Malaysia, a small prosperous country between India and China, has a population of 27 million and stretches across 330 000 km2. The country is separated into two distinct regions by an arm of the sea: Peninsula Malaysia borders the Strait of Malacca and the States of Sabah and Sarawak belong to the island of Borneo. Indeed, Malaysia is situated at the crossroads of South-East Asia, to the north of the Indonesian archipelago. From an economic point of view, it belongs to this new generation of emerging countries, the « Tigers », which participated in the « Asian miracle » with Thailand, Philippines and Indonesia, close on the heels of the four Dragons (Korea, Taiwan, Hong Kong and Singapore). Its standard of living and buoyant economy definitely makes Malaysia the leading « Tiger » of ASEAN. In the heart of the Malay world steeped in a long Muslim tradition, its multi-ethnic population and religious pluralism also make it a crossroad of Asia where languages, civilisations and influences meet and mingle.
Map of Malaysia © 2009 - IRASEC
From the 16th century, the highly coveted port of Malacca was given over to successive waves of Portuguese, Dutch and English conquests with a primarily commercial objective. In the 16th century, Malacca with Penang followed by Singapore was collectively governed as the Straits Settlements under British rule. In no time exploitation of local natural resources superseded the mercantilist line of reasoning of the port business: from 1874, Great Britain extended the strategic ports’ direct colonial rule to the peninsula’s tin-mining States. At the dawn of the 20th century, Malaysia was in this way drawn into the so-called First Globalization by a somewhat incomplete and unfinished colonisation, generating a new wave of opening of the local economy. Several flows that have structured Malaysia’s economy and demography over the long term are to be distinguished: first of all flow of goods, continuing earlier trades, flow of foreign capital for funding regional development and influx of massive immigrant labour, partly servile, from China and especially from India to carry out additional work imposed by this development. Trade speeded up greatly from 1910 till the Great Depression of the 1930s and the Peninsula got down to producing rubber and tin to cater to the world demand, on behalf of European and American capitalist companies.
A lasting characteristic trait of modern Malaysia’s economy is this initial vulnerability to global economic cycles, through dependence on a foreign trade demand, foreign capital and imported technologies. Historically, from the 1960s, upon the IBRD recommendations and European financial aid for the most part, Malaysia[i] initiated a progressive conversion of its export agriculture towards a more diversified industrialisation. However, since the arrival of capitalism in Malaysia, regardless of the period, flagships of the Malaysian industry have always been quantitatively initiated, raised and dominated by foreign capital mainly allocated for export[ii].
The Malaysian Minister of Agriculture visiting the Agropolis scientific facilities, © 2005 - IRD
An outcome of successful reconversion and the driving force behind its economic growth, the electronics industry pushed the country to the rank of a leading world exporter in this domain since more than a decade. But the pioneering companies welcomed by local authorities from 1972 are American and Japanese multinationals, or more recently Taiwanese. Concentrated mostly in Penang’s industrial cluster, they apply technologies developed in parent companies. This concentration inhibited the emergence of national companies capable of competing with global electronics giants. Employing close to one-fifth of the active industrial population, the electronics industry counts for nearly 40% of Malaysian exports, before other export revenues mainly from natural resources that the country is well-endowed with (natural gas, crude oil, palm oil, petroleum products and exotic wood).
As a small open economy – foreign trade more than two times its GDP, direct foreign investments rolling in since the end of the 1980s and the capital market deregulated - Malaysia is therefore structurally vulnerable to external shocks. That is why it was shaken up by the 1997-1998 financial crises and then the dot-com bubble burst in 2000, which gave a thorough jolt to the global electronics industry. Limits of extraversion and the virtue of a form of economic sovereignty clearly appeared therefore at the regional level. This sovereignty had the possibility of being exercised several times in the Malaysian economic history, the most famous being undoubtedly the Prime Minister Mahathir’s refusal of the IMF aid in 1998, while he was restoring a control on the movement of capital in order to lift the country out of the tumultuous fall of the emerging economies. Public investment, more discreet, but just as striking, took over on a long term basis, a domestic demand weakened by consequences of the crisis and a foreign demand slowed down by the inflection in the global business cycle of the electronics industry. In the middle of the first decade of 2000, the State played a primordial role in the accumulation of capital, for example more than 60% in 2001-2004, which helped in giving a boost to the Malaysian economy under better conditions. This weight of public investment was still 54% in 2007. This singular economic sovereignty was part of on-going measures taken by the New Economic Policy (NEP, 1971-1991), with all their ambiguity: in order to reach its development objectives, the government created a real State capitalism, closely linking politics to business circles. On the other hand, in spite of the dynamic Chinese small scale industries and the influential Chinese business class settled since a long time in Malaysia benefitting the local economic fabric, the economic policy was often more prone to promote foreign interests than to support local Sino-Malaysian entrepreneurs. The Chinese living in Malaysia represent about one fourth of the national population, and own two-thirds of the local small scale industries. After the two slumps in 1998 and 2000-2001, the country also diversified its economy by supporting sectors turned to domestic demand (particularly by developing « Islamic » sectors) and by trying to weaken the structural influence of the electronics industry and the dependence on American orders.
Since autumn 2008, the global financial crisis which is gradually transforming into a global economic crisis, seemed, for a moment, to spare the emerging countries of Asia, particularly those of South-East Asia. One could even think, with Zeti Akhtar Aziz, Governor of Negara Bank, that « the changes produced since the 1997 crisis have made Asia a pole of dynamism and sturdiness within the world economy»[iii]. In its panorama of the world economy published in November 2008, the IMF considered that the slump in the Asian GDP would be minimal, the region resisting the 2008 financial turbulences quite well, inspired by lessons from the Asian crisis. For Malaysia, experts announced a growth of 5.7% in 2008 and 4.8% in 2009.
But the forecast for global growth had to be revised downwards already: the world economy is entering into recession (-1% for 2009), in a more pronounced way for developed economies. Since the Asian region is taking part in the global business, it does not escape the crisis.
Shipping bunches of mature oil palm, © IRD
In February 2009, the IMF updated data predicted a growth of only 5.5% for developing Asia in 2009 (against close to 8% in 2008), and a growth rate divided by two for the five ASEAN countries (2.7% in 2009 against 5.4% for 2008). Surprising still was the situation of the Dragons of Asia that had a violent recession with a GDP fall of -3.9%. Malaysia saw a last quarter registering almost no growth (+ 0.5%) in 2008, which already reduced its 2008 annual growth to 4.6% against the projected 5.7%. Its trades seemed to register a clear-cut slow-down at end 2008-beginning 2009[iv]. In fact, Japan, Singapore and the United States, the leading business partners of Malaysia, saw their economies drop, dragging along this small business partner into their recession.
Thus the year 2009 really had a bad start with a sharp decline in industrial production given Malaysia’s direct dependence on its exports. The manufacturing industry registered a drop in sales by 22% in January 2009 compared to January 2008. Employing close to one million people, the industrial sector lost one tenth of its workforce within a year. The sectors most severely affected by this meltdown are the major export sectors: thus, in the software domain, the sale of computers and peripherals dropped by half (- 48.5%) compared to the previous year while that of the semiconductors by 35%. These two branches alone explain 40% decline in registered industrial sales. If we consider export trends, the analysis is confirmed: Malaysian exports have reduced by 25% between January 2008 and January 2009, due to the determining factor of electronic goods exports that have lost more than one-third of their value. Fragile, counter-trend, domestic demand for the moment remains steadier than during previous crises, both due to a relative private consumption growth maintenance matched with a strong support from public spending.
Today we can expect a deepening of the global crisis in 2009, in spite of the budget stimulus plans announced. If this scenario becomes stronger, Malaysia would be caught by the crisis, despite its intrinsic virtues and political voluntarism and its successful integration into globalisation through international trade. And there lies its vulnerability as well.
References :
Elsa Lafaye de Micheaux, Un tigre dans la mondialisation. Malaisie : un développement souverain ? 2009 (to be published).
FMI, World Economic Outlook.2008, Nov. 2008.
FMI, World Economic Outlook UPDATE, Jan. 2009.
FMI, G20,.Global Economic Policies and Prospects, mars 2009.
Bank Negara Malaysia, Economic and financial developments in Malaysia, 4rth Quarter of 2008, Fév. 2009.
Begonia pavonina, an endemic species from Pahang (state #8 on the map) © 1995 - CNRS Photothèque / BLANC Patrick
[i] In 1963, the Federation of Malaysia welcomed the States of Sabah and Sarawak (Borneo). Singapore comes out of it in 1965. Since then, Malaysia is a federation of 13 States over two distinct geographic entities, separated by an arm of the South China Sea.
[ii] The short attempt at promoting imports, with a nationalist affirmation in the 1970s, did not mean for all that a rejection of export promotion policy.
[iii] Zeti Akhtar Aziz, « Asia, a decade of transformations », FMI, Finances and development, June 2007, p. 27.
[iv] But Malaysia would register a trade surplus for the 11th consecutive year.
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