No country has achieved high income without manufacturing. Resource-rich countries can rely on exporting commodities, such as oil and gas, but if they lack manufacturing, they risk falling behind once the resources run out or demand dries up in the transition to clean energy.
In the 1960s and 1970s, Malaysia employed import substitution to promote manufacturing. From the 1980s, it switched to an export-driven growth model, pursuing foreign direct investment, namely the import of capital and technology from foreign firms, notably in electronics. While this enjoyed some success, the investments did not always lead to stronger manufacturing and supply chains.
09:13
Malaysia’s transport minister eyes partnerships with China to drive infrastructure goals
Malaysia’s transport minister eyes partnerships with China to drive infrastructure goals
Malaysia’s industrialisation push took place as China was opening up, offering cheaper land, labour and a vast domestic market. China, too, relied on foreign direct investment to build its manufacturing. As they learned by doing, Chinese manufacturers – supported by a well-educated workforce, an enormous pool of engineers and efficient logistics – became increasingly competitive.
Malaysia, however, continues to be held back by an affirmative action programme privileging majority Malays over minority Chinese and Indians.
“The latest audit report has unearthed such diversions from good governance involving billions of ringgits, and it is all public funds. Such leakages, diversions, and pilferings must be seriously tackled,” she said. “There are those among whom we entrust with looking after key areas of national interests who have betrayed that trust. They have been found to be negligent, remiss, incompetent and downright corrupt, with blatant abuses of authority.”
11:20
The legacy of Malaysia’s 1MDB scandal on politics and corruption-fighting
The legacy of Malaysia’s 1MDB scandal on politics and corruption-fighting
Malaysia seeks to capture a share of the supply chain assumed to be leaving China because of the trade war. But that hope may be in vain. Even as China has moved up the value chain, it remains competitive in low-value sectors. It enjoys many advantages in size, productivity, infrastructure quality and industrial ecosystems.
It is extremely difficult to compete against Chinese factories on speed, cost or quality, and it makes no sense for them to outsource or relocate to a country lacking skilled manpower. Chinese entrepreneurs go where they can make a reasonable profit. Malaysia’s nation-building woes stem from weak governance – outsiders are not in a position to remedy this.
Dr Michael Tai is research associate at the Institute of China Studies at the University of Malaya and a fellow of the Royal Asiatic Society
