The Malaysian Industrial Development Authority (MIDA) commenced operations as the Federal Industrial Development Authority (FIDA), after a Bill of Parliament was passed in 1965. It was incorporated as a statutory body in 1967 as the government’s principal agency for the promotion and co-ordination of industrial development in Malaysia. In 1979, the name of FIDA was changed to MIDA to reflect a Malaysian identity.
Over the last four decades, MIDA has assumed a pivotal role in the promotion and co-ordination of industrial development in Malaysia. The Malaysian economy had graduated from being based on the export of primary commodities to a vibrant one, whose growth has been driven by the manufacturing sector.
Prior to 1970, industrialisation in Malaysia was on a small scale, primarily based on the development of import substitution industries. During that time, the Malaysian domestic market was small and unemployment was high. Therefore, the challenges the government faced were to diversify the economic base and to create more job opportunities.
Malaysia embarked on its industrialisation drive in the 1970s with the focus on promoting labour-intensive and export-oriented industries. The electronics and textiles industries were promoted to address the growing problems of unemployment and adverse effects of constant fluctuation in the prices of commodities and export earnings on the economy. The government implemented several measures to create a favourable investment climate, including the development of infrastructure in the form of industrial estates, power and telecommunications facilities, and the provision of special incentives to promote labour-intensive and export-oriented industries.
By the end of 1970s, most semiconductor companies had set up assembly operations in Malaysia, including Intel, Motorola, Texas Instruments, Matsushita, Siemens and Toshiba. The textiles industry had also attracted investments from Europe, Japan, India and Taiwan for the export market.
Malaysia entered another phase of its industrial development in the 1980s, when the government continued to develop the export-oriented industries and focused on the development of downstream resource-based industries, such as rubber, palm oil, timber, cocoa, pepper and petroleum, which were processed for the export-market.
In addition, the government promoted the development of heavy industries, and the Heavy Industries Corporation of Malaysia (HICOM) was established in 1980 to undertake several projects that involved the production of iron and steel, cement and small engines. The national car company, Proton, commenced operations in July 1985 and this was a significant phase in the country’s industrial development, marking entry into the automobile industry.
Malaysia then launched the first 10-year Industrial Master Plan (IMP) to provide a framework for the development of the manufacturing sector. The IMP1 (1986-1995) recommended the continuation of the export-led industrialisation strategy. It also placed emphasis on the promotion of the resource-based industries in which Malaysia had already developed a strong foundation. Among the resource-based industries that were promoted were chemicals and petrochemicals, rubber products, palm oil products, food processing, non-metallic mineral products, wood-based products and non-ferrous metal products. As a result, FDI inflows into the manufacturing sector increased significantly in the late 1980s.
In the early 1990s, Malaysia once again had to refocus its industrialisation strategy when it reached full employment and could no longer accommodate labour-intensive industries. The government embarked on a strategy to attract high-technology, capital-intensive, high value-added and knowledge-based industries. In 1995, the share of manufactured exports to total merchandise exports was 79.6%, compared with 32.8% in 1985. By the end of the IMP1 period, Malaysia was the world’s largest exporter of air-conditioners, semiconductors, oleochemicals and latex-dipped products, such as gloves, rubber thread and cathethers.
The government launched the Second Industrial Malaysia Plan (IMP2), 1996-2005, in 1996. This focused on a cluster-based development approach to transform the manufacturing sector to move up the value chain towards higher value-added activities, such as research and development (R&D) and product design, distribution and marketing.
The government’s objective was to shift the whole value chain to a higher level through productivity-driven growth and the utilisation of high technology. The target for the manufacturing sector under the plan was to attract approved investments amounting to RM250m ($72m) over the 10-year period. As a result of the government’s and private sector’s efforts, approved investments during the IMP2 period in the manufacturing sector surpassed the target, with total investments approved amounting to RM270bn.
In 2006, Malaysia launched the Third Industrial Master Plan (IMP3), 2006-2020, which outlines the strategies and policies designed to realise the vision of becoming a fully developed nation. The thrust of IMP3 is to sustain the growth momentum of the manufacturing sector at 5.6% per annum and contribute about 28.5% to the country’s GDP by 2020. The manufacturing sector’s investment target during the IMP3 period is RM412bn (RM27.5bn per year).
The targeted growth areas for non-resourced based industries are electrical and electronics, medical devices, textiles and apparels, machinery and equipment, the metals industry, and transport and equipment. Among resource-based industries, sectors such as petrochemical, pharmaceuticals, wood-based products, rubber and rubber products, the oil palm-based industry, and food processing are being promoted.
The services sector is expected to register an annual growth rate of 7.5% during the IMP3 period. The contribution of the services sector to GDP by 2020 is estimated to reach 59.7%, with targeted investments of RM688bn (RM45.9bn per year). Services activities targeted for promotion are business and professional services, integrated logistics services, information and communications technology (ICT) services, distributive trade, construction services, education and training, health services and tourism services.
The IMP3 will be important in positioning Malaysia’s long-term competitiveness to meet the challenges of a fast changing global economic environment. Today, there is strong competition for FDI not only from the developed countries, but also from developing countries, particularly Asian countries such as China, India, Thailand, Indonesia and Vietnam.
To maintain Malaysia as a viable location for FDI, the government will continue to ensure that the business environment in Malaysia remains attractive and competitive. Measures taken by Malaysia to attract FDI include developing and continuously upgrading the infrastructure, ensuring an adequate supply of skilled workers to meet the industries’ demands, continuous improvement in the government’s delivery system and reduction in corporate tax from 28% to 27% effective 2007, and to 26% in 2008. The government’s decision to establish an immigration branch in MIDA would also facilitate the speedy issuance of work permits to expatriates working in Malaysia.
The government is committed to ensuring that both foreign and domestic investors move up the value chain into technology intensive industries, and to undertake R&D, design and development, distribution and marketing activities. Despite the increasing global competition, Malaysia continues to attract foreign investments, reflecting the country’s cost-competitiveness as a manufacturing and export base.
Foreign investments in approved projects in 2006 amounted to $5.5bn, the highest level recorded to-date, compared with $4.9bn in 2005 and $3.6bn in 2004. Major sources of foreign investments in 2006 were Japan, the Netherlands, Australia, the US and Singapore. Foreign investments were mainly in electrical and electronics, chemical and chemical products, basic metal products, non-metallic mineral products, and food manufacturing.
To date, a total of 325 manufacturing projects from the UK have been implemented amounting to $1.5bn. UK investments were concentrated mainly in chemicals and chemical products, petroleum products (including petrochemicals), electronics and electrical products, non-metallic mineral products and basic metal products.
A total of 16 regional establishments with UK participation were also approved with estimated business spending of $36.5m. These companies have set up regional establishments in Malaysia for operational headquarters, international procurement centres, regional distribution centres, regional offices and representative offices.
Investments in the UK
The promotion of overseas investments will continue to enable Malaysian companies to invest overseas and to acquire new technologies, as well as to penetrate new markets. Malaysian companies have invested in the UK to take advantage of the UK’s expertise in areas such as telecommunications, software development, display technology, petrochemicals and hospitality.
For the period of 2001-2006, Malaysian investments in the UK amounted to $1.2bn which included investments from YTL Power International, Petronas, MUI Group, Proton Holding, Usaha Tegas, Unisem and HT Consulting.
Bilateral business ties
Expanding the trade and investments links in a new economic climate, with regional and bilateral arrangements taking place rapidly at the international level, will pose challenges for both countries. Business organisations in the UK and Malaysia must take cognizance of these developments and consequently assume an important role in strengthening bilateral business ties.
Malaysia will continue to intensify its promotional efforts in attracting FDI from the UK. The country’s strategic location in south-east Asia makes it an attractive place for UK businesspeople intending to penetrate the markets of other countries in the region. Other positive attributes of Malaysia are its political stability, pro-business and transparent policies, developed infrastructure and an enduring commitment to education, training and human resource development.
The two countries’ strong historical and educational ties, similarity of legal systems and the convenience of business communications should pave the way for enhanced bilateral business relations in the years ahead.