Manufacturing sector looks positive in 2018

The sector contributed 23% to GDP in 2017, while production grew by 6.1% and sales value by 13.7% to RM765.8b


The manufacturing industry’s business activity showed some development last year, despite reports that the market was volatile pending operational cost and other regulatory processes.

The sector’s contribution to the gross domestic product (GDP) for the past few years has been stable — hovering in the mid-20s.

The manufacturing sector contributed 23% to GDP in 2017, while production grew by 6.1% and sales value by 13.7% to RM765.8 billion.

The industry is said to expect a positive growth for the first half of 2018, according to the Federation of Malaysian Manufacturers’ (FMM) survey conducted with the Malaysian Institute of Economic Research (MIER).

The FMM-MIER Business Conditions Survey 2017 that was released last month said there are forward- looking indicators that will register improvement despite some areas needing recovery.

CEO Dr Yeoh Oon Tean said these areas are production volume, overall sales, as well as business conditions. “Manufacturers, nevertheless, continue to face higher production costs, anticipating costs as high as 63% in the first quarter of 2018,” he told The Malaysian Reserve (TMR).

Yeoh added that manufacturers have been facing some regulatory burdens leading to an increased cost of doing business.

“They are namely — higher natural gas tariff, implementation of the Employment Insurance System, the foreign worker levy burden, requirements for foreign workers to undergo additional Fomema medical examinations and we anticipate several regulatory burdens in the pipeline,” he said.

The cost of raw materials due to the weaker ringgit against the US dollar was said to have increased in 2017.

“In the FMM-MIER survey conducted in June 2017, manufacturers reported that raw materials, which constituted up to 70% of production costs, had increased by 6% to 10% compared to the costs in June 2016.

“Costs passed through was the other factor affecting prices, which could be a consequence of the impact of the weaker ringgit,” Yeoh said.

According to Yeoh, when there is no alternative for materials the industry is often forced to absorb the cost or it is passed onto consumers.

“However, with the recent strengthening of the ringgit, the industry expects the price of raw material, especially imported materials, to drop. The lower raw material prices would translate to lower manufacturing costs, which would help boost sales and reduce the passing over of cost to consumers,” Yeoh said.

Malaysia Productivity Corp DG Datuk Mohd Razali Hussain (picture) said one effective way of managing materials can be helpful in integrating the entire material and supply chain work process.

“Approaches such as cross-functional enterprise in small group activities, using the state-of-the-art facilities like Material Resource Planning and innovative approaches like LEAN management can greatly assist,” Mohd Razali told TMR.

LEAN management is a long-term approach to support the concept of continuous improvement that systematically seeks to achieve small incremental changes in processes to improve efficiency as well as quality, he explained.

Yeoh said with the industry set to bounce back this year, higher levels of innovation, as well as research and development, can greatly enhance the performance of productivity and growth.

He added that in order to help the industry achieve more, FMM has been calling on the government to introduce new incentives, as well as improve existing incentives.

“A LEAN Management System allows double-tax deduction on expenses incurred in mid-tier companies and below. Its low cost targets low hanging fruits and allows companies to overcome challenges such as reduction in inventory, cycle time, delivery lead time, defect, die set-up time, manpower resources, work in progress stock, space savings, loading efficiencies, productivity and quality improvement,” Yeoh said.

He added that the reinvestment allowance will help existing manufacturers improve competitiveness and productivity through continual upgrading, expansion, as well as diversification.

“Since companies reinvest continuously at different times FMM has been calling for the removal of the time bar and extension of the reinvestment period beyond three years for real benefits to accrue,” Yeoh said.

According to Mohd Razali, three Manufacturing Productivity Nexus were established due to challenges faced by the different sectors and industries.

“The nexus covers electrical and electronics, chemicals and chemical products and machinery equipment,” he said.

He also proposed strengthening the collaboration between industry players, the government and universities to ensure a steady supply of industry-ready engineers, while at the same time constantly upskilling existing employees.

“Domestic product standards need to be updated, then only can we be on par with international standards,” Mohd Razali said, adding to the list of strategies.

The manufacturing sector with its approved investments of RM63.6 billion in 2017 is said to continue being a key source of investment for the country.

“We are confident, the sector is the second-largest employer that engages 17% of the national workforce. We feel the next wave of business and investment opportunities is in high-value manufacturing,” Yeoh said.

He added that, “Automation provides the opportunity for humans to focus on higher-skilled, higher-quality and higher-paid task. Not all processes can be fully automated. We are looking at a future where robots and humans work together”.