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Malaysian economy progressive and prosperous.

Malaysia is a success story of economic progress and a role model for the developing world. From an agriculture based economy in the 1970s, Malaysia has progressed through the ranks of export based economies over the last three decades and is now marching towards its goal of becoming a knowledge based economy, geared for a prosperous future for its people.

The Federation of Malaysia comprises of Peninsular Malaysia, and the states of Sabah and Sarawak on the island of Borneo. Situated between [2.sup.Q] and [7.sup.Q] to the North of the Equator line, Peninsular Malaysia is separated from Sabah and Sarawak by the South China Sea. On the northern part of Peninsular Malaysia lies Thailand, and in the south, Singapore. Sabah and Sarawak are bounded by Indonesia while Sarawak also shares borders with Brunei.

Gross Domestic Product (GDP)

Malaysia's GDP is estimated at around USD 370 Billion (CIA--The World Fact Book). Agriculture contributes 11.9% to GDP, Industry 41.2% and Services 46.8%. Malaysia's GDP (Purchasing Power Parity) stands at USD 492.4 Billion (2012) and ranks 30th in the Global rankings of GDP (PPP).

The GDP growth was 5.1 percent in 2012 and remained at 4.1 percent in the first quarter of 2013. Private consumption and investment have been helping in maintaining the GDP growth. It has been observed that the growth in wages and decline in unemployment have supported household spending.

According to the World Bank, the share of investment in GDP was the highest in 2012 since 1997 due to high valued private and public projects in oil and gas, real estate and infrastructure.

Agriculture: The contribution of agriculture in the GDP has declined from 28.8% in 1970 to 11.9% in 2012. Palm oil is the main commodity in Malaysia's agricultural sector and contributes 9 percent to the GDP. Malaysia is the second largest producer of palm oil in the world and is responsible for one third of the world's rubber exports. Other agriculture products include cocoa, rice, timber, coconut and pineapple. Agriculture employs nearly 11% of the labor force in Malaysia.

Industry: Malaysia is a newly industrialized country backed by well-planned government support in economic development. In 2012, the industry was responsible for 41% of the GDP and with a 7.5% industrial production growth rate, ranks 37th globally.

Malaysia's key industries include rubber and palm oil processing and manufacturing, petroleum and natural gas, pharmaceuticals, medical technology, electronics, semi-conductors and timber-processing.

Malaysia's industrial sector is a labor intensive, high yield investment sector primarily due to its export oriented manufacturing. This makes Malaysia a good option for foreign investors to invest in the industry. The industrial sector has also flourished immensely due to well-developed infrastructure such as state-of-the-art international airports with air cargo facilities and seven international seaports and an abundant trained workforce.

Services: Initially an economy based on primary sector, relying on rubber and tin production, Malaysia began to diversify its economy in the 1960s by initiating cultivation of palm on a large scale. Over the next two decades, Malaysia focused on developing its manufacturing industries to make the transition to a secondary sector. As more and more countries in the region opened up their markets with comparatively low labor costs, Malaysia felt the need to strengthen its services sector. Malaysia has successfully moved into its third stage of economic development recently which significantly emphasizes services. In 2012, the services sector dominated investments with almost 68% of all investments being directed to it (MIDA). As Malaysia's economy matures, an increasing share of the GDP (47%) is attributed to the services sector. The contribution to GDP is being targeted to reach 61 percent by 2015 and 65 percent by 2020. The services sector includes Education & Training Services, Hotel & Tourism, Health Tourism, Financial Services, Creative Industries, R&D, Real Estate, Telecommunications and Energy, amongst many others.

International Trade

Exports: Malaysia, ranked 24th globally amongst all exporting countries, is a leading exporter of electronics, oil and gas, palm oil and rubber which drive the economy. Being an oil and gas exporter, Malaysia has benefited significantly from higher world energy prices. However, the domestic price of gasoline along with repeated budget deficits has forced the government to reduce its subsidies. The Malaysian government is in efforts to reduce its dependence on oil-related revenues from the state oil producer, PETRONAS--a Fortune 500 company. PETRONAS has contributed large amounts every year to the growth and development of Malaysia. Since it started operations in 1974, PETRONAS has paid the Malaysian government MYR 529.0 Billion in dividends, taxes, petroleum proceeds, bail-outs, infrastructure development and export duties. It has also been paying subsidies (MYR 156.5 Billion) to the energy sector since 1997 (PETRONAS Annual Report 2011).

The year 2012 recorded exports of USD 247 Billion compared with USD 227.5 Billion in 2011. Malaysia's 15th consecutive trade surplus was recorded in 2012. Majority of Malaysia's palm oil is exported to Pakistan, the EU, US, China and India. Malaysia's exports partners also include Japan, Singapore, Thailand, Hong Kong and UAE. The graph, reflecting the latest (1Q 2013 figures), evidence a diversified export mix.

Imports: Malaysia's imports were recorded at USD 202.4 Billion in 2012, ranking 27th worldwide. Major imports include electronics, machinery, petroleum products, plastics, vehicles, iron and steel products and chemicals. Malaysia's most prominent import partners are China, Singapore, Japan, US, Indonesia, Thailand and South Korea.

Foreign Direct Investment

The rapid industrialization in Malaysia is largely attributed to inflow of foreign direct investment in its manufacturing sector. Malaysia is home to more than 5,000 foreign companies. In 2011, Malaysia was the third largest recipient of FDI among the ASEAN countries. The FDI inflows rose 30% from 2010 to USD 11.9 Billion in 2011. Much of Malaysia's investments in 2012 were in the new and emerging technology sector, petroleum and petrochemical products, medical devices industry and the services sector.

Monetary Policy

Before the Asian Financial Crisis in 1997, the Malaysian Ringgit (MYR) was traded at MYR 2.50 to a Dollar. Speculative activities caused the Ringgit to fall to MYR 4.10 upon which the Malaysian Central Bank, Bank Negara Malaysia, decided to prevent the outflow of the Ringgit in the open market. It was pegged to MYR 3.80 per 1 USD in 1998. In 2005, when China decided to remove the fixed exchange rate, Malaysia did the same. Currently, MYR 3.03 equals USD 1.

Bank Negara Malaysia uses the Overnight Policy Rate to maintain the monetary policy. This is the interest rate at which a depository institution lends available funds to another depository institution overnight. This helps set interest rate, set at 3 percent given that the Central Bank considers "the current stance of monetary policy to be supportive of the economy while inflation remains contained" (Bank Negara Malaysia, 2013).

Fiscal Policy

The Malaysian government has been planning to move away from its dependence on oil and gas and direct taxes to consumption-based tax whilst limiting borrowing and keeping a keen eye on spending. In 2012, the government managed to lower the budget deficit to 5.2 percent of GDP and has targeted 4 percent for 2013. The public debt to GDP ratio has been limited to 55 percent. Revenues in 2012 were estimated at USD 59.22 Billion whereas expenditures were estimated at USD 75.31 Billion. PETRONAS, Malaysia's state owned oil company contributed 35% to Malaysia's revenue stream in 2012. Malaysia's public debt of USD 167.2 Billion in 2012 has surged due to massive funding of infrastructure and projects. The public debt includes Malaysian Treasury Bills and other government securities.

Future Outlook

The growth in 2012 is accredited to strong domestic demand, private consumption and private and public investments. According to Malaysian authorities and BAF estimates, Malaysia will most likely remain on the same track for the future and will eradicate income inequality while maintaining low unemployment and providing an innovative approach and being competitive and robust.

RELATED ARTICLE: Banking and Financial Sector:

Malaysia has a flourishing financial sector and is the largest investment banking service provider in Asia Pacific. In 2009, Malaysia introduced new licenses for investment banking, Islamic banking and insurance.

Foreign equity was raised to 70 percent ownership from 49 percent previously, allowing foreign banks to open new branches in Malaysia.

At present, Malaysia has 24 Commercial Banks, 17 Islamic Banks and 4 International Islamic Banks.

It is deemed that Malaysia's progressive economy, increasing population (growth rate 1.51%) of more than 29 Million and growing disposable income will result in higher demand for better and more sophisticated financial services.

Malaysia GDP Growth %

1996      10
1997     7.3
1998    -7.4
1999     6.1
2000     8.9
2001     0.5
2002     5.4
2003     5.8
2004     6.8
2005     5.3
2006     5.6
2007     6.3
2008     4.3
2009    -1.5
2010     7.2
2011     5.1
2012     5.1

Source: Wold Bank Data

Note: Table made from line graph.

Top Industries by Investment  (2012)

Industry                                 Value of Projects (MYR
                                                   in Billions)

Transport Equipment                                         7.8

Chemicals & Chemical Products                               6.4

Petroleum Products incl. Petrochemicals                     6.0

E&E Products                                                4.0

Basic Metal Products                                        3.8

Food Manufacturing                                          3.4

Machinery Sr Equipment                                      1.9

Rubber Products                                             1.4

Source: Malaysian Investment Development Authority

Jan--Mar 2013 Total Exports: MYR 169.47 Billion

Electrical & Electronic Products    31.5%
Refined Petroleum Products          9.04%
LNG                                 8.80%
Chemicals & Chemical Products       6.80%
Palm Oil                            6.50%
Crude Petroleum                     5.00%
Machinery Appliances & Parts        3.60%
Manufactures of Metal               3.40%
Optical & Scientific Equipment      2.90%
Rubber Products                     2.90%

Note: Table made from pie chart.

Jan-Mar 2013 Total Imports: MYR 152.91 Billion

Electrical & Electronic Products    27.3%
Refined Petroleum Products          11.7%
Chemicals & Chemical Products        8.2%
Machinery Appliances & Parts         7.8%
Manufactures of Metal                7.5%
Transport Equipment                  6.9%
Crude Petroleum
Iron & Steel Products                  4%
Optical & Scientific Equipment       2.5%
Processed Food                       2.4%
Other Products                      17.7%

Note: Table made from pie chart.

Malaysia's Growth           2013  2014  2015  2016  2017
Outlook Protections

Real GDP Growth (%)          5.0   5.1   5.2   5.2   5.2

Domestic Demand (%           6.9   6.5   6.2   6.2   6.2

CPI Inflation (period        2.2   2.4   2.6   2.4   2.2
average )

Gross Domestic Investment   29.4  29.4  28.8  28.6  28.3
(% of GDP)

Gross National Saving (%     353  35.1  34.0  33.6  33.1
of GDP)

Federal Govt. Overall       -3.9  -3.3  -2.8  -2.7  -3.0
Balance (% of GDP)

Revenue (% of GDP)          21.0   205  20.2  20.2  20.0

Expenditure &Net Lending    24.9  23.8  23.1  23.0  23.0
(% of GDP)

Federal Government Debt (%  53.1   525  50.8   495  48.8
of GDP)

Current Account Balance     20.1  21.0  21.0  21.6  22.7
(in bn of USD)

Source: IMF Estimates
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Title Annotation:MALAYSIA / ECONOMY / VISION 2020
Comment:Malaysian economy progressive and prosperous.(MALAYSIA / ECONOMY / VISION 2020)
Publication:Economic Review
Article Type:Statistical data
Geographic Code:9MALA
Date:Jun 1, 2013
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