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GROWTH & DEVELOPMENT OF GROWTH & DEVELOPMENT OF THE MALAYSIAN ECONOMYTHE 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

9

0

2

0

0

0

2

0

1

0

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


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Malaysias 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



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



Transition from agriculture to manufacturing

05

1015202530354045

Agriculture 40.2 31.5 27.7 20.8 9.1 8.9 8.8 8.7 9.3 9.3 8.3 8.7Manufacturing 8.2 10.4 16.4 19.7 27.1 31.9 30.0 29.9 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)



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



Industrialisation 1960s: Import substitution 1970s: Export orientation 1980s: Development in heavy industries 1990 onwards: Value-added manufacturing

Widening industrial baseManufacturing plus-plus



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



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 QuickTime and aPhoto - JPEG decompressorare needed to see this picture.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



DEVELOPMENT STRATEGY: DEVELOPMENT STRATEGY: EVOLUTIONEVOLUTION



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



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



FUTURE TRENDSFUTURE TRENDS



VISION 2020VISION 2020

Objectives:Objectives:United MalaysianJust and caring societyMature and democratic societySustainable developmentFully competitive, dynamic, robust and resilient economy

- Achieve a fully developed nation status by 2020

Strategies:Strategies:Export-led growth and free market forcesHigh-tech and knowledge-intensiveAccelerated growth in manufacturing, services and agricultural sectors



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 TFPSource: OPP3, EPU QuickTime and aPhoto - JPEG decompressorare needed to see this picture.18

Manufacturing and Services As Engines of Growth

0%

20%

40%

60%

80%

100%

1970 1980 1990 2000 2005 2010 2020

Agriculture Manufacturing Services

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GDP by Sector

0

1

2

3

4

5

6

7

8

9

10

2003 2004 2005 2006 2007 20080

1

2

3

4

5

6

7

Agriculture Manufacturing Construction Services Mining RGDP

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Scenario Projections for 2006-2020Worst-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: MIER21

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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