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.