CASE STUDY
MALAYSIA ECONOMIC STRUCTURE
SUMMARY THE CASE

Malaysia has emerged as a multi-sector economy in the 21st century from being a producer of raw materials until 1970. Efforts are being made by the government to promote value-added production by luring foreign investment in pharmaceuticals, technology industries and medical technology. Some major industries in Malaysia are electronics, electrical products, chemicals, food and beverages, metal and machine products and apparel. Malaysian exports played primary role in the country’s economic growth. In the last two decades of the 20th century, Malaysia experienced an annual GDP growth of 7% along with low inflation. In 2009, the nominal per capita GDP stood at US$6,761 and the nominal GDP at US$191.4 billion.

However, given the openness of its economy with trade accounting for about 200 percent of gross domestic products (GDP), Malaysia was not spared from the negative effects of the United States economic slowdown and global electronics downturn; These were manifested in declining manufacturing production and negative export growth, particularly of electronics. Nevertheless, concerted efforts initiated by the government since the 1997/98 Asian financial crises to stimulate economic growth through accelerating domestic economic activities and reducing the over-dependence on exports helped the nation to sustain a positive real GDP growth, albeit at a modest rate of 0.4 percent in 2001 (2000: 8.3 percent). This growth was achieved within an environment of low inflationary pressures and full employment.
On the supply side, most of the major sectors were adversely affected by the greater-than-expected slowdown in the world economy and contraction of global demand for electronic products and components. The manufacturing sector in particular, which had achieved double-digit growth over the last twenty-one consecutive months since May 1999, experienced a sharp deterioration in output growth, especially in the export-oriented industries. However, the weaker growth in the export-oriented manufacturing industries was partly mitigated by a more resilient performance of the domestic-oriented manufacturing industries that benefited from the expansionary fiscal policy of the public sector. As such, the decline in the manufacturing value added was contained at a single-digit rate of 5.1 percent (2000: +21 percent).
Other major domestic sectors of the economy, especially the services sector continued to expand strongly by 4.9 percent (2000: 4.8 percent) on account of better performance of government services and other services sub-sectors. The fiscal stimulus measures, privatization of infrastructure projects and housing development within a low interest rate environment contributed to a stronger growth of 2.3 percent (2000: 1 percent) in the construction sector.

COMMENT THE CASE STUDY

According to World Bank, Malaysia ranks 24th in Ease of doing business. Malaysia's strengths in the rank include getting credit (rank 3rd), protecting investor (ranked 4th) and doing trade across borders (ranked 21st). Weaknesses include dealing with licenses (ranked 105th). The study ranks 178 countries in all aspect of doing business. In the investor protection category of the survey, Malaysia had scored a perfect 10 for the extent of disclosure, nine for director liability and seven for shareholder suits. Malaysia is behind Singapore, Hong Kong and New Zealand in investor protection category of the survey. The government is moving towards a more business friendly environment by setting up a special task force to facilitate business called PEMUDAH, which means "simplifier" in Malay Highlights includes easing restrictions and requirement to hire expatriates, shorten time to do land transfers and increasing the limit of sugar storage (a controlled item in Malaysia) for companies. The Government aims to be in the top 10 in the Ease of doing business survey before 2010 in order to attract even more foreign investors.