Topic 10 X Economic  

Development 
Policy 
 
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Identify national economic development programmes;
2. Explain strategies carried out by the government in developing the
national economic; and
3. Discuss issues arising from every economic development
programme.

X INTRODUCTION
Did you know that government efforts in developing the national economy began
in Malaya since Independence? Generally, the history of national economic
development can be divided into three main phases:
(a) Planning in the pre-independence period;
(b) Planning in the post-independence period; and
(c) Planning after the implementation of the New Economic Policy.
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10.1 WHAT IS MEANT BY ECONOMIC

DEVELOPMENT?
Development usually refers to efforts to change the society or country from a state
of under development to one of progress. These changes encompass various
aspects of life like economics, politics, education, psychology and such. It also
refers to the physical, material and non-material aspects. Economic development
in the contexts of Malaysia, on the other hand, is economic development from
traditional form to a more modern economy.

10.2 BASIS AND PHILOSOPHY OF NATIONAL

DEVELOPMENT
Factors that form the basis to the drafting of development policies and strategies
are:
(a) Open economic status;
(b) Diverse economic system;
(c) Multiracial society; and
(d) Federal Government.

10.3 ECONOMIC DEVELOPMENT IN MALAYSIA

Economic development in Malaysia can be examined through the introduction
and implementation of development programmes that have been carried out by
the government, as follows:
(a) 1956-1960 First Malayan Plan
(b) 1961-1965 Second Malayan Plan
(c) 1966-1970 First Malaysia Plan
(d) 1971-1975 Second Malaysia Plan
(e) 1976-1980 Third Malaysia Plan
(f) 1981-1985 Fourth Malaysia Plan
(g) 1986-1990 Fifth Malaysia Plan
(h) 1991-1995 Sixth Malaysia Plan
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After independence, the government began implementing several national

development programmes. The aim of the programmes is to overcome all political
and socio-economical problems faced by the communities in Malaysia resulting
from the legacy of British colonial policies. National development was planned
according to two main programmes: Five Year Malaysia Plan and Long Term Plan
Outline. Since independence, nine development plans and two Long Term Plan
Outlines have been successfully implemented.

These plans were created to suit the socio-economic and political climates of the
time and national development policies. The First Long Term Plan Outline
(RRJP1), 1971-1990, was the basis to the implementation of the New Economic
Policy. Meanwhile, the Second Long Term Plan Outline, 1991-2000, formed the
foundation to the implementation of the National Development Policy which
aimed to achieve balanced development. The year 2001 saw the presentation of
the Third Long Term Plan Outline (2001-2010) that was drafted based on the
National Vision Policy.

10.4 NEW ECONOMIC POLICY (NEP)

This policy was launched by the Malaysian government through the Second
Malaysia Plan (1971-1975). The forming of the NEP was aimed at rectifying the
socio-economic imbalance among the races. The plans to achieve the targets of the
NEP were included in the Long Term Plan Outline from 1971 to 1990. The
development programmes under the NEP, was carried out according to a two-
pronged strategy:
(a) To reduce poverty by providing more employment opportunities to all
races; and
(b) To restructure communities to eradicate racial stereotyping based on
economic functions.

The basis to the drafting of the NEP was to:

(i) Strategy for eradicating policy

The focus of the Malays was in the rural areas. Therefore, the government
implemented various public services and facilities like education, health,
and water and electricity supplies. The government also provided subsidy
assistance for fertilisers, education scholarships and free textbooks,
additional food for children and low-cost housing programmes. The
governmentÊs efforts in raising the standards of living brought results in
about 20 years where the poverty rate was reduced from 49.3% (1970) to
17.1% (1990).
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(ii) Achieve the second aim of the NEP-to eradicate racial stereotyping
according to economic functions. The government launched several
programmes like industrialisation and commerce, agriculture, mining, and
transportation. The strategies carried out were to:
• Increase output capability and standard of living of the poor in rural
areas;
• Reduce imbalances in land utilisation structure so that the participation
of various races in main sectors would reflect on the labour force
according to racial composition;
• Increase Bumiputra equity in the productive sectors where they were
quite behind, compared to other races; and
• Ensure the forming of a commerce and industry-based society among
the Malays and Bumiputras so that they would own at least 30% of all
economic activities come 1990.

The effects after NEPsÊ implementation is that it managed to lift the standards of
living of the Bumiputras and achieve its aims in eradicating poverty. However,
the restructuring of the labour force has to be stepped up considering that Malays
were still under-represented in the commerce and business sectors.

10.5 NATIONAL DEVELOPMENT POLICY (NDP)

The NDP was launched by Tun Dr Mahathir Mohamed, the Prime Minister of
Malaysia, on 17 June 1991. The Second Long Term Plan Outline, 1991-2000, was
drafted based on the National Development Plan (NDP), marking the beginning
of another new era in efforts to make Malaysia a developed nation in 2020.

10.5.1 Objectives
The main objective was still to strengthen national unity. The NDP set another
step towards enabling Malaysia to achieve developed nation status in all aspects
like social justice, values, ethics and morals, political stability, quality of life,
government administration efficiency and economic brilliance.

10.5.2 Implementation Strategies

The NDP will continue to maintain the basic strategies of the NEP ă eradication of
poverty and restructuring of communities to improve the social and economic
170 X TOPIC 10 ECONOMIC DEVELOPMENT POLICY

imbalance among races and with this, to contribute to strengthening national

unity.
The NDP will stress on:
(i) Creating an optimum balance, among the targets of economic development
with fair distribution;
(ii) Ensuring balanced development for the main economic sectors to improve
complementary capabilities between sectors to optimise growth;
(iii) Reducing and eventually eradication social and economic imbalances by
encouraging fair sharing and mutual benefits obtained from more even
growth for all Malaysians;
(iv) Encouraging and strengthening national integration by reducing the wide
gulf in economic development between states and between town and rural
areas;
(v) Developing a progressive society where the people can enjoy a high level of
well-being, possess social and spiritual values, as well as feel appreciation
and love for the country;
(vi) Developing human resources, and creating a disciplined and productive
workforce as well as improve necessary skills to face challenges of industrial
development through a culture of excellence without jeopardising the aim of
restructuring communities;
(vii) Making science and technology an important part in socio-economic
planning and development which require efforts to develop abilities in
strategic technology and knowledge-based, as well as enhancing the science
and technology culture in the process of developing a modern industrialised
economy; and
(viii) Ensuring that, in the pursuit of economic development, appropriate
attention is given to the protection of the environment and ecology in the
long term. To ensure the countryÊs development can be maintained
continuously, the NDP has taken into consideration the progress achieved
thus far under the NEP, as well as its strengths and weaknesses. It contains
several transition approaches with the aim of creating a new dimension in
efforts for development, especially in eradicating poverty and restructuring
communities.

The new dimensions introduced by the NDP are:

• Poverty eradication strategy to get rid of poverty among the hardcore poor as
well as reduce relative poverty;
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• The development of a Bumiputra Commerce and Industry-based Society as an

important strategy towards increasing and subsequently maintain Bumiputra
participation in the economic sector.
• Increase private sector participation in the process to restructure society; and
• Development of human resources including a system of values and ethics to
achieve the target of economic growth and fair distribution.

10.5.3 Several Approaches Taken in Efforts to

Implement the NDP
The approaches are:
(a) Quality and sustainable achievements.
(b) Competing in International Markets
In this matter, Malaysia has to increase efforts to attract foreign investors
and industrialists to expand their transactions in the country. Malaysia will
continue to practise a liberal policy that will encourage the private sector to
be more prepared to face related risks.
(c) Participation of all Races in Developing Malaysia
The implementation of the NDPÊs two-pronged strategy will continue to
encourage the garnering of national resources and use the intelligence of the
multiracial societies to build a durable economy and increase the countryÊs
ability to withstand the world economic instabilities and uncertainties.
(d) Eradication of Poverty
In implementing strategies on poverty eradication, the NDP will take into
consideration several changes to the role of the public sector through the
opening of land and subsidy awards to small farmers to create work
opportunities and help increase their income.
(e) Restructuring of Societies
Abolishment of racial stereotyping according to economic functions and
restructuring of ownership will continue to be important programmes in the
implementation of strategies to improve the Bumiputra workforce and
participation in the management of modern sectors, and to form a
Bumiputra Commerce and Industry-based Society. These steps will equip
the Bumiputras with relevant skills to not only manage and run successful
businesses but to maintain their wealth as well.
172 X TOPIC 10 ECONOMIC DEVELOPMENT POLICY

ACTIVITY 10.1

The poverty rates in the country were reduced to 7.2% in 2000 compared
to 19.1% in 1990. The unemployment rate also dropped to 4% in 2000.
What are your views on the ever-increasing number of unemployed
graduates in Malaysia?

10.6 NATIONAL VISION POLICY

What is the National Vision Policy and why was it Created? The Third Long Term
Plan Outline was drafted based on the National Vision Policy (NVP) with the
main theme ÂIncreasing the durability and competitiveness of the countryÊ.

10.6.1 New Policy Dimensions Introduced in the NVP

The new dimensions are:
(a) Develop Malaysia as a knowledge-based society;
(b) Generate growth driven by local sources and strengths through the
consolidation of investments in the country and development of local
capabilities, as well as attract Foreign Direct Investors continuously to
strategic fields;
(c) Make the agriculture, manufacturing and services sectors more dynamic
through higher application knowledge;
(d) Eradicate poverty among the small groups of poor people in isolated areas,
the Orang Asli and Bumiputra minorities in Sabah and Sarawak, as well as
increase the income and quality of lives of the people in the lowest 30%
income group;
(e) Achieve effective Bumiputra participation and at least 30% equity
ownership by 2010;
(f) Increase Bumiputra participation in main economic sectors; and
(g) Re-orientate the development of human resources to support the forming of
a knowledge-based society.
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10.6.2 The Main Essence of the National Vision Policy

The aims of National Vision Policy are to:
(a) Build a durable nation by cultivating unity, stirring up patriotism, nurturing
political maturity, building a more compromising and loving society that
practises positive values, as well as improving the quality of life and
economic durability;
(b) Encourage the creation of a fair society through eradication of poverty and
reduction of imbalances between and in ethnic groups and territories;
(c) Maintain a high economic growth by enhancing growth sources, financial
and corporate institutions as well as management of macroeconomics;
(d) Increase competitiveness to face globalisation and liberalisation challenges;
(e) Develop a knowledge-based economy as a strategic step to increase values
added-on for all economic sectors and optimise the nationÊs thinking
capabilities;
(f) Strengthen the development of human resources to produce an efficient,
productive and knowledgeable workforce; and
(g) Continue sustainable development of the environment to strengthen long
term growth.

10.7 OTHER NATIONAL ECONOMIC

DEVELOPMENT POLICIES
10.7.1 National Industrialisation Policy
The industrial and manufacturing sectors function as the main economic source of
the country. Other than providing work opportunities, these sectors are also
expected to be the countryÊs main exporters and to provide technical training and
skills to the people. Considering the governmentÊs policy to make the industrial
sector as the primary economic sector in the long term, the government formed a
study committee on the National Industrialisation Policy and Main
Industrialisation Plan (PIP) to check and draft national industrialisation policies
and to study investor confidence and increase of export.
174 X TOPIC 10 ECONOMIC DEVELOPMENT POLICY

Main Industrialisation Plan (PIP)

Established on 3 February 1986 to cover a period of ten years (1986-1995), this
Plan outlined three important targets:
(a) Make the industrial sector as the catalyst for the growth of industries;

(b) Encourage the full utilisation of the countryÊs natural resources; and

(c) Increase the standards of education and local technology development as

the basis of making Malaysia an industrialised nation.

The PIP managed to identify 12 sectors that need emphasis in the coming 10
years, which are:
(i) Sectors based on local resources ă rubber, oil palm, timber, food, chemicals,
non-ferrous metals and non-ferrous minerals; and
(ii) Sectors or industries not based on resources like electrical and electronics,
transport, equipment, machinery, engineering, ferrous metals, textiles and
clothing.

Implementation Strategies
To implement the aim of the PIP, several strategies are being formulated and
encompass the following:
• Restructure existing industrialisation encouragement;
• Diversify exports and encourage imports- replacement sectors;
• Redevelop the imports-replacement sectors at the first stage for durable
consumer goods and imports-replacement sectors at the second stage for
example telecommunications goods;
• Encourage Malaysian consumers to use more ÂMade in MalaysiaÊ goods;
• Diversify export markets including finding new markets in socialist and
developing countries;
• Expand industrial activities to less developed areas;
• Encourage research and development by the public and private sectors;
• Encourage heavy industries to drive the progress of the new industries; and
• Encourage the growth of small enterprises.

Achievements
Malaysia is the main destination for Japan and Newly Industrialised Countries to
transfer their factory operations. This indirectly leads to the transfer of technology
into the country. The entry of foreign capital managed to create factory-based
 TOPIC 10 ECONOMIC DEVELOPMENT POLICY W 175

industries as the main industry in Malaysia, when it contributed 24.3% of the total
Gross National Produce and 16.6% of the workforce in 1988.

ACTIVITY 10.2

PIP3 was introduced to replace the PIP1 (1986-1995) and PIP2 (1996-
2005). PIP3 functions to maintain the countryÊs capability to remain
competitive in a more challenging economic environment especially
with the emergence of new, expanding economies like China, India and
Latin America. Other than competition, Malaysia also needs to develop
individuals who are innovative, creative and highly skilled and capable
of developing new sources of growth. (Utusan Malaysia, 18/8/2006).

Based on the statement above, what are the necessary steps that need to
be taken by the government to produce such individuals for the
development of industrial sectors in Malaysia?

10.7.2 Heavy Industries Policy

This policy aims to develop and expand heavy industrial activities in the country.
This is due to the industrial sector contributing heavily to the national economic.

Objectives
(a) Import and absorb more sophisticated technologies to develop its own
technologies. Thus, Malaysia will produce raw materials and industrial
machineries and imports-replacement goods for the needs of the country
competitively;
(b) Prevent continued dependence on foreign goods and technology. Thus the
country can save on foreign currency exchange and subsequently establish
cautionary steps on price and supply uncertainty of strategic necessary
goods;
(c) Diversify and strengthen export of Malaysian goods to overcome protective
policies practised by developed nations on goods produced by labour
intensive industries in developing countries;
(d) The heavy industries are expected to increase the capabilities of small
industries and support industries as well as creating new mid-industries;
and
(e) Creating opportunities for workers trained in engineering and related fields.
176 X TOPIC 10 ECONOMIC DEVELOPMENT POLICY

Implementation Strategies
The government formed the Heavy Industries Corporation of Malaysia (HICOM)
in 1980. The role of HICOM is to identify, initiate, implement and manage projects
in heavy industrial fields. As a result, several government-sponsored projects
were launched, with the cooperation of foreign investors. This includes cement,
metal and steel pole factories, national car project, small engines factories, pulp
and paper, as well as engineering complexes.

Among the accomplishment of this policy are:

(a) The national car project implemented by the National Automobile Industry
(Proton) which produced local car models like the Proton Saga and Iswara.
This industry was further expanded with the production of the Perodua line
of cars and motorcycles by Modenas.
(b) The setting up of cement factory, Kedah Cement Sdn Bhd, the Perwaja Steel
Processing Plant and Perak Manjung Cement.

10.7.3 National Agriculture Policy

The agriculture sector plays an important role in the social and economic
development in Malaysia. In the early stages, the cultivation of food crops like
ÂpadiÊ, vegetables and fruits, fishing activities and livestock rearing provided the
source of food, created work opportunities and income to the local population.

The National Agriculture Policy was launched on 12 January 1984. It was created
to form guidelines for the government and private sectors to develop the
agriculture sector.

The National Agriculture Policy was established to:

(a) Maximise income in the agriculture sector to contribute to the economic
growth of the country;
(b) Maximise income of entrepreneurs/small farmers through increase in
productivity and reduction in poverty rates; and
(c) Develop main commodities that have enormous potential to be exported.

Strategies
(a) The opening of new lands which will be handled by FELDA (Federal Land
Development Agency), development authorities and state governments;
(b) In-situ development in areas which have been utilised for agriculture
activities, but have been low in productivity. Efforts are taken to rectify
 TOPIC 10 ECONOMIC DEVELOPMENT POLICY W 177

these areas through projects carried out by the Kemubu Agricultural

Development Authority; and
(c) Providing agriculture support services like the Palm Oil Research Institute
of Malaysia (PORIM), the Rubber Research Institute (RRI), the Malaysia
Agricultural Research and Development Institute (MARDI), the Rubber
Industries Development Authority (RISDA), the Federal Agriculture
Marketing Boards (FAMA) and Farmers Organisation Authority.

10.7.4 Third National Agriculture Policy (DPN3),

1998-2010
Objectives
The main objective of the DPN3 is to maximise income through the optimum use
of resources in this sector. This encompasses efforts to maximise the contributions
of the agriculture sector to the Gross National Produce (GDP), income from
exports and well as incomes of farmers, breeders and fishermen. Specifically, the
objectives of the DPN3 are to:
(a) Increase food security;
(b) Increase productivity and competitiveness of the agriculture sector;
(c) Strengthen ties with other sectors;
(d) Create a new source of growth for the agriculture sector; and
(e) Complete industry cluster development approaches.

ACTIVITY 10.3
ÂThe Ninth Malaysia Plan (9MP) chartered a new golden era for the
agriculture sector. The government wisely provided new approaches to
bring back the excellence of agriculture as the driving force of the
economy. As much as RM11.4 billion has been allocated to this sector, a
70% jump compared to the allocation under the 8MPÊ. (Fatimah Arshad
9MP Era of Agriculture).

Based on the statement above, in your opinion, what are the approaches
that need to be taken to restore the excellence of the agriculture sector
and at the same time make the sector on par with other industrial
sectors?
178 X TOPIC 10 ECONOMIC DEVELOPMENT POLICY

• The development of MalaysiaÊs economy has seen great results since

Independence.

• Malaysia has now become one of the main targets of investors.

• This is enough to prove that Malaysia has progressed in the economic sector
as a result of diligent planning by the government and support by the people
of Malaysia.

Long Term Plan Outline New Economic Policy

National Development Policy Post Period
National Vision Policy Pre-Independence Period
Natural Industrialisation Policy

Official website of the Prime Minister Office of Malaysia. Retrieved March 2, 2009,
from www.edu.jpm.my

Official website of implementation coordination unit, Prime MinisterÊs

Department. Retrieved March 2, 2009, from www.pmo.gov.my/Rancangan
Web/Rancangan

http://www.icu.gov.my

Datuk Seri Dr Mahathir MohamedÊs speech during the presentation of the

proposal on the Eighth Malaysia Plan (8MP) in the Dewan Rakyat on
Monday, 23 April 2001 at 11 am.

Lim Hin Fui. „Dasar Wawasan Negara Asas Perpaduan‰. Utusan Malaysia, 6
April 2001.

Laporan Khas Rangka Rancangan Jangka Panjang Ketiga, Utusan Malaysia, 3

April 2001.
 TOPIC 10 ECONOMIC DEVELOPMENT POLICY W 179

ÂRole of the government in the national development policyÊ in the Seminar on

development Indices from the perspective of Islam 28-29 August 2004.

Economic Report 2000/2001 Ministry of Finance, Malaysia

Sixth Malaysia Plan 1991-1995

Seventh Malaysia Plan 1996-2000

Half-term report on the Seventh Malaysia Plan 1996-2000

Hasnah Hussiin & Mardiana Nordin. (2002). Pengajian Malaysia. (Edisi Kedua).
Fajar Bakti, Sdn. Bhd.

Fatimah Arshad, RMk-9 Era Pertanian‰, Utusan Malaysia, 03/04/2006.

Rencana, „PIP3 Tingkatkan Daya Saing Malaysia‰ Utusan Malaysia, 18.08.2006.