PETALING JAYA: Malaysia needs to prioritise its manufactured exports and simultaneously adopt a more effective and aggressive export promotion strategy, according to AmBank Research.
“Our focus should be in areas where we currently enjoy a strong rising comparative advantage like in areas such as petroleum products, natural gas and manufacturers, and base metal in resource-based activities, and E&E (electronics and electrical) in the non-resource-based segment.
“We should also look at areas where we had no comparative advantage before but now gaining comparative advantage such as beverages, paper & paper products, chemicals, coal, coke & briquettes in resource-based activities, and others under the non-resource-based segment,” the research house said its in thematic report last Friday.
Its chief economist Anthony Dass partly attributed the decline in manufactured export to the downturn in the electronics and electrical industry. E&E contribution to manufactured exports dropped to 21% in 2017 from 75.1% in 2001.
“Furthermore, our manufacturing exports also face a number of challenges. Most notable is China and at the same time, the increasingly stiff competition from our Asean peers”.
Malaysia still enjoyed comparative advantage between 1998 and 2017, but lost its comparative advantage, critically to both Thailand, which surpassed Malaysia in 2015, and Vietnam in 2017. Singapore also further widened its comparative advantage against Malaysia.
While trade liberalisation is one of the measures to address the issue, Anthony said it will not improve the country’s competitiveness as trade liberalisation is focused only on lowering tariffs for final goods.
“So, it has to be more comprehensive and should focus on both final and intermediate goods. At the same time, we need to aggressively promote Malaysia as the regional services hub for global multinationals.”
The report said that the E&E sector is hurt because it caters more for further processing in regional production networks which in turn produce for the world market.
“While we do export consumer electronics, especially to developing countries, they are increasingly facing competition from lower cost producers”.
One of the main challenges faced by Malaysia’s manufacturing export is China’s growing dominance in the global export market of manufactured goods, and at the same time the increasingly stiff competition from the Asean peers are causing headwinds to the country’s manufactured exports.
“It is because our exports are trapped in low value-added activities, making it difficult to move up the value-added chain. We still depend on low-level technology with little innovation or creation of new technology that provides a new competitive edge to our industries. Hence, we notice the average growth from non-resource-based activities is only 4.1% compared with 8.8% from resource-based activities between 2001 and 2017.”
