Emerging Market Essay Malaysia

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Emerging Market Essay
(Malaysia)

Economic History (Pre-Independence)
Malaysia is situated along the Straits Of Malacca, connecting the Indian Ocean with the South China Sea and Pacific Ocean so trading in this area has been around for centuries. Spices were the main goods traded in the 15th century and as the Malacca Sultanate grew from strength to strength, it eventually gained a monopoly on all trade passing through the straits1. The Straits Of Malacca is still one of the most vital shipping lanes in the world.

Later centuries would see the Portuguese, Dutch and British dominating trade in Malaysia. The British invested and developed the tin mining industry for exports in Peninsular Malaysia during the 19th century, by 1883 Malaysia had become the largest tin producer in the world. By the end of the 19th century, it was supplying about 55% of the world's tin2. Rubber and palm oil are also significant exports during this period.

Economic Development After Independence
In 1963, Malaysia gained Independence from the British. At that time, Malaysia’s economy was still largely dependent on mining and agriculture, key resources being rubber, timber, palm oil and tin. At one time, Malaysia was the world largest producer of palm oil3. In the 1960s, economic resources was still largely in the hands of foreigners and ethnic Chinese, this led to discontentment among the Bumiputeras (Ethnic Malays) majority in the country. Things came to a head on May 1969 when racial riots erupted after a largely non-bumiputera political party did unexpectedly well in a federal election. In 1971 the New Economic Policy (NEP) was launched to redistribute corporate equity to bumiputeras and also to encourage them to move towards middle class occupations which pays a higher salary4. In the 1970s, Malaysia started a transition to move away from mining and agriculture to manufacturing and export oriented industrialization. In 1982, then PM Mahathir started the Look East Policy where Malaysia would send young Malaysians to learn in Japan and so could contribute to the economic and social development of Malaysia. Japan was also attracted to invest in Malaysia5. By 1990s, Malaysia had met the criteria to be a Newly-Industrialized Country (NIC).

Both GDP and GDP Per Capita have increased from 1980s till now. Malaysia is a member of several trade organizations such as WTO, APEC, IOR-AC and ASEAN.

A look at how Malaysia’s economy has shifted from 1970 to 19906. Structural Change in GDP 1970-90 (% shares)
YearPrimarySecondaryTertiary
197044.318.337.4
199028.130.241.7

Key Economic Sectors And Government Policies

1.Manufacturing
Malaysia is still very much reliant on her manufacturing industry8. In the 1970s Malaysia started to diversify its economy from mining and agriculture to manufacturing and services7. The strategy was to attract Foreign Direct Investments (FDI) and manufacture goods for exports to global markets. The Malaysian Investment Development Authority (MIDA) was setup in 1967 and in 1972 had established overseas offices to attract FDI, Foreign firms coming to invest in Malaysia can receive benefits such as duty free import of raw materials and capital goods. Tax concessions are also given9. Free Trade Zones (FTZs) were set up in places such as Penang where production was carried on with the undertaking that the output would be exported. Investors were also attracted by Malaysia's good facilities, relatively low wages and docile trade unions10. The Look East Policy was initiated by then PM Mahathir as a platform to learn from Japan and attract Japanese investment so as to rapidly industrialize Malaysia.

2.Natural Resources
Malaysia has an abundance of land and natural resources, it is situated beside the Straits of Malacca (A major trade route) thus production and exports of rubber,tin, palm oil, timber, cocoa, pineapple, and tobacco has been a mainstay of Malaysia’s economy since...
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