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Malaysia

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TABLE OF CONTENTS


INTRODUCTION AND OVERVIEW


GEOGRAPHY


Cheap Custom Essays on Malaysia







Infrastructure


POLITICAL SYSTEM


FACTOR ENDOWMENT


Natural Resources


Labor Force


Capital


ECONOMIC SYSTEM


Classification





Primary Industry and Products


Sectoral Analysis and Review


PUBLIC FINANCE


Taxation


Government Expenditure


Domestic Budget Balance


Government Percent of GDP


Trends in Public Finance


TRADE


Major Imports


Major Exports


Trade Balance


Significant Trading Partners


Trade policies and practices


Strength of currency vs. U.S Dollar


Memberships in Economic Unions and Associations


Trends in Trade


ECONOMIC ASSESMENT


Relative Level of Per Capital Income


Degree of Employment Stability


Degree of Price Stability


Level of GDP Growth


Stability of Financial System


Forecast of Economic Conditions





INTRODUCTION AND OVERVIEW


Malaysia was formed in 16 through a merging of the former British colonies of Malaya and


Singapore, including the east Malaysian states of Sabah and Sarawak on the northern coast of


Borneo. Indonesian marred the first several years of the county’s history


efforts to control Malaysia, Philippine claims to Sabah and Singapore’s secession in


165. Malaysia has long been a center of international trade. The country lies directly on the sea


routes between China and India. For centuries, small kingdoms and sultanates in what is


now Malaysia profited from this trade either by assisting or by preying upon it. Malaysia


for centuries has been a commercial center and a grand meeting place for merchants and


travelers from all over the world.





GEOGRAPHY


Malaysia is divided in to two regions west Malaysia comprising the southern portion of


the Malay peninsular south of Thailand and north of Singapore and east Malaysia


including Sabah and Sarawak comprising the northern portion of Borneo Island. East and


west Malaysia are separated by about 640 km of the south china sea, and together


comprise and area of ,758sqkm, with west Malaysia accounting for about 60% of this


total.


Thailand borders west Malaysia on the north, and Singapore lies off the southern coastal


tip.


In the north lies the main range a mountainous spine that separates the east and west


coastal plains. The main range rises to a maximum elevation of 10 m at point Tahan


west Malaysia’s highest point. The southern portion of the peninsular is relatively flat.


The states of Sarawak and Sabah and the federal territory of Labuan make up east


Malaysia. Its jagged coastline is about 50km long. Sarawak occupying the


southwestern section of the east Malaysia consists of swampy lowlands along the coast


rising to high mountains in the interior, especially in the east.


Sabah in the northeast has extensive lowlands in its eastern section. Along Borneo’s


northern coast in Sabah is the Crocker Range, which rises to a maximum elevation of


4101m at Mount Kinabalu, the highest peak in Malaysia.


East Malaysia contains the country’s two longest rivers the Rajang in Sarawak and the


Kinabatangan in Sabah. They are each about 560km long and navigable for part of there


courses. Most of Malaysia’s rivers have steep descent. Consequently, these rivers have


immense hydroelectric potential, which the country is in the process of developing


INFRASTRUCTURE


Malaysia sits astride important international waterways that are crucial to world trade


and consequently a central factor in its economic prosperity. The country straddles the


Strait of Malacca for nearly 4,80km from the Indian Ocean to the South China Sea. The


west coast of the peninsula is most accessible because the Straits Malacca is sheltered.


Malaysia has a modern infrastructure in IT, telecommunications, transportation, and


utilities that has contributed to business growth. The world competitiveness yearbook


ranks Malaysia th globally in infrastructure, with size-bias indicators (such as


portion of total world computers in use) skewing the ranking downward.


There are 1 computers for every hundred people and there are 147 cars to every


1000 people in 000.


Telecommunications and telephone systems are highly developed and state-of-the-art.


Fixed line services jumped from around million in 10 to about 4.7million in 00


resulting in a penetration approaching 0%. The mobile market has been more


spectacular jumping from million subscribers in 1 to nearly million by the end of


00.


Malaysia is well served by roads and highways. The highway network in peninsular


Malaysia comprises over 4500km of roads of which 7070km (including 580km of


expressways). About ,50km(approx) is unpaved. Although of a generally high


standard. Malaysia’s trunk road network is increasingly congested and would have to be


extended. Private cars have risen rapidly, while commercial freight is also moving by


road. Traveling by train remains the convenient mode of transport for local people.


Railways are confined to peninsular Malaysia and a small stretch in Sabah. However the


rapid increase in road transport during the 10s led to a reduction in Malaysia’s North-


South rail network from ,00km of track in 10 to just 1700km of track. This not


withstanding Malaysia boasts of 18 ports and harbors and plans on making Kelang


becoming a re-export hub. Malaysia has 116 airports, 7 of them of international standard.


Malaysia has a vigorous press with numerous prints in four different languages.


A wide variety of consumer goods can be found for sale in Malaysia from outlets ranging


from international department stores to neighborhood shops. A number of retail chains


compete for a share of a well-developed market.


POLITICAL SYSTEM


Government


Malaysia has a federal form of government based on the 157 constitution of the


Federation of Malaysia, which was an independent nation occupying what is now West


Malaysia from 157 to 16, when it joined with other states to form Malaysia.


Executive


The head of state is the yang dipertuan (supreme head of the federation), who is selected


by and from among the nine hereditary rulers of the Malay states and serves a five year


term. The prime minister, who is the leader of the majority party or coalition in the House


of Representatives and is appointed by the head of state, exercises executive power.


Local Government


There are 1 states and each of the 1 states of the federation has a titular ruler whose


title varies in different states. Effective executive power in the states rest with the chief


minister. The executive council or cabinet advises the head of the state. Each state has its


own written constitution and a unicameral legislative assembly empowered to legislate on


matters not reserved for the federal parliament


Political Parties


The leading national political organization of Nasional), a multiracial coalition of 14


Malaysia is the National Front (Barisan


parties, of which the largest is the United Malays National Organization.


The Barisan nasional has ruled Malaysia since independence in 157. Growing


opposition comes from the Pan-Malaysian Islamic Party (PAS) and from smaller parties


formed by Chinese and Indian minorities. The forth-coming retirement of the Prime


minister will unsettle Malaysian politics in 00-04. The transfer of power will be


accompanied by a potentially destabilizing generational shift.


FACTOR ENDOWMENT


Natural Resources


Apart from the fact that Malaysia is located along the strategic Strait of Malacca and


southern South China Sea, which aids its trade potentials, Malaysia contains abundant


land and mineral resources. West Malaysia has long been among the leading producers of


tin and natural rubber in the world. Jungle clearing has increased arable land. Due to the


large presence of forests Malaysia ranks as one of the leading producers of tropical


hardwood. Tin was acclaimed to be one of the pillars on which Malaysia’s prosperity was


built. Other mineral resources include iron ore, bauxite and copper. There are also


undisclosed reserves of gold and antimony. Oil and gas undoubtedly are the most


valuable of all natural resources of Malaysia.


Population.


Malaysian population was estimated at 4. million in 00 with a growth rate of .%


(average 11-001) and is projected to remain stable over the period 00- 00. Life


expectancy at birth is 71. years. The infant mortality rates 1.66 deaths per 1000 births.


Ethnic Malays and other indigenous peoples make up 6% of the population of Malaysia.


Chinese constitute 0% and east Indians about 8%. There are small numbers of


Indonesians, Thai, Europeans and Australians. The population density was 71 persons per


square kilometer. The nation’s capital, Kuala Lumpur has a population of around 1.4


million and a much higher density of 5676 persons per square kilometer.


Labor force


One of the Malaysia’s key assets is her youthful labor force, which is diligent,


disciplined, educated and trainable. Most Malaysian youths who enter the labor market


will have undergone at least 11 years of school education, that is, up to secondary school


level.


They are therefore easy to train in new techniques and skills.


A large proportion of Malaysia’s labor forces also possess the basic skills required by


industry. There is an increasing supply of professionals, technologists and skilled workers


graduating from both local and foreign universities, colleges and technical and industrial


training institutions.


The labor market in Malaysia is free and competitive and the employer-employee


relationship is cordial and harmonious. Labor costs in Malaysia are low in comparison to


the industrialized countries while labor productivity remain high.


Malaysia has a skilled labor force of approximately .877 million in 001. The total


number of people economically active as a percentage of total number in the working age


population stood at 65.5% of which 85.6% were males and 44.% females. In 00


employment increased by about .1% making the labor force 10. million and


unemployment .5%


Employment, unemployment and degree of unionization


Despite slower economic growth in 001, Malaysia continues to enjoy full employment,


recording an employment rate of .4% in 00. The labor market however did experience


a slight increase in unemployment. The rise was due to retrenched workers from the


electronics sector. Only 8.% of the nation workers were unionized in 001. Wages vary


by region and industry and there is no minimum wage. Employers contribute to a


retirement fund and the minimum mandatory contribution is % of basic monthly pay.


Bumiputera (requiring preferential treatment of ethnic Malays) oblige firms to employ


ethnic Malays at all levels in proportion to locality’s ethnic composition. But a persistent


labor shortage has forced the government to be more flexible.


Labor relations


In Malaysia, the dialogue between unions and employers is constructive and compromise


oriented. Most labor conflicts are settled through negotiations. The normal practice for


dispute settlement in a non-unionized establishment is for the employee to try and obtain


redress from his supervisor or employer directly.


Capital


The Malaysian government now has a detailed framework for developing Malaysia’s


capital markets over the next ten years in the capital markets master plan. The CMP is a


comprehensive plan mapping the direction of the Malaysian capital market. This was


brought about by the lingering effects of the regional financial crisis, meeting the needs of


the growing economy and the heightened global competition for business and investment.


Despite the challenging times the market has grown manifold. Most evidently the capital


market has evolved in to a key driver of growth for the Malaysian economy. The ratio of


the funds raised in the capital market over gross domestic product was 17% as at the end


of 00 compare to 1% in 1. The market capitalization of the stock market stands at


RM481.6 billion (end 00) compare to RM 45.8 billion (end-1)


The number of listed companies on the Kuala Lumpur stock exchange (KLSE) grew from


6 twenty years ago to 868. Malaysia has the largest number of listed companies in


ASEAN, exceeding Singapore and Thailand combined.


Today the Malaysian capital market is the leading market in ASEAN; with it constituting


40% of the market capitalization of the ASEAN market and larger than the combined


market capitalization of the Thailand, Indonesian and the Philippines markets.


The bond market has flourished in to a highly sought source of funding with a total of


RM 1. billion raised between 1-00 compared with RM raised in 1.


The Banking System


The central bank


Bank Negara Malaysia is the central bank and it is responsible for supervising the


banking system. It also issues the Malaysian currency (Ringgit), acts as a banker and


financial adviser to the government, administers foreign exchange control regulations,


and is lender of last resort to the banking industry.


Scope of Banking


The government has taken a number of preemptive measures to strengthen Malaysia’s banking system, which has


come under increasing stress since the onset of the regional financial crisis in mid-17. On the commercial


banking side there are 14 foreign banks with approximately 140 branches between them. The 51 domestic banks


have been merged in to 10 banking groups, which was mandated by the BNM. Further mergers are believed to be


likely. The banking system remains the largest financial intermediary in the country, accounting for 55.% of total


assets of the financial system. Malaysia is keen to promote itself as a center for Islamic banking and finance. The


Islamic banking sector presently accounts for 8.8% of the banking sector’s total assets,


and the government has a target of increasing this to 0% by 010. Some 51% of private


debt securities by value is Islamic based and Malaysia issued its first Islamic bond in


00.


Twenty-five finance companies operate through 1070 branches, which accept retail


deposits and provide finance for installments (hire purchase) and leasing transactions.


They also give out housing loans.


The banking system and the industrial finance institutions are the major institutional


sources of credit to the industrial sector in Malaysia.


The Securities and Exchange Commission


The Kuala Lumpur Stock Exchange was established in 17 to provide a central market


place for buyers and sellers to transact business in the shares, bonds and various other


securities of Malaysian listed companies. Trading on the KLSE is fully computerized.


The Central Depository System (CDS) is the automated clearing and settlement system.


The securities commission was established in 1 to encourage and promote the


development of the securities and futures market. It also regulates all matters relating to


securities, take-over, mergers and futures contracts.


Commodity


The Kuala Lumpur Commodity Exchange (KLCE) established in 180, caters for futures


trading in commodities.


Offshore Financial Services


The Labuan Offshore Financial Services Authority (LOFSA) is the regulatory body set up to spearhead


and coordinate efforts to promote and develop Labuan as an International


Offshore Financial Center (IOFC).


To date more than 1600 offshore companies had set up operations in Labuan. These


include trust companies, offshore banks, insurance and insurance related companies


ECONOMIC SYSTEM


Classification


The Malaysian economy is centrally planned (democratic dictatorship) but due to


external pressures in trade are gradually moving towards a freer market system.





The government plays a strong, active role in the economy as investor, economic


planner, approver of investment projects and private procurement decisions as well as the


author and implementer of domestic policies and programs. The government owns equity


stakes, generally minority shares in a wide range of domestic companies. The economic


downturn however slowed the push to privatization and increased emphasis on


government support. The government actively seeks to bolster the economic status of the


Malay and indigenous communities (commonly referred to as bumiputera).


Primary Industry and Products


As a country with quite a number of significant natural resources and minerals, Malaysia


has based its prosperity on labor skills and technological expertise in manufacturing as


well as earning from services such as tourism (exports of goods and services amounted to


about 80% of GDP in 001). Although largely diversified from a basic agrarian economy,


the economy has strength’s in electronics, chemicals, services, agricultural products and


mineral resources (oil and gas) Malaysia has created a niche in a wide range of sectors.


Sector Analysis Review.


Over the past 0 years, Malaysia’s economy has been transformed from mainly


agriculture and mining to one in which services and manufacturing account for almost


0% of GDP with over 80% of Malaysia’s $ 88 billion in exports from electronics and


other manufactured goods.


Agriculture, Forestry and fishing


About 15% of Malaysia’s land is cultivated. Malaysia ranks as the worlds leading


producer and exporter of palm oil accounting for over half of the worlds output. The


country was also the leading producer of natural rubber, though Thailand and Indonesia


surpassed Malaysia after Malaysia began shifting to more profitable crops such as palm oil.


Other important cash crops are cacao, sugarcane, pepper, coconuts and pineapples. The


principal subsistence crop is rice though cassava and bananas are also important.


About 58% of Malaysia is covered in natural forests. Some 14 million hectares are within


designated Permanent Forest Estates, designed to ensure sustainability. Of these 10.5


million hectares are productive forests, the remainder being protected. The country is a


leading world supplier of tropical hardwoods. Most of the exported raw timber comes


from Sabah and Sarawak, while west Malaysia provides finished goods such as plywood.


Malaysia has a sizeable fishing industry with annual production in excess of 1. million


tonnes, 5% of it from ocean waters. The government has started investing in modern


equipment for the industry.


Mining


The mining and hydrocarbons sector typically contribute between 6 and 7% to GDP and


an annual growth in 00 of 0.4 percent. The sector employs 5% of the workforce.


Depressed tin production (major export) is due to weak tin prices, declining reserves;


rising productions costs and export quotas. The country’s leading minerals mining firm,


the Malaysia Mining Corporation (MMC) is trying to diversify away from tin and is


prospecting for base and precious metal.


Gas


Malaysia contains 75 trillion cubic feet (Tcf) of proven natural gas reserves. Natural gas


production has been rising steadily in recent years, reaching 1.50 Tcf in 000, up from


1.4 Tcf in 1. Natural gas consumption in 000 was estimated at 0.7 Tcf, with LNG


exports of 0.74 Tcf (mostly to Japan, South Korea and Taiwan). Exports had dipped


slightly in 18 as a result of the Asian financial crisis, but began to rise again in 1


and 000. One of the most active areas for gas exploration and development is the


Malaysia-Thailand Joint Development Area (JDA), located in the lower part of the gulf


of Thailand and governed by the Malaysia-Thailand Joint Authority (MTJA).


Malaysia accounted for approximately 15% of total world LNG exports in 000. After a


brief downturn associated with the Asian financial crisis demand for LNG is on the rise


again. Massive expansion is being undertaken at its Bintulu LNG complex in Sarawak.


In addition to LNG, Malaysia exports 150 million cubic feet per day (Mncf/d) to


Singapore via pipeline. There also have been preliminary discussions of a project to link


gas deposits off Sarawak to the Philippines


Oil


Malaysia contains proven oil reserves of .0 billion barrels down from 4.6 billion barrels


in 16. Despite this trend towards declining oil reserves (due to a lack of major new


discoveries in recent years) Malaysia’s crude oil production has been stable in recent


years, with monthly production numbers fluctuating between 650,000 barrels per day and


70,00 barrels per day between 16 and early 00. In 001, crude oil averaged 65,05


bbld. After a pause during the Asian financial crisis, Malaysia’s domestic petroleum


consumption is growing again, and the country is expected to become a net oil importer


before the end of the current decade. Malaysia has six refineries with a total processing


capacity of 514,500bbl/d. The three largest are the shell port Dickson refinery


(155,00bbl/d) and the Petronas Melaka I and II refineries, which each have a capacity of


5,000 bbl/d


As a result of declining oil reserves, Petronas, the state oil and Gas Company, has


embarked on an international exploration and production strategy. Currently, Petronas is


invested in oil exploration and production projects in Syria, Turkmenistan, Iran, Pakistan,


China, Vietnam, Burma, Algeria, Libya, Tunisia, Sudan and Angola. Overseas operations


now make up nearly a third of Petronas revenue. In 001, Malaysia exported the majority


of its oil to markets in Japan, Thailand, South Korea and Singapore. Malaysia’s domestic


oil production occurs offshore and primarily near peninsular Malaysia.


The mining sector recorded its highest growth in real terms of .5% in the last quarter of


00Increased production of both crude petroleum and natural gas of about .0% each


attributed to this growth. For the year 00, growth remained strong at 4.5% in real


terms, reflecting increased production of crude petroleum and natural gas.


Energy.


Malaysia currently has approximately 1 gigawatts (GW) of electric generation capacity,


of which 84% is thermal and 16% is hydroelectric. In 000, Malaysia generated around


6 billion kilowatt-hours of electricity. The Malaysian government expects that


investment of $.7 billion will be required in the electric utility sector through 010.


Much of that amount will be for coal-fired plants, as the Malaysian government is


promoting a shift away from the country’s heavy reliance on natural gas for electric


power generation.


Construction


The performance of the construction sector was subdued in the last quarter of 00 with a


0.5 per cent growth as against earlier growths of . per cent, .4 percent and .6 percent


in the first three quarters of 00.


On an annual basis, this sector held steady at . per cent in constant prices on account of


continued pump priming measures by the government and the construction of selected


residential and non-residential projects by the private sector. In 00 construction


contributed .1 percent of the GDP


Industry and Manufacturing.


Manufacturing accounts for 0% of nominal GDP. It is the largest contributor to the


economy and accounts for 85% of gross export earnings. Manufacturing employs about


4.5% of the total labor force. The government has encouraged the development of heavy


industries based on the country’s natural resources. There is also emphasis on the


promotion of small and medium-sized firms, and measures are being undertaken to


disperse industries to less developed states.


Conglomerate groups, often politically well connected, still control large parts of


Malaysian industry. High placed politicians and government officials use proxy and


fronts as owners of these companies.


However, the recession has tamed some of the excesses of this system.


Manufacturing is the largest industrial sector. The manufacturing sector tends to raise its


share of GDP during (export-led) economic upturns; the share of service tends to grow in


a more stable manner.


Electronics


Electronics production dominates manufacturing. Electronic goods are the single most


important category and have grown at a double-digit rate for most of the past 5 years,


declining only in 185 and in 001. Electronic good production is heavily dependent on


imported parts. The strong export orientation of the electronic industry makes it


vulnerable to fluctuations in global demand. In 001 Malaysia’s total exports of goods


and services were equivalent to 117% of nominal GDP, a high figure by international


standards.


Services


Common with other industrialized with other industrialized countries, Malaysia has a


large services sector, which accounted for 50.8% in 001 up from 48% in 000. The


sector employed 50.8% in 00. In the fourth quarter of 00 the services sector


registered a strong broad-based expansion of 4.% with all its sub-components recording


positive growths. The biggest increase came from the government services sub-sector


which rose 8.8% The utilities sub-sector also grew strongly increasing by 6.4% while the


finance insurance, real estate and business services sub-sector.


For the year 00, the services sector posted a growth of 4.5% with the utilities sub-


sector. Growth in the other services sub-sector improved to 4.1% from .% in 001


while the transport and communication sub-sector and the trade and restaurants and


hotels sub-sector were up .% and .5% respectively.


PUBLIC FINANCE


Taxation in Malaysia


Generally, all income of companies and individuals accrued in, derived from or remitted


to Malaysia are liable to tax. However, income remitted to Malaysia by resident


companies, non-resident companies (other than companies carrying on the business of


banking, insurance, air and sea transportation) and non-resident individuals are exempted


from tax.


Apart from income tax, there are other direct taxes such as real property gains tax, and


indirect taxes such as sales tax, service tax, excise duty and import duty.


Sources of income liable to Tax





1 Gains and profits from trade, profession and business


Salaries, remunerations, gains and profits from an employment


Dividends, interests or discounts


4 Rents, royalties or premiums


5 Pensions, annuities or other periodic payments


6 Other gains or profits of an income nature not mentioned.


Taxation occurs at the national and municipal levels. Rates of the taxes are as follows;


Corporate tax rates are 8% while individual tax rates are progressive rates up to 8%.


Standard rates for sales tax are 10% other rates are between 5% to 5%. Withholding


taxes dividends are 0% interest is 15% and royalties 10%.


Malaysia has more than 50 tax treaties and gains on real property are taxed at rates


between 0% and 0%.


As shown rates vary from one municipal to another but they are progressive.


Government Expenditure


The 00 budget announced in August 00 by the Malaysian government plans for a further rise of % in government expenditure next year. Most of this planned increase in expenditure goes on education (mainly to pay for the implementation of the government’s new English language policy), health and rural areas. This is on the basis of a fairly optimistic forecast of an 8% rise in revenue in 00, which in turn will depend upon the economy growing at the 6-6.5% that the government is predicting. This will require a sustained improvement in the external climate


Domestic Budget Balance


The Malaysian government has been running a deficit budget for three years consecutively.


Malaysia’s operating revenue for FY00 was$1. billion with total expenditures at


$4.6 billion. Malaysia ran a deficit of 4.7% of GDP. This is expected to narrow down to


.% in the current year unless there are unusual circumstances.


Government percent of GDP


In terms of contribution to the GDP, public sector expenditure increased from 4% to


1% in 00 while private sector declined from 8 per cent to 5 per cent during the


same period.


Trends in Public Finance


The thrust of Malaysia’s public finance policy is threefold expansion of its probusiness


environment to make the country a more favorable place for business to invest, shifting


local enterprises up the value chain to higher technology activities, and upgrade of its


work force to maximize their contribution to a knowledge-based economy.





TRADE


Trade is the key to prosperity in Malaysia. The country is dependent upon export markets


to generate income while dependent on imports of producer goods to further expand the


range of goods and services available in the country. The country has traded more than it


produces. In addition to acquiring sophisticated electronic export industries, alongside its


colonial-era mineral, plantation, and forest-product export base, the country has been


aiming to eclipse Singapore as a regional center for re-exports. Malaysia’s trade pattern


remained unchanged in 00 with major trade partners being the United States,


Singapore, EU, Japan, Hong Kong and China.


Malaysia is a member of a number of organizations and free trade agreements, which


aims to reduce trade barriers among member countries.


Recently Malaysia received approval from its ASEAN partners for an extension until


005 of a grace period to meet its commitments under AFTA to reduce 18 tariff lines in


the automobile sector and on selected agricultural products. Malaysia in the same vein


has also requested an extension of its grace period to meet commitments under the WTO


agreement on Trade-Related Investment Measures (TRIMS) to eliminate local content


requirements in the automotive sector.


Major Imports


Import growth in 00 stood at 8.% to reach in RM 0,505. (US$ 80 billion) in 00.


The increase in imports was due mainly to expanded demand for producer goods by the


manufacturing sector as a result of the strong export performance, as the increased


demand for industrial countries and regional economic recovery led to strong demand in


exports of manufactured goods. Goods mainly imported in Malaysia are electrical and


electronic products, machinery appliances and parts, chemical and chemical products,


manufactures of metal, iron and steel products, refined petroleum products, optical and


scientific equipment, transport equipment and processed food.


Imports by the end use for the three main categories in Malaysia for the first quarter of


00 are





- Intermediate goods stood at 7 percent of total imports





- Capital goods 1.7% and





- Consumption goods 6.5%


Major exports


Malaysia’s principal exports of commodities are electrical and electronic products


(including machinery), palm oil, chemicals and chemical products, crude petroleum


liquefied natural gas, machinery, appliances and parts, wood products optical and


scientific equipment, refined petroleum products, manufactures of metal, textiles and


clothing. Total exports for 00 stood at RM 54,40.1 (US$ billion).


Trade balance


International trade in Malaysia is the principal contributor to its economic growth.


Malaysia’s total trade adds up to more than 00% of its GDP. For the first quarter of the


year 00, Malaysia posted a trade surplus of RM 17.5 billion (USD 4.6 billion) an


increase of RM4.7 billion (USD1. billion) or 6.7% as compared to a surplus of RM1.8


billion in the same quarter of last year. Total exports went up by 7.8% to RM88. billion


(USD. billion) while imports expanded by .4% to RM70.8 billion (USD18.6 billion)


as against RM81. billion (exports) and RM6. (imports) in the same period last year. In


00 Malaysia posted a trade surplus of RM50, 4. (USD1.4 billion) with exports at


USD billion and imports at USD 80 Billion.


Significant Trading Partners


The United States, Singapore, EU, Japan, Hong Kong and China. Meanwhile, Malaysia


has emerged as China’s largest trading partner from South-East Asia, with bilateral trade


between the two countries growing by 50%. Bilateral trade between US and Malaysia


totaled us$1.7 billion in 001 making it the 11th largest trading partner and 17th largest


market for us exports. This amounted to about 0.% of Malaysia’s total trade in 001. In


001 Japan led the suppliers, supplying 1.% of total imports closely followed by US


(16%) and the EU (1.%).


Trade Policies and Practices


Tariffs are the main instrument used to regulate the importation of goods in Malaysia.


However 17% of Malaysia’s tariff lines (principally in the construction equipment,


agricultural, mineral and motor vehicle sectors) are also subject to non-automatic import


licensing designed to protect import-sensitive or strategic industries. The average applied


MFN tariff rate is approximately .18 percent however, duties for tariff lines where there


is significant local production are often higher.


The level of tariff protection is generally lower on raw materials it increases for those


goods, which have, value added content. In addition to import duties, a sales tax of 10


percent is levied on most imported goods. Similar to import duties, however, this sales


tax is not applied to raw materials and machinery used in export promotion.


Malaysia also has an export licensing system. In some cases such as textiles, export


licenses are used to ensure compliance with bilateral export restraint agreements. In other


cases such as rubber exports, special permission from government agencies is requiring.


Export duties ranging from 5 percent to 10 percent are imposed on the principal


commodities petroleum, timber, rubber, palm oil and tin.


Export subsidies


Malaysia offers several export allowances. Under the export credit-refinancing scheme


operated by the central ban, commercial banks and other lenders provide financing to


exporters at a preferential rate for both post-shipment and pre-shipment credit. Malaysia


also provides tax incentives to exporters, including double deduction of expenses for


overseas advertising and travel, supply of free samples abroad, promotion of exports,


maintaining sales offices overseas, and research on export markets.


Quotas


Quantitative import restrictions are seldom imposed, except on a limited range of


products for protection of local industries or for reasons of security. In line with this, a


system of quantities licenses has been instituted for the import of certain plastic resins,


for the purpose of protecting a domestic petrochemical operation.


Malaysia has a number of free zones (FZ’s) in which export-oriented manufacturing and


warehousing facilities may be established. In to these zones raw materials, products and


equipment may be imported duty free.


Other Barriers


Various companies (especially US companies) have indicated that they would welcome


improvements in the transparency of Malaysian government decision making and


procedures, and limits on anticompetitive practices. A considerable proportion of


government projects and procurement is awarded without transparent, competitive


bidding.


Ringgit vs. US Dollar


The Ringgit exchange rate remained pegged to the US dollar at the rate of RM.80 per


US dollar in 00 and arrangement that has been effective since nd September 18. The


Ringgit appreciated against all major currencies, including regional currencies in tandem


with the strong US dollar. In terms of its trade-weighted nominal effective exchange rate,


the Ringgit appreciated 5.5 during 001 in line with the appreciation of the US dollar.


The pegged exchange rate regime continues to be supported by the strong fundamentals


of the economy as reflected by the strong current account surplus, the low rate of


inflation and the high level of reserves.


Membership in Economic Unions and Associations


Malaysia is a member of the Association of Southeast Asia Nations (ASEAN) Free Trade


Area (AFTA), which aims to reduce trade barriers among the member countries over a


15-year period. Malaysia is also a member of the Asia Pacific Economic Cooperation


forum. Malaysia has 6.6 percent of its tariff lines for goods under the AFTA Common


Effective Preferential Tariff (CEPT); 7.1 per cent of those are already at 0 to 5 per cent;


60.4 per cent are already at zero. The goal of ASEAN is removal of all import duties


among the six founding countries by 015 and 018 for the four remaining members.


This is ahead of the schedule of 00 set by APEC.


In addition to regional associations, Malaysia is a member of the World Trade


Organization (WTO), which came out of the Uruguay Round of trade talks to administer


the updated General Agreements on Tariffs and trade (GATT).


Malaysia is a member of the following Association of Natural Rubber Producing


Countries (ANRPC), Association of Tin Producing Countries, Commonwealth,


International Organization, International Monetary Fund, EU Trade and Co-operation


Agreement, World Tourism Organization, World Bank and a host of other associations


Trends in Trade


Most of Malaysia’s economic prosperity can be attributed to its trade with the its most


major trading partners. Malaysia remains closely bound by trade to the economic fortunes


of the US, the EU, Japan, China and its region with this partners buying over 0% of its


exports and supplying over 85% of imports. Although Malaysia is on a steady growth, it


will not escape the slowdown being experienced in these countries, especially the US.


The slowdown of the Malaysian economy in 001 was a direct consequence of the


slowdown in the US economy.


There appears to be a consensus that in the long-run Malaysia will face competition from


producers within the region who are trying to reduce costs. Key trends and government


decisions in response are discussed below.


Manufacturing Plus-plus Strategy encompassing





(a) Moving along the value chain from assembly-based and low-value added


activities towards higher value-added activities; and


(b) Shifting the whole value chain to a higher level through productivity-driven


growth.


Cluster-based Industrial Development with emphasis on


(a) Development of competitive industry clusters through integration of key


industries, suppliers, supporting industries, critical supporting business services, requisite


infrastructure and institutions; and


(b) Generating backward and forwarding linkages, domestic spin-offs and value


added, and development of domestic SMIs.





Liberalization and reduction of barriers related to export oriented goods and services.


Expansion of Malaysia’s gateway to trade through the ports.


ECONOMIC ASSESMENT


Relative Level of Per Capita Income


In line with the strong economic growth, the level of per capita income of Malaysians is


expected to grow in the current year increasing by 5.5 per cent to RM 14100 (USD 700)


in 00 compared with RM 1400 (USD 500) in 00.


Degree of Employment Stability


Despite slower economic growth in 001, Malaysia continues to enjoy full employment,


recording an unemployment rate of below 4.0%. The labor market however, did


experience a slight increase in unemployment. Unemployment rate in 001 increased to


.6 percent from .1 percent in 000. The rise was due to retrenched workers from the


electronics sub sector.


Malaysia is focusing on the potential threat of structural unemployment as the workforce


moves toward more knowledge based activities by increasing the expenditure in the


education sector and by retraining the workers to match the labor force.


Degree of Price Stability


Malaysia’s January 00 consumer price index (CPI) grew at 1.7% year-on-year and


0.% month-on-month, the same pace as in December 00. Inflationary pressure, as


measured by the index, looks to remain benign for the rest of the year after growing 1.8%


in 00. Inflation is expected to moderate to 1.5% as the Malaysia’s macroeconomic


fundamentals are expected to remain strong in 00.


Level of GDP Growth


Malaysia is in its fourth year of achieving positive real GDP. Malaysia’s GDP after the


Asian crisis picked up in 000 with an annual growth of 8.% only to decline to 0.4% in


001 due to the economic slow down around the world. The economy rebounded with a


growth of 4.% in 00 and its expected to improve between 6.0%-6.5% in 00.


Forecast of Economic Conditions


Malaysia’s economic growth was expected to rebound by at least 6% to 6.5% in 00


but has been reviewed down by economists world over to about 5%. This is due to the


current health conditions in the region. Although Malaysia has only one reported case of


SARS there are still some weariness about the region. This is coupled with the change of


government due in November. The same leader has governed Malaysia for most of three


decades and any change might cause a dislocation in the political stability of the country.


Economists are somewhat divided as to the importance of the war on terrorism in the


region and the implications of the war on Iraq. This would cause a slow down in the


tourism sector, which is a major foreign exchange earner for the economy.


The United States economy is generally viewed as basic to Malaysia’s growth and the


recovery of the United States economy spells good fortunes for the Malaysian


government.


Otherwise economic growth over the next two years would be provided by higher


government fiscal spending, strengthening domestic demand and from the steady


recovery in external trade.


The movement of the economy to knowledge based one would help in delivering value


added to the goods and services.


Malaysia would remain attractive for FDIS. Although China is a major magnet for FDI’s


it will not pose a direct threat to Malaysia as its most attractive proposition remains on


labor intensive industries. This is not the focus of Malaysia strategy wise; furthermore the


economy of Malaysia is in a matured state with the backing of good infrastructure and


banking facilities. This plus the fact that English (the global business language) is widely


spoken within the business community.


Further more the Malaysian government intention to penetrate markets of West Asia,


Central Asia, Eastern Europe and South Asia, including India, Pakistan and Sri Lanka has


huge potentials for Malaysian goods and services.


In summary, the Malaysian economy is heavily dependent on the growth of its trade sector which is a


factor of the growth of the world economy. A continued growth can only be guaranteed when the overall


global economy picks up.


Weaknesses in the domestic financial and corporate sectors need to be overcome to enable growth to have


a domestic focus to balance the strong external focus that Malaysia has relied on so successfully to build


its economy.


References


1. United States & Foreign Commercial Service Market Research Report, Malaysian Country Commercial Guide for year 00


. The Economist newspaper and the Economist Group, Country Briefings on Switzerland from the Economist Intelligence Unit.


. World of Information Business Intelligent Reports (UK Walden Publishing ltd)


4. Organization for Economic Cooperation and Development (OECD) 00 Economic Surveys Malaysia.


5. How to do Business in Sixty countries; Kiss, Bow or Shake hands by Terri Morrison, Wayne a. Conaway, and George A. Borden, PhD


6. The World Wide Web


7. Bumiputra Commerce Economic Research Services (Economic Outlook 00)


8. The World Wide Web


http//www.pwcglobal.com (Malaysia written by Pearlene Cheong)


http//weblt04.ntrs.com/library (Northern Trust Economic Research, Malaysia)


http//www.epu.jpm.my/bi/stat (Malaysian Economy in Figures)


http//www.emedia.com.com.my (6.5 pc GDP growth in 00)


http//www.devdata.world bank.org


http//www.economist.com


http//www.matrade.gov.my


http//www.statistics.gov.my


http//www.deloitte.com


http//www.mytrade.com


http//www.thestar.com


http//www.imd.com


http//www.members.tripod.com


http//www.aseanbiz.com


http//www.census.gov.my


http//www.asiatradehub.com


http//www.klse.com.my


http//www.bnm.com.my


http//www.photius.com.com


http//www.geocities.com


http//www.wto.org


http//www.tradepartners.uk


http//wwwe-directory.com.my


http//www.utusan.com.my


http//www.mergentonline.com


http//www.bartleby.com


http//www.eia.doe.gov


http//www.msia.org.uk


http//www.treasury.gov.my





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