CHAPTER 4

(WEEK 7 – 8)

Industrial Policy &

Industrilization
 Intro

• There is an ongoing debate as to whether

economic policies can enable the country to
keep up with the rapid pace of globalization
and escape the middle- income trap.
• In the past, Malaysia’s industrial policy
seemed suited to the needs of the private
sector and supported by the global economic
climate.
 History - Early 1950s

• There was very little manufacturing activity & its

contribution to GDP was very small (only 8%).
• Focus – Agriculture!
• Pre-independence Malaya was once the source of raw
materials such as tin and rubber for the British and
small-scale steel for the Japanese.
• Despite being one of the world’s major sources of raw
materials, the development of Malaya’s domestic
industry was limited because almost all of its outputs
were exported in raw and unfinished form.
• There was very little room for local industry to grow.
 1957 – 1970 (Import substitution)

• Obj: to substitute imported consumer final goods

with the production of our own goods.
• 1958 – The Pioneer Industries Ordinance
• Obj: to encourage the development of
manufacturing industries.
• Focus: production of consumer goods, ie: food,
beverages, tobacco, construction materials and
plastic industries.
• Malaya’s immediate priority after independence
in 1957 was to restructure its economy towards
import-substitution industrialization so that
industries could be more outward looking.
• However, this strategy reached its limits of
industrial enlargement when the government
realized that the domestic market was too small
to grow.
• 1960: Malaysia Industrial Development Finance
Berhad (MIDF) was set up.
• Obj.: to help finance new and viable industrial
import substitution projects.
• http://www.midf.com.my/index.php/en/
• MIDF’s plans to promote the development of the
industrialisation of Malaysia have come a long way.
• As of today, MIDF is a well-known advanced
institution and has, over the years, been a part of
many a success story in Malaysia.
• 1967: Malaysian Industrial Development Authority
(MIDA).
• Obj.: to promote & coordinate the industrial
development in the country.
• Incorporated as a statutory body under the
Malaysian Industrial Development Authority (MIDA)
Act, the establishment of MIDA in 1967 was hailed
by the World Bank as "the necessary impetus for
purposeful, positive and coordinated promotional
action" for Malaysia's industrial development. 
• https://www.mida.gov.my/home/about-mida/posts
/
• Now known as Malaysian Investment
Development Authority (MIDA) - the
government's principal agency for the promotion
of the manufacturing and services sectors in
Malaysia.
• 1968 – Investment Incentive Act was introduced.
• Obj.: to provide tax free holidays to firms that
were granted pioneer status.
• Setbacks of the Import Substitution Policy:
• The government introduced export-orientation
policies to reinvigorate manufacturing growth via
the Investment Incentives Act 1968 and Free
Trade Zones Act 1971.
• Multinational companies were quick to capitalize
on Malaysia’s low-cost production centers as a
springboard to the global market.
 Post 1970s: Export Orientation

• 1971: Free Trade Zone (FTZ) was wstablished.

• 1975: Industrial Coordination Act was introduced.
• Setbacks of the Policy: Linkages
 Post 1980s: Heavy Industries

• Active govt participation.

• Setup of PROTON & Perwaja Steel.
• 1985-1986: Economic recession.
• Promotion of Investments Act 1986.
• Industrial Master Plan (1986-2020).
• Centre of Investment (COI) was established
(1988)
• Setbacks of the Policy:?
• Malaysia’s manufacturing industry thrived
during the global oil-cum-financial crisis in
the 1970s and the commodity crisis in the
1980s.
• This latter was the decade that marked the
start of Malaysia’s industrial master plans,
stretching from 1986 to 2020.
 Post 1990s (High Technology
Industries)
• 1990: Action Plan for Industrial Technology
Development (APITD) was established.
 Role of the Industrial Sector in
Malaysian Economy
• Contributions to the GDP: employment & exports
• Helps in the modernization of economy.
• Link between heavy industries & SMIs.
•
 Industrial Policy - a Form of
Government Intervention

•Government intervention in the manufacturing

industry yielded commendable results in its early
life.
•Role models: Japan & South Korea
 Industrial Development Policies

• 1986 – 1995: First Industrial Master Plan (IMP1)

• Objectives
• Strategies
• Targets Achieved
• Weaknesses
 1996 – 2005 - 2nd Industrial Master
Plan (IMP2)
• Objectives
• Strategies
 2006 – 2020: 3rd Industrial Master
Plan
• Objectives
• Challenges
• Strategies
• Successful shift :
Agricultural to Manufacturing-based.
- High volume of production
- Series of investment-friendly policies
 Development of Small & Medium
Industries in Malaysia
• SMIDEC definition:
• Annual sales turnover not exceeding RM 25
million.
• Full time employees not exceeding 150 people.
• Role Of SMEs:
• Challenges
 Role of Heavy Industries in
Malaysian Economy
• Obj: facilitating eco. linkages.
• 1980: HICOM
• Importance of heavy industries.
 FDI

• Definition
• Advantages:
 FDI

• Advantages:
1.Income/ Profit generated – Corporate tax revenues in
the host country.
2.Money Circulation
(i) Job Opportunity – New skills – Productivity – Increase
standard of living
(ii) International Network – acesss to export markets
(iii) Technology Transfer – Promote R&D – increase efficiency
(iv) Product Quality – International level – International
marketing
 Challenges in the Industrial
Sector

• Large industrial technological gap

• Lack of R&D
• Weak of industrial linkages etc
• Natural resources – inadequate use of raw
materials
• Cost – High cost of production
 Quiz

• Discuss the issues & challenges faced by

Industrial sector in Malaysia.
• Discuss the development of the industrial sector
in Malaysia. (Progress – by stages)
Critically discuss the Corona Virus impact on
Industries and sectors in Malaysia.
Conclusion
TQ