KXEX2162: ECONOMY, FINANCE AND ENGINEERS

ASSIGNMENT 2: MALAYSIAN ECONOMY FROM 1900-2014

NAME

MATRIX NUMBER

FAIRUS FARIHAH

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MISLIANA BINTI MD TAIB

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NUR AMIRAH BINTI MOHD SHAHABUDIN

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NURUL HUSNA BINTI RAOF

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SALWA MARHAINI BINTI MAZELAN

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SUBASHINY A/P PRABAKARAN

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1900-1920
The nineteenth century witnessed the enormous expansion world trade which
between 1815 and 1914, grew on average at 4-5 % a year compared to 1% in the
preceding hundred years. This is because the driving force came from the Industrial
Revolution which happened in the West which saw the innovation of the large scale of
factory production of manufactured. In the early twentieth century, the economy of
Tanah Melayu (Malaysia before independence) is in the expansion caused by the
revolution happened in the west.
Late 19th century and early 20th century (1896-1910) witnessed an encouraging
growth of rubber whereby the price of rubber increased drastically as a result of the
development of automobile industry in Britain. This is due to the high demand of rubber
which exceeds its production.
Tanah Melayu faced recession during World War I. The rubber price dropped on
1914-1918 because of the World War I which the price dropped until 85 cent on 1918
and 20sen on 1922. Many of companies established in Tanah Melayu on that time
faced a loss of profit because they cant exports their rubber to the West countries.
By 19th century the population in Johor transformed from the trading society to
an agrarian society. The economy policy was focused on collecting the forest and
agricultural products. A recession happened at this time.
On 1910, the discovery of oil by a subsidiary of Royal Dutch-Shell in Sarawak
had provided the bedrock for the development of Malaysias present day oil and gas
industry. This put Sarawak more prominently in the business of exports. It created
opportunities for many oil and gas majors and other to invest in the upstream and
downstream sector of the industry provided employment and skills transfer to thousands
of Malaysian and changed the economic landscape of the country.
1913, Malay Reservation Enactment was gazetted. This situation brought a great
influence to the development of the agricultural economy of Malaya community. The
enactment established to protect the right and position of the Johor Malaya as the

native community in the state. In this year, Malay department heads were replaced by
the British officers. The General adviser appointed in 1913. Between 1910 until 1913,
there has many British officers were appointed in the administration of Johor, the
number of British investor investing in Johor increased drastically. Thus, it is showing a
good sign of growth of the economy.
However when of the World War I happened, whole world including Tanah
Melayu (that time Malaysia) was plunged into economic depression on 1919-1922. This
is because, investor cannot get their profit and they have to hold their product.

1920-1940
After World War 1 ended in year 1980, economy of Malaya began increasing
drastically in the early 1920s because of 'post-war economic boom'. Although there are
increasing in economy, the workers had to make a bank loan if they want to splurge and
some are forced to limit spending because the payment of wages to workers is too less.
A result, the flow of money is not smooth so many industrial plants and business center
goes bankrupt. The banking system suffered a worse fate because they fail to get a
refund of those borrowers. By 1930, more than 3,000 banks had folded.
Unfortunately, late of 1920 and early of 1930s, the world economy was in a
depression. The depression originated in the U.S., after the fall in stock prices that
began around 4 September 1929, and became worldwide news with the stock market
crash of 29 October 1929 or known as Black Tuesday. The Great Depression had
devastating effects in countries rich and poor. Cities all around the world were hit hard,
especially those dependent on heavy industry. Malaya did not escape in having
depression because of due to the integration of the Malayan economy to the global
supply chain. As industrial output slumped, primary product prices fell even more
heavily as the demand for exports experienced contraction.

For example, in 1932

rubber sold on the London market for about one one-hundredth of the peak price in
1910. The effects on export earnings were very severe, in Malaysias case between

1929 and 1932 these dropped by 73 percent (Malaya), 60 percent (Sarawak) and 50
percent (North Borneo). The aggregate value of imports fell on average by 60 percent.
Estates dismissed labor and since there was no social security, many workers had to
return to their country of origin. Small holder incomes dropped heavily and many who
had taken out high-interest secured loans in more prosperous times were unable to
service these and faced the loss of their land.
In order to overcome these problems, colonial government instituted the
schemes to restore commodity prices to profitable levels. For the rubber industry this
involved two periods of mandatory restriction of exports to reduce world stocks and thus
exert upward pressure on market prices. The first of these (named the Stevenson
scheme after its originator) lasted from 1 October 1922 - 1 November 1928, and the
second (the International Rubber Regulation Agreement) from 1 June 1934-1941. Tin
exports were similarly restricted from 1931-1941.

1940-1960
During the Japanese occupation years of World War II,the Japanese invaded
Malaya and defeated the British, 1942-1945. This period can be categorized into 4
broad stages,ie (i)1942:Reconstruction, (ii).1943:Peak, (iii).1944:Degeneration of
conditions, and (iv).1945:Continuous deterioration of conditions. The Malaya economy
has had a serious impact .Destruction of economic resources, especially rubber
plantations and tin mine has occurred badly.
Before leaving Malaya, British army destroys rubber plantations and tin mines
under the policy of scorched earth. The workers leave plantations and mines to save
themselves. Transport and communication systems were destroyed. Japanese military
did not restore the damages made by the British and these were even worsening
Malaya economy. Inflation has occurred in Malaya whereby lack of food in market. The
Japanese issues printed Bananas Trees money without control and this led of
decreasing of currency. Generally, living conditions deteriorated significantly during this
period.

Overall the war period saw the dislocation of the export economy, widespread
destruction of the infrastructure (roads, bridges etc.) and a decline in standards of public
health. It also saw a rise in inter-ethnic tensions due to the harsh treatment meted out
by the Japanese to some groups, notably the Chinese, compared to a more favorable
attitude towards the indigenous peoples among whom (Malays particularly) there was a
growing sense of ethnic nationalism.
The withdrawal of Japan at the end of World War II left the Malaya economy
disrupted. Problems included unemployment, low wages, and high levels of food
inflation, well above the healthy rate of 23%. During this time, the British administration
was attempting to repair Malaya's economy. Revenue from Malaya's tin and rubber
industries was important to Britain's own post-war recovery. Only in 1950-1951, the
economy grew very rapidly and this was direct result of the sharp increase of the price
of rubber during the Korean War. The export sector had been very important in the
Malaysian economy before independence. Economic growth remained highly
dependent on the export of a narrow range of primary commodities, namely, rubber, tin
and palm oil in Malaya, and timber in Borneo Territories.
As the British seek to consolidate Malaya's economic policy between the Malay
States, Malayan Union was proposed to unify Federated and Unfederated Malay States
into a single entity. After a short period of union, the British dissolved Malayan Union
and replaced it with the Federation of Malaya, with Tunku Abdul Rahman as its first
Chief Minister. By that time, rubber and tin were the main source of income for the
Federation and it was one of the more properous economies in the region. Its per capita
income was ranked third in Asia, after Japan and Singapore.

1960-1980
Overall between 1960 and 1965, the Malaysian economy experienced a rapid
rate of economic progress measured in terms of output and income. The real Gross
Domestic Product (GDP) during that time grew at an average annual rate of 6.4%.

Over the 1960 to 1965 periods Malaysian real income grew at 5.8% annually,
which is has somewhat slower than the rate of output growth. This is due to the fact that
the steady decline in the price of rubber and a small decrease in round timber prices
have more than offset the sharp rise in the price of tin, while the prices of Malaysian
imports, on the average, have remained relatively stable.
The policy to develop the industrial sectors had an important role in slowly
expanding the role of the industrial sector in the economy. However, the unemployment
problem was getting worse. In 1960 the average annual growth of the economy
between 1960 and 1965 was about 6.4% and slightly reduced to 6.0% between 1966
and 1970. Despite of this, the rate of unemployment increased. In 1960, the rate of
unemployment was 6.0% but by 1970 it has increased to 6.5%. As unemployment
remained high in the midst of growing prosperity, inter-ethnic tensions erupted into a
series of violent street riots in May of 1969. Thus New Economic Policy (NEP) was
introduced in 1970.
In 1960 its contribution had increase to 9.0% of GDP and by 1970 the
contribution had reached 12.2%. The expanding contribution of the industrial sector to
the economy was due to its rapid growth whereby its average growth between 1966 and
1970 was 9.9%.
Malaysian economy achieved a creditable rate of growth during 1971-1975. The
manufacturing sector has become a key sector in the economy. The expansion of the
sector was the result of advances in export-oriented industries as well as in other
growth industries including palm oil processing, wood processing, textiles and many
else.
The agricultural sector, currently the largest contributor to the GDP, will expand
much faster under the TMP than in the last five years, while the manufacturing sector
will continue to register the fastest rate of expansion thereby becoming progressively
more important in the generation of income and employment in the economy. As the
implementation of NEP on 1971-1975 (SMP) AND 1976-1980 (TMP), we can see the
achievement during the period.

1980-2000
The dawn of 1980s saw a prospering Malaysian economy, thanking the New Economic
Policy (NEP) launched in 197, which marked the beginning of a new era of
macroeconomic activism. The development strategies handled by the Malaysian
government during 1980-84 saw the average annual growth rate to be 7%. For the
period of 1980 to 1990, Malaysias economy was said to be at its peak, with heavy
industrialization process and new economic policies being implemented to secure the
rights of Malaysian among foreign traders.
However, the economic downturn in developed countries triggered by the US
high- interest rate policy (the Volker shock) in the early 1980s resulted in a massive
collapse of world commodity trade. Between 1984 and 1986, Malaysias overall export
price index declined by 30% reflecting a sharp decline in tin and palm oil prices.
In 1986 the country was experiencing the trough phase. GDP growth was still
quite not promising but it's not as bad. It's clear that the economy has turned a corner .
Public debt as a percentage of GDP rose sharply from 44 in 1980 to 103.4 in 1987.
Then in year 1988, the countrys diminished economic growth slowly started expanding
back to its optimum state.
After the mid-80s recession that hit Malaysia, the economy was slowly growing
back by 1988. Malaysian government was doing all in its power to keep boosting up the
economy and setting back to its glorifying days. Malaysian economy was doing great at
its peak after the mid-1980s recession till 1996.
However, trouble started brewing in the form of another recession in the year
1997. It started on July 1997. This time the recession was induced by Asian Financial
Crisis (AFC). This lead to the downfall of the SEAs economic value in the 1997. It
started in Thailand, with Thai Baht devaluation. Malaysian Ringgit was attacked
heavily by speculators, when the ringgit had lost 50% of its value, falling from above
2.50 to under 4.57 on (23 January 1998) to the dollar. Foreign direct investment fell at
an alarming rate.

In 1998, the output of the real economy declined plunging the country into its first big
recession for many years, suffering a trough phase. GDP suffered a sharp 7.5%
contraction in 1998. During that year, the ringgit plunged below 4.7 and the KLSE fell
below 270 points. However, it rebounded to grow by 5.6% in 1999, entering an
expansion phase. The Government of Malaysia predicted 5.8% real GDP growth in the
year 2000, but most analysts predicted growth will exceed 8% for the year. Investor
confidence and global demand for electronics picked up.

2000-2014
In 2000-2001 the global economy was slowing down and the negative effects of
the US economic slowdown and global electronics downturn was felt as early as March
2001.These were manifested in declining manufacturing production and negative export
growth. This situation was leading Malaysia economy to growth in year 2001-2005 with
increasing ratio of 1% in every year.
But, beginning in 2002 until 2004 saw the economy as a result of fluctuations in
the current market uncertainty. Early 2003 saw economic growth has exceeded initial
projections were expected. But at that time, there had been some fluctuations in the
market due to the world was shocked by the presence of SARS. Concerns over SARS
was contained on a global level. 2007 also saw the country's economic environment
continued to strengthen in every area except the reported economic environment is
quite weak and slow.
GDP in 2008 was somewhat deteriorating due to depression in world financial markets.
The global financial crisis of 2008-2009, with its epicentre in the United States, has
brought enormous ramifications for the world economy. With the United States
economy contracting sharply, it sent ripples across export-dependent Asian economies,
which began to face a contraction as a consequence. Hence, the Malaysian economy
was insulated from the direct effects of financial exposure due to a collapse in exports
and a slowdown in foreign direct investment (FDI).

For the years 2009 and 2010 witnessed volatility graph influenced somewhat unstable
commodity price volatility and the collapse of the American economy. The downturn has
caused a sharp contraction in the economy and it has been contracted by 1.7% in the
first half.

In 2013, the Malaysian economy expanded by 4.1% in the first quarter. In the fourth
quarter of 2013, the GDP expanded to 5.1 per cent, the fastest pace for this year.
Malaysias economy in 2013 grew at 4.7 per cent.
After a slight slowdown in 2013, growth accelerated to 6.2% year on year in the first
quarter of 2014 boosted by strong expansion in domestic and external demand.
The Malaysian economy expanded by 6.2% in the first quarter of 2014.Global economic
activity expanded at a moderate pace in the first quarter. Malaysian economy registered
a strong growth of 6.4% in the second quarter of 2014.Overall, growth was supported by
higher exports and continued strength in private domestic demand.

Reference
1) Malaysian

Institute

of

Economic

Research

Official

Webpage

http://www.mier.org.my/outlook/
2) Economics History Association - http://eh.net/encyclopedia/economic-history-ofmalaysia/
3) The World Bank Official Webpage - http://www.worldbank.org/en/country/malaysia
4) Economic

Planning

Unit

Official

Webpage

http://www.epu.gov.my/en/the-

malaysian-economy-in-figures-2013
5) Shanti P. Chakravarty, Abdul-Hakim Roslan, , Ethnic Nationalism and Income
Distribution in Malaysia, The European Journal of Development Research, June
2005
6) Daniel E. Charette, Malaysia in the Global Economy, New England Journal of Public
Policy , September 2003