Malaysia de-industrialising too soon, too fast, says Guan Eng

Finance Minister Lim Guan Eng.

PETALING JAYA: Finance Minister Lim Guan Eng has sounded the alarm over “premature de-industrialisation” in Malaysia which he says has seen the once flourishing manufacturing sector replaced by the low-level traditional services sector.

In a speech on Sunday at a Budget 2020 focus group discussion on the electrical and electronics sector in Kulim, he said the manufacturing sector’s share of the economy last year stood at only 21.6% compared to 30.9% in 2000.

Within the manufacturing sub-sectors, he said, the de-industrialisation effect could best be seen in high-tech manufacturing, where the share of the economy declined from about 15.3% in 1999 to about 7.9% in 2016.

Adding that de-industrialisation was happening “too soon, too fast”, he said the low-value traditional services sector had replaced the manufacturing sector while the growth of high value-add services had weakened.

“What makes it worse is that our reliance on low-cost, labour-intensive sectors has increased,” he said.

This means that local productivity growth has been on the decline, he added.

“Malaysia’s industrial policy has seen results. In 1987, agriculture formed 20% of the Malaysian economy but by year 2000, it was only 8.6%.

“This was replaced by manufacturing, as its share of the GDP rose from 19.8% to 30.9% during the same period. Meanwhile, total trade reached 220% of the GDP.”

Lim said Malaysia had become an upper-middle income country due to industrialisation, with the size of its total trade remaining significant at 140% of the economy.

Malaysia’s GDP per capita in purchasing power parity terms and in constant prices, meanwhile, was US$28,176 – comparable to that of some European economies, he said.

“These achievements would not have been possible if the state had not played its roles as a facilitator, or even a mover, of industrialisation.

“To become an industrialised economy and join the ranks of the high-income economy, we need to halt the premature de-industrialisation and re-industrialise. And the government clearly has a role to play.”

Lim said the government’s responsibility is to boost Malaysia’s investment numbers and enhance the country’s position in the global supply chain.

He added that state intervention is necessary to increase national competitiveness, raise productivity, prioritise investment in strategic sectors, re-energise export-led industrialisation, and structure market incentives around the political goals of encouraging entrepreneurship.

He assured however that the government will not abandon the free market as long as it remains fair or disavow trade liberalisation as long as poorer countries are protected as well.

“Deregulated finance must also protect minority shareholders and members of the public from predatory speculators and opportunists,” he said.