Malaysia – Third Industrial Master Plan

Malaysia 18 Aug 2006

Third Industrial Master Plan (IMP3) -
Towards Global Competitiveness
• The Malaysian economy is targeted to grow an average 6.3% per annum
during the entire IMP3 period (2006-2020) after having expanded an average of
Industrial Master Plan 3
4.6% per annum from 1996-2005.

• To meet the targets of the IMP3, an estimated of RM1.3 trillion in overall

investment, or RM84.6bn is required annually. Total investment is targeted to
grow at a rate of 7.7% per annum, where private investment is expected to grow
10.2%. Share of private investment to GDP is envisaged to increase from 8.9%
in 2005 to 11.6% in 2020.

• Total trade is targeted to grow almost 3 fold to RM2.8 trillion by 2020 from
RM967.8bn in 2005 where exports is targeted to increase 2.7x from RM 533.8bn
to RM 1.4trillion during the plan period.

• Key strategies of the IMP3 are built on the 5 strategic thrusts of the National
Mission, which was introduced in the 9MP. In this regard, a total of 10 strategic
thrusts have been outlined under IMP3 to facilitate the achievement of the
macro targets set under IMP3. More specifically, the 10 strategies are
categorized into 3 broad spectrum namely (1) development initiatives, (2)
promotion of growth areas, and (3) enhancing the enabling environment.

• The government has identified 12 target growth industries in the

manufacturing sector as well as 8 services sub-sectors for further
development and promotion given that these industries are strategically
important to contributing to greater growth of the manufacturing sector as well as
to exports and strengthening sectoral-linkages.

Manufacturing Industries Services Sub-sectors

Non-resource based: ¾ Business and Professional
¾ Electrical and Electronics services
¾ Medical Devices ¾ Logistics
¾ Textiles and Apparel ¾ ICT services
¾ Machinery and Equipment ¾ Distributive trade
¾ Metals ¾ Construction
¾ Transport Equipment ¾ Education and training
Resource based: ¾ Healthcare services
¾ Petrochemicals ¾ Tourism services
¾ Pharmaceuticals
¾ Wood-based
¾ Rubber-based
¾ Oil Palm-based
¾ Food Processing

• While the manufacturing sector was targeted to take the lead in driving growth in
the IMP2, the IMP3 sees the services sector assuming the lead role in driving
economic growth from 2006-2020. It is also interesting to note that all sectors,
except services, are expected to see a decline in their contribution to total GDP
by 2020.

• We are of the view that the impact on the economy will be limited in the short-
term but it will be a positive in the longer term should competitiveness and
potentials of the targeted industries and services are enhanced during the IMP3
period.

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 Malaysia – Third Industrial Master Plan

Overview
• The IMP3 is a 15-year blueprint for industrial development in Malaysia riding on
the theme “Malaysia-Towards Global Competitiveness”.

• It is expected to drive industrialisation to a higher level of global competitiveness,

emphasizing on transforming and innovating the manufacturing and services
sectors in an integrated manner, towards attaining developed nation status
under Vision 2020.

• Key strategic thrusts identified include the undertaking of higher value-added

activities, enhancing total factor productivity (TFP), venturing into new growth
areas, emphasis on R&D, and the integration of Malaysian industries and
services into the regional and global networks.

• Key challenges highlighted are the development of highly skilled human capital,
establishment of an efficient network of logistic services, the adoption of latest
technologies and information services, promoting a conducive business and
investment climate, and strengthening the regulatory regime and delivery
system.

Key Strategic Thrusts

• Key strategies of the IMP3 are built on the 5 strategic thrusts of the National
Mission, which was introduced in the 9MP.

• In this regard, a total of 10 strategic thrusts have been outlined under IMP3 to
facilitate the achievement of the macro targets set under IMP3. More specifically,
the 10 strategies are categorized into 3 broad spectrum as follows:

Development Initiatives
1. Enhancing Malaysia’s position as a major trading nation
2. Generating investments in targeted growth areas
3. Integrating Malaysian companies into the regional and global networks
4. Ensuring industrial growth contributes towards equitable distribution and
more balanced regional development

Promotion of Growth Areas

5. Sustaining the manufacturing sector’s contribution to growth
6. Positioning the services sector as a major source of growth

Enhancing the Enabling Environment

7. Facilitating the development and application of knowledge-intensive
technologies
8. Developing innovative and creative human capital
9. Strengthening the role of private sector institutions, including trade and
industry associations
10. Creating a more competitive business operating environment through
effective institutional support and efficient government delivery system

Macro Targets

GDP Growth Targets by Sector (% YOY)

Sector IMP2 Target IMP2 Actual IMP3 Target
Average Average Average
Annual Annual Annual
Growth (%) Growth (%) Growth (%)
1996-2005 1996 2000 2005 1996-2005 2006-2020
Manufacturing 9.5 18.2 18.3 4.9 6.2 5.6
Services 8.8 8.9 6.7 6.5 6.0 7.3
Non-Government services - 10.1 7.4 6.2 6.1 7.5
Government services - 1.7 2.0 8.8 5.3 5.6
Agriculture, forestry & fishery 2.6 4.5 6.1 2.1 2.3 5.2
Mining & quarrying 1.9 2.9 0.3 0.8 2.5 3.4
Construction 8.5 16.2 0.6 -1.6 -0.4 5.7
Real GDP 7.9 10.0 8.9 5.3 4.6 6.3
Source: Ministry of International Trade and Industry

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 Malaysia – Third Industrial Master Plan

GDP Contribution by Sector (%)

Sector IMP2 IMP2 Actual IMP3
Target Target
2005 1996 2000 2005 2020
Manufacturing 38.4 29.1 31.9 31.4 28.5
Services 48.4 50.7 53.9 58.1 66.5
Non-Government services - 44.2 47.1 50.5 59.7
Government services - 6.5 6.8 7.6 6.8
Agriculture, forestry & fishery 8.2 9.8 8.9 8.2 7.0
Mining & quarrying 4.2 7.7 7.3 6.7 4.4
Construction 4.7 4.7 3.3 2.7 2.5
(-) Imputed bank services charges - 6.0 7.5 9.1 10.0
(+) Import duties - 4.0 2.2 1.9 1.1
Real GDP 100.0 100.0 100.0 100.0 100.0
Source: Ministry of International Trade and Industry

GDP by Sub-sectors
Sub-sectors RMm Average Annual Share of GDP (%)
Growth (%)
2005 2010 2020 2006- 2011- 2006- 2005 2010 2020
2010 2020 2020
Manufacturing 82,394 113,717 187,583 6.7 5.1 5.6 31.4 32.4 28.5
Services 152,205 208,086 437,563 6.5 7.7 7.3 58.1 59.2 66.5
Business & other non- 132,374 183,327 392,806 6.7 7.9 7.5 50.5 52.2 59.7
Government services
Finance, insurance, real 39,568 55,385 113,866 7.0 7.5 7.3 15.1 15.8 17.3
estate and business services
Wholesale and retail trade, 38,437 53,456 113,208 6.8 7.8 7.5 14.7 15.2 17.2
hotels & restaurants
Transport, storage & 23,163 31,984 79,641 6.7 9.6 8.6 8.8 9.1 12.1
communication
Electricity, gas and water 10,860 14,450 28,171 5.9 6.9 6.6 4.1 4.1 4.3
Other services 20,346 28,052 57,920 6.6 7.5 7.2 7.8 8.0 8.8
Government services 19,831 24,759 44,757 4.5 6.1 5.6 7.6 7.0 6.8
Agriculture, forestry and 21,585 27,518 46,110 5.0 5.3 5.2 8.2 7.8 7.0
fishery
Mining and Quarrying 17,504 20,675 28,844 3.4 3.4 3.4 6.7 5.9 4.4
Construction 7,133 8,451 16,455 3.5 6.9 5.7 2.7 2.4 2.5
(-) Imputed bank services 23,876 32,707 65,781 6.5 7.2 7.0 9.1 9.3 10.0
charges
(+) Import duties 5,083 5,556 7,377 1.8 2.9 2.5 1.9 1.6 1.1
Real Gross Domestic 262,029 351,297 658,151 6.0 6.5 6.3 100.0 100.0 100.0
Product
Source: Ministry of International Trade and Industry, Economic Planning Unit and Department of Statistics

Investment Targets
Breakdown of investments (RMbn) 2006-2010 2011-2015 2016-2020 2006-2020
Total investments 634.5 934.5 1325.4 2,894.4
Private 310.0 520.2 808.0 1,638.2
Public 324.5 414.4 517.3 1,256.2
Total Private Investments 310.0 520.2 808.0 1,638.2
Manufacturing 101.1 135.5 175.6 412.2
Services 92.6 210.7 384.4 687.7
Agriculture 31.9 54.8 82.3 169.0
Mining 40.0 59.0 80.9 179.9
Construction 44.4 60.2 84.8 189.4
Overall Average Annual Private 62.0 104.0 161.7 109.2
Investments
Manufacturing 20.2 27.1 35.1 27.5
Services 18.5 42.1 76.9 45.8
Agriculture 6.4 11.0 16.5 11.3
Mining 8.0 11.8 16.2 12.0
Construction 8.9 12.0 17.0 12.6
Source: Ministry of International Trade and Industry

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 Malaysia – Third Industrial Master Plan

Target Growth Sectors

Manufacturing These industries are strategically important in contributing to greater growth of the
manufacturing sector in terms of higher value added, technology, export, knowledge
content, multiplier and spin-off effects and potential to be integrated regionally and
globally. The 12 manufacturing growth sectors identified are as tabled below.

Services Within the services sector, 8 sub-sectors have been targeted for greater development
and promotion. These sub-sectors have the potential to contribute to exports and
strengthen inter-sectoral linkages, including facilitating and supporting the greater
growth of the manufacturing sector.

Manufacturing Industries Services Sub-sectors

Non-resource based: ¾ Business and Professional services
¾ Electrical and Electronics ¾ Logistics
¾ Medical Devices ¾ ICT services
¾ Textiles and Apparel ¾ Distributive trade
¾ Machinery and Equipment ¾ Construction
¾ Metals ¾ Education and training
¾ Transport Equipment ¾ Healthcare services
Resource based: ¾ Tourism services
¾ Petrochemicals
¾ Pharmaceuticals
¾ Wood-based
¾ Rubber-based
¾ Oil Palm-based
¾ Food Processing

Exports and Investment Targets for the 12 Targeted Manufacturing Industries

Sub-sector Exports Investment
2006-2020 2020 2006-2020 2020
(RMbn) Average Share (%) (RMbn) Share (%)
Annual
Growth (%)
Total 11,403.2 7.1 100.0 362.5 100.0
Non resource-based 9,202.5 7.1 80.6 232.8 65.3
Electrical & electronics 7,533.9 6.3 65.9 82.4 23.1
products
Metal products 514.6 7.6 4.5 44.2 13.6
Machinery and equipment 494.4 6.4 4.3 30.8 7.7
Textile & apparel 248.8 7.8 2.1 13.7 3.1
Transport equipment 232.5 6.3 2.0 42.3 11.6
Medical devices 178.3 7.6 1.6 19.4 6.2
Resource-based 2,200.7 7.1 19.4 129.7 34.7
Palm oil 781.7 7.6 7.0 26.1 7.6
Wood based products 545.2 6.4 4.7 25.4 6.2
Petrochemical products 377.4 6.3 3.3 34.0 9.4
Food processing 244.6 7.8 2.2 24.6 6.2
Rubber Products 239.0 7.6 2.1 12.9 3.0
Pharmaceuticals 12.8 6.3 0.1 6.7 2.3
Source: Ministry of International Trade and Industry

Our Thoughts…
IMP2 behind target due The performance of the Malaysian economy during the IMP2 failed to meet the
mainly to external targets and we view it as largely caused by global events such as the Asian financial
shocks crisis in 1997-98, Sept-11 Attacks in 2001 and SARS in 2003 which led to an overall
global slowdown. Malaysia’s real GDP averaged 4.6% per annum over the IMP2
period from 1996 to 2005, falling short of the forecasted 7.9%. All sectors missed
their growth target except for mining and quarrying, which expanded 2.5%, above the
1.9% target and contributed 6.7% to GDP (vs 4.2% target). The faster than expected
growth can be attributed to the development of the oil and gas industry in Malaysia.
Meanwhile, although failing to meet the targeted growth, the services sector
contributed 58.1% to GDP in 2005, more than the planned 48.4% in the IMP2, with
non-Government services sectors contributing the bulk of the growth. This reflects
the increasingly important role of the services sector as the Malaysian economy
moves towards a developed nation status.

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Contribution of the Services Sector to Gross GDP in Selected Countries, 2004
Share to GDP
Services (%)
Manufacturing (%)
Primary Sector (%)
GDP growth rate (%)
Services sector growth rate
(%)
Share of services sector to
total employment (%)
Source: USA: Bureau of Economic Analysis & Bureau of Labour Statistics; Singapore: Economic Survey of Singapore: Hong
Kong: Central Statistics Hong Kong: Thailand: National Economic & Social Development Board: Ireland: Central Statistics Office,
Ireland: Malaysia: Economic Report 2004/2005 and Bank Negara Report 2004.
IMP3 emphasizes on
attaining global
competitiveness…
…by leveraging on
existing strength, AND
building on new
competencies
IMP3 seeks to address
issues and challenges
extensively
Services sector to take
over the driver seat but
with manufacturing
sector to remain
prominent
Financial services
among the beneficiary
Limited short term gain
but long term positive
6.3% growth target is
achievable barring
major external
setbacks
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Malaysia – Third Industrial Master Plan
USA Hong Singapore Ireland Thailand Malaysia
Kong
80.4 91.8 70.1 44.6 49.9 60.3
12.7 3.7 25.1 40.8 38.7 31.6
2.2 0.1 0.1 4.0 11.4 15.4
4.4 8.1 8.4 4.9 6.1 7.1
5.1 7.8 6.4 3.8 6.5 6.4
79.0 94.5 79.2 65.0 43.1 57.8
rd
The 3 Industrial Master Plan (IMP3), 2006-2020 outlines the industrial strategies
and policies, which form part of the country’s continuing efforts towards realising its
objective of becoming a fully developed nation by 2020. The IMP3 rides on its
objective to achieve global competitiveness through innovation and transformation of
the manufacturing and services sectors while contributing to meeting the 5
development trusts of the National Mission introduced under the 9MP.
The IMP3 leverages upon the strengths and capabilities of existing industries and the
country’s resources as well as its experiences of the previous plans, adjusted to
reflect developments and opportunities in the global, regional and domestic
environments. With this in mind, emphasis is given to technological upgrading,
attracting and generating quality investments, developing innovative and creative
human capital and integrating Malaysian industries and services into the regional and
global networks and supply chains.
The Malaysian economy is targeted to grow at an average of 6.3% YOY during the
entire IMP3 period (2006-2020) after having expanded an average of 4.6%YOY from
1996-2005. The IMP3 deals comprehensively with issues and challenges faced by
the manufacturing and non-government services sectors, including the provision of a
highly skilled and knowledgeable workforce, creation of an efficient network of
logistics services and application of advance technologies.
While the manufacturing sector was targeted to take the lead in driving growth in the
IMP2, the IMP3 sees the services sector assuming the lead role in driving economic
growth from 2006-2020. The manufacturing sector is expected to remain an
important source of growth and is targeted to contribute 28.5% to GDP in 2020 with
an annual growth of 5.6% per annum during the IMP3. The services sector is set to
play a bigger role by broadening its economic base and contribution to exports. Over
the next 15 years, the sector is expected to grow at an annual rate of 7.3% and
contribute 66.5% to GDP where 59.7% share is estimated to emanate from the non-
Government services sectors. Meanwhile, even as the agriculture sector is expected
to become the third engine of growth, it is only expected to contribute 7.0% to GDP in
2020, down from 8.2% in 2005. It is also interesting to note that all sectors, except
services, are expected to see a decline in their contribution to total GDP by 2020.
Since RM1.3 trillion in overall investments or RM84.6bn of investments are needed
annually to support growth in the targeted sectors, the financial services industry
could be among the most notable beneficiary of the IMP3 in terms of growth as
companies look to the capital/ financial markets to raise their capital requirements.
This is despite the fact that it is not one of the target growth sectors.
We are of the view that the impact on the economy will be limited in the short-term
but it will be a positive in the longer term should competitiveness and potentials of the
targeted industries and services are enhanced during the IMP3 period.
We believe that the 6.3% targeted growth for the entire IMP3 period (2006-2020) is
achievable barring major economic setbacks arising from a global downturn
especially in the US and that the IMP3 policies and strategies are efficiently and
effectively implemented. We are also of view that the IMP3 will be able to ride on the
up-cycle of economic growth in Asia and other emerging markets. It is hopeful that
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 Malaysia – Third Industrial Master Plan

emerging economies, together with China and India, will be able to fill the vacuum
should the G3 economies falter.

Domestically, political Even as we are optimistic of the benefits of the IMP3 over the longer term, we have
risks and the reforms our fair share of reservation. On the global front, among the most notable are
of GLCs to determine structural imbalances and the continued fluctuations in commodity prices arising from
the viability of IMP3 demand-supply inequilibrium as the world undergoes structural shift. Escalation of
targets conflicts in the Middle-East as well as geopolitical uncertainties are becoming more
rampant which could mean hefty socio-economic loss. Other factors that could
potentially derail global growth include a disorderly unwinding of the current
international imbalances, large-scale terrorism as well as possible pandemic.
Domestically, political risks and the success in the reforms of the GLCs will determine
the viability of the targets under IMP3.

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 Malaysia – Third Industrial Master Plan

Appendix I

Potential Growth Areas for the Development of SMEs

Manufacturing SME Potential Areas
Resource based Herbal and traditional medicines
Cosmetics
Palm oil-based products
Wood based products
Food & beverages, including convenience food for halal market
Machinery and engineering Precision machining and tooling
Process and product engineering
Automation and system automation
Electrical & electronics Components for semi-conductors and radio frequency identification
Precision stamping
D&D of integrated circuits
High-end printed circuits board assemblies
Substrates of printed circuits boards
Medical devices Medical diagnostic devices and kits
Medical and surgical disposable devices and equipment
Manufacturing related services Software development and software system integration
Mould design and texturing
Prototyping services
Burn-in of testing of integrated circuits
Failure analysis or repair centers for integrated circuits, printed circuits boards and
printed circuits assemblies
Calibration and maintenance services
Surface mounting, using advance and composite materials
Metal products Galvanized iron
Special steel, including alloy steel & stainless steel
Services SME Potential Areas
Distributive trade Retail
Wholesale
Restaurant
Motor vehicles distribution
Motor trade and repair services
Franchising
Transport services & logistics Forwarding
Packaging
Haulage
Warehouse
Storage
Bulk breaking
Integrated logistics supply chain
Tourism services Hotels
Transportation
Eco-tourism
Agro-tourism
Health-tourism
Edu-tourism
Professional and business services Human resource management
Market research
Management consultancy
Advertising
Legal
Accounting, book-keeping, auditing and tax consultancy
Architectural
Engineering
R&D
Environment and energy
Educational and training Courses on new technologies/methods/ processes/technical standards
Entrepreneurship
Professional accredited courses
Construction Civil engineering (metal works, electrical works, plumbing, sewerage and sanitary
works, refrigeration and air conditioning works, painting works, carpentry, tiling
and flooring and glass works). To adopt clustering approach in bidding for projects
by combining complementary skills and expertise, especially in civil engineering.
Residential and non residential construction
Infrastructure (for example bridges)
ICT Customized software development
Consultancy in e-commence
Consultancy in security

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