GROWTH & DEVELOPMENT OF THE MALAYSIAN ECONOMY - An overview - MOHAMED ARIFF 1
MALAYSIA: GDP GROWTH % 15 10 5 0-5 -10 1957 1960 1970 1980 1990 2000 2010 GDP Growth (%) Source: DOS 2
Factors Contributing to Strong Economic Growth Economic openness Stable macroeconomic policies High savings rate Investment in human capital Demographic factors Asian values Geographical location 3
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 4
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 5
Transition from agriculture to manufacturing 45 40 35 30 25 20 15 10 5 0 1955 1965 1975 1985 1995 2000 2001 2002 2003 2004 2005 2006 Agriculture 40.2 31.5 27.7 20.8 9.1 8.9 8.8 8.7 9.3 9.3 8.3 8.7 Manufacturing 8.2 10.4 16.4 19.7 27.1 31.9 30.0 29.9 29.9 30.4 29.8 29.8 * Estimates from Ministry of Finance, ** Forecast by Ministry of Finance Source: Departm ent of Statistics Change in Composition of Output (share of GDP) 6
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 7
Industrialisation 1960s: Import substitution 1970s: Export orientation 1980s: Development in heavy industries 1990 onwards: Value-added manufacturing Widening industrial base Manufacturing plus-plus 8
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 9
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 10
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 11
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 12
DEVELOPMENT STRATEGY: EVOLUTION 13
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 14
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 15
FUTURE TRENDS 16
VISION 2020 - Achieve a fully developed nation status by 2020 Objectives: United Malaysian Just and caring society Mature and democratic society Sustainable development Fully competitive, dynamic, robust and resilient economy Strategies: Export-led growth and free market forces High-tech and knowledge-intensive Accelerated growth in manufacturing, services and agricultural sectors 17
Contribution of Factor of Production 60 Higher contribution of TFP is expected to sustain future growth 50 40 30 20 10 0 1971-1990 1991-2000 2001-2010 Source: OPP3, EPU Labour Capital TFP 18
Manufacturing and Services As Engines of Growth 100% 80% 60% 40% 20% 0% 1970 1980 1990 2000 2005 2010 2020 Agriculture Manufacturing Services Source: EPU 19
GDP by Sector 10 9 8 7 6 5 4 3 2 1 0 2003 2004 2005 2006 2007 2008 Agriculture Manufacturing Construction Services Mining RGDP 7 6 5 4 3 2 1 0 Source: MIER 20
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 21
TAKE-AWAY MESSAGES FOR MYANMAR Economic openness Realistic exchange rate Sound monetary policy Fiscal discipline Good governance Economic freedom Good infrastructure: physical & institutional 22
TAKEAWAY MESSAGES. Policy consistency and predictability Efficient civil service Integrity Transparency Accountability Investment in human capital Inclusive growth 23
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