Economy of Malaysia
From Wikipedia, the free encyclopedia
| Economy of Malaysia | ||
|---|---|---|
| Currency | 1 Ringgit = 100 sen | |
| Fiscal year | Calendar year | |
| Trade organisations | APEC, ASEAN, WTO | |
| Statistics [1] | ||
| GDP ranking | 33rd | |
| GDP | $290bn (2005) | |
| GDP growth | 5.9% (2006) | |
| GDP per capita | $11,160 (2005) | |
| GDP by sector | agriculture (7.3%), industry (33.5%), services (59.1%) (2004) | |
| Inflation | 3.5% (2005) | |
| Pop below poverty line | 8.% (1998) | |
| Labour force | 10.26m (2004) | |
| Labour force by occupation | manufacturing 27%, agriculture, forestry, and fisheries 16%, local trade and tourism 17%, services 15%, government 10%, construction 9% (1999) | |
| Unemployment | 3.8% (2005) | |
| Main industries | Peninsular Malaysia - rubber and palm oil processing and manufacturing, light manufacturing industry, electronics, tin mining and smelting, logging and processing timber
Sabah - logging, petroleum production Sarawak - agriculture processing, petroleum production and refining, logging |
|
| Trading Partners [2] | ||
| Exports | $140bn (2005) | |
| Main partners | United States 19.6%, Singapore 15.7%, Japan 10.7%, China 6.5%, Hong Kong 6.5%, Thailand 4.4% (2003) | |
| Imports | $110bn (2005) | |
| Main Partners | Japan 17.3%, United States 15.5%, Singapore 11.9%, China 8.8%, South Korea 5.5%, Taiwan 5%, Germany 4.7%, Thailand 4.6% (2003) | |
| Public finances [3] | ||
| Public debt | $104bn (45.5% of GDP) | |
| Revenues | $22.95bn (2004) | |
| Expenses | $27.75bn (2004) | |
| Economic aid | ||
| edit | ||
Malaysia is a small and relatively open economy. In 2005, it was the 33rd largest economy in the world by purchasing power parity. Its gross domestic product for 2005 was estimated to be $290 billion.
Contents |
[edit] Background
The Malay Peninsula and indeed Southeast Asia has been a center for trade for centuries. Various items such as porcelain and spice were actively traded even before Malacca and Singapore rose to prominence.
In the 17th century, large deposits of tin were found in several Malay states. Later, as the British started to take over as administrators of Malaya, rubber and palm oil trees were introduced for commercial purposes. Over time, Malaya became the world’s largest producer of tin, rubber, and palm oil. These three commodities along with other raw materials firmly set Malaysia’s economic tempo well into the mid-20th century.
During the 1970s, Malaysia followed the footsteps of the original four Asian Tigers and committed itself to transition from reliance on mining and agriculture to manufacturing. With Japan’s and the West's assistance, heavy industries flourished and in a matter of years, Malaysian exports became the country's primary growth engine. Malaysia consistently achieved more than 7% GDP growth along with low inflation in the 1980s and the 1990s.
Current GDP per capita grew 31% in the Sixties and an amazing 358% in the Seventies but this proved unsustainable and growth scaled back sharply to 36% in the Eighties rising again to 59% in the Nineties led primarily by export-oriented industries.
Central planning has been a major factor in the Malaysian economy, as government expenditure was often used to stimulate the economy. Since 1955, with the commencement of the First Malayan Five Year Plan, the government has used these plans to intervene in the economy to achieve such goals as redistribution of wealth and investment in, for instance, infrastructure projects.
A legacy of the British colonial system was the division of Malaysians into three groups according to ethnicity. The Malays were concentrated in their traditional villages, focusing mainly on agricultural activities, while the Chinese dominated Malaysian commerce. Educated Indians took up professional roles such as those of doctors or lawyers, while the less better-off worked the plantations.[1][2] The Reid Commission which drafted the Malaysian Constitution made a provision for limited affirmative action through Article 153, which gave the Malays special privileges, such as 60% of university entrance(quota), hence severely disadvantaged the non-bumiputra(Chinese and Indians). However, after the May 13 incident of racial rioting in the federal capital of Kuala Lumpur, the government initiated more aggressive programmes aimed at actively establishing a Malay entrepreneurial class through direct intervention in the economy. The first five year plan that implemented these goals was the Second Malaysia Plan; its perceived heavy-handedness led to a new emphasis in the Third Malaysia Plan on a growing economic pie, so as to avoid robbing Peter to pay Paul.
As of 2006, the most recent five year plan is the Ninth Malaysia Plan.
[edit] Tiger economy
[edit] Macro-economic trend
This is a chart of trend of gross domestic product of Malaysia at market prices estimated by the International Monetary Fund with figures in millions of Malaysian Ringgit.
| Year | GDP (in millions) |
Exchange (1 USD to MYR) |
Inflation Index (2000=100) |
|---|---|---|---|
| 1980 | 54,285 | 2.17 | 51 |
| 1985 | 78,890 | 2.48 | 64 |
| 1990 | 119,082 | 2.70 | 70 |
| 1995 | 222,473 | 2.50 | 85 |
| 2000 | 343,216 | 3.80 | 100 |
| 2005 | 494,544 | 3.78 | 109 |
For purchasing power parity comparisons, the US Dollar is exchanged at 1.70 Ringgit only.
From 1988 to 1997, the economy experienced a period of broad diversification and sustained rapid growth averaging 9% annually.
By 1999, nominal per capita GDP had reached $3,238. New foreign and domestic investment played a significant role in the transformation of Malaysia's economy. Manufacturing grew from 13.9% of GDP in 1970 to 30% in 1999, while agriculture and mining which together had accounted for 42.7% of GDP in 1970, dropped to 9.3% and 7.3%, respectively, in 1999. Manufacturing accounted for 30% of GDP (1999). Major products include electronic components -- Malaysia is one of the world's largest exporters of semiconductor devices -- electrical goods and appliances.
During the same period, the government tried to eradicate poverty with a controversial race-conscious positive discrimination program called New Economic Policy (NEP). First established in 1971 after race riot known as the May 13 Incident occurred, it sought to eradicate poverty and end the identification of economic function with ethnicity. In particular, it was designed to enhance the economic standing of ethnic Malays and other indigenous peoples (collectively known as bumiputras in Malay. The NEP ostensibly ended in 1991, however the policies persist in the form of other programmes such as the National Developmnent Policy. The policies are enforced overtly through race-based quotas for low-cost housing units, university placement, business equity ownership, etc.
Rapid growth was achieved partly through privatisation of inefficient state owned enterprises, thus subjecting them to commercial pressures and forcing them to better utilise their resources. Mostly deals were done behind closed doors and put through rather quickly. In one example Khazanah Nasional alienated shares in DRB Hicom to Mega Consolidated. This led to such deals being labelled mega projects.
Foreign funds were attracted to invest making the local money market and bourse liquid. This created opportunity for local businesses to raise capital on the KLSE, and carry out infrastructure development in areas like telecommunications, highways and power generation to meet bottlenecks caused by rapid industrialisation. An intense labor shortage created employment for millions of foreign workers. Subsequent events show that more than 50% were illegal.
The influx of foreign investment led to the KLSE Composite index trading above 1,300 in 1994 and the ringgit trading above 2.5 in 1997. At various times the KLSE was the most active exchange in the world, with trading volume exceeding even the NYSE.
Some of the more visible projects from that period are Putrajaya, a new international airport (Kuala Lumpur International Airport), a hydroelectric dam (Bakun dam), the Petronas Towers and the Multimedia Super Corridor. Proposals that were eventually cancelled include the 95km Sumatra-Malaysia bridge (would have been world's longest), the Mega International Sea and Air port on reclaimed land in Kedah (would have been worlds biggest) and the KL Linear City (would have been worlds largest mall. And worlds first city built over a river)
Concerns were raised during the time about the sustainability of the rapid growth and the ballooning current account. The mainstream opinion prevalent at that time was that the deficit was temporary and would reverse once imported equipment started producing for export. In spite of that, measures were taken to moderate growth especially when it threatened to overheat into the double digits. The main target was asset prices, and restrictions were further tightened on foreign ownership of local assets. Exposure of local banks to real estate loans were also capped at 20%.
As was widely expected, the current account deficit did narrow steadily, year to year, from 9% to 5% of GDP.
Malaysia has the largest operational stock of industrial robots in the Muslim world. [4]
[edit] Asian financial crisis and recovery
- Further information: Asian financial crisis
The year 1997 saw the drastic changes in local scenarios. Foreign direct investment fell at an alarming rate and Ringgit depreciated substantially from MYR 2.50 per USD to much levels lower (up to MYR 4.80 per USD at its bottom) as capital flowed out. The Kuala Lumpur Stock Exchange’s composite index fell from approximately 1300 to nearly merely 400 points in a few short weeks. In response, the Malaysian government imposed capital controls and pegged the Malaysian Ringgit at 3.80 to a US dollar while refusing economic aid from International Monetary Fund (IMF) which came with austere lending conditions. By refusing aid and thus the conditions attached thereof from the IMF, Malaysia was not affected to the same degree in the Asian Financial Crisis as Indonesia, Thailand and the Philippines.
Regardless, the GDP suffered a sharp 7.5% contraction in 1998. It however rebounded to grow by 5.6% in 1999. The Government of Malaysia predicted 5.8% real GDP growth in the year 2000, but most analysts predicted growth will exceed 8% for the year.
In order to rejuvenate the economy, massive government spending was made and Malaysia continuously recorded budget deficits in the years that followed. Economic recovery has been led by strong growth in exports, particularly of electronics and electrical products, to the United States, Malaysia's principal trade and investment partner. Inflationary pressures remained benign, and, as a result, Bank Negara Malaysia, the central bank, had been able to follow a low interest rate policy. Later, the country enjoyed faster economic recovery compared to its neighbors though in many ways, the level of pre-1997 affluence has yet to be achieved.
The fixed exchange rate regime was abandoned in July 2005 in favor of managed floating system within an hour of China's announcing of the same move. In the same week, Ringgit strengthened a percent against various major currencies and was expected to appreciate further. As of December 2005, there has been no further appreciation of the ringgit. In spite of the large positive current account surplus, foreign reserves have started to fall at a rapid rate. Official statistics released in March 2006, confirmed capital flight of more than USD 10 billion. However, as of of the 4th fiscal year, a surge of FDI has pushed the KLSE above 1200 points, and is expected to strengthen to pre 1997 levels.[5]
[edit] Trade
Malaysia is an important trading partner for the United States. In 1999, two-way bilateral trade between the U.S. and Malaysia totaled U.S. $30.5 billion, with U.S. exports to Malaysia totaling U.S.$9.1 billion and U.S. imports from Malaysia increasing to U.S.$21.4 billion. Malaysia was the United States' 12th-largest trading partner and its 17th-largest export market. During the first half of 2000, U.S. exports totaled U.S.$5 billion, while U.S. imports from Malaysia reached U.S.$11.6 billion.
The Malaysian Government encourages Foreign Direct Investment (FDI). According to Malaysian statistics, in 1999, the U.S. ranked first among all countries in approved FDI in Malaysia's manufacturing sector with approved new manufacturing investments totaling RM5.2 billion (US$1.37 billion). Principal U.S. investment approved by the Malaysian Investment Development Authority (MIDA) was concentrated in the chemicals, electronics, and electrical sectors. The cumulative value of U.S. private investment in Malaysia exceeded $10 billion, 60% of which is in the oil and gas and petrochemical sectors with the rest in manufacturing, especially semiconductors and other electronic products.
[edit] Free trade efforts
The Malaysian Government is negotiating free trade deals with Pakistan, Australia, New Zealand, and the United States and officials have expressed desire for free trade agreements with Singapore and Thailand. The governments of Malaysia and Chile began negotiating a free trade deal on 19 November 2006.[3]
The Malaysian Trade Ministry released a statement in Vietnam saying that the FTA "has the potential to increase trade, investment cross flows and economic cooperation between the two countries. The agreement would also serve to make Chile a gateway for Malaysia's exports to the Latin American market."[3]
[edit] See also
[edit] References
- ^ Abdullah, Asma & Pedersen, Paul B. (2003). Understanding Multicultural Malaysia, p. 44. Pearson Malaysia. ISBN 983-2639-21-2.
- ^ Rashid, Rehman (1993). A Malaysian Journey, p. 28. Self-published. ISBN 983-99819-1-9.
- ^ a b Malaysia, Chile to start free trade talks Channel News Asia
[edit] External links
- Mahathir bin Mohamad's interview with the PBS series "Commanding Heights" on the subject of East Asian economic development.
- Key Statistics for Malaysia
- Economic Outlook by Economist Intelligence Unit
Australia • Brunei Darussalam • Canada • Chile • People's Republic of China • Hong Kong, China • Indonesia • Japan • Republic of Korea • Malaysia • Mexico • New Zealand • Papua New Guinea • Peru • Philippines • Russia • Singapore • Chinese Taipei (Republic of China) • Thailand • United States • Viet Nam
1 All twenty-seven member states of the European Union are also members of the WTO in their own right:
Austria • Belgium • Bulgaria • Cyprus • Czech Republic • Denmark • Estonia • Finland • France • Germany • Greece • Hungary • Ireland • Italy • Latvia • Lithuania • Luxembourg • Malta • Netherlands (— For the Kingdom in Europe and for the Netherlands Antilles) • Poland • Portugal • Romania • Slovakia • Slovenia • Spain • Sweden • United Kingdom
Afghanistan · Armenia · Azerbaijan1 · Bahrain · Bangladesh · Bhutan · Brunei · Cambodia · China (People's Republic of China (Hong Kong • Macau) · Republic of China (Taiwan)) · Cyprus · East Timor · Georgia1 · India · Indonesia · Iran · Iraq · Israel (see also Palestinian territories) · Japan · Jordan · Kazakhstan1 · Korea (North Korea · South Korea) · Kuwait · Kyrgyzstan · Laos · Lebanon · Malaysia · Maldives · Mongolia · Myanmar · Nepal · Oman · Pakistan · Philippines · Qatar · Russia1 · Saudi Arabia · Singapore · Sri Lanka · Syria · Tajikistan · Thailand · Turkey1 · Turkmenistan · United Arab Emirates · Uzbekistan · Vietnam · Yemen
1 Has some territory in Europe.
