Contribution of Manufacturing Sector in Malaysian Economy

Peugeot vehicles sold in Malaysia are manufactured at Naza Automotive Manufacturing in Gurun, Kedah.

What is meant by the manufacturing sector? Manufacturing is a wealth-producing sector of an economy, whereas a service sector tends to be wealth-consuming according to some economists.  In addition, manufacturing sector is closely connected with engineering and industrial design which manufacturing has a large influence in the country’s economy. As we know, Malaysia today is middle income with a multi sector economy based on services and manufacturing. The competition to be a leader in the high-value added manufacturing sector will become a bigger challenge in the years ahead with many rapidly growing and developing economies emerging in different parts of the world.

Recently, manufacturing industries in Malaysia grow very rapidly if compared to previous decades. With the rapidly grow of manufacturing industries, the government has to play its role in order to ensure every aspect of current trading policies and regulatory to be obeyed. Manufacturing contributes much to the progress of our economy. According to the public lecture by Professor Ha-Joon Chang recently, he stated that the motion that an economy cannot succeed without a big manufacturing base. At the same time, he has persuasively argued that the manufacturing sector should still be the key engine of economic growth, providing a number of reasons as to why it is fallacious to think that the services sector should or can be the main driver of economic growth in economies at Malaysia’s stage of development.

Malaysia is ranked in the 23rd position among the world countries in terms of manufacturing. There are wide varieties of well developed manufacturing industries in Malaysia. Manufacturing sector in Malaysia can be divided into two main industries which are resource based industries and non- resource based industries. These manufacturing industries form the major part of Malaysian economy. The major manufacturing industries of Malaysia are furniture manufacturing industries, electronics manufacturing industries, food processing industries and others. Based on the Wikipedia report, Malaysia is one of the world's largest exporters of semiconductor components and devices, electrical goods, solar panels, and information and communication technology (ICT) products where the electrical and electronics (E&E) industry is the largest single contributor to the manufacturing sector accounting for 26.1% of manufacturing output.

In addition, Professor Ha-Joon Chang argues again that the manufacturing sector creates demand for fast productivity growth service sub-sectors such as finance, telecommunications and transportation. Also the manufacturing sector with its production and processes provides the platform for spin-offs in production services like engineering and design consultancies and comparative advantage in manufacturing leads to a healthy balance-of-payments situation and this has important consequences for standards of living due in part to the low tradability of services.

Malaysian officials are confident that the country’s manufacturing sector will continue to post strong growth throughout this year and beyond, on the back of an increasing swell of both foreign and domestic investment. According to data issued by the Malaysian Industrial Devel­opment Authority (Mida), the manufacturing sector accounted for just over half of all foreign direct investment (FDI) inflows last year, almost double the 27 per cent drawn in by the services sec­tor. With FDI in 2011 increasing by 12.3 per cent to around RM33.7 billion, manufacturing’s share of that total came to around RM16.85 billion. Total investments in the sector also surged in 2011, with 846 manufacturing projects carrying a total value of RM56.9 billion approved last year, a 19 percent increase over the RM47.8 billion recorded in 2010. This shows that the manufacturing sector is very important for our economy growth.

 In order for Malaysia to achieve the aspiration of becoming a high-income advanced economy by 2020, Malaysia must grow at 6% per annum over the Tenth Plan period which the environment for economic growth will need to be transformed to allow a step change in dynamism and productivity. Besides, the manufacturing sector accounts for 20.6% of Malaysia’s gross domestic product (GDP) and will need to be an important economic growth driver during the Tenth Malaysia Plan period which takes 2011 to 2015. The sector is expected to grow at 5.7% annually until 2015, raising its contribution to GDP to 26.3% by the end of the Plan period. This growth will depend largely on improving the sector’s productivity and attracting new investment like The Northern Corridor Economic Region (NCER) which covers the states of Kedah, Pulau Pinang, Perlis, and the four northern districts in Perak. The NCER was introduced to move up the manufacturing value chain into high-value add activities such as wafer fabrication, chip design, medical engineering devices, biotechnology and sustainable materials.

Also, one of the contributions by the manufacturing sector in Malaysian Economy is the major sector in generating employment opportunities. Manufacturing sector in Malaysia contributes almost 80% of overall country’s export and besides, Malaysia also known as the 17th largest exporting nation in the world. In the period of 1996 – 1997, the manufacturing sector experienced a rapid growth resulting the employment rate in the sector to grow at 7.7 percent per annum but later declining to negative 3.6 percent in 1998 due to the economic recession. However, due to increases in external and domestic demand in the economic period 1999 – 2000, the manufacturing sector rose again. The expansion of the manufacturing sector contributed significantly to employment creation during the Seventh Malaysia Plan (1996 – 2000), expanding at a rate of 4.8 % per annum. This can be proven again when total employees engaged in the manufacturing sector in January 2012 were 1,020,431, an increase of 17,009 persons or 1.7% compared with the preceding month. Year-on-year, the number of workers employed, also increased by 5,611 persons or 0.6%, as compared to 1,014,820 persons in January 2011. Total employees in December 2011 were a revised positive 0.6% year-on-years to record 1,003,422 workers. Due to the increasing of number of employees, salaries & wages paid in January 2012 decreased 5.9% or RM154.1 million month-on-months to register RM2, 446.7 million. The total amount paid in January 2012, however, increased as compared with the corresponding month of the previous year, i.e. 4.1% or RM95.7 million. Salaries & wages paid in December 2011 was a revised positive 14.8% year-on-years to record RM2, 600.8 million. Besides that, this makes productivity in January 2012 increased by 3.2% as compared with the corresponding month of the previous year as contributed to the our nation economy growth.

Besides, the manufacturing sector can assist in the utilization and development of R&D and ICT adoption for business and manufacturing purposes. Along the way, ICT adoption can lead to the wider usage of electronic commerce for business to business. Other than that, ICT will facilitate the utilization of RFID and product coding standards. As example, a strong cluster ecosystem with leading global companies like Intel, Infineon, Motorola and Agilent has been established and progress has been achieved over the past decades in terms of diversification and moving up the value chain, especially in terms of back-office shared services, development and testing. However, opportunities exist to further develop domestic capabilities, particularly in R&D and increase Malaysia’s share of higher value add activities.

Next, the development in manufacturing sector can help to boost Malaysia’s education sector in the education aspects. Manufacturing sector has the capability to offer and provide the working experience, industrial training and actual case study for education and other government sectors in Malaysia. As a matter of fact, undergraduate and postgraduate students in Malaysia can take these chances to get some exposure of working in manufacturing sector in Malaysia. Besides, industrial problems can be solved when a lot of researches are conducted and this can lead to the occurrence of technology transfer and the discovery of new knowledge. Also, this can encourage Bumiputera commercial and industrial community to take advantage of new sources of growth in manufacturing and services sectors and increasing opportunities from outward investment.

After that, Malaysia is known one of the Islamic countries in this world which Malaysia does a lot of active collaboration between other countries. To support this idea, Malaysia can be the ‘door’ for other countries such as developed countries to do collaboration with other Islamic nations in terms of manufacturing sector as well as can improve our economy status. In the same way, many Islamic countries have the ability to offer lower manufacturing costs especially the raw material, labor charge and business capital. From the collaboration with developed countries, the Islamic countries can enhance their economy condition and receiving technology transfer.

Similarly, joint-ventures and collaborations made with developed nations yield a lot of benefits like Facilitate collaborations between Malaysian firms with multinational corporations (MNCs) in Malaysia and MNCs operating outside Malaysia. Next, Malaysia can go to a higher level and respected globally and strengthening Malaysia’s position as major global trading nation which can develop and promote Malaysian brands. In addition, Malaysia can obtain a flow of expertise that her really need and as well as valuable technology transfer through joint-ventures and collaborations. On the other side, Malaysia can also carry out some projects abroad with the developed countries expertise and material and labor from Malaysia. This will give credits to both parties. After a while, Malaysia can be proud to be known as a successful developed country.

  

In conclusion, the manufacturing sector in Malaysia is the biggest earnings and contributions for Malaysia’s government. For that reason, the government is trying its best to ensure that this sector is competitive and innovative. Moreover, the manufacturing sector contributes to almost all facets of government sectors. These denote that, the manufacturing sector is worth to invest on. Besides, collaborations and joint-ventures with other countries especially developed countries will yield a lot of benefits for our country. These collaborations and joint-ventures will enhance the technology transfer, flow of knowledge and they can offer the solution to our shortages of technical and marketing skills. Also, the manufacturing sector is the major sector in generating employment opportunities and the fastest growing sector in Malaysia’s growth experience. Apart from that, the manufacturing sector also faces some challenges in order to maintain its competitiveness. These challenges come from various aspects such as financial, R&D, ICT, technology and knowledge and technical expertise.

References

•  http://en.wikipedia.org/wiki/Economy_of_Malaysia retrieved on 21 March 2012
•  http://www.theborneopost.com/2012/03/18/malaysia-manufacturing-growth/ retrieved on 21 March 2012
• http://www.altiusdirectory.com/Business/malaysia-economy.php retrieved on 21 March 2012
• http://www.statistics.gov.my/portal/index.php?option=com_content&view=article&id=1446&Itemid=89&lang=en retrieved on 21 March 2012
• Opening Remarks at “The Manufacturing Sector – A Key Foundation for a Vibrant Economy” By Kamal Malhotra retrieved on 22 March 2012.