ASSIGNMENT 1

Introduction :

Recent years ,Malaysia is keeping on priming of economy,their aim is to determine the Malaysia into a high-income developed nation.so they has been proposed the economic transformation programme ,the programme is a comprehensive effort that will transform Malaysia into a high-income nation ,and change the country's main productivity from the agricultural to the
Industrialization by 2020.
The Economy transformation programme is follow a quite different way from the past to develop the economy . This programme planning to focus on the core development area : the 12 national key economic areas(NKEAs) ,including oil gas and energy ,palm oil and rubber, financial services,tourism,business service,electrical and electronic,wholesale and retail ,education,healthcare , Communications Content and Infrastructure; Agriculture; and Greater Kuala Lumpur/Klang Valley.which are choose from the Malaysia' s advantage industry and the future potential industry.those key economic areas will bring a huge amount of profit contribute to Malaysia 's economy ,and those areas will be acquired the public investment and government support in prior。Besides,those Key economic area will be get policy reforms such as the remove the economic competition barriers and market liberalization .This program will involve the deliberate choices and trade-offs. Prioritize investment in key economic sectors means less investment in other areas. To bring about meaningful change for the country, the selection of key economic sectors must really have a real impact on the resource. the concept of prioritize is include other government assistance such as the cost of operations and the specific areas of policy and regulatory changes in the economic field.
If the economic transformation programme are going to implemented successful, it will lead Malaysia in to a high- standard level of economy life ,and gives the hope that the malaysia will step into the developed country ,which has increase the country's competition in the south east Asian.

Literature review

Since Malaysia has setted up this economic programme , we will be able to see the efforts which has been made in this regard by the Government, we will also can be seen from the investment by the investors where is the our new development direction .Since Malaysia is committed to developing the economy for past few years, we may see what has happened to change during this times.
The Economy Watch Content said : Currently, Malaysia has been transferred to the third stage of economic development, the government has paid more and more attention to the service. The industry overall plan (IMP3), focusing on services and human capital development in the country to become a major trading nation. IMP3 is expected to cover the period from 2006 to 2020.
（YB Dato'Sri Peter Chin F K 2010）"The green economy is no longer a myth Today, the Malaysian government is taking decisive measures to ensure our future energy is green, sustainable, diverse and Malaysia, take the most effective way to use energy.everyday life (which is expected 2020 can save RM14 billion gross national income) to implement energy efficiency, as well as explore new alternative energy sources, such as nuclear, solar and hydroelectric sources, we can work together to protect the environment, Malaysia towards a developed country's economic vitality in 2020 "
(YB Tan Sri Bernard G D 2010）Malaysia has a competitive advantage in the palm oil industry, as it has over 100 years of experience and a strong market leadership in terms of productivity and R&D. The Malaysian palm oil industry is also the fourth largest contributor to the Malaysian Gross National Income (GNI). We have thus set an ambitious GNI contribution target of RM178.0 billion in 2020 against the present GNI contribution of RM52.7 billion for the palm oil industry. At the same time we will ensure that all our efforts to achieve this target are in line with the concept of “inclusiveness” and “sustainability” the face of Malaysian society has changed. The population has become increasingly urbanised and educated while the middle income group has expanded. Yet, there are still considerable income and wealth inequal ities due to persistent disparities in inter- and intra-ethnic distribution as well as differences between rural and urban incomes and between less developed and more developed regions. By many accounts, racial polarization is felt in schools,in the workplace, in residential areas and by society in general.
The economy is projected to grow at an average rate of 6.0 per cent per annum for the period 2006-2010 and 6.5 per cent in the 2011-2020 period. TFP is expected to exceed capital and labour to become the main factor of production,growing to 41 per cent of GDP by 2020. The economy is projected to become even stronger in the services sector, with at least 5.0 per cent GDP contribution from technology-intensive subsectors.
Opportunities and threats

Oil, gas and energy ： oil, gas and energy is an important driving force in the modern economy. Shrewd management of the national oil company---PETRONAS, the domestic oil and gas industry has played a vital role in the economic growth of Malaysia. Despite the declining conventional oil and gas resource base, there remains significant potential in mature, small and technically more complex fields. Future growth could come from initiatives such as enhanced oil recovery, innovative approaches to the development of small fields, or through intensifying exploration activities to achieve a faster pace of oil and gas discoveries. the Government and the oil, gas and energy industry will focus on four thrusts: sustaining oil and gas production, enhancing downstream growth, making Malaysia the number one Asian hub for oil field services and building a sustainable energy platform for growth.
There are a number of business opportunities in the oil, gas and energy sector, which together with the baseline sector growth will provide RM61.2 billion of GNI contribution by 2020. This amount includes a RM32.0 billion increase in GNI versus the 2009 baseline GNI due to expected increases in the oil price, given relatively low oil prices in 2009. The business opportunities can be grouped into two clear themes. Firstly, there are opportunities to secure more output from the same input as current processes are improved and efficiency gains are realised. The second theme is opportunities stemming from the increased demand for energy deriving from a growing economy.
Business Opportunity 1: Process Improvements Global benchmarks of refining and petrochemical facilities demonstrate that significant process improvements can be expected with these types of facilities over time. These improvements typically translate into efficiency gains of 0.5 percent per year representing an additional GNI contribution of RM3.4 billion. Improvement of overall processes and structure in the electricity generation sector is expected to add RM1.5 billion of GNI contribution.
Business Opportunity 2: Economic Growth
Malaysia has targetted GNI growth of 5.9 percent per annum. Achieving this economic growth is expected to raise consumption by 3 percent and will have a knock-on effect on the oil, gas and energy sector. The increased consumption will require an additional 2 gigawatts of installed capacity to be built at a cost of RM9.6 billion, creating an estimated 2,500 jobs and adding RM11.2 billion to GNI. The additional transmission and distribution of this energy will create a further RM5.6 billion GNI and require an investment of RM12.4 billion.

Threats:

World Energy Outlook 2010 has identified 5 main uncertainties in the energy market which may affected them, including:
1.Economy – slow economy is recovering, but pressure is still on supply and
2.Demand, like European debt crisis and American economic recession all of this will affected oil gas demand.
3.Oil market – age of ‘cheap oil’ is over with oil demand and supply becoming less sensitive to price
4.Natural gas market – is in the midst of revolution which will probably open up a new era for gas due to predicted long term gas glut,the new technology has
5.Climate changes (government policy) – Copenhagen Accord & G-20 subsidy reforms are key advances, however the extent of implementation is uncertain China and other emerging economies – will shape the global energy due to growing GDP and populations which certainly have very high impact on energy supply and demand
The oil, gas and energy is non-renewable resource ,so we must be careful how to use them ,we should develop them for the economy, but we need prevent overdevelop ,and insist sustainable and green development ,it is better for the long-run decision.

Palm oil
The palm oil industry in Malaysia is organized around four segments. The plantations segment includes seed nursery, planting, harvesting, collecting and milling. The second segment includes refining, bulking and trading activities. The remaining two downstream segments are non-food downstream as well as food- and health-based downstream.
Over the next 10 years, Malaysia will also be driven by the natural growth of the palm oil industry, captured in three business opportunities worth RM57.6 billion by 2020. In addition, a yearly 2.8 percent inflation rate over 10 years, estimated at RM17.0 billion is captured based on the GNI generated by palm oil in 2009. This will translate into a total of RM74.6 billion worth of business opportunities in 2020.
Business Opportunity 1: Expansion of Existing Upstream Activities
The first focus area is the expansion of existing upstream activities, which is expected to generate RM44.8 billion of GNI by 2020. This growth will be driven by two major factors: expansion of Malaysian plantations abroad and organic growth in yield levels.
Malaysian companies currently hold an estimated 1.3 million hectares of palm oil plantations abroad, including over 1 million hectares in Indonesia. As acreage expansion in Malaysia is slowing down (3.3 percent yearly from 2000 to 2009 versus 2.5 percent expected from 2010 to 2020) due to the scarcity of arable land, Malaysian companies are expected to invest more aggressively in plantations abroad.
As a result, plantations and organised smallholders will gradually increase their productivity. This will generate an additional GNI contribution of RM27.2 billion by 2020. Hence, the total GNI expected contribution from this business opportunity in 2020 is RM44.8 billion.
Business Opportunity 2: Development of Existing Downstream Activities
Malaysia is a major global basic oleochemical player, producing 2.8 million tonnes of the total annual global production of 12.2 million tonnes. Growth in the non-food segment will be driven by the expansion of basic oleochemicals. Palm feedstock availability, lower operating costs and increasing regional demand are expected to further shift production to Southeast Asia in the future. The food segment, though much smaller, will expand due to rising consumer demand for packaged foods. The funding requirement for this business opportunity is RM46.9 billion, which will come entirely from the private sector. The downstream investment plans of leading companies will generate an incremental GNI contribution of RM11.2 billion by 2020 while creating an additional 26,500 jobs
Business Opportunity 3: Development of National Biodiesel Activities
There are 25 biodiesel plants in the country with a total capacity of 2.6 million tonnes. However, current production is a mere 228,000 tonnes, almost all of which is exported. There is negligible local consumption, as the production cost of biodiesel is much higher than the retail diesel pump price; a Government subsidy of 19.6 sen per litre is needed to compensate the producers in order for them to break even. Globally, countries are taking active steps to implement mandatory biodiesel usage, driven by Government incentives ranging from RM1.20 to RM2.50 per litre. The incremental GNI for this opportunity is expected to come from the introduction of mandatory 5 percent biodiesel blend with petroleum diesel (B5) usage in Malaysia from 2011, an expected further increase to 10 percent biodiesel blend with petroleum diesel (B10) and export growth.
This business opportunity will translate into an additional GNI of RM1.6 billion by 2020 and create an additional 2,100 jobs. Apart from the economic benefits, this opportunity will further bolster Malaysia’s commitment to reduce greenhouse gas emissions in the coming decade.
Despite these developments, the industry is facing a series of hurdles, which threaten the country’s standing as a competitive global palm oil producer. These hurdles include: • Limited land bank
Malaysia can only count on a maximum potential increase of 28 percent of its oil palm plantation area, and mostly on hilly or peat terrains. As a result, Malaysia has been gradually losing its global production market share to Indonesia. Indonesia overtook Malaysia in crude palm oil (CPO) production market share in 2009 and now holds 46 percent of the global production market share compared to Malaysia’s 41 percent. Indonesia’s high growth of new oil palm plantations coupled with its lower average cost of production has directly impacted Malaysia’s market share in key export markets such as India, Pakistan and China;
• Limited scope of mechanisation With 369,000 foreign workers employed in plantations, the oil palm industry is still heavily dependent on foreign labour for harvesting, general upkeep and maintenance. Although mechanisation has been gradually introduced over the years, it has yet to replace the high labour requirements in the upstream sector. Wherever it is introduced, mechanisation must meet the stringent criteria reducing labour costs, increasing productivity and improving product quality. For this reason, one of the key challenges of the plantation segment is to scale up its level of mechanisation; • Threat to plant protection
Pests and diseases such as Ganoderma Basal Stem Rot, are increasingly becoming a threat to the industry. Although research relating to the biology, early detection and control of such disease has been undertaken, a long-term sustainable, cost-efficient and effective solution is still not available; • Reliance on upstream
The palm oil industry is still heavily skewed towards the upstream segment, which in 2009 generated 87 percent of the industry’s GNI. Companies in the industry have been slow to move downstream, where high value-add is still to be captured, in any significant number; • Impediments to market access
Countries are using both tariff- and non-tariff barriers to restrict market access to protect their local oils and fats industry. The Renewable Energy Directive adopted by the European Union, which imposes strict regulations on carbon emissions distorting the palm oil commodity price, is an example of such a barrier; and • Environmental and sustainability concerns A continued slew of anti-palm oil campaigns highlighting its carbon footprint or raising health concerns, launched by environmental and consumer advocacy groups in Europe and the USA, have generated an increasing unwarranted negative perception of palm oil. Such campaigns include that launched by the American soyabean lobby group claiming that palm oil saturated fat raises blood cholesterol levels, leading to heart disease

Data analysis :

Oil price is puzzled

Chart 1 . The Malaysian oil production forecasting
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The chart shows Malaysia's oil production on a maintenance level since 1995, The chart from the latest data shows a alarming picture: the falling of oil production.
Chart 2 , the Malaysian gas production forecasting

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the chart 2 , shows a forecast picture of the gas production ,until year 2025
The gas production is continues to drop from 6.1% to 1.5%

Figure 3, Oil export and import based on data in BP's 2010 review,Compare the chart on the left and on the right,

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Since 2011, the Malaysian oil production was lower due to some reason, A10.7% (v BP'S 10.9%)decline was reported by the Bank Negara , it is because some production facilities was closed for maintenance ,in some mature field the production is not high ,and some other new field 's production is lower than expected.
The chart on the left suggests the magnitude of the changes which may now be under way. It is based on the latest BP review, and includes figures for hydropower (small) and biofuels (insignificant). According to BP, Malaysia's primary energy production, in million tonnes oil equivalent, peaked in 2008: three years later, it was down to 9%. Malaysia's primary energy consumption continued to rise until 2010 - but in 2011, gas shortages began to bite in the Peninsula; BP shows domestic gas consumption down 10.5% for the year. Net primary energy exports peaked in 1999; they are since down 54%. the decline in net exports would be significant. The issue is surely of huge importance to the economy, the government budget, and the patronage machine. One would expect such issues to feature prominently in public debate, but there is little awareness or discussion. To some extent, growing demand reflects an attempt to add value locally rather than exporting raw commodities - but is this always a wise use of a dwindling resource? There are some moves to phase out energy subsidies by gradual increases in gas prices to industrial users, but no apparent Plan B for what happens if the market price continues to outpace the planned increases. Meanwhile, moves to encourage development of Malaysia's marginal fields seem sensible, but are they likely to stem the decline?

Figure 4, a detail illustrate in oil export

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The good year for Malaysia oil production boom is between 1983 and 2005, when production (grey) clearly outpaced consumption (black line), resulting in a large net export (green) of about 10 million tonnes per year. The price of oil was about USD 20 per barrel during those years.

Now the good time is over and Malaysia has turned into a net oil importer. With global oil consumption on the rise, I expect the price in the long run only to rise further. In other words, Malaysia has been exporting oil for decades at a price around USD 20 per barrel, and might have to import oil in the future at a price that is five or ten times that price. Instead of growing a piggybank for the more lean times (like Norway has done), Malaysia's government did choose to run budget deficits for years in a row.Luckily for Malaysia, it is still a net exporter in gas, although production seems to have slowed down a bit in recent years:

Palm oil
Palm oil consumption expected to grow strongly
Oil palm, with the highest per hectare yield of all edible oils to date, is bound to become the most important vegetable oil in the world. In 2002, approximately 23% of world production and 51% of global trade of edible oils consisted of palm oil and palm kernel oil, both derived from the oil palm. In 2002, Malaysia and Indonesia together accounted for 84% of global palm oil production.With ongoing trade liberalisation, increasing demand for edible oils from developing countries and increasing application of vegetable oils for non-food uses (i.e. biodiesel), the world market for oil palm products is expected to grow strongly.

Chart 1 , Palm oil world production

In the chart ,we found that Malaysia and Indonesia are the palm oil main production country and keep on rising for the time period.

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In Malaysia the area planted grew from 60 000 hectares in 1960 to 3.50 million ha. in 2001 while production grew from92,000 metric tonnes (mt) of CPO in 1960 to 11.8 million mt in 2001. The Malaysian Palm Oil Board expects 20.80 million tonnes to be harvested from 5.1 million ha. in 2020.

Table 2 :palm oil world production up to year 2020
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Per hectare yields are expected to increase substantially under the sustainable production scenario. Shifting investment from land acquisition and planting to implementing better management practices, rational land use and developing high-yielding varieties will enable the sector to produce the same amount of palm oil on smaller areas, as is shown below in figure 3.

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[pic]Table 4 .Projected productive areas (2000-2020)

Table 3. Regional Palm Oil Yields

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This illustrate that the whole country's palm oil planation is in a good range and developed .

In 2012 Malaysia reportedly has a total of over 5.0 million hectares of oil palm plantations, consisting of 4.3 million hectares of mature and 0.7 million hectares of immature oil palms. At an average planting density of 135 trees per hectare, this means that there are approximately 675 million individual trees being hand-harvested, fertilized, pruned and otherwise cared for by a largely immigrant labor force.
The total oil palm plantation labor pool was estimated by the government in 2012 at roughly 491,000 workers, of which 76 percent were from other countries (the great majority from Indonesia).
Although the Malaysia palm oil is facing the lack of land and labor ,the government would not let their advantage economy sector to fall down,the government must maintain the Malaysia palm oil production stays stable ,and share the market with Indonesia under the good time period of the increasing demand of palm oil .
So in the next five years ,the palm oil industry is still in a good development.

Conclusion
Now , Malaysia is facing the great opportunity under the the economic transformation programme , the government is followed their main factors step by step to reach the position they proposed to,this the Economic Transformation programme is a bold attempt, the government has grab a chance to strength their superiority and make the advantages more competitive during the time when every country are seeking for develop. But this programme is what the government predict the future base on recent situation, things are not constant forever, and every factors may face its up and down, sometimes the outside pressure also can affected the situation , like right now the whole world are suffering the recession , so the government cant expect the GDP to increase constantly like before under this situation, the prior plan should be slow down and concentrate on the new aspect.

In a word ,Malaysia is still have hope to reach the high level income life style until 2020,since they have 12 national key economic areas, and each area has the enormous potential which can make their people be confident in their economy development .

Reference :

1.Patrick J. Welch, Grerry F. Welch ,Economics Theory & Practice, 9th Ed(2010) John Wiley

2.Athukorala, P. and J. Menon. 1999. Outward orientation and economic performance: the .Malaysian experience. World Economy 22(8): 1119-39.

3.Economic Planning Unit (EPU).. Fime Minister's Department, Malaysia, 2010

4.MPOB (2002): Prospects of Elevating National Oil Palm Productivity : A Malaysian Perspective; Oil Palm Industry Economic Journal - Volume 2 Number 2.

IEA, "World Energy Outlook," 2010. [Online]. Available: http://www.iea.org/weo/docs/weo2010/weo2010_london_nov9.pdf. [Accessed 10 December 2011].

6. EIA, "Country Analysis Bried," December 2010. [Online]. Available: http://www.eia.gov/emeu/cabs/Malaysia/Full.html. [Accessed 13 December 2011].

7. http://etp.pemandu.gov.my/Overview_of_NKEAs_-@-Overview_of_NKEAs.aspx

8.The Energy Data and Modeling Cente & The Institute of Energy Economics, Japan; The
ASEAN Center for Energy; The National ESSPA Project Teams, "The 2nd ASEAN Energy
Demand Outlook," 2009.

9. Mielke, Oil World Annual 1999, 2000, 2001, 2002, 2003.
MPOB (2002); Prospects of Elevating National Oil palm Productivity: a Malaysian
Perspective; B.S. Jalani et al, in: Oil Palm Industry Economic Journal (vol. 2(2)/2002),
Kuala Lumpur