Phases of the industrial development

Phases of the industrial development

Strategically located at the crossroads of East and West trade
routes, Malaysia has come a long way since its independence in
1957 to achieve the present status of an industrializing economy.

Malaysia's success in diversifying its economy from commodity-
based producer/exporter to a broad based economy today has been
the result of a combination of factors, which has provided and
continues to provide a conducive environment for investors.

A major exporter of primary commodities such as rubber, tin,
paper and tropical timber in the 1960s, Malaysia had to diversify
her economic base due to constant fluctuation in the prices of
primary commodity exports and growing unemployment rate, the
government then decided to embark on an export-orientated
industrialization program.

The 1970s witnessed the influx of investment primarily in
electronics and textiles, utilizing Malaysia's labor force, free
trade zones and a host of other amenities provided by the
government. The success of the export-orientation decade was
exemplified by the contribution of the manufacturing sector to
the gross domestic product which increased from 13.9 percent in
1970 to 22.1 percent in 1980. During this period, the share of
manufactured exports to total exports also increased from 11.9
percent to 21.7 percent. By 1980, Malaysia had become among the
world's largest exporters of electronic items, semiconductors and
air conditioners.

The decade from the early 1980s witnessed the development of
the resource-based industries and the development of engineering
and support industries, and heavy industries. This period was
marked with the growth of industries utilizing Malaysia's natural
resources such as rubber, palm oil and timber.

In the mid-1980s, Malaysia made its entry into the heavy
industries sector with the establishment of the National Car
Project, PROTON. It was also during this period that a number of
major steel and cement plants were established throughout the
country.

Malaysia's industrialization process had progressed at a rapid
pace, particularly in the mid 1980s. This was due to the
government's efforts in promoting the manufacturing sector, first
through a policy of import substitution, then development of
export-oriented and labor-intensive industries and more recently,
through capital and technology-intensive industries. Today, the
manufacturing sector has become the main engine of growth of the
economy.

The 1970s and 1980s resulted in an acute manpower shortage at
the beginning of the 1990's. Malaysia once again had to refocus
her industrial strategy to deepen, broaden and modernize the
manufacturing sector through the growth of technology-based,
capital and skill-intensive, high value-added industries.

Emphasis was shifted from input-driven growth to productivity-
driven growth, which is to be derived from the optimum
utilization of physical and human resources, and higher levels of
technology.

Malaysia has from the early years recognized the importance of
foreign direct investment (FDI) and its potential contribution to
her economic growth and development. Over the last three decades,
much of Malaysia's manufacturing output and export dynamism were
attributed to multinational corporations (MNCs) and their
subsidiaries and affiliates.

Malaysia's recipe for success was not only in attracting these
MNCs to invest in the early years, but also in providing the
necessary environment and facilities for them to expand and
diversify their operations as they increased their presence in
the country.

Approved investments in the manufacturing sector have grown
considerably over the years. For the period 1980 - 2000, 14,813
projects were approved involving capital investments totaling RM
335.6 billion. Of these approvals 52.5 percent were from foreign
sources and 47.5 percent were from domestic sources. These
approvals have generated nearly 2.0 million jobs.

The major sources of FDI during these period were the United
States of America, Japan, Taiwan, Singapore and United Kingdom.
The significant inflow of FDI into the manufacturing sector over
the last three decades had contributed to the overall economic
development of the country. FDI has not only created employment
and foreign exchange earnings/savings, but also provided capital,
technology, marketing access and managerial inputs, which were
vital for the industrialization of the country.

Malaysia has been able to diversify its economy due to its
ability to develop its competitive advantage by creating a
conducive investment environment. This includes, among others,
factors such as political stability, excellent infrastructure, an
efficient government machinery, a package of incentives, policies
that have evolved over a period of time to meet investor needs
and aspirations of the nation.

Malaysia is currently a nation on the road toward realizing
its goal of a developed society under the Vision 2020. The Third
Outline Perspective Plan (OPP3), a 10-year plan covering the
period 2001-2010, marks the second phase toward the realization
of the nation's goals of Vision 2020. The policy dimensions of
OPP3 include:

* Developing Malaysia into a knowledge-based society;

* generating infernally driven growth through strengthening
domestic investment;

* developing indigenous capability, while continuing to
attract FDI in strategic areas;

*greater infusion of knowledge into agriculture, manufacturing
and services sectors; and reorientating human resource
development to support a knowledge-based economy.

The crux of OPP3 is to achieve sustainable growth, which among
others, include promotion of FDI in high-tech sectors. Foreign
investors will also be encouraged to undertake technology
transfer as well as provide expertise in management to raise
national competitiveness and strengthen the country's position in
the international value chain.

Malaysia also launched the Eight Malaysian Plan (8MP), which
is a five-year development plan covering the 2001 - 2005 period.
Among others, the plan emphasizes the need for Malaysia to
position its industries to take advantage of globalization and
sustain momentum of growth by strengthening the manufacturing and
manufacturing related services sectors.

Malaysia is optimistic that the provisions under OPP3 and 8MP
will enable it to achieve its industrial objectives.

The Malaysian government will continue to pursue liberal and
pragmatic policies to further develop the manufacturing and
related services. The industrialization drive will continue to be
led by the private sector. Malaysia's past track record and its
ability to weather economic storms is a positive indicator of the
nation's ability to fulfill its industrial target and contribute
to the vision of a developed economy by the year 2020.