The Economy Of Malaysia Is Growing Economics Essay

The Economy of Malaysia is a growing and relatively open state-oriented and newly industrialised market economy.Malaysia, a middle-income country, has transformed itself since the 1957 from a producer of raw materials into an emerging multi-sector economy. Tin, rubber and palm oil remain important, but have been overtaken by new industries. Malaysia is now one of the world’s largest exporters of electronics and electrical products.

Malaysia’s political and economic stability, prudent and pragmatic investor friendly business policies, cost productive personnel, developed infrastructure comparable to that of any western country and a host of other amenities make this country an enticing place for investors.  

Malaysia has achieved 14 continuous years of trade surplus.  Their total trade in 2011 reached RM 1.269 trillion, an boost of 8.7% compared to 2010, the highest total trade ever recorded.  Exports shows a positive growth with an increase of 8.7% to RM 694.55 billion for the year 2011 and imports rose by 8.6% to RM 574.23 billion.  

GDP

GDP : GDP : $453 billion ( PPP, 2011)

Sector wise GDP Contribution : Agriculture : 12.0 % , Industry : 40.0% Services: 48.0% ( 2011 est.)

The Malaysian economy has been surprisingly resilient. In 2Q2012, its GDP growth accelerated to 5.4 per cent from a revised 4.9 per cent in the previous quarter. The growth was driven by strong domestic demand, with impressive year-on-year growth in private and public consumption and investment outlays.

The government projected Malaysia’s GDP to grow between 4.5% and 5% in 2012 while for 2013, it forecast growth at between 4.5% and 5.5%.

GNI per year is 48000RM and creates 3.3 million new jobs because of the economic transformation programme which covers well paying middle to high income groups.

Consumer Price Index

The Consumer Price Index (CPI) for the period January to October 2012 increased by 1.7 per cent to 104.8 compared with that of 103.0 in the same period last year.

Consumer Expenditure

Consumer expenditure in Malaysia increased to 99812 MYR Million in the third quarter of 2012 from 92693 MYR Million in the second quarter of 2012.

Consumer confidence in Malaysia rose to a six-year high while more than two-thirds of Malaysians were positive about their job prospects and personal finances.

Malaysian Currency

The Malaysian ringgit (plural: ringgit; currency code MYR; formerly the Malaysian dollar) is the currency of Malaysia. It is divided into 100sen (cents). The ringgit is issued by the Bank Negara Malaysia.

1 MYR= 18.2086 Rs.

Monetory Policy

Monetary policy 2011—Monetary policy in 2011 remained supportive of growth, while managing inflationary pressures. Monetary policy in 2012 focused on managing economic growth, containing the risks to inflation and preventing the build-up of financial imbalances.

In the second half of the year, however, the downside risks to domestic economic growth increased significantly due to deteriorating global economic and financial situation, whereas the upside risks to inflation had begun to moderate. Given the balance of risks, the Monetary Policy Committee (MPC) considered the prevailing Overnight Policy Rate (OPR) level to be correct and kept the policy rate unchanged for the remainder of the year

The Overnight Policy Rate (OPR) is their policy instrument, and is used to guide the short term interbank rates which will hopefully influence inflation and economic growth.

Foreign Exchange

Malaysia continues to maintain a liberal foreign exchange administration rules which are mainly prudential measures to support the overall macroeconomic objective of maintaining monetary and financial stability.

The fixed change rate was abandoned to floating exchange rate in July 2005. Bank Negara Malaysia to be responsible for administration,etc. of this Act, and Foreign exchange is being controlled by Governor of Bank Negara Malaysia and to appoint other officers. The performance of the RM during the 2011 year was influenced by volatility in international financial markets

The central bank has sufficient international reserves to attenuate volatility in the foreign exchange market to prevent severe currency movements

Interest rates

The benchmark interest rate in Malaysia was last reported at 3.00 %. Historically, from 2004 until 2012, Malaysia Interest Rate averaged 2.9 Percent reaching an all time high of 3.5 Percent in April of 2006 and a record low of 2.0 Percent in February of 2009. In Malaysia, the interest rate decisions are taken by The Central Bank of Malaysia or Bank Negara Malaysia. The official interest rate is the Overnight Policy Rate.

Malaysia unemployment Rates

In September 2012, there was an increase of the unemployed total by 66,700 persons, bringing to a total of 413.900 persons, while the number of employed persons recorded a marginal declined by 18,100 persons to 12.55 million persons. This situation contributes to the unemployment rate by 3.2 % in September 2012, an increase of 0.5 percentage point from 2.7 per cent in the previous month. Historically, from 1998 until 2012, Malaysia Unemployment Rate averaged 3.3 Percent reaching an all time top of 4.5 Percent in March of 1999 and a record low of 2.8 Percent in March of 2012. The unemployment rate can be defined as the no. of people actively looking for a job as a percentage of the labour force.

Income Distribution

The influence of overall strategies for public expenditure components on public is the outcomes of income distribution. The impact of public expenditures by various elements seems to favour urban households as opposed to rural household groups as well as Malay household groups as opposed to other ethnics. Hence, it could be said that, the public expenditure allocation has reduced the income inequality between ethnics, but it has wider. This may be due to the bias policies that are drafted to the benefit of the ‘Bumiputra’ community while neglecting others and also the emergence of a new ‘ruling class’ that are make up of political cronies.

Stock Market

On April 14, 2004, Kuala Lumpur Stock Exchange was renamed Bursa Malaysia Berhad, following the demutualization exercise, the purpose of which was to improve competitive position and to respond to global

trends in the exchange sector by making themselves more customer-driven and market-oriented. The wholly owned subsidiaries of Bursa Malaysia own and run the many businesses like security exchange, Bond market etc.

Bursa Malaysia also has a range of progressive products and services which covers equities, derivatives, offshore listings and services, bonds and Islamic offerings.

National Debts

Up to 2Q 2011, government debt in total has reached RM437 billion, or approximately 53% of nominal GDP.

Based on Budget 2012 numbers, total Malaysian government debt outstanding should reach just over RM495 billion by the end of 2012.

Based on 2012 numbers, the per capita debt should reach a little over RM 17,000 per person by the end of that year.

Public Debt : 53.2% of GDP (2011,est.)

Revenues : $59.8 Billion(2011,est.)

Expenses: $73.8 billion (2011,est.)

Rate of Inflation

The inflation rate in Malaysia was recorded at 1.30 percent in September of 2012. Inflation rate refers to a general increases in prices measured against a standard level of purchasing power. The many well known measures of Inflation are the CPI Index which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy.

Malaysia trade

Total exports : 60.21 RM billion ( Sep. 2012)

Total imports : 53.74 RM billion ( Sep. 2012)

Malaysia’s total trade in September 2012 grew by 5.8% to RM113.94 billion compared with RM107.74 billion in September 2011. ASEAN was the chief contributor to the growth, with trade expanding by RM4.34 billion.

Of the total export 67.3% is contributed by Manufactured goods, 107.43% is contributed by mining goods and 11.4% Agriculture goods and 0.9% Other Sectors

There is an Increase of export by 1.7% in 2012 compare to 2011.

Many contribution involves by Electrical and Electronics products.

Growth of exports to ASEAN, the United States of America (USA), India and Taiwan supported the boost in Malaysia’s exports of 2.6% to RM60.21 billion in September 2012. Imports rose by 9.6%

to RM53.74 billion.

External Trade :

Malaysia is a founding Member of the WTO by virtue of its membership in the GATT since 1957.

As a trading nation, membership in the WTO has contributed to Malaysia’s economic growth.

Through active participations in WTO negotiations, Malaysia continues to make sure that trade regulations and trade measures that are negotiated are fair and provide the flexibility for Malaysia to continue its development policy.

Malaysia free trade agreement involvement :

International trade is an important contributor to Malaysia ‘s economic growth and development.

Malaysia ‘s trade policy is to pursue efforts on the way to creating a more liberalizing and fair global trading environment.

Free Trade Agreements (FTAs) are generally aimed at providing the means to achieve faster and higher levels of liberalisation that would create effective market access between the participants of the FTA.

Malaysia has established FTAs with the following countries:

Japan, Pakistan, New Zealand, India, China &, Australia.

Fiscal Deficit

Malaysia expects a proposed goods-and-services tax to help improve government revenue and plans to reduce some subsidies to put an end to its fiscal deficit by 2020

Malaysia aims to cut its fiscal deficit to 2.8% of gross domestic product by 2015, and it is on track to narrow the budget gap by every year through 2020

The fiscal deficit is expected to fall to 4.7% in 2012 from 5.4% previous year

The electrical & electronics (E&E) industry

The electrical & electronics (E&E) industry is the leading sector in Malaysia’s manufacturing sector, contributing significantly to the country’s manufacturing output (26.94 per cent), exports (48.7 per cent) and employment (32.5 per cent). 

Exports of manufactured goods in September grew 2.4 per cent year-on-year and 7.6 per cent month-on-month to 40.86 billion ringgit.

Major export products for the month were electrical and electronic products (35.4%).

The strong E&E industry in Malaysia is a outcome of the Government’s initiatives to promote labor intensive and export-oriented industries.

The presence of top electronic manufacturing services (EMS) companies such as Flectronics, Solectron, Celestica, Jabil, Plexus and Sanmina-SCI provides opportunities for home companies to be part of their supply chain in the supply of equipment, materials, parts and components, and various dedicated services such as contract design, failure analysis burn-in testing, and rapid prototyping. Other local supporting industries focus on activities such as moulds, tools and dies, plastic injection, metal stamping, surface treatment, moulding and M&E (Mechanical & Electrical). Nowadays, there are more than 50 companies operating as contract manufacturing services (CMS) or EMS companies.

Electrical and Electronics

Malaysia current global position in the E&E industry

According to UNCTAD Handbook of Statistics, Malaysia is among the five major exporters of semiconductor devices in the world and continues to open huge investment opportunity for the industry players by attaining world-class capabilities and talents. E&E industry is today the main manufacturing sub-sector in terms of GDP contribution in this country. The sector employed some 462,000 people or 43% of whole employment in the manufacturing sector, and contributed 62% of total manufactured exports

Being a foot-loose industry, the electronics sector could be built up anywhere in the world with the necessary infrastructure. But Malaysia, beginning with its initial lucky start in 1972, continued to remain the first choice of the electronics players (until late 1990s), because it remained hungry, tuned in to the needs of the manufacturing, adjusted to the changing electronics waves’ needs and provided the needed incentives to attract them.

Sectors In E&E industry

The E&E manufacturers in the country have continued to move-up the value chain to manufacture higher value-added products. These include intensification of research and development efforts and outsource non-core activities domestically.

The E&E industry in Malaysia can be categorised into four sub-sectors:

Electronic components

Industrial electronics

Consumer electronics

Electrical products

Electric Component

The major electrical products manufactured under this sub-sector are lightings, solar related products and household appliances such as air-conditioners, refrigerators, washing machines and vacuum cleaners. In 2011, Investments in the sub-sector made to RM9.7billion, of which 91.4% is dominated by foreign investments while domestic investments accounted for 8.6% of the total govt. approved investments in 2011.

The introduction of Feed-in-Tariff (FiT) in country in 2011 has encouraged the usage of renewable energy in the country. The growing awareness of the significance of the green technology including renewable energy has led to the introduction of the LED roadmap by the Malaysian Government. This has spurred the growth of the LED industry and opens up new opportunities for many both local and foreign investors in developing Malaysia’s LED industry.

Industrial Electronics

This sub-sector consists of multimedia and information technology ( IT ) products such as computers, computer peripherals , telecommunication products and office equipment. The Industrial electronics sub-sector accounted for 24 % of the total investment approved in the electronics sector in 2010. In 2010, the majority of the investments approved amounting to RM2.6 billion were from Electronic Manufacturing Services (EMS) companies manufacturing low volume high mix products for various applications such as medical, aerospace, oil and gas and telecommunication.

Consumer Electronics

Malaysia’s consumer electronics devices market defined as the addressable market for computing devices, mobile handsets and AV devices, was estimated at about US$10.7mln in 2011. This is expected to increase to US$13.5bn 2015, driven by growing incomes and growing affordability of key products. Demand will grow at a CAGR of about 6%, as Malaysian consumers regain confidence. Economic growth will moderate in 2011 and 2012, but total Malaysian spending on consumer electronics will remain robust in key product segments such as LED TV sets.

Electronics components

Within the electronics components subsector, semiconductor devices are the major contributor, comprising more than 30% share of the E&E exports. Malaysia is currently the world’s leading location for semiconductor assembly and test operations, with more than 70 manyly multinational companies (MNCs) specialising in these type devices. Semiconductor products constituted of export value RM97,856.5million (US$32,837.75million). It contributes 92.7 per cent of the total export of electronic components or 43.6 per cent of the total electronics export for 2010.

Future and Initiatives of E&E industry

Malaysia is currently focusing to raise the current E&E industry in Malaysia to the upper or higher value chain of E&E supply chain as example focusing on far upstream such as integrated circuit (IC) design activities or far downstream such as application and end product design.

To push the E&E industry to a higher level, under the Economic Transformation Programme (ETP) launched by the Government, a few sub-sectors namely integrated circuits, solar photovoltaics, LED ( light emitting diodes), and solid state lighting and integrated electronics have been identified for greater promotion based on their potential to contribute significantly towards GNI targets. 

In Malaysia, the government has started its strategies by focusing on semiconductor clusters, leveraging on information and communication technology (ICT) and enhancing its R&D capabilities. The (Malaysian) government’s investment in human resources development (HRD )and creation of Centers of Excellence will help drive the implementation of these strategies, sustain the country’s growth and move the economy up the value chain.

Beside the mainstream Renewable Energy system that harvesting and regenerating energy from natural source of power such as sun, air, wave, etc; generation of Renewable Energy from biomass is also key Renewable Energy focus area which Malaysia has tremendous indigenous resource advantage from wood-based as well as palm oil waste.

There are a number of innovative achievements resulted from collaboration between Malaysia’s government and companies either regional or multinational companies. One such example is the Malaysian Microchip (MM Chip) RFID program where the govt. through the National Science Advisor Office has embarked on a joint development program with a few key Japanese companies such as Toppan Form ,FEC International, Torex, Zixsys, and Fujikura to build up world class RFID chip with built-in antenna.

Malaysia is adopting various best practices for High-Tech development in the country through benchmarking, collaboration and smart partnership exchanges as well as developing some localize approach for our own industry where Clustering of Smart-Cities are one of the models being adopted. Malaysia has a designated agency under Ministry of Science, Technology and Innovation (MANYI) and Malaysian Industry-Government for High Technology (MIGHT) which was formed to champion the collaborative research, smart partnership for consensus building among the government, academia and industry to look into promoting High Technology industry, way of doing things as well as to continuously improving the working model to bring and care for Malaysia’s technology industry forward.

Malaysia has transformed and promoted its Local Small-Medium Enterprises (SMEs) to become more technologically innovative and resilient to add to independent GDP growth with more high-skilled employment and value-added product and productivity.

Towards greener Technology

Malaysia recognizes the tremendous growth potential of the solar energy sector and is putting in place attractive incentives and support facilities to realize its development. Malaysia is all set to create a globally competitive solar industry cluster. To date, Malaysia has attracted five foreign direct investments, worth up to RM13.8bil, to set up solar PV manufacturing facilities in Malaysia.

Realising the potential, the Ministry of Energy, Green Technology and Water is putting special efforts in the lunar energy sector in the country and has launched several programmes such as Malaysian Energy Efficiency Improvement Programme (MIEEIP) , Centre for Education and Training in Renewable Energy and Energy Efficiency (CETREE) and the Feed-in Tariff for renewable energy production. This project is aimed at intensifying the usage of solar energy or renewable energy as an alternative source of electricity as well as to jump start local capabilities and development of the solar industry in Malaysia.