Regions will lead push for growth
One of the most vibrant economies in South Asia, Malaysia has big plans to increase its competitiveness and attract foreign investment into growth areas across the country

Last year was a momentous one for Malaysia. It celebrated its 50th anniversary as an independent nation, attracted more tourists than ever, launched new economic development corridors while keeping up a high rate of growth and sent its first ever astronaut into orbit (courtesy of the Russian Space Agency).

A federation of 13 states and three federal territories, divided into two regions separated by the South China Sea, Malaysia has a highly diverse population of around 27 million. Eleven of the states and around 20 million of the people live on Peninsular Malaysia, which is bordered by Thailand to the north and the island state of Singapore to the south. The other two states, Sarawak and Sabah, and the federal territory of Labuan are 400 miles away on the island of Borneo.

Over its first half century, Malaysia has transformed its economy and become one of the richest members of the Association of Southeast Asian Nations (ASEAN). “Fifty years ago, Malaysia was merely the largest producer of rubber and tin in the world,” says Prime Minister Abdullah Ahmad Badawi. “Today, Malaysia produces palm oil on an industrial scale and leads as an exporter of many manufactured products as well as services.”

Abdullah Ahmad Badawi
Abdullah Ahmad Badawi Prime Minister of Malaysia

Along with other states in the region, Malaysia was hit severely by the 1997 Asian economic crisis, but a decade on the economy is firmly back on the path of rapid growth. In the past two decades, electrical and electronic products have become its biggest export earner. In 2006, it was ranked the 19th largest trading nation in the world by the World Trade Organisation.

Tan Sri Nor Mohamed Yakcop, Minister of Finance II, expects the country to sustain its impressive annual growth rate of around 6 per cent this year despite volatile external conditions such as high oil prices, because the domestic economy has diversified. “Even in terms of exports, we have diversified away from reliance on one or two countries by increasing our exports to other countries,” he says.

The government is well aware, however, that a reorientation of the economy is required for Malaysia to navigate the challenges of a changing and competitive world as well in the future as it has in the past. While exports are expected to continue to grow at a healthy rate of 8.5 percent a year, Malaysia faces increasing competition for trade and investment from China and India, and other developing countries across Asia.

Malaysia’s ongoing five-year strategy for preparing to meet these challenges is contained in the Ninth Malaysia Plan, usually referred to in a country with a mania for abbreviation as 9MP. The government is pouring RM 200 billion worth of investment into this five-year blueprint for the economy, which runs until 2010.

The objective is to move Malaysia on from a labour-intensive to a value-added capital-intensive economy driven by knowledge and innovation. New sources of growth, employment and wealth creation are being sought. There are plans to move industry up the value chain, upgrade agriculture and agro-industry, and develop the services sector.

Tan Sri Nor Mohamed Yakcop
Tan Sri Nor Mohamed Yakcop
Minister of Finance II

The plan aims to address the disparities in income and wealth that still exist, especially between ethnic groups and between rural and urban areas. In the past, development in Malaysia has been concentrated in the traditional centres of Kuala Lumpur, Penang, and Johor Bahru. Central to 9MP, however, is the development of regions and rural areas. The Prime Minister says that for Malaysia to meet its goal of becoming a developed nation by the year 2020, there is a need to bring the rest of Malaysia up to par with Kuala Lumpur.

This is to be achieved through the establishment of a series of economic development “corridors” aimed at attracting both local and foreign investment. Mr Abdullah says they will “change the face of the country.”

The first to be launched, in 2006, was the South Johor Development Region, otherwise known as Iskandar Development Region or IDR, in the state of Johor. Last year, two more were introduced. These were a Northern Corridor Economic Region, covering the states of Penang, Kedah and Perlis, and the north of Perak, and an East Coast Economic Region (ECER), covering the states of Kelantan, Terengganu, Pahang and the Johor northern district of Mersing. Further corridors are to be launched soon for the East Malaysia states of Sarawak and Sabah.

Mr Abdullah says the corridors are based on the concept of leverage. “We do not intend to start new initiatives from scratch. Instead, we aim to build on our existing economic strengths to venture into new areas.”


Project Director: M. Mercedes Pagalday
Editorial Director: Fredrik Meloni
Project Assistant: Idil Demirel