Chapter 1: Introduction to Malaysian Economy
!e"nition of #conomics The word economy economy comes form the Greek Greek word oikonomos, oikonomos, which means ‘one who manages a household’ (Mankiw, ( Mankiw, 2008)
!e"nition of #conomics The word economy economy comes form the Greek Greek word oikonomos, oikonomos, which means ‘one who manages a household’ (Mankiw, ( Mankiw, 2008)
u& ections of #conomics Microeconomics Microeconomics
$ dealing with indi%idual human &eha%ior in making rationale decisions
Macroeconomics Macroeconomics
$ looking at the economy as a whole (aggregate) and &ringing in go%ernment as a main 'layer in making economic 'olicies to de%elo' the economy of a nation
ey *ords !oss Domestic P!oduct (DP)
Inflation
Unemployment Exchange Rate Balance of Payments (BOP) Demand / Supply
Mankiw on the ‘+0 lessons’ of economics
eo'le face trade$o-s
.ational 'eo'le think at the margin
eo'le res'ond to incenti%es
Go%ernments can sometimes im'ro%e market outcomes
country’s standard of li%ing de'ends on its a&ility to 'roduce goods and ser%ices
rices rise when the go%ernment 'rints too much money
ociety faces short trade$ o-s &etween in1ation and unem'loyment
The costs of something is what you gi%e u' to get
Trade can make e%eryone &etter o- Markets are a good way to organi/e economic acti%ity
34 56#T37 + 2 ; < = >
*hat to 'roduce9 :ow to 'roduce9 :ow much to 'roduce9 *here to 'roduce9 *hen to 'roduce9 To whom to 'roduce9
ECONOMICS Production, distribution and consumption of goods and services
?s ECONOMY De"elopment of a count!y in achie"ing g!o#th$ economic de"elopment
#conomic !e%elo'ment @ #conomic Growth
oth are di-erent &ut related conce'ts
#conomic growth is the increase in a country’s national income
#conomic de%elo'ment is a&out im'ro%ing the li%ing condition of the 'eo'le
ECONOMIC DEVELOPMENT G! is the main factor, which is contri&uting to the economic de%elo'ment Aor #Bam'leC Malaysia’s G! for C +DD= E 8 F 2000 E 0 F 200= E = F Mid 200D E $;> F 20+0 E F
#conomic !e%elo'ment ers'ecti%e 4on%entional 'ers'ecti%eC growth (Huantitati%e) I change (socio$economic, technological) 3slamic 'ers'ecti%eC growth (Huantitati%e, Hualitati%e) I change (socio$ economic, technological)
ECONOMIC ST!CT!E !e"nitionC #%ery acti%ity that leads to the 'roduction of goods and ser%ices is an economic acti%ity 4om'osition of %arious economic acti%itiesC rimary sector, secondary sector, tertiary sector
:istory of Malaysian #conomy
:istory of Malaysian #conomy Pre Colonial Period
Early Economic De"elopment
Present Economy
lanting, li%estock, tin, iron, gold, 'addy, %egeta&le
+D<8 $ Tin mining in elangor acti%ely &eing im'lemented
Economic structure: rimary sectorC agricultural sector (industrial and food commodities), mining and Huarrying
Trading center at Guar e'ah and engkalan uJang edah, Kenderam :ilir elangor, uala elinsing erak The eBistence of 7ld Malay Go%ernment eg eraJaan edah Tua The o'ening of Malacca &y arameswara or 3skandar hah as center of entre'ort &etween the #ast and *est ational income usually will &e taBed as 'racticed in Malacca
4a'ital came from 4hinese immigrant and foreign in%estors and at the econdary sectorC manufacturing and end of +Dth 4entury, Malaya construction &ecame among the main contri&ution of TertiaryLser%ices sectorC world tin go%ernment administration and trade ser%ices +8D> $.u&&er go%ernment sector 'lantation &eing ser%ices sectorC wholesale, commerciali/ed retail trade, hotel and .e'lacing co-ee with ru&&er &ecause restaurant, "nance, ru&&er no longer insurance, real estate and im'ortant in the &usiness ser%ice, trans'ort, international trade storage, communication +D20 $ Tin, ru&&er eB'orted
asic ocioeconomic ro&lem + 2 ; < = >
7%erde'endence on the foreign sectorC eB'ort ru&&er and tin and im'ort ca'ital goods o%erty 3ncome distri&utionC &etween races, rural and ur&an area 6nem'loyment !ualism in the economy 3m&alance in de%elo'ment
Economic De"elopment Plans
The Plan #e$ore Independence The Plan %$ter Independence
The The The The The
lans &etween lans &etween lans &etween lans &etween lans &etween
+D=>$+D0 +D+$+DD0 +DD+$2000 200+$20+0 20++$2020
(re$#) (#) (!) (?) (?)
#conomic !e%elo'ment The standard of li%ing has im'ro%ed immensely for the a%erage 'erson since +D= Arom close to ero, access to 'i'ed water, electricity and T? are all +00F The Malay 'o%erty le%el is N +F
The ew #conomic lan (#) of +D+ was a 20 year 'lan to eliminate 'ros'erity as a function of race 3t sought ra'id growth in the Malay sector without weakening 4hinese enter'rise
# has twin 'rongs of 'o%erty eradication @ restructuring of society
The # also reHuired to increase the Malay share of ca'ital ownershi' to ;0F, reduce foreign share to ;0F from >;F and allow a <0F 4hinese share
#conomic !e%elo'ment (4ont’d) Malaysia’s economy is a market oriented, eB'ort economy with state ownershi' of hea%y industry, only Growth rate of G has &een a&out 8F in the +D80s @ D0s Malaysia is the world’s largest eB'orter of semiconductors, one of the world’s largest eB'orters of single$unit air conditioners, teBtiles and footwear Malaysia is considered &oth a Tiger and a 34 The Malaysians must im'ort 'lantation la&or from 3ndonesia and ri Oanka
&I'& PE(OMIN' %SI%N ECONOMIES +
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T:# #*OP #477M3# (3#s)
A76. T3G#. 3ndonesia :ong ong Malaysia inga'ore Thailand outh orea $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ The .e'u&lic of 4hina # $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ The eo'le’s .e'u&lic of 4hina, es'ecially the outhern ro%inces 2
ECONOM) %*ricultural products: ru&&er, 'alm oil, cocoa, rice, grain, coconuts and tim&er Industrial sectors: semiconductors and electronics radio and t% eHui'ment oil re"ning (#ast Malaysia) refrigerating engineering, air conditioning, 'lywood, hard&oard motor %ehicles (roton anderodua) iron and steel ru&&er and lateB industrial gas (world’s +th &iggest gas resources) 'lastic 'roducts
ECONOM) E+port products: electronical eHui'ment, 'etroleum and liHue"ed natural gas, wood and wood 'roducts, 'alm oil, ru&&er, teBtiles, chemicals Import products: electronics, machinery, 'etroleum 'roducts, 'lastics, %ehicles, iron and steel 'roducts, chemicals E+ports: more than M ,-- million (200) Imports: more than M ,-- million (200)
ECONOM) The most important trade partners: E+ports 6 (+D>F), inga'ore (+=F), Ka'an (+0F), 4hina (>=F), :ong ong (>=F), Thailand (<F) ourceC 200;
DEVELOPED IN(%ST!CT!E mong others motorway (8>D km) from orth to outhern Kohor ahru uala Oum'ur’s O.T$'roJect (Oight .ail Transit) #astern and 7riental #B'ress (inga'ore Q uala Oum'ur Q angkok Qrailway M and = international air'ortsR newest in e'ang O Tower, <2+ m etronas Twin Towers, =08 m utraJaya Q new modern go%ernmental city Multimedia u'er 4orridor (M4)
#!SINESS ENVIONMENT IN M%L%)SI% P!#LIC SECTO slow and &ureaucratic long 're'aration times for 'roJects decisions concerning o-ers are sometimes made in ad%ance
PIV%TE SECTO fast and dynamic controlled &y the 4hinese (family E com'any) minimum ca'ital in%estments 'roJects are carried out Huickly
Vision .-.
the %ision for total de%elo'ment
united nation, with a con"dent Malaysian society (strong moral and ethical %alues)
society that is democratic li&eral and tolerant, caring, Just and eHuita&le, 'rogressi%e and 'ros'erous and in full 'ossession of an economy that is com'etiti%e, dynamic, ro&ust and resilient (The D challenges)
ources of economic growth rise in the 'roducti%ity of eBisting factors n increase in the a%aila&le stock of factors of 'roduction Technological ad%ances Glo&ali/ation Q encourage com'etition
Aactors contri&uting to ra'id economic growth in Malaysia %aila&ility of natural resources like 'alm oil, ru&&er, oil etc Oa&our force Q young and dynamic ta&ility of 'olitical en%ironment The ?ision 2020 as a moti%ation to Malaysians to mo%e forward olicies Q #, ! and ? #ducation system Q Growth of industrial sectors
aJi&’s !e%elo'ment @#conomic olicies GT #T #M +Malaysia +0th Malaysia lan udget 20++, 20+2, 20+;, 20+<
Go%ernment Transformation rogram
GT is an am&itious, &road &ased initiati%e aimed at addressing key areas of concern to the rakyat while su''orting Malaysia’s transformation into a de%elo'ed and high$income nation as 'er ?ision 2020 3n line with +Malaysia $ eo'le Airst, erformance ow (emandu, 20++)
The GT’s structure is intuiti%eC identify the areas that need the most attention, and focus said attention on those areas Through eBtensi%e consultation with key stakeholders, from the Ministries to the rakyat, the Go%ernment has come u' with se%en 'ressure 'oints that it has designated ational ey .esults reas (.s) Moreo%er, the GT also contains a Ministerial ey .esults rea (M.) com'onent, which addresses de%elo'mental goals not co%ered &y the .s
The GT is focused onC + 2 ; <
= >
.educing crime Aighting corru'tion 3m'ro%ing students outcomes .aising li%ing standards of low income households 3m'ro%ing rural &asic infrastructure 3m'ro%ing ur&an 'u&lic trans'ort ddressing cost of li%ing
#conomic Transformation rogramme
Oaunched on 2= e'tem&er, 20+0, the #conomic Transformation rogramme (#T) was formulated as 'art of MalaysiaSs ational Transformation rogramme 3ts goal is to ele%ate the country to de%elo'ed$nation status &y 2020, targeting G3 'er ca'ita of 6+=,000 This will &e achie%ed &y attracting 6<<< &illion in in%estments which will, in turn, create ;; million new Jo&s
The #TSs targets for 2020 will &e achie%ed through the im'lementation of +2 ational ey #conomic reas (#s), re'resenting economic sectors which account for signi"cant contri&utions to G3 The 'rogramme is also centred on raising MalaysiaSs com'etiti%eness through the im'lementation of siB trategic .eform 3nitiati%es (.3s) The .3s com'rise 'olicies which strengthen the countrySs commercial en%ironment to ensure Malaysian com'anies are glo&ally com'etiti%e
#s +2 ational ey #conomic reas (#s), re'resenting sectors where growth will &e focused on These sectors were identi"ed &ased on their 'otential to contri&ute to G3 and create multi'lier e-ects across the economy The Go%ernment also factored in MalaysiaSs com'etiti%e ad%antages such as its skilled workforce, a&undance of natural resources, eB'ertise in manufacturing and its 'otential to create a niche for itself in the selected sector 7il, Gas and #nergy alm 7il @ .u&&er Ainancial er%ices Tourism usiness er%ices #lectronics @ #lectrical *holesale @ .etail #ducation :ealthcare 4ommunications 4ontent and 3nfrastructure griculture Greater uala Oum'urL lang ?alley
.3s The 'rogramme also identi"ed siB trategic .eform 3nitiati%es (.3s) made u' of su''orti%e 'olicies that will dri%e Malaysia’s glo&al com'etiti%eness The main thrust of the .3s is to create an eUcient, com'etiti%e and &usiness$friendly en%ironment in Malaysia that will allow world$class, local cham'ions to thri%e and attract %alua&le foreign in%estment 4om'etition, tandards @ Oi&erali/ation u&lic Ainance .eform u&lic er%ice !eli%ery arrowing !is'arities Go%ernmentSs .ole in usiness :uman 4a'ital !e%elo'ment
#M
+ Malaysia +Malaysia conce't is a Huiet sim'licityC a &elief in the im'ortance of national unity irres'ecti%e of race or religious &elief Malaysia’s di%ersity is what makes us uniHue, &ut in order to fully &ene"t from what is undou&tedly a source of strength we need to come together and &uild u'on our common %alues
