Question 2

Figure2.1 Figure 2.1 has shown the real gross domestic product (GDP) and consumer price index (CPI) of Malaysia from year 2003 to 2014. From the figure in the above, we know that a real GDP is 4.5% to 5.0% in 2013 and Malaysias real GDP is expected to register the growth of 5.0 to 5.5% in 2014. The expectation of Malaysia is supported by resilient domestic economy and improving exports. Besides, the figure also shows Malaysias CPI has generally been low and becomes stable and rising from year 2012 to year 2014. CPI has a positive influence with inflation which means that when CPI rises, inflation will increase too and lead interest rate to increase. CPI rising indicates that the price is increasing and people may spend more. Malaysian government implements GST is expected to have the effect of one-of inflationary. The real GDP will influences the sectors of Malaysia which included agriculture, mining and quarrying, manufacturing, construction and services.

Figure2.2

Figure2.2 has shown the growth by sectors from year 2013 to year 2014. From the above, we know that the growth of all the sectors is expected to increase in year 2014 when compared to year 2013 except construction. The industry of Malaysia that I think will have the best performance in

the next 12 months is plantation industry. From the figure in the above, agriculture is expected to growth from 2.7% to 3.0%. Based on the Malaysians budget 2014, government will allocate RM6billion to support high commercial value agriculture programmes, RM2.4billion for subsidy and incentive programmes, RM634million to support National Key Economic Area, RM243million for replanting programmes of cocoa, forest, oil palm and rubber, implement a lobster rearing project in Semporna, Sabah in collaboration with the private sector. (EY Malaysia, 2014) According to the all information have shown, we expected that plantation industry will perform well in the next 12 months that supported by the government policies, high exportation and food commodities. In plantation industry, oil palm has become the most important commodity crop in Malaysia since it has a high exportation and gain a high profit for Malaysia. Currently, there was 5.23 million hectares of the total planted area and holds around 2 million hectares in other countries which are Indonesia, Western Africa and Southeast Asia. According to this situation, there was a 10% growth of the global demand in the past. In order to support the growth, they need to generate an additional fund. Therefore, Bank Negara Malaysia (BNM) will try to pegging the interest rate to maintain the status quo. From question 1, we forecast the interest rate will be 3.08% in 2014. According to Zulkifli Hamzah, the overnight policy rate (OPR) would raise in Year 2014. For ensuring the plantation industry to make loan with lower cost for expand their business, the OPR rate may maintained in the following 12 months. Moreover, according to RHB Research, we predict the plantation industry will perform well in the next 12 months with the price of crude palm oil at RM2, 600 per tonne. RHB Research expects there will be a higher demand in an improved global economy. Top picks for plantation sector indicated by RHB Research include Sarawak Oil Palms, First resources and Bumitama Agri. In the plantation stocks of Malaysia, Sarawak Oil Palms has in the midst of the best age profile and will enhance its prime age trees in the next two to three years by exhibit the stronger earnings. By that, more than 70% of its total mature area of latter making up will be seeing. (RHB Research, 2014) In addition, the main factors leading this sector to have a good performance is the higher demand of food in the stronger global economy. Furthermore, the worlds two biggest palm oil producing countries implement the mandatory biodiesel and the lower production cost driving the upgrade of plantation industry in Malaysia. Based on the research, the demand of edible oil by China and India is expected to growth up in year 2014. For India and China, RHB Research predicts its edible oil imports will grew while its

imports of palm oil increased. Hence, Malaysia's total palm oil exports will rise. (RHB Research, 2013) In year 2014, government will implement some different strategies to obtain the higher yield of oil palm through MPOB (Malaysian Palm Oil Board). The projects implemented by MPOB involved value-added downstream processing of palm oil-based products, planting and replanting of oil palm introduced by Economic Transformation Programme of the National Key Economic Areas. (Uggah, 2014)

Figure2.3

Figure 2.4

To analysis an industry, we can use industry life cycle to analysis it. The life cycle included four stages which are pioneering, expansion, stabilization and decline stage. In plantation industry of Malaysia, we choose to analysis palm oil in Malaysia. In year 1870, oil palm was introduced to Malaysia as an ornamental plant first time but the first commercial scale plantation of palm oil Malaysia is in the year 1917. Hence, the life cycle was started in year 1917, and is in the pioneering stage. In this stage, the industry is start enter into the market and may easy to fail because of the competitive pressures. Besides, the industry may gain a small profit or negative and it is hard to identify likely survivors. Nonetheless, Malaysias palm oil first entered into the market success attract a number of companies and obtain the higher demand, it enjoyed a rapid growth in sales and earnings in this stage from the year 1917 until year 1960. In year 1960, the industry was increasing the planted area at a rapid pace. According to the figure2.3 and 2.4, we can know that the production of oil palm and the planted area of palm oil in Malaysia were rising rapidly from year 1975 to year 1995. (expansion stage)