Country Economic Work for Malaysia - Islamic Development Bank

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26. The final part of problem tree starts asking questions whether weak software of growth are due to weak business sophistication, low level of innovation, or poor reverse linkages. Is weak business sophistication due to poor quality of local supplier, weak state of cluster development, narrow value chain breadth, or weak production process sophistication? With regard to low level of innovation, is it due to low capacity for innovation, poor quality of scientific research institutions, lower company spending on research and development (R&D), lack of availability of scientists and engineers, or low government procurement of advanced technical products. 27. Final branch of problem tree is whether poor Reverse Linkages (RLs) are constraining to growth (i.e. country is not fully exploiting RLs opportunities through sharing its knowledge and expertise to other IDB member countries). 28. Using the growth diagnostic framework developed in this study, binding constraints to Malaysia’s sustainable economic growth are identified in terms of private investment, public investment, and software of growth as follows: ii. Constraints to Private Investment Low Level of Private Investment appears as binding constraint to sustainable economic growth 29. Data show that during 2000s, economic growth was mainly constrained by significant decline in private investment. The key challenge in the 10 th Malaysia Plan is to stimulate private investment growth by 12.8% per annum over the Plan period (2011-2015). Prior to the Asian financial crisis, private investment as a percentage of GDP was at the maximum level of 32% in 1997 (average annual private investment was 26.9% of GDP during 1990-1997), which drastically declined to 10.3% in 2010 (Figure 1.13). During 2001- 2010, real private investment growth remained 4.2% per annum while the real public investment grew by 4.3% per annum. In particular, during the Ninth Plan period (2006-2010), the moderation in private 30.0 25.0 20.0 15.0 10.0 5.0 Figure 1.13. Malaysia: Gross Fixed Capital Formation (% of GDP) Private Investment Public Investment Source: World Development Indicators, World Bank (1 Jan. 2012) investment was partially offset by higher public investment through stimulus packages in 2009 and 2010. Achieving high income status by 2020 requires that the private sector must be placed in the driving seat of the economy through creating a more enabling environment. It is worth noting 15
that the Government’s Economic Transformation Program with an amount of MYR1.4 trillion ($523 billion) has targeted (92% of total investment) by the private sector (out of total, 73% by the local private investors and 27% by the foreign investors). 30. Similar to local private investment, low level of foreign investment also appears to be a binding constraint to growth. Compared to competitor countries in the region, Malaysia is also lagging behind in terms of attracting FDI inflows. Country has begun to lose some FDI to China and other newly emerging destinations, including Vietnam, through relocation of existing factories and a reduced inflow of new investors. During 1990s, Malaysia attracted average FDI inflows of $4.9 billion (6.3% of GDP) per annum, which declined to $4.2 billion (2.9% of GDP) per annum during 2000s. While during the same period, FDI flows to China increased from $32.8 Figure 1.14. Average Annual FDI Flows, 1990-2000 (% of GDP) Singapore Hong Kong Viet Nam Malaysia China Thailand Philippines Indonesia Korea Taiwan India 3.7 2.6 1.7 0.7 0.7 0.7 0.4 6.6 6.3 9.0 0.0 5.0 10.0 15.0 Source: UNCTADstat website (September 2011) 12.0 Hong Kong Singapore Viet Nam Thailand Malaysia China India Philippines Taiwan Indonesia Korea Figure 1.15. Average Annual FDI Flows, 2001-2010 (% of GDP) 5.9 3.5 2.9 2.8 1.7 1.3 1.0 0.9 0.7 13.9 20.2 0.0 5.0 10.0 15.0 20.0 25.0 billion (4% of GDP) to $71.7 billion (2.9% of GDP); Hong Kong from $14.9 billion (9.4% of GDP) to $35.8 billion (18.8% of GDP); Singapore from $9.6 billion (11.7% of GDP) to $18.1 billion (13.6% of GDP); and India from $1.9 billion (0.5% of GDP) to $16.6 billion (1.7% of GDP) (Figures 1.14 and 1.15). It is worth noting that the Asian financial crisis of 1997-98 caused significant outflows of foreign portfolio investment and foreign direct investment from Malaysia, which has not recovered yet. 31. According to Growth Commission Report (2008) 9 , for high and sustainable economic growth, investment rate of 25% 50 45 40 35 30 25 20 15 10 5 0 Figure 1.16. Malaysia: Gross Domestic Savings and Gross Capital Formation, 2000-2010 (% of GDP) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Bank Negara Malaysia (website) Gross domestic savings (% of GDP) Gross capital formation (% of GDP) 9 World Bank (2008) Growth Report by the Commission of Growth and Development. 16
Page 4: Acknowledgements Appreciation for s
Page 7 and 8: ISRA : International Shari’ah Res
Page 9 and 10: (v) Foreign Direct Investment……
Page 11 and 12: (2005)), key insights emerged in tw
Page 13 and 14: drain. Further, the Government need
Page 15 and 16: macroeconomic indicators are given
Page 17 and 18: SMEs are concentrated in the servic
Page 19 and 20: easy technology adoption, pro-busin
Page 21 and 22: Kelantan with the lowest per capita
Page 23: Figure 1.12. General Growth Diagnos
Page 27 and 28: (ii) Low Returns to Investments app
Page 29 and 30: Figure 1.22. Malaysia's Exports by
Page 31 and 32: 43. Malaysia’s private firms are
Page 33 and 34: over the medium-term. Several initi
Page 35 and 36: growth software compared to its maj
Page 37 and 38: esearchers and technicians in R&D p
Page 39 and 40: 59. Malaysia can further enhance it
Page 41 and 42: Annex Table 1.2. Malaysia: MDGs Ach
Page 43 and 44: 64. The Malaysian experience has al
Page 45 and 46: economic growth. The ETP is expecte
Page 47 and 48: 77. According to the Global Competi
Page 49 and 50: development of infrastructure throu
Page 51 and 52: a. Northern Corridor Economic Regio
Page 53 and 54: The challenge is for financial inst
Page 55 and 56: Original Equipment Manufacturing (O
Page 57 and 58: Intensify formalisation to promote
Page 59 and 60: Sukuk market has experienced unprec
Page 61 and 62: For innovation to become an importa
Page 63 and 64: y the United States (MYR2.3 billion
Page 65 and 66: (vi) (vii) Sharing Eexperience and
Page 67 and 68: institutions as well as Islamic pro
Page 69 and 70: Liberal Foreign Exchange Administra
Page 71 and 72: Issues/Challenges Facing the Islami
Page 73 and 74: Funding from Government of Malaysia
Page 75 and 76:
programmes in the country. Initiati
Page 77 and 78:
labeling and branding of Halal prod
Page 79 and 80:
to over 200 industrial estates or p
Page 81 and 82:
member countries can be provided te
Page 83 and 84:
Figure 6.5: MATRADE Business Strate
Page 85 and 86:
offered by the 35 MTCP training ins
Page 87 and 88:
case of the economies in transition
Page 89 and 90:
Key Challenges Facing the MTCP
Page 91:
iii. Conclusion 185. Above diagnost
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Country Economic Work for Malaysia - Islamic Development Bank

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