The global semiconductor market is projected to grow 10.1% to RM2.5t next year

by NUR HANANI AZMAN / Pic by BLOOMBERG

THE reconfiguration of global supply chains will present opportunities for Malaysia’s exporters.

Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed said global supply chains are reconfiguring to support an increasing focus on resilience, and Malaysia plans to take advantage.

The global semiconductor market is projected to grow 10.1% to US$606 billion (RM2.53 trillion) in 2022, according to the World Semiconductor Trade Statistics.

“The 12th Malaysia Plan will focus on high potential industries, like advanced electrical and electronics (E&E) to drive the economy forward and create economic opportunities.

“E&E has been identified based on its prospects in generating high value-added activities and products, advanced technology adoption, research and development and innovation, high-skilled employment, as well as their contribution in achieving the green agenda,” he said in his closing remarks during the virtual Malaysia Semiconductor Industry Association National E&E Forum 2021 yesterday.

The E&E industry has contributed 5.6% to the national GDP.

Malaysia is the US’ largest semiconductor trading partner.

As a prominent player in the global semiconductor supply chain, it registered E&E exports at 39.4% or RM386.29 billion of Malaysia’s total exports, which was 3.5% higher than the previous year.

In terms of productivity, the E&E sub-sector recorded a 4.5% growth in 2020, the highest among the nine-priority sub-sectors.

Approved investments for the E&E sector in 2020 were valued at RM15.6 billion for 148 E&E projects, whereby these projects are expected to create 19,541 jobs.

The success in transforming the E&E sector is one of the major determinants of Malaysia achieving high income status.

As highlighted in the World Bank’s Aiming High Report, Malaysia needs to address several issues as the country makes the transition to a high-income country.

He said these issues include the relatively slower rate of economic growth compared with many countries that have achieved high-income status in recent decades.

“Malaysia has a lower share of employment in high skill jobs and higher levels of inequality compared to many other countries that have already graduated from middle-income status.

“Compared with the Organisation for Economic Co-operation and Development countries, our tax to GDP ratio is low, our social protection is insufficient, and we perform relatively poorly in terms of measures related to environmental management and corruption,” he said.

Mustapa said Malaysia’s priority is to rebuild the economy, place Malaysia on a stronger economic footing and to build a more competitive economy.

“A large number of multinational companies (MNCs) have established their operations here, including industry giants such as Intel Corp and STMicroelectronics. Malaysian companies too, have been part-andparcel of the industry, providing products and services required by MNCs being very much part of the global value chain,” he said.

He said more Malaysian companies have started business after gaining technical expertise and know-how while serving MNCs.

“This exposure has allowed Malaysian players to identify emerging opportunities within the E&E value chain to create their own niche.

“The increased participation of local companies demonstrates our capabilities. This will further improve Malaysian trade performance and reduce currency outflow,” said Mustapa.

Malaysia is a major global manufacturing hub for the E&E industry. To date, Malaysia produces 13% of the global back-end semiconductor output and that accounts for 40% of Malaysian exports.

In the first eight months of 2021, Malaysia’s E&E industry exported products increased by 18.8% to RM283 billion.

In the same event, International Trade and Industry Deputy Minister Datuk Lim Ban Hong said sustainable long-term recovery would hinge on measures for business reorientation and innovation.

“I believe that the synergistic efforts of the government and the industry association to leverage the unique chip innovation ecosystem will facilitate even greater research and development collaboration and catalyse critical new innovations in semiconductor technology.

Lim said Malaysia will witness a stronger recovery of the economy and promising growth prospects for the semiconductor industry towards year-end and beyond, although the onslaught of the Covid-19 pandemic has battered the country’s economy and disrupted industries supply chains.

Meanwhile, Moody’s Analytics which has published an analysis titled “Supply-Chain Disruptions Will Get Worse Before They Get Better” revealed that while demand is now recovering strongly, supply has yet to catch up.

Supply will likely play catch up for some time, particularly as there are bottlenecks in every link of the supply chain — labour, its senior economist Tim Uy said.

“There is no concerted global effort to ensure the smooth operation of the world-wide logistics and transportation network. Weakness in one link ripples through the chain, and the truck driver shortage results in congested ports that in turn lead to difficulties with booking containers. Even skyrocketing shipping and container costs have not been sufficient to keep the delays at bay.

“Finally, creating new supply is challenging. Akin to building new foundries for semiconductor chips, building new ships takes time — they are unlikely to come on line before 2023. Brace yourselves for a bumpy ride ahead,” he said in the report.