APRIL 2015 | 1

Penang economic indicatorsan extract from Penang monthly april 2015 issue 4.15

2 | APRIL 2015

Penang’s GDP has been growing over the last five years. Following the recent release of data on Malaysia’s GDP growth for 2014 by Bank Negara Malaysia, the state GDP has improved to 5.9%, posting a 0.2 percentage point higher than that of the previous projection made in January 2015 (Figure 1)1. In view of the adjustment made for Malaysia’s 2015 GDP growth projection, the 2015 state GDP is also altered. The state GDP growth is expected to slow down by one percentage point to 4.9% in 2015. This is a drop of 0.5 percentage points from the previous forecast made by Penang Institute.

On the supply side, all economic sectors were estimated to grow at positive rates in 2014. Table 1 estimates that although Penang’s mining and quarrying sector registered the highest growth of 14.5% in 2014, the sector’s share in Penang constituted merely less than one per cent of Penang’s total GDP.

In 2015, all economic sectors will experience slower expansion compared

By Ong Wooi LengPenang economic outlook

Penang’s economy in 2015: growth continues,but more slowly

1 Refer to Ong, W. L. (2015), “Ripples from global events threaten local economy” in Penang Economic Outlook 2015, Penang Monthly, January 2015.

2 The projection of GDP growth rate is calculated using the shift-share analysis, developed by David Creamer in early 1940s. The shift-share identity is presented as follows:- (ri-r)+(rij-ri )=(rij-r ) where r = growth rate; i = national sector; and j = sector in state.

2006 2007 2008 2009 2010 2011 2012 2013 2014* 2015* Malaysia 5.6% 6.3% 4.8% -1.5% 7.4% 5.2% 5.6% 4.7% 6.0% 5.0% Penang 10.8% 6.5% 5.5% -10.5% 10.4% 3.9% 5.0% 4.6% 5.9% 4.9%

15.0%

10.0%

5.0%

0.0%

-5.0%

-10.0%

-15.0%

% Growth rate, constant 2005 prices

Figure 1: gdP annual growth rate in malaysia and Penang, 2006-2015*

Source: Department of Statistics Malaysia, Economic Report 2014/2015 and Penang Institute.

*forecast for Malaysian GDP growth has been adjusted based on the revised Budget 2015 made on January 20, 2015. Mid-point of the projected Malaysia’s GDP growth is used for illustration purposes (2015: 4.5%-5.5%) while forecast for Penang’s GDP growth is calculated by the Penang Institute2 .

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to the previous year. The construction sector may experience a negative growth as miniscule as 0.2%; however, this will not give any adverse impact for the industry. It is believed that property developers may stay cautious with the arrival of GST in April 2015, which is likely to change consumer spending patterns. Having contributed about 14% of its manufacturing output at the national level, Penang’s services sector is projected to marginally surpass its manufacturing share by less than one per cent in 2015, while its shares for other economic sectors are anticipated to relatively plateau (Table 1). This trend could be an encouraging sign, and it can perhaps be attributed to greater support services activities, such as business processing outsourcing (BPO), flowing into Penang.

stable capital inflow despite smaller domestic investmentA total of 169 projects were approved in Penang for 2014. Being ranked as the third highest investment recipient in Malaysia, Penang contributed about 11.4% of total investment in 2014 – four per cent more than 2013. Total capital investment reached RM8.16bil. Of this, domestic and foreign investments respectively made up RM3.05bil and RM5.11bil.

On average, total capital investment registered at RM48.3mil for a project in 2014, compared to RM32.9mil in 2013.

table 1: malaysia’s and Penang’s gdP growth and share, 2014 and 2015

Economic activityMalaysia Penang

% growth % share % growth % share2014 2015* 2014 2015* 2014* 2015* 2014* 2015*

Agriculture 2.6 3.1 7.1 6.9 4.5 3.5 1.9 1.8Mining 3.1 2.8 7.8 7.6 14.5 13.5 0.1 0.1Construction 11.6 10.7 4.1 4.3 0.8 -0.2 2.3 2.2Manufacturing 6.2 5.5 25.0 25.1 4.8 3.8 47.8 47.4Services 6.3 5.6 56.0 56.1 7.1 6.1 48.0 48.6GDP growth/share 6.0 4.5-5.5 100.0 100.0 5.9 4.9 7.0 7.0

Source: Bank Negara Malaysia and Penang Institute.*Projected by Penang Institute.

The share of foreign investment has grown from about 15% in 2010 to over 60% in 2014 (Figure 2), while the share of domestic investments halved from about 85% in 2010 to nearly 40% in 2014.

Although the breakdown of the industry for domestic and foreign investments has not been made available by the Malaysia Investment Development Authority (Mida), a generic observation seems to suggest that the E&E industry experienced an upward trend. A number of MNCs had either planned to expand their existing plants or build new plants in Penang – one of them being Keysight Technologies (formerly Agilent Electronic Measurement Group), one of Penang’s “Eight Samurai”. It expanded its business processes worth RM500mil in Penang and hired about 500 new employees, especially R&D engineers3. (Keysight focuses on 5G communication, solutions for new Internet devices and

sensor technology.) US-based MNC Seagate, on the other hand, bought another 30 acres of land in Batu Kawan and invested a sum of RM1.05bil to manufacture hard drives and provide data storage solutions4. Furthermore, SanDisk Corp is also setting up its flash-memory product manufacturing facility in Batu Kawan5.

moderating external demand due to global eventsPenang’s trading environment seems to portray a moderating trend in 2014 due to its timely pickup in exports in the last two months of 2014. Figure 3 shows the trade balance of Penang over the last two years; it is evident that trade balance fluctuated in the second half of 20146, experiencing double troughs in August and October 2014 compared to January-December 2013. This is mainly attributed to growth in import value of about 23% from January-August 2014, turning trade into deficit for the first

Soaring high. Keysight Technologies, one of Penang’s “Eight Samurai”, expanded its business processes worth RM500mil in Penang. 3 www.investpenang.gov.my/news-

detail.php?group=2014&sub_group=November&pid=17

4 www.thestar.com.my/Business/Business-News/2014/10/09/HP-to-invest-RM1b-in-Penang-Its-expected-to-sign-land-deal-with-state-govt-soon/?style=biz

5 www.thestar.com.my/Business/Business-News/2014/06/09/SanDisk-sets-up-Penang-plant-RM12bil-manufacturing-facility-to-be-operational-in-March-2015/?style=biz

6 According to the Department of Statistics, the export and import values are gathered at the entry and exit points of Penang Port and Penang International Airport via the Royal Customs Department of Malaysia. Therefore, the data is unable to track the origin/departure destination of commodities being transported to the Penang Port and Penang International Airport.

Ivan

Lim

4 | APRIL 2015

time after the global financial crisis in 2009. The deficit dipped further in October 2014 due to an increase of about 25% month-on-month (m-o-m) basis in import value from RM2.3bil in September 2014.

Nevertheless, the value of commodity being imported softened in the last two months of 2014, dropping by 30.4% m-o-m basis from RM17.2bil in October 2014 to about RM12bil in November 2014, resulting in a surprisingly large trade surplus. This seems to suggest that the external demand could be in the midst of adjusting its trading activities to global economic events such as the fall in oil price and rise in the US interest rate (and hence a weakening Ringgit). A similar trend is predicted in the first half of 2015; it is interesting to note that the total commodity being traded (the sum of exports and imports) in Penang recorded an upward trend, constituting an increase of 9.2% in 2014 compared to 2013.

Unlike the fall in oil price, Penang’s external trade may be moderately affected by the plunging Ringgit. Theoretically, the fall in Ringgit favours the export of goods and services but it accelerates the price of imported goods, with the assumption that the volume of imported goods and services to be used as raw materials remains constant. This will eventually result in lower trade surplus. Furthermore, this scenario is likely seen to have a vicious cycle where

Seagate's facility on the island. The US-based MNC bought another 30 acres of land in Batu Kawan and invested a sum of RM1.05bil.

Source: Malaysia Investment Development Authority (Mida).

1.791.96

1.13 1.79

5.111.45

0.72

10.457.15

1.34 2.12

3.05

2009 2010 2011 2012 2013 2014

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Domestic investment Foreign investment

Figure 2: capital investment in Penang (rm bil), 2009-2014

Figure 3: double troughs in Penang’s balance of trade (rm mil), 2013 and 2014

2013 2014

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

4,000.00

3,000.00

2,000.00

1,000.00

0.00

-1,000.00

-2,000.00

-3,000.00

-4,000.00

Source: Department of Statistics Malaysia.

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the volume of export goods may then deteriorate if raw materials being used to produce final goods and services become expensive.

Commodity-wise, machinery and transport equipment remained the largest exported commodity in Penang; out of RM172.6bil, it contributed about 71% of total export in 2014, growing at 8.6% compared to 2013 (Figure 4a). The commodity’s import expanded considerably by 33.1% m-o-m basis while its export contracted by 12.3% m-o-m basis in October 2014. However, its exports made a significant turnaround of 10.4% and experienced a substantial slump in its import of about 40% m-o-m basis in November 2014. Meanwhile, miscellaneous manufactured articles and manufactured goods accounted for 14.7% and 5.1% respectively (Figure 4a).

The structure of exported and imported commodities also suggests that over 90% of Penang’s commodities being exported comprise E&E-related products, including electrical machinery, apparatus and appliances; professional and scientific instrument; and telecommunication, sound recording and apparatus. Likewise, Penang imported these commodities the most (Figure 4b).

Figure 4a: total export of Penang, 2014 Figure 4b: total import of Penang, 2014

Source: Department of Statistics Malaysia. Source: Department of Statistics Malaysia.

Figure 5a: major export countries from Penang, January-november 2014

Japan

Hong Kong

Euro Zone

US

China

6.5%

10.6%

11.6%

15.6%

19.6%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Total export: RM157.97bil

Source: Department of Statistics Malaysia.

Figure 5b: major import countries to Penang, January-november 2014

Taiwan

Japan

Singapore

US

China

6.2%

7.8%

8.2%

13.0%

18.6%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%

Total import: RM141.79bil

Source: Department of Statistics Malaysia.

Miscellaneous manufactured

articles14.7%

Manufactured goods5.1%

Chemicals3.8%

Others2.0%

Crude materials,inedible

1.4%

Machinery and transport

equipment61.3%

Miscellaneous manufactured

articles5.8%

Miscellaneous transactions and

commodities4.4%

Mineral fuels,lubricants, etc.

4.7%

Manufactured goods7.0%

Chemicals4.8%

Others12.0%

Food1.7%

Machinery and transport

equipment71.1%

Total import: RM154.46bil

Total export: RM172.56bil

6 | APRIL 2015

Based on the percentage share of total trade, Penang’s five major trading partners are China (including Hong Kong), the US, Japan, the Euro zone and Singapore. These countries accounted for nearly 51% of Penang’s total trade in the first 11 months of 20147. Out of the five countries, while Penang recorded trade deficit with Japan and Singapore, the other three countries registered trade surpluses. Trailing behind Singapore, Thailand and Vietnam are Penang’s major trading partners within Asean.

Amid a stiff and competitive trading environment and the Ringgit’s depreciation, the full realisation of an Asean Economic Community (AEC) is foreseen to play an important role in pushing for greater trading activities but, at the same time, diverting business activities to a more profitable destination. steady growth in the tourism sector Ever since George Town was recognised as a Unesco World Heritage Site in

AirAsia's counters at the Penang International Airport. Penang has been attracting a number of SSO companies to set up their business activities here, including AirAsia.

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US

Japan

China

Singapore

Indonesia

0.0% 10.0% 20.0% 30.0% 40.0% 50.0%

3.4%

4.9%

10.3%

22.5%

45.2%

Figure 7: major countries of origin of Penang’s international visitors via Penang international airport, 2014

Source: Penang Global Tourism.

Figure 6: international visitors in Penang via Penang international airport, 2013 and 2014

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

35.0%30.0%25.0%20.0%15.0%10.0%5.0%0.0%-5.0%-10.0%-15.0%-20.0%

75,000

70,000

65,000

60,000

55,000

50,000

45,000

40,000

Num

ber o

f vis

itors

2013 2014 % growth y-o-y

Source: Penang Global Tourism.

7 Since the Department of Statistics Malaysia does not provide the breakdown of exports and imports at country level beginning from December 2014, we are unable to report this data for the whole year of 2014.

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8 George Town Festival features a series of arts and cultural events in the month of August. This includes world-class performances, cross-cultural creative collaborations, experimental art, traditional and contemporary performing arts, as well as local community initiatives.

Bon voyage. Penang’s international visitors expanded by 7.5% annually from 2008-2014.

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Lim

2008, Penang’s tourism sector has been experiencing a growing trend. Penang’s international visitors expanded by 7.5% annually from 2008-2014, accounting for about 720,000 visitors arriving at Penang International Airport in 2014. This pattern varies seasonally, as depicted in Figure 6. Unlike 2013, foreign visitors exhibited three seasonal growth paths in 2014: first, the trend boomed from January-April 2014, followed by a smaller wave of growth from May-August 2014, and it is estimated to have grown from September-December 2014. On a year-on-year (y-o-y) basis, international visitors increased in all months except June, September and December 2014, compared to 2013 – likely due to the fact that Penang and Malaysia at large were badly hit by haze from forest fires in Sumatra, Indonesia, which usually happens in June.

Figure 6 also indicates that Penang seems to have steady arrivals from abroad during the George Town Festival (GTF) in August every year. Based on Penang Global Tourism’s statistics, a total of about 220,000 visitors attended all types of events organised by GTF with a surge of 6.4% in 2014 compared to 20138.

In relation to the rise in foreign arrivals for the last month of 2014, the Penang Island Jazz Festival (PIJF) is another popular two-day event held in early December every year. It has been continuously well received by international visitors: “When it started in 2004, the percentage share of attendees from Penang and outside Penang in the first few years was about 50% respectively,” says Paul Augustin, director of PIJF. However, a shift occurred in 2008: attendees from outside Penang went up to 60% and local Penang attendance dropped to 40%. The crowd in 2014 was estimated to reach over 5,000; attendees from outside Penang rose to 65%, while local Penang attendees shrank to 35%.

table 2: labour statistics in Penang ('000), Q1-Q3 2014 2014 Labour force Employed

personsUnemployed

personsLabour force participation

rate

Unemployment rate

Outside labour force

Q1 824.0 811.7 12.4 70.5 1.5 344.8

Q2 817.6 800.0 17.6 70.0 2.1 350.9

Q3 823.1 810.8 12.4 70.2 1.5 349.8

Source: Labour Force Survey, Department of Statistics Malaysia.

table 3: employment share in services sub-sectors in Penang (%), Q1-Q3 2014

Services sub-sectors Q1 ‘14 Q2 ‘14 Q3 ‘14

Wholesale and retail trade; repair of motor vehicles and motorcycles 16.8 17.1 13.8

Transportation and storage 4.2 4.3 4.8

Accommodation; food and beverage service activities 11.3 9.7 12.2

Information and communication 0.4 0.7 1.2

Financial and insurance/Takaful activities 1.6 2.4 2.5

Real estate activities 0.8 0.7 0.9

Professional, scientific and technical activities 2.4 3.1 2.1

Administrative and support service activities 4.6 2.9 5.7

Public administration and defence; compulsory social security 4.7 3.9 2.8

Education 5.4 5.5 5.2

Human health and social work activities 3.3 4.8 5.0

Arts, entertainment and recreation 0.8 0.5 0.3

Other service activities 2.0 1.5 1.9

Activities of households as employers 0.3 0.6 1.4

Total 58.6 57.7 59.7

Source: Labour Force Survey, Department of Statistics Malaysia.

8 | APRIL 2015

By destination, the three major countries of origin of Penang’s international visitors are Indonesia, Singapore and China, making up 78% of Penang’s total international visitors, as shown in Figure 7. Indonesia constituted over 40% of total international visitors. This result is somewhat consistent with statistics provided by the Penang Health Department, whereby nearly 97% of

Penang’s total health tourists were recorded to be Indonesian in January-September 2014. Meanwhile, the number of visitors from China was found to have increased the most – about 21% in 2014 compared to 2013, despite the disappearance of flight MH370 in March 2014. In summary, we will still see a buoyant growth in the tourism sector in 2015.

Figure 9: number of retrenched workers in Penang, 2010-2014

Source: Jobs Malaysia, Ministry of Human Resources.

435

492

457

646

1,062

1,464

472

1,026

1,044

1,317

2010 2011 2012 2013 2014

Male Female

3,000

2,500

2,000

1,500

1,000

500

0

The SanDisk Batu Kawan site.

Ivan

Lim

labour market stays robustPenang’s labour force had been lingering at a stable growth, except in Q2 2014 (Table 2). In Q3 2014, the total labour force (defined as working age citizens ranging from 15-64 years) was recorded at 823,100. Of this, 810,800 were employed and only 12,400 were unemployed. Those outside the labour force remained at about 350,000 for the same quarter. These include students, housewives and prisoners.

It is interesting to note that while the unemployment rate in Q2 2014 was marginally higher, the labour force participation rate stayed at about 70% from Q1-Q3 2014. We may deduce that a frictional unemployment is observed in the second quarter of 2014; most job vacancies opened during this quarter to cater to new graduates as well as the existing workforce looking for career advancement opportunities.

By industry, the services sector made up the largest proportion of Penang’s total employment in Q3 2014, registering an increase of 1.1% of its share in the previous quarter (Figure 8). Manufacturing came second (30.6%)

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9 www.themalaymailonline.com/malaysia/article/penang-job-market-resilient-despite-major-plant-closure-soon-says-state-inv; www.thesundaily.my/news/1151961

Ong Wooi Leng is a senior analyst at Penang Institute. Her interest lies in industrial economics, consumer behaviour and public finance.

with a decline of about three per cent compared to the previous quarter.

Turning to employment in the services sub-sectors, not surprisingly, employment in wholesale and retail trade was found to form the greatest proportion of Penang’s services sector in Q3 2014 (Table 3). 59.7% persons worked in the services sector; about 24% of Penang’s total employed persons work as services and sales persons, recorded to be the largest workforce in Penang. It is anticipated that the employment market will keep flourishing in services sector, particularly in administrative and support service activities; Penang has been attracting a number of shared services outsourcing (SSO) companies to set up their business activities here, including AirAsia, IHS, Wilmar and Citigroup.

Figure 9 shows that the number of retrenched persons being reported to the Labour Department oscillated over five years. As can be seen, the number of retrenched workers rose drastically two years after the global financial crisis of 2009. While total retrenched workers significantly increased in 2014, Penang’s labour market remained resilient. As can be observed in Table 2, Penang’s unemployment rate stood at below two per cent from Q1-Q3 2014 (which is half of the full employment rate of four per cent), denoting that Penang continued to enjoy the state of full employment in 2014.

One of the reasons for having a high number of retrenched workers but a low unemployment rate is the employability of retrenched workers. Although data provided by Jobs Malaysia does not trace the employment status of these retrenched workers, the likelihood of job placement opportunities could be high. For example, Fairchild Semiconductor International closed down several ageing plants in a few locations including Penang, as reported in August last year9. Some 15% of its 9,000 workforce in the world were affected. However, InvestPenang, which assisted in offering job placement options to the affected staff, revealed

that the employees’ relevant skill-sets could certainly be absorbed by other semiconductor companies in Penang. Hence, a full employment situation is predicted to persist in the first quarter of 2015.

conclusionOutput is expected to expand at a slower rate in 2015 compared to last year, and the manufacturing and services sectors are estimated to equally contribute an important share to Penang’s output growth. The value of external trade relies very much on external factors such as the price of crude oil and value of the Ringgit. A fall in the price of crude oil might not profoundly affect Penang’s economy; depreciation of Ringgit, however, might change the production chain of the industry. The employment market will remain resilient in 2015, wherein only a very small proportion of the labour force will be unemployed; workers might be looking for bright opportunities during the transition period.

10 | APRIL 2015

Penang economic outlook

Since the opening of Malaysia’s first Free Industrial Zone in the 1970s, Penang’s economy has been thriving, based on export-oriented labour-intensive manufacturing activities. Since then, a row of mostly American, Japanese and Taiwanese E&E MNCs has been established here – Intel, Motorola, Altera and ASE electronics, to name a few.

It is noteworthy that almost all these MNCs are still operating, and many of them have reshuffled or intensified their traditional manufacturing activities to higher value-added activities, including the employment of high-skilled workers and the domestic outsourcing of non-core activities. This is in line with the fact that some low-skilled labour-intensive assembly activities have gradually shifted away from Penang. Dell, for

Penang’s semiconductor industry moves from assembly to r&d

By Ong Wooi Leng

From low-skilled labour-intensive activities to high-skilled product development, Penang’s semiconductor scene has transformed itself – and with great success.

example, scaled down its operations by shifting relatively more labour-intensive segments in the production process to other low cost locations1. Motorola and Intel, on the other hand, set up their R&D centres in Penang to undertake product development activities.

the e&e factorThe semiconductor industry, together with solar and LED, makes up the three major ecosystems of the E&E sector. According to the Malaysian Investment Development Authority (Mida), the semiconductor industry has been continuously driving the growth of the E&E sector in Penang and Malaysia at large, aided by the increase of global demand in mobile devices (smartphones, tablets), storage

devices (cloud computing, data centres), optoelectronics (photonics, fibre optics, LEDs) and embedded technology (integrated circuits, PCBs, LEDs)2.

Electronic components are the largest contributors in exports for the E&E industry, accounting for RM111.19bil (or 47%) in 20132. In 2014, more than 50 companies – largely MNCs – were producing semiconductor devices in Malaysia.

The presence of major MNCs such as Intel, AMD, ASE, Motorola, STMicroelectronics, Texas Instruments, Renesas and Seagate, along with major Malaysian-owned companies such as Globetronics, Inari and Vitrox, has steadily contributed to the growth of

1 www.intracen.org/BB-2012-03-05-Growing-with-global-production-sharing-in-Malaysia-Part-IV/; www.whatsonpenang.com/index.php/news-views-penang/853-malaysias-led-manufacturers-expand-production-to-meet-global-demand

2 www.mida.gov.my/home/electrical-and-electronic/posts/

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APRIL 2015 | 11

the semiconductor industry in Penang. While Malaysia is responsible for 12% of the global back-end support for the semiconductor industry in 2013, Penang alone accounted for eight per cent that year3. About RM11bil of Malaysia’s total capital investment, involving a total of 96 projects, was attributed to E&E products in 20144.

connecting Penang with the worldwide semiconductor industryGlobal demand for semiconductor gadgets has been steadily growing; within the past decade, gadgets such as smartphones and tablets have become indispensable. According to Semi, a non-profit global trade association for the semiconductor industry, North American-based manufacturers of semiconductor equipment report the book-to-bill ratio every month, indicating average global trends of bookings and billings in the semiconductor industry.

As can be seen in Figure 1, the book-to-bill ratio recorded a stable oscillation before 2012; the industry underwent the highest book-to-bill ratio in March, and the lowest in September. This trend changed in 2013 and 2014; the ratio lingered above one for most months, showing that the semiconductor equipment market possessed strong demand in the first seven months of 2014, but weakened in August, September and December 2014. The book-to-bill ratio of 0.98, as can be observed in December 2014, implies that US$98 worth of orders was received for every US$100 of products billed for the month.

At present, the global semiconductor industry is shifting towards the Internet of Things (IoT). It is a strategic market opportunity for semiconductor vendors, and growth will occur over many years

table 1: e&e sub-sectors in malaysiaSub-sector Description

1. Consumer electronics

LED television receivers

Audio visual products such as Blu-ray disc players/recorders

Digital home theatre systems

Electronics games consoles

Digital cameras

2. Electronic components

Semiconductor devices

Printed circuits

Media

Substrates

Connectors

3. Industrial electronics

Computers

Computer peripherals

Telecommunication products

Office equipment

4. Electrical Lightings

Solar-related products

Household appliances such as air-conditioners, refrigerators, washing machines and vacuum cleaners

Source: Malaysian Investment Development Authority (Mida).

and will present market opportunities at several levels, such as communications infrastructure and computing platforms5. In Penang, many local companies are perceived to have the capabilities to tap into the design and production of sensors, actuators and other components related to IoT. For instance, Globetronics, a Penang-based company, received orders for its sensors from customers in the EU and the US during the second half of 2014. It was therefore investing between RM55mil and RM60mil to develop and manufacture sensors for wearable smart devices and smart mobile electronic products in May 20146.

To meet the rising demand for wearable technologies, Penang’s local semiconductor manufacturers should soon be venturing into IoT. It is believed that IoT can convert Penang into a smart city via safer security, intelligent traffic management and smart homes. It can elevate the industries’ value chain in Penang, and enhance the talent pool with higher income brackets such as data scientists and R&D researchers. It will ultimately turn Penang into an intelligent city in the not-too-distant future.

3 www.investpenang.gov.my/opportunities.php?cid=4

4 www.mida.gov.my/home/facts-and-figures/posts/

5 Penang Institute (2014), “Kajian untuk Mengenalpasti dan Meramal Penentu Pertumbuhan Ekonomi Negeri Pulau Pinang”.

6 www.thestar.com.my/Business/Business-News/2014/05/03/Globetronics-upbeat-about-nextgen-sensors/?style=biz

1.20

1.10

1.00

0.90

0.80

0.70

0.60

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep-

11

Nov

-11

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep-

12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep-

13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep-

14

Nov

-14

Figure 1: global book-to-bill ratio

Source: Semi, February 2015.

Note: One denotes the benchmark as follows: a ratio of above one indicates strong demand, while a ratio of below one represents weak demand.

12 | APRIL 2015

By Ong Wooi LengPenang economic outlook

The annual Semicon Singapore event, a regional exposition of the semiconductor industry, has been taking place for the last 21 years. However, this time around, Semicon Singapore has revamped itself into Semicon South-East Asia (Semicon SEA), and will now rotate between being held in Singapore and other locations within the region – beginning with Penang.

InvestPenang is the supporting partner of Semi in organising this year’s Semicon SEA 2015, which will be held at sPICE Arena from April 22 to 24 and will be the region's largest microelectronics event.

In conjunction with the exposition, InvestPenang will be hosting a networking event and site visit to the Batu Kawan Industrial Park and factories to showcase Penang’s semiconductor ecosystem to potential investors. On top of that, InvestPenang is also working closely with Semi to organise its Supplier Search Program during the Semicon SEA Show to match suitable capabilities and streamline the supplier chain ecosystem with two major OEMs, one of which ranks among the top 5 for front-end equipment manufacturing, while the other is a formidable back-end equipment supplier.

Penang Monthly meets up with Ng Kai Fai, president of Semi SEA – the regional branch of Semi – to chat about the roles Semi plays, the mission of the tradeshow and his take on the industry in Malaysia and South-East Asia.

Ng Kai Fai, president of Semi SEA.

Pena

ng In

stitu

te

soldering a regional platform for semiconductors

Sem

icon

Sou

thea

st A

sia

At Semicon Singapore 2014. Semicon Singapore has revamped itself into Semicon South-East Asia.

APRIL 2015 | 13

Many electronics foundry companies can be found in Malaysia, such as Altera in Penang's Bayan Lepas Free Industrial Zone.

Semicon is a place where businesses are made.

Ivan

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Tell us more about Semi. What is its mission? Ng Kai Fai: Semi is a non-profit global trade association for the semiconductor industry. We facilitate the growth and development of the industry through working with partners, and help members to grow their businesses and networks in the region.

Apart from organising conferences and technical workshops, we are also involved in government advocacy; this trade exhibition is realised with the collaboration of the Economic Development Board of Singapore (EDB), Malaysia Industry Development Authority (Mida) and InvestPenang. Why hold the trade exhibition in Penang? Penang is considered a silicon hub, and the state has a complete ecosystem for the semiconductor industry. There are more than 200 semiconductor companies in Malaysia’s Free Industrial Zones; South-East Asia’s microelectronics manufacturing ownership accounts for almost 27% of the world’s assembly, packaging and test production, and of this, Malaysia alone takes about 11% of the global square footage.

Besides, many electronics foundry companies can be found in Malaysia, such as Altera, Silterra and X-Fab. Comparing the situation among South-East Asian countries, Malaysia – and Penang in particular – becomes a viable choice for having the event.

What can we expect from the exhibition?Semicon is a place where businesses are made. The exhibition involves companies from various sub-sectors, namely equipment/materials, packaging, test assembly, fabrication and foundry. It is a platform where suppliers can leverage their outreach to their potential clients within the region.

Apart from Malaysia and Singapore, there will be 13 other countries from around the world congregating at the Penang show; we are trying to enhance and develop the South-East Asian ecosystem, but we are not limiting ourselves to the region. As a matter of

fact, we have oversold the exhibition booths and are still figuring out how to accommodate additional requests!

Semi acts as a platform to connect the industry in the region with other regions in the world, and Semicon SEA 2015 will be a good start. Collaboration between regions is important to complement the needs of the industry in other emerging countries.

How about investors? Are there any specific elements that will be referred to by investors when it comes to making decisions?There are probably, in my mind, four main areas.

In order to compete well in the industry, technological innovation is an important component to make a device cheaper and, at the same time, faster. In this regard, innovation very much relies on the governance of a corporation.

Productivity is another dominant factor which investors look at – the productivity of skilled workers. Penang and Malaysia as a whole have a fairly large educated and English-proficient talent pool. This bodes well with the industry and is a great start. The next challenge is obviously a continuous focus on training to enhance the added value of that workforce.

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Starting them young. Semi suggests that governments should play a role to link students in schools and universities with the industry.

Another thing is the right cost structure and infrastructure. These are the two key components for our industry to consider. Infrastructure must be easily available and accessible; it is fundamental to the building of a foundry. However, building the facilities around the foundry is a key concern, and there have been many examples in neighbouring countries of how oversights can doom the foundry.

Maintaining a cost structure that is viable is also a factor, and utilities are one of the key factors to consider. While utilities and land in Singapore are getting expensive, Malaysia and Vietnam have fairer advantages.

All these boil down to the last factor: government policy. Government stability and policies have to be right to give confidence to investors; tax break incentives are a common policy in most countries.

What other incentives can entice investors?Apart from tax holidays and other government policies, creating a vibrant innovation environment between the private and public sector is essential. The government should play a role to link students in schools and universities with the industry.

Semi SEA supports a policy where collaboration between R&D activities in universities and the industry can be enhanced. In the case of Singapore, we do see more active collaboration between universities and the private industry taking off. You should note that such collaboration has benefitted Taiwan, which is one of the major semiconductor hubs, greatly. This is what we require.

With rising challenges and competition from China and India, how can South-East Asia and especially Penang position themselves?Malaysia is largely a back-end centric operation in the manufacturing industry and in fact, as I had earlier pointed out, South-East Asia is very much gravitated towards the back end of the industry’s line manufacturing. For 2015 and 2016, Semi estimates a spending of almost US$5bil on front-end and

back-end equipment in the South-East Asian region, and another US$14bil on materials including US$11bil on packaging-related materials. This is a significant market!

China is leading in the packaging industry due to its investments, and it has a huge market. The key question is: how do we compete effectively, as well as complement them? Malaysia went through a phase of moving up the value chain in the semiconductor industry. Penang, specifically, began with a human capital intensive industry and shifted to automation in the early 1980s. Based on that, Malaysia is veering towards design and development, and I think it adds significant value to the ecosystem.

Would Semi be able to facilitate the transfer of knowledge and technology

from MNCs to our local SMEs, thus assisting in improving their level of innovation?This is an issue faced in Malaysia as well as in Singapore. SMEs always play a supporting role to the bigger players in the industry. When MNCs or

OEMs move up the value chain, most SMEs are not sufficiently forward-looking enough in making technological investments.

SMEs are encouraged to take part in our Supplier Search Program; the two major OEMs are major players that look for suppliers in the region via the programme.

The Semicon SEA tradeshow can assist SMEs in two ways. By participating in the Supplier Search Program, SMEs can understand the operating standards that are required in the semiconductor ecosystem. Secondly, as OEMs enhance their capabilities, SMEs will need to upgrade their capabilities if they wish to stay in the industry.

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The semiconductor industry in Malaysia and Singapore and probably within South-East Asia is lacking an environment for creative undertakings. This is primarily because the environment to encourage creative and innovative risk-taking start-ups is scarce.

APRIL 2015 | 15

What are the challenges that the semiconductor industry is facing in Malaysia and South-East Asia at large?Two key challenges: how do we retain the talent pool in the industry, and how do we direct potential candidates towards engineering?

Semi endeavours to address both issues. First, in terms of talent development, we organise workshops and seminars, for example, technical symposiums include the sharing of technical challenges and the sharing of know-how.

Second, how to encourage continuous talent in the sector; right now, Singapore and Malaysia are facing the similar problem of fewer students being interested in technical programmes. Semi is working with industrial partners and members to alleviate and hopefully reverse this trend. During the Semicon SEA tradeshow, we are holding a programme called Semicon U, similar to Hi-tech U in the US.

Before secondary school students, sixth form (or Junior College) students and polytechnic students pick their universities, they are invited to join a half-day event where CEOs of the industry share their experiences. Last year, we invited 3M (formerly known as Minnesota Mining and Manufacturing

Company) to speak about touch technology. We try to excite students that this is a great industry to work in and inculcate the passion for engineering among students.

In my view, the biggest challenge is how to encourage start-ups and technical entrepreneurs in the region. In my humble opinion, the semiconductor industry in Malaysia and Singapore and probably within South-East Asia is lacking an environment for creative undertakings. This is primarily because the environment to encourage creative and innovative risk-taking start-ups is scarce.

Semi SEA is planning to set up a podium called the innovation discovery hub in future shows where we would like to encourage start-ups to come free-of-charge as outreach to the microelectronics industry, using the tradeshow as a platform to promote their ideas.

What is your forecast for the industry for the next three years? In general, 2015 is going to be a significant year for the semiconductor industry; we forecast a growth of about 15% this year.

It is interesting to note that previously the semiconductor industry was fuelled by the adoption of PCs and smaller sized

chips. That era drove us for about 20 years. The next era is about mobility and the Internet of Things (IoT), followed by cloud computing and big data analysis.

This is an exciting era, whereby IoT will drive our industry further. Semi very much encourages this new exciting development. I am confident that the industry will accelerate because of IoT, cloud computing and big data analysis.

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statistics

Penang’s aviation and maritime sectors by the numbersAs a supplement to this month’s cover story on economic indicators, we examine Penang’s aviation and maritime industries which contribute significantly toward the state’s performance in tourism and trade.

Penang international airport

table 1: Passenger volume at the top five malaysian airports, 2009-2013

Rank Airport name State City served 2009 2010 2011 2012 2013

1 Kuala Lumpur International Airport

Selangor KL 29,682,093 34,087,636 37,704,510 39,887,866 47,498,157

2 Kota Kinabalu International Airport

Sabah Kota Kinabalu 4,868,526 5,223,454 5,808,639 5,848,135 6,935,797

3 Penang International Airport

Penang George Town 3,235,423 4,166,969 4,600,274 4,767,815 5,487,751

4 Kuching International Airport

Sarawak Kuching 3,574,632 3,684,517 4,286,722 4,186,523 4,871,036

5 Miri Airport Sarawak Miri 1,620,345 1,694,915 1,856,626 2,018,415 2,223,172

Source: 2013 Annual Report, Malaysia Airports Holdings Berhad.

table 2: Passenger movements at Penang international airport (domestic and international), January-december 2013 and 2014

Month

No. of passengers for 2013 No. of passengers for 2014

Domestic International Total Domestic International Total

Jan 199,975 183,554 383,529 272,494 196,836 469,330

Feb 206,674 180,443 387,117 268,643 198,175 466,818

Mar 246,364 194,705 441,069 280,105 218,510 498,615

Apr 227,648 180,785 408,433 268,187 205,873 474,060

May 244,700 191,491 436,191 280,738 201,967 482,705

Jun 267,116 219,024 486,140 299,911 231,654 531,565

Jul 240,851 195,977 436,828 255,111 210,452 465,563

Aug 282,634 213,324 495,958 286,753 210,175 496,928

Sep 266,947 195,511 462,458 280,163 199,259 479,422

Oct 275,551 194,426 469,977 304,548 209,173 513,721

Nov 286,370 222,897 509,267 318,002 223,253 541,255

Dec 319,121 250,527 569,648 355,701 265,900 621,601

Source: Malaysia Airports Holdings Berhad.

APRIL 2015 | 17

Penang International Airport is the country’s third busiest airport in terms of passenger traffic, behind Kuala Lumpur International Airport (KLIA) and Kota Kinabalu International Airport (Table 1). It has experienced rapid growth over the past six years, from having processed 3,235,423 passengers in 2009 to 5,487,751 passengers in 2013. Despite last year being a turbulent time for the passenger airline industry due to the disappearance of flight MH370 and the downing of flight MH17 over Ukraine, the data for 2014 continued to show growth for Penang in this area with passenger travel trends consistent to that of the previous year.

When compared to the data for 2013, the number of passengers arriving at and departing from Penang by flight increased for each month last year (Table 2). Based on the strong numbers over these 12 months, Penang International Airport posted a stellar year, having exceeded the six million passenger milestone for the first time. Overall, domestic passengers made up an increased majority of passengers travelling through the Penang International Airport, growing marginally from 55% in 2013 to 57% in 2014.

table 3: cargo volume at the top three busiest malaysian airports by cargo traffic, 2012-2013

Rank Airport name State City served 2012 (tonnes)

2013 (tonnes)

1 Kuala Lumpur International Airport Selangor KL 673,107 680,983

2 Penang International Airport Penang George Town 123,246 153,703

3 Sultan Abdul Aziz Shah Airport Selangor KL 22,680 26,443

Source: Malaysia Airports Holdings Berhad.

In terms of cargo traffic, Penang International Airport ranks second nationally. However, last year on average saw less cargo being transported by plane as shown in Figure 1. The trend in total cargo volume is still largely dictated by international cargo transport given that the domestic market share is relatively smaller.

Figure 1: cargo handled at Penang international airport, 2013-2014

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Source: Malaysia Airports Holdings Berhad.

18 | APRIL 2015

Penang PortPenang Port is the oldest and longest continuously operating port in Malaysia1. The port serves as the main gateway for shippers in the northern states of Malaysia and also the southern provinces of Thailand.

2014 saw a decrease in the overall number of ship calls into the port. This was mainly due to a 14% drop in the number of international ship calls compared to 2013. On the other hand, the 10.8% increase in the number of domestic ships calling when compared to 2013 saw domestic ships outnumbering international ships at the Penang Port last year. Nonetheless, the reduction in overall ship calls translated to a fall in gross registered tonnage passing through the port (Table 5). From the breakdown of the types of cargo handled as shown in Table 6, it is noteworthy that although there was a rise in the number of general cargo handled, the drop in the mass of the dry and liquid bulk contained resulted in a lower gross registered tonnage for 2014.

table 4: number of ship calls at Penang Port, 2013-2014

Month

2013 2014

Domestic Foreign Total Domestic Foreign Total

Jan 251 424 675 261 265 526

Feb 222 303 525 257 270 527

Mar 223 267 490 260 262 522

Apr 232 310 542 238 261 499

May 233 259 492 254 259 513

Jun 199 257 456 260 243 503

Jul 228 303 531 263 286 549

Aug 214 252 466 250 166 416

Sep 206 267 473 314 200 514

Oct 265 264 529 265 266 531

Nov 264 272 536 260 218 478

Dec 325 269 594 290 269 559

Y.T.D 2,862 3,447 6,309 3,172 2,965 6,137

Source: Penang Port Sdn Bhd.

1 Penang Port Sdn Bhd.

APRIL 2015 | 19

table 5: gross registered tonnage (domestic and foreign) at Penang Port, 2013-2014

Month

2013 2014

Domestic Foreign Total Domestic Foreign Total

Jan 2,075,063 4,286,130 6,361,193 1,853,520 3,886,794 5,740,314

Feb 1,816,218 3,648,530 5,464,748 1,722,059 3,359,309 5,081,368

Mar 1,719,971 3,368,949 5,088,920 1,765,978 3,330,964 5,096,942

Apr 1,981,871 3,979,621 5,961,492 1,723,419 3,214,547 4,937,966

May 1,902,352 3,378,033 5,280,385 1,815,169 3,118,120 4,933,289

Jun 1,681,287 3,442,720 5,124,007 1,722,086 2,863,527 4,585,613

Jul 1,917,410 3,281,111 5,198,521 1,621,317 3,352,117 4,973,434

Aug 1,800,147 2,523,173 4,323,320 1,689,048 1,695,071 3,384,119

Sep 1,753,608 3,215,657 4,969,265 1,896,406 2,745,915 4,642,321

Oct 2,080,130 3,254,378 5,334,508 1,810,175 3,363,926 5,174,101

Nov 1,837,549 3,517,443 5,354,992 1,726,104 2,936,419 4,662,523

Dec 1,940,671 3,553,479 5,494,150 1,946,717 4,230,591 6,177,308

Y.T.D 22,506,277 41,449,224 63,955,501 21,291,998 38,097,300 59,389,298

Source: Penang Port Sdn Bhd.

table 6: type of cargo handled at Penang Port, 2013-2014

 Year

(million freight tonnes)

General cargo Dry bulk Liquid bulk Containerised Container (TEUs)

2013 1,259,446 4,374,050 4,904,646 19,500,507 1,237,714

2014 1,393,129 4,151,694 4,609,974 19,891,863 1,265,712

Source: Penang Port Sdn Bhd.

20 | APRIL 2015

Established on November 5, 2004, investPenang is a non-profit entity of the Penang state government with the primary purpose of promoting investments within Penang. As the principal investment promotion agency of the state, its objectives are to sustain and rejuvenate Penang’s economy by enhancing and continuously injecting business activities in the state through the promotion of foreign and local investments including the spawning of viable new growth centres. Invest-in-Penang Berhad is a one-stop agency which provides comprehensive information on Penang’s investment opportunities and facilitates the running of a business at every stage including the setting up of a new investment.

Website: www.investpenang.gov.my

Invest-in-Penang Berhad (671697-P)

PSDC Building,1, Jalan Sultan Azlan Shah,Bayan Lepas, 11900, Penang, MalaysiaTel : +604 646 8833Fax : +604 646 8811Email : enquiry@investpenang.gov.my

Penang Institute is the public policy think tank of the state government of Penang. As a policy advisory body to the state government, the Penang Institute seeks to spur bold thinking in the key areas of economics, socio-politics and sustainable development. Besides working closely with the state government, we collaborate with other international organisations such as the United Nations Development Programme and other non-governmental organisations. We also engage the public by promoting and highlighting various local, national and regional issues through facilitating conferences, lectures, workshops and public seminars.

Website: penanginstitute.org

Penang Institute (423660-A)

10, Jalan Brown,10350 Penang,Malaysia.Tel : +604 228 3306Fax : +604 226 7042Email : enquiry@penanginstitute.org