Malaysia is Southeast Asia’s most industrialized country. The driving forces of development have been growing exports, based on the extraction and processing of domestic natural resources, and it has been promoted by the country’s good location on one of the world’s busiest waterways, the Malacca Strait. Good access to foreign direct investment has also been of great importance. Calculations of the Human Development Index (HDI) 2017 showed that Malaysia was then ranked 57th among 189 states, significantly better than the other countries in Southeast Asia, except Singapore. The OECD describes Malaysia as upper middle income country.
Malaysia has rich resources on a variety of minerals and fossil fuels. The soils are mostly meager and floods occur frequently, but the good trade situation has also stimulated agriculture in Western Malaysia. Raw material exports were of great importance already when the area was a British colony. It was then a world leader in the export of tin and rubber. Since the country became independent in 1957, an industrialization began, which was mainly intended to process the raw materials before export. It was supplemented with the manufacture of textile and simpler electronics products. The Chinese and Indians were the driving force in sales agriculture and new industrial and service industries, while Malaysians were mainly in traditional agriculture and low-wage jobs. Such a stratification is still evident (see social conditions), despite a leveling policy since 1970.
From the mid-1970s to the late 1990s, Malaysia had one of the most dynamic and fastest growing economies in Asia. Per capita GDP grew annually by more than 5.5 percent in 1985-96. A new development policy in 1991 emphasized liberalization and privatization, mainly in transport, healthcare and education. The Southeast Asian financial crisis at the end of the 1990s halted growth, but it returned with full force, and during the period 2000-08, GDP increased by just over 5 percent annually. A broad middle class emerged.
In the production of simpler industrial goods, Malaysia can no longer compete with the neighboring countries with lower production costs, mainly India and China. The past five-year plans have therefore focused on building a knowledge-based business community with the production of an ever-increasing proportion of products with high value added and with modern, highly developed service. Emphasis has been on IT, biotechnology and health care, as well as expanded and improved higher education, which is required to produce sufficient domestic well-educated workforce. Foreign investment is now increasingly directed to the service sector. Private companies play an increasingly important role, but the state is still the majority owner of more than half of the largest companies and several companies have close ties to leading politicians. Malaysian companies have become increasingly involved in operations abroad, eg. in the construction of roads and other infrastructure.
Foreign trade is of great importance to Malaysia’s economy and the country is very vulnerable to demand fluctuations. In 2009, the global economic crisis caused a 1.7 percent decline in Malaysia’s GDP. Already in 2010, GDP growth returned.
Continued industrialization, a rapidly growing trade and an increasing number of international contacts have resulted in the modernization and “Western” development of society in Western Malaysia, the fastest and most pervasive in the western part of the peninsula. Sabah and Sarawak are still significantly poorer than Western Malaysia. In order to reduce regional differences, in 2007, five economic development corridors were identified, in northern, eastern and southern Western Malaysia as well as in Sabah and Sarawak.
Many decades of accelerated raw material extraction on the Malacca Peninsula have led to major environmental changes and serious environmental impacts. Large parts of the rainforest have been harvested and the abandoned mining quarries of the tin extraction form wounds in the landscape. Fishing in coastal waters has for many decades already resulted in restrictions and eventually almost total ban on such fishing. In recent decades, the rain forest area and fish stocks have also shrunk in eastern Malaysia.
For information on GDP and other business statistics, see Landsfakta.
About 18 percent of the land area is used for agriculture, of which a quarter for rice and vegetables and the remainder for tree and bush crops. The agricultural area increases every year, mainly through planting more tree crops such as oil palms and fruit trees. In the mid-1970s, agriculture accounted for just over half the export value, but in 2007 the share was just over 7 percent. One third of these were palm oil. Agriculture, forestry and fishing also provide raw materials to a large domestic industry that exports a large part of its products.
Rubber was the country’s most important export product from agriculture in the 1960s and 1970s, but since the 1980s the area of rubber trees has gradually decreased and in 2007 rubber accounted for only 1.4% of the total export value. However, Malaysia is still the world’s third largest natural rubber manufacturer, a leading manufacturer of rubber gloves and a major producer of rubber tires.
The cultivation of oil palm trees began in the 1960s and has subsequently constantly increased. At the beginning of the 1990s, more than 40 percent of the cultivated area was overgrown with oil palms and thereafter the demand for palm oil continued to increase. Biofuels now also get biofuels. In 2007, Malaysia accounted for 47 percent of world production and 62 percent of palm oil exports. More than half the palm area is privately owned, either by very large companies that have plantation operations or by Malay small farmers.
Cocoa cultivation increased sharply in the late 1980s and for a few years Malaysia was the world’s third largest cocoa producer. But low prices, rising labor costs and plant diseases led to a gradual decline in production. In 2008, the cocoa area accounted for only 5 percent of the 1989 crops. Now there is an incentive program for small farmers with free re-planting of cocoa plants that are high-yielding and resistant to diseases.
In Sarawak, small farmers grow black pepper for export and Malaysia was the fourth largest exporter of it in 2007. During the 00s, fruit growing has also increased and tropical fruits such as papaya, mango and pineapple are sold to, among other things. neighboring Singapore.
Rice is the most important food and is grown mainly in the highlands. Despite state aid, rice production has declined. In the rice cultivation areas, the farmers are poor; business is one-sided and young people are moving away. In 2007, Malaysia was self-sufficient with rice to only 72 percent and now imports rice mainly from Thailand. Malaysia produces a surplus of poultry meat, eggs and pork but only a small part of the beef and lamb demand.
From the 1960s, the original rainforest was felled at an ever faster rate and exports of tropical woods became one of the new country’s most important sources of income. Forest clearing accelerated further in the 1970s and 1980s to provide land for oil palm plantations. The annual harvest fell to its maximum in the mid-1990s. At the end of the 1990s, it was only 60 percent of that, to a large extent due to a conscious development and environmental policy. About 55 percent of the land area is still wooded. In addition, 17 percent is covered by tree crops and plantings in connection with buildings.
At the environmental conference in Rio de Janeiro in 1992, Malaysia pledged to retain half of the land under natural forest, and in 2010, nearly 80 percent of existing forest was set aside as permanent forest land. There are strict rules for how much can be harvested, and there should be sustainable forestry with selective harvesting and with requirements for replanting. About 7.5 percent of the remaining forest area is allocated as total protected areas, ie. such as national parks, forest and animal sanctuaries, where no harvesting is allowed. The remaining 13 percent of the forest area is open for exploitation for other purposes. However, illegal logging occurs in remote, difficult-to-control areas. In order to reduce the pressure on the natural rainforest, the government has promoted the establishment of plantations with teak, acacia and other fast growing tree species, for example in Sabah,
Malaysia still exports tropical wood, and more than 80 percent of it comes from Sabah and Sarawak. The state encourages processing of the timber before export, e.g. at plywood and furniture factories, to increase the value of wood products. Therefore, exports of timber and sawn timber decreased during the 00s, while exports of floors, doors and above all wooden furniture increased significantly year by year. Malaysia exports plywood worldwide and in 2008 had also become the 10th largest furniture exporter in the world.
Fish accounts for half of the protein intake in the diet in Malaysia and per capita intake of fish is twice as high as in Thailand and China, for example. Of the 1.5 million tonnes produced in 2007, 80 percent came from sea fishing and the remainder came from fish and shellfish farms. Tuna and seafood of high value are exported, together about 18 percent of the catch (2008), while 30 percent of the most low-value catch is used for fishmeal. Therefore, to meet the domestic demand for fish, imports are required.
Traditionally, fishing has been conducted along the west coast of West Malaysia, but since the beginning of the 1990s the fish stock has been depleted more and permits to fish there are no longer issued. Fishing according to old methods is still important off the east coast of the peninsula and in eastern Malaysia. About 80 percent of Malaysia’s fishing is still just outside the 30-mile limit and half of it with small outboard boats. For households in remote coastal communities, fishing has great socio-economic importance.
During the latter part of the 1990s, the government sought in various ways to achieve self-sufficiency with fish and to increase fish exports. In order to stop the depletion of coastal fish stocks, deep-sea fishing was encouraged and fishermen could buy diesel at a subsidized price to afford fishing in remote waters. In Penang in the northwest, a deep harbor with modern infrastructure is being built to facilitate the handling, storage and processing of ever-increasing catches of tuna in the Indian Ocean. Fishing in the eastern part of the country is also slowly being modernized. Fish farming and other aquaculture are also stimulated by the state. To a growing extent, the catches are quality-controlled to launch seafood exports to the EU, among others.
Malaysia has long been the world’s largest producer of tin and in the 1970s accounted for almost 40 percent of world production. Thereafter, a sharp decline began. Occurrences in Western Malaysia were shrinking and found at greater depths. In addition, they were of inferior quality than before. Mining costs increased, while the world market price fell, and most of the more than 800 mines were abandoned. In 1995, only 6 percent of world tin production came from Malaysia, in the mid-00s less than 1 percent. Now it is necessary to import most of the raw material to the large tin smelter. For similar reasons, the recovery of copper has almost completely ceased. In contrast, the mining of iron ore during the latter part of the 00s increased in the more than 15 mines in Western Malaysia. However, most of the raw material for the country’s two steel mills must be imported. The extraction of bauxite in south-eastern Western Malaysia has also increased significantly, due to rising world market prices. All bauxite is exported unprocessed. Gold is also mined in Western Malaysia.
In Malaysia, oil is extracted in some fifty oil fields offshore, but they are small and production represents only 1 percent of the world’s total oil recovery. However, it is enough to make the country self-sufficient with crude oil and to give it a small export. About half comes from deposits off the east coast of West Malaysia, the remainder from fields outside Sabah and Sarawak. Natural gas is extracted near several of the oil fields. Outside Bintulu on Sarawk, there is one of the world’s largest natural gas deposits and from there natural gas is exported in liquid form to Japan and South Korea. The state-owned oil and gas company Petronas is part of the country’s largest corporate group and has accounted for a significant part of the revenue in the state budget since the 1980s. Petronas now also operates in several countries in Africa, the Middle East and Central Asia.
Coal is also extracted, to a small but growing extent. Most of the need for coal is covered by imports. Renewable energy, mainly biofuels (mainly from oil palm) but also hydropower, has become increasingly important. The electricity comes largely from natural gas but also from coal. Hydropower accounts for less than one tenth.
Malaysia’s first five-year plans in the 1960s and 1970s emphasized industrialization. Raw materials would be processed before export and simpler consumer goods would be manufactured in-country to reduce the need for imports. In the 1970s, export-oriented, labor-intensive manufacturing of textile products and simpler electronics were also encouraged, mainly financed by foreign investment. In the early 1980s, a capital-intensive, heavy industry developed and then the production of cars of the national brand Proton also started. In the late 1980s, the manufacturing industry passed on agriculture as the most important industry in Malaysia.
The largest part of industrial exports in 2009 consisted of electronics, electrical machines and electrical equipment, and a significant part of the industry employees work in usually foreign-owned factories to manufacture semiconductors, which are exported mainly to the USA, Japan and China. The food industry is also extensive and is the industry most widely spread across the country. This includes risk mills and other factories that produce food for the domestic market as well as palm oil mills and plants for preserving and deep-freezing fish, vegetables and fruit for export. The processing of metals and the manufacture of metal products is mainly done in Western Malaysia, in connection with the ore deposits, and there is also most of the rubber and plastic products industry and the manufacture of other chemical products, transport equipment and furniture. Sawmills and factories that manufacture plywood, particle board and veneer are the most important export-oriented companies in Sabah and Sarawak. Extensive state ownership exists in several industries, but the private sector plays an increasingly important role.
The country’s industrial center is very much the Kuala Lumpur area with the Klangdalen leading down to the most important port city, Port Klang. There is most of the electronics manufacturing, where research and development has been placed. A secondary center has long been in Georgetown in the northwest. During the 1990s, the government began actively working to spread activities to other parts of the country. In order to upgrade the manufacturing industry, 14 economic free zones have been established where the companies are free to import means of production. In addition, there are high-tech industrial parks.
Malaysia has an open economy which shows that the value of foreign trade in goods and services exceeds its GDP; In 2009, it represented 123 percent of GDP.
According to Countryaah, the country’s trade balance has for many years shown a surplus. Since the beginning of the 1990s, four countries have been prominent trading partners. Among them, the role of the United States has diminished, while the role of China and Singapore has been significantly enhanced. In 2017, China, Singapore and the United States were the largest markets. More than 3/4 of the import goods were then semi-manufactured, mainly for the electronics and textile industries, and in addition came equipment for factories and other plants. Exports in 2017 went mainly to Singapore, China and the USA. Electrical components and semiconductors then accounted for 32 percent of the export value, and electrical machines for households and businesses accounted for 12 percent (TVs, refrigerators and computers). Other important export goods were palm oil (6 percent), rubber products, natural gas, crude oil and wood products. Malaysia has been a member of the WTO since 1995
The exchange of services provided a deficit for many years, but it decreased as tourism increased, and since 2007, the current account also shows a surplus.
Tourism and gastronomy
Malaysia has a rapidly growing tourism industry and tourism has become a very important source of income. Since the mid-00s, the number of visitors has increased by more than 1 million per year and in 2015 totaled more than 25 million. About half came from Singapore, many on short visits. The number of tourists from China and India increased sharply during the latter part of the 1990s.
Malaysia’s main attractions are the varied tropical nature as well as the ethnically mixed population that has given rise to a rich cultural offering. The long coasts and the many islands in the tropical waters also attract many visitors. Popular destinations are the islands of Pinang, Langkawi and Tioman with their beaches, Taman Negara National Park, Kuala Lumpur and Melaka, all in Western Malaysia. In East Malaysia, nature attracts, among other things. Southeast Asia’s highest mountain Kinabalu (4,101 m above sea level), rainforests and several smaller coral islands. Many tourists are interested in Malaysia’s colonial history and British colonial architecture
The cuisine in Malaysia is largely characterized by Chinese, Indian and Indonesian food storage. The basic products are rice, coconut, fish, chicken and beef as well as fresh fruit. However, the pure Malay diet has its own characteristics and dishes; The spice is plentiful, varied and usually quite strong with a distinctive element of chili. For all meals – including breakfast – steamed rice (nasi) is served in different varieties, with coconut milk it becomes nasi lemak, with curry seasoned meat nasi padang. Satay, which can be said to have the status of national dish, consists of marinated meat (chicken, lamb or beef) grilled on skewers and served with peanut sauce and ketupat, rice cooked cooked in palm leaves. Laksa lemakis a spicy noodle soup with coconut, and tahu goreng bean sprouts with soybean cheese. The availability of fresh fruit is plentiful. In addition to the more exotic fruits that are common to us, there are rambutan, durian, papaya, guava and mangosteen.