The Success-Story of Malaysia

Term Paper, 2006

13 Pages, Grade: 1,5 Germany, 4 Finland



1 Introduction

2 The Country

3 History
3.1 The Premodern Economy
3.2 The Time after WorldWar II

4 The New Economic Policy
4.1 National Development Policies from 1970-2000
4.1.1 Reducing Poverty
4.1.2 Economic Growth
4.2 Contemporary Policies

5 Malaysia Today
5.1 Economic Power and Growth
5.2 Business Enviroment
5.3 Supportive Government Policies
5.4 High Education
5.5 Infrastructure

6 Summary

7 Bibliography

1 Introduction

Malaysia has been a trade centre for centuries. In the premodern history traded goods were in particular spices, tin and rubber. But the long-term colonial rule and the occupation of the Japanese in World War II didn’t let the economy rise. On the contrary the economy was in a disasterous situation.

But Today Malaysia can be regarded as one of the most successful asian countries which achieved a really effective transition into a modern economy. The most important reason for this change were the consequent policies of the Malaysian government since the 1970s. It was able to integrate the ethnic outsider, the Malay, into the society and economy. Through its development programs it was possible to get rid of the high poverty rate, to built up much more equality in the society and create a well working economy with annual growth rates.

Malaysia became a export nation which traded in the last decades mostly textile or rubber products. But in nower days Malaysia also has got a high share of exports in the electronic and high tech branche. Government policy has generally accorded a central role to foreign capital, while at the same time working towards more substantial participation for domestic, especially bumiputera, capital and enterprise.

The current plan “Vision 2020” aims to reach a fully developed industrialized economy in 2020.

The first point in the essay is a short background information about the country Malaysia. I continue with the economic history from the premodern history up to the era after the Second World War. The third chapter dicusses the policies of the government; the policies of the transition as well as the contemporary policies. Finally the essay points out the present economic system and why it is so successful.

2 The Country

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Source: EH.Net, Encyclopedia: Economic History of Malaysia, [WWW document],


In 1963 the Federation of Malaysia, consisted of Malaysia, Singapore, Sarawak and Sabah, was founded. But after political conflicts Singapore was obliged to leave the Federation in 1965. Before the foundation of the Federation these areas were ruled by Great Britain. Malaysia reached its independence in 1957, Sarawak and Sabah in 1963 and Singapore its full independence in 1965. Malaysia is now known as Peninsular Malaysia, and the two other territories on the island of Borneo as East Malaysia.

The territory of Malaysia is situated between 2 and 6 degrees north of the equator. A big part of the country consists of plain coasts and mountains in the interior. Originally the country was capped by rainforest, but for commercial and agricultural reasons much of it has been removed. The tropical climate creates a good condition for the agriculture.[1]

Malaysia counted about 23.9 million inhabitants in July 2005. 57% percent of the population are “buniputera” which means Malays or other indigenous people, 24% are Chinese, 7% Indians.[2]

The Federation of Malaysia is a constitutional elective monarchy, a legacy of the British rule. The Federation is headed by a king which is choosen through rotation every five years out of the rows of the sultans. At the moment it is Yang di-Pertuan Agong. The head of the government is since October 2003 Abdullah Ahmad Badawi. The parliament consists of the upper and lower house. Elections are every five years.[3]

3 History

3.1 The Premodern Economy

Malaysia and South-East Asia were already a world trade centre in the history. From the 15th to 19th century it was especially famous for spices or porcelain, gold, tin and exotic materials like bird feathers or aromatic wood. Before the Europeans came to this region Arabs, Indians and Chinese were the main trade partners. The first Europeans who pressed South-East Asia with its trade interests were the Portuguese from 1511, after the Dutch East India Company (VOC) in 1602 competing with the English East India Company (EIC). In 1796 Malaysia came under British control. The production sector in this era was small and technologically undeveloped. Indeed Malaysia had a big workforce, but the capital sector was in foreign hands.[4]

3.2 The Time after WorldWar II

In the 19th and at the beginning of the 20th century the trade of Malaysia grew about 4-5% every year. However befor the Second World War Malaysia’s economy was almost based on the primary industry sector. The secondary sector was only connected with the primary exports of rubber and tin and some goods like bread or cigarettes for the domestic market.

After the Second World War and its Japanease occupation the British colonial rulers went back and tried to rebuild the export economy. But the desire of indepence was too big. Political tensions continued with the guerilla campaign leaded by the Malaysian Communist Party forced the British occupants out.

The fragmented political landscape made it difficult to built up a new economy – the numerous development programs didn’t work well.[5]

The primary production was still the major economic sector. And here was the problem that the investments as in the rubber industry slowed down and the bulk of the existing trees were nearing the end of their economic life. New trees required seven years to mature. The farmers switched to oil palms. Already in the 60s Malaysia supllied 20% of the world demand. With several programs the government tried to support the indigenous farmers. They became land and financial aid. In the 60s the export of hardwood increased rapidly. The results of this policies was a destroid enviroment for example soil loss and decrease of wild-life.[6]

Indeed the GDP grew in the 60s constantly baout 4 to 5 % per year,but towards the end of the 60s about half of the population was living under the poverty line.

Between poverty and ethnic group was a high connection. In 1970 65.9% of the Malays were poor compared to only 27.5% and 40.2% of Chinese and Indians. In the rural areas poverty was higher than in urban areas. The majority in the rural regions were Malay. A big differnece existed also under the ownership. Malays owned only 2.4% of the ownersip of share capital, Chinese owned 27.2%. The inequality continued in the issue of eductaion and workforce. In the primary sector worked almost Malays (two third), in the secondary sector and tertiary sector, which offers much more well paid jobs, worked mostly Chinese. In the 60s the “top 20%” of the population shared between 48.6% to 55.9% of the national income while the poorest 40% fell from 15.9% to 11.6%.[7]

4 The New Economic Policy

4.1 National Development Policies from 1970-2000

1970 the authorities of Malaysia introduced a new economic and development policy to get rid of poverty and to make the economy competitive on the world market. The new policy consisted of annual, mid-term,long-term and special development plans as well as sectoral and industry-sepecific master plans.

These plans formed the basis for all other policies and plans. The core policies consisted of the New Economic Policy (NEP) 1970-1990 and the National Development Policy (NDP) 1991-2000.

In addition to this there was in 1998 the Economic Recovery Plan because Malaysia was confrontated with special problems of the East Asian financial crisis.[8]

4.1.1 Reducing Poverty

The government introduced eight strategies to reduce the poverty which consisted for example of at first a clear definition what poverty is and who is poor; a growth of the income sources; a target help for the poor, a tax reduction or the elimination of taxes for the poor and so on.


[1] EH.Net, Encyclopedia, [WWW document].

[2] ASEAN, [WWW document].

[3] Wikipedia: Malaysia, [WWW document].

[4] EH.Net, Encyclopedia, [WWW document].

[5] EH.Net, Encyclopedia, [WWW document].

[6] EH.Net, Encyclopedia, [WWW document].

[7] Roslan, [WWW document] p.5-10.

[8] World Bank, Shanghai Poverty Conference, p.1.

Excerpt out of 13 pages


The Success-Story of Malaysia
University of Tampere
South-East Asia as a Business Area
1,5 Germany, 4 Finland
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ISBN (eBook)
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Success-Story, Malaysia
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Sarah Stolle (Author), 2006, The Success-Story of Malaysia, Munich, GRIN Verlag,


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