Malaysian vote boosts manufacturing
outlook By Tony Sitathan
SINGAPORE - After the changing of the guard in
the Malaysian premiership last October, an initial surge
of Islamic fundamentalism spearheaded by Parti Islam
SeMalaysia (PAS) resulted in some hesitation
internationally about doing business in that country.
There was some feeling that Malaysia's new prime
minister, Abdullah Badawi, would not be up to the task
of keeping the country on the moderate path laid out by
his predecessor, Mahathir Mohamad.
But the
results of the general elections this year proved
conclusively that Malaysians did not want an end to
their secular lifestyle and personal freedoms. The
overwhelming landslide win by the ruling Barisan
Nasional coalition secured almost 90 percent of
parliamentary seats and wrested back a former
opposition-ruled state, Terengganu (see Tug-of-war over Terengganu, May
7).
The Financial Times newspaper called the win
a strong signal that "Malaysia is back" and in sync with
foreign expectations, noting that ever since the 1997
Asian monetary crisis, "foreign investors have viewed
the country with suspicion and even hostility" over its
capital controls and "crony capitalism".
Riding
on the coattails of the election results, Malaysia's
manufacturing sector has rebounded strongly on a monthly
periodic basis, a trend economists say should help the
country's economy maintain growth of at least 6 percent
this year. According to the National Statistics
Department, the country's industrial output rose 11.1
percent two months ago compared with a year earlier,
while its industrial output was down 0.1 percent from
the previous month, and its manufacturing sector grew
almost 11.9 percent year-on-year and 2.7 percent from
the previous month.
Malaysia's gross domestic
product (GDP) is expected to increase in the first half
of 2004 on strong external global demand for electronic
and electrical products, said a trade official with the
Ministry of Trade and Industry. According to the
official, Malaysia's GDP is expected to increase by 6-8
percent or more for the rest of the year. Malaysia had
earlier forecast 6-6.5 percent GDP growth for 2004.
Malaysian exports on the rise Exports
to China, Malaysia's fourth-largest export destination,
grew by almost 28.3 percent to US$565 million last year.
This trend is expected to continue despite the
overheating of the Chinese economy. There is also the
inevitable struggle by Malaysia to keep foreign
investment from drifting toward cost-competitive China.
Foreign investment in Malaysia fell by more than 35
percent to $2.9 billion last year, but analysts say
China lacks the skilled workforce to compete in high-end
manufacturing. The Malaysian government has recently
announced a scheme for companies to encourage the
workforce to retrain in technical institutes and
colleges, with a strong emphasis on hands-on training
for industrial automation and engineering services. This
measure is expected to raise the performance especially
of workers in the manufacturing industry.
The
government this year eased rules to allow foreign
investors 100 percent ownership on manufacturing firms
they set up, putting Malaysia on a par with other
countries vying for foreign capital. "This rule is
expected to draw in manufacturers from neighboring
countries like Singapore and Thailand that previously
had reservations about investing in Malaysia's
manufacturing sector," said R Ramakrishnam, managing
director of Pearl Precision Sdn Bhd, a plastics
precision molding and tooling company based in Kuala
Lumpur. "By allowing greater flexibility, this has made
Malaysia more attractive as a manufacturing hub in
Southeast Asia." he noted. "But more needs to be done."
Manufactured goods account for more than 85
percent of Malaysia's exports. The broad-based growth in
domestic and external demand has driven capacity
utilization in the manufacturing sector to about 80
percent. Export-oriented industries contributed slightly
more than half of the total manufacturing output. The
biggest contributor remains the electronic and
electrical sector, despite posting a lower growth of 4
percent in the first half of last year. The demand for
computers and computer peripherals is expected to pick
up this year, while the global demand for electronic
products, estimated at $1 trillion in 2002, is
anticipated to increase by about 20 percent in 2004.
Sukhdev Singh, a technical sales engineer with
Avi-Tech Electronics based in Malaysia, says the country
shows healthy signs of riding on the back of the current
semiconductor equipment and material boom. "We have seen
the current demand for semiconductor equipment increase
from $22 billion globally last year to over $31 billion,
while materials increased by an average of $3 billion.
The global demand for consumer electronics and cell
phones has created a lot of pent-up demand recently by
semiconductor and wafer fabs to fulfill their orders
from clients," he said.
Domestic investment
improving The government has made it easier for
technopreneurs to tap into cheaper subsidized
infrastructure from high-speed Internet access and an
information and communications technology (ICT) training
center for the disabled. In fact many of the measures on
ICT are geared toward developing a vibrant domestic
technology sector, which eventually will rely less on
foreign direct investment and more on domestic-led
investment from local companies.
The government
has also increased venture-capital funds managed by
Malaysian Venture Capital Management Bhd from the
current $132 million to $211 million. Now
venture-capital management companies that have
profit-sharing agreements with venture-capital companies
will be given tax exemptions on income derived from such
agreements. This is expected to provide a boost to local
technology startups.
The development of small
and medium enterprises has been encouraging and its
contribution to the economic growth was enhanced with
the introduction of a $265 million micro-credit scheme
last May. This scheme created greater accessibility to
financing at favorable interest rates. It has also
promised tax waivers on overseas income by
non-residents, refunds on tax paid for services and
sales not collected by companies, and reduction of sales
tax on locally manufactured goods.
Group tax
relief was also extended to products and industrial
equipment used in biotechnology, nanotechnology, optics
and photonics. Also a $26 million fund was recently
established to increase the pool of
research-and-development expertise and encourage R&D
activities in selected high-tech industries. "These are
all tangible benefits that would assist small and medium
companies as well as local investors to take advantage
of the recent developments in Malaysia," said Daniel
Low, an operations manager for a consumer-electronics
manufacturer based in Klang Valley, Malaysia.
Malaysia's overall competitiveness ranking is
expected to jump into the top three in the world from
fourth position in the IMD World Competitiveness
Yearbook last year. The competitive edge is based on
political stability, a business-friendly government, an
educated and trainable workforce, abundance of natural
resources, and strong economic management.
The
results of the recent elections have added fresh impetus
to the clarion call of Malaysians to embrace change
espoused by Mahathir Mohamad, who coined the phrase
"Malaysia Boleh" - Malaysia can do just as well as
anyone else.
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