Providing a Supportive Investment Climate and an...

Ministry of International Trade and Industry, Malaysia, Ministry of International Trade and Industry, Malaysia, September 2006September 2006

Providing a Supportive Providing a Supportive Investment Climate and Investment Climate and

an Industrial Policyan Industrial Policy

bybyRebecca Fatima Sta. Maria, PhDRebecca Fatima Sta. Maria, PhDDeputy SecretaryDeputy Secretary--General, MITIGeneral, MITI


OutlineOutline

• Context– Phases of Growth– Importance of FDI

• Challenges

• Policy Options– Industrial Master Plans


CONTEXTCONTEXT


MalaysiaMalaysia’’s Phases of Industrial Growths Phases of Industrial Growth

1960 1970 1980 1995 2000 and beyond

Primary commodities/ Primary commodities/ agricultureagriculture

AssemblyAssembly--type/ type/ Import substitutionImport substitution

MediumMedium--tech/tech/heavy industries & services heavy industries & services

HighHigh--tech &tech &servicesservices

KnowledgeKnowledge--based/ based/ higherhigher--value addedvalue added


Relationship Between FDI and GDP GrowthRelationship Between FDI and GDP Growth

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

GDP Growth

FDI


Importance of FDI to the Manufacturing Sector in Malaysia

• FDI has a positive and statistically significant relationship with economic growth (MITI study, 2004):

1% increase in FDI = 0.02% rise in real GDP;FDI contributed to growth in manufacturing output and transformation of manufacturing sector;



• In the context of trade:1% rise in FDI = 0.04% increase in exports in the short term, and 0.52% increase in the long term ;

• Annual Establishment Survey, Dept of Statistics, Malaysia:– Foreign-owned firms accounted for 70% of

total exports of manufactured products;– These companies more export-oriented.



• Other positive contributions:– Employment;– Capital formation;– R&D;– Human capital development;– Outsourcing of services;– Tax revenue;– Technology transfer.


High

Low High1960s

2020

CHALLENGES

econ

omic

dev

elop

men

t

socio-economic equity


Challenges

Internally Driven Externally Driven

By the year 2020: Malaysia should be an economy that is fully developed in the sense that it is competitive, dynamic, robust and resilient.

Intense competition for FDIs, particularly the emergence of new market economies; increasing number of FTAswith investment elements

competitiveness


POLICY POLICY RESPONSERESPONSE


Industrial development policies embedded in the Industrial Master Plans (IMP)

The The first IMP (1986(1986--1995) and 1995) and IMP 2(1996(1996--2005) focused on: 2005) focused on:

nurturing a strong indigenous nurturing a strong indigenous sectorsector, while providing , while providing the the necessary supportnecessary support to the to the export export sectorsector;;

integrating Small and Medium integrating Small and Medium EnterprisesEnterprises into the into the mainstreammainstream of of technological and industrial technological and industrial development.development.


IMP1IMP1

• to meet objectives of the New Economic Policy (NEP) – rapid expansion, accelerated growth of manufacturing sector;

• optimum and efficient utilisation of natural resources through value-added manufacturing activities;

• Strengthen the foundation for the development of indigenous technologicalcapability.


IMP2Under Under IMP2IMP2 two new strategiestwo new strategies introduced:introduced:

Manufacturing Plus-plus StrategyMoving along the Moving along the value chainvalue chain from assemblyfrom assembly--

based and low valuebased and low value--added activities towards added activities towards higher valuehigher value--added activitiesadded activities, including R&D , including R&D and Product Design, and Distribution and and Product Design, and Distribution and

Marketing; Marketing;

Shifting the whole value chainShifting the whole value chain to a higher level through to a higher level through productivity-driven growth by:by:

Using Using High TechnologyHigh TechnologyIncreasing Increasing Total Factor ProductivityTotal Factor Productivity (TFP) with (TFP) with emphasis upon emphasis upon capital intensive manufacturingcapital intensive manufacturing, , application of application of new technologiesnew technologies, innovation, , innovation, best best practicespractices and more and more efficient utilisation of efficient utilisation of

resourcesresources..


Through IMP1 and 2

• Malaysia was able to attract, and retain, quality investments from world-renowned multinational corporations, which provided the impetus for the development of various industries, particularly the supporting and ancillary industries.


THIRD INDUSTRIAL MASTER PLAN THIRD INDUSTRIAL MASTER PLAN IMP3

Malaysia - Towards Global Competitiveness

Long-term planning instrument, covering 15 years (2006-2020);

Coincides with 9th Malaysia Plan and final phase of Vision 2020;

Addresses challenges faced by industries;

Provides integrated approach towards further industrial development.


IMP3Investments, both foreign and domestic, will continue to assume an important role, in economic growth and development.

The role of foreign investments has been significant, in developing the non-resource based industries.

Given the potential for capital formation, economic growth and employment, that can be derived from domestic investments, increased emphasis will be given to such investments,and domestic entrepreneurship.


IMP3IMP3

The focus will be on industries and sub-sectors, which have export potential and competitive advantage, particularlyresource-based industries, includingfood products, Halal products, palm biomass products, and oleochemicals.


At the domestic level

•• Delivery system: Delivery system: constant reviewconstant review of processes and of processes and procedures to procedures to eliminate redeliminate red--tape.tape.

•• Constant collaboration with members of the private Constant collaboration with members of the private sector and civil society to sector and civil society to improve service deliveryimprove service delivery..

•• focus on focus on policies and strategiespolicies and strategies to make Malaysia to make Malaysia business and investment friendlybusiness and investment friendly,,

andand

•• enhance enhance coordinationcoordination between between key publickey public sector sector agenciesagencies involved in involved in facilitating domestic and foreign facilitating domestic and foreign investment.investment.

POLICY RESPONSE to enhance Competitiveness


•• Engagements in FTAsEngagements in FTAs: ensure : ensure balance betweenbalance betweenliberalisationliberalisation with the need to assist in the with the need to assist in the development of industry.development of industry.

At the international level:

•• Active participationActive participation in regional and multilateral fora in regional and multilateral fora to to shape global rulesshape global rules so we so we do not lose policy do not lose policy spacespace in all the in all the negotiations that impact our negotiations that impact our industry.industry.

POLICY RESPONSE to enhance Competitiveness

•• Active economic collaborationActive economic collaboration with with trading trading partnerspartners though though regional groupings such as regional groupings such as ASEAN APEC, OIC, NAM.ASEAN APEC, OIC, NAM.

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