The current US-China trade war is shaking up the global economic order. The US’ tariffs on Chinese imports are causing China, long the world’s manufacturing powerhouse, to slowly lose its allure. Countries around the world, especially the US, are looking elsewhere.
We need to make them look at Malaysia.
Finance Minister Lim Guan Eng recently said that “…conventional wisdom was to move all production to China and take advantage of the country’s low-cost structure and its abundance of labour. The trade war between China and the United States is upending that wisdom and highlights the importance of not putting your eggs into one basket.”
He’s right. The trade war has exposed the inherent drawbacks of an over reliance on one country for all manufacturing needs. But Malaysia is in a good position to capitalise on this shift in economic fortunes.
Manufacturing is the bedrock on which the robust modern Malaysian economy was built. Our leaders recognised its importance in the 1970s and started a major push towards making Malaysia a multi-sector economy, with manufacturing being the cornerstone.
It paid off in droves. It propelled Malaysia towards an unparalleled time of economic growth – a more than 9% annual GDP growth from 1988 to 1997.
At the turn of the century, manufacturing accounted for almost a third of our GDP – up from a mere 14% in 1970.
But this is where our nation’s economic fairy tale takes an unexpected turn.
Since the start of the 21st century, our manufacturing sector has played second fiddle to our burgeoning services sector. As it stands now, the services sector accounts for 55% of our economy, while manufacturing comes in at a distant second at 23% – a precipitous decrease from its high in the late 1990s.
While this might not sound alarming on the surface, the fall in our manufacturing sector’s prominence and the corresponding rise in the importance of the services industry has had one major effect – our annual GDP growth has been cut by almost half (from 9% to about 5% now).
While statisticians will be quick to point out (and rightfully so) that correlation does not mean causation, there is definite precedence for this occurrence.
A robust manufacturing sector is a surefire way of boosting a nation’s economy. All one has to do is look at the rise of the major world powers – the US, China and Japan – all of which rose on the shoulders of their muscular manufacturing sector. And when their manufacturing sector turned lacklustre, so did their economy.
Don’t get me wrong, there are obviously ways for a country to be an economic powerhouse without much of a manufacturing sector as well, like Singapore (trade/services), India (high-value IT services) and Saudi Arabia (oil and gas).
What I am saying is, manufacturing is as near a foolproof way to gain economic prominence as any.
The good news is, Malaysia is perfectly poised to enjoy a good chunk of the world’s manufacturing pie. But we need to concentrate specifically on high-tech, high-value manufacturing with an emphasis on robotics, artificial intelligence and automation. That is the way of the future. Low value, labour-intensive manufacturing is a lost cause.
Even China is losing that battle to Bangladesh, Vietnam and countries in the African continent which are more underdeveloped economically and hence have a workforce that’s considerably more cost effective than ours or China’s.
Thankfully, our leaders realise this.
At the just concluded KL Summit 2019, Prime Minister Dr Mahathir Mohamad spoke about the Industry Forward national policy that was introduced late last year.
“The policy envisions Malaysia as a strategic partner for smart manufacturing, a primary destination for high technologies and a total solution provider for the manufacturing sector in the region,” he said.
The potent concoction of the trade war, our government’s efforts to capitalise on it and the inherent attractiveness of Malaysia with its good infrastructure and an urban population that can speak English, are showing.
Multinationals are seeing the upside of setting up high-value manufacturing plants in Malaysia. iRobot, a pioneer in consumer robotics and the maker of the uber-popular Roomba robotic vacuum cleaner, just announced it has commenced production in Malaysia.
Multi-billion dollar UK-based Smith + Nephew, a global medical technology business is building a high-tech manufacturing facility in Penang and plans on hiring mostly locals. Both companies specifically posit the higher tariffs subjected on Chinese manufacturing as a major reason for setting up shop in Malaysia.
We need to welcome such companies with open arms by providing subsidies and tax cuts wherever possible.
In addition to providing relatively high paying jobs to locals (which is a major benefit), having high-tech manufacturing on home soil will set us up perfectly for our future as a regional hub for all things Industry 4.0.
The views expressed are those of the writer and do not necessarily reflect those of FMT.