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Economics and Business in Malaysia

According to COUNTRYAAH, Malaysia is one of the world's fastest industrializing developing countries and in 2017 had a gross domestic product (GDP) of US $ 29,100. GDP increased by 5.9 per cent in 2017, against 4.2 per cent in 2016. The production of electronic products, crude oil and natural gas is a driving force in the country's economy. In terms of development, the country has followed in the footsteps of Taiwan, South Korea, Hong Kong and Singapore, but the country has a clear lead on neighboring countries Thailand, the Philippines and Indonesia.

Business of Malaysia

Historical background

The country's business development is the result of a clear and goal-driven strategy with the use of five-year plans and with active state participation. A typical mixed economy was developed before the authorities followed up with a series of privatization programs in the 1990s. The country has avoided poverty problems and unemployment caused by overcrowding and large numbers of children in rural areas and uncontrolled immigration to cities to the same extent as neighboring countries. On the contrary, the country has lacked labor, and a large number of guest workers have been imported from neighboring countries to work in low-wage jobs.

After serious riots in 1969, the country in 1970 launched the so-called bumiputera policy (or NEP: English New Economic Policy). The policy aims to equalize economic differences between the different groups of people. Among other things, special rights were introduced for the Malay to better enable them to compete with the Chinese, who have traditionally dominated the economic life of the cities. In 1991, the old economic policy was replaced with a new development strategy (NDP: English New Development Policy), which aims to use bait funds where previously used quotas. The authorities have also launched a long-term development strategy called Wawasan 2020('Vision 2020'), where the goal is for the country to be a fully developed industrialized country by the year 2020. The Bumiputera policy has been met with criticism, especially abroad, for its favoring the Malay. However, the policy has largely succeeded in leveling the economic differences between the ethnic groups, and the country is now experiencing a more balanced and harmonious development. However, the income disparities between people living in rural areas and people living in cities are still considerable. As a large proportion of the bumiputera live in the countryside while the Chinese mostly live in the cities, the statistical difference between these two groups is still noticeable. The country is also characterized by a certain regional inequality. The states of the west coast of the Malay Peninsula (from Penang toJohor) is considered the most developed. In the states of the east coast and in Kedah and Perlis, as well as in Sarawak and Sabah, business is less developed and poverty is more evident. A distinctive feature of the Malaysian economy is the initiation of many very large building projects. In addition to the large-scale development of the transport sector (motorways, airports, railways and ports) and a large number of new homes, several large mega projects with symbolic value were initiated in the 1990s. Among these was a giant hydropower project (Bakund dam) in Sarawak, the world's tallest twin tower (Petronas Towers) in Kuala Lumpur, a new government center (Putrajaya) and an international racing track for Formula One at Sepang South Kuala Lumpur.

As a member of the Southeast Asian Cooperation Organization ASEAN, Malaysia has been one of the most eager initiators of increased economic cooperation with neighboring countries. All ten ASEAN member countries participate in the ASEAN Free Trade Area - AFTA. In addition, several regional cooperation measures have been implemented. The most successful is a growth triangle area in the south that includes Johor, Singapore and the Indonesian Riau Archipelago. The comparative advantages of the various areas are exploited industrially, with Singapore providing the most capital-intensive services, Johor for the more space-intensive knowledge-intensive businesses and the Riau archipelago contributing with its cheap labor. Another regional growth center is the cooperation of the Penang state and other northern Malaysian states on the Malay Peninsula with southern Thailand and northern Sumatra.

Agriculture

Agriculture has long been the country's most important economic sector, but its share has gradually decreased as the country's economic development. Agriculture's contribution to the country's GDP is 8.8 per cent and employs 11 per cent of the working population (2017). Traditionally, agricultural commodities have contributed to significant export revenues for Malaysia. However, the country's industrial growth has led to a growing shortage of cheap and available labor for agriculture, and it has therefore been common to introduce new agricultural products as a replacement for the old ones. Rubber and palm oil have traditionally been the most important export products.

Rubber

Rubber production started with the so-called "rubber revolution" in the 1890s when the price of rubber rose sharply. While rubber exports contributed half of export revenue in 1961, its share fell to four percent in 2001. Since 1989, rubber production has steadily declined, but Malaysia remains the world's third largest rubber producer after Indonesia and Thailand. About 90 percent of the rubber is produced by local small farmers; the rest is produced on plantations. About 85 per cent of the land area used for rubber production is located on the Malay Peninsula.

Palm oil

The production of palm oil came in the wake of the rubber production, and has experienced tremendous growth since the early 1960s. In 1998 stood Malaysia alone for half of world production and 2 / 3 of the international trade in palm oil. Since 2000, however, the country has received increasing competition from Indonesia. With a production of 2.1 million tonnes, Malaysia is now the world's second largest palm oil producer after Indonesia and accounts for 39 percent of world production. The main importers of palm oil from Malaysia are EU countries, Pakistan, China, USA and India. The palm oil is also used for the production of various industrial products. The states of Johor,Pahang, Perak and Sabah operations together for 3 / 4 of production, which consists mainly of plantations.

Other agricultural products

The production of cocoa rose sharply in the latter half of the 1980s to a peak in 1990, when the country was the world's fourth largest producer with an output of 247,000 tonnes. Since then, production has decreased significantly and in 2018 amounted to only 814 tonnes. Malaysia is the world's fifth largest producer of pepper. 90 percent of production takes place in Sarawak. Malaysia is almost self-sufficient with fruits and vegetables. The most important local fruits are durian and bananas. It is also cultivated papaya, pineapple, melons, star fruit, mango, rambutan, guava and citrus fruits. Otherwise, tea, tobacco and coconuts are grown for sale. The most important food growth is rice. The development of rice production has been characterized by debt and low earnings for farmers, and poverty in the rice cultivation areas is widespread. The country has never been self-sufficient with rice in modern times. More than half of the production takes place at the rice fields in Kedah and Perlis. In 2017, the self-sufficiency ratio was 70 per cent. Rice imports mainly come from Thailand and Vietnam. Meat production has increased sharply in line with economic growth. The country is partly self-sufficient in the production of eggs, chicken and pork, but depends on imports of beef and mutton.

Forestry

Malaysia has large forest reserves and forestry is an important economic sector. Large quantities of timber products are exported to East Asia and India. Since the beginning of the 1990s, logging has shown a declining trend, partly because the authorities have introduced restrictions and requirements for sustainable forest management. The authorities have nevertheless criticized both foreign and domestic environmental organizations for their forestry policy. The most important forestry area is in Sarawak, which is one of the world's largest exporters of tropical hardwood.

Fishing

The population is among Southeast Asia's largest consumers of marine products per head. However, the country is not entirely self-sufficient with fish. A modernization of the deep-sea fishing fleet first started in the 1980s, and a similar modernization of the onshore reception facilities even later. Fishing contributes 1.1 per cent of the country's GDP (2015). Of the total catch of two million tonnes, the aquaculture industry accounts for about a quarter (2015).

Mining

Malaysia is self-sufficient with petroleum products. Crude oil and natural gas are extracted from the continental shelf outside the Terengganu state of Western Malaysia and Sarawak and Sabah in eastern Malaysia. In Southeast Asia, Malaysia is the second largest producer of crude oil after Indonesia. Since 1990, natural gas production has also expanded considerably to meet long-term sales contracts to Japan, South Korea and Taiwan. In addition, the authorities have expanded petrochemicals in Terengganu and methanol plants and ironworks in Sabah to utilize natural gas. A large Bintulu complex in Sarawak produces natural gas (LNG) for export to Japan and South Korea. Natural gas is used domestically for electricity production and a separate program seeks to expand the fleet's use of gas as an energy source.

The extraction of other minerals has shown a generally declining trend since the early 1990s. Tin ore mining has long traditions in Malaysia, and has been going on from ancient times. In recent times, development took off with Chinese initiative around 1850. Tin deposits came to characterize the development of the country's cities during the colonial period, and in particular the extraction was concentrated in the area around the city of Ipoh. A high recovery rate was maintained until the tin price on the world market collapsed in the early 1980s. As late as 1980, when 847 mines were in operation, was Malaysia the world's largest tin producer with close to 1 / 3of world production. With a production of 3500 metric tonnes, Malaysia is now the world's ninth largest producer of tin (2017). However, Malaysia is still one of the world's leading tin smelting centers, as tin is imported from abroad to exploit its domestic smelting capacity. Other minerals extracted are bauxite, iron ore, coal and gold, phosphate, marble and granite, ilmenite, porcelain earth and zircon. Significant untapped deposits of copper and uranium are found in the mountains of the Malay Peninsula.

Energy

Since the beginning of the 1990s, Malaysia has significantly expanded its electricity generation. Since 1996, the country has had a sustained surplus on the balance of power, having previously had a deficit. The country's total expanded capacity in 2018 was 33.6 GW. The energy supply is mainly based on the country's own fossil energy sources, and primarily natural gas. Gas pipelines are built from Terengganu to the major cities on the west coast. A small part of electricity production is based on hydroelectric and coal. Hydropower contributed 6 GW in 2018, but the total hydropower potential is estimated at 29 GW. The country's largest hydropower plant, Bakun, is located in the state of Sarawak, where also the largest hydropower resources. The power plant has an installed capacity of 2400 MW, and came into operation in 2011. Large environmental interventions made the development very contentious.

Industry

By independence in 1957, Malaysia had a poorly developed industrial base. With a purposeful planned development through several five-year plans, the industry has gradually expanded. Direct foreign investment (mainly from the USA, Japan, Singapore and the UK)) has played a leading role in the country's industrial development. In 1987, industry replaced agriculture's previous role as the country's largest economic sector. In the 1960s, the country pursued an import-substitution policy aimed at exploiting the country's raw materials and producing simple consumer goods for the domestic market. In the 1970s, a more export-oriented strategy was changed. The country's cheap labor was utilized to produce labor-intensive industrial products such as textiles and electrical appliances. In the first half of the 1980s, public capital was invested in developing the country's heavy industry. Among other things, a separate national car model (Proton) was developed. From the latter half of the 1980s, the focus has been on developing a more modern industrial sector with the development and production of advanced industrial products that can assert themselves in the world market. As part of this strategy, the educational institutions were expanded to provide the country with highly skilled labor. The authorities encouraged the establishment of high-tech, knowledge-based and capital-intensive industries. In 1996, the authorities established the projectMultimedia Super Corridor (MSC). The corridor extends south from Kuala Lumpur via the new Putrajaya Administration Center to Kuala Lumpur International Airport at Sepang. Companies that establish themselves here benefit from financial benefits.

Malaysia's industry now contributes 37.6 per cent of the country's GDP and employs 36 per cent of the working population (2017). The industrial sector can be divided into the following groups:

  • the electrical and electronic industry
  • transport industry
  • chemical industry
  • clothing industry
  • the commodity-based industry
  • material manufacturing industry
  • food processing

The chemical industry included the production of, among other things, industrial gases, industrial chemicals, fertilizers, disinfectants, paints, varnishes, pharmaceuticals, soap and washing powder and plastic products. The petrochemical industry is located in Pasir Gudang (Johor), Kuantan (Pahang), Bintulu (Sarawak) and Labuan. Oil refineries can be found in Port Dickson in Negeri Sembilan, Lutong in Sarawak, Kerteh in Terengganu and Sungai Udang in Melaka. Rubber-based products include the production of latex gloves, condoms, tires and rubber hoses, as well as rubber footwear.

Other extensive commodity-based production includes cement and building products, food products and various wood products such as plywood and furniture. The non-commodity-based industry has grown rapidly and passed the commodity-based industry in production value in 1995. In the transition to the year 2000, the electrical and electronic industry developed to become the country's leading industrial sector. Large quantities of electronic components are manufactured for export to the United States. Malaysia is among the world's largest manufacturers of both semiconductors and air-conditioning plants. Otherwise, transistors, television sets, radios and refrigerators are manufactured. The production of synthetic fabrics has also grown significantly. The most important industrial growth center is Klangdalen southwest of Kuala Lumpur, but the state of Johor and Penang are also important centers. Johor is part of the regional growth center around Singapore,

Tourism

The tourism industry has grown significantly since the authorities in 1986 decided to focus on tourism. Malaysia has rapidly developed into an attractive destination for both big city tourism (Kuala Lumpur and George Town), recreational travel (Langkawi and other islands), cultural-historical travel (Melaka, Johor and the East Coast) and ecotourism (highlands in the interior of the Malay Peninsula, as well as Sarawak and Sabah).).

In 2018, 25.8 million foreign tourists came to Malaysia. Most tourists came from: Singapore (10.6 million), Indonesia (3.3 million), China (2.9 million), Thailand (1.9 million) and Brunei (1.4 million).

In the 1990s, the domestic market was developed through several campaigns linked to the individual states. Malaysians who vacation in their own country are also an important source of income for the country's tourism industry.

Foreign Trade

Foreign trade is very important for the country's economy. Malaysia's exports amounted to USD 187.9 billion in 2017, while imports amounted to USD 165.3 billion. With this, the country had a surplus in the foreign trade balance of US $ 22.6 billion.

The five main export markets are:

  • Singapore (15.1 percent)
  • China (12.6 percent)
  • United States (9.4 percent)
  • Japan (8.2 percent)
  • Thailand (5.7 percent)

The main export products are electronics, palm oil, crude oil, LNG, timber products, palm oil, textile products and solar panels.

The five main markets for Malaysia's imports are:

  • China (19.9 percent)
  • Singapore (10.8 percent)
  • United States (8.4 percent)
  • Japan (7.6 percent)
  • Thailand (5.8 percent)

The main import products are machinery, petroleum products, plastics, countertops, iron and steel products and chemicals.

Transport and Communications

The railway network

The railway network in Western Malaysia is at 1717 kilometers. Traditionally, the network consists of a main line between Singapore and Butterworth with connection to Hat Yai and Bangkok in Thailand, and an east coast line connecting Gemas in the state of Negeri Sembilan on the main route with Kota Bahru and with connection to Hat Yai. In the latter half of the 1990s, a number of modernization programs were implemented. To relieve the road network in Klangdalen, several tram lines were built. A high-speed express line was built between Kuala Lumpur and the new international airport south of the capital. A high-speed railway is planned to be built between Kuala Lumpur and Singapore. At Sabah there is a 134 kilometer long narrow gauge railway connecting Kota Kinabalu with the coast and inland to the southwest.

The road network

The national roads make up a total of 144 403 kilometers, of which 116 169 kilometers with a fixed tire. The length of the motorways is 1821 kilometers. On the Malay Peninsula, the road network is relatively well developed on the west coast and less developed on the east coast. An approximately 900-kilometer highway runs along the west coast from Johor Bahru to the Thai border. East-west links cross the central mountain range and connect Kuala Lumpur with Kuantan, and Penang with Kota Bahru. In Klangdalen, the road network has expanded considerably in line with the business development there. However, urbanization has caused significant traffic problems in cities such as Kuala Lumpur, Johor Bahru and George Town. The road network in Sarawak and Sabah is much less developed, but there is a highway between Kota Kinabalu in Sabah and Kuching in Sarawak.

Ship traffic

Ship traffic is important for Malaysia's export-oriented economy since more than 90 percent of foreign trade is by ship. After Singapore left the federation in 1965, a large-scale development of the port cities was launched. On the Malay Peninsula, the main ports are Klang, Johor Bahru, George Town, Tanjung Pelepas and Kuantan. The port of Klang, which serves the industry in Klangdalen, is one of the world's leading ports. In Sarawak, the ports of Kuching, Rajang and Miri serve the southern, central and northern parts of the state respectively, while Bintulu is the port for natural gas shipping. The rivers serve as important transport routes between the coast and inland, as well as inland. In Sabah, a number of ports serve the various parts of the state.

Avian

Aviation is important for the connection between the different regions, but also for the connection to isolated places in Sarawak and Sabah. International airports can be found at Kuala Lumpur, George Town, Johor Bahru, Langkawi, Kuching and Kota Kinabalu.

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