Malaysia: Manufacturing in focus


Economic News

22 Jul 2010
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Malaysia is looking to boost investment in the manufacturing sector as it seeks to further broaden the base of its economy and entrench its position as one of the major industrial powers in the region. In line with this, however, it will first need to enhance its competitiveness to attract additional foreign capital.

On June 21, international trade and industry minister Mustapa Mohamed announced that the government was planning to oversee a recovery in manufacturing investments, setting a target of $12.5bn for 2010, in keeping with the objective of achieving developed-nation status by 2020.

Unveiling the ministry’s 2009 annual report in Kuala Lumpur, Mustapa said that the government would ramp up efforts to encourage new investments in the industrial sector, including speeding up the bureaucratic processes for approving investment applications and strengthening infrastructure. However, the minister said that the private sector must also work harder to promote investment opportunities.

“The government will do its part to further improve the country’s physical and soft infrastructure,” Mustapa said. “In turn, businesses must invest in research and development, undertake effective marketing and branding strategies, and adopt industry best practices.”

The government will be hoping that the international investment climate heats up in the second half of the year, after investors’ interest in opportunities on offer in the Malaysia’s industrial sector did not live up to expectations. The January to April period saw approved investments total $2.2bn, well off the pace if the $12.5bn, 12-month target is to be achieved.

Though first-half investment totals may fall below expectations, the minister said the year-end goal could be achieved, saying, “Normally things move a bit sluggishly in the first half but as the year goes on, it will gather momentum. We already have a few very sizable investments in the pipeline.”

That momentum will need to be substantial if Malaysia is to turn around last year’s slowdown in the sector. In total 2009 saw $10.2bn worth of approved investments in the manufacturing sector, 48% lower than the previous year’s performance, according to figures released by the International Trade and Industry Ministry on June 21.

The Trade Ministry’s figures suggest the manufacturing sector has been hardest hit by the global economic downturn. By comparison with the 48% drop in industrial investments, the fall in approved investments for the services sectors eased by 23% last year, falling back to $12.1bn, of which foreign investments contributed $1bn, down 40%.

Though recovery is under way, some of the manufacturing sector’s figures remain soft. There has been an increase of industrial output, with production rising by 10.1% in April compared to the same month in 2009. But while an increase of more than 10% would generally be a noteworthy achievement, in this case the rate of growth is well down on that of March, when industrial production expanded by 14.2% year-on-year. The April result was below the projected 12.4%, with annual growth in manufacturing output slowing to 14.3% from March’s 20.5%, according to figures issued by the Department of Statistics on June 9.

A strong manufacturing sector is vital to the Malaysian economy, as it contributed 26.6% of real GDP in 2009, even though the export-oriented sector was hard hit by the global slowdown. According to state figures, the sector posted sales of $147bn in 2009, a decline of 19% from the $181bn in 2008.

At least some of the sought-after growth is dependent on Malaysia’s major trading partners returning to solid economic health. Mustapa said that though the US and the countries of the EU still faced challenges, any slowing of exports to these destinations should be offset by increased manufacturing sales to Asian countries such as China and India.

At least some of the government’s support for the manufacturing sector will come through the planned spending on infrastructure, as outlined by Prime Minister Najib Tun Abdul Razak in the 10th Malaysia Plan (10MP), unveiled on June 9. With projected outlays of $70bn over the next five years, the 10MP will focus more on developing human resources and physical infrastructure in rural areas, as well as deepening the employment pool to better meet the needs of high-end, high-yield industries such as the electronics segment, the aviation industry and computer technology.

By increasing its spend on soft and hard infrastructure, the government hopes that the private sector will be more inclined to invest in industries. That said, the 10MP projects that Malaysia’s services sector will expand by 7.2% annually over the period of the plan, compared to the forecast of 5.7% for manufacturing.

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