KUALA LUMPUR (Sept 27): During the 11th Malaysia Plan (11MP) period, Malaysia’s economy grew at an average annual rate of 2.7%, driven mainly by the services and manufacturing sectors. The local economy, however, was affected by external headwinds and a slowdown in the global economy, especially in 2020. The Covid-19 pandemic disrupted the global value chain and domestic economic activities.

Four targets, namely share to gross domestic product (GDP), sectoral growth, labour productivity and total exports were set to strengthen the growth of the economy and expedite structural reforms in the five economic sectors — services, manufacturing, agriculture, mining and construction. The contribution to GDP targets for the services and manufacturing sectors were realised, while for construction, agriculture and mining, the achievements were slightly below targets.

Volatile commodity prices were the main reason for the low contribution of the agriculture sector to GDP, while mining production was affected by lower global oil and gas prices, according to the 12MP (2021-2025) report tabled in Parliament by Prime Minister Datuk Seri Ismail Sabri Yaakob on Monday.

Still, in terms of value added, all sectors recorded positive growth, albeit lower than the targets set, except for mining which contracted at an annual average rate of 2.2% and construction at 0.7% mainly due to the Covid-19 pandemic.

In terms of labour productivity, only the agriculture sector surpassed its target, growing by 0.5% per year. The performance of the other sectors came in below targets due to slow adoption of automation and high dependency on low-skilled workers.

The services sector continued to be the biggest sector in the economy last year, contributing 58% of total GDP. The manufacturing sector contributed 23% of GDP, followed by mining (7%), agriculture (7%) and construction (4%).

Moving forward, in the 12MP, efforts will focus on rejuvenating the economy to ensure the momentum of growth is restored. This will be achieved by boosting productivity growth, expanding export markets, strengthening the effectiveness of the financial intermediation ecosystem, enhancing the role of industrial estates and food production areas as well as improving  governance and policy, the report stated.
 
The report also highlighted that the private sector will play a greater role in restoring the growth momentum in meeting future challenges and competing in the global market.

Malaysia aims to boost productivity growth across all sectors in restoring the momentum of economic growth and enhancing the competitiveness of industries.

To spearhead the drive for increased productivity under the 12MP, the government said emphasis will be given to strengthening the planning, evaluation and monitoring mechanism, moving up the value chain and strengthening financial capability.

“In addition, measures will be undertaken to scale up successful initiatives of Productivity Nexus. Green practices will also be scaled up in managing resources and environmental issues. The implementation of these measures will drive productivity growth and improve efficiency,” the report said.

Sector-wise, productivity growth is expected to be led by the manufacturing sector, growing at 4.3% per year over the next five years (2021 to 2025), followed by the construction sector at 3.8%, the services sector at 3.6%, the agriculture sector at 2.5% and the mining sector at 1.5%. 

Measures to expand domestic and export markets will focus on improving market efficiency, empowering the role of industry players and strengthening trade facilitation.

Efforts will also be undertaken to position Malaysia as a regional logistic hub, capitalising on its advantage of good connectivity in the Asia-Pacific region.  It added that establishing Malaysia as a regional hub will also increase competitiveness of industry players and expand the market share in the region.

Meanwhile micro, small and medium enterprise (MSMEs) and mid-tier companies in all sectors of the economy will be encouraged to maximise opportunities from existing free trade agreements (FTAs), bilateral agreements and economic partnerships with other countries.

Further, the report noted that the Regional Comprehensive Economic Partnership (RCEP) agreement, which potentially provides preferential market access to 45% of the world’s population, is expected to be ratified and implemented in the 12MP period.

“Several potential FTAs are currently being negotiated and will be among the priorities to be leveraged. These trade agreements will open up greater opportunities for local industries to penetrate the global market,” it added.

An effective and resilient financial intermediation ecosystem is key to support sustainable growth of the economy and development of society. This is particularly critical as countries, including Malaysia, respond to and recover from the economic and social impact of the global health crisis and other adverse shocks.

Emphasis will be on transforming the financial ecosystem to meet future economic needs, enhancing resilience and governance of the financial system, and promoting a sustainable and inclusive financial system.

To infuse competitiveness and foster greater innovation, efforts will be undertaken to facilitate entry of new players such as digital banks, digital insurers, robo-advisers and digital brokers as well as support market participants in embracing new innovative business models.

Against this backdrop, enhancements to key enabling infrastructure, regulations and practices will also be pursued, including implementation of an effective cybersecurity framework to promote greater efficiency, safety and resilience.

Meanwhile, the report also stated that the financial system will play a catalytic role in transforming Malaysia into a low-carbon economy. Recognising the urgent need to accelerate and ensure a smooth and orderly transition, a committee comprising Bank Negara Malaysia (BNM), the Securities Commission Malaysia (SC) and the financial industry will drive and support climate change actions within the sector.

The development of industrial estates and dedicated food production areas has been recognised as one of the important platforms in attracting investments, especially high-technology investments.

Under the 12MP, focus will be given on enhancing the role of industrial estates and food production areas as growth catalysts and achieving a more balanced industrial estate development. Hence, initiatives will be intensified to improve the attractiveness and investments in these areas.

The report highlighted that incentives will be redesigned to attract quality investments that utilise clean technology to ensure sustainable practices. Financial assistance will also be extended to entrepreneurs in the food production areas to facilitate the adoption of smart farming practices for higher income and productivity.

In addition, to promote equitable industrial development, the existing investment incentive mechanism will be improved to ensure less developed regions or states are given priority in getting special incentives. This will improve the investment ecosystem and attract new investors to conduct business and operations in less developed regions.

Strong governance accompanied by comprehensive policies and legislation that are responsive to changes will facilitate the economic sectors to move up the value chain and attract high-quality investment. Measures will be undertaken to strengthen coordination and collaboration for more effective implementation, enhancing the roles and functions of institutions as well as strengthen policy and legislation.

Focus will be given in addressing issues pertaining to fragmented governance and overlapping roles and functions. These include establishing a dedicated authority for the mineral sub-sector and reforming existing institutions to enhance effectiveness and efficiency of services delivery.

Meanwhile, government agencies will be required to adopt Good Regulatory Practices (GRP) to increase transparency, especially in disseminating information related to changes in law and regulations. This will enable industry to keep abreast with the latest regulations in ensuring compliance.