Northern Corridor Economic Region - Background - Tiger Economy - Macro-economic Trend

Macro-economic Trend

This is a chart of trend of gross domestic product of Malaysia at market prices estimated by the International Monetary Fund with figures in millions of Malaysian Ringgit.

Year GDP
(in millions) 35567980
Exchange
(1 USD to MYR)
Inflation Index
(2005=100)
Nominal Per Capita GDP
(as % of USA)
PPP Per Capita GDP
(as % of USA)
1980 54,285 2.17 47 14.78 19.19
1985 78,890 2.48 60 11.44 19.33
1990 119,082 2.70 65 10.47 20.87
1995 222,473 2.50 79 15.69 27.02
2000 343,216 3.80 92 11.47 26.01
2005 494,544 3.78 100 12.67 26.67
2010 765,966 3.04 113 17.81 31.03

For purchasing power parity comparisons, the US Dollar is exchanged at 1.71 Ringgit only. Mean wages were $6.95 per manhour in 2009.

From 1988 to 1997, the economy experienced a period of broad diversification and sustained rapid growth averaging 9% annually.

By 1999, nominal per capita GDP had reached $3,238. New foreign and domestic investment played a significant role in the transformation of Malaysia's economy. Manufacturing grew from 13.9% of GDP in 1970 to 30% in 1999, while agriculture and mining which together had accounted for 42.7% of GDP in 1970, dropped to 9.3% and 7.3%, respectively, in 1999. Manufacturing accounted for 30% of GDP (1999). Major products include electronic components – Malaysia is one of the world's largest exporters of semiconductor devices – electrical goods and appliances.

During the same period, the government tried to eradicate poverty with a controversial race-conscious positive program called New Economic Policy (NEP). First established in 1971 following race riots, commonly known in Malaysia as the May 13 Incident, it sought to eradicate poverty and end the identification of economic function with ethnicity. In particular, it was designed to improve the distribution of wealth among the country's population.. The NEP ostensibly ended in 1991, however the policies persist in the form of other programmes such as the National Development Policy. The policies are enforced overtly through race-based quotas for low-cost housing units, university placement, business equity ownership, etc.

Rapid growth was achieved partly through privatisation of inefficient state owned enterprises, thus subjecting them to commercial pressures and forcing them to better utilise their resources. Many deals were done behind closed doors and put through rather quickly. In one example Khazanah Nasional alienated shares in DRB Hicom to Mega Consolidated. This led to such deals being labelled mega projects.

Foreign funds were attracted to invest making the local money market and bourse liquid. This created opportunity for local businesses to raise capital on the KLSE, and carry out infrastructure development in areas like telecommunications, highways and power generation to meet bottlenecks caused by rapid industrialisation. An intense labor shortage created employment for millions of foreign workers. Subsequent events show that more than 50% were illegal.

The influx of foreign investment led to the KLSE Composite index trading above 1,300 in 1994 and the Ringgit trading above 2.5 in 1997. At various times the KLSE was the most active exchange in the world, with trading volume exceeding even the NYSE. The stock market capitalisation of listed companies in Malaysia was valued at $181,236 million in 2005 by the World Bank.

Some of the more visible projects from that period are Putrajaya, a new international airport (Kuala Lumpur International Airport), a hydroelectric dam (Bakun dam), the Petronas Towers and the Multimedia Super Corridor. Proposals that were eventually canceled include the 95 km Sumatra–Malaysia bridge (would have been world's longest), the Mega International Sea and Air port on reclaimed land in Kedah (would have been world's biggest) and the KL Linear City (would have been the world's longest mall and the world's first city built over a river).

Concerns were raised during the time about the sustainability of the rapid growth and the ballooning current account. The mainstream opinion prevalent at that time was that the deficit was temporary and would reverse once imported equipment started producing for export. In spite of that, measures were taken to moderate growth especially when it threatened to overheat into the double digits. The main target was asset prices, and restrictions were further tightened on foreign ownership of local assets. Exposure of local banks to real estate loans were also capped at 20%.

As was widely expected, the current account deficit did narrow steadily, year to year, from 9% to 5% of GDP.

Malaysia has the largest operational stock of industrial robots in the Muslim world.

Read more about this topic:  Northern Corridor Economic Region, Background, Tiger Economy

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