PETALING JAYA – Malaysia, which celebrated its 60th Independence Day yesterday, has entered its next growth frontier, underpinned by a new economic model that leverages on its core strengths, according to United Overseas Bank (Malaysia) Bhd economist Julia Goh.
These core strengths are a diversified economic structure, good infrastructure, supportive financial system, positive demographics, social and political stability as well as strong geographic ties in the region.
“As the external environment poses increasing challenges in the form of global policy uncertainty, protectionist sentiment and geopolitical threats, Malaysia’s ability to face up to unpredictability lies in pursuing forward-looking adjustments that ensure sound macroeconomic management, market openness and liberalisation, drive new opportunities for growth, focus on innovation and technology, greater transparency and governance, fiscal and debt sustainability, human capital development, economic inclusion and social cohesion,” she said in a report.
Malaysia’s economy has evolved from a low-income, agriculture-based economy with gross national income (GNI) per capita of US$240 in 1962 to an upper middle-income manufacturing and services driven economy with US$9,850 GNI per capita in 2016.
“Much of Malaysia’s early transformation is attributed to strategic vision, bold policy decisions and ability to mobilise support from both public and private sectors. This involved experimental economic policy making and industrial promotion,” Goh said.
She divided Malaysia’s transformative years since independence into several phases, the first from 1957 till 1970 whereby the country’s mainstays were rubber and tin production, as well as entrepot trade centres in Penang and Malacca.
Businesses then were small-scale, localised and predominantly family-based. Due to volatility of commodity prices, there was a strategic focus to diversify production and incomes away from tin and rubber, paving the way for early diversification within agriculture from rubber into palm oil and other crops, and diversification away from primary into secondary industries, particularly manufacturing.
The second phase, from 1971 till 1990, saw growth centred on the rise of construction and manufacturing, with focus on equitable distribution. Economic development was based on three long-term policies, namely New Economic Policy, National Development Policy and National Vision Policy.
“Despite the shocks from oil crises (1973-74 and 1978-79) and global slowdown in electronics and primary commodities (1985-86), average growth in this period was 8.9%. The focus was on four manufacturing industries namely rubber, palm oil products, electronics and electrical products, and transport and automobile industries,” said Goh.
Export-oriented manufacturing gained momentum and foreign direct investment was promoted. Privatisation took off and together with the development of the Multimedia Super Corridor (MSC) in 1990s were considered instrumental in achieving rapid industrialisation.
In the third phase, from 1991 till 2007, growth was challenged by the Asian Financial Crisis and period of foreign exchange controls, with average of 6.4% real gross domestic product growth. In 1991, Vision 2020 was introduced, setting the goal for Malaysia to be a self-sufficient industrialised nation by 2020.
Malaysia sought out new growth areas and pushed towards higher-value added and knowledge-based industries amid erosion in its comparative advantage in labour costs and labour-intensive manufacturing.
The launch of MSC in 1996 laid the foundation for Malaysia to expand the services sector, including ICT. Hard and soft infrastructure was packaged with a conducive legal and regulatory environment. MSC-status companies were granted incentives in exchange for technology and knowledge transfer.
The fourth phase, from 2008 till the present, sees the country’s transformation into a high-income nation being challenged by the global crisis (2008-09), leading to the New Economic Model (NEM), unveiled in 2010.
The NEM was designed to address concerns that the country was stuck in a middle-income trap with sub-par growth potential and lack of private sector dynamism. It aims to achieve high-income status, inclusiveness with equitable distribution of wealth, and financial and environmental sustainability.
The three key pillars under the NEM model are 1Malaysia, the Government Transformation Programme and the Economic Transformation Programme.
“The NEM redefined the government’s role as an enabler of growth while the private sector would be re-energised to be the prime growth driver. Malaysia managed to avert the destabilising effects from oil price slump (started end-2014) owing to major fiscal reforms implemented over the years,” said Goh.
Current focus has shifted to development of the fourth industrial revolution (Industry 4.0) to promote high-technology industries and minimise dependency on manpower. This includes sectors involved in automation, digitalisation, robotic development and big data.
Moving forward, Malaysia aims to be the 20th ranked country in terms of economic development, social advancement and innovation, which the government aims to achieve with an economic plan known as Transformasi Nasional 2010, or TN50.