Program : Degree

Course : Malaysian Economy

Code : ECMB313

Credit Hours : 03

Contact Hours : 03

Semester : Semester 1 Academic Year 2012/2013

Subject Synopsis

This course provides the student with an overview of the Malaysian economy - the role of the government and its economic interaction with other countries in the region. Topics such as government economic plans and policies, income distribution and poverty eradication, labour force and labour relations, the financial system and international trade and investment will be covered in this course.

Learning Outcomes

At the end of this course, students are expected to:

1. Critically analyse the Malaysian economy and its components.

2. Apprehend the economic development of the nation thus far.

3. Apprehend fundamental economic analysis provided by the media.

4. Rationally analyse the macro economy environment and the external factors in business decision-makings.

5. Assess, analyze and suggest appropriately methods on economy crisis.

6. Rationally analyse the implication of macro economy environment, current issues and implications of the current policies.

Sunday, May 27, 2012

2: Malaysia;s Social and Economic Reform

• Malaysia Plan
• Poverty and New Economic Policy
• Agriculture: Issues and problems


• Malaysia Plan

1955: Report on the economic Development of Malaya by International Bank for Reconstruction and Development (IBRD)

1957: Federal Government Report of the Industrial Development Working Party.

1966-70: First Malaysia Plan

1971-90: First Outline Perspective Plan. (OPP1)
• New Economic Policy
• Second Malaysia Plan (71-75)
• Third Malaysia Plan (76-80)
• Fourth Malaysia Plan (81-85)
• Fifth Malaysia Plan (86-90)

1991-2000 Second Outline Perspective Plan (OPP2)
• National Development Policy
• Vision 2020 (stretch until 2020)
• Sixth Malaysia Plan (91-95)
• Seventh Malaysia Plan (96-2000)
• Eighth Malaysia Plan (01-05)
• Nith Malaysia Plam (06 -10)

• Poverty and New Economic Policy

In Malaysia Three concept of poverty adopted:

 Absolute Poverty
 Hard-core
 Relative Poverty

 Absolute Poverty has been defined as a condition in which the gross monthly income of a household is insufficient to purchase certain minimum necessities of life.

 These necessities include among others clothing and footwear, rent, fuel and power, transportation and communication, health-care and education.

 Hard-core poverty has been defined as a condition in which the gross monthly income of a household is less than half of the PLI (Poverty Line Income)

 Relative poverty is linked to income inequality between group.

 A group whose mean income is less than another group is define as being in relative poverty for example:

- Rural dwellers can be considered as being in relative poverty compare to urban dwellers even though their mean income exceeds the PLI.

- The difference in income between the high and middle income earners.

- Income differences between races.


1. Poverty in Malaysia is a rural phenomena and agricultural biased, this is because:

 The majority of rural households are involved in small scale agricultural production and paid agricultural workers.

Smallholding contribute to low production and income .Lack of technology and capital caused low productivity.

 Commodity prices fluctuate mote often compared to manufactured goods. Agricultural prices are influenced by demand and supply.

 An agriculture product normally had to face competitors, either in the form of substitutes or competitive pricing.

2. The rapid rate of industrialisation in the country:

 This results in the young in the agricultural find it more economic to leave their farms and migrate to urban centres for higher paid jobs. Subsequently, only the less able bodies are left in the rural areas, thus compounding the poverty conditions of the sector.

 Rapid rate of industrialsation also pushed prices of essentials up, much faster than increase in prices of agricultural produces. Farmers real income will tend to worsen.

3. Education standards among children of the poor are low thus they are unable to get better paid jobs.

4. Rural family had more family members. Per capita income of rural people was any time lover than urban family.


Rural poverty

1. The primary strategies selected had been those that could provide opportunities to the poor to be involved or gain employment in higher paying jobs or activities so that they could become self-supporting and increase their incomes to exceed the PLI.

Examples of such projects include:

i. To modernise their traditional methods of production
ii. Providing them with support and opportunities to be involved in modern farming and value-added processing of agricultural products
iii. Be involved in non-farm or off-farm activities of employment.

2. The resettlement of the landless and those with uneconomic holding in new land development schemes. Eg: FELDA, FELCRA

3. The in-situ development of existing agricultural land through rehabilitation and consolidation of the land, the replanting of old commercial crops with new higher-yielding clones and better planting techniques

The land included a system of group farming where in owners of small plots of adjacent land work them on co-operative basis to reap the benefits of large scale operation.

4. Integrating agricultural and rural development with downstream processing of farm products (small industries)

5. Double-cropping or off-season cropping / mixed farming or inter-cropping

6. The establishment of farmers market in urban centres to enable farmers to market their own produce, thus eliminating middleman

7. The government has also sought to improve the quality of life of the poor through the provision of infrastructural and basic amenities such as piped water, electricity, roads, medical and health services. Schools and rural hostels.

8. Incorporating training and education not only on farming but also those relating to work attitudes and values.

9. Industrial and vocational training for rural manpower, credit facilities and related support to enable them to be employed in non-farm occupations like small industries


1. High-cost of living in urban areas. The poor were left out because of the rapid pace of economic development. Many end up as squatters.

2. Some have little access to basic amenities such as electricity and piped water.
3. Increased cost of basic good and amenities. Utilities that used to be subsidised by government are now at a higher rate because of the privatisation exercise.

4. Lack of job opportunities in the rural areas and housing problems in towns (through urban migration); rural poverty problems were being transferred to towns.


Urban poverty

1. Development Programme for the Hardcore Poor (PPRT)

The programme involved the creation of a register and profile of hardcore poor household and the delivery of appropriate projects to meet their specific needs such as additional opportunities to increase their employability and income, better housing. Food supplements for children and educational assistance.

Project Under the Development Programme for the Hardcore Poor:

 Objective: Increase in the quality of live – Project: construction of new house, electricity and water supply.

 Objective: increase income – Project: village industries, rearing of poultry.

 Objective : human resource development – Project: special training for families, rural technology workshops.

 Objective: health & nutrition – Project: food supplement and subsidised, milk for primary school children.

 Objective: direct assistance – Project: Old Folks’ home, allowance for handicapped worker.

2. NGOs and the private sector have also voluntarily involved themselves in helping to redress poverty in recent years.

• Examples of such NGOs are:
• Yayasan Basmi Kemiskinan
• Amanah Iktiar Malaysia (AIM)


Two inseparable objectives of NEP

i. Eradicating poverty by raising income levels and increasing employment opportunities for all Malaysians, irrespective of race.

ii. Accelerating the process of restructuring Malaysian society to correct economic imbalance, to reduce and eventually eliminate the identification of race with economic function.

• Poverty eradication
• RM350 per month for peninsular Malaysia; RM429 for Sarawak and RM533 for Sabah. Poverty line decline from 49.3% in 1970 to about 17% in 1987.
• Bumiputra- 46% in 1970 decline to 24% in 1987
• Chinese- 17% in 1970 decline to 8% in 1987
• Indians- 27% in 1970 decline to 10% in 1987

• Employment restructuring
- Shifting Bumiputra out of agriculture into industry.
- In high skilled occupation

• Ownership restructuring
- Bumi, 30 %, 40% for other Malaysian, 30% for foreign interest.
- Official sources indicate Bumiputra ownership has increased from about 4.3% in 1971 to 19 5 in 1990; other Malaysian increased their ownership from 34% in 1971 to 56.7% in 1990; foreign interest decrease from 62% in 1972 to 23.4% in 1990.

• Bumiputra commercial & industrial community (BCIC)
- to nurture the growth of a BCIC and development of Bumiputra entrepreneurs.
- Agencies involved: Mara, ITM (UiTM), UDA, CGC, etc.

• Income distribution
- to reduce inequality of income between peninsular Malaysia and East Malaysia, between urban and rural areas.

• Agriculture: Issues and problems

Agriculture Development

The sector is highly dualistic, with the presence of an efficient and a well-organized estate sub-sector engaged in export-oriented production of tree crops and less efficient, unorganized smallholders sub-sector that includes livestock and fisheries.
I. Agriculture since 1904

• The agriculture policy stretches back to the Portuguese settlements in the 16th century, followed by the Dutch in 1641 and the British in 1824.

• The primary objective of the policy then was for the benefits of the “ home market”, European markets and the people of the Peninsular.

• The fundamental problems were:

- Land alienation
- Labor supply and control; and
- Communications and water supply
- The problems were handled by Director of Agriculture, 1905, the Enactment of the Federated Malay States Labor Code in 1912, the Malay Reservation Enactment in 1913, the Country Lands Board in 1914.

• After World War I, the agriculture policy was greatly influenced by factors directly related to changing economic conditions.

• There was a serious shortage of rice due to increased demand and failure of crops in India and Siam.

• The food shortage was followed by the 1922 agricultural depression due to the fall in the price of rubber.

• The pursuit of agricultural development were:
- The establishment of a satisfactory system of land tenure, ensuring that land alienated for agriculture is effectively utilized.

- The maintenance of a proper balance between areas allocated for capitalist agriculture and the needs of the smallholder.

- The provision of an adequate labor supply for estate agriculture and the regulation of conditions of labor in relation to wages and health.

- The encouragement of the production on as large a scale as possible of the principal food crops, that is rice.

- The encouragement of the new agricultural industries towards the stabilization of agriculture by means of diversification of crops.

- The provision of scientific services for research and instruction combined with the principle that, when possible, such services should be maintained partly or wholly by the industry concerned.

- The provision of services and legislation for the control of pest and diseases.
• Pertaining to smaller holders, the followings were emphasized.

- Practical demonstration and instruction

- Assistance and advice in the preparation and marketing of crops
- The organization of agricultural credit, and encouragement of thrift.
- Agricultural training in vernacular schools and the establishment of agricultural schools.

2. Agricultural development 1980-2010

• Agricultural development since independence has been guided by policies embedded in the New Economic Policy (NEP), National Agriculture Policy (NAP) 1984-2010, NAP 1992-2010 and NAP 1998-2010.

• In the NAP 1998-2010, two strategic approaches are employed. The first is the agro forestry approach. This approach will:

- Allow for a wider range of agro forestry enterprise mix, optimize resource utilization.

- Allow the production of both agricultural and forestry products on the same land thereby mitigating the demand pressure for new arable land.

- Support various symbiotic relationships such as the planting of forestry species with industrial crops to optimize land utilization and maximization returns.

- Provide avenues for early and continuous returns from the agriculture component of the mixed enterprise and encourage participation of the private sector in commercial forest plantations and thereby increasing the supply of timber for wood-based industries.

• The second strategic approach is the product-based approach. This approach will

- Reinforce and complement the cluster-based agro-industrial development through strengthening both inter and intra-sectoral linkages including the development and expansion of intermediate and supporting industries.

- Satisfy the specific needs of niche markets and consumers worldwide who are increasingly demanding products that are more specific to their needs and preferences.

- Enable the identification of opportunities for market expansion and deepening though the transition of market signals and consumer preferences upstream to the farm to enhance development of agricultural industries.

- Encourage the production of high quality and high quality and high value produce, facilitate product differentiation and increase value-added of agriculture and forestry products

- Strengthening the strategic role of upstream agricultural and forestry industries such as sorting, grading, packing and processing at the farm level to increase farm income.

- Widen the scope of agricultural and forestry development an create business opportunities for a wider range of business ventures through a system of linkages.

• Under NAP1998-2010 new policy trusts are to address national concerns on
- Food security
- Productivity
- Inflation
- Private sector investment in agriculture
- Enhancing exports
- Reducing unproductive imports
- Conservation and sustainable use of natural resources.

• NAP long term actions are
- Focusing development on perennial fruits and ruminants, as well as new products and future industries
- Strengthening human resources development in the new emerging areas in agriculture
- Introducing import substitution measures and enhancing research and development efforts.

In Malaysia Three concept of poverty adopted:

i. Absolute Poverty

ii. Hard-core

iii. Relative Poverty

i. Absolute Poverty has been defined as a condition in which the gross monthly income of a household is insufficient to purchase certain minimum necessities of life. These necessities include among others clothing and footwear, rent, fuel and power, transportation and communication, health-care and education.

ii. Hard-core poverty has been defined as a condition in which the gross monthly income of a household is less than half of the PLI (Poverty Line Income)

iii. Relative poverty is linked to income inequality between group. A group whose mean income is less than another group is define as being in relative poverty for example:

a. Rural dwellers can be considered as being in relative poverty compare to urban dwellers even though their mean income exceeds the PLI.

b. The difference in income between the high and middle income earners.

c. Income differences between races.


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