Moving beyond manufacturing

The top 10 imported commodities in Malaysia make up as much as 74.61% of the nation's total imports. Most of these have been in the manufacturing sector since 2000. Penang, being tie country's major manufacturing hub, is highly dependent on such imports. Although more recent data are lacking, this aspect of our economy is a cause for concern.

AS A MAJOR manufacturing country, Malaysia is necessarily a huge market for many imported commodities. It is important to clearly identify the more expensive imported commodities — which could also be described as a "Missing Industry" in the domestic economy — in order to reduce Malaysia's dependence on imports.

Not surprisingly, the manufacturing industry for radios, TVS, etc is by far the largest importer, accounting for almost 40% of total imported goods. This industry involves the manufacture of electronic valves, tubes and other electrical components; television and radio transmitters and apparatus for line telephony and line telegraphy; and television and radio receivers, sound or video recording or reproducing apparatus and associated goods.

Our second largest imported commodity is business services. Business services in general involve a wide range of activities such as rental of cars, transport equipment, other machinery and equipment, office machinery and equipment and personal and household goods not elsewhere classified (n.e.c.). It also includes computer and related activities, research and development, legal, accounting, book-keeping and auditing activities. Market research, business and management consultancy activities, advertising, news agency activities and other business activities n.e.c. are also incorporated here. Besides that, architectural, engineering and other technical activities in addition to sewage and refuse disposal, sanitation and similar activities also fall under business services. This extensive list of activities accounts for 5.72% of imported commodities.

The manufacture of other electrical machinery (which does not include domestic appliances), household machinery (such as air-conditioning, refrigerating, ventilating, office, accounting and computing machinery) and industrial machinery comes in third, fourth and fifth place respectively. The value of imported basic precious and non-ferrous metals was RM1o.4bil in 2000 while about RM9bil was spent on importing petrol and coal products for the manufacture of coke ovens, refined petroleum products and nuclear fuel. Meanwhile, the transport industry accounted for 3.12% of total imported commodities whilst iron and steel industries brought in RM7.9bil worth of iron and steel for the manufacture of basic iron and steel and the casting of metals.

Rounding up the top 10 was the crude petrol, natural gas and coal industry which conducts extraction of crude oil and natural gas and service activities incidental to crude oil and natural gas extraction excluding surveying.

At the same time, manufacturing is highly export orientated and is thus subject to the electrical and electronic (E&E) appetite of developed economies. As Penang functions mostly as an assembly and testing site for E&E production, the growth and stability of its manufacturing sector depend largely on the demand for finished products in other countries. This ties Penang's economy to the economies of the us and Japan who are major purchasers of Penang's E&E products.

This situation has left Penang especially vulnerable to recession such as when the 2009 economic crisis severely limited the purchasing powers of developed economies. As things stands, reducing the reliance of the manufacturing industry on imports is difficult since most imports come as parts ready for assembling in Penang.

Since Penang cannot possibly compete with countries such as China, where E&E parts are produced from scratch, the issue of moving up the production u-line into research and development rears its head again.

Furthermore, imports such as non-ferrous metal, petrol and coal products and iron and steel which are non-renewable raw materials currently have no easy substitute. While there has been talk of moving towards nuclear power, the idea is still at an embryonic stage and will take much time, research and planning to come to fruition. Many people have mixed feelings about nuclear energy. Even Penang's Chief Minister Lim Guan Eng recently spoke out against it, citing the state's small size and dense population as an issue. Nonetheless, we should all be aware of our current energy consumption patterns. As we know from history, it is notoriously difficult to wean a nation off its petroleum "addiction" and alternative and sustainable energy sources are still in an infant stage.

So what is the way forward? There has been much discussion about Malaysia and Penang's move from manufacturing to a service economy. The services sector encompasses industries such as utilities, wholesale and retail trade, hotels and restaurants, transport, storage and communication, finance, insurance, real estate, business services, government services and other services.

For Penang, the services sector was the fastest growing sector in the past five years and is forecast to draw level with the manufacturing sector in GRP by 2015.

Business services, which are a strong subsection of the services sector, will undoubtedly be a major player in Penang's GRP in the years to come. While capital and human investment is warranted in this industry, Penang must beware of income leakages in which state income is channelled out of the main economy, leaving fewer monies available in the local economy. Of the RM15.5bil worth of imported business services, RM3.4bil was imported by the crude petrol, natural gas and coal industry, RM2bil by domestic business services, RM1.8bil by wholesale and retail trade, RM1.3bil by banking services, RM1bil by buildings and construction and RM0.9bil by the electricity and gas industry.

In view of the industries which import business services, it is likely that in 2000, there was a demand in Malaysia for skilled workers such as chemical engineers in the crude oil, natural gas and coal industry; accountants, book-keepers and auditors in banking services; and architects and civil engineers in the buildings and construction industry. Instead of spending roughly RM10bil importing these skilled workers, that money could have been used instead to better train and prepare Malaysian graduates for the demands of the industry thus preventing leakage, increasing domestic employment and moving Malaysia towards a high-skilled workforce.

While Penang may have little need for chemical and petroleum engineers, there is always work for accountants and auditors and Penangites would do well to be aware of the job opportunities and employment trends in the country for their future benefit.

In the buildings and construction industry, the business services imported cover architectural, engineering and other technical economic activities which include architectural consulting activities, town and city planning and landscape architecture, engineering design and consulting activities, geodetic, seismic and hydrological surveying activities, performance of physical, chemical and other analytical testing and certification of products.

This industry includes the restoring of historical sites and buildings, and therefore provides a niche for these highly-skilled workers. Given Penang's recognised status as a heritage centre, employing knowledgeable and local architects and civil engineers has become vital for the state. Extensive study into Penang's cultural and historical urban development is a necessity if old buildings are to be properly restored. At the same time, new buildings and designs should be tailored to preserve the unique flavour of George Town. Besides that, in all of these industries, research and development that falls under business services, is always a key component.

Business services may prove to be Malaysia's "Missing Industry". Due to the current unavailability of the 2005 Input-Output data, it is hard to project if business services will continue to be a highly imported commodity. However, planning and anticipation founded on projected evidence can prevent unnecessary leakage of domestic wealth out of the country and reinforce the old adage of "Go Local, Buy Local".

Carolyn Ch'ng Sue Ern is interning at SERI. She is double-majoring in Economics and FinancialMathematics in the us.


AT PRESENT, proposals are being requested by the state government for five big projects in Penang. Just to keep our readers informed, they are the following:

Bayan Mutiara

This is the largest, covering three parcels of land total-ling 24.2ha with potential for another 15.3ha from land reclamation, and lies on Penang Island's coast south of the bridge and north of Pulau jerejak. The area will include high-end offices, specialist medical facili-ties, commercial blocks, residential enclaves and retail and public spaces that keep to "global standards". More details are available from the Property Division of the Penang Development Corporation;

Penang International Convention Centre (PICC)

This covers seven acres for development in the Penang International Sports Arena (PISA) area, and for the upgrading of existing facilities. More details can be obtained from;

Crag Hotel

This involves appropriate restoration of Crag Hotel, which is a Category 2 heritage building found on top of Penang Hill, and the management of it for high-end tourism. More details can be obtained from www.penang.gommy;

Fort Cornwallis

This is the most prominent heritage site in George Town, and its refurbishment has to adhere strictly to specific guidelines on heritage. The idea is to utilise the potential of this Category i heritage building for Penang's tourism industry. More details can be obtained from; and

Gold & Jewellery Bazaar

As part of the state's Komtar revitalisation project, about an acre adjacent to the Komtar complex is to be developed into a bazaar for promoting Penang's gold and jewellery industry, which is the largest in the country. The ground level is to comprise public walkways, while commercial units, an auction hall, a strong room and etc. are to be placed above. More details are available from the Property Division of the Penang Development Corporation.

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