Country Snapshot: Malaysia
The choice of Malaysia offers an epitome example that illustrates the economical dynamics of the Global South. Malaysia is located in South East Asia and its economy is ranked as the third largest after Thailand and Indonesia. The country’s fast industrial growth had seen its Gross Domestic Product (GDP) grow from $93.8 billion in 2000 to $237.8 billion in the year 2010. This value has since reached $525 billion in 2013. By 2005, its manufacturing and services sectors had a share of 32.9% and 53.7% of the GDP, respectively (Tajuddin 162-163; Publications 139-140). Other fundamental sectors within its economy include the agricultural and natural energy resource sectors. These two sectors had an influence of 14.5% of the GDP and by 2013, the natural energy resource mining sector had the capacity to contribute 32% of the general revenue raised by the Malaysian government (Indexmundi.com). This market research paper, therefore, intends to explicate the subtle underlying factors and drives of the three significant economic sectors of Malaysia: The manufacturing, agricultural and mining sectors.
Major Economic Sectors
Manufacturing and Services Sector
This sectors are related and when combined, they form over 80% of Malaysia’s GDP. They are, thus, very significant movers of the economy. The manufacturing sector comprises of the automobile industry (including the indigenous Proton automobile company) which relies heavily on the cheap technical labor available in Malaysia. The manufacturing industry currently majorly exports machines, automobile accessories and electrical and electronics products. Albeit the Malaysian government allows privatization in this sectors, it has perpetually maintained a pragmatic hold of foreign exchange movements and, thus, the strength of the export industry as derived from automobile manufacturing. For instance, the automobile industry, through government policies, is highly restricted from labor outsourcing. Moreover, the finance services sector is highly restricted from speculating.
Furthermore, the government through its policies of sovereign wealth funds such as the Khazanah Nasional Berhad, ensures that the Malaysian government invests in major manufacturing industries. The restrained labor outsourcing policy has also attributed to the Employees Provident Fund that maintains a biased stance against foreign employees.
Nevertheless, despite its negative stance towards international trade policies and relations, Malaysia has sought to join regional and bilateral trade agreements, especially with major economic countries such as India, China and Japan. Trade between European Union (EU) and Malaysia had not been considered up to 2006. This behavior also reflects its strong economic grip on the monetary policy (Publications 139-140).
Malaysia’s reliance on agriculture has largely dropped to 7.1% of the GDP by 2014 from a figure of approximately 40% in mid-20th century. Despite its reach climate and good soils, this sector currently employs approximately 10% of Malaysians (Olaniyi et al 60-69). Since the government’s policy of adopting an export-led growth strategy (a decision that was largely influenced by rampant economic growth by Japan), the number of farmers growing food crops such as coconut has reduced significantly. This reduction was further influenced by the government’s policy of subsidizing and controlling the prizes of essential agricultural products such as sugar, cooking oil, rice and flour.
As a result, the current agricultural sector in Malaysia focuses majorly on cash crops. That is, the current Malaysian culture of the 21st century has seen more than 80% of its net agricultural land use going to the production of industrial cash crops such as rubber and palm oil. It is now common to see large tracks of rubber plantations in Malaysian rural areas.However, despite the small contribution of this sector to the overall GDP of Malaysia, it still plays a significant role in the global trade environment. For instance, by the start of the second decade of the 21st century, Malaysia was the second largest producer of palm oil in the entire world. This formed about 19 million tons of palm oil.
Mining (Energy Resources) Sector
In Malaysia, the largest controller and regulator of oil and gas mining is the Petronas Oil Company (which is Malaysia’s National Petroleum Company). Even though mining prospects have had the capability of generating huge revenue for the government, by 2015 the Malaysian government had started a plan to cut down its reliance on energy resource (Ng). This is because its capacity to produce these resources is highly ranked as finite, especially given the scope of current declining oil reserves (Malaysiamission.com). Oil and gas mining in Malaysia is majorly exported to countries such as China; its main bilateral trading partner in the ASEAN trade bloc and US.
The major prospects in this sector rely on the government’s policy of allowing foreign participation. Since 60% of crude oil reserves in Malaysia remain undeveloped, Petronas promotes national oil and gas production contracts (Malaysiamission.com). Thus, oil prospecting companies such as Shell and ExxonMobil have entered into these contracts. As a result, approximately 40% of oil and gas fields in Malaysia have been reported to be developed as of 2014.
From the statistics and global economic factors elaborated in the foregoing discussions, the best sector bearing favoring prospects for investing is the mining sector (particularly the oil and gas mining sector). These is a more favorable than the prior sectors such as the manufacturing and agricultural sectors because of various reasons such as Malaysian culture, government policies and competitiveness.
To begin with, the statistics depict that 60% of oil reserves in Malaysia are currently not explored. That is more than a half of the country’s potential in oil production. Furthermore, oil products have an international market and cannot be easily influenced by specific factors such as those relating to palm oil. For instance, in the global world market products such as palm oil receive varied demand levels in countries such as those in Africa. Nevertheless, a product such as oil is pegged to every country’s economic development prospects. The demand for oil in all countries of the world is predictable even during global falling oil prices as this commodity is vital to global economic development ventures for each and every country.
Venturing into the Malaysian oil and gas prospecting industry is indeed unlimited by factors such as land. The agricultural sector, for instance, has had approximately 80% of its agricultural land use for cash crops exploited. This only leaves a very small percentage of 20% which may be subjected to unexpected factors such as the availability of land to plant rubber trees. On the other hand, oil prospecting can be done even in offshore mining areas thus extending its scope further.
The manufacturing and services industry, on the other hand, does not offer great prospects in investing due to the Malaysian government policies and current competition of re-known and influential companies such as Intel. The competition is quite stiff since national and indigenous companies such as Proton receive government support through investment funds. Albeit prospecting competition may be expected from oil drilling companies such as Shell, the ability to prospect for more oil is not limited by competition (since 60% of these resources have not been exploited yet) and government policies (since the National Petroleum Company has completely permitted foreign participation).
The Malaysian policy of controlling product prices cannot hold for oil products. Thus, venturing into the agricultural sector may be adversely affected by such price controls leading to limited profits or even significant losses. Oil and gas prices are universally controlled by market factors such as demand and supply, as a result, they completely fall outside the scope of Malaysian government control.
As reported herein, the Malaysian labor outlook fosters oil and gas development due to its cheap and skilled (technical) characteristics. Companies such Intel and Panasonic are able to utilize this opportunity thus ensuring their high profit margins. Off shore oil drilling, for instance, demands a lot of technical labor and equipment which can be easily obtained from Malaysia. Thus, the prospects for generating substantial profits are indeed unlimited.
Finally, off shore oil prospecting in Malaysia may not be subjected to unexpected geographical restraints. Malaysia lies within a continental shelf that is broad and shallow (Malaysiamission.com). Thus, this has an opportunity at permitting and even facilitating the process of deep water drilling ventures. More offshore areas are currently being opened for exploration and drilling since by the start of this century, only depths of up to 200 meters have been drilled. Furthermore, Petronas also offers incentives for smaller oil and gas discoveries facilitating competition from smaller oil drilling companies. This means that that oil prospecting is not limited to the current scope already acquired by oil mining giants such as Shell.
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To sum it up, there are three fundamental economic sectors that currently influence the global economic performance and outlook of Malaysia. They include: Manufacturing and Services industry (which takes the biggest scope of the GDP), the mining sector (which contributes almost 30% of government revenue) and the agricultural sector (that currently stand at 7.1% of the GDP). Of the three, it has been recommended that oil and gas exploration and mining is the best investment. This is because it receives widespread support from various factors. For instance, government policies permit foreign investments in this sector, the availability of cheap and skilled labor from Malaysia, the unlimited unexploited resources of up to 60% of the total Malaysian total oil and gas reserves and the world demand of oil for economic development purposes.
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