Malaysia: Flexibilities in the Services Sector

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Adrian Daniels
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1 Malaysia: Flexibilities in the Services Sector 22 June

2 MALAYSIA BASIC FACTS Land area: 330,252 sq. km. Population: 25.6 million Per cap. income: US$4,418 Independent since 1957 Parliamentary Democracy Constitutional Monarchy Elections every 5 years -2-

3 Development Approach Laissez faire and allow trickledown effects Laissez faire with selected Government intervention -3-

4 Economic growth Rapid growth Equity Reduce poverty Increase economic freedom Improve distribution of income and wealth -4-

5 GDP Per Capita US$ (2004) USA Japan UK Singapore Saudi Arabia Malaysia China 39,934 36,575 35,460 23,700 9,240 4,418 1,227-5-

6 00% Structural change, (% GDP) 80% 60% 40% 20% 0% Source: Department of Statistics Services Construction Manufacturing Mining Agriculture -6-

7 EXPORTS DIVERSIFICATION (% total exports) Rubber 33.4 Tin 19.6 Manufactures 82 Others 9.8 Palm oil RM 5.2 billion Forestry 16.3 Oil & gas 3.9 Manufactures 11.9 Oil & gas 7.3 Forestry 1.3 Tin 0.1 Rubber RM billion Palm oil 5.1 Others

8 POVERTY REDUCTION % of households Total Rural Urban Hardcore poor

9 Competing for Projects Overseas Size of Malaysian Construction Companies vs the Global Top 10 Vinci Bouygues US$24.7b Taisei Sekisui House Obayashi Skanska Hochtief Daiwa House Industry Shimizu Kajima YTL US$1.07b Sunway Incorporated IJM Road Builder Gamuda -9-

10 Benefits of Liberalization Comparative advantage Economies of scale Technology diffusion Higher investment -10-

11 Concerns of Developing Countries Degree of local participation and ownership Foreign participation and outflow of foreign exchange Security and strategic considerations Basic needs and safeguarding the poor -11-

12 Legal Services Protection to support local firms English-based common law-limited applicability for region Foreign expertise needed in certain fields Growing outsourcing of legal expertise -12-

13 Medical Concerns over standards of care Partial opening for foreign participation Need for more relaxed approach to foreign firms and specialists -13-

14 IT Knowledge economy Liberal approach MSC Competitive environment for IT firms -14-

15 Construction Generally liberal Local companies have ventured abroad Several constraints : funding -15-

16 Wholesale and Retail Trade Foreign supermarkets vs local small firms Advantage of liberalization Promote strategic partnership with foreign firm -16-

17 Conclusion Flexibilities in services important in a developing country But need to gradual wean away from flexibilities Some form of pressure on local firms necessary -17-

18 Considerations for Developing Countries Vulnerabilities and constraints of developing economies Need to promote small and medium-sized enterprizes Affirmative action -18-

19 Opening up the Services Sector Great potential in global gains (US $ 400 billion) Risk of reduction in competition, rise in prices and neglect of the poor Risk of instability from premature liberation eg financial and capital market Continued protection in developed countries (eg coastal shipping in US) -19-

20 Government Procurement Economic and social role in developing countries Use as a fiscal policy tool during economic downturn Boost certain domestic industries Promote economic standing of specific communities -20-

21 Free Trade Agreements Need to take into account domestic sensitivities Government procurement an integral part of national development policy Need to maintain sovereignty and policy space Recognize local players still not strong to compete on equal terms -21-

22 Financial Services Sequenced liberalization process (Financial and Capital Market Master plans) Transition has to be smooth and promote financial stability Experience in other countries : reduction in competition and supply of credit to local firms -22-

23 Conclusion Sequenced liberalization process But need to push for liberalization to raise efficiency Flexibilities still needed for legitimate government policy objectives -23-

Growth, Distribution and the NEP in Malaysia

Growth, Distribution and the NEP in Malaysia Jomo Kwame Sundaram Malaysia Forum, 4 April 2010, Columbia University Malaysian Development 5 phases: 1957-1969: laissez faire, import substitution, rural development,