Strengthening Domestic Economy


Economic News

22 Jul 2010
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This week Malaysia’s government announced the figures for investment and trade for 2006. The numbers indicate that it was a record year, as external trade breached RM1trn ($270bn) for the first time. A significant growth in Malaysia’s trade surplus, as well as the higher percentage of investments coming from domestic sources, point to an increased level of maturity and prosperity among Malaysian firms.
The figure of RM1.069trn ($289bn) in external trade represents a 10.5% increase from the previous year. According to the Prime Minister’s department, Malaysian exports expanded by 10.3% to RM589bn ( $159bn) and imports rose by 10.7% to RM480bn ($130bn).

The higher exports were driven primarily by increased diversification in both products and markets, coupled with strong external demand, particularly from Southeast Asia, the United States and China.

The growth also points to an increased degree of strength and maturity among Malaysia’s domestic companies, as many are diversifying their activities and expanding into new markets overseas. Hafsah Hashim, the chief executive officer of the Small and Medium Industries Development Corporation (SMIDEC) told OBG that the strength of the Malaysian economy lies with domestic companies. “The government, particularly through its SMEs (Small and Medium Enterprises) development policies, has facilitated the process of nurturing Malaysian companies into wider and more diverse activities. This has shown results.”  

“We learned from the example of Korea following the Asian Financial Crisis. During that time, while many countries were relying on the IMF and foreign countries to help offset the negative consequences, Korea pulled back, realising that the strength of an economy relies on domestic companies,” she said. The county’s quick turnaround inspired Malaysia to begin focusing on indigenous growth as well, through a host of protectionist procedures that revived domestic investment and led to strong export growth. Since then, as domestic companies have matured, these measures have been gradually reduced to encourage foreign direct investment, linkages with foreign firms, and transfer of technology.

Export growth has continued, with Malaysia’s trade surplus for 2006 valued at RM109bn ($31bn), the highest ever recorded, up 8.7% compared with 2005.

Though many observers forecast moderation in the expansion of the world's economy and world trade for 2007, there are signs that it is set to grow on the backs of an even more liberal trading regime. Malaysia is negotiating trade agreements with several countries including Pakistan, Australia, New Zealand and the United States. Malaysia's leading trade partners in 2006 were the United States, Singapore, Japan, China and Thailand.

Trade is not the only figure on the rise in Malaysia, as the Malaysian Industrial Development Authority announced on February 13 that the manufacturing and services sectors in Malaysia grew in terms of percentage of GDP, investment and projects approved. The figures also demonstrated a significant increase in investment coming from domestic sources.

Domestic investments in manufacturing projects amounted to RM26bn ($7.4bn) last year, making up 56% of the total approved investments, compared with RM13bn ($3.7bn) or 42% in 2005. The level of domestic investments approved was also the highest level recorded to date, reflecting the increased ability for local players to invest in the manufacturing and services sectors.

According to Rafidah, who announced the results at a media conference in Kuala Lumpur, the targeted figure under the new Third Industrial Master Plan is 60% of investment from domestic sources.

The investments approved were both for new projects and for expansion or diversification projects. Rafidah said existing companies, both foreign and domestic, continued to expand and diversify their operations in the country. "This was reflected in the approval of 424 expansion or diversification projects with investments of RM16.6bn, accounting for 36% of total investments,” she said.

There are still challenges to overcome. In spite of positive results, there are still questions concerning the ability of Malaysia to consistently deliver human capital and foreign investment remains sometimes hampered by red-tape and clogged delivery systems. However, the government has made improvement in both areas an urgent priority during the five-year 9th Malaysia Plan. Government policy aside, the strengthening of Malaysia’s domestic companies should ensure levels of trade and investment continue steadily, and that human capital and delivery systems exhibit the characteristics of a mature, growing market.




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