Malaysia: Year in Review 2012

It has been another year of good growth for Malaysia, even as the international economic climate has been uncertain. Strong domestic demand, government investment, greater diversification and regional resilience have all played their part.

GDP growth is expected to hit 5% this year or possibly exceed it, according to several analyses. The economy has been supported by higher incomes and accommodative monetary policy, as well as by government spending. Malaysia has been pushing ahead with its Economic Transformation Programme (ETP), which seeks to lift the country to its long-term target of achieving middle-income status by 2020.

To this end, the ETP entails large-scale investments in infrastructure, health and education, as well as interlinked efforts to push key sectors further up the value chain, in order to reduce Malaysia’s reliance on raw material exports and increase skill and income levels.

After talks between Malaysia and Singapore in January, the two countries agreed to strengthen transportation links to benefit bilateral trade and the construction sector. Progress has been made on a $9.7bn mass-transit railway system linking Malaysia’s southern Johor state and Singapore, which is part of a new line that will cut travel times from Kuala Lumpur to Singapore from six hours to 90 minutes.

In May, the international business press reported that AECOM Technology had been awarded the $42m contract for the design and engineering study for the Malaysia-Singapore Rapid Transit System (RTS) link by the relevant Singaporean and Malaysian authorities.

Infrastructure development also entails the expansion, upgrading and diversification of Malaysia’s power-generation capacity. In May, Peter Chin Fah Kui, the minister of energy, green technology and water, announced that Malaysia would increase the proportion of electricity it generated from coal to 44%, up from 30%, and lower the share derived from gas to 46% from 60%.

The government’s desire to lower dependency on gas supply was informed by rising gas prices, and a desire not to pass them on to customers, as well as by a connected gas supply shock in 2011. In May, the government confirmed plans to invest $3bn through state power firm Tenaga Nasional to construct two new hydropower plants and two new coal-fired stations, with a total of more than 2500 MW of installed capacity.

Meanwhile, further generation capacity is needed to support the demands of Malaysia’s manufacturing sector, which has performed well in 2012. Industrial production rose by 4.9% in the first nine months of 2012, according to official data. Manufacturing output rose by 5.2% year-on-year, while the other segments included in industrial production – mining and electricity – grew by 5.9%.

Growth came despite the uncertain global economic climate, which was affected by the eurozone crisis, the US’s debt problems and slowdowns in major emerging markets. However, strong domestic demand has helped manufacturers offset slower exports.

Together, manufacturing and mining contribute 35% of GDP, so the expansion of industry has been key to the economy’s good performance in 2012. Next year seems likely to see similarly healthy levels of GDP growth, as both upside and downside risks from 2012 are likely to continue into 2013. On one hand, the Malaysian economy should continue to benefit from its realignment towards domestic demand, supported by an expected maintenance of low-interest rate policy and the further roll-out of the ETP. The development of value-added industries, as well as service sectors such as tourism, should also help the economy.

On the other hand, Malaysia cannot be immune from international events. A significant worsening in the eurozone, the US, or a “hard landing” slowdown in China would undoubtedly have an impact. The Malaysian general election, due by June 2013, may also create an element of political uncertainty, though it is also spurring government spending. The economy, particularly government finances, remains sensitive to fluctuations in commodity prices, including that of oil.

Observers are split on whether there will be a slowdown, or if the economy can accelerate further. The UK’s Institute of Chartered Accountants in England and Wales sees a drop to 3.8%, and international investment bank Nomura expects a fall to 4.3% from 5.3% in 2012. Manokaran Mottain, the chief economist at Kuala Lumpur-based Alliance Investment Bank, forecasts a slight fall to 5% from the 5.2% he expects this year. The independent Malaysian Institute of Economic Research, however, forecasts a pick-up from 5.1% to 5.6%.

Policy-makers will be keeping a keen eye on the international environment, as Malaysia cannot go it alone. However, next year should see the developed and diversified future economy envisaged by the ETP move closer.

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Malaysia: Year in Review 2012

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Malaysia: Rolling out plans for ICT

The government is moving forward with one of its flagship projects, an initiative that aims to make the information and communications technology (ICT) sector – already a major contributor to the Malaysian economy – one of its largest components. However, if the state is to achieve its goals there are several issues to be addressed.

Currently, the industry represents around 10% of GDP, a figure the government is keen to increase as it pushes to achieve developed nation status by 2020. That plan was given a boost in early July, when one of the government’s lead agencies in its drive to develop the sector unveiled the first major projects in the Digital Malaysia programme, which was initiated by the prime minister, Najib Razak, last October.

According to Badlisham Ghazali, CEO of Multimedia Development Corporation (MDeC), eight of the scheme’s projects have already been approved and will be rolled out in stages. These and other initiatives will generate $10bn in investment value based on a public-private partnership model and will increase ICT’s input to GDP to 17% – $94bn – by 2020, Badlisham announced on July 5. “The investments will be used to create 160,000 jobs, besides providing an additional $2300 in annual income for 350,000 citizens via digital income by 2020,” he added.

Among the projects that have cleared the approval stage are an “Asian e-fulfilment hub”, which seeks to develop Malaysia into a regional centre for servicing cross-border e-commerce shipments and e-payment services for micro-, small and medium-sized enterprises.

At the core of Digital Malaysia is the aim of moving the industry from a supply-focused approach to a demand-focused one; shifting behaviour from being centred on consumption to production; and helping local talent form a high-knowledge, innovative workforce.

According to Fadillah Yusof, the deputy minister at the Ministry of Science, Technology and Innovation, Digital Malaysia will help develop a cohesive digital ecosystem. “These thrusts include initiating more demand-focused activities to leverage on the supply, encouraging internet users to come up with products or services while they consume from digital technologies, and increasing the development of local talent in key industries,” he said. “Previously, our focus was just to drive the industry. Today, our role has evolved to empowering citizens and businesses to use digital technology to enhance their lives and businesses.”

Though the government and its agencies will need to provide more detail on many of the programmes that are in the pipeline, and on how it intends to attract private investment to those initiatives, moving to flesh out Digital Malaysia should encourage the ICT sector.

According to a statement issued by MDeC on July 2, the outlook for that industry should remain positive for the rest of the year, driven by strong domestic demand and higher consumer spending. This prognosis was supported by a recent forecast by the National ICT Association of Malaysia, which predicted growth of 8-10% for the sector in 2012.

One cloud on the horizon is the weakening health of the global economy, exacerbated by the ongoing crisis in the eurozone and the slowdown in China. While domestic demand is expected to remain strong in the near term, Malaysia’s overseas markets for ICT goods and services could experience a contraction in the latter half of this year and into 2013. Depending on how severe this reduction in demand is, the ICT sector’s growth rate may slow, perhaps significantly.

Another possible pothole is the shortage of skilled engineers and entrepreneurs, many of whom chose to live and work overseas, according to Pua Khein Seng, the chairman and CEO of Taiwan-based Phison Electronics. “There is potential in the IT industry in Malaysia; we have talents but many of them are overseas,” Pua said in an interview with the Borneo Post in July. “In Taiwan, we often hear stories of our seniors becoming successful entrepreneurs after graduating, and these instil the belief that ‘I might stand a chance to succeed if I choose to be an entrepreneur.’ In Malaysia, we don’t have these kinds of success stories.”

If the government can attract the sort of investment it is expecting and is able to do more to facilitate entrepreneurial endeavours, the ICT sector may yet be able to write a few stories of its own in the years ahead.

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Malaysia: Rolling out plans for ICT

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