MSMEs with great potential are expected to be strengthened as the backbone of the nation’s development
by S BIRRUNTHA
DIGITAL transformation, rare earth elements (REEs) and the healthcare industry are expected to become the new, major sources of growth for Malaysia in the next five years.
Socio-Economic Research Centre (SERC) ED Lee Heng Guie said Malaysia needs to leverage on digitalisation, smart technologies and innovation, as well as knowledge, to add value to the services, manufacturing, mining and agriculture sectors.
He added that these include electronics and electrical (E&E) products, renewable energy, climate change and green industries, food-based industry including halal, and Islamic financial services.
“The government has to focus on driving quality private investment, skills development and productivity improvement, technology transformation and improving public delivery services to raise long-term economic growth,” he told The Malaysian Reserve (TMR).
Echoing his views is Putra Business School Associate Prof Dr Ahmed Razman Abdul Latiff, who told TMR that Malaysia should focus and take advantage of the new economy, which will drive the growth of the country in the next five to 10 years.
Ahmed Razman explained that this includes the digital economy, which covers a broad area of industries and applications such as artificial intelligence (AI), data analytics, drone, fifth-generation network (5G), hybrid and blockchain technology, among others.
He noted that building 5G infrastructure is crucial to support the demand for this economy since 5G is important to two major contributing sectors — services and communication.
“To bring things into realisation, the next government must realign the 12th Malaysia Plan (12MP) to the current situation and challenges.
“They must also take into consideration the opportunities available under the ratification of two of the largest free-trade agreements in the world, namely the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP),” he said.
Ahmed Razman opined that Malaysia also has the opportunity to venture into the REEs industry.
“REEs pretty much cover the whole ecosystem from upstream to downstream level in Malaysia.
“So, it is important for the government to encourage potential investors to explore the business prospects of the REE ecosystem, since REEs form a crucial component in the manufacturing of smartphones and electric vehicles (EVs), especially the battery and motor parts,” he noted.
REEs have soared in significance as interest in consumer electronics, EVs, clean energy and military equipment keep on increasing in the past decade, according to the Malaysian Investment Development Authority (Mida).
REEs are used in necessary components for products across a wide range of applications, especially high-tech consumer products and devices including smartphones, digital cameras, computer hard disks, fluorescent and light-emitting-diode (LED), flat-screen televisions, computer monitors and electronic displays.
In terms of military equipment application, REEs are materials used in making night vision goggles, precision-guided weapons, communication equipment, Global Positioning System (GPS) equipment and other defence electronics. REEs are also used for laser targeting and weapons in combat vehicles.
Additionally, REEs are also known for their usage in clean energy technologies — for example wind turbines, electric motors, catalysts and solar panels — due to their strong permanent magnetic properties.
As for EVs, mainly two types of REEs are used: Neodymium (Nd) and dysprosium (Dy). Nd is used in permanent magnet motors, which are often termed as neodymium iron boron magnets. Dy is also used in motors, but in minimal amounts relative to Nd.
According to Mida, China has the largest reserves of REEs at 44 million tonnes, in addition to having the largest refinery controlling the market.
“Malaysia was able to break that monopoly with the presence of Lynas Malaysia Sdn Bhd, with operation locally since 2012 making it the first REEs-refining plant outside the PRC.
“Malaysia is also recognised as a nation having notable production of REEs, among other countries such as the US, Australia, Brazil, India, Russia, Thailand and Vietnam,” the agency noted in a recent report.
Mida said currently, Lynas produces rare-earth oxides (REOs), carbonates, oxalates and chlorides in Gebeng, Pahang, with a total capacity of 22,000 tonnes per annum.
The production of REOs, particularly Nd and praseodymium (Pr), is in high demand due to their usage in the production of rare-earth magnets used in technological applications.
The global rare-earth magnet market was valued at US$7.69 billion (RM34.87 billion) in 2020 and is expected to reach US$11.61 billion by the end of 2026, representing a compound annual growth rate (CAGR) of 6% from 2022 to 2026.
Recognising the potential of this downstream industry as well as the advantages of having REO production as raw materials in the country, the government, through Mida, has been promoting the production of advanced materials including rare-earth magnets under the Promotion of Investment Act (PIA) 1986.
As such, Mida noted that there is high potential for interested parties, either local or foreign companies, to explore downstream applications to boost the industry’s economic value.
“Additionally, establishing a downstream ecosystem will ensure more value-added products are produced in the country, which will directly impact the total export status of Malaysia.
“As such, the value of REEs as an important element in the downstream industry value chain should not be ignored, and its ability to leave a mark on the nation’s future technological journey should be acknowledged,” it said.
To continuously support this, Mida is currently continuing its collaborations with relevant stakeholders to attract potential investors to develop the industry.
Meanwhile, Universiti Teknologi MARA (UiTM) Faculty of Business and Management senior lecturer Dr Keshminder Singh viewed healthcare and cybersecurity as the new major sources of growth for Malaysia in the next five years.
He noted that major growth is expected in these two sectors, especially in develop- ing countries.
“The Covid-19 pandemic has taught a tough lesson to governments globally, financing the immunisation programmes by raising debt.
“Therefore, the healthcare industry, especially high-end products like vaccines and medical devices, will see more investments in Malaysia,” he told TMR.
According to Statista Market Forecast, the Malaysian healthcare industry revenue is expected to show an annual growth rate (CAGR 2022-2027) of 17.65%, resulting in a projected market volume of US$238.7 million by 2027. The number of users is expected to amount to 7.1 million users by 2027.
In 2022, the revenue in the healthcare segment is projected to reach US$105.9 million, with most revenue generated from China.
Also, Keshminder said the cybersecurity market is going to grow with the increasing threats to financial markets and personal data.
He noted that products like Internet security solutions, threat detection devices and personal cybersecurity home solutions will grow moving forward.
“With the growth in these two industries, we believe investment is going to be top notch.
“Therefore, important elements such as AI, medical expertise and smart engineering require immediate attention,” he said.
The year 2020 marked the end of Vision 2020 and the 11th Malaysia Plan (11MP) 2016- 2020 period.
As a continuation, a post-2020 development plan, namely the 12MP (2021-2025) with a clear strategic direction was formulated to set the way forward for the national development agenda along with the implementation framework over the next decade.
This is to ensure an inclusive and meaningful socioeconomic development towards a more prosperous society, which includes criteria such as economic empowerment, environmental sustainability, and social re-engineering.
Some of the policies and strategies introduced under the 12MP include partnership with the private sector, which is expected to continue to be the key driver of growth for Malaysia.
In addition, the business support ecosystem will be strengthened under the 12MP to increase labour market productivity and efficiency and the private sector involvement will be promoted, especially through quality investment in identified high-potential industries to enable the industry to move up the value chain.
MSMEs Moving Forward
Micro, small and medium enterprises (MSMEs) with great potential are also expected to be strengthened to be the backbone of the nation’s development, and they will be encouraged to modernise businesses through the adoption of advanced technology and digitalisation, thus increasing opportunities to explore global markets.
Moving forward, the 12MP is believed to lay a strong foundation in building a high-tech and high-income nation with more equitable distribution.
The GDP growth forecast in 12MP is an average of 5% per year (4.5%-5.5% for the 12MP period of 2021-2025). The World Bank currently forecasts a 5.61% growth for the 2022-2025 period and a slower rate of growth in 2023-2025.
Malaysia’s GDP saw a stronger growth of 14.2% in the third quarter of 2022 (3Q22) (2Q22: 8.9%), partly driven by strong domestic demand, underpinned by improvements in labour market and income conditions, as well as ongoing policy support.
Bank Negara Malaysia (BNM) said the “stronger growth” came despite base effects from the negative growth in 3Q21.
The central bank highlighted that exports remained supported by strong demand for E&E products, while the recovery of inbound tourism lent further support to economic activity. By sector, it said the services and manufacturing sectors continued to drive growth.
Overall, the Malaysian economy expanded by 9.3% in the first three quarters of 2022.
Moving forward, BNM governor Tan Sri Nor Shamsiah Mohd Yunus explained that the Malaysian economy will continue to be supported by firm domestic demand amid continued improvements in the labour market.
“Growth would also benefit from the realisation of large infrastructure projects as well as higher tourist arrivals.
“However, Malaysia remains susceptible to weaker-than-expected global growth, higher risk aversion in global financial markets, further escalation of geopolitical conflicts and re-emergence of supply chain disruptions,” she said during the 3Q22 GDP announcement recently.
She reiterated that Malaysia’s economy will continue to expand, albeit at a more moderate pace, in 4Q22 and the expected slower pace of growth reflects the more challenging global environment as well as absence of base effects.
Nevertheless, BNM said growth for the whole of 2022 is expected to remain robust, given the strong outturns in the first three quarters of the year.
“Looking ahead, the Malaysian economy is expected to expand by 4% to 5% in 2023,” she noted.
- This article first appeared in The Malaysian Reserve weekly print edition