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Chapter 1:

Introduction to
Malaysian Economy

Definition of Economics
The word economy comes form the Greek
word oikonomos, which means one who
manages a household (Mankiw, 2008).

Sub Sections of Economics


Microeconomics - dealing with individual human
behavior in making rationale decisions.
Macroeconomics - looking at the economy as a
whole (aggregate) and bringing in government as a
main player in making economic policies to develop
the economy of a nation.

Key Words
Gross Domestic Product
(GDP)

Inflation

Unemployment
Exchange Rate
Balance of Payments
(BOP)
Demand / Supply

Mankiw on the 10 lessons of economics

People face trade-offs

Governments can
sometimes improve market
outcomes

A countrys standard of
living depends on its ability
to produce goods and
services

Prices rise when the


government prints too much
money

Society faces short tradeoffs between inflation and


unemployment

The costs of something is what


you give up to get
Rational people think at the
margin
People respond to incentives
Trade can make everyone
better off
Markets are a good way to
organize economic activity

BASIC QUESTIONS
1.
2.
3.
4.
5.
6.

What to produce?
How to produce?
How much to produce?
Where to produce?
When to produce?
To whom to produce?

ECONOMICS
Production, distribution and
consumption of goods and services

Vs.
ECONOMY
Development of a country in achieving growth,
economic development

Economic Development &


Economic Growth
Both

are different but related concepts

Economic

growth is the increase in a countrys


national income

Economic

development is about improving the


living condition of the people

ECONOMIC
DEVELOPMENT
GDP

is the main factor, which is contributing to


the economic development.
For Example: Malaysias GDP for :
1995 = 8 %
2000 = 0 %
2005 = 5 %
Mid 2009 = -3.6 %
2010 = 7 %

Economic Development Perspective


Conventional perspective:
growth (quantitative) +
change (socio-economic,
technological)
Islamic perspective:
growth (quantitative,
qualitative) + change (socioeconomic, technological)

ECONOMIC STRUCTURE
Definition:
Every activity that leads to the production of
goods and services is an economic activity
Composition of various economic activities:
Primary sector, secondary sector, tertiary
sector

History of Malaysian Economy

History of Malaysian Economy


Pre Colonial Period

Early Economic
Development

Present Economy

Planting, livestock, tin, iron,


gold, paddy, vegetable

1948 - Tin mining in


Selangor actively
being implemented

Economic structure:
Primary sector: agricultural
sector (industrial and food
commodities), mining and
quarrying

Trading center at Guar


Kepah and Pengkalan Bujang
Kedah, Jenderam Hilir
Selangor, Kuala Selinsing
Perak
The existence of Old Malay
Government eg Kerajaan
Kedah Tua
The opening of Malacca by
Parameswara or Iskandar
Shah as center of entreport
between the East and West
National income usually will
be taxed as practiced in
Malacca

Capital came from


Chinese immigrant
and foreign
investors and at the
end of 19th
Century, Malaya
became among the
main contribution of
world tin.

Secondary sector:
manufacturing and
construction

Tertiary/services sector:
government administration
and trade services
1896 -Rubber
government sector
plantation being
services sector: wholesale,
commercialized.
retail trade, hotel and
Replacing coffee
with rubber because restaurant, finance,
rubber no longer
insurance, real estate and
important in the
business service, transport,
international trade.
storage, communication
1920 - Tin, rubber
exported

Basic Socioeconomic Problem


1.
2.
3.
4.
5.
6.

Overdependence on the foreign sector: export


rubber and tin and import capital goods
Poverty
Income distribution: between races, rural and
urban area
Unemployment
Dualism in the economy
Imbalance in development

Economic Development
Plans

The Plan Before Independence


The Plan After Independence

The
The
The
The
The

Plans
Plans
Plans
Plans
Plans

between
between
between
between
between

1956-1970
1971-1990
1991-2000
2001-2010
2011-2020

(Pre-NEP)
(NEP)
(NDP)
(NVP)
(NVP)

Economic Development
The

standard of living has


improved immensely for the
average person since 1957.
From close to Zero, access to piped
water, electricity and TV are all
100%. The Malay poverty level is <
17%.

The

New Economic Plan (NEP) of


1971 was a 20 year plan to eliminate
prosperity as a function of race. It
sought rapid growth in the Malay
sector without weakening Chinese
enterprise

NEP

has twin prongs of poverty eradication &


restructuring of society

The

NEP also required to increase the


Malay share of capital ownership to
30%, reduce foreign share to 30%
from 63% and allow a 40% Chinese
share.

Economic Development
(Contd)
Malaysias

economy is a market oriented,


export economy with state ownership of
heavy industry, only. Growth rate of GNP
has been about 8% in the 1980s & 90s.
Malaysia is the worlds largest exporter of
semiconductors, one of the worlds largest
exporters of single-unit air conditioners,
textiles and footwear.
Malaysia is considered both a Tiger and a
NIC.
The Malaysians must import plantation
labor from Indonesia and Sri Lanka.

HIGH PERFORMING ASIAN


ECONOMIES
1.

JAPAN
INDUSTRIALIZING

3.

THE NEWLY
ECONOMIES (NIEs)

FOUR TIGERS
Indonesia
Hong Kong
Malaysia
Singapore
Thailand
South Korea
----------------------------------------The Republic of China
ASEAN
----------------------------------------------------The Peoples Republic of China,
especially the Southern Provinces
2.

ECONOMY
Agricultural products: rubber, palm oil, cocoa, rice,
grain, coconuts and timber
Industrial sectors: semiconductors and electronics
radio and tv equipment
oil refining (East Malaysia)
refrigerating engineering, air
conditioning,
plywood, hardboard
motor
vehicles (Proton andPerodua)
iron and steel
rubber and
latex
industrial gas (worlds 17th
biggest
gas resources)
plastic products

ECONOMY
Export products: electronical equipment, petroleum
and liquefied natural gas, wood and
wood
products, palm oil, rubber,
textiles,
chemicals
Import products:
electronics, machinery,
petroleum products, plastics, vehicles, iron and
steel products, chemicals
Exports: more than RM 500 million (2007)
Imports: more than RM 500 million(2007)

ECONOMY
The most important trade partners:
Exports USA (19.6%), Singapore (15.7%), Japan
(10.7%), China (6.5%), Hong Kong
(6.5%),
Thailand (4.4%) (2003)
Imports Japan (17.3%), USA (15.5%), Singapore
(11.9%), China (8.8%), South Korea
(5.5%), Taiwan (5%), Germany (4.7%),
Thailand (4.6%)
Source: 2003

DEVELOPED
INFRASTRUCTURE

Among others motorway (869 km) from North to Southern


Johor Bahru
Kuala Lumpurs LRT-project (Light Rail Transit)
Eastern and Oriental Express (Singapore Kuala Lumpur
Bangkok railway
MAS and 5 international airports; newest in Sepang
KL Tower, 421 m
Petronas Twin Towers, 508 m
Putrajaya new modern governmental city
Multimedia Super Corridor (MSC)

BUSINESS ENVIRONMENT IN
MALAYSIA
PUBLIC SECTOR
slow and bureaucratic
long preparation times
for projects
decisions concerning
offers are sometimes
made in advance

PRIVATE SECTOR
fast and dynamic
controlled by the
Chinese
(family = company)
minimum capital
investments
projects are carried
out quickly

Vision 2020

the vision for total development


united nation, with a confident Malaysian society
(strong moral and ethical values)

society

that is democratic liberal and tolerant,


caring, just and equitable, progressive and
prosperous and in full possession of an economy
that is competitive, dynamic, robust and
resilient. (The 9 challenges)

Sources of economic growth


A

rise in the productivity of existing factors


An increase in the available stock of factors of
production
Technological advances
Globalization encourage competition

Factors contributing to rapid


economic growth in Malaysia
Availability

of natural resources like palm oil,


rubber, oil etc.
Labour force young and dynamic
Stability of political environment
The Vision 2020 as a motivation to Malaysians to
move forward
Policies NEP, NDP and NVP
Education system
Growth of industrial sectors

Najibs Development
&Economic Policies
GTP
ETP
NEM
1Malaysia
10th

Malaysia Plan
Budget 2011, 2012, 2013, 2014

Government Transformation
Program
GTP

is an ambitious, broad based initiative aimed


at addressing key areas of concern to the rakyat
while supporting Malaysias transformation into a
developed and high-income nation as per Vision
2020. In line with 1Malaysia - People First,
Performance Now (Pemandu, 2011)

The

GTPs structure is intuitive: identify the


areas that need the most attention, and
focus said attention on those areas.
Through extensive consultation with key
stakeholders, from the Ministries to the
rakyat, the Government has come up with
seven pressure points that it has designated
National Key Results Areas (NKRAs).
Moreover, the GTP also contains a
Ministerial Key Results Area (MKRA)
component, which addresses developmental
goals not covered by the NKRAs.

The GTP is focused on:


1.
2.
3.
4.
5.
6.
7.

Reducing crime
Fighting corruption
Improving students outcomes
Raising living standards of low
income households
Improving rural basic infrastructure
Improving urban public transport
Addressing cost of living

Economic Transformation
Programme

Launched on 25 September, 2010, the Economic


Transformation Programme (ETP) was
formulated as part of Malaysia's National
Transformation Programme. Its goal is to elevate
the country to developed-nation status by 2020,
targeting GNI per capita of US$15,000. This will
be achieved by attracting US$444 billion in
investments which will, in turn, create 3.3
million new jobs.

The

ETP's targets for 2020 will be achieved


through the implementation of 12 National
Key Economic Areas (NKEAs), representing
economic sectors which account for
significant contributions to GNI.
The programme is also centred on raising
Malaysia's competitiveness through the
implementation of six Strategic Reform
Initiatives (SRIs). The SRIs comprise policies
which strengthen the country's commercial
environment to ensure Malaysian
companies are globally competitive.

NKEAs
12 National Key Economic Areas (NKEAs), representing sectors where growth
will be focused on.
These sectors were identified based on their potential to contribute to GNI and
create multiplier effects across the economy.
The Government also factored in Malaysia's competitive advantages such as its
skilled workforce, abundance of natural resources, expertise in manufacturing
and its potential to create a niche for itself in the selected sector
Oil, Gas and Energy
Palm Oil & Rubber
Financial Services
Tourism
Business Services
Electronics & Electrical
Wholesale & Retail
Education
Healthcare
Communications Content and Infrastructure
Agriculture
Greater Kuala Lumpur/ Klang Valley

SRIs
The programme also identified six Strategic Reform Initiatives
(SRIs) made up of supportive policies that will drive Malaysias
global competitiveness. The main thrust of the SRIs is to
create an efficient, competitive and business-friendly
environment in Malaysia that will allow world-class, local
champions to thrive and attract valuable foreign investment.
Competition, Standards & Liberalization
Public Finance Reform
Public Service Delivery
Narrowing Disparities
Government's Role in Business
Human Capital Development

NEM

1 Malaysia
1Malaysia

concept is a quiet simplicity: a


belief in the importance of national unity
irrespective of race or religious belief.
Malaysias diversity is what makes us
unique, but in order to fully benefit from
what is undoubtedly a source of strength
we need to come together and build upon
our common values.

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