By NG MIN SHEN / Pic By BERNAMA
In its early years of independence, Malaysia was primarily known as a centre for trade, owing to its ideal location along the Straits of Melaka, a producer of commodities and natural resources like rubber and tin. These commodities formed the backbone of the country’s economy.
Peninsular Malaysia contained large deposits of tin, which augured well for the country as global demand for tin soared on the discovery of tinplate production for canned food, while the emptying of deposits in other countries increased demand for new producers. However, as prosperous as tin mining was, the agricultural sector soon emerged as a more sustainable and renewable income stream. Thus, Malaysia began to tap into rubber and oil palm, as well as other sources like hardwood timber and oil and gas (O&G), for their commercial viability.
The transition from being a mining and agriculture-reliant economy to a more trade-centric player came in the 1970s and 1980s, when the country began leaning towards the manufacturing sector to capitalise on the industrial movement. Foreign direct investments (FDIs) were key in boosting the nation’s growth, as heavy industries blossomed with the help of Japanese investment and led to the creation of local exports as Malaysia’s primary growth engine.
Apart from FDIs, domestic investment has also been a major instrument in boosting Malaysia’s economic growth. For years now, government expenditure has been a major driving force in implementing infrastructure projects.
The nation’s economic progress has also been historically underpinned by government-initiated economic plans, of which there have been several hits and misses. It’s worth noting that the country recently elected a new coalition government for the first time in 61 years, paving the way for political, economic and structural reforms that could well shake the nation’s foundations for the greater good. In terms of growth, Malaysia’s economy as measured by gross domestic product (GDP) enjoyed high expansion rates, particularly during the 1980s and 1990s, averaging between 8% and 9% growth annually. The exception was during and after the Asian financial crisis in 1997, which saw Malaysia’s GDP bouncing between a contraction of almost 7% and growth of 8% between the years 1998 to 2001.
Since then, the country’s growth has somewhat stabilised at around 4% to 5% annually. In 2017, Malaysia’s GDP grew 5.9%, compared to a 4.2% expansion in 2016. The spike was attributed to strong private sector demand and an exceptional performance from exports, which continue to be a primary source of income for the nation. Today, Malaysia’s major exports include electrical and electronics (E&E), chemicals, petroleum products and liquefied natural gas, and palm oil.
For the first quarter of 2018 (1Q18), the country’s GDP rose 5.4% before slowing to 4.5% in 2Q18 on lower production in the mining and agriculture sectors, due to supply constraints and adverse weather conditions. The central bank has forecast growth of 5% for 2018, citing expectations for prolonged disruptions in O&G production and low agriculture output. Economist estimates for Malaysia’s 2018 GDP growth range from 4.7% to 5.1%.
Despite the moderation predicted this year, Malaysia also has great potential to be one of the largest South-East Asian economies and to even surpass Singapore in terms of economic growth. Malaysia’s GDP rose to US$314.5 billion (RM1.29 trillion) in 2017, while Singapore’s stood at US$323.91 billion, according to the World Bank. However, the deficit of US$9.41 billion could dwindle to just over US$2 billion next year, should Malaysia’s economy expand 5.5% in 2018 against a 3.1% rise for Singapore, as per median projections of economists surveyed by Bloomberg.
In order for Malaysia to leapfrog ahead, economists said it needs to jump into the high-tech space and rely less on the traditional bread-and- butter of O&G, rubber and palm oil. This can be achieved by roping in more FDIs from global brands with cutting-edge technology that will increase Malaysia’s competitive edge. Malaysia also has the added advantage of having a new government that has voiced its aim to weed out corruption and kleptocracy, and instead focus on institutional reforms which can in turn engender private sector confidence and boost private investments.
On a GDP per capita basis, Singapore placed eighth worldwide in 2017 with US$57,714, while Malaysia ranked 65th with US$9,945. The Philippines was in 125th place with US$2,989 and Indonesia took the 113th spot with US$3,847, as per World Bank data.
Malaysia’s gross national income (GNI) per capita in 2017 stood at US$9,650. Despite this being a drop from the GNI per capita of US$11,010 achieved in 2014 — the highest since independence — the World Bank, in its December 2017 Malaysia Economic Monitor report, said Malaysia could reach high-income economy status at some point between 2020 and 2024, given that the World Bank defines a high-income nation as one with GNI per capita of US$12,236 or more.
The cards are all on the table for Malaysia to regain its heyday as an Asian Tiger. It has a new administration led by a seasoned two-time prime minister, vast natural resources and a wealth of bright young minds eager to do their bit for “Malaysia Baru”. All it takes is for the cards to be played right, which only time will tell — but in the meantime, the future looks bright for Malaysia.