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Malaysia: Towards Global Competitiveness

Malaysia continues to outperform many nations in its efforts to attract foreign direct investment.

Nov 08
Halfway through its first century of independence, Malaysia also finds itself more than halfway toward realizing the Ninth Malaysia Plan economic blueprint and its Vision 2020 target to be a first-world economy. The country has reached a critical juncture - it has amassed enough momentum to make a quantum leap up the global value chain.

 At the June 2008 mid-term review of the Ninth Malaysia Plan, Prime Minister Abdullah Ahmad Badawi had an excellent report card for the country. He said since the plan's inception in 2005, economic growth has been maintained at 6.1 percent per year; per capita income has risen from US$5,797 to US$7,097 in 2007; and the fiscal deficit has been reduced from 3.6 percent of gross domestic product (GDP) to 3.2 percent in 2007.

Clearly, the country has stayed on course for growth. Out of 55 countries, its world competitiveness ranking improved from 26th position in 2005 to 19th position in 2008 (source: IMD World Competitiveness Yearbook 2008); its global competitiveness ranking improved from 25th position out of 125 countries in 2005 to 21st position out of 134 countries in 2008 (source: WEF Global Competitiveness Report 2008-2009); and, it improved from 24th position out of 178 countries in 2007 to 20th position out of 181 countries in 2008 in regard to ease of doing business (source: Doing Business 2009, World Bank).

In addition, the Knowledge-Based Economy Development Index, which monitors the progress of the economy toward becoming knowledge based, increased by 227 points from 2,413 in 2000 to 2,640 in 2007. The most significant improvement was in computer infrastructure, which registered an increase of 220.5 percent. Research, development, and technology increased 24.1 percent, and education and training increased 6.5 percent. Malaysia was among the top-five countries that registered the largest progression in this area.

The political process has been peaceful through the years, with both ruling and opposition parties maintaining pro-business agendas. Macro-level plans are in the cards for five development corridors: Iskandar Malaysia (South); the Northern Corridor Economic Region (NCER); the East Coast Economic Region (ECER) in Peninsular Malaysia; and in East Malaysia, the Sarawak Corridor of Renewable Energy (SCORE) and Sabah Development Corridor (SDC) - which will drive growth and bring opportunities throughout the nation by drawing investment and creating jobs in high-value services, petrochemicals, agro-based industries, electronics, and tourism. In particular, the Iskandar Malaysia zone in the southern state of Johor is expected to lead the way in attracting investments to Malaysia in the areas of financial, logistics, health, education, and creative services.

Despite intense global competition, a flood of foreign direct investment is expected. So far, FDIs in 2007 were the highest recorded to date. The economy registered a strong GDP growth of 7.1 percent in the first quarter of 2008.

During the period January to August 2008, the United States was the second-largest foreign investor in Malaysia's manufacturing sector, with investments totaling RM6.28 billion. U.S. investments in Malaysia for the first eight months of the year also surpassed the amount approved for the whole of 2007, which totaled RM3 billion.

A host of incentives have been introduced to enhance the investment environment. These include a government-established Cabinet Committee on Investment and the reduction of the corporate tax rate from 27 percent to 26 percent in 2008. In 2009, the tax will be reduced to 25 percent.

As a small and open economy, Malaysia's economic outlook will be influenced by global uncertainties, but resilience is expected because of the country's diversified export base and low exposure of local financial institutions to the U.S. subprime market.

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