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International Business : SPOTLIGHT ON MALAYSIA : The Malaysian Economy

March 23, 1994

Following years of rapid industrialization, the nation is now in a period of consolidation. It must manage its success while dealing with a labor shortage, infrastructure bottlenecks and the threat of inflation. A pragmatic and efficient government hopes to slow growth to a sustainable rate while diversifying the economy. The country benefits from minimal corruption and an educated work force.

Manufactured Exports Malaysia is the world's largest exporter of computer chips and the third-largest chip producer, after the United States and Japan. It is home to Intel Corp.'s largest overseas plant. The nation has also become a major producer of VCRs and air-conditioning units. By 1991, electrical machinery, appliances and parts grew to 58% of total exports, which exceeded $40 billion last year.

Labor Shortage Malaysia is essentially at full employment, with labor shortages in the industrial regions. Restrictions on foreign workers were lifted in 1992, but multinational firms generally must draw workers from rural areas. Wages and benefits have risen faster than productivity. The average daily wage was about $6.50 last year, compared to $1.50 in Indonesia and Vietnam. However, Malaysia's skilled labor force has begun to resemble those of countries with higher labor rates, such as Singapore, South Korea and Taiwan.

Agriculture The government has encouraged palm oil production since 1960, and Malaysia is now the largest producer and exporter of the oil, accounting for about 55% of world production in 1992. Overall, agriculture provided about 15.7% of gross domestic product in 1992 and engaged 26% of the population. But income is distributed unevenly in rural areas because agriculture is divided into relatively high-income estates, predominantly owned by ethnic Indians and Chinese, and a low-productivity sector composed of indigenous groups. A major aim of the government has been to redress the balance.

Consumer Demand Growth has created a large lower-middle class that seeks credit to buy durable goods and property. Although the government hopes to dampen demand for imports by restricting credit, consumer spending is robust. Passenger car sales rose a remarkable 32.7% in the third quarter of 1993, and a new local vehicle factory is beginning operations.

Rubber Traditionally the principal export, rubber has declined in importance. The acreage planted with rubber trees has been cut due to falling prices and the labor shortage. In 1991, Indonesia and Thailand superseded Malaysia as the world's major rubber producers.

Tin and Oil Tin, another traditional export, has declined, making Malaysia the world's fifth- instead of second-largest producer. Of 847 tin mines operating in 1980, only 63 were open in early 1993. Meanwhile, oil has emerged as the largest export earner, accounting for almost 9% of the total in 1992. About a quarter of the oil goes to Singapore, while most of the rest is sent to Japan, South Korea and Thailand. Reserves, mostly offshore, should keep production at current levels for at least another decade.

Population In millions 94, 19.4 GDP Growth--- 94, 7.7 Per Capita --- 94, 5.3 Inflation annual rate 94, 4.2 Trade Balance In billions (U.S. $) 94, $6.7 Foreign Debt In billions (U.S. $) 94, 25.7 *Sources: Bank of America Country Data Forecasts; Europa Publications, Economist Intelligence Unit/Bloomberg Financial Markets Researched by DANIEL GAINES; VICTOR KOTOWITZ / Los Angeles Times

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