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  • GROWTH & DEVELOPMENT OF GROWTH & DEVELOPMENT OF THE MALAYSIAN ECONOMYTHE MALAYSIAN ECONOMY

    -- An overview An overview --

    MOHAMED ARIFF

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  • MALAYSIA: GDP GROWTH

    -10

    -5

    0

    5

    10

    15

    1957

    1960

    1970

    1980

    1990

    2000

    2010

    GDP Growth (%)

    %

    Source: DOS 2

  • Factors Contributing to Strong Economic Growth

    Economic openness Stable macroeconomic policies High savings rate Investment in human capital

    Demographic factors Asian values Geographical location

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  • Malaysias Winning Strategy An outward looking economic strategy

    Liberal trade and foreign investment policies

    Prudent macroeconomic management Especially monetary policy

    Active state intervention, business-friendly Government plays a developmental role

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  • Diversification of the Economy Reducing over-dependence on primary

    commodities ie. Rubber and tin Diversifying agricultural exports from rubber

    to palm oil Petroleum and gas production provided

    another primary commodity engine for growth Shift from agriculture to manufacturing

    Malaysia is major producer of semiconductor devices

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  • Transition from agriculture to manufacturing

    05

    1015202530354045

    Agriculture 40.2 31.5 27.7 20.8 9.1 8.9 8.8 8.7 9.3 9.3 8.3 8.7

    Manufacturing 8.2 10.4 16.4 19.7 27.1 31.9 30.0 29.9 29.9 30.4 29.8 29.8

    1955 1965 1975 1985 1995 2000 2001 2002 2003 2004 2005 2006

    * Estimates from Ministry of Finance, ** Forecast by Ministry of Finance

    Source: Departm ent of Statistics

    Change in Composition of Output (share of GDP)

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  • Economic Openness

    Adopting outward looking export-oriented trade strategy to attain higher rates of economic growth

    Actively seeking foreign investment Setting the stage for export and investment-led

    growth Realistic exchange rate

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  • Industrialisation

    1960s: Import substitution 1970s: Export orientation 1980s: Development in heavy industries 1990 onwards: Value-added manufacturing

    Widening industrial baseManufacturing plus-plus

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  • 1960s: Import Substitution Strategy

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    Industries produced essentially for domestic market

    To promote import-substituting industries, government subsidised the establishment of new factories and protects the domestic market.

    Limitations: saturation of domestic market, failure to penetrate export markets

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  • 1970s: Export Oriented Industrialisation

    Based on export-processing zones (EPZs) Foreign firms employ low-wage labour to

    assemble imported raw materials and components for exports

    Major producers in EPZs are E&E, textiles and garment factories

    Limitations: inability to sustain industrial expansion, dependence of external demand

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  • 1980s: Heavy Industry Development Heavy industrialisation included national

    car project, motorcycle engine plants, iron and steel mills, cement factories, petrol reining and petrochemical project, pulp and paper mill

    Look East policy to emulate success in Japan and Republic of Korea

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  • 1990s: Value-added Manufacturing Manufacturing ++ strategy with emphasis on full

    integration of manufacturing operations through value chain to enhance industrial linkages, increase productivity and competitiveness

    Shift from traditional industry-based approach to cluster-based approach to include development of industrial clusters, key suppliers and requisite economic foundations

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  • DEVELOPMENT STRATEGY: DEVELOPMENT STRATEGY: EVOLUTIONEVOLUTION

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  • 1971-85: NEP and State Intervention Racial riot prompted major rethink in

    economic planning Economic policy adjustments were made:

    strong and direct intervention of the state New Economic Policy (NEP) was

    introduced, placing interest of the Malay community

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  • 1986-96: Economic Liberalisation and Private Sector-led Growth

    Government took a back seat to allow private sector to be the lead engine of growth

    Role of government reduced to providing necessary infrastructure and conducive investment environment

    Dismantling investment barriers created new opportunities from cross borders

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  • FUTURE TRENDSFUTURE TRENDS

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  • VISION 2020VISION 2020

    Objectives:Objectives:United MalaysianJust and caring societyMature and democratic societySustainable developmentFully competitive, dynamic, robust and resilient economy

    - Achieve a fully developed nation status by 2020

    Strategies:Strategies:Export-led growth and free market forcesHigh-tech and knowledge-intensiveAccelerated growth in manufacturing, services and agricultural sectors

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  • Contribution of Factor of Production

    Higher contribution of TFP is expected to sustain future growth

    0

    10

    20

    30

    40

    50

    60

    1971-1990 1991-2000 2001-2010

    Labour Capital TFP

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  • Manufacturing and Services As Engines of Growth

    0%

    20%

    40%

    60%

    80%

    100%

    1970 1980 1990 2000 2005 2010 2020

    Agriculture Manufacturing Services

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  • GDP by Sector

    0

    1

    2

    3

    4

    5

    6

    7

    8

    9

    10

    2003 2004 2005 2006 2007 20080

    1

    2

    3

    4

    5

    6

    7

    Agriculture Manufacturing Construction Services Mining RGDP

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  • Scenario Projections for 2006-2020

    Worst-case Baseline Best-case

    Employment 2.5 2.7 3.0

    Capital 4.5 6.1 6.4

    TFP 0.8 1.7 2.6

    Real GDP 4.2 5.8 7.0

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    Source: MIER21

  • TAKE-AWAY MESSAGES FOR MYANMAR

    Economic openness

    Realistic exchange rate

    Sound monetary policy

    Fiscal discipline

    Good governance

    Economic freedom

    Good infrastructure: physical & institutional22

  • TAKEAWAY MESSAGES.

    Policy consistency and predictability

    Efficient civil service

    Integrity

    Transparency

    Accountability

    Investment in human capital

    Inclusive growth23

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