SEU 228 Malaysian Economy - Manufacturing, FDI & Sustainability
1. SEU 228 Ekonomi Malaysia:
Sektor Pembuatan, FDI &
Kelestarian
Compiled by Dr. Radziah Adam
Guest lecture on April 16th, 2015, DK Z
2. Learning Outcomes:
At the end of this session, learner(s) will be able:
a) To explain the link between industrialization and
contributions of the manufacturing sector as well as
FDI in Malaysia
b) To review the pattern & strategy of Malaysiaâs
industrialization with emphasize on the role of the
government & FDI in manufacturing sector
c) To explain the concept of sustainable manufacturing
3.
4. What is industrialization?
⢠Industrial sector is defined to include
mining, manufacturing, construction,
utilities and transportation.
Do watch: The Industrial Revolution: History of
Industrialisation
https://youtu.be/4zlkB0sfDUY?list=PLKGe4uoUdoh8R
byB-lABJLqUPQrmM2_Kx
6. WHAT IS MANUFACTURING?
INPUT
⢠K
⢠L
OUTPUT
⢠Final @
consumer goods
⢠Intermediate
@industrial
goods
Creation of new
commodities @ in
value addition
Manufacturing &
processing of items
Physical
transformation
7. MALAYSIA STANDARD INDUSTRIAL CLASSIFICATION (MSIC) 2000
Primary
Sector
Secondary
Sector
Tertiary
@
Services
Sector
8. MALAYSIA STANDARD INDUSTRIAL CLASSIFICATION (MSIC) 2000
http://statistics.gov.my/dosm/uploads/files/4_Portal%20Content/3_Methods%20%26%20Classifications/3_Codes%20%26%20Classifications/3_Economic%20Classifications/msic2000.pdf
9.
10.
11. Sectoral Shares of GDP (est. 2014)
Agriculture
Industry
Services
https://www.cia.gov/Library/publications/the-world-factbook/fields/2012.html
Agriculture 9.3
Industry 34.7
Services 56
Malaysiaâs GDP driven mainly by services, manufacturing
sectors
Read more:
http://www.theborneopost.com/2012/04/20/malaysias-gdp-driven-mainly-by-
services-manufacturing-sectors/#ixzz3XRRhrd2g
12. Foreign vs. Domestic: Sectoral Investment, 2013
Source: http://www.mida.gov.my/env3/uploads/PerformanceReport/2013/IPR2013
22. Industrialization in Malaysia
Stages Strategies
1867-1957; colonial rule export of agricultural products and
minerals, mainly rubber & tin, under free
market
a. 1957 (independence) -
late 1960s
import substitution industrialization (ISI)
b. Early 1970s (10 years) new focus on export oriented
industrialization (EOI); BUT limited
linkages between foreign & domestic firms
c. 1981 - 1986 second round of ISI
d. 1987 â 1997 (pre-crisis) return to EOI
e. from 2006 onwards move towards global competitiveness 22
24. Industrialization:
Stage a. ISI
⢠to encourage foreign investors to set up
production, assembly & packaging plants in the
country to supply finished goods previously
imported from abroad
⢠the government directly & indirectly subsidized
the establishment of new factories & protected the
domestic market (Jomo, 1993)
24
25. Industrialization:
Stage I - ISI
⢠government focused on the development of
infrastructure & the rural sector, while
industrialization was left to the private sector
⢠enacted the Pioneer Industries (Relief from Income
Tax) Ordinance (PIO) of 1958, & also created the
Malaysian Industrial Development Finance
Corporation, which was responsible for providing
investment capital & for the development of industrial
estates
25
26. Industrialization:
Stage I - ISI
⢠ISI helped to diversify the economy, to
reduce excessive dependency on imported
consumer goods & to utilize some domestic
natural resources.
⢠Created opportunities for employment &
contributed to economic growth (Alavi,
1996).
26
27. a. ISI (1957-1968)
⢠Substitute imported consumer goods with local production (to
reduce import leakage & generate employment)
⢠Use of fiscal incentives (subsidies & taxes) as industrial
promotion tools; provision of extensive infrastructure
(industrial estates, power & communication facilities)
Tariff protection not used extensively(1958-mid 1960s) due to:
⢠Govt feared deterring imports, which was a major source of
revenue
⢠Rubber and tin producers were worried that increase import
duties would increase costs and pressure wage increases
27
28. a. ISI (1957-1968)
⢠Contribution of manufacturing to GDP increased from 8%
(1957) to 9% (1960-1965) but rose to 12% (1969)
⢠Growth rate of manufacturing 10.2% in 1960s
28
29. SETBACKS OF ISI
⢠Dependence on import of capital & intermediate goods
aggravated BOP
⢠Linkages with rest of the economy was weak & limited
⢠Did not create enough employment opportunities & unable to
reduce unemployment rate substantially. Employment grew
slowly because screw driver industries only introduced final
touches to consumer goods production to enjoy the incentives.
⢠Small domestic market. No pressure to seek foreign markets &
unable to compete in overseas markets. In 1970,
manufacturing only accounted for 12% of overall exports.
29
30. Industrialization:
Stage b. EOI
⢠outward looking export orientation to revive manufacturing growth
& employment absorption
⢠1971: FTZs were established. Duty free import parts & components
and export products without customs formalities
⢠Rising competition & production costs in DCs were driving foreign
assembly & processing operations away to LDCs Cheap & docile
labour important â labour regulations tightened to favour
transnational operation (TU not allowed in electronics industry
until 1989 & thereafter only in-house unions were permitted)
⢠75% of FTZ are foreign-owned & industries involved are mostly EO
industries, e.g. E&E products, textiles, food manufacturing
30
31. Industrialization:
Stage b. EOI
⢠1975: Industrial Coordination Act to provide coordination
& orderly development of manufacturing activities. To
encourage joint venture projects to increase Malaysian
participation
⢠Although protectionist policies were blamed for
inefficiency& lack of competitiveness of IS industries, they
were further strengthened during EO phase to enable
industries to develop and meet foreign competition
31
32. SETBACKS OF EOI
⢠Firms in the FTZ could import parts & components duty free -
encouraged firms to use imported parts
⢠By the end of 1970s govt recognised that the export of
manufactured good was limited to a narrow range of products
and there was minimum integration between IS and EO
sectors.
⢠Absence of linkage between domestic economy and FTZ
⢠Policy discourages FTZ firms from making downstream
investment since these investments would not enjoy the same
incentives as those in FTZ
32
33. Industrialization:
Stage c. ISI2
⢠Heavy industries established (inspired by success of Japan,
South Korea)
⢠To broaden the industrial sector; promote greater linkages
with domestic economy; to provided basis for acquisition and
development of indigenous technology.
⢠Active government participation in countryâs industrial
development (PROTON and Perwaja Steel)
⢠Promoted industries (Proton, Perwaja Steel, Kedah Cement)
by use of tariff and quotas, duty exemptions, other investment
incentives, e.g. pioneer status
33
34. SETBACKS of ISI2
⢠Poor performance in 1980s due to economic slowdown & finally
recession in 1985. Falling commodity price, appreciation of yen & rise in
yen-denominated debt service, slowdown in electronics export, rise in
imports (infrastructural & heavy industry items) aggravated current
account balance
⢠Recession in 1985/86 & Heavy Industries Corporation of Malaysia
(HICOM) encountered problems (excess capacity, market glut, heavy
debts).
⢠The promoted heavy industries during IS2 phase- high-capital intensity,
long gestation period, substantial economies of scale.
⢠Costs of production & management were high relative to international
competitors. The markets were small
⢠Lack of linkages with other sectors
34
35. Industrialization:
Stage d. EOI2
⢠Initial failure of IS2 and recession of 1980s forced govt to
renew emphasis on foreign capital and EO from 1986 to
generate investment and employment.
⢠Policies concentrated on providing incentives and
infrastructure development.
⢠Processing of approvals simplified
⢠Tax and tariff holidays
⢠Exporters allowed greater access to subsidized interest (4%)
credit prior to or upon shipment of products
35
41. What is FDI?
⢠a category of international investment that
reflects the objective of a resident in one
economy (the direct investor) obtaining a
lasting interest in an enterprise resident in
another economy (the direct investment
enterprise); âĽ10% of the ordinary shares @
voting power (IMF, 1993)
41
http://economics.dstcentre.com/The%20Changing%20Role%20Of%20FDI%20In%20The%20Malaysian%20Economy%20By%20Azmi%20Shahrin.p
df
42. Why? Role of FDI in Malaysian Economy
1. to generate economic growth by increasing domestic capital
formation
42
43. Why? Role of FDI in
Malaysian Economy
⢠âFDI has been an important source of economic
growth for Malaysia, bringing in capital
investment, technology & management
knowledge needed for economic growth.â Using
time series data (1970-2005), there is significant
relationship between economic growth & FDI
inflows in Malaysia (Mun, Lin, & Man, 2008).
43
44. Why? Role of FDI in
Malaysian Economy
(Karimi & Yusop, 2009):
⢠âNo strong evidence of a bi-directional
causality & long-run relationship
between FDI & economic growth (1970-
2005). This suggests that FDI has
indirect effect on economic growth in
Malaysia.â
44
45. Crowding Out?
Do public investment and FDI crowd in or
crowd out private domestic investment in
Malaysia?
⢠Using multivariate cointegration techniques,
both public investment & FDI are found to be
complementary to, rather than competing with
private domestic investment (PDI). (Ang, 2009)
45
46. Why? Role of FDI in
Malaysian Economy
2. to fuel export growth
46
47. Why? Role of FDI in
Malaysian Economy
(Goh, Wong, & Tham, 2013):
âfindings reveal that inward FDI
conforms to the observed pattern of a
complementary relationship between
FDI and tradeâ
47
48. Why? Role of FDI in
Malaysian Economy
3. to facilitate the transfer of new technology
âFDI provides the fastest and most effective way to
deploy new technologies in developing host
countries (UNCTAD 2000)â
⢠indirectly through licensing, reverse engineering,
adaptation & eventually innovation by MNCs
48
49. Why? Role of FDI in
Malaysian Economy
49http://competitiveness.in/wp-content/uploads/2012/02/FDI-MNEs_Mind_Map.jpg
50. Why? Role of FDI in
Malaysian Economy
4. lead to higher employment through the expansion of the economy &
job creation
50
51. Why? Role of FDI in
Malaysian Economy
5. as the agent of transformation in the Malaysian economy
51
52. Why? Role of FDI in
Malaysian Economy
(Karim & Ahmad, 2009): Poverty Reduction
âThe empirical (data for 1984-2005) results
show that the FDI coefficient has a statistically
significant negative sign, suggesting that the
poverty incidence could be reduced by
increasing FDI inflows into the (13+1) Malaysian
states.â
52
53. Why? Role of FDI in
Malaysian Economy
FDI, Growth & the Environment: Impact on
Quality of Life in Malaysia
⢠benefits and costs of FDI?
⢠âThe results indicated that environmental Kuznets
curve exists and foreign direct investment
increases environmental degradation.â
(Hitam & Borhan, 2012)
53
54. Sustainable
Manufacturing
âSustainable manufacturing is all about
being resource efficient, and that can be
about reducing costs, which can be about
reducing the amount of materials from an
input perspective or reducing the cost in
terms of disposal costs.
Source:
http://www.manmonthly.com.au/features
/understanding-environmental-
sustainability-in-manu
56. Definition:
"Sustainable manufacturing is a systems approach
for the creation and distribution (supply chain) of
innovative products and services that: minimizes
resources (inputs such as materials, energy, water,
and land); eliminates toxic substances; and
produces zero waste that in effect reduces green
house gases, e.g., carbon intensity, across the entire
life cycle of products and services."
The US Department of Commerceâs Sustainable Manufacturing Initiative defines
'sustainable manufacturing' as:
A technical version of this definition is as follows :
"the creation of manufactured products that use
processes that minimize negative environmental
impacts, conserve energy and regular resources,
are safe for employees, communities, and
consumers and are economically sound."
64. Learning Outcomes:
At the end of this session, learner(s) will be able:
a) To explain the link between industrialization and
contributions of the manufacturing sector as well as
FDI in Malaysia
b) To review the pattern & strategy of Malaysiaâs
industrialization with emphasize on the role of the
government & FDI in manufacturing sector
c) To explain the concept of sustainable manufacturing
This template can be used as a starter file to give updates for project milestones.
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Click the button next to Color, and then under Theme Colors select Blue, Accent 1, Lighter 40% (fourth row, fifth option from the left).
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In the left pane of the Insert Video dialog box, click the drive or library that contains the video. In the right pane of the dialog box, click the video that you want and then click Insert.
Under Video Tools, on the Format tab, in the Video Styles group, click the arrow to the right of Video Shape, under Callouts, select Cloud Callout (first row, fourth option from left).
Under Video Tools, on the Format tab, in the Video Styles group click the arrow in the bottom right corner to launch the Format Video dialog box.
In the Format Video dialog, click Border Color in the left pane, under Border Color in the right pane click Gradient Line.
Under Gradient stops, click Add gradient stop or Remove gradient stop until three stops appear on the slider. Customize the gradient stops as follows:
Select the first stop on the slider, and then do the following:
In the Position box, enter 0%.
Click the button next to Color, and then under Theme Colors select Blue, Accent 1, Lighter 40% (fourth row, fifth option from the left).
Select the second stop on the list, and then do the following:
In the Position box, enter 50%.
Click the button next to Color, and then under Theme Colors select Blue Accent 1, Lighter 60% (third row, fifth option from the left).
Select the last stop on the list, and then do the following:
In the Position box, enter 100%.
Click the button next to Color, and then under Theme Colors select White Background 1 (first row, first option from the left).
Also in the Format Video dialog, click Border Style in the left pane, under Border Style in the right pane, set Width to 1.25 pt.
Then in the Format Video dialog, click Shadow in the left pane, under Shadow in the right pane, click the arrow next to Presets and select Offset Diagonal Bottom Right (under Outer, first row, first option from left). Then set the Blur to 15 pt.
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Select the video, click and drag the Yellow Adjustment Handle to childâs head on right of picture.
On the Animations tab, in the Animation group, select Play.
Also on the Animations tab, in the Timing group, click the arrow to the right of Start and select With Previous.
On the Animations tab, in the Advanced Animation group, click Add Animation, select Wipe.
Also on the Animations tab, in the Timing group, click the arrow to the right of Start, select With Previous, and set Duration to 01.00 seconds.
The following slides show several examples of timelines using SmartArt graphics.
Include a timeline for the project, clearly marking milestones, important dates, and highlight where the project is now.
Di dalam dekad 50-an dan 60-an, program perindustrian di negara ini dijalankan sebagai usaha untuk mempelbagaikan ekonomi negara yang pada
masa itu amat bergantung kepada getah dan bijih timah. Memandangkan harga kedua-dua komoditi ini tidak stabil, kerajaan telah melancarkan
program perindustrian untuk mencetuskan perkembangan ekonomi yang lebih pesat dan stabil. Dasar pembangunan perindustrian pada masa itu adalah
tertumpu kepada industri-industri yang bercorak gantian import.
Sejak tahun 70-an, kerajaan di samping mempelbagaikan ekonomi telah menitikberatkan pertumbuhan industri yang lebih pesat untuk menampung
keperluan pekerjaan dan Dasar Ekonomi Baru (DEB). Dalam hal ini, tumpuan telah diberikan kepada industri-industri yang berasaskan eksport dan
industri yang mengunakan ramai buruh.
Mulai tahun 80-an pula, program perindustrian negara mengalami satu lagi perkembangan meneeusi penggalakan industri berat. Ini bertujuan untuk
memperkukuhkan lagi asas perindustrian negara dan menambahkan kemahiran rakyat di bidang teknologi yang lebih tinggi. Ia juga bertujuan untuk
mempercepatkan lagi proses perindustrian. Kerajaan memainkan peranan secara langsung di dalam merancang, melaksana, membiayai dan mengurus
industri-industri berat memandangkan sektor swasta tidak mampu menanggung perbelanjaan atau menghadapi risiko dalam mengendalikan
projek-projek yang bukan sahaja melibatkan modal yang besar, tetapi juga hanya dapat memberi pulangan dalam tempoh masa yang panjang.
Quality is more important than quantities of FDI
Services sector could also benefit from foreign investments.
Prepare slides for the appendix in the event that more details or supplemental slides are needed. The appendix is also useful if the presentation is distributed later.
What is the project about?
Define the goal of this project
Is it similar to projects in the past or is it a new effort?
Define the scope of this project
Is it an independent project or is it related to other projects?
* Note that this slide is not necessary for weekly status meetings