Malaysia has a population of 27.73 million people and an annual growth rate of 1.7%. This means that Malaysia has a young growing population. 9.63 million people are aged 0-14, meaning there is a rapidly growing population. 63% of the population are aged 15-64, meaning Malaysia has a large working-age population (statistics.gov.my). Manufacturing has been the dominating sector of the Malaysian economy since the 1970s, and employed over 3,400,000 people in 2008. However, it did not generate as much GDP as the services sector did, which is rapidly expanding. Although the services sector only employed 813,000 people, it contributed to an increase of 9.6% of total GDP in 2008, whereas manufacturing only increased 3.3% (developing8.org). The manufacturing sector has been slowly declining in growth whilst the services sector has shown to be the highest growing industry since 2005, contributing to higher GDP growth (see appendix 2 for table of the origin of GDP in Malaysia). Agriculture is also an important generator of GDP, especially in rural areas of Malaysia. It used to be a higher GDP contributor, but has declined since 2003. In 2008, it accounted for only 2.2% of total GDP.
Malaysia’s growth was predominantly export-led and is therefore a net exporter. In 2007, Malaysia exported $182.8 billion of goods and imported $152.4 billion (developing8.org). Export growth rates are predicted to slow down in 2009, as consumer spending in developed countries slows down due to the current financial crisis. The current account surplus has been increasing steadily since 1999. In 2007 it was $30.2 billion (unescap.org). Companies are finding Malaysia as an appealing and promising country to invest in. This can be seen by the increase in FDI over the past years. 2007 saw an increase of 54% making a total of $9.4 billion (worldbank.org).
Globalisation:
Globalisation refers to “the process by which there is both an increasing world market in goods and services and increasing integration in world capital markets.” (Wall, 2003, pg. 131). The process of globalisation has evolved since 1405, but has only become economically meaningful in the 19th century, through declining communication and transport costs, falling barriers of trade to integrate the world markets and technological advances. Goods and services can flow freely around the world, and the Internet has created a worldwide marketplace for trading.
Given Malaysia’s rapid growth, especially between 1990 and 1996, the World Bank classified the country as an ‘upper middle income country’, and no longer a developing one. This has made Malaysia a favourable country to invest in. In the 2007 A.T Kearney FDI Confidence Index, Malaysia ranked 16th out of 60 countries, and is expected to rise higher in the coming years. The 2007 Globalisation Index by A.T Kearney and Foreign Policy ranked Malaysia at 23 out of 72 countries. This suggests that Malaysia is on the right path towards globalisation but can improve further.
In order for Malaysia’s economy to prosper further, and compete with countries like China and Japan and the rest of the world market, it must respond effectively to the challenges it faces. These challenges include improving the quality of the education system, eliminating corruption, increasing employment and investing in ICT and R&D, improving infrastructure and family planning.
Education:
The demand for education in Malaysia is high, however the standard of it has been criticised for being extremely low and basic, with too much focus on learning and not enough on developing creative and analytical skills. In order for Malaysia to achieve its targeted goal of becoming a fully developed nation by 2020, it needs to create a higher educated and skilled workforce. This can only be done by improving the quality of education. Malaysia needs to change aspects of its curriculum to make it more versatile and innovative, and start focusing more on applying higher technology and developing life and work skills. This will result in a highly-skilled and knowledgeable workforce who possesses IT, creative, critical and analytical skills. These skills can then be used to boost the services sector in Malaysia and sustain high economic growth.
Training teachers on how to use new technology and software will ensure higher quality education. Facilities and equipment must be up to date, so teaching is more current and meaningful. Training teachers to use different styles and methods of teaching will help increase the quality of education (unicef.org).
Education in Malaysia continues until University (Higher Education). However, most Malays stop at secondary education, which results in a gap in the workforce. The main reason is because of tuition fees. Up till secondary school, education is provided free by the government, and to continue to university, tuition fees must be paid. In 2004, The Malaysian government formed the Ministry of Higher Education to deal with tertiary education in Malaysia. They now need to find ways to attract people to continue their education. Incentives such as grants, scholarships, loans are methods which can be used to attract more people into higher education. Also, up until recently, many universities in Malaysia only provided courses in Arts, Humanities, Law and Business, giving less range for students and so many choose to study abroad where there is more variety of courses. The lack of subject range in universities creates a shortage in human resource skills in fundamental areas of science and technology, limiting the country’s growth and R&D capabilities. The government therefore has to increase public spending in education to provide a variety of courses in universities, especially courses specialising in Science and Technology to strengthen R&D in the economy.
Malaysia should invest in free training programmes for those who are unable to attend university because of financial reasons. This will enable people to develop new skills, especially lower-skilled workers and those unemployed.
Corruption:
Malaysia’s future growth can be jeopardised as corruption and fraud increase to critical levels. According to the 2006 United Nation's ‘Asia-Pacific Human Development Report-International Country Risk Guide’ Malaysia’s score declined from 4.00 in 1996 to 2.28. The declining score signifies greater corruption. This can have a negative effect on Foreign Direct Investment as companies are less likely to invest in countries involved in fraudulent and corrupt business, thus slowing down economic growth. Society engages in fraud and malpractices, and many abuse powers. Case studies show that many government officials accept bribes to speed up trade licensing.
The government needs to increase people’s confidence and perceptions of Malaysia so they are willing to invest in it. An Anti-Corruption Legislation has been passed to prevent corruption. An Anti-Corruption Agency, Public Complaints Bureau and the Integrity Institute of Malaysia have also been established to combat corruption. The government launched a National Integrity Plan (NIP) in 2003 which aims to reform Malaysian society and teach values of honesty and ethics to everyone. In 2002, the Ministry of Domestic Trade and Consumer Affairs introduced a code of business ethics for companies to use as a guide. It includes 6 principles for conducting business, which include: being honest, fair and humane, having social and environmental responsibility, and having determination to succeed. Although the government has introduced these measures to eliminate corruption, some would argue these are not enough. For corruption to be completely eradicated there has to be severe consequences for it, which people will fear and therefore not participate in it. This can be created by investing more money in public defence and by having a strong military presence.
Family Planning:
With a population of 27.73 million and annual growth rate of 1.7%, Malaysia is on the verge of over-population. Its total land area is 328,550 sq km which means that it has a density of 84 people per sq km (cia.gov). This means that there are too many people and the resources and technology available may not be enough for some people to maintain an adequate standard of living. With the population rising, resources are likely to become scarce and poverty levels in parts of the country are likely to rise. To sustain the current population and avoid over-population Malaysia has to lower its growth rate by introducing a family planning scheme. Malaysia should follow Singapore’s lead by: establishing family planning clinics, providing contraceptives at a minimal charge and advertising the advantages of smaller families. These methods can help lower the birth rate and avoid over-population.
Investing in R&D and ICT:
Malaysia needs to invest more in Research and Development in order to increase competitiveness and develop further. In 2008, RM3.2 billion was allocated for R&D expenditure by the government (Malaysian Budget 2008). More R&D means increased innovation and new products and services being created, which would give Malaysia a competitive edge. However, Malaysia suffers from a shortage of skilled scientists and technicians due to its poor higher education system. Once the government improves the education system and provides more courses in science and technology, Malaysia should see a rise in skilled human resources, and consequently a rise in R&D.
Future growth and productivity will be dependent on the increasing use of ICT in all sectors of the economy, and therefore investment should be directed at training people to become familiar with ICT software. Malaysia’s National Broadband Plan target of penetrating broadband into 25% of households by 2006 failed, and so the government has planned to achieve the target by 2010. To reach this goal, incentives such as free first-time installation schemes were set up. Computer vouchers are also given to low-income families to purchase computers (Malaysian Budget 2008). This scheme would appear to be a positive one, although no data has been released yet, as it gives the whole of Malaysia an opportunity to experiment with ICT and develop important skills.
Conclusion:
Malaysia’s economy has strengthened since the 1980s. It has suffered through the 1997 Asian financial crisis but has successfully recovered, and is likely to do so again as the global economy slows down in 2009. To strengthen further and achieve its target of becoming a developed nation by 2020, Malaysia now needs to focus on developing its service sector by investing more in R&D and ICT, and on education to produce the skilled human capital needed in these fields. Malaysia also needs to eradicate corruption in society and promote a peaceful and harmonious country. This will attract more foreign companies to invest in Malaysia and increase FDI and competition amongst other countries. With hard work and innovation, Malaysia can achieve its full potential and reap the benefits of globalisation.
Bibliography:
Books:
Hill, C.W.L. (2009) International Business: Competing in the global marketplace. 7th Edition, McGraw-Hill
McAleese, D. (2004) Economics for Business: Competition, Macro-stability and Globalisation. 3rd Edition, FT Prentice Hall
Steele, P. (2000) Pocket Atlas. Parragon
Wall, N. (2003) Complete A-Z Economics Handbook. 2nd Edition, Hodder Arnold
Websites:
Malaysia’s Government Website: Manufacturing Industry
(accessed: 18th December 2008)
Department of Statistics Malaysia: Performance in October 2008
(accessed: 19th December 2008)
Economist-Country Briefings: Malaysia: Forecast of 2009-10
(accessed: 22nd December 2008)
Business Times Malaysia: Inflation slows down
(accessed: 22nd December 2008)
Developing 8-Malaysia: Origin of GDP
(accessed: 18th December 2008)
United Nations Economic and Social Commission for Asia and the Pacific: Malaysia Survey Notes
(accessed: 22nd December 2008)
World Bank Country Brief Malaysia
(accessed: 18th December 2008)
UNICEF-Malaysia’s Future Education Plans
(accessed: 30th December 2008)
Central Intelligence Agency: The World Factbook Malaysia
(accessed: 18th December 2008)
Malaysian Budget (2008)
(accessed: 1st January 2009)
Geology.com Map of Malaysia
(accessed: 1st January 2009)
Appendix 1: Map of Malaysia
Source: geology.com
Source: cia.gov
Appendix 2: Table to show origin trend of GDP in Malaysia
Source: developing8.org
From the table above it can be clearly seen that Malaysia’s economic sectors are changing. The industry sector, which used to be the dominating sector has been declining in recent years and the services sector is rapidly expanding. The agriculture sector has been declining since 2003, with the exception of 2006 where its contribution to GDP rose by 2.6% from the previous year. The industry sector has also been declining but still has a large contribution to total GDP. The service sector is increasing and contributing more to total GDP. Its largest peak was in 2007, and is expected to increase further as the government invests more money into it.
