An Overview of the Malaysian Economy PDF

An Overview of the Malaysian Economy ECON 3010  Outline 1. Brief economic history of Malaysia 2. The structure of Malaysian economy 3. Inflation and unemployment trends 4. Government economic planning Brief economic history of Malaysia Started with small scale com...

An Overview of the Malaysian Economy ECON 3010  Outline 1. Brief economic history of Malaysia 2. The structure of Malaysian economy 3. Inflation and unemployment trends 4. Government economic planning Brief economic history of Malaysia Started with small scale commodity trade due to its strategic location. This was later replaced by large scale mining and agricultural activities during the colonial rule. Manufacturing took over the scene from the 1980s onwards. Brief economic history of Malaysia Commercial mining and cultivation helped integrate Malaya into the global economy. There were rising concerns in the 1960s over economic control under foreign ownership. There were also concerns over the apparent backwardness of the Malays Brief economic history of Malaysia Economic activity of Malaysian in the old days were concentrated based on occupational and geographical division. Bumiputera – farming in rural areas Chinese – commerce and mining Indians – rubber estates Brief economic history of Malaysia The prime objective of the ruling govt. was to restructure the economy to eliminate ethnic identification. The New Economic Policy (NEP) was launched in 1971 to alleviate poverty and restructure the economy ethnically. Brief economic history of Malaysia NEP was launch through the Second Malaysia Plan which laid the foundations of govt. planning until 1990. The same objective were adapted and extended further until 2009 through the National Development Policy (NDP). The global economic crisis influenced the National Vision Policy Despite initial move towards a broad transformation, the special support to bumiputera continues under the New Economic Model (NEM)/National Transformation Policy. Shared Prosperity Vision? Brief economic history of Malaysia Manufacturing became the leading sector starting from 1984 onwards. One of the most industrialized economies in the world based on manufacturing contribution to GDP. Help Malaysia to achieve high GDP growth rates in the 1990s. Brief economic history of Malaysia Manufacturing contribution to GDP: 6% in 1947 9% in 1960 13% in 1970 20% in 1980 25% in 1990 31% in 2000 30% in 2005 26.6% in 2009 Brief economic history of Malaysia The growth was not sustained due to contagious effect of the Asian financial crisis. Since then, Malaysia registered lower GDP growth rates. The Global financial crisis dampened further the ability of the country to achieve the Vision 2020 target.  Growth and Structural Change GDP by Expenditures  RM (billions) 0 100 200 300 400 500 600 1980 1982 1984 1986 1988 1990 1992 Year 1994 Gross Domestic Product 1996 1998 Malaysia GDP 2000 2002 2004 2006 2008  Percentage 10 12 0 2 4 6 8 -10 -8 -6 -2 -4 1980 1982 1984 1986 1988 1990 1992 Year 1994 GDP growth 1996 1998 2000 2002 Malaysia GDP Growth 2004 2006 2008  Unemployment in Malaysia 8.0 7.0 6.0 5.0 Percentage 4.0 3.0 2.0 1.0 0.0 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Year Unemployment rate  Percentage 10 12 0 2 4 6 8 1980 1982 1984 1986 1988 1990 1992 Year 1994 Inflation rate 1996 1998 2000 2002 Inflation in Malaysia 2004 2006 2008 Development Stages : The early post-independence Era (1957-1969) The First Decade of the New Economic Policy- (1970-1980) Mahathir Regime 1: New Roles for the State (1981-1985) ; , 'Look East‘ Policy’ Heavy Industrialization Mahathir’s labour policies Mahathir Regime 2: Inducing Private Investments (1986-1997) Transition from the NEP 'Malaysia Incorporated': State-Business Corporatism Privatization Mahathir Regime 3: Crisis Management (1997-2003) After Mahathir  Economic Planning in Malaysia Economic Planning Unit (EPU), Prime Minister Department Short-term: Malaysian Plan (every 5 years) – 1st Malaysia Plan (1966-1970) – 12th Malaysia Plan (2021-2025)- should have been launched earlier Medium-term plan (every 10 years) – Outline Perspective Plans Long-term plan (20 years)  Economic Planning in Malaysia Malaysian Economic Development Policies 1. New Economic Policy (1971-1990) 2. National Development Policy (1991-2000) 3. National Vision Policy (2000-2010) 4. New Economic Model/National Transformation Policy (2011-2020) 5. Shared Vision Policy (2020-2030)  New Economic Policy (NEP) Launched in 1971 under the then Prime Minister, Tun Abdul Razak. It was an ambitious and controversial socio- economic restructuring program. It is considered as part of Malay agenda, to address the issue of income/wealth distribution in the country History of NEP after 1957 The economy of Malaya at Independence was deeply segregated as between ethnic groups. As compared with the non-Bumiputera:- Malays form a much higher proportion of population in rural areas than in towns. Malays populate the relatively poorer States and occupations to a higher degree. Malays have property rights over only about one-third of land under agricultural cultivation. Malays have a significantly lower share of ownership, control and management of industrial and commercial enterprise. The average Malay has a much lower standard of living. ❖ The implementation of the NEP was one of the National Operation Council’s (NOC) first decisions, through a rapidly expanding economy, which would reduce the non-Malay share of the economy in relative terms, while increasing it in absolute terms. ❖ In 1971, Parliament reconvened, and Tun Abdul Razak officially became Prime Minister. The same year, Tun Razak also announced the NEP as well as some controversial amendments to the Sedition Act that prohibited discussion of repealing certain articles of the Constitution. ❖ The NEP was born and presented in the Second Malaysia Plan (SMP), issued in early 1971, when the country returned to Parliamentary rule. The NEP was further elaborated in the Mid Term Review of SMP in 1973.  Goals of NEP The NEP had a stated goal of poverty eradication and economic restructuring so as to eliminate the identification of ethnicity with economic function. The target was to move economic ownership in Malaysia from 2:34:64 to 30:40:30 ratio of Bumiputera, other Malaysian and foreigner ownership. Economic Wealth in 1971 Economic Pie Bumiputera Other Malaysian Foreigners Targeted Economic Wealth in 1990 Economic Pie Bumiputera Other Malaysian Foreigners  New Development Policy The NDP aims at creating a pattern of development that is more balanced and which encompasses the following aspects: i. To create optimum balance between economic growth and apportionment; ii. To ensure balanced development among the main economic sectors; iii. To eliminate social and economic inequality among the people of Malaysia; iv. To encourage and strengthen national integration by reducing the imbalance in economic development; v. To build a society that is progressive; vi. To build a disciplined and productive work force; vii. To make science and technology an important aspect in socioeconomic planning and development; viii. To ensure that proper attention is paid to the preservation of the environment and ecology. The purpose of the National Development Policy (NDP) was to create a fairer and more united Malaysian society. This phase covered a period of 10 years (1991 – 2000) and consisted of two 5-year Malaysian Plans. OPP2 was the initial stage of the country’s stride towards being a developed country as envisaged in Vision 2020. The NDP implemented as OPP2 was oriented towards a balanced development. By balanced development is meant one that generates rapid socio-economic growth followed subsequently by income distribution. Like the NEP that tried to overcome poverty regardless of race, the OPP2 also nursed the same ambition. Clearly expressed in the government document, which stated that the implementation of the NDP to reduce poverty took into consideration the needs of all social groups.  NATIONAL VISION POLICY (OPP3) National Vision Policy (NVP) coincides with the Outline Perspective Plan 3 (OPP3). This plan covers a period of 10 years, starting 2001 to 2010 (Eight and Ninth Malaysia Plan). The essence of this long-term plan is to bring about a balanced development; touches specifically on development starting from the agricultural sector, small to medium industries right up to industries based on high technology and information technology. The thrust of NVP is the creation of an enduring and competitive Malaysian society.  NVP presented a number of basic principles: i. To build an enduring nation; ii. To create an equitable society; iii. To sustain high economic growth; iv. To improve competitiveness to face the challenges of globalization and liberalization; v. To develop a knowledge-based economy as a strategic step to increase value added to all economic sectors; vi. To stabilize the development of human resource to produce a productive and knowledgeable work force; vii. To continue sustained development of the environment for the purpose of long term development.  New Economic Model On 2nd May 2009, Prime Minister Najib Tun Razak announced the government’s plan to develop a New Economic Model that will speed Malaysia's transition to a high income country. “Transform the Malaysian economy to become one with high incomes and quality growth by 2020,”. A response to the global economic crisis  PRE-NEM ISSUES & CHALLENGES Middle income trap. Slower economic engine & emergence of other developing economies. Declining investment & attractiveness as investment destinations. Composition of exports were mainly commodities and low value- added manufactured products. Slow productivity growth due to low creativity and product innovation (less focus on R&D). High dependency on low skilled workers & foreign labours. Critical stage of human capital – brain drain, migration. Wider gap between the rich and poor. The Government is burdened with subsidies.  Goals Stimulate economic growth by improving worker productivity across all sectors of society. Improved system of affirmative action, with an eye towards sustainability. NEM seeks to empower the private sector and to reduce disparity between the wealthiest and poorest of Malaysians.  ISSUES & DEVELOPMENTS The global landscape has evolved at such a drastic pace over the past decade that economies are grappling to find elusive niche areas to excel and prosper. The formula used to drive Malaysia’s success in the past no longer applies in today’s environment. Regional competitors have overtaken us in the competition for investment and growth. We not only have to regain lost ground; we need to step up to the next stage of our country’s development while moving ahead of our competitors. In these challenging times, Malaysia must seek new opportunities The global economic crisis caused by the pandemic New economic environment in the new norms Vulnerability of certain groups/sectors Income gap widens Other domestic issues? Emergence of China as new economic superpower & major economic partner for Malaysia. Increasing competitiveness of neighbouring ASEAN countries. Other developmental issues - climate change, political instability, etc. Advance towards future ❑ The importance of growth ❑ Employment creation and poverty alleviation ❑ Education, training and opportunity ❑ Role of the State and the private sector