Geo file

Malaysia is a peninsula and island country located in the hot wet tropics of eastern Asia. It lies on the southern side of the North-South divide, which places it within the less economically developed world. However, it is classified as one of Asias NICs (newly industrialising countries) on the basis of its rapid economic development during the last 30 years. In the human Figure 1: Socio-economic profile of Malaysia Social
Total population: 22 millions Ethnic composition: 50% Malay, 33% Chinese: remainder mainly Indian Total fertility rate: 3.4 (UK 1.8) Adult literacy rate: 85% (UK 99100%)

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JANUARY 2002 413 John Pallister

MALAYSIA PROGRESS TOWARDS AND PROSPECTS FOR ECONOMIC DEVELOPMENT

development index compiled by the United Nations, which is based on GDP per head, adult literacy and education using combined primary, secondary and tertiary enrolment, Malaysia ranks 60th out of 175 countries (the UK is 15th). Figure 1 provides a selection of socioeconomic characteristics for the country. Although Malaysia is some way behind the more economically developed countries of the North, it is well ahead of the worlds least developed countries, located overwhelmingly in Africa. Malaysia, along with its southern and northern neighbours Indonesia and Thailand, is classified as a second wave Asian Tiger. The first wave of Asian Tigers, so called because of the speed and ferocity of their industrial and commercial growth in the four decades since 1960, comprised Singapore, Hong Kong, Taiwan and South Korea (Figure 2); they survived several bouts of economic and political turmoil during the 1990s. Malaysia earned its status as an Asian Tiger on the basis of its successful transition from dependence in the 1960s and 70s on primary product exports, to manufactured exports in the 1990s. In 1970 rubber and tin made up two-thirds of the value of exports, whereas by the end of the 1990s over 80% of exports were manufactured goods (Figure 3). In terms of Rostows model of economic development, Malaysia achieved take-off during the period since 1970.

The growth of manufacturing industry

It is more than 30 years since multinational companies, with headquarters in North America, Western Europe and Japan, began relocating and expanding units of production in selected Asian and Latin American countries to take advantage of lower costs of production. This transfer of manufacturing output speeded up the process of de-industrialisation in old established industrial regions in Europe and North America, such as coalfield locations in the UK and the Rust Belt in the north-eastern USA.

Economic
GDP per head: Employment: US$3,623 (UK US$18,380) Primary 24% (UK 2%) Secondary 26% (UK 24%) Tertiary 50% (UK 74%)

Figure 2: The Asian Tigers

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January 2002 no.413 Malaysia Progress towards and Prospects for Economic Development Figure 3: Malaysian exports (1970 and late 1990s) in which he stood up to powerful international bankers and financiers during the major Asian financial crisis in 1998, when he announced controls on the movement of money out of the country and fixed the exchange range of the currency (the ringgit) to stop international speculation against it. Despite all the gloomy predictions and warnings of doom from international bankers at the time, Malaysia was spared from the worst of the financial pain that hit neighbouring Thailand and Indonesia. Although Dr Mohamad is now 75 years old, he has still has visions for the future (see below). Growth poles One of the characteristics of countries undergoing take-off in economic development is that manufacturing growth, although rapid, is concentrated in just one or two growth poles. Within Malaysia, industries which are mainly geared to serving the domestic market, such as food and drink and household goods, are located in and around the capital city, Kuala Lumpur, which has an inland location. The export-orientated growth industries, dominated by electronics but also including electrical goods, machinery, equipment and textile industries, are concentrated south of Georgetown, along the eastern side of the island of Penang, close to the port and the road bridge connecting Penang to the mainland and international airport.

Labour The first factor which springs to mind to explain the economic miracle of industrial growth in any of the Asian countries is cheap labour. During the 1970s, increasing personal prosperity in MEDCs fuelled the growth of the consumer society, which in turn accelerated the demand for a wide range of electrical and other household goods and clothes. These are either assembled in factory production lines, or are made using high inputs of labour. Transport Progressive improvements in transport, notably jet aircraft for the transfer of executives and managers, and containers for the movement of goods, greatly reduced the inconvenience and costs associated with long distances between markets and company headquarters; they allowed a higher proportion of manufacturing processes to be farmed out to factories in LEDCs. The fact that mainland Malaysia is a peninsula and had well established ports such as Georgetown on Penang, with a trading tradition dating from colonial times and before, has been an immense asset. Education While the explanation for manufacturing growth should always be firmly placed on low costs of production in Malaysia and other LEDCs, cheap labour alone is never enough to explain industrial growth. After all, there are many countries in the world with cheaper labour costs than those in Malaysia. Quality of labour matters just as much; a certain level of universal education in the country is required, which is a major reason why multinationals have been more willing to invest in Asia than in Africa, and why they havent deserted Malaysia in droves in recent years now that wage rates there are higher than in some competitor countries in
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Asia, notably Vietnam, India and China. In a world of rapidly changing industrial technology, semi-skilled labour that is not too expensive is an increasingly valuable commodity. Government and politics The attitude of a countrys government is of fundamental importance to overseas investors. The government of a country is usually responsible for the provision of the basic infrastructure of public services and transport, without which no modern society can hope to thrive. Economic growth and political stability go together. Lee Kuan Yew, the Prime Minister of Singapore from 1959 to 1990, was the strongman who guided that country to becoming the leading Asian Tiger. The Malaysian equivalent is Dr Mahathir Mohamad. He has held power since 1981 and is now Asias longest serving elected leader. He has overseen economic growth and increased prosperity, while maintaining unity between the majority Malays and the Chinese and Indian minority groups. His forceful coalition-building skills have meant that, while he has been Prime Minister, Malaysia has avoided the ethnic and religious turmoil that afflicted previous Malaysian administrations and that have in recent years contributed to economic decline in neighbouring Indonesia. Dr Mohamads autocratic style has meant that in the view of some he has gone too far on occasions, as in the restrictions placed upon the freedom and rights of individuals. However, he has based growth in Malaysia on a clear industrial policy, at first attracting investment from overseas, and then following this up by strongly promoting the development of locally owned industries, when necessary through protection and laws to give these home-grown industries privileges compared with foreign investors. He is admired internationally for the courageous way

Figure 4: Signpost to company locations in BLIP

January 2002 no.413 Malaysia Progress towards and Prospects for Economic Development Bayan Lepas Industrial Park (BLIP) The greatest industrial concentration on Penang is in the Bayan Lepas Industrial Park (BLIP), where signposts highlight the existence of great numbers of local and international companies (Figure 4). Bayan Lepas was set up in in 1972 as the first free trade zone for assembling goods in Penang, with seven pioneering companies. Among them was Hewlett Packard, which moved there from its rented premises housing 50 workers on the edge of Georgetown; it has since moved again into larger premises for more manufacturing space and currently has more than 4,000 employees. Another pioneer that has prospered in Malaysia is Bosch, which produces a great variety of products from consumer electronics, domestic appliances and power tools at one end of the scale, through electronic equipment for automotive and communications industries, to satellite equipment at the other end of the scale, and currently employs over 3,500. A third pioneer company is Fairchild (Figure 5). Long-established companies such as these are no longer engaged solely in assembly and manufacturing, but have also established their own research and development departments, although these still make up only a tiny part of the total operation. Pay and conditions for the staff have greatly improved over time. The big companies advertise additional staff benefits such as medical and insurance cover, Figure 5: The Fairchild Semiconductor works at BLIP. Fairchild is an exporled company assembling and testing over one billion integrated circuits (ICs) a year. The company continues to regard Penang and Malaysia as a competitive place for new investment. Although labour costs might be lower by almost 60% in countries like China, India and Indonesia, Fairchild management maintains that the quality is not the same education assistance, vehicle loan interest subsidy and annual bonus, at the same time as they offer training (in-house, on-the-job and off-site) and a career path. Manufacturing companies, both large and small, have combined with the government to set up and support the Penang Skills Development Centre to create and enhance management, manufacturing and technical skills among school leavers and working adults seeking recognised professional qualifications. One of the persistent complaints of companies is the shortage of labour with suitable skills, a lack which cannot be remedied overnight. The challenge facing Penang in this decade is the same as that facing Malaysia as a whole can they produce the workers with the skills needed to allow progress into and through the next stage of industrial and economic development? which will respond to alarm calls, provide workers for repairs and locate babysitters on the Cyberjaya web site. Schools will be wired up for long distance interactive learning and online libraries, hospitals for telemedicine and homes for electronic banking, shopping and billing. That is the plan and the dream, although at the moment it is still mainly a dusty building site, where immigrants from Indonesia and Bangladesh are the workers. Criticism Not everyone in Malaysia is as optimistic as the prime minister. The leader of the opposition party complains that vast amounts of public money are being committed to monumental projects when this money could be more usefully spent on low-cost housing, that the prime minister has an edifice complex, of which the Multimedia Super Corridor is just the latest example. To this the PMs reply is that there will always be cynics and critics, and that in the end the government will make money out of the project. There are others criticisms. One is that the government remains too obsessed with manufacturing, and is ignoring the potential of primary commodities. Malaysias rubber and palm oil plantations have been starved of the capital investment needed to upgrade harvesting and processing techniques that would enhance their export performance. The plantations fear that, now even more glamorous high technology industries are being actively courted, there seems less chance than ever of rural investment from the central government. They point out that a large proportion of the export earnings from manufactured goods is repatriated overseas as multinational electronics companies, operating mostly in free trade zones, take out their profits, whereas all the earnings from commodity exports remain within the country. They are a direct benefit to the economy.

Future economic development: Vision 2020

The overriding aim of the government, or rather of Dr Mohamad, is to make Malaysia a fully developed industrial country by 2020. This is laid down in the second industrial master plan Vision 2020. The latest Malaysian mega-project is the Multimedia Super Corridor, which is seen by the prime minister as a vital starting point. It is a strip of land 50 km long by 15 km wide, south of Kuala Lumpur, which is visualised as a Far Eastern version of Silicon Valley, in which two new cities powered by solar energy will be constructed. One of these, Cyberjaya, is already under construction. Until a few years ago the land was covered by oil palm plantations. It is regarded by its supporters as essential to the countrys intended transformation over the next 20 years from assembly manufacturing to information technology. Major international corporations such as Microsoft, Sun Microsystems, Nippon Telegraph and IBM have been lured by tax breaks. The presence of Bill Gates, an enthusiastic patron, on the Super Corridors International Advisory Panel, lends prestige to the venture. Cyberjaya Cyberjaya is seen as Malaysias city of the future, the ultimate multimedia city for the new millennium in which every house will be connected to the City Command centre, a computer

Case study: Proton

Optimism for the future, and that insatiable desire for growth which is a characteristic of the Asian Tigers, are illustrated by the aspirations of Proton, Malaysias state-owned car company. Its factory, located near to Kuala Lumpur, produces only 250,000 cars per year, which makes it a minnow among the American, European and other Asian car

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January 2002 no.413 Malaysia Progress towards and Prospects for Economic Development Figure 6: The Petronas twin towers in the capital Kuala Lumpur, the worlds two tallest office towers. To some they are a visual sign of the sheer scale of economic activity and growth in Malaysia. To others they are nothing more than an expensive symbol of the Prime Ministers enthusiasm for mega-projects worlds large companies, which are overwhelmingly based in MEDCs, are operating and dominating economic activity in both the more and less economically developed worlds), are becoming more organised and more violent whenever and wherever summit meetings among heads of state are taking place. Malaysia would not have been able to make the successful transition to NIC status without having attracted significant inflows of foreign direct investment, mainly from multinational companies. The locally owned industries, upon which continued industrial growth depends, were spawned as suppliers to factories owned by big name international companies. Twenty million people, with average income levels significantly below those in the more economically developed world, do not add up to a sufficiently large platform to support manufacturing output at the level already reached, never mind at the ambitious future levels predicted and planned for. Therefore Malaysias economy must be exportorientated. This reliance upon world markets, and especially that in the USA, makes it vulnerable to what is happening globally. In 2001 the American economy was passing through a period of slow-down or recession, which is not good news for countries like Malaysia. Malaysias current concentration upon the electronics sector also puts it at the mercy of the current turbulence being experienced by the high technology sector. Theres always the chance that when the USA sneezes, Asia catches flu.

manufacturing giants. It has been selling cars in the UK since 1989; 1992 was the year in which the largest number were sold (14,000). Proton cars have been variously labelled flying bricks and boring cars for thrifty gereatrics: cheap cars which will last and last for the less than trendy (just one of the reasons why a Proton doesnt often feature among the list of birthday presents for British 17 and 18 year olds!). However, in 1986 the government of Malaysia through the medium of Proton bought an 80% stake in British carmaker Lotus for 64m, at the time when that better known and much respected sports car company was in danger of going bankrupt. This has given Proton access to first world engineering technology, through which it is hoping to revolutionise its car range. The original aim was to build two million cars a year by the end of 2001. However, the plans for both new models and increased output have had to be scaled back due to the Asian financial crisis and domestic market decline. The plans have been put on hold for about three years. During 2000 the name of Proton was repeatedly linked to Rover for some kind of production tie-up or partnership to produce cars jointly in Malaysia.

Proton have already been delayed by several years because, whatever internal measures may be taken, Malaysia cannot remain detached from world financial conditions. Targets for both appear overambitious and super-optimistic. However, the countrys economic growth over the last 30 years has all been in one direction and its scale was never anticipated. Whenever there have been downturns, as during the Asian financial crisis in 1998, recovery was swifter than expected. Only time will tell. Protests about advancing globalisation, (the increasingly international manner in which

Focus Questions
1.(a) What is an Asian Tiger? (b) Describe the changes in the relative contributions of primary and secondary products to Malaysian exports shown in Figure 3. (c) Explain why describing Malaysia as an Asian Tiger is justified. 2. (a) Outline the types and locations of manufacturing industries in Malaysia. (b) Identify the factors which account for the growth of manufacturing industry in Malaysia and assess their relative importance. 3. (a) Give details of the plans for future economic growth and development in Malaysia. (b) Comment on the validity of the criticisms made by some Malays about these plans and government policy. 4. Examine the difficulties faced by a less economically developed country like Malaysia in trying to become a more economically developed country.

Summary
So are these Malay pipe dreams or future reality? Both the Super Corridor project and the expansion of
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