The government is recalibrating its industrial policies and foreign investment strategy in an effort to rejuvenate the economy, Prime Minister Muhyiddin Yassin said today.
In his keynote address at the virtual Youth Economic Forum 2021, he said Malaysia’s annual per-capita income had stalled at about US$10,000 for nearly a decade, suggesting that the country is snared in the middle-income trap.
He said in the decade before the Asian Financial Crisis (AFC), Malaysia’s cumulative annual GDP was 8.4% annually.
“This has fallen to 4.6% in the following two decades since then.”
He said the relatively slow GDP growth appeared to mirror the fall in exports to GDP ratio.
“This decline in export growth coincided with a fall of the manufacturing sector contribution to overall GDP which peaked soon after the AFC, just over 30%, and tapered to about 21% in 2019.
“These are symptoms described by Harvard economist Dani Rodrik as premature deindustrialisation.”
Muhyiddin said the “litmus test” for Malaysia to break out of the middle-income trap was manifold.
Firstly, he said, Malaysia needs to transform into a global exporting player. He said the country also needs to grow its manufacturing capabilities to make increasingly complex and complicated products.
“Based on the economic complexity index, even a one standard deviation increase can elevate GDP growth in Malaysia by between 0.7% and 1.6% a year.”
Malaysia also needs to create its own multinational companies, he said, adding that the payoff for economic growth is “very high”.
“For example, it is reported that global giants Samsung and Hyundai collectively at one point drove 30% of South Korea’s GDP.
He added that Malaysia needs to pursue a “shoot-for-the-moon” approach in which the objective is to create competitive domestic firms in frontier technologies.