DISCUSS THE CHANGING ECONOMIC STRUCTURE OF MALAYSIA SINCE INDEPENDENCE IN 1957

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DISCUSS THE CHANGING ECONOMIC STRUCTURE OF MALAYSIA SINCE INDEPENDENCE IN 157

INTRODUCTION

Malaysias economic success has seemed like a miracle to many observers. Malaysias economy has successfully weathered the depression of the 180s and the currency crisis of 17 and emerged stronger. Today, Malaysia is regarded as a Newly Industrialising Country and is one of the most successful developing countries. This miracle has not occurred overnight but has been the result of the hard work and sacrifices of the Malaysian government and its people.

At the time of independence in 157 the Malaysian economy was a lopsided economy heavily dependent on rubber and tin for 70% of total export earnings, 8% of government revenue and 6% of total employment. The economy has diversified to an industrialised economy. By 10, rubber and tin no longer dominated the economy and the manufacturing sector accounted for 7% of the GDP and surpassed agriculture and forestry. In 170, agriculture share of GDP accounted for % declining to 18.7 % by 10. Rubber exports, which accounted for % of commodity exports fell to 1. % in 18. Oil accounted for 1. % of gross exports in 10.

SCOPE

This paper will discuss the changing economic structure of Malaysia since independence in 157. The economic structure will be discussed with reference to the structural changes in the economy reflected in the changes in the sectoral contribution to the Gross Domestic Product (GDP). GDP is defined as follows -

Gross Domestic Product (GDP) is an estimate of income accruing to residents and generated within the country only. It is Gross National Product (GNP) excluding net property abroad. Although GNP is the more global statistic, GDP is used in reference to sectoral industrial analysis. GDP like GNP can be calculated at either factor cost or at market cost like GNP. It is sometimes referred to as Gross Value added.

The figures for analysing the changing economic structures have been extracted from various financial reports published by the Government of Malaysia. The figures are all with reference to the 178 prices unless mentioned otherwise.

ECONOMIC PROGRESS

The economic progress of Malaysia can be seen from the average annual growth rate of GDP in Table 1.

Year156-60161-65166-70171-75176-80181-85186-011-518000

1.1.46.10.011.66.1.-

.56.1.0.47.86.05.4-

0.55.54.11.76.76.8.-

44.55.810.48..7.88.7-

5.5.65.00.87.4-1.1.8-

Avg.4.15.05.48.08.65.6.88.7-7.55.0

Table 1 - Average Annual Growth Rate (%) of GDP at Constant Prices

The dip in the growth of the GDP in the early 80s was due to the depression being faced by the world and the negative growth was recorded in 18 due to the economic crisis of 17. However, the economy is on the path to recovery as indicated by the 5 % growth recorded in 000. Table gives the major economic indicators from 170 to date.

17018010151000

GNP/ Capita (US $)601680740554

Unemp (%)7.85.65.1.8..0

Inflation (%)1.66.7.1.5.0.0

RM/US$.08..71.5.8.8

Table ¡V Major Economic Indicators

Reasons for Economic GrowthMalaysia did not really have to fight for her independence. There was a lot of goodwill for the British when they left. Peace and Stability, which ensured the safety of the citizens and the foreign investors and security of property were the major factors that allowed the economy to grow and prosper. The synergy between the proactive policies of the government and the private sector was another reason for the economy to prosper.

The other factors that helped in the economic growth were as follows -

„The liberal foreign exchange regulations

„Malaysias tradition of relatively open and free trade.

„The fair treatment of the business community.

„Openness to Foreign Investment.

„The mixed economy model which was followed.

ECONOMIC PLANNING

The development process from independence in 157 has gone through the following major periods , namely,

„A period for growth and transformation from 157 ¡V 16.

„A period of growth and distribution from 170 ¡V 10.

„A period of growth and consolidation from 10.

The initial economic plan (156-60) was basically a development expenditure plan. This was basically concerned with building infrastructure, agricultural land development and diversification in agriculture. New Economic Policy (NEP) was introduced in 170 following the racial riots of May 16, which placed far greater emphasis on equity and redistribution through growth, with the twin objectives of eradicating poverty irrespective of race, and the restructuring of society to correct the identification of race with economic functions.

The initial economic plan has been followed by the five-year plans. Malaysia is currently in its 8th Malaysia plan (001-005) which is a comprehensive and integrated macro plan with detailed sectoral analysis and socio-economic programmes. This socio-economic planning gives direction and focus to the economic development. Based on these plans, the private sector and foreign investors can carry out long term planning in congruence with the governments plans. These five-year plans are part of the overall perspective plans which cover 0-year periods. The five-year plans are revised and reviewed every 1/ years by the mid term reviews.

STRUCTURAL TRANSFORMATION OF THE ECONOMY

Economic Structure in 157

The economic structure at the time of independence in 157 was that of a highly trade oriented economy exporting mainly rubber and tin and dependent on outside sources for essential foodstuffs and manufactured products.

The primary sector accounted for 45 % of the GDP. The tertiary sector consisted of supporting activities for the primary sector accounted for about 44 % while manufacturing activities, consisting largely of the processing of estate type agricultural products in factories off the estates, made up the remaining 11 %.The Gross exports constituted nearly 47% of the GDP dominated by the rubber and tin industries. These two industries alone accounted for 85 % of the gross export earnings. The imports consisted mainly of consumer goods (66 %) while the capital goods accounted for only 8 %.

Such an economic structure was highly economically unstable being very susceptible to the price fluctuation of the primary commodities i.e. tin and rubber.

Sectoral Contribution to GDP

Table gives the sectoral contribution to the GDP from 156 to 1 The average share of Primary, Secondary and tertiary sectors in the GDP were respectively 4., 8. and 41.8 during 147 to 157. The inter-sectoral changes following the NEP during 170 ¡V 1 is quite conspicuous as can be seen from Figure 1 which shows the trend of sectoral contribution to GDP. The structure of the economy underwent major changes resulting in a better balance between agriculture, industry and services.

The growth of the nations output was led by the expansion in the manufacturing and mining sectors, mainly oil and gas fuelled by the discovery of new oil and gas fields off Sabah and Terengganu in the 170s. The manufacturing sector grew rapidly at a rate of 10. % per annum during the period of the NEP and its share in GDP rose from 1. % in 170 to 7 % in 10. The agriculture sector which traditionally provided the growth impetus to the economy, continued to languish, and its share of GDP fell from % in 170 to 18.7 % in 10.

The share of the Primary Sector in GDP fell from 46.8 % in 160 to 17 % in 1, whereas the secondary sector increased from 11.5 % to 5 % in 15. The share of the tertiary sector has increased from 41.7 % in 160 to 50.1 % in 1.

Sectoral Contribution to Exports and Imports

Exports/Imports have also been reflecting the changing structure of the economy. Agriculture products were the primary exports at the time of independence as it was an agrarian economy. In 000, the agriculture goods are estimated to only account for 6 % of the total exports and manufactures have taken the lion share of 81.8% of the exports reflecting the changed nature of the economy. The imports have also reflected the changing nature of economy. The consumption goods share in imports have been decreasing and investment goods share increasing.

Figure 4 shows the change in the export structure and Figure 5 shows the change in the import structure between 10 and 000. This change reflects the maturing of the economy.

Figure 5 ¡V Changing Import Structure

Intra Sectoral Changes

The structural change in the economy has been accompanied by substantial structural changes in the composition of output within sectors.

Primary SectorThe primary sector has undergone a structural change. It can be seen from the graph above that the contribution of mining and quarrying to the Primary sector has increased while the contribution of agriculture has steadily declined.

In agriculture, the changes in output were the direct consequence of the vigorous pursuance of the diversification efforts aimed at broadening the agricultural production base. The 160s witnessed the active cultivation of a whole new range of crops to exploit the world demand including oil palm, pepper, paddy, pineapples, coconuts and cocoa.

The mining sector also experienced substantial structural changes in output. The share of tin, bauxite and iron ore declined due to the depletion of known reserves. The discovery of crude oil ensured that the mining sector account for .7 % of the GDP in 10. This has declined thereafter due to the stagnation of oil production and increase in the services sector.

Secondary SectorThe secondary sector consisting of the manufacturing and construction sub sectors also underwent major changes. The manufacturing sector recorded the highest rate of output growth expanding at the rate of 10. % from 170 to 10 during the period of OPP1.The manufacturing sector contribution to GDP has been steadily increasing, and in 187 surpassed agriculture to account for .5 % of the GDP. In the early stages of industrialisation , this sector was dominated by industries oriented primarily towards the domestic market. Subsequently, the growth was fuelled by the export-oriented industries such as textile and electronics. This transformation occurred with the expansion of resource-based industries ¡V tobacco, wood, palm oil, footwear, rubber and plastic goods. The eighties saw the emergence of heavy industries established by the Government, including the national car, methanol, sponge, iron ore and paper. The 180s also witnessed the active development of small and medium scale industries as the government sought to promote industrial deepening and inter-industry linkages. The construction sub sector also recorded a substantial contribution to the GDP due to the construction boom in the 80s.

Tertiary SectorThe development in the services sector has been satisfactory. The sector grew at a rate of 7.6 % during the period of OPP1, the most rapid growth being in the communication, gas and water, electricity and finance and banking sub sectors. This sector has been able to provide the necessary support for the growth of the leading sectors and has grown largely in consonance with these sectors

CONCLUSION

The dependence of the Malaysian economy has shifted from primary sector to the secondary sector in the 180s and there is a further trend of shifting to the tertiary sector in the 10s. The focus of economic planning has shifted from economic diversification and modernisation towards macro economic stability. This is reflected in the changed emphasis and the goals of the NEP, NDP, the OPPs and now the Vision 00. The economic crisis of 17 led to a slow down in the economy but it led to a greater emphasis on macroeconomic stability. The emphasis on social restructuring along with the economic development has ensured that there has been no major racial tensions in Malaysia since the 16 racial riots and the atmosphere for economic development has been fostered.

BIBLIOGRAPHY

David Lim (ed.), Readings on Malaysian Economic Development, Kuala Lampur Oxford University Press, 175

Ramon V Navaratnam, Managing the Malaysia Economy, Selangor Pelanduk Publications, 17

SE Stieglar & Glyn Thomas (eds.), A Dictionary of Economics and Commerce, Suffolk,UK Pan Books Ltd, 176

Sham Sani, Environment and Development in Malaysia Changing Concern and Approaches, Kuala Lampur ISIS Malaysia, 1

Teh Hoe Yoke & Goh Kim Leng (eds.), Malaysias Economic Vision Issues and Challenges, Selangor Pelanduk Publications, 1

VV Bhanoji Rao, Malaysia Development Pattern and Policy 147 ¡V 171, Singapore Singapore University Press, 180

Various Malaysia Plans

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