Malaysia Country Report

WESTMINSTER

INTERNATIONAL in TASHKENT

UNIVERSITY

Malaysia Country Report

Module: International Economics Module ID: 4UZB7A3 ID#:000056

25 March 2011
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Malaysia Country Report

Abstract:

This paper will discuss the information and material about Malaysian economic development in terms of doing business and investment potential. Based on these findings it will discuss the implications of the findings and recommend policy measures for achieving sustainable economic development outcomes.

Malaysia Country Report

Contents I. II. III. IV. V. VI. VII. VIII. Introduction Malaysia country profile and economic outlook International trade a. Exports and Imports Investment opportunities Malaysian trade in prospect of international economic theories Conclusion References Appendixes 3 4 4 6 7 8 9 10 11

Malaysia Country Report

I.

Introduction

Globalization and recent developments in the world s economy led the countries more closely link with each other through trade relations. Trade and attracting business environment for an investment became an important factor for countries development. Malaysia could be a good example for our statement. This paper illustrates the business profile of Malaysia as one of the fast developing and investment attracting country in the world. Paper studies the country in terms of international economy, emphasizing the country s position as an important international trade partner to other countries. First part will begin with an introduction of main macroeconomic indicators such as social, governance, foreign trade indicators and national facts. Then the second part will analyze Malaysia s trade performances, investigating its import and export potentials. It will than work through observed data regarding countries investment outflow and inflow, influence of global financial crisis to countries economic performance. Furthermore, major trade theories will be described and compared to current economic situation. Finally it will draw conclusions and discuss implications of the findings. There has been much research on economic developments of Malaysia. Almost all huge organizations, companies from developed even developing countries made important research on Malaysia in terms of investment, doing business in Malaysia. I can easily mention United States, United Kingdom, European Union, China, Japan and Singapore as one of the earliest countries to study the Malaysia as a potential effective market for an investment. Main materials concerning trade performances, indicators and aspects of global financial crisis discussed in this paper are based on the reports of international research organizations, such as WTO, World Bank, IMF, ADB, also from the reports of Malaysian Industrial Development Authority, the governments primary organization for promotion, organization and coordination of industrial development. International trade theories are based on the textbooks of Krugman, Yarbrough and Salvatore. Figures are represented in currencies of EUR, RM, USD and not converted into a single national or foreign currency, because of the complexity in identification of exchange rates. II. Malaysia country profile and economic outlook

Malaysia has an interesting and impressive history being colonial country from 16th to 19th century. First it was occupied by Portugal, they build initial colony, later it was dominated by Dutch and at the end of 18th century domination transferred to Great Britain, during World War II Malaysia was 4

Malaysia Country Report under control of Japan. After its independence and resolution of conflicts with neighboring countries during formation, the country started to grow from agricultural economy to an industrial (emerging) economy supporting service (especially tourism), manufacturing and other industrial segments which improved Malaysian economy1. Malaysia as a country with a developing economy belongs to the richest and most developed countries among newly industrializing economies (NIEs). It has a free market economy with 7.1% GDP growth in 2010 (for 2009 was 1.7%, respectively 4.7% for 2008 Population Table 1: Social and demographic factors Indicator Region Country Name Capital Area Information East Asia & Pacific Malaysia Kuala Lumpur Total: 329.847 sq km Land: 328.657 sq km Water: 1.190 sq km 27.467.837 0-14 years: 31.4% (male 4,153,621/female 3,914,962) 15-64 years: 63.6% (male 8,210,373/female 8,143,043) 65 years and over: 5% (male 569,245/female 724,575) (2010) 28.274.729 (July 2010 est.) 216.45 sq/m Southeastern Asia. Borders with Thailand, Indonesia, Brunei by land, Singapore, Vietnam, and the Philippines by marine. Bahasa Malaysia 50.4% Malay, 23.7 % Chinese, 11 % Indigenous, 7.1 % Indian, 7.8 % Other Muslim 60.4%, Buddhist 19.2%, Christian 9.1%, Hindu 6.3%, Confucianism, Taoism, other traditional Chinese religions 2.6%, other or unknown 1.5%, none 0.8% (2000 census) Constitutional monarchy Mohamed NAJIB bin Abdul Razak (since 3 April 2009)

(Appendix 1)), inflation 1.8% in 2010 (for 2009 was 0.6%) and total population below the poverty line 5.1% (2002) (CIA), respectively 3.8% (2009) (Economic Population Density Location

Planning Unit of Malaysia). According to World Bank Group GDP in 2010 slightly decreased representing 0.31% of world s economy but overall since 1961 the economy boosted and GDP reached historical number 221.77 billion dollars in December of 2008 (Figure 1). Inflation rate was quite high in the beginning of world economic financial slowdown, from 2005-2010 average rate was 2.77% (Figure 2 and Table 2). Unemployment rate was 3.2% in December 2010, however according to CIA world fact book it was estimated 3.5% and took 28th place in the world (Figure 3 and Table 3). During 2008 Interest rate kept high with an

Official Language Ethnic groups Religions

Government type Prime Minister

Source: CIA The World Factbook, World Bank, Department of Statistics, Economic Planning Unit, Ministry of Finance and Bank Negara Malaysia, IMF World Economic Outlook April 2010, (www.epu.gov.my)

average of 3.4%, well it is the impact of financial crises (Figure 4 and Table 4). Well, in my opinion Malaysia had reasonably low interest rates since 2002 (excluding beginning of the crisis), which derived excellent financial position while attracting the customers to get easy access to credits, may be because
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Source: CIA The World Factbook, International Business Publications, USA, Malaysia Country Study Guide 2008 4th Edition, p.40-45

Malaysia Country Report of that Malaysia is ranked 1st in getting credit in the world2. Country is rich in minerals, agriculture and a forestry resource, also annually because of its convenient location and beautiful nature, country is attracting more than 23.6 million tourists (2009) 3. Mostly economic structure of the country is dominated by service (138.809 million RM of GDP) and manufacturing (300.153 million RM of GDP). Well, comparing to emerging and developing countries (2.4% in 2009) Real GDP growth in Malaysia was negative with annual growth rate of -1.7 % in 2009, but positive consumer price inflation (CPI 0.6% in 2009) comparing to some developed countries like the US (-0.3% in 2009) and Japan (-1.4 in 2009). Exports of free on board (f.o.b.) with $152.7 billion and current account balance with $31.8 billion kept positive in 2009 (Appendix 2). Changes in stock influenced on slowdown of economic activity, while decreasing the savings and investment notably by 6.3 % (2008 less 2009) and 5.1% (as % of GDP) right after the beginning of world financial crisis (Appendix 3). Producer price index diminished significantly by -7.3% in 2009, also influenced on growing unemployment (% of labor force) rate from 3.3% (2008) to 3.7% (2009), lowering interest rates, enhancing money supply and exchange rates (Appendix 4 and 5). One of the main reasons for slowdown of Malaysian economy is drop of foreign direct investment into the country and significant increase in outflow of capital in 2009, well there are many reasons for fall of foreign direct investment, one of them could be political or unfavorable business environment, generally I think it occurred because of influence of global economic slowdown and large Malaysian companies abroad investment. In fact high investment inflow is one of the factors of competiveness of the country (Appendix 6) 4. Despite the difficulties during global financial slowdown Malaysia faced positive current account balance in 2009 with 112.139 million RM; mostly it is because of positive growth in exports and travel services (Appendix 7 and 8). Agriculture, manufacturing and service sector plays huge role in employment of labor force of Malaysia, in 2009 more than 90% of labor force employed in these sectors, almost 80% of them were male. According to Malaysian Investments Development Authority mostly in manufacturing sector additional 64 000 employment opportunities in 2009 were noted in approved investment projects (Appendix 9)5. We can easily note that Malaysia became successful in economic development, one of the reasons for that is its membership in Association of Southeast Asian Nations (ASEAN). ASEAN has a free trade agreement with China, Australia, New Zealand, Japan, India and Republic of Korea, which was signed in recent years and came into effect in 20106. However, the scenario above is just the comparison of years, if we ll not consider the financial slowdown, in general the results are positive and economy is supposed to grow within next five years.

Source: Doing Business 2011, Making Difference for an Entrepreneurs p. 2, www.doingbusiness.org, www.tradingeconomics.com 3 Source: CIA The World Factbook, UNTWO Tourism Highlights 2010 Edition (www.unwto.org) 4 Source: World Investment Report 2010 p. 207, New York and Geneva, 2010 www.unctad.org, www.fdi.net 5 Source: Department of Statistics, Economic Planning Unit, Ministry of Finance and Bank Negara Malaysia, IMF World Economic Outlook April 2010 (www.epu.gov.my) 6 Source: www.aseansec.org/20164.htm, www.aseansec.org/22935.htm

Malaysia Country Report

III.

International trade

Today trade differs from trade made centuries ago. In old times if trade occurred between four or five countries, but today it appears one country trading with many countries alone. In these days the presence of trade is vital because it is the main factor of economic, social, and political development. International trade was driven from the development of industrialization and globalization of the world. Many countries are developing fast through international trade and competing with each other economically. Competitiveness became major indicator of the country s wealth. According to World Economic Forums global competitiveness report, Malaysia ranked 26th place out of 139 countries in 2010-20117. With one of the highest living standards, stable growing GDP per capita, low poverty and political-economic stability, Malaysia faced an incredible economic and social development since 19908. According to World Bank Malaysia ranked in 21th on ease of doing business, 1st in getting credit and 4th in protecting investors. Malaysia is a member of world s important organizations like WTO, World Bank, UNESCO, UN, IMF and others. The country is famous for its positive reaction to international trade. Table 5: Main Economic indicators Indicator Currency GDP (PPP) Real GDP growth Information Malaysian Ringgit (MYR) ranked in 30 with $416.4 billion (2010) 6.7 % (2010) Agriculture (9.1 % of GDP) Industry (41.6% of GDP) Service (49.3% of GDP) Singapore (14 %) China (12.20 %) United States (11 %) Japan (9.8 %) Thailand (5.40 %) China 14.0% Japan 12.5% United States 11.2% Singapore 11.0% Thailand 6.1% electronic equipment, petroleum and liquefied natural gas, wood and wood products, palm oil, rubber, textiles, chemicals electronics, machinery, petroleum products, plastics, vehicles, iron and steel products, chemicals ADB, APEC, ARF, ASEAN, BIS, C, CICA (observer), CP, D-8, EAS, FAO, G-15, G-77, IAEA, IBRD, ICAO, ICC, ICRM, IDA, IDB, IFAD, IFC, IFRCS, IHO, ILO, IMF, IMO, IMSO, Interpol, IOC, IPU, ISO, ITSO, ITU, ITUC, MIGA, MINURSO, MONUSCO, NAM, OIC, OPCW, PCA, PIF (partner), UN, UNAMID, UNCTAD,

Main export partners

Main import partners

Main exporting products

Main importing products

International Organization Participation

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Source: World Economic Forum, The Global Competitiveness Report 2010-2011, http://www.weforum.org/ Source: International Business Publications, USA, Malaysia Country Study Guide 2008 4th Edition, p.15

Malaysia Country Report UNESCO, UNIDO, UNIFIL, UNMIL, UNMIS, UNMIT, UNWTO, UPU, WCO, WFTU, WHO, WIPO, WMO, WTO ranked in 57th out of 169 countries (2010) ranked in 21rd out of 183 countries (2010) ranked in 53rd with overall score 66.3 (2011) ranked 9th out of 41 countries in the Asia Pacific region ranked in 43rd with $77.44 billion (2010) ranked in 28th with 3.5% index (2010) ranked in 50th with 1.8% index (2010)

Human Development Index Ease of doing business Economic Freedom Index FDI Inflow Unemployment Inflation (CPI)

Source: CIA The World Factbook, World Bank, Department of Statistics, Economic Planning Unit, Ministry of Finance and Bank Negara Malaysia, IMF World Economic Outlook April 2010, (www.epu.gov.my)

a. Exports and Imports The economy of the country is quite diversified, competitive and open. Characterization of Malaysia as an exporter and importer can be carried out by analyzing its external trade (exports and imports) (Table 6 and Figure 5). The total value of exports of goods and services are amounted RM 606.815 million in 2010 with an annual growth rate of 8.4%, respectively imports of goods and services was RM 547.163 million with annual growth rate of 12%9.According to Ministry of International Trade and Industry (MITI) Malaysia s trade recovered by 18.3% in 2010. Total trade in 2010 (RM 1.169 trillion) reached approximately the same number like in 2008 (RM 1.183 trillion). Share of exports of Malaysia increased in Egypt (58.1%), New Zealand (57.4%), Philippines (43.7%), Bangladesh (43.2%), South Africa (40.7%), Taiwan (39.9%), Vietnam (39.7%), India (23.3%) and Japan (21.8%). Singapore, USA, People s Republic of China (PRC), Thailand and Japan were the major exporting partners of Malaysia in 2010 (Appendix 10). The countries main exporting products were electronic equipments, petroleum and liquefied natural gas, wood and wood products, palm oil, rubber, textiles and chemicals (Appendix 11). Along with exports, imports are also increased by 21.7% to RM 529.19 billion in 2010. Imports from ASEAN region reached to 27.1% of Malaysian total imports, Japan (12.6%), PRC (12.6%), Singapore (11.46%), USA (10.7%), and Thailand (6.2%) were top 5 main importing countries in 2010 (Appendix 12). Major importing products were electrical, electronic products, chemical and chemical products, machinery, appliance and parts, transport equipments, metal products (Appendix 13)10 . According to World Trade Organization s International Trade Statistics 2010, in 2009 Malaysia ranked in the 22nd place in terms of merchandise exporter and importer, and 30th in commercial services. The country was listed as a leading exporter and importer of agriculture products, foods.
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Source: Department of Statistics, Economic Planning Unit, Ministry of Finance and Bank Negara Malaysia, IMF World Economic Outlook April 2010 (www.epu.gov.my) 10 Source: Department of Statistics (http://www.statistics.gov.my), Malaysian External Trade Statistics, Ministry of International Trade and Industry (http://www.miti.gov.my) and Malaysian External Trade Development Corporation (http://www.matrade.gov.my) 11 Source: International Trade Statistics 2010, pages: .51,56 http://www.wto.org/english/res_e/statis_e/its2010_e/its10_toc_e.htm

Malaysia Country Report

Malaysia Country Report

International trade is the oldest form of international economic relations and it plays an important role in world s economic development. There exists theories about international trade, some of them are Modern http://ru.wikipedia.org/wiki/%C2%ED%E5%F8%ED%FF%FF_%F2%EE%F0%E3%EE%E2%EB%FF for part V

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Malaysia Country Report

Bibliography:
International Business Publications, USA, Malaysia Country Study Guide 2008 4th Edition http://books.google.com.ph/books?id=vBm2b0BwU9EC&printsec=frontcover&hl=en#v=onepage&q& f=true http://www.statistics.gov.my/portal/index.php?option=com_content&view=frontpage&Itemid=1&la ng=en http://www.epu.gov.my/home http://www.aseansec.org/18619.htm http://www.aseansec.org/20164.htm http://www.mef.org.my/public/default.aspx http://www.mida.gov.my/public/default.aspx http://www.pemudah.gov.my http://www.kln.gov.my World Bank 1 GNI per capita 2004, Atlas Method and PPP: World Development Indicators Database, World Bank 15 July 2005

VIII Appendixes
Appendix 1: Real GDP Growth

Source: Department of Statistics, Economic Planning Unit, Ministry of Finance and Bank Negara Malaysia, IMF World Economic Outlook April 2010 (www.epu.gov.my)

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Malaysia Country Report Appendix 2: Current Account Balance

Source: Department of Statistics, Economic Planning Unit, Ministry of Finance and Bank Negara Malaysia, IMF World Economic Outlook April 2010 (www.epu.gov.my)

Appendix 3: Savings Rate

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Malaysia Country Report

Source: Department of Statistics, Economic Planning Unit, Ministry of Finance and Bank Negara Malaysia, IMF World Economic Outlook April 2010 (www.epu.gov.my)

Appendix 4: Producer Price Index

Source: Department of Statistics, Economic Planning Unit, Ministry of Finance and Bank Negara Malaysia, IMF World Economic Outlook April 2010 (www.epu.gov.my)

Appendix 5: Exchange rate movements

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Malaysia Country Report

Source: Department of Statistics, Economic Planning Unit, Ministry of Finance and Bank Negara Malaysia, IMF World Economic Outlook April 2010 (www.epu.gov.my)

Appendix 6: Malaysia s Competitiveness Position

Source: Department of Statistics, Economic Planning Unit, Ministry of Finance and Bank Negara Malaysia, IMF World Economic Outlook April 2010 (www.epu.gov.my)

Appendix 7: Balance of Payments

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Malaysia Country Report

Source: Department of Statistics, Economic Planning Unit, Ministry of Finance and Bank Negara Malaysia, IMF World Economic Outlook April 2010 (www.epu.gov.my)

Appendix 8: Balance on services and income

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Source: Department of Statistics, Economic Planning Unit, Ministry of Finance and Bank Negara Malaysia, IMF World Economic Outlook April 2010 (www.epu.gov.my)

Appendix 9: Approved investment in manufacturing sector

Source: Department of Statistics, Economic Planning Unit, Ministry of Finance and Bank Negara Malaysia, IMF World Economic Outlook April 2010 (www.epu.gov.my)

Figure 1: GDP of Malaysia

Source: www.tradingeconomics.com Figure 2: Malaysian Inflation rate

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Malaysia Country Report

Source: www.tradingeconomics.com Table 2: Malaysian Inflation Rate (monthly average) Year Jan Feb Mar Apr 2011 2.4 2010 1.3 1.2 1.3 1.5 2009 3.9 3.7 3.5 3 2008 2.3 2.7 2.8 3 Source: www.tradingeconomics.com Figure 3: Unemployment rate in Malaysia May 1.6 2.4 3.8 Jun 1.7 -1.4 7.7 Jul 1.9 -2.4 8.5 Aug 2.1 -2.4 8.5 Sep 1.8 -2 8.2 Oct 2 -1.5 7.6 Nov 2 -0.1 5.7 Dec 2.2 1.1 4.4

Source: www.tradingeconomics.com Table 3: Unemployment rate (monthly average) Year Jan Feb Mar Apr May Jun Jul Aug 2010 3.6 3.6 3.6 3.2 3.3 3.7 3.3 3.1 2009 3.8 4.1 4 3.8 3.6 3.2 3.5 3.5 2008 3.6 3.5 Source: www.tradingeconomics.com 17 Sep Oct Nov Dec 3.1 2.9 3.1 3.2 3.6 3.4 3.5 3.4 3.1 3.1

Malaysia Country Report Figure 4: Interest rate in Malaysia

Source: www.tradingeconomics.com Table 4: Interest rate (monthly average) Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 2011 2.75 2.75 2.75 2010 2 2 2.13 2.25 2.38 2.5 2.63 2.75 2.75 2.75 2.75 2009 2.88 2.25 2 2 2 2 2 2 2 2 2 2008 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.5 3.38 Source: www.tradingeconomics.com Figure 5: Malaysia s monthly external trade performance Dec 2.75 2 3.25

Source: Department of Statistics of Malaysia. (Notes: p- provisional data; i-interim data)

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Malaysia Country Report Table 6: Monthly trade in 2010 Malaysia's monthly trade in 2010 (RM billion) Month Total Exports Total Imports Total Trade Balance of Trade December 57.16 47.48 104.64 9.69 November 52.7 43.7 96.4 9 October 54.98 48.13 103.1 6.85 September 50.47 43.47 93.94 7.01 August 52.85 44.53 97.38 8.32 July 55.43 48.41 103.84 7.01 June 52.83 46.79 99.62 6.04 May 52.28 44.15 96.43 8.13 April 52.03 42.76 94.79 9.27 March 59.42 45.09 104.51 14.33 February 46.84 35.17 82.01 11.67 January 52.45 39.52 91.96 12.93 Source: http://www.matrade.gov.my/en/malaysia-exporters-section/33-trade-statistics/670-summaryof-malaysias-monthly-trade-2010Appendix 10: Exports by Destinations

Source: Department of Statistics, Economic Planning Unit, Ministry of Finance and Bank Negara Malaysia, IMF World Economic Outlook April 2010 (www.epu.gov.my)

Appendix 11: Main Exporting products 19

Malaysia Country Report

Source: Department of Statistics, Economic Planning Unit, Ministry of Finance and Bank Negara Malaysia, IMF World Economic Outlook April 2010 (www.epu.gov.my)

Appendix 12: Importing Countries

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Source: Department of Statistics, Economic Planning Unit, Ministry of Finance and Bank Negara Malaysia, IMF World Economic Outlook April 2010 (www.epu.gov.my)

Appendix 13: Importing products

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Malaysia Country Report

Source: Department of Statistics, Economic Planning Unit, Ministry of Finance and Bank Negara Malaysia, IMF World Economic Outlook April 2010 (www.epu.gov.my)

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