Are The Malays crucial in Malaysian Economics?

NAME : SAZLIN IMAZ BINTI MOHD ISMAIL

STUDENT ID : 2014409528

GROUP : EH220 5A

COURSE : CPE 680

LECTURER : PROF DR ABDUL HADI

TITLE OF ASSIGNMENT : HOW TO SUSTAIN POSITIVE ECONOMIC

GROWTH IN THE COUNTRY ; ISSUES AND
CHALLENGES

DATE OF SUBMISSION : 4 OCTOBER 2016

1
LIST OF CONTENT

1.0 Intoduction3-5
2.0 Problem Statement6-8
3.0 Solutions...9-10
4.0 Conclusion11-12
5.0 References13
6.0 Appendices..14-16

2
1.0 INTRODUCTION

Malaysia is one of the most successful multi-ethnic and multi-cultural country and economy of
Malaysia is the fourth largest in Southeast Asia which achieved a relatively smooth transition to
modern economic growth over the last century until now. The state plays a significant but declining
role in guiding economic activity through macroeconomic plans. Malaysia had one of the best
economic records in Asia.

Back to late nineteenth century Malaysia has been a major supplier of primary products to the
industrialized countries such as tin, rubber, palm oil, timber, oil, liquified natural gas and so on.
Malaysia has a long history of internationally valued exports, being known from the early centuries as
a source of gold, tin, palm oil, crude petroleum and petroleum products, electronics, textiles, and
timber are also important.

Besides, the Malay Peninsula also one of the larger producer of tin. International demand for
tin rose progressively in the nineteenth century due to the discovery of a more efficient method for
producing tinplate. Traditionally tin had been mined by Malays from ore deposits close to the surface.
From the 1840s the discovery of large deposits in the Peninsula states of Perak and Selangor attracted
large numbers of Chinese migrants who dominated the industry in the nineteenth century bringing new
technology which improved ore recovery and water control, facilitating mining to greater depths.

Malaysia is well-endowed with natural resources in areas such as agriculture, forestry and
minerals. It is an exporter of natural and agricultural resources, the most valuable exported resource
being petroleum. In the agricultural sector, Malaysia is one of the top exporters of natural rubber
and palm oil, which together with timber and timber products, cocoa, pepper, pineapple and tobacco
dominate the growth of the sector.

3
 While tin mining brought considerable prosperity, it was a non-renewable resource. In the early
twentieth century it was the agricultural sector which came to the forefront. The crops mentioned
previously had boomed briefly but were hard pressed to survive severe price swings and the pests and
diseases that were endemic in tropical agriculture. The cultivation of rubber-yielding trees became
commercially attractive as a raw material for new industries in the West, notably for tires for the
booming automobile industry especially in the U.S. Previously rubber had come from scattered trees
growing wild in the jungles of South America with production only expandable at rising marginal
costs.

There the trees flourished and after initial hesitancy over the five years needed for the trees to
reach productive age, planters Chinese and European rushed to invest.Average values fell thereafter
but investors were heavily committed and planting continued. By 1921 the rubber acreage in Malaysia
(mostly in the Peninsula) had reached 935 000 hectares (about 1.34 million acres) or some 55 percent
of the total in South and Southeast Asia while output stood at 50 percent of world production.

According to the Vission 2020, Malaysia will become one of the country that is self-sufficient
industrialised nation by 2020. Malaysia's economy is one of the most competitive in the world,
ranking 14th in the Ease of Doing Business Index for 2015. Malaysian economy is highly robust and
diversified with export value of high-tech products in 2014 and the second highest after Singapore
in ASEAN. Malaysia exports the second largest volume and value of palm oil products globally after
Indonesia.

It is clear from this situation that Malaysia depended heavily on earnings from exports of
primary commodities to maintain the standard of living. Rice had to be imported mainly from Burma
and Thailand because domestic production supplied on average only 40 percent of total needs. As long
as export prices were high for example during the rubber boom, the volume of imports remained
ample. Profits to capital and good smallholder incomes supported an expanding economy. There are
no official data for Malaysian national income prior to World War II, which indicate that Malayan
Gross Domestic Product (GDP) per person was easily the leader in the Southeast and East Asian
region by the late 1920s.

4
 Malaysia has a vibrant oil and gas industry. The national oil company, Petronas is ranked the
69th biggest company in the world in the Fortune 500 list in 2014. Petronas provides around 30% of
the Malaysian government's revenue, although the government has been actively cutting down on its
reliance of petroleum.One of the huge profit to the country is oil and gas industry because Malaysia is
one of the top country that provide oil and gas supply to the whole world. Other than that, the main
state in Malaysia that has oil ans gas supply is in Miri, Sarawak and Kerteh, Terengganu.

5
2.0 PROBLEM STATEMENT

Since 2015 until now seems Malaysia economy has seen significant changes across the entire
spectrum of the Malaysian body politic and economy. Unlike in earlier years of Prime Minister Najib
Tun Razaks six-and-a-half year tenure, Malaysias economy is now seen to be in trouble, with
contracting growth, rising inflation, continued high levels of capital flight, declining consumer and
investor confidence, and a depreciating currency.

However, on a less positive assessment, the country has so far exchanged dependence on a
limited range of primary products for example tin and rubber for dependence on an equally limited
range of manufactured goods, notably electronics and electronic components. These industries are
facing increasing competition from lower-wage countries, especially India and China. Within
Malaysia the distribution of secondary industry is unbalanced, currently heavily favoring the Peninsula.
Sabah and Sarawak are still heavily dependent on primary products such as timber, oil, etc. There is an
urgent need to continue the search for new industries in which Malaysia can enjoy a comparative
advantage in world markets, not least because inter-ethnic harmony depends heavily on the
continuance of economic prosperity.

There are a number of possible key fallouts from a scenario such as the above playing out. First
and foremost, the ringgit will in all certainty come under further pressure. As a consequence, import
costs will rise. Imports of intermediate goods, which are disproportionately high in manufacturing in
Malaysia, will contribute to raising production costs in manufacturing.

Consumer goods will be subjected to higher costs. Malaysia disproportionately imports many
of its basic stables, including rice. Although officially at low numbers, inflation is hitting ordinary
citizens particularly hard, as they are reeling from the double impact of the imposition of the GST and
a depreciating currency. Through measures such as toll hikes, the Government also has opted to
increase transportation costs to consumers during these challenging months.

6
 Recently, global drops in oil and gas prices have had a great impact on Malaysia.Government
revenues from petroleum had accounted for almost 40 per cent of total revenue. The fall in other
commodity prices, including those of rubber and palm oil, have affected export earnings, all
contributing to less funds in government savings.

Broadly, Malaysias economy has faced strong impact on economic well-being. Three distinct
interrelated forces are global developments, declining leadership confidence and, policy failures tied to
an unwillingness to engage in substantive and much needed structural reforms

There are four regional economies are seen to be under strain such as Singapore, Indonesia,
Thailand and including Malaysia. The broad decline and fall of Southeast Asian currencies to the US
dollar and drops in exports have cast a pall over the region.

Other than that, netizens household consumption has slowed down for three main reasons. The
first of these is the rise in inflation expectations which has made consumers reticent because this has
been compounded by the imposition of a six per cent GST in April. The depreciation of the ringgit
(RM) has further weakened consumer confidence, adding to inflationary pressures and a retail
slowdown.

The challenges in promoting private investment include increasing global competitiveness,

lack of innovation capabilities and business sophistication, inadequate quality of education,
insufficient research and development and low labour and total factor productivity. On the supply side,
the services sector remains the main driver of the economy and leading generator of job opportunities.

7
 As we can summarized from above description of problem Malaysia faces an unsustainable
global environment. Malaysia is currently facing some huge challenges, over and above lower oil prices, the
falling value of the ringgit, and a slowdown in the rate of economic growth. The slowdown of the Chinese
economy, Malaysias largest trade partner, has contributed to a sharp decline in Malaysias Gross
Domestic Product (GDP) growth. While the US economy has begun a recovery, it has not filled the
vacuum as a driver of growth left by Chinas slowdown.

Despite these problems, the Malaysian economy is still growing even more slowly now. Prime
Minister Najibs highly ambitious Government and Economic Transformation programs have shown
real progress and the country seems on target to achieve many of its 2020 goals.

The truth, Malaysias problems are not unique or something new. Instead, many countries
contend with racial issues and business scandals, and of course political acrimony is par for the course.
Malaysias economic growth is the envy of many countries and the continuous infrastructural
improvements are evident to regularly visiting the country.

8
3.0 SOLUTIONS

Meaningful changes are needed to enhance the labour market. Comprehensive restrictions on

free speech, free press, fair elections, and human rights across Southeast Asia during times of rapid
economic growth have caused some to question whether liberal democracy is really compatible with
economic development in the early stages. Interestingly, it appears that the relatively equitable
distribution of wealth engineered by a number of Asian governments during early stages of
industrialization facilitated the desirable combination of productivity growth and political stability.

Asian values such as maintaining good relationships, respect the elders, upholding harmony
and family closeness are some of the reasons that enabled the existence of an Authoritarian
Government. Authoritarian Government is one of the main element for the rapid economic growth in
Asean.

The quality of national leadership was a crucial factor. The good economic leader can motivate
people to become productive are the protection of their private property rights, predictable
enforcement of their contracts, opportunities to invest and retain control of their money, control of
inflation, and open exchange of currency. For instance, people are motivated to work hard if they have
opportunities to invest their earnings profitably, but not if they have few such opportunities or if their
earnings or profits are likely to be confiscated.

In other words, the economy may be stronger in the long run if the burden of government is
reduced, but the short-run consequences of spending reductions could make such a change
untenable. Comparisons between countries help to illustrate the impact of public policy.

In some respects Malaysia's solution followed what the others did. They put interest rates up
sharply in an attempt to persuade foreign and local investors to hold on to Malaysian currency and so
prevent it collapsing completely - the risk was of a self-sustained spiral of currency falls and soaring
inflation that would drag the economy to its knees.

9
 Imposing new forms of taxation such as the recently introduced Goods and Services Tax (GST)
is not an acceptable way to prop up the nations economy, especially when the government continues
to be plagued by leakages and alleged corruption.The solution is not to burden the people with
taxes.Goverment must encourage economic activity among the people to help develop the economy.
Helping people is not just for the elections. To develop the economy, it means making sure the people
can stand on their own.

10
4.0 CONCLUSION

Politically, Malaysias path has had much in common with that of its regional neighbors. Like
South Korea, Singapore, Indonesia, and Taiwan, Malaysias impressive economic development during
the 1970s, 1980s, and early 1990s occurred under the heavy-handed rule of an authoritarian leader.

Emerging from the current economic crisis will demand resolute measures. These inevitably
will not be pain free. In the immediate future, measures such as an expansionary budget, further
injection of funds into the stock market, attempts to shore up the ringgit and so on, may placate
sentiments in the immediate. But these palliatives are likely to cause more harm than good. They will
not address the deep-seated malaise that grips the economy.

The overall prospects for Malaysias economy are thus rather dim. Malaysia may face a painful
adjustment. Reform measures will need to be adopted, including steps to address the problems
associated with the 1MDB crisis; in the event these steps are not taken, market forces are unlikely to
turn around Malaysias negative fortunes.

Beyond the immediate challenges, the nation needs to urgently address the set of structural
impediments that are limiting the achievement of sustainable growth over the medium term. If the
Malaysian economy is to emerge from the present crisis as a robust entity capable of coping with
future external shocks, it will need to embark on a program of reforms that boldly address these
structural limitations.

The long delayed program of reforms cannot be further postponed if the nation is to avoid
irreparable long term damage. While vested interests are likely to resist, the overall interests of the
country demand the adoption and implementation of structural reforms.

11
 The deficit is not the critical variable. The key is the size of government, not how it is financed.
Taxes and deficits are both harmful, but the real problem is that government is taking money from the
private sector and spending it in ways that are often counterproductive. The need to reduce spending
would still exist-and be just as compelling-if the federal government had a budget surplus. Fiscal
policy should focus on reducing the level of government spending, with particular emphasis on those
programs that yield the lowest benefits and/or impose the highest costs.

12
5.0 REFERENCES

1. Dani Rodrik, The article of Understanding Economic Policy Reform. The Journal of
Economic Literature 34, no. 1 (March 1996): 9-41.

2. Christopher Lockwood, Survey of Malaysia, in The Economist, April 5, 2003.

3. http://www.newmandala.org/solving-malaysias-economic-crisis/. Retrieved on 24/9/2016.

4. https://en.wikipedia.org/wiki/Malaysian_New_Economic_Policy#Najib_ready_to_end_spe
cial_privileges_for_Malays. Retrieved on 24/9/2016.

5. http://samcheekong.blogspot.my/2012/08/how-malaysia-handle-asian-financial.html.
Retrieved on 24/9/2016.

6. Jomo, K. S., Liew San Yee, and Laura Kaehler. Capital Flows Volatility, in Malaysian
Eclipse: Economic Crisis and Recovery, ed. K. S. Jomo (London: Zed Books, 2001).

13
6.0 APPENDICES

According to A.T. Kearney, a global management consulting firm, Malaysia was ranked 15th
in the 2014 Foreign Direct Investment Confidence Index, 9th in 2012, 16th in 2007 and 21st in 2010.

Rank Rank Rank Rank Country FDI

2007 2010 2012 2014 Confidence
Index

3 2 4 1 United States 2.16

1 1 1 2 China 1.95

9 20 3 Canada 1.93

4 10 8 4 United Kingdom 1.91

6 4 3 5 Brazil 1.91

10 5 5 6 Germany 1.84

5 3 2 7 India 1.81

11 7 6 8 Australia 1.76

7 24 7 9 Singapore 1.75

8 13 17 10 France 1.74

20 11 15 11 United Arab 1.74

Emirates

19 8 12 Mexico 1.72

14
18 11 13 South Africa 1.70

22 14 Switzerland 1.68

16 21 10 15 Malaysia 1.65

- 16 Sweden 1.64

17 Chile 1.64

- 24 18 Spain 1.63

21 19 Japan 1.62

- - - 20 Italy 1.61

12 16 21 Belgium 1.61

6 6 23 22 Netherlands 1.61

18 23 Denmark 1.61

13 19 24 Turkey 1.60

18 23 13 25 Indonesia 1.60

15
The graph shows the Malaysia Gross Domestic Product Annual Growth Rate

16