rising despite land issues and the
lack of foreign Investment
The government is focusing on a selection of fruit to increase salesoverseas: giving emphasis to star fruit, papaya, mango,
watermelon and pineapple.
The focus for Europe is on star fruit and papaya, and Papaya and
pineapples for Middle East
6 Fish Plays a significant role in the national economy. Apart fromcontributing to the national Gross Domestic Product (GDP), it is
also a source of employment, foreign exchange and a source ofprotein supply for the rural population in the country.
The fisheries sector has 3 main subsectors, namely marine
capture fisheries, aquaculture, & inland fisheries.
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
19/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
The New Agriculture
Biotechnology. The new agriculture has extensive focus onthe use of biotechnology,
Development in genetics (both GMOs and non-GMOs),microbiology and diagnostics, and nanotechnology have
revolutionized and pushed out agricultural productionand profit frontiers.
Modern marketing
Use of ICT & modern marketing emphasizes connecting with
supermarket-driven value chains and sustainabledevelopment
New agriculture sought to raise unit productivity byincreasing the utilization of knowledge-based-farming.
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
20/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
The New Agriculture
Output and productivity of a number of commoditieshave risen since 2005..
Fishing overtook forestry and logging in 2009
Oil palm has been the dominant crop to enjoy localdownstream processingover the period 19902010.
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
21/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Figure 4.1 Agricultural policies, Malaysia, 19502010
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
22/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Effect of agricultural modernization to MalaysianIndustrialization: Positive Effects
Provide enough foodfor the industrial sector
population. Increase productivity in agriculturalsector
releaseS labour surplusto industrial sector.
Generate higher incometo agricultural sectorpopulation. This lead to higher domestic demandand savings that support the industrial sector.
Agriculture
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
23/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Effect of agricultural modernization to Malaysian
Industrialization: Negative Effects
Greater export earnings contribute to increasing
foreign reserves, which in turn appreciating thereal exchange rates. Real appreciation ofRinggit squeezes manufacturing profits, thuslead to de-industrialization.
Agriculture
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
24/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Effect of agricultural modernization toMalaysian Industrialization: NegativeEffects
Since prices are mainly determined by theconditions in the world markets, highproductivity and output in agriculture may,
without offsetting changes in relative prices,may induce the flow of resources into theagricultural sector, thereby squeezing outthe manufacturing sector.
Agriculture
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
25/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Petroleum and Malaysian
Development
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
26/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Petroleum and Malaysian
Development
Key extractive industries in Malaysian development:Petroleum and Gas
Major export expansion in 1970s
Gasproduction started in early 1980s Petroleum from both East Malaysia and from off East
coast of Peninsular Malaysia
2008 nearly half of countrys crude oil productionwas from Peninsular Malaysia
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
27/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Petroleum
Policies
Petroleum Development Act 1974, setting upPETRONAS to oversee countrys petroleumdevelopment: Production sharing with foreign
investors
Renegotiation of contracts after 1974, leading totemporary problems for foreign investment
Local content requirements on foreign investors
Petroleum and Malaysian
Development (cont.)
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
28/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
By 2008 Malaysia as the 3rdlargest exporter ofnatural gas.
Malaysia has remained outside OPEC, but hasconsulted with OPEC members on limitingproduction.
Petroleum and Malaysian
Development (cont.)
Contribution to export
earnings
Observation
1980 24% Double that of tin
2008 17% >rubber, palm oil & timber
products
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
29/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
The co-existence of imports and exports ofcrude is explained by the export of high qualityMalaysian low sulphur oil and import of lower-quality crude.
Petroleum and Malaysian
Development (cont.)
Domestic
consumption of
domestic
production
Export imports
2004 52% 37% 17%
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
30/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Petroleum has limited impact on development viaemployment and final demand linkage fromworkforce.
High capital intensive.
It contributes only large amounts of short termemployment in construction sector.
Taxation plus other forms of sharing revenue are
important in securing gain for the economy.
Petroleum and Malaysian
Development (cont.)
2000 2006 - 2008
Contribution to Government
revenue %
25% 40%
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
31/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Petroleum and Malaysian
Development (cont.)
Forward Linkage
1. Growth of petroleum
products
Driven by growth in
domestic market
2. Growth in
Petrochemical sub-
sector
Driven by the growth in
the capital intensive,
Heavy industry sector.
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
32/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Petroleum and Malaysian
Development (cont.)
Back ward Linkage
1. Malaysian companies are capable of building oil rigs and
drilling platforms.
2. PETRONAS has diversified its operations internationally in
oil and gas related activities.
Other value adding investments.PETRONAS has developed shipping interest with a view to
transport LNG.
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
33/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
National depletion policy
US Geological Survey estimated
reserves in 2006 asOil: 21 years andGas: 34 years
Malaysia limits production in order to
conserve its oil and gas reserves.
Petroleum and Malaysian
Development (cont.)
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
34/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Dutch disease/resource curse?
The Dutch disease refers to situation where a countryskey export hinders the growth of other industries forexport.
Neither tin nor petroleum dominated Malaysias exportearnings (e.g. Nigerias 90%+ from oil in exportearnings)
Even in late 19thcentury, tin does not seem to havediscouraged other exports (encouraged
Rubber and other activities flourished via railway
development and labour supply , (although much rubberlabour was imported too)
Petroleum does not seem to have discouragedmanufacturing exports
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
35/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Manufacturing
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
36/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Manufacturing
Since 1970, Malaysia has based its economicdevelopment strategy on three longterm policies:.
Growth with equity continues to be the guidingdevelopment strategy.
Year Policy
197090 New Economic Policy (NEP) - To eradicate poverty,
To restructure Malaysian society
19902000 National Development Policy (NDP),Balance between economic growth and equity
200110. National Vision Policy (NVP), Building a Resilient
Nation, Unity and Spirit of Patriotism
Building Economic Resilience
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
37/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Manufacturing
As a dependent colonial economy, Malaysiaconcentrated on the exports of primary rawmaterials and imported manufactured products.
1947 Employed %
Agriculture 68%
Tertiary sector, 22.5%
Mining 2.5%
Manufacturing 6.7%
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
38/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Manufacturing
The proportions remained largely unchanged untilindependence.
During the colonial period, agricultural processingwas the main manufacturing activity,
But in the 1960s and 1970s newer industriesdeveloped, namely:
1. Beverages,
2. Textiles,3. Chemicals and chemical products,
4. Transport equipment.
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
39/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Manufacturing
The 1970s ushered in a new phase of economicgrowth, marked by the rapid rise of constructionand manufacturing and a strong strategicemphasis on equitable or fair distribution,
specifically through affirmative action policies.
By 1990, the economy was more industrialized,despite being buffeted by massive shocks
1. The oil crises of 1973
74& 1978
792. The global slowdown in demand for electronics and
primary commodities in 198586.
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
40/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Manufacturing
Under such conditions, the industries that grew werethose that had some natural protection due tolocation advantages. (labor & natural resources)
The manufacturing industries that enjoyed such
advantages were the primary processing industries,
including the processing of agricultural,
mining,
forestry products,
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
41/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Manufacturing
domestic marketoriented industries such as food
products, printed materials, furniture, rubberproducts, and
building supplies (for example, cement, bricks, and
light engineering goods).
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
42/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Manufacturing
The country had developed comparative advantagein resourcebased manufacturing industries, and so:
i. Imports were more capital intensive.
ii. Exports more labor intensive. The estimates indicate that growth, led by
Malaysias laborintensive manufactured exports,was underway by the early 1970s
F t f th th f
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
43/51
All Rights Reserved
Ch. 1: #Malaysian Economy Oxford Fajar Sdn. Bhd. (008974-T) 2011
Factors for the growth of
Manufacturing industry
Low-wage model: In the 1980s the low-wagemodel worked well for Malaysias manufacturingsector making the country a haven for the electricaland electronic (E&E) companies.
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
44/51
F t f th th f
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
45/51
All Rights Reserved
Ch. 1: #
Malaysian Economy
Oxford Fajar Sdn. Bhd. (008974-T) 2011
Factors for the growth of
Manufacturing industry
Ch ll f M f t i
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
46/51
All Rights Reserved
Ch. 1: #
Malaysian Economy
Oxford Fajar Sdn. Bhd. (008974-T) 2011
Challenges of Manufacturing
industry
1. Low wages-modeldoes not bare efficiency.2. Malaysia did not enter new growth segments
with the advent of new technologiesin the late1990s and early 2000s, making the future look
pretty challenging for the sector as smartphonesand then tablet computers made great strides indenting demand first for PCs and now even forlaptops and notebooks.
Ch ll f M f t i
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
47/51
All Rights Reserved
Ch. 1: #
Malaysian Economy
Oxford Fajar Sdn. Bhd. (008974-T) 2011
Challenges of Manufacturing
industry
Products higher up the value chain like solar-powered and light-emitting diode industries are inand low-technology E&E goods graduallydiminishing.
More than 40% of exports are still derived from E&Esegments such as hard disk drives and consumerelectrical products, and this does pose a problem foroverall economic growth.
3. Rising labor costs makes the country to lose itsshine as a destination of foreign investments untilrecently.
Ch ll f M f t i
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
48/51
All Rights Reserved
Ch. 1: #
Malaysian Economy
Oxford Fajar Sdn. Bhd. (008974-T) 2011
Challenges of Manufacturing
industry
4. South-East Asian economies are highly relianton foreign multinationals and there is somedelay where technology transfer is concerned ascompanies will not transfer high technology know-
how readily.
This was part of the middle-income trap faced byemerging economies as they confronted thechallenge of trying to sustain the manufacturing
sector by relying on foreign multinationals throughthe low-wage model, tax breaksand othersubsidies.
Ch ll f M f t i
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
49/51
All Rights Reserved
Ch. 1: #
Malaysian Economy
Oxford Fajar Sdn. Bhd. (008974-T) 2011
Challenges of Manufacturing
industry
Low-wage model in manufacturing is a disincentivefor foreign companies to transfer technology and forfirms to move up the value chain
5. Brain drain problem, Malaysia does produce talentbut there is a problem in retaining the talent.
Low wages was one factor why there was a braindrain.
Government response
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
50/51
All Rights Reserved
Ch. 1: #
Malaysian Economy
Oxford Fajar Sdn. Bhd. (008974-T) 2011
Government response
Manufacturing industry
1. Educated workforce. As the manufacturing sectormoves into high-technology non-E&Eoperations, there will be a need for an educatedworkforce and so wages are bound to rise.
2. Capital-intensive investment.Governmentfocuses on higher value-added downstreammanufacturing activities, which is reflected in theincreasingly capital-intensive investment pattern in
the manufacturing sector.
Government response
-
8/10/2019 Topic 2 The Malaysian Economy - Growth & Structural Changes (1).ppt
51/51
All Rights ReservedMalaysian Economy
Government response
Manufacturing industry
3. Grow the non-E&E sector. Malaysia had in thepast decade emerged as a major exporter of keynon-E&E products such as chemicals andchemical-related products, refined petroleum
products and rubber productssupported by thedomestic availability of raw materials. (central bankannual report)