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The Next Stage For The Malaysian Economy
Malaysia Perspective | 24 June 2011

By Predeeben Kannan

The availability of a variety of commodities in its export basket proved to be a blessing in disguise for the Malaysian economy, despite the slowdown at the global front. In the latest export figures released for the month of April 2011, the country sold more liquefied natural gas, palm oil and refined petroleum products.

The rise in commodity exports meant that the country’s sales as a whole rose some 11.1 percent to RM 57.8 billion from a year earlier, after rising 4.1 percent in March. Malaysia benefited from the rising demand for oil and primary goods as the Japan earthquake in March this year put a damper on orders for electronics goods. This led to its neighbors such as Singapore and Thailand reporting slower exports during the same period.

After growing slightly more than 7 percent last year, the Malaysian economy is expected to see growth of between 5 and 6 percent this year, despite the depressed state of the global economy. Centennial Asia Advisors Chief Executive Officer, Manu Bhaskaran added that a stronger domestic demand driven by the government’s Economic Transformation Programme also plays a key part in the growth projections. However he still believed that external demand would slow in the second half of the year.

“Overall, we can see a decline in demand, a build-up of the global inflation pressures and since all economies in this part of the world are open economies, we are bound to take some imported inflationary pressures,” he said.

Upbeat On The Economy
Some institutions continue to remain positive on Malaysia. Goldman Sachs said the Economic Transformation Programme and Government Transformation Programme were strategically clear and encouraging.

As part of the Transformation Programme, the Malaysian government recently announced the formulation of a “SME Masterplan”. The aim of the masterplan is to provide the policy direction for the small and medium enterprise (SME) sector up to the year 2020.

Deputy Prime Minister Tan Sri Muhyiddin Yassin said the government’s support would be guided by the masterplan. The government owned SME Corp is drawing up the masterplan in collaboration with the World Bank.

The plan will focus on programmes that will accelerate the growth of SMEs through productivity gains and innovation. A business start-up and business growth fund was introduced recently by the Malaysian Technology Development Corp designed to support innovation at the early stages. The business start-up fund has an allocation of RM100million while the business growth fund has an allocation of RM150million.

“If Malaysia is able to deliver on these objectives, the fundamental economic impact would be likely be favourable for the equity market through both the earnings growth and valuation channels,” Goldman Sachs said in its statement about Malaysia’s prospects.

The financial services giant has upgraded Malaysia to ‘overweight’ as it is bullish on the country’s prospects going forward. It forecast close to 6 per cent growth in Malaysia’s gross domestic product this year and the lowest inflation rate of 3.7 per cent compared to its other regional counterparts. Goldman Sachs said Malaysia was the only regional economy that was a net beneficiary of rising oil prices, which was expected to average US$113 per barrel in 2011 and US$130 in 2012.

“We expect earnings growth to be 15 per cent this year, above consensus forecast of 11 per cent.”

Time To Innovate
With the announcement of the hike in electricity tariffs beginning June this year, there have been concerns that it would put a damper on the country’s competitiveness as the increase in costs mitigate the effects of positive economic sentiments elsewhere.

“Given the sharp increases in coal and gas prices since the global economic recovery last year, the revision cannot be delayed further as they are impacting the financial standings of Tenaga Nasional Bhd and Petroliam Nasional Bhd as well as the government’s fiscal position,” said RAM Holdings’ group chief economist, Dr Yeah Kim Leng, in a statement to Bernama.

There is however concern that the rising electricity prices together with a higher Ringgit value and the continuing subsidy reduction exercise, will eventually remove the country’s advantage as a cost-competitive manufacturing hub. Many fear that this evolution is a risky one considering that efforts to boost domestic innovation and R&D have yet to be proven effective.

According to the Global Innovation Index of 2009-2010, Malaysia ranked 52nd out of 132 economies in innovation.Therefore, there is a real need for the manufacturing and industrial sector to improve their productions processes and enhance productivity in order for it to remain relevant in the face of International competition within the region.

Deputy Prime Minister Tan Sri Muhyiddin Yassin recognised this shortcoming when he made a quite apt statement recently.

“We need to strengthen collaboration between academia and business, and bring together the thinkers and the doers. The introduction of market discipline to the innovation process is useful as it will help to give us a better understanding of what works and what doesn’t, and thus help us allocate our resources better,” he said.

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