Can we reindustrialize sustainably in 2020 and beyond?

Media Statement by Dr. Ong Kian Ming, Deputy Minister for International Trade and Industry (MITI), on the 5th of January 2020

Professor Rajah Rasiah, in a journal article in 2011, raised a very interesting question on whether Malaysia was experiencing negative deindustrialization i.e. whether Malaysia was prematurely deindustrializing before we could reach our ‘peak’ in manufacturing and industrial output.[1] More recently, Finance Minister Lim Guan Eng also referred to the phenomenon of premature deindustrialization in an address at the University of California, Berkeley, in the heart of Silicon Valley.[2]

According to figures used by Rasiah, the contribution of industry (which includes manufacturing, construction and utilities) to GDP grew from 30.7% in 1990 to a peak of 37.9% in 2000. By 2009, it had fallen to 32.5%. The share of manufacturing in the GDP calculations rose from 24.2% in 1990 to 30.9% in 2000 before falling to 26.6% in 2009. Since 2010, the share of manufacturing as part of GDP has stagnated at between 22% to 23%. Meanwhile, the share of services has grown from 52.4% in 2010 to 56.7% in 2018.

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Turning Point for the Electrical and Electronics (E&E) Industry in Malaysia? Part 2

Media Statement by Dr. Ong Kian Ming, Deputy Minister of International Trade and Industry (MITI) on the 30th of July, 2019

In part 1 of my media statement, I explained the importance of the E&E industry to the larger Malaysian economy and how this sector has evolved over time.[1] In Part 2 of my statement, I will highlight some of the key challenges and opportunities for this sector in Malaysia in the context of global trade and economic uncertainties.

  • Capturing new and higher value-added investments from existing players

An investment by a new company worth RM100m, especially if it is a well-known global brand, can generate more publicity in Malaysia compared to a re-investment by an existing player worth RM1 billion. In some ways, this is understandable given our larger fascination with new, bright shiny objects compared to older and duller toys, so to speak. But as the saying goes, “a bird in hand is (sometimes) worth two in the bush” meaning to say that we should not forget the importance of existing players while we aggressively pursue new investments.

Many of the existing players in the E&E industry in Malaysia are well-known multinational companies (MNCs) with operations in many countries. And these companies can choose between various locations, including Malaysia, for their future expansion plans. The attractiveness of tax and other related incentives would be one the factors influencing global HQ investment location decisions. The challenge here is for the respective management teams in Malaysia to make a pitch to their global HQs for these new investments in competition with their colleagues from other countries. The pushback from the Malaysian authorities which the local teams are facing is to show that their investments involve higher value-added products and processes deserving of new incentives.

Continue reading “Turning Point for the Electrical and Electronics (E&E) Industry in Malaysia? Part 2”

Turning Point for the Electrical and Electronics (E&E) Industry in Malaysia? Part 1

Media Statement by Dr. Ong Kian Ming, Deputy Minister of International Trade and Industry (MITI) on the 30th of July, 2019

The report in June 2019 that Apple was mulling a 15-30% supply chain shift out of China and that Southeast Asia was a potential relocation destination created a lot of media interest in Malaysia.[1] What could the Malaysian government do in order to pull some of these investments onto our shores? How ready is our local E&E industry to capture part of Apple’s value chain? Which companies could be potential beneficiaries? These questions are part and parcel of a larger debate regarding the E&E sector in Malaysia. The industry is facing a turning point in its development, and the US-China trade war has created a unique window of opportunity which can catalyse the development of the entire industry in Malaysia for decades to come.

Contribution to the Economy

Before we delve into the future prospects of the E&E industry, it is important to contextualise the current role which this sector plays in the Malaysian economy. The E&E sector’s contribution to the overall health of the country’s economy goes far beyond its 5.4% share of GDP in 2018 (RM78b out of a RM1.4 trillion economy). It is BY FAR, the largest driver of exports in Malaysia. 38.1% of the almost RM1 trillion in exports in 2018 came from the E&E sector. Manufactured petroleum products comes in at a distant 2nd with 7.7% of total exports in 2018.

It is also a DISPROPORTIONATE contributor to the nation’s trade surplus. Out of the RM120.5b trade surplus enjoyed by Malaysia in 2018, 99% or RM119.2b was generated by the E&E sector. Without the contribution of the E&E sector, Malaysia would have experienced the ‘twin deficit’ phenomenon – a budget as well as a trade deficit and this would likely have had an effect on foreign investor confidence. Many would be surprised to learn that Malaysia’s largest export to China is not palm oil or agriculture or petroleum products but products from the E&E sector. This is also one of the few sectors where Malaysia enjoys with trade surplus vis-à-vis China.

Continue reading “Turning Point for the Electrical and Electronics (E&E) Industry in Malaysia? Part 1”