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Cheap Custom Essays on Malaysia




Natural Resources

Labor Force




Primary Industry and Products

Sectoral Analysis and Review



Government Expenditure

Domestic Budget Balance

Government Percent of GDP

Trends in Public Finance


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


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


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.


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


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


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


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


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.



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.


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.


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.


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


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.


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


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.


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



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.


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.


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


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.


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.


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 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



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.


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 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.


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


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


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.


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


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.


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// (Malaysia written by Pearlene Cheong)

http// (Northern Trust Economic Research, Malaysia)

http// (Malaysian Economy in Figures)

http// (6.5 pc GDP growth in 00)


























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