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I. INTRODUCTION
1.01 The Third Outline Perspective Plan (OPP3), which constitutes the second decade of development under Vision 2020, focuses on building a resilient and competitive nation. During this period, efforts will be made to raise the quality of development and generate high sustainable growth, bringing prosperity for all. National unity remains the overriding goal of development and the diversities of Malaysians - ethnic, lingual, cultural and religious - will be taken into account in forging a harmonious, tolerant and dynamic society. Socioeconomic development policies, which contributed to enhancing the quality of life of Malaysians, will
continue to be given priority.

1.02 The formulation of the Plan incorporates a review of the progress of the Second Outline Perspective Plan (OPP2) as well as lessons learnt from the 1997- 1998 Asian financial crisis. The policies and strategies are aimed at building upon the country’s existing strengths, addressing its limitations and constraints, and facing the challenges of global competition. As in the past, the Government will continue to pursue a holistic approach to economic development, which is essential in ensuring stable growth, promoting harmony among ethnic groups, and enhancing national integration. Various views and contributions were considered,
including the report of the Second National Economic Consultative Council (MAPEN II), which comprised representatives from different segments of society.

1.03 The OPP3 has been formulated based on a policy that will be called the National Vision Policy (NVP). The NVP, with national unity as its overriding objective, is aimed at establishing a progressive and prosperous Bangsa Malaysia which lives in harmony and engages in full and fair partnership. Economic growth will be promoted alongside efforts aimed at poverty eradication and restructuring of society. Social, economic, and regional imbalances will be narrowed. The development policies to improve material welfare and raise the level of Sustainable Growth With Resilience.4 prosperity will be accompanied by efforts to instill positive social and spiritual values as well as concern for the environment to maintain the long-term sustainability of the country’s development.

II. CHALLENGES TO LONG-TERM GROWTH
1.04 Malaysia faces challenges at both the global and domestic fronts. Globally, the rules of competition have changed with the onset of the Information Age and a more integrated global economy as well as greater liberalization of the markets. A country’s competitive advantage is no longer dependent on factors such as labour, land and natural resources, but on its potential to produce, acquire, utilize and disseminate knowledge. The availability of knowledge enhances the potential for lower-cost developing countries to move into high value-added products at a faster pace and enables new entrants to compete with established producers. With their huge domestic markets, these countries threaten to undermine the comparative advantage in some areas of manufacturing that Malaysia enjoyed for the last 30 years. On the other hand, the industrialized countries, which are focusing on knowledge as an important input in their production processes, have increased the share of high-technology industries in their total manufacturing value added and exports. They are more advanced in terms of human resource,
technology, research and development (R&D), innovative capability and infrastructure. Consequently, Malaysia will have to intensify its efforts to stay ahead of the more dynamic developing countries and catch up with the developed countries.

1.05 In this decade, the move towards greater liberalization will lead to increased market opening by individual countries and benefit those who are in a position to take advantage of the process. With the reduction of tariff barriers, market borders will become technically non-existent. Coupled with the pervasive use of the Internet, businesses will be able to source for inputs, components and services, and get quotes from suppliers at the most competitive price anywhere in the world at a negligible marginal cost. The reduction in communications cost will help to globalize production and capital markets, increase competition and innovation, and speed up the diffusion of new technology through trade and investment. Malaysian industry and trade entities will, therefore, have to urgently build capability to contend with foreign competitors in the domestic market and
enhance their export competitiveness. Malaysian businesses will need to become more receptive to know-how, increase their skills and creativity as well as identify their commercial potential..

1.06 Domestically, the contribution of TFP will have to increase at a faster rate and the efficiency of capital will need to be enhanced. This is because the contribution of labour to growth will slow down in the future and the high investment rate in the 1990s is neither sustainable nor efficient. As a long-term strategy for sustained economic growth, it is imperative that the country shifts from input-driven growth to productivity-driven growth so that the sources of economic growth are derived endogenously. Greater emphasis will be placed on building Malaysia’s human capital, productivity and capacity for knowledge
absorption and utilization. Productivity-driven growth based on rich knowledge content and efficiency will enable the country to achieve sustainable growth with low inflation and price stability. Furthermore, it offers unparalleled opportunity for improving the well-being of Malaysians more rapidly to achieve the goals under Vision 2020.

1.07 The Asian financial crisis in 1997-1998 has highlighted the importance of increasing resilience in an integrated global environment where the flow of capital, trade and information transcend national borders. Events in one country can have tremendous repercussions in another part of the world through complex, criss- crossing networks and lagged effects. Malaysia is exposed to these external effects because its economy is integrated with the rest of the world. While it is not possible to be completely insulated from external shocks, there is a need to strengthen Malaysia’s economic, financial and social resilience so that it is able to withstand global volatility and risks without being derailed by them.

1.08 The cyclical downturn in the demand for semiconductors in the mid-1990s highlighted the risks of relying on a narrow range of products or a small group of markets. Although the electronics industry was an important factor in Malaysia’s spectacular recovery from the 1997-1998 financial crisis, there is a need to identify new growth areas, while broadening and deepening existing ones, so as to widen the range of exports and strengthen the sources of domestically-generated growth as a strategy to increase economic resilience.

1.09 In building a resilient nation, the tasks of strengthening unity and nurturing a more tolerant and caring society will rank high on the national agenda. In respect of distributional objectives, while major strides were made in bringing down the incidence of poverty, the achievement in the restructuring of society was less satisfactory. The percentage of Bumiputera corporate equity ownership in 1999 declined slightly over the 1990 position, raising the issue of sustainability. Bumiputera are still under-represented in high-level occupations. Although Bumiputera businesses in both the corporate and non-corporate sectors have.6
grown in number, they are mainly small and proportionately fewer than non-Bumiputera businesses. Bumiputera entrepreneurs are lagging in terms of the level of technology utilization and management expertise. The challenge is to address these weaknesses in a significant way in order to make greater progress with regards to the distributional objectives.

III. DEVELOPMENT THRUSTS OF THE NATIONAL VISION POLICY
1.10 The NVP will build upon the efforts initiated under the country’s past development plans and strengthen the basis of transforming Malaysia into a fully developed nation as envisaged under Vision 2020. Besides having an economy that is competitive, dynamic, robust and resilient, Malaysia aims to be a united nation, with a confident society infused by strong moral and ethical values, living in a society that is democratic, liberal, tolerant and caring, equitable, as well as progressive and prosperous.

1.11 While the NVP incorporates the key strategies of the New Economic Policy (NEP), namely, eradicating poverty irrespective of race and restructuring society, and the National Development Policy (NDP), which emphasizes balanced
development, it also introduces new policy thrusts. Developments in both the domestic and global fronts necessitate a change in the mindset of policy makers, implementors and all other stakeholders involved in development. It also underlines the need to learn, unlearn and relearn as well as to do things differently including using innovative means, in order to be effective and achieve the developmental goals. The public sector will be more proactive and efficient, and undertake measures that enhance the competitiveness of the private sector.

1.12 The new policy dimensions introduced in the NVP are as follows:
o developing Malaysia into a knowledge-based society;
o generating endogenously-driven growth through strengthening domestic
investment and developing indigenous capability, while continuing to
attract foreign direct investment (FDI) in strategic areas;
o increasing the dynamism of the agriculture, manufacturing and services
sectors through greater infusion of knowledge;
o addressing pockets of poverty in remote areas and among Orang Asli
and Bumiputera minorities in Sabah and Sarawak as well as increasing
the income and quality of life of those in the lowest 30 per cent income
category;.

o achieving effective Bumiputera participation as well as equity ownership
of at least 30 per cent by 2010;
o increasing the participation of Bumiputera in the leading sectors of the
economy; and
o reorientating human resource development to support a knowledge-based
society.

1.13 The policy is directed towards strengthening the nation’s capacity, capability and resolve in meeting the challenges ahead. It emphasizes the need to build a resilient and competitive nation, as well as an equitable society to ensure unity and political stability. The efficiency and productivity of all economic activities will be increased to enhance Malaysia’s competitiveness. In addition, economic disparity among and within ethnic groups, as well as between strata and regions will be addressed to bring about unity and stability within the Malaysian society. The private sector will spearhead economic growth, while the public sector will provide the supportive environment and ensure the achievement of the socioeconomic objectives.

1.14 The key thrusts under the NVP are as follows:
o building a resilient nation by fostering unity, inculcating the spirit of
patriotism, nurturing political maturity, cultivating a more tolerant
and caring society with positive values, raising the quality of life as
well as increasing economic resilience;
o promoting an equitable society by eradicating poverty and reducing
imbalances among and within ethnic groups as well as regions;
o sustaining high economic growth by strengthening the sources of growth,
the financial and corporate institutions as well as macroeconomic
management;
o enhancing competitiveness to meet the challenges of globalization and
liberalization;
o developing a knowledge-based economy as a strategic move to raise
the value added of all economic sectors and optimizing the brain power
of the nation;.8
o strengthening human resource development to produce competent, productive
and knowledgeable workforce; and
o pursuing environmentally sustainable development to reinforce long-term
growth.

Building a Resilient Nation
1.15 Malaysia has a good track record of weaving its ethnic and cultural diversity into a cohesive national fabric, which serves as a great source of strength, dynamism and creativity. The central task of development is to continue this mission of forging a united nation, based on fairness and prosperity, with abundant opportunities for all and removing socioeconomic differences among and within ethnic groups on the back of a strong and resilient economy.

Fostering Unity and Spirit of Patriotism
1.16 National unity continues to be the goal of socioeconomic development given the multi-ethnic, multi-religious, multi-lingual and multi-cultural nature of the Malaysian nation. Although the launching of OPP3 coincides with more than four decades of experience in nation building, the duration is short when viewed in the context of the history of nations. Multi-ethnic societies are particularly fragile entities and decades of nation building efforts can be erased should narrow parochial considerations dominate or groups within the polity perceive a sense of alienation or being marginalized.

1.17 To be resilient and internationally competitive, the unity of Malaysia’s diverse population is an indispensable precondition. All policies, programmes and projects will be guided by this fundamental requirement as the active and total participation of all groups and regions are essential to ensure the success of socioeconomic development and nation building efforts. Disparities and inequities among and within ethnic groups and regions will be addressed so as to preserve the unity of the Malaysian nation.

1.18 Despite the rapid pace of internationalization of values and practices in the social and cultural domain, Malaysians must preserve their national identity and heritage. Only with the preservation of this identity will the Malaysian population be in a position to cope with the rapid changes and withstand the negative fallout from globalization. The spirit of patriotism will be harnessed. to instill pride of being a Malaysian and in doing things and achieving successes as Malaysians. The commercial practices of Malaysian companies should be beyond reproach whether they operate domestically or internationally. Values
that conform to the best traditions and encourage the pursuit of excellence and the highest standards of ethical propriety will be promoted.

Nurturing Political Maturity
1.19 Continued social and political stability will be crucial for the realization of Malaysia’s development objectives. It is important for Malaysians to practise a mature consensual, community-oriented democracy without being sidetracked into parochial interests and extremism in views, whether religious, sectarian, political or otherwise. It is through the spirit of greater tolerance and cooperation that Malaysia develops political maturity, which is fundamental for continued stability. In addition, Malaysians should possess a strong desire for the nation to prosper as well as be willing to protect the nation from any form of domestic and international threat. For the country to become a fully developed nation by 2020, all Malaysians must place the interest of the nation above narrow political objectives and strive forward together in order to bring the nation to greater
heights.

Cultivating a Tolerant and More Caring Society
1.20 The social institutions will be strengthened by cultivating a more caring society and culture, where individuals place the needs of the social system before themselves and where the welfare of the people revolves around strong and resilient family units. A society that is imbued with caring traits and fosters tolerance and acceptance for diverse traditions will contribute to a united and harmonious Malaysian society. Efforts will be made in moulding civic and national consciousness as well as inculcating values in line with the Rukunegara, the national ideology.

1.21 In building a caring society, emphasis will be placed on values such as familial values, neighbourliness, strong religious values, moral integrity, peace, love, cooperation, honesty, punctuality, hard work, discipline, honour, and consideration for others. The family unit, schools, workplace and religious and social organizations must instill and constantly reinforce values that make the individual more caring and respect the rights of his fellow citizens. A caring society has the family as its core, and must entail love for the young and. consideration of the welfare of the elderly and disabled, including through the provision of social services. There should also be greater concern and respect for the environment and public property. At the same time, the spirit of voluntarism will be nurtured. Community-based organizations will be encouraged to pursue activities that involve Malaysians of all ages and ethnic groups in activities that forge bonds transcending ethnic, religious and cultural considerations. Raising Quality of Life

1.22 The Government will ensure that all Malaysians enjoy and benefit from the opportunities available, including education, employment and access to social services. Every attempt will be undertaken to ensure better coverage and improvement of social amenities for all households. The measures include enhancing access to social and physical amenities, such as education and skills training, improved working conditions and harmonious industrial relations, as well as promoting better health and environmental quality. Malaysians will be encouraged to participate in the creative and performing arts as well as adopt a healthy lifestyle. In addition, sports will be emphasized as a means of building the discipline and character of Malaysians as well as encouraging tourism.

Building Economic Resilience
1.23 Appropriate measures will continue to be introduced to develop greater economic resilience to enable the country to withstand the negative impact from external shocks. Macroeconomic stability will be enhanced by addressing all imbalances and potential areas of vulnerability. Efforts will continue to be made to strengthen Malaysia’s economic fundamentals by ensuring stable prices and exchange rate, having adequate level of savings as a source of investible resources, and maintaining surpluses in the fiscal and external accounts. As macroeconomic management will become even more challenging in the borderless global economy, an early warning system to take preventive measures will be established. At the international level, Malaysia will continue to promote the establishment of a regional self-help and support mechanism for crisis prevention and ensure macroeconomic stability. Malaysia will also continue to work towards ensuring that the views of the region are heard in global discussions on the reform of the international financial architecture.

1.24 The corporate sector at large will need to strengthen itself by focusing on their core activity, taking a longer term perspective of their investments, improving efficiency and productivity as well as enhancing their administrative. and financial management capabilities. They must also aspire to achieve a higher standard of professionalism and maintain their credibility and integrity. Corporate sector restructuring efforts initiated at the end of the OPP2 period will be accelerated. Efforts will also be taken to further strengthen the financial sector through better prudential supervision and regulation, enhancing risk management
and developing the domestic capital markets. In addition, information on economic and financial affairs will be improved to increase market discipline and enhance decision-making.

Promoting an Equitable Society
1.25 Malaysia will continue the strategy of developing a united and equitable society, which is important for social and political stability and the achievement of national unity. In this respect, the two-pronged strategy of poverty eradication irrespective of race and the restructuring of society will continue to be implemented. This strategy will be pursued within the context of rapid growth so that no particular group or segment of society will experience any loss or feel a sense of deprivation.

Restructuring of Society
1.26 During the OPP3 period, the emphasis of the distributional policy will be to achieve effective Bumiputera participation and equity ownership of at least 30 per cent by 2010. In this regard, measures will be taken to introduce new programmes, and reorientate, consolidate and streamline existing programmes as well as improve the delivery mechanism. This will include the creation and promotion of Bumiputera ventures in the manufacturing and dynamic services sectors. In the manufacturing sector, efforts will be taken to increase Bumiputera participation in electrical and electronics, pharmaceuticals, bio-technology, composite and advanced materials, chemical and petrochemical, transport equipment and food industries, while in the services sector emphasis will be given to wholesale and retail trade, tourism, air and sea transport-related services, education, health, and consultancy and professional services. The enabling environment for Bumiputera to participate effectively and meet the challenges of liberalization and globalization will also be enhanced. At the same time, efforts will be taken to promote effective Bumiputera participation in the knowledge-based economy. Other measures that will be taken to increase Bumiputera ownership include the continued implementation of the privatization programme, the review and streamlining of Bumiputera institutions and trust agencies, the effective management of unit trust schemes and the development of Malay reserve, wakaf, Baitulmal, native and customary land.

1.27 Employment restructuring will continue in all sectors and occupations to
reflect the ethnic composition of the population. Steps will be taken to increase
the proportion of Bumiputera in professional and managerial categories. At the
same time, non-Bumiputera will be encouraged to apply for jobs in the public
sector. As education and training is an important instrument for employment
restructuring, the capacity of the higher education institutions will be increased
to enhance the accessibility of Bumiputera students to pursue higher education,
particularly in professional, management and advanced technical areas.

1.28 In building a Bumiputera Commercial and Industrial Community (BCIC),
attention will be directed towards developing Bumiputera entrepreneurs who are
resilient, self-reliant and world class. Past efforts in this direction generated
modest results because the entrepreneurs were engaged largely in the traditional
sectors. There is a need for them to venture into high value-added and high-technology
activities. Existing packaged programmes to develop the BCIC will
be strengthened, among others, by expanding the vendor and franchise development
programmes as well as the venture capital schemes. However, agencies implementing
the programmes for developing the BCIC will be required to establish an exit
policy to enable entrepreneurs to move out of related programmes to make way
for new entrants.

Poverty Eradication and Income Distribution
1.29 Poverty will be a less pressing issue during the OPP3 period because of
the significant progress made in reducing poverty during the earlier perspective
plan period. The incidence of poverty will be reduced further to 0.5 per cent by
the end of 2005. Efforts will be focussed on tackling pockets of poverty in
remote areas and among the Orang Asli and other Bumiputera minorities in
Sabah and Sarawak as well as increasing the income of those in the low-income
group, particularly the lowest 30 per cent. All poverty eradication programmes
will be consolidated under the Skim Pembangunan Kesejahteraaan Rakyat, which
will include creating income-generating projects, providing greater access to
basic amenities, and inculcating the concept of self-reliance. To reduce the
income gap among households, education and training programmes will be made
more accessible to those from the lower income group. The private sector and
non-governmental organizations (NGOs) will support and complement these
efforts.
Regional Development
1.30 The principal thrust of regional development will focus on enhancing
regional balance through rapid development of the less developed states. In the.13
OPP3 period, efforts will be taken to diversify the economic base of the slower
growing states into manufacturing and services. Emphasis will be given to
encourage the development of downstream activities in the agriculture sector,
especially in the handling, processing, packaging and marketing of agro-products,
and the development of agro-based industries.

1.31 The growing urban population is expected to create additional demands
for public services and social amenities in the urban centres. New strategies will
be required to enhance the capacity and capability of local authorities to face
the challenges ahead. This will include strengthening the management of local
authorities and the implementation of Local Agenda 21, which was launched in
1999, in line with the Rio Declaration. This programme aims at promoting the
participation of local authorities, municipalities and all stakeholders at the local
community level in the planning and implementation of sustainable development
projects. The Local Agenda 21 which was initially launched in four local authorities,
which, initially will be extended to other local authorities by 2002. Greater
community participation in promoting urban well-being will also be encouraged.
The development of indicators for comparing and evaluating urban quality of
life with international benchmarks is expected to improve the provision of
quality services by the local authorities.

1.32 Several strategies for rural development will be adopted to reduce the
urban and rural disparities. They include strengthening rural institutions, greater
use of information and communications technology (ICT) in rural areas and
improving the linkages between urban and rural economies. Rural communities
will be regrouped into small townships to facilitate the provision of infrastructure
facilities and services. Efforts will be undertaken to improve the supply of water
and electricity to the remote areas through innovative ways. In addition, the
development of indicators for rural quality of life will facilitate the close monitoring
of the quality of life of the rural population.

Sustaining Economic Growth
1.33 There is a need to achieve sustainable rapid economic growth to become
a developed nation by 2020 as well as to effectively meet the distributional
objectives. The manufacturing and services sectors are expected to lead economic
growth by generating new areas of investment as firms expand their activities
along the value chain and move up the technology ladder. The performance of
the agriculture sector will be enhanced by the substantial expansion in food.14
production. The development of the knowledge-based economy, while spawning
new activities, will also bring productivity improvements and enhance
competitiveness as well as contribute towards broadening the economic base and
shifting out the production possibility frontier. While FDI will continue to be
encouraged in selected areas, domestic investment will become the main driver
for growth in line with the shift to an endogenously-led growth strategy.
Strengthening Sectoral Dynamism

1.34 The growth of the agriculture, manufacturing and services sectors will be
further promoted during the OPP3 period. With regards to the agriculture sector,
the focus will be on increasing food production to meet the growing domestic
demand as well as for exports. For this purpose, the private sector will be
encouraged to undertake medium- and large-scale commercial farming, facilitated
by the establishment of permanent food production areas and agro-technology
parks. The use of modern technology and farming methods will be intensified
to enhance productivity and quality as well as reduce the cost of production.
Market research will also be intensified in order to identify customer preferences
and establish new marketing channels as well as to venture into export markets.
In addition, special emphasis will be given to the restructuring of the smallholder
sector particularly those engaged in uneconomic size holdings both in food as
well as plantation crops with the view of increasing their income.
1.35 In the manufacturing sector, new growth areas in high technology
manufacturing will be identified for further development, taking advantage of
the infrastructure that has already been put in place. Product innovation and
R&D will be emphasized. The cluster-based industrial development approach
will also be applied to the new growth areas. The focus will be on raising value
added by developing indigenous design and branding, as well as expanding into
downstream activities such as marketing, distribution, packaging, product
customization and delivery, and the development of other manufacturing-related
activities.

1.36 In services, efforts will be intensified to develop the tourism, education,
health, finance, ICT and transportation sectors to become internationally competitive
and world-class. The development of the knowledge-based economy is also
expected to accelerate the creation of new service industries such as in software
and content development as well as enable the country to develop its strength
in internet-based delivery systems, such as in commerce, banking, brokerage,.15
news, entertainment and courier services. The rapid development of the services
sector during the OPP3 period is expected to significantly narrow the deficit in
the services account of the balance of payments and further strengthen the
external position of the economy.

Promoting Domestic Private Investment
1.37 Domestic private investment will be promoted to unleash its growth
potential so that a greater portion of wealth creation and profits will be retained
in the country. While strengthening economic resilience, this will also set the
stage for shifting to an endogenously-driven growth strategy by building indigenous
capability to develop advanced technology as well as new products and services.
To support the rapid increase in private domestic investments, the Government
will provide a conducive environment in terms of the institutional and legislative
framework as well as an efficient physical infrastructure. It will also ensure a
stable macroeconomic environment and a more comprehensive financing
infrastructure as well as provide customized incentive packages for strategic
investments. The privatization programme will continue to serve as a vehicle to
increase the proportion and scope of private sector participation in the economy.
In addition, domestic investors will be encouraged to collaborate and forge
strategic alliances with foreign partners in order to gain expertise, market access
and specialized services.

1.38 To raise the level and quality of domestic investment, the private sector
will be encouraged to expand into downstream and upstream activities; innovate
by offering new and superior value in existing and new markets; build customer
allegiance with customer-oriented production and marketing; acquire and use
more technology; and develop a more creative and skilled workforce. The role
of science and technology (S&T) as well as R&D will be emphasized in order
to increase overall productivity and develop a strong industrial base.
Encouraging FDI

1.39 Malaysia continues to be an attractive location for FDI in view of its
substantial manufacturing base that is becoming increasingly sophisticated, as
well as political stability, good legal framework, excellent infrastructure and
telecommunications system, pro-business policies, good public administration,
and a skilled and educated workforce with facility in foreign languages. The
country will build on these strengths and continue to attract FDI, not only in.16
the manufacturing and related sectors, but also in strategic sectors such as in
ICT, energy, port management and the financial sector. In addition, foreign
investors will be encouraged to invest in human capital and undertake technology
transfer, as well as provide expertise in management to raise national competitiveness
and strengthen the country’s position in the international value chain.
Pursuing Prudent Fiscal and Monetary Policies

1.40 The Government will continue to pursue a prudent fiscal policy. The
overall fiscal deficit will be kept at a sustainable level so that the country’s
external debt servicing ratio remains within a manageable level. The Government
will return to the fiscal surplus policy with the recovery in private demand.
Government expenditure will continue to focus on infrastructure for capacity
expansion and the provision of social services. The tax system will be further
strengthened to generate revenue, promote growth, savings and investment as
well as achieve equity and efficiency. In addition, tax administration and compliance
will be improved to expand the revenue base of the Government so as to enable
it to raise the quality of social services and attract high calibre personnel into
the public service.

1.41 The monetary policy will be directed towards promoting long-run growth
with price and financial stability. In coping with the global environment characterized
by uncertainty, monetary policy will be flexible and proactive in order to respond
to new challenges effectively. The challenges will include managing the rapid
movement of speculative and destabilizing short-term capital flows and adapting
to the structural transformation of the economy and financial system, financial
innovations and the emergence of new payment mechanisms such as e-money.
Accordingly, monetary policy will be increasingly conducted through market-based
instruments to enhance effectiveness. Steps will also be taken to improve
the dissemination of information to the market to increase transparency in relation
to the conduct of monetary policy. In addition, the development of the bond
market will allow more effective open market operations and reduce reliance on
the more direct instruments of monetary policy. The Government will continue
to maintain an exchange rate regime that is non-distortionary and provides a
stable environment for trade, investment and growth.
Strengthening the Banking Sector

1.42 A strong and resilient banking sector is a prerequisite for sustainable
economic growth. A three-pronged approach will be adopted, which includes.17
creating stronger domestic banking institutions, strengthening the supervisory
framework and instilling market discipline by market players and consumers.
The consolidation of domestic banking institutions into 10 banking groups raised
their capital base and size to improve the ability of the financial institutions to
absorb risk, achieve economies of scale, and enhance the risk management
expertise of the banking system. The supervisory framework and prudential
guidelines governing the banking system will be continually enhanced to promote
prudence and minimize systemic risk.

1.43 To instill market discipline in the banking system, greater product and
institutional transparency will be introduced, which will enable consumers to
make informed decisions on banks and banking products. New modalities in
bank regulation will be explored, including using a market-driven approach in
allocating risks and resources. Market participants will be required to provide
greater disclosure and increase transparency and discipline. In addition, the
supervisory authority will be vigilant in containing excessive risk-taking activities,
minimizing moral hazard and protecting consumer interests.

1.44 To chart the strategic direction of the banking sector, the Financial Sector
Master Plan (FSMP) will be implemented. The FSMP proposes the necessary
regulatory framework to increase the resilience, competitiveness and dynamism
of the Malaysian financial system. There will be a gradual and progressive
liberalization of the sector at a pace that is consistent with the institutional and
regulatory framework as well as the requirements of the economy in order to
create a more efficient, competitive and market-driven financial sector.

1.45 Measures to identify and remove impediments to progress will be
implemented, beginning with infrastructure improvements and increasing the
intensity of domestic competition, so as to allow best institutions to flourish.
This will be accomplished by building the capabilities of domestic institutions
and increasing the incentives for these institutions to drive performance. In
addition, steps will be taken to meet the socioeconomic objectives with the least
possible distortion as well as to promote a more market-driven consumer protection
infrastructure.

1.46 The programme under the FSMP will be implemented in phases over the
OPP3 period, subject to achieving specified milestones and safeguards. This is
to allow domestic banks to grow in capacity and strengthen their infrastructure
before introducing new foreign competition. In the case of the insurance sector,
deregulatory measures will be initiated to build domestic capabilities and strengthen.18
financial resilience, corporate governance and consumer protection mechanisms.
The deregulation of incumbent players will be accelerated in order to promote
greater competition within the domestic market. Development of the Islamic
banking and takaful sector will first involve the strengthening of the operational
and institutional infrastructure. This will be followed by greater competition and
upgrading of the infrastructure, as well as raising the performance standards
through progressive liberalization.

Broadening and Deepening the Capital Markets
1.47 An important lesson from the 1997-1998 financial crisis was the need to
diversify risks in the economy by developing alternative sources of financing
and reducing over reliance on the banking sector. Private debt securities and
secondary trading in the Government securities market will be further improved
to complement the stock market. An active private debt securities market will
be able to accommodate large and more complex funding arrangements to allow
companies to obtain long-term fixed rate of financing at a lower cost than bank
credit. In addition, the venture capital industry will be further developed to
provide equity capital to knowledge-based start-ups with high risks but yield
good returns.

1.48 In terms of the stock market, efforts will be taken to improve the dissemination
of corporate information and educate investors, particularly the retail players,
so that investment decisions are made based on fundamentals. The players in
the capital market will also need to understand fully the risks involved and adopt
effective risk management systems to deal with new risks that may arise. Capital
market activities will be supported by strong and internationally competitive
intermediaries and institutions. To address these areas and chart the strategic
directions for the capital market development over the longer term, the Capital
Market Master Plan (CMP) will be introduced.

1.49 Under the CMP, Malaysia is envisaged to establish a world-class capital
market that is internationally competitive in all core areas to support the country’s
capital and investment needs, as well as to be a highly efficient conduit for the
mobilization and allocation of funds. This effort is supported by a strong and
facilitative regulatory framework that enables the capital market to perform its
functions effectively and provides a high degree of confidence to its users. To
develop internationally competitive market institutions, a single Malaysian exchange
and a single Malaysian clearing house will be established. The funding instruments
and markets will be broadened and deepened through the development and
enhancement of alternative capital raising avenues such as the corporate bond.19
market and venture capital. The stockbroking industry will be consolidated and
a new category of intermediaries known as universal brokers will be created to
develop a more competitive market for integrated financial services and prepare
the industry for liberalization. Malaysia will be developed as an international
Islamic capital market centre as part of the effort to build upon the country’s
competitive advantage.

1.50 The investment management industry will be further deregulated to increase
its effectiveness. The pension funds will be reviewed to allow for the development
of a higher number of industry players with greater access to funds available
for management. To promote a more conducive environment for investors, the
framework for corporate governance will be strengthened and shareholder value
recognition will be enhanced. A full market-based regulatory framework across
all capital market segments will be adopted to ensure that market processes and
disciplines complement the broad regulatory objectives as well as facilitate
greater competition and innovation in the market place.
Strengthening Corporate Governance

1.51 Measures introduced by the Government to reduce corporate abuses and
stock market volatility as well as to strengthen the position of minority shareholders
were aimed at improving transparency and overall corporate governance. In
recognition of the need to further enhance the standards of corporate governance,
the Malaysian Code on Corporate Governance was adopted to bring about stronger,
more responsible, transparent and accountable management in line with international
best practices. The Code contains recommendations on the principles and best
practices for good governance; strengthening the overall regulatory framework
for listed companies; training and education of corporate participants in Malaysia
to prepare them for the implementation of the recommendations as well as
measures to protect minority shareholders. During the OPP3 period, the Government
will create greater awareness of the Code and encourage the private sector to
conform to this. With the adoption of the Code, the corporate sector will move
towards greater self-regulation, and this will be supported by improvements in
the legal and regulatory environment to promote the culture of corporate excellence.

Meeting Global Competition
1.52 Competition at the global and regional levels is expected to intensify
following implementation of the World Trade Organization (WTO) and the.20
ASEAN Free Trade Area (AFTA) commitments as well as the intensification of
bilateral initiatives. Rapid advancements in ICT will intensify competition. Malaysia
will continue to participate actively in these multilateral arrangements and fulfill
its commitments for market openings. While it will continue to support the
process of liberalization, it will be committed to do so at a pace that it is
comfortable with and consistent with the institutional capacity of the country and
its development objectives, so that the process is mutually beneficial. In this
regard, Malaysia will participate in consensus-building initiatives with like-minded
countries to be able to negotiate effectively.

1.53 Domestic industries will need to enhance their productivity, efficiency
and innovative capability to meet global competition. Policies relating to trade,
industry and technology will be streamlined so that domestic industries and
enterprises can respond more effectively by producing goods and services that
can successfully compete in the local and overseas markets. FDI will be leveraged
upon to improve efficiency, enhance competitiveness and gain access to international
markets. To monitor and provide direction for increasing Malaysia’s competitiveness,
a National Council on Competitiveness will be established.
Increasing Productivity

1.54 Productivity improvement is central to Malaysia’s economic growth and
competitiveness. To raise productivity, greater efforts will be made to upgrade
skills, adopt better management and organizational techniques, upgrade R&D
and S&T as well as produce high quality and customized goods. The private
sector will also be encouraged to seek internationally recognized quality standards
including the accreditation by the International Standards Organization and other
bodies. The knowledge content of products, services and internal processes must
be substantially enhanced and accompanied by strong work culture and positive
attitudes. The culture of excellence and the quest for continuous improvements
will be promoted and targeted at individuals as well as business entities. Wage
increases will have to be supported by improvements in productivity and work
performance so that Malaysians can enjoy a higher standard of living without
inflation. Initiatives will also be taken to reduce the cost of doing business so
as to enhance competitiveness and productivity. The Government will continually
assess and review the various cost components, including taxes, utility rates and
fuel, transportation and labour costs to ensure that Malaysia remains cost-competitive..21
Strengthening S&T and R&D

1.55 To maintain the competitiveness of Malaysian industries and to benefit
from the knowledge-based economy, it is crucial to strengthen the environment
for innovation and knowledge. The Government will re-examine existing innovation
systems to be in line with future requirements. Attention will be given to improving
creativity and innovativeness of the education and training delivery system,
enhancing S&T and R&D, and ensuring the availability of financing facilities.
The Government will promote a culture of innovation as well as networking and
clustering among stakeholders to enhance technology infusion. Efforts will be
made to increase collaboration between public sector research institutions and
the private sector for effective development, dissemination and commercialization
of R&D.

1.56 In order to encourage S&T and R&D activities, the Government will
provide the appropriate environment and active support to nurture and accelerate
the growth of patents, trademarks and copyrights. Appropriate regulation will
also be introduced to protect intellectual property rights in the context of the
rapid development in computer-mediated networks and global information
infrastructure which will enable the downloading of copyright materials.
Developing Entrepreneurial and Technopreneurial Capacity
1.57 As a traditional trading nation, Malaysians have been endowed with
entrepreneurial skills. These skills, however, are inadequate to meet the requirements
of an economy in an environment of increasing globalization and rapidly changing
technology. Malaysian enterprises will face increasing competition from entrants
in the domestic market as well as in the international market. To succeed,
Malaysian businesses and corporations will need to be quick to access know-how
as well as be able to identify the commercial potential of the opportunities
that arise and take calculated risk. Entrepreneurs must be prepared to use the
latest knowledge and technologies, operate and manage businesses in different
cultural milieus, have superior negotiation skills and be able to forge strategic
alliances. They will need to marshal their knowledge, skills and creativity to
improve their products and services and raise their productivity. In this connection,
the Government will support private sector initiatives to strengthen entrepreneurial
capacity as well as encourage the growth of technopreneurs. In addition, the on-going
efforts to develop Bumiputera entrepreneurs will focus on enhancing
resilience and self-reliance so that they can compete in the domestic and international
markets.

Developing World-Class Companies
1.58 Malaysian firms should think global and look beyond the domestic market.
During the OPP3 period, the focus will be on developing world-class Malaysian
companies that can act as role models for other Malaysian companies to pursue
excellence. These companies should benchmark against world-class standards,
adopt international best practices and promote a culture of excellence and
productivity within their organizations. The competitiveness of firms depends
on their ability to seek opportunities and source for inputs, components and
services at the most competitive costs. Domestic businesses will be encouraged
to establish symbiotic relationships with foreign partners to gain market access,
technologies and know-how as well as other inputs including packaging and
brand identification to enable Malaysian goods to compete in global
markets.

Developing Local SMEs
1.59 Small- and medium-scale enterprises (SMEs) serve as a strong foundation
to anchor the nation’s industrial sector and provide the necessary base upon
which future industries can be developed. In the development of industrial
clusters as envisaged under the Second Industrial Master Plan (IMP2), SMEs
will evolve as key suppliers and service providers to leading industries. For
SMEs aspiring to go into the global market or become suppliers to multinational
companies, they must be committed to meet the highest standards of performance
on a sustainable basis and move their manufacturing processes to a higher level
through continuous R&D and skills and technology upgrading. To stimulate the
growth of SMEs, the investment threshold under the Industrial Coordination Act
(ICA) will be reviewed.

1.60 SMEs will be encouraged to quickly integrate into IT-based manufacturing,
focusing on all key segments of the manufacturing value chain, from designing
to marketing. They must adopt the best manufacturing practices that are universally
recognized and accepted, so that they can excel in their core strengths and be
able to integrate with cross-border collaborations that characterize the international
production network. In that integration process, Malaysian SMEs will be encouraged
to work towards establishing and strengthening their own niches in the market
and emerge as market leaders in their own right..

Establishing a World-Class Public Sector
1.61 A world-class public sector is important to support rapid economic growth
and ensure improvements in the standard of living and quality of life. It is,
therefore, necessary to take steps to attract and retain personnel of high calibre
so that public administration, public services, economic management as well as
the protection of national interest at international fora can be conducted at the
highest level of proficiency. There will be selective recruitment of personnel
including those with specialized skills, experience and outstanding track record.
The capability of existing workers will be upgraded to raise the quality of public
service to be world-class. A competency-based human resource management
approach will be adopted.

1.62 The programme to reform the public sector will be further strengthened
during the OPP3 period. It will be aimed at inculcating a culture of excellence
in the public sector, based on the core values of quality, productivity, innovation,
integrity, discipline, accountability and professionalism. Efforts will be made to
continuously increase productivity, improve the delivery system and discard
procedures and regulations that become inappropriate. Emphasis will be given
to strengthening the monitoring mechanism as well as the capacity to ensure that
projects are implemented according to schedule and meet their intended objectives.
Efforts will also be taken to improve the administration of the regulatory and
approving bodies at the Federal, state and local levels so as to facilitate private
sector growth and wealth creation, protect public interests, and improve the well-being
of Malaysians. The role of the public sector as a regulator to safeguard
public interest will also be strengthened in the context of further privatization
during the Plan period.

1.63 Principal strategies to advance administrative reforms in the Malaysian
public service include providing more customer-oriented services, improving
system and work procedures, upgrading the use of ICT, strengthening public-private
sector cooperation, improving organizational structures and human resource
development, enhancing accountability and discipline and inculcating values of
excellence. The public sector administrative reform agenda will continue to
incorporate a wide range of best practices that have been applied and tested
worldwide. The various initiatives under the quality movement as well as the
e-government project will ensure that the public service keeps abreast with
service-oriented developments internationally and incorporates the best management
practices.

Developing a Knowledge-based Economy
1.64 The knowledge-based economy is where the acquisition, utilization and
dissemination of knowledge provide the basis for growth. The development of
a knowledge-based economy involves enhancing the value-added of all productive
activities through knowledge utilization, in addition to creating new knowledge-intensive
industries. It will strengthen Malaysia’s competitiveness and open up
new opportunities for the country. Among the opportunities are increased global
trade and investment, better access to technology, the possibility for leapfrogging
to catch up with developed countries, the availability of a platform to build
strategic alliances with key players in selected industries as well as expanding
existing and generating new areas of investment. The increased use of knowledge,
coupled with a better skilled workforce will also contribute towards improving
productivity levels and shifting the production possibility frontier outwards.

1.65 The developments in and utilization of ICT and e-commerce will facilitate
the establishment of an efficient and up-to-date information system to support
trade and investment. This will allow Malaysians to seek new markets and
trading partners for their exports, source the most competitively-priced inputs,
and set up their enterprises abroad to enhance competitiveness. The knowledge-based
economy will generate new activities for investment within existing and
new industries as a result of the introduction of high-technology and knowledge-intensive
production processes.

1.66 To develop a knowledge-based economy, a master plan to facilitate the
process will be introduced. Among the critical areas that will be addressed are
human resources, S&T and R&D, infostructure and financing. In addition, efforts
will be taken to change the mindset of all segments of society, particularly the
corporate sector to be more receptive to the adoption of ICT in business transactions
and in-house operations. The culture of acquiring knowledge on a continuous
basis will be promoted to develop a learning society. While efforts are taken to
build a knowledge-based economy, parallel measures will be introduced to ensure
that this development does not lead to a knowledge divide, particularly between
the rural and urban communities and different income groups.

1.67 The knowledge-based economy will require the public and private sectors
and the NGOs to work in a close collaborative partnership. The platform for such
collaboration already exists under the Malaysia Incorporated mechanism, with
the Malaysian Business Council at the apex. The public sector will assume a
supportive role by providing a conducive environment as well as acting as a.25
catalyst for the private sector to spearhead the development of the knowledge-based
economy. The protection of the intellectual property rights as well as
privacy and security will be strengthened to encourage innovation and improve
information flow. The Government, private sector and NGOs will collaborate to
narrow the digital divide between the rural and urban areas as well as different
income groups so that those who are less privileged have equitable access to the
new opportunities generated by the knowledge-based economy.
Strengthening Human Resource Development

1.68 Malaysia’s capability and capacity in acquiring and utilizing new knowledge
and technologies will be determined by the quality of its human resource. A
competent, disciplined and highly skilled labour force with strong ethical and
moral values and commitment to excellence must be developed. To face the
challenges of globalization, Malaysians will have to be equipped with a strong
base in education and training and possess a range of generic skills, including
communication and linguistic abilities. Efforts will be made to increase accessibility
to education and training and reduce the performance gap between urban and
rural schools. More schools with better teaching and learning facilities as well
as hostels will be built in rural and remote areas to provide a more conducive
environment for students. Besides maintaining a high level of competency in
Bahasa Malaysia among students, the level of proficiency in English as well as
other foreign languages will be raised.

1.69 To meet the requirements of the knowledge-based economy, there will
have to be a paradigm shift in the policies and strategies of human resource
development. The education and training system will be reoriented to be more
effective in imparting skills as well as focus on areas required by the economy.
The Government will give priority to improving facilities and infrastructure and
intensifying the use of ICT in all schools and institutions. Greater emphasis will
also be given to raising the standard of the teaching and learning of mathematics,
science and foreign languages.

1.70 Private sector participation will be further encouraged to complement
public sector efforts in the area of tertiary education to provide greater number
of places to meet the increasing demand from qualified students as well as to
meet the human resource requirements particularly in the area of S&T. The
Government will, however, ensure that these institutions provide quality education
at reasonable rates.

1.71 Malaysia will also be developed into a regional centre of educational
excellence. The capacity of public tertiary institutions will be increased and they
will concentrate on programmes in new technologies and disciplines. While the
private institutions will be encouraged to develop niche areas to attract foreign
students, the public universities will develop centres of excellence and act as
the springboard for innovation and development of indigenous technology.
Universities will be encouraged to collaborate with industry in order to undertake
research with commercial potential. To ensure that all tertiary institutions have
international standing, a rating system based on norms comparable to reputable
universities will be developed to rank these institutions.

1.72 Lifelong learning will be introduced to continuously upgrade the quality
of the workforce which must keep pace with changing technology so that structural
unemployment is minimized. Distance education and virtual learning will be
developed as an important element in continuing education in the workplace. In
this regard, the private sector will be encouraged to provide enterprise-based
training, distance learning programmes and web-based learning, especially in
technical areas.

1.73 The Government will also promote the development of the creative and
performing arts and nurture talents in these areas. This is in line with efforts to
preserve and promote the rich Malaysian cultural heritage as well as cultivate
a society that is appreciative of the arts. The development of the arts will not
only provide the avenue for talented individuals to excel in their fields but also
contribute to the vibrancy of the Malaysian lifestyle. Outstanding Malaysian
artists and performers will also be given the opportunity to fully develop their
talents and achieve international recognition.

Developing a Generation of Resilient Youths
1.74 To meet the challenges arising from rapid economic development and
globalization, and contribute effectively to nation building, youths will need to
be equipped with appropriate skills and knowledge as well as the right values.
Their access to education and training will be improved with particular emphasis
on achieving a high level of literacy in information technology (IT) so that they
can participate in the opportunities that are generated in the process of development.
Efforts will be taken to enhance the entrepreneurial and management skills of
youths to instil interest in business at an early stage and increase the number
of youths involved in commerce and industry. Emphasis will also be given to
nurturing a generation of young and dynamic leaders who are able to mobilize
youths to contribute positively to the nation.

1.75 Youths will be properly guided to develop the right values and attitudes.
They will be taught to respect their parents, elders, teachers, the institutions and
laws of the country. While striving for self-improvement, they must be imbued
with the spirit of volunteerism and the eagerness to contribute to society and
the nation. Their level of civic-consciousness must also be raised. The pursuit
of knowledge and the quest for excellence will need to be nurtured as core
values. Youths should also be instilled with strong moral and ethical values and
abstain from activities that work against their personal well-being and the welfare
of the nation. Efforts will be intensified to ensure that they do not involve in
vices such as drug abuse, gambling, gangsterism and other criminal activities.

1.76 In addition, youths should participate more actively in sports as well as
excel to achieve international standards, bringing glory to the nation. Basically,
these core values will hold youths in good stead to withstand negative influences
and exercise good judgement in the choice of lifestyle and social practices.
Towards this end, the family and community as well as the NGOs and youth
organizations will need to play a more active role to complement the efforts of
the Government.

Enhancing the Role of Women in Development
1.77 A resilient and competitive economy cannot be created unless the full
potential of all its members is utilized. Towards this end, opportunities in
employment, business and social activities will be made available without gender
bias. Greater access to training and retraining will promote employment opportunities
and greater occupational mobility. Information pertaining to the labour market
and opportunities for advancement in education and business will be made more
accessible through the use of ICT. At the same time, the participation of women,
particularly those with family commitments, will be enhanced by more extensive
use of flexible working hours, the provision of crèches at workplaces as well
as enabling them to work from home.

1.78 Entrepreneurship among women will be promoted actively by providing
greater access to information on starting businesses. Banks and financial institutions
will be encouraged to provide credit to assist women who want to venture into
business. This will be complemented by efforts to develop women entrepreneurs
through the provision of assistance to develop home-based business. The relevant
Government organizations at the Federal, state and local levels as well as women
organizations will organize courses to promote entrepreneurship among women..28
All forms of gender-based discrimination and bias that inhibit the fullest contribution
of women will be identified and progressively eased out either by legislation or
education.

Pursuing Environmentally Sustainable Development
1.79 During the OPP3 period, the Government will strive to ensure that the
environment is clean, healthy and productive as well as capable of sustaining
the nation’s needs and aspirations. The Government will explore opportunities
for multiple benefits, identify and implement measures that are prudent and cost-effective,
in order to move Malaysia towards a more sustainable and resilient
future. Socially and environmentally sustainable economic development will be
realized by adopting an appropriate mix of policies, practices and technologies
that will build upon the synergies between the environmental and economic
systems. In addition, the Government will continue to closely monitor developments
taking place on global environmental issues as they may have a bearing on
Malaysia, including imposing restrictions on our development and trade policies.
Domestically, Malaysia will take steps to fulfil its Conventions, Protocols and
other international environmental obligations and to ensure that its programmes
and projects are in line with its commitments.

Integrated Approach and Strategies
1.80 During the OPP3 period, emphasis will be placed on addressing
environmental and resource issues in an integrated and holistic manner. The
challenge will be to identify prudent, cost-effective, and adaptive management
approaches that yield multiple benefits for a more sustainable future. These
approaches will, among others, be geared towards addressing the challenges of
providing access to clean water, providing adequate food without excessive use
of chemicals, using more organic fertilizers, providing energy services without
environmental degradation, developing healthy urban environments, and conserving
critical natural habitats and resources.

1.81 The management of land resources will be further improved through more
integrative land-use planning. The National Biodiversity Policy will form the
basis for integrating and consolidating biodiversity programmes and projects in
the country. Efforts to manage forests sustainably will be intensified and multiple-use
forestry expanded. Steps will be taken to formulate integrated river basin.29
management plans to improve water quality and supply as well as manage water
resources. To ensure sustainability of coastal resources, integrated coastal
management plans will be introduced in all states.

Reducing Pollution Intensity
1.82 A critical challenge will be to reduce energy, materials, pollution and
waste intensity of urban-industrial activity. Measures to influence the choice in
technology and management of new urban and industrial investments will be put
in place, including steps to promote the reduction, re-use and recycling of
materials. The Government will go beyond controlling pollution at source and
adopt preventive measures that include the policies that drive down energy,
materials, pollution and waste intensity of urban-industrial activity in a process
of continuous improvement. This will require moving from the current pollution
abatement and clean-up paradigm and technology-retrofit approach to one where
technology itself is the source to prevent pollution and cut resource intensity.
Efforts will also be taken to encourage the recycling of materials.

Increased Use of Economic Instruments
1.83 The Government will continue to implement the Polluters Pay Principle,
and intensify enforcement efforts to ensure that environmental laws and regulations
are complied with. However, these measures will be complemented by the use
of innovative economic and tax instruments, including the removal of distortions
and barriers that impede efforts in improving environment quality and optimal
natural resource use.

Environmental Performance Standards
1.84 Efforts will also be channelled at promoting environmental performance
measurement as a basis for harnessing market forces and community engagement
in addressing environmental issues. Once environmental and resource issues are
identified, measured and tracked, including through the use of sustainable
development indicators and various environmental standards such as ISO 14000
and other standards, then the environmental intensity of economic activity becomes
more susceptible to the force of the market and society at large, through consumer
demand, community pressure or supply-chain management.

IV. CONCLUSION
1.85 For the success of the OPP3, there should be total commitment of all
Malaysians, a change in the mindset and a sense of urgency in the face of
increasing competition in the years ahead. To build a resilient and competitive
economy, the Government will continue to be responsive and business-friendly
and adopt appropriate market-oriented policies and incentives. The business
community should be willing to take risk, invest in R&D, be able to adapt
quickly to changes and adopt new technology, particularly in the context of the
knowledge-based economy. The workforce should be disciplined, productive,
committed and willing to learn and improve continuously. The Government,
complemented by the private sector, will continue to ensure a united and equitable
society through its poverty eradication and distributional policies. Above all, the
society should stand united and remain resilient in facing the challenges of the
decade..

Chapter 2
Review of the Second
Outline Perspective Plan,
1991-2000.32.33
I. INTRODUCTION

2.01 The Second Outline Perspective Plan (OPP2), 1991-2000 provided the
platform for the implementation of the National Development Policy (NDP),
which was aimed at achieving balanced development. The broad economic
development framework set forth in the NDP strengthened Malaysia’s position
as a modern industrial-based economy and as a result brought significant economic
and social progress. In 1998, the economy suffered the worst-ever recession due
to the Asian financial crisis. The Government then introduced measures, which
succeeded in turning around the economy and setting it on a stronger footing
to face future challenges.

II. THRUSTS OF THE NATIONAL DEVELOPMENT POLICY
2.02 The primary thrusts of the NDP entailed striking an optimum balance
between the goals of economic growth and equity; ensuring balanced development
of the major sectors of the economy; reducing and ultimately eliminating the
social, economic and regional inequalities and imbalances; and ensuring material
welfare while instilling positive social and spiritual values. The NDP also gave
priority to human resource development; making science and technology an
integral component of development planning; and ensuring the protection of
the environment to maintain the long-term sustainability of the country’s
development.

2.03 While the NDP maintained the basic strategies of the New Economic
Policy, it also introduced several new dimensions. The dimensions included
CHAPTER 2
Review of the Second Outline
Perspective Plan, 1991-2000.34
shifting the focus of the anti-poverty strategy to address hardcore poverty; emphasizing
on employment and the rapid development of an active Bumiputera Commercial
and Industrial Community (BCIC) as a more effective strategy to increase the
meaningful participation of Bumiputera in the modern economic sectors; relying
more on the private sector to achieve the restructuring objective; and strengthening
human resource development.

III. PROGRESS AND ACHIEVEMENTS, 1991-2000
2.04 During the OPP2 period, the Malaysian economy continued to undergo
structural transformation. The country witnessed the strengthening of its
manufacturing base both in terms of its contribution to growth as well as composition
of industries. The services sector expanded in size and improved in qualitative
terms. The change in the structure of production was also reflected in the
employment pattern and export composition of the economy.

Macroeconomic Performance
2.05 Overall, the economy grew at an average rate of 7.0 per cent per annum
and achieved the target for the OPP2 period, despite the economy experiencing
the financial crisis in 1997-1998, as discussed in Box 2-1. The high growth rate
was attained in an environment of low inflation and unemployment. The per
capita income increased at an average rate of 7.8 per cent per annum and doubled
from RM6,298 to RM13,359 at the end of the OPP2 period. The purchasing
power parity (PPP) per capita grew by 5.3 per cent per annum to reach USD8,852
or 2.5 times higher than the per capita income of USD3,516.

2.06 During the OPP2 period, total factor productivity (TFP) contributed
25.5 per cent to total growth, while the major sources of growth were labour
and capital, as shown in Table 2-1. The high contribution of capital was attributed
to the rapid growth of investment during the first seven years of the Plan period,
which led to an expansion of installed capacity that was not fully translated into
output. Some investments had a long gestation period, particularly infrastructure
projects, which were built to meet future demand. In the second half of the OPP2
period, the sharp fall in domestic demand following the financial crisis gave rise
to excess capacity, resulting in a decline in TFP..35

FINANCIAL CRISIS AND RESPONSE
In 1997-1998 the Malaysian economy was affected by the contagion effect of the East Asian financial
crisis. The full impact was felt in 1998, causing the economy to undergo a severe contraction, due
to the significant decline in aggregate demand.

Managing The Crisis
The National Economic Action Council (NEAC) was established on 7 January 1998 as a consultative
body to deal with the economic crisis. Under the NEAC, the National Economic Recovery Plan
(NERP) was prepared as the blueprint for economic recovery. The Recovery Plan contained over
580 recommendations to stabilize the currency, restore market confidence, maintain financial market
stability, as well as address medium-term issues such as improving economic fundamentals and
addressing the equity and socio economic agenda. The four components that were central in the
recovery measures were:

o fiscal stimulus package directed towards priority sectors to prevent further contraction and
jumpstart the economy;
o easing monetary policy to lower interest rates;
o establishing Danaharta to address the rising non-performing loans in the portfolios of the
banking sector, Danamodal to recapitalize and consolidate the banking sector, and the Corporate
Debt Restructuring Committee to facilitate voluntary debt restructuring of viable companies;
and
o introduction of the selective capital control measures as a pre-emptive step on 1 September
1998, which included making the Ringgit non-tradable outside the country and pegging the
Ringgit at RM3.80 to USD1.00.
The stability accorded by the pegged Ringgit facilitated business decision-making process and
enabled Malaysia to capitalize on the recovery in external demand. This resulted in unprecedented
levels of current account surpluses of 13.9 per cent of GNP for 1998 and 17.1 per cent of GNP for
1999. The surpluses contributed to the sharp rise in international reserves, increased the monetary
base and provided the liquidity to support economic growth. The collateral values of loans were
strengthened with the improving stock market prices, thereby facilitating the resolution of NPLs of
the banking system.
Lessons Learnt
The experience gained from the crisis was useful in providing the direction and thrust for the
country’s future development. Some of the lessons learnt were:
o efforts to strengthen economic fundamentals must be continuous. Malaysia needs to further
intensify the resilience of domestic economy and enhance its competitiveness, not only to
mitigate adverse external economic development but also to reap the opportunities available;
o monetary and fiscal policies must be directed towards promoting sustainable growth, while
keeping inflation at a low level;
o strong economic fundamentals must be supported by sound financial and corporate sectors;
o develop the capital market to diversify risks and lessen the reliance on bank financing; and
o strong corporate governance to increase resilience and sustain investor confidence in the
event of a crisis..36

2.07 The growth of TFP in the manufacturing sector for the period 1990-1999
was estimated to be 5.1 per cent, as shown in Table 2-2. The food and beverages,
furniture, glass and clay products, general machinery, electrical machinery and
other manufacturing industries recorded higher TFP growth during the first half
of the OPP2 period, while the general machinery industry as well as resource-based
industries such as textile and apparel, wood products and furniture, experienced
higher increases in TFP growth during the second half of the OPP2 period..37
BOX 2-2

TOTAL FACTOR PRODUCTIVITY
Total factor productivity (TFP) refers to the additional output that would result from improvements
in the methods of production, with the inputs of labour and capital unchanged. They include the
improvement of technology and know-how, innovation, superior management techniques, gains from
specialization, increased efficiency as well as workers education, skills and experience. The Corporate
Sector Survey, which was conducted in 1998/99 to provide the micro perspective on the impact of
the financial crisis at the firm level, also shed some light on firm-level TFP. The survey covered
six major subsectors within the manufacturing sector, namely, electrical and electronics; textiles,
garments and footwear; food and beverages; chemicals, rubber and plastic products; construction-related
manufacturing; and auto-parts. The following results were obtained:
Firms that reported a higher TFP
o Export-oriented with FDI and higher capital intensity;
o Little or no foreign control (less than 10 per cent foreign-owned) but with a large share of
their output exported (more than 50 per cent);
o Lower inventory in proportion to their sales;
o Utilized new machinery (i.e. less than six years old);
o Predominantly semi-automated;
o More than 30 per cent of its workers had higher education (diploma/degree); and
o Conducted training and R&D.
Firms that reported a lower TFP
o Those that faced a lack of quality local suppliers, shortage of skilled labour, constraint on
the availability of credit and had poorer corporate governance; and
o Those with heavy debt burden.
Lessons Learnt
The lessons learnt from the 1997-1998 financial crisis at firm level
o Firms should gear-up their competitiveness to face increasing competition from low cost
countries;
o Firms with higher TFP were in a better position to withstand a crisis; and
o Firms must spend more on training and R&D.
During the 1990-1999 period, the food and beverages, furniture, glass and clay
products, general machinery, electrical machinery and other manufacturing industries
recorded faster TFP growth rates compared with the overall TFP growth of the
manufacturing sector. The performance of TFP at the firm level is discussed in
Box 2-2..38

2.08 The incremental capital output ratio (ICOR) rose from an average of 3.3
in 1990 to 3.5 in 2000 and averaged 6.1 for the whole OPP2 period. The high
ICOR indicated a sharp decline in capital efficiency due to low capacity utilization
during the economic downturn. Large investments in infrastructure projects and
heavy industries with long gestation periods also contributed to high ICOR.

2.09 On the demand side, the major contributors to economic growth were
private expenditure and exports of goods and non-factor services, as shown in
Table 2-3. Private investment grew at an average rate of 2.9 per cent per annum,
well below the target of 8.0 per cent per annum, on account of the severe
economic contraction in 1998, as shown in Chart 2-1. During the first seven
years of the OPP2 period, private investment was the main catalyst for growth,
expanding rapidly at 17.0 per cent per annum, attributed largely to better economic
conditions, lower corporate tax rate and the increase in reinvestment allowance.
The accelerated privatization programme generated domestic investment, particularly
in the utilities, transportation and social services sectors. In addition, the large
inflow of foreign direct investments (FDIs) into the manufacturing sector for
building capacity in the export-oriented industries, including the oil and gas
sector and investments in capital-intensive and high-technology areas, contributed
to the high rate of private investment. The promotion of FDI was reinforced with
the adoption of an additional set of incentives in 1996 to attract information and
communications technology (ICT) companies to establish their operations in the
Multimedia Super Corridor (MSC).

2.10 Private consumption grew at an annual rate of 5.5 per cent, lower than
the target of 7.2 per cent per annum, mainly due to prudent consumer spending.
Efforts by the Government to encourage domestic savings as well as to control
inflation also contributed to lower spending. In addition, the negative wealth
effect of the financial crisis affected consumer sentiments, which resulted in the
contraction of spending in 1998.


2.11 Public investment expanded by 10.5 per cent per annum in contrast with
the targeted reduction of 0.4 per cent per annum under the OPP2. The bulk of
public investment was by the Non-Financial Public Enterprises (NFPEs), particularly
Petroliam Nasional Berhad (Petronas), Tenaga Nasional Berhad (TNB) and
Telekom Malaysia Berhad, to finance their expansion and modernization
programmes, especially during the first seven years of the OPP2. The increase
was also due to the fiscal stimulus package launched by the Government beginning
1998 to initiate economic recovery. The focus of public sector investment was
to enhance productivity and efficiency to support private sector initiatives and
fulfill the rising demand for better services from an increasingly affluent society.
Public consumption, which accounted for 20.5 per cent of total consumption
spending, grew at a relatively moderate rate of 5.5 per cent per annum, in line
with the Government’s policy of fiscal prudence.

2.12 Exports assumed an increasingly important role in propelling economic
growth during the OPP2 period, particularly in leading the economic recovery
from the financial crisis. The sector grew at an average rate of 16.7 per cent
during the OPP2 period. Electronics and electrical machinery appliance and
parts contributed an increasing proportion of exports, accounting for more than
61.6 per cent of total exports in 2000 compared with 33.3 per cent in 1990, as
shown in Chart 2-2. Strong demand for these products was largely due to
concerns about the Year 2000 (Y2K) problem, the rapid growth in the Internet,
mobile telephones and telecommunications as well as the need to upgrade technology
for competitiveness reasons. Imports grew at an average rate of 14.7 per cent
per annum during the OPP2 period. As a result of the high import content in
the production structure, the boom in the manufacturing sector generated higher
imports of capital and intermediate goods, which grew by 12.1 per cent and 16.2
per cent, respectively, as shown in Chart 2-3.

2.13 The balance of payments position strengthened towards the latter part of
the OPP2 period following significant growth in merchandise exports, as shown
in Table 2-4. The merchandise account was in surplus throughout the whole
OPP2 period, with the largest surplus of RM86.5 billion recorded in 1999. The.41
CHART 2-2
STRUCTURE OF EXPORT, 1990 AND 2000
(%)
services account was, however, in deficit due mainly to the net outflows of
investment income arising largely from the repatriation of profits and dividends
by foreign investors. In addition, the higher payments for freight and insurance,
contract and professional charges as well as repatriation of income by foreign
workers also contributed to the deficit. However, policy measures taken to
strengthen the services account led to some favourable structural changes particularly
in the travel and education and other transportation subsectors. The other
transportation subsector turned around since 1994 to generate surpluses while
the net inflows of travel improved significantly. The merchandise surplus, however,
was able to offset the services deficit, thereby resulting in a notable improvement
in the current account with the shift to a surplus position beginning 1998, as
shown in Chart 2-4.

2.14 The long-term capital account of the balance of payments registered a net
inflow of RM130.1 billion during the OPP2 period. This was attributed to the
net inflow of private long-term capital that amounted to RM107.5 billion due
to the strong inflow of long-term direct investment. In addition, the official long-
term capital amounted to RM22.6 billion, reflecting mainly the large external
borrowings by the NFPEs to finance their expansion and modernization
programmes. In contrast, the Federal Government recorded net repayments during
the OPP2 period. The Federal Government had selectively prepaid its more
expensive external loans during the first half of the OPP2 period, reflecting the
strong financial position of the Government as well as its commitment to contain
the external debt at a manageable level. Accordingly, the external debt of the
Federal Government declined from RM24.7 billion at the end of 1990 to RM13
billion at the end of 1997. However, as a result of the financial crisis, the
Government raised some external loans amounting to RM3.9 billion during
1999-2000 to finance its fiscal stimulus package. Consequently, the overall
balance of the balance of payments, which takes into account the current account
as well as the short- and long-term capital flows, recorded a surplus of RM86.5
billion. The Central Bank reserves increased to RM113.5 billion or 4.5 months
of retained imports at the end of the Plan period.

2.15 The terms of trade during the OPP2 period improved marginally at an
average rate of 0.5 per cent per annum due to higher prices of major export
commodities, such as palm oil, saw logs, sawn timber, petroleum and liquefied
natural gas. In line with this trend, the Gross Domestic Product (GDP) in terms
of real purchasing power grew by 7.8 per cent per annum, higher than the rate
of output growth of 7.0 per cent per annum.

2.16 The consolidation of public finance continued into the OPP2 period,
resulting in a fiscal surplus between 1993-1997 on account of prudent fiscal
management and the privatization programme. The financial crisis made it necessary
for the Government to launch a fiscal stimulus package in 1998 to compensate
for the sharp contraction in private investment. The public sector account,
nevertheless, registered an overall surplus of 1.3 per cent of Gross National
Product (GNP). At the same time, the overall deficit of the Federal Government
account stood at 1.0 per cent of GNP. Although Federal Government revenue,
as a percentage to GNP, declined from 25.9 per cent in 1990 to 19.9 per cent in
2000, it increased at an average rate of 7.7 per cent per annum. This was attributed
to the higher revenue collected in the form of company and petroleum income
taxes, sales and service taxes as well as non-tax revenue in tandem with the
impressive economic performance during the first seven years of the OPP2 period
as well as the recovery in aggregate demand and better crude oil prices during
1999-2000. The size of the Federal Government operating expenditure, as a
percentage of GNP, also declined from 21.9 per cent in 1990 to 18.2 per
cent in 2000. Emoluments, which constitute a large component of the operating
expenditure, increased moderately from 8.0 per cent of GNP in 1990 to 8.1 per
cent in 2000. In addition, the proportion of public servants, including the Army
and Police forces, to the population declined from 4.7 per cent to 4.2 per cent
during the same period.

2.17 Economic growth during the OPP2 period was achieved in an environment
of low inflation and price stability, averaging 3.4 per cent per annum, as shown
in Chart 2-5. In the first half of the OPP2 period, the Government launched a
comprehensive anti-inflationary package to keep prices low and stable. The
Government, among others, undertook a prudent fiscal policy by restraining
operating expenditure and focusing development expenditures on projects that
alleviated infrastructure and supply constraints. Import duties on more than
3,000 items were reduced or abolished to lower the price of goods and reduce
the cost of doing business. In addition, an anti-inflation campaign was launched
to educate the public on the causes and impact of inflation. The sharp depreciation
of the Ringgit during the crisis, however, led to higher producer and consumer
prices. To address this, the Government implemented a mix of fiscal, monetary
and administrative measures, which successfully contained the inflation rate at
2.2 per cent between 1999-2000.

2.18 During the OPP2 period, the country achieved a high level of savings,
averaging 38.0 per cent of GNP compared with 36.8 per cent for investment.
Savings as a percentage of GNP rose from 31.6 per cent in 1990 to 39.0 per cent
in 2000 as a result of the successful campaign to increase domestic savings.
Factors contributing to the rise in the savings rate were higher disposable income,
increased contributions to the Employees Provident Fund, expansion in unit trust
schemes, introduction of new savings instruments and private debt instruments,
the increase in deposits in the Islamic banking system and lower dependency
ratio. In addition, the public sector surplus also contributed to the increase in
domestic savings. This resulted in an overall surplus in the country’s resource
position..

Employment, Wage and Productivity
2.19 Employment opportunities expanded during the OPP2 period with an
average annual growth rate of 3.3 per cent. As the demand for labour grew faster
than the growth of the labour force, unemployment rate remained low at 3.1 per
cent at the end of the period. The labour market situation was tight, particularly
in the construction and manufacturing sectors. Consequently, as a temporary
measure, the Government allowed the import of foreign workers on a selective
basis.

2.20 The OPP2 period also saw structural changes in employment due to
increasing capital intensity and the use of new technology. There was an increase
in the demand for workers who were highly skilled and educated. The fastest
growing occupations were in the professional and technical as well as managerial
and administrative categories, which accounted for 28.8 per cent of the new jobs
created during the OPP2 period.

2.21 Labour productivity, as measured by GDP per worker, improved at a rate
of 3.6 per cent per annum, especially towards the end of the OPP2 period largely
due to the shift towards higher technology production processes and improvement
in labour utilization. Wage increase for most of the economic sectors was marginal
with the largest increase in the other services subsector, which recorded a growth
of 2.7 per cent per annum. However, the overall wage increase of 1.5 per cent
per annum was lower than the productivity growth for all sectors, indicating a
decline in unit labour cost.

2.22 To ensure a closer link between wage and productivity performance, the
Government introduced the Guidelines for a Productivity-Linked Wage Reform
System in 1996. A total of 114 companies adopted elements of the productivity-linked
wage system (PLWS) in their collective agreements. Seminars, workshop
and company visits were conducted to encourage firms to adopt the PLWS. In
addition, the National Productivity Corporation provided an online database to
benchmark productivity in the manufacturing and agriculture sectors.

Sectoral Growth and Transformation
2.23 During the OPP2 period, the manufacturing sector grew at 10.4 per cent
per annum and led economic growth, as shown in Table 2-5. The sector witnessed
improvements in productive efficiency and capability, continued expansion of
export-oriented industries as well as greater diversification of its market. There
was greater focus on product quality and design, automation and mechanization,
competitive pricing and delivery system. Progress was made in promoting the
capital-intensive and high-technology industries as reflected by approved
manufacturing investments. In line with the policy to promote capital-intensive
industries, the ratio of employees to every RM1 million investment declined
from 6.03 in 1990 to 2.62 in 2000.

2.24 The electrical and electronics products subsector became more capital-intensive,
especially in the manufacture of computer motherboards, hard disk
media and silicon wafers. The electrical and electronics subsector diversified
into higher value-added products, particularly consumer and industrial electronics,
and underwent a change in the structure of exports. The exports of electronics
equipment and parts grew by 38.6 per cent per annum between 1991-2000 and
overtook the exports of semi-conductors, both in terms of growth rate and size.
The share of electronics equipment and parts to total electronics exports increased
from 23.9 per cent in 1990 to 57.4 per cent in 2000, while the share of semi-conductors
decreased from 76.1 per cent to 42.6 per cent. In addition, the
industrial chemical and other chemicals subsector was an important contributor
to the output of the manufacturing sector.

2.25 Growth of the construction sector was particularly rapid during the 1991-
1997 period. The civil engineering subsector was boosted by the privatization
of large infrastructure and civil engineering projects, such as roads, highways,
airports, power transmission, telecommunications, rail transport and ports. Increased
activity in the residential subsector was supported by buoyant demand as a result
of higher disposable income. The promotion of the tourism industry contributed
to the rapid development of the non-residential subsector, particularly hotels,
resorts and golf courses. However, following the financial crisis, the construction
sector contracted by 23.0 per cent in 1998 and 5.6 per cent in 1999, before
recording a growth of 1.1 per cent in 2000.

2.26 The agriculture sector recorded 0.5 per cent growth per annum, mainly
contributed by the palm oil and food crop subsectors. During the OPP2 period,
there was a shift in land and labour from rubber and cocoa subsectors to oil palm
subsectors. In line with the Third National Agriculture Policy, the development
of the sector was reoriented towards the optimum utilization of resources in both
the industrial commodity and food subsectors through improvements in productivity
and competitiveness.

2.27 During the OPP2 period, the services sector grew at an average rate of
8.3 per cent per annum and increased its share to GDP to 51.7 per cent. The
Government took steps to develop the services sector as a new source of growth
as well as improve the competitiveness of the services industries in preparation
for an increasingly liberalized environment. The policies included the promotion
of export-oriented services in tourism, education, health, consultancy as well as
air and maritime transportation. In addition, the development of advanced
communications, computer-related and financial services was accelerated.

2.28 Within the services sector, the finance and transportation subsectors grew
rapidly in line with the strong expansion in domestic and international trade. The
completion of various infrastructure projects, such as highways, electrified commuter
train service, light rail transit, KL International Airport (KLIA), and Port Klang
and Port of Tanjung Pelepas, as well as the rapid development in telecommunications
contributed to the impressive growth of the transportation and communications
subsector. Energy and water became an important support service for the rapidly
growing industrial sector. In addition, the growth of the wholesale and retail
trade, hotels and restaurants subsector was more pronounced, reflecting the
increase of tourist arrivals and higher consumer spending on account of improved
incomes arising from economic growth.

Progress of Distributional Objectives
2.29 There were mixed results with regard to the attainment of the distribution
objectives. In terms of poverty eradication and restructuring of employment,
the nation achieved significant progress during the OPP2 period. There were
also some improvements in the development of the BCIC. However, the corporate
equity ownership held by Bumiputera declined below the 1990 level.

2.30 Poverty Eradication. The incidence of poverty among Malaysians was
reduced from 16.5 per cent in 1990 to 7.5 per cent in 1999, as shown in Tabl e
2-6. The number of poor households decreased by about 39 per cent to 351,100
in 1999. The incidence of poverty in rural and urban areas declined by almost
half their levels in 1990. The incidence of hardcore poverty among Malaysians
decreased from 3.9 per cent or 137,100 households in 1990 to 1.4 per cent or
64,100 households in 1999.

2.31 Income Distribution. The mean monthly gross household income for
Malaysians doubled to RM2,472 in 1999. The mean income of the bottom 40
per cent of households grew at 11.7 per cent per annum, lower than the rate
registered by the top 20 per cent and middle 40 per cent of households income
categories. In 1999, the top 20 per cent of households held 50.5 per cent of
income compared with 14.0 per cent held by the households in the bottom 40
per cent. The Gini coefficient, a summary measure of income disparity, increased
marginally from 0.4421 in 1990 to 0.4432 in 1999, indicating a slight worsening
of income distribution during the OPP2 period.

TABLE 2-6
POVERTY ERADICATION ACHIEVEMENTS 1 , 1990 AND 1999
1990 1999 2
Total Urban Rural Total Urban Rural
Incidence of Poverty 2 (%) 16.5 7.1 21.1 7.5 3.4 12.4
Number of Poor (‘000) 574.5 82.0 492.5 351.1 86.8 264.3
Households
Incidence of Hardcore (%) 3.9 1.3 5.2 1.4 0.5 2.4
Poverty 3
Number of Hardcore- (‘000) 137.1 15.5 121.6 64.1 13.5 50.6
Poor Households
Total Households (‘000) 3,486.6 1,149.3 2,337.3 4,681.5 2,548.0 2,133.5
Notes:
1 The poverty data refer to Malaysian citizens.
2 Poverty Line Income (PLI) for 1999 was RM510 per month for a household size of 4.6 in Peninsular Malaysia;
RM685 per month for a household size of 4.9 in Sabah; and RM584 per month for a household size of 4.8
in Sarawak.
3 Hardcore poverty is estimated using half of the PLI

2.32 Quality of Life. There was a steady increase in the overall quality of life
for the period under review where the Malaysian Quality of Life Index improved
by 12.0 points, as shown in Table 2-7. Except for public safety and environment
quality, there were substantial improvements in working life, transport and
communications, education, housing and culture and leisure due to better access
to improved facilities and amenities.

2.33 Significant improvements were achieved in raising the quality of life in
all states through the continued provision of adequate social and infrastructure
facilities and amenities for the rural as well as the urban population. This was
reflected in socioeconomic indicators such as registered cars and motorcycles
per 1,000 population, telephones per 1,000 population, infant mortality rates and
doctor per 10,000 population. In terms of basic amenities, Kelantan, Sabah,
Sarawak and Terengganu are still below the national average of 91.2 per cent
for piped water coverage while only Sabah and Sarawak were below national
average for electricity provision. Difficult terrain and the remoteness of many
settlement areas constrained the supply of piped water and electricity.

2.34 Equity Restructuring. Bumiputera ownership of share capital in the corporate
sector increased from 19.3 per cent in 1990 to 20.6 per cent in 1995 but declined
subsequently to 19.1 per cent in 1999, as shown in Table 2-8. In absolute terms,
Bumiputera equity ownership increased from RM20.9 billion in 1990 to RM59.4
billion in 1999. At the end of the OPP2 period, a total of 19.6 per cent of
companies registered with the Registrar of Companies were controlled by
Bumiputera. The proportion of Bumiputera companies in all sectors of the economy
remained low, ranging from 8.7 to 32.6 per cent, mainly concentrated in agriculture,
construction and transportation.

2.35 During the first half of the OPP2 period, non-Bumiputera equity ownership
increased substantially from about RM50.8 billion in 1990 to RM125 billion,
although their share of corporate equity decreased from 46.8 per cent in 1990
to 40.3 per cent in 1999. The promotion of foreign investment to stimulate
growth and accelerate recovery resulted in the foreign ownership of share capital
in the corporate sector increased markedly from 25.4 per cent to 32.7 per cent
during the same period. Foreign ownership was the highest in sectors such as
manufacturing, utilities as well as wholesale and retail trade.

2.36 The privatization programme continued to be a vehicle to enhance Bumiputera
participation in the corporate sector. In this regard, various guidelines were
formulated, including the provision of at least 30 per cent equity to Bumiputera.52
by companies undertaking privatized projects; provision of at least 30 per cent of
contract-works of major privatized projects to Bumiputera contractors; and the
requirement for large privatized projects to establish vendor development programmes.
As at April 2000, a total of 180 companies were given concessions by the Federal
Government of which 61.0 per cent were managed and controlled by Bumiputera.
The Bumiputera-controlled privatized projects were mainly in the construction,
manufacturing, transportation as well as wholesale and retail sectors.

2.37 Employment Restructuring. Efforts by the Government to increase the
Bumiputera share of employment in higher occupational levels was complemented
by the private sector initiatives in creating more job opportunities for qualified
Bumiputera. As a result, the proportion of Bumiputera in the professional and
technical category, which includes teachers and nurses, increased from 60.5 per
cent in 1990 to 63.8 per cent in 2000. The proportion of Bumiputera in the
administrative and managerial category also increased from 28.7 per cent to 36.9
per cent during the same period which was still low compared with other ethnic
groups. The proportion of Bumiputera registered in eight professional occupations,
namely, accountant, architect, doctor, dentist, engineer, lawyer, surveyor, and
veterinary surgeon increased from 20.7 per cent in 1990 to 28.9 per cent in 1999.

2.38 Bumiputera employment in several major sectors continued to increase,
reflecting the consolidation and shift in the structure of Bumiputera employment
from agriculture to other sectors of the economy, particularly in manufacturing,
finance and transportation. The proportion of Bumiputera in the manufacturing
sector was at 49.1 per cent, relatively lower than in the agriculture sector, which
was 61.6 per cent. In the manufacturing sector, the majority of Bumiputera
employed were in industries such as electrical and electronics, textile and textile
products, wood and wood products as well as food products.

2.39 Development of the BCIC. During the OPP2 period, emphasis was placed
on developing a viable, competitive and resilient BCIC through various
entrepreneurship development programmes. The private sector contributed to
this effort by implementing programmes such as the vendor and franchise
development as well as joint-ventures. The implementation of programmes to
develop BCIC also contributed to the increase in the number of Bumiputera
enterprises in both the corporate and non-corporate sectors. There were about
697,900 Bumiputera enterprises registered with the Registrar of Businesses during
the OPP2 period. In addition, a total of about 57,700 Bumiputera companies
were also registered with the Registrar of Companies during the same period.
Although a number of Bumiputera ventures was developed in the modern and.55
dynamic sectors of the economy, the overall impact remained limited due to the
narrow base of Bumiputera enterprises as well as inadequate capital, lack of
experience and management skills and over-reliance on Government assistance
and contracts. In addition, the economic crisis in 1998 adversely affected the
performance of Bumiputera enterprises. Despite the increase in the number of
Bumiputera business ventures in the modern and dynamic sectors of the economy,
a large proportion of them was concentrated in the construction sector and the
lower-end services activities such as gas distribution, petrol kiosk operation and
travel agency management.

2.40 The thrust of regional development was to reduce the imbalance between
states as well as rural and urban areas. During the OPP2 period, states that
engaged in modern sector activities were able to achieve faster growth than those
dependent on agriculture. This widened the economic gap between the more
developed states, namely, Wilayah Persekutuan Kuala Lumpur, Pulau Pinang,
Selangor, Melaka, Negeri Sembilan, Johor and Perak, and the less developed
states comprising Pahang, Kedah, Perlis, Terengganu, Sarawak, Kelantan and
Sabah. In addition, the income disparity ratio between rural and urban households
widened from 1:1.7 in 1990 to 1:1.81 in 1999. To enhance the development of
states rich in land and natural resources, such as Sabah and Sarawak, investments
in agriculture production particularly in estate crops were encouraged. Similarly,
land consolidation and commercial production of crops were promoted to upgrade
the rural economy. A total of 744,350 hectares of land was consolidated, replanted
and rehabilitated during the OPP2 period.

2.41 To intensify rural development, the New Rural Development Philosophy
was introduced, where the orientation was shifted from physical development
to one giving equal emphasis to both human and physical development. In
addition, statutory bodies in the agriculture sector were streamlined and strengthened
to enable them to contribute more effectively to rural development. In this
regard, several agencies were privatized or revamped. Two regional development
authorities, namely Pahang Tenggara Development Authority and Jengka
Development Authority were privatized, while five project management units of
integrated agriculture development projects outside the granary areas were
discontinued.

2.42 The relatively greater economic opportunities available in urban centres
continued to attract in-migration, thereby increasing the concentration of the
population in these centres. In 1991, urban areas were redefined to include
conurbations and built-up areas. Consequently, the size of the urban population
increased from 8.9 million in 1991 to 14.4 million in 2000 and the urbanization
rate increased from 50.7 per cent in 1991 to 61.8 per cent in 2000. The rapid.56
growth of some cities and large towns placed considerable strain on the local
authorities in the provision of good quality infrastructure and social facilities.
In response to increased urbanization, efforts were taken to improve urban
services and the management capability of local authorities. During the OPP2
period, Kota Kinabalu and Shah Alam were proclaimed as cities, and district
councils such as Ampang Jaya, Selayang, Subang Jaya, Temerloh and Kluang
were upgraded to municipal councils. In addition, the Government adopted a
policy of dispersing development away from present urban centres to their
peripheral areas such as Prai, Serdang, Senawang and Pasir Gudang.

2.43 The construction and upgrading of roads and expressways such as the
North-South Highway, the North Klang Valley Expressway and the Damansara-Puchong
Highway led to the further development of some existing towns such
as Nilai, Bandar Baru Kelang and Bandar Bukit Puchong as well as the establishment
of new townships such as Kota Kemuning. In addition, the period also witnessed
the development of a number of new initiatives, including the development of
special feature towns such as the Kulim Hi-Tech Park, Putrajaya, Cyberjaya and
Kertih.

2.44 During the OPP2 period, subregional economic cooperation with
neighbouring countries was further promoted with the formation of three Growth
Triangles, namely, the Indonesia-Malaysia-Singapore Growth Triangle, the
Indonesia-Malaysia-Thailand Growth Triangle and the Brunei-Indonesia-Malaysia-Philippines
East ASEAN Growth Area. The formation of these Triangles opened
new opportunities for trade and investment among the participating countries.
The private sector was accorded a lead role, while the governments of the
participating countries acted as facilitators in the development and implementation
of joint-venture projects within the Triangles. A three-tier consultative mechanism
involving both public and private sectors was also established to streamline
procedures and facilitate trade and business within the Triangles.

IV. CONCLUSION
2.45 The strategies and policies of the OPP2 contributed towards strengthening
and modernizing the industrial base of the country. The nation achieved rapid
economic growth despite being affected by the 1997-1998 financial crisis. This
was accompanied by significant improvements in the level of income and
enhancement in the quality of life of all Malaysians with significant progress
made in reducing the incidence of poverty.


Chapter 3
Macroeconomic Perspective.
I. INTRODUCTION
3.01 During the Third Outline Perspective Plan (OPP3) period, efforts will
focus on raising the resilience and international competitiveness of the economy
to a new and higher threshold through the adoption of innovative measures. This
is to place the economy on a sustainable growth path to achieve the status of
a fully developed country as envisaged in Vision 2020. This will allow Malaysia
to address the challenges as well as take advantage of the opportunities which
will arise with globalization, while being better placed to withstand and manage
any external shocks.

II. MACROECONOMIC PROSPECTS
Global Economic Prospects
3.02 The long-term outlook for the global economy is expected to be positive
with real Gross Domestic Product (GDP) growth projected to increase in all
major regions. The world economy is expected to expand by 2.3 per cent per
annum between 2000-2010. This improvement will be spurred by the continued
growth of the US economy, robust expansion in Europe and recovery in Japan,
as shown in Table 3-1. The developing countries are expected to grow at an
average rate of 3.7 per cent per annum following the stronger economic fundamentals
in most countries, consolidation of recovery in Asia and Latin America and
moderate growth in the Middle East and in Africa.

3.03 The East Asia and Pacific region is estimated to expand at 5.4 per cent
per annum between 2000-2010, boosted by increasing gross domestic investments
at 32.6 per cent of GDP and exports at 8.5 per cent per annum. With stable
growth in population and moderate inflation, the GDP and consumption per
capita in this region are expected to increase by more than 5.0 per cent during
the same period, providing an expanding market as well as opportunities for
business and industry.

3.04 During the OPP3 period, the volume of world merchandize trade is expected
to grow at 6.8 per cent per annum in tandem with the increase in world output.
At the regional level, the implementation of the ASEAN Free Trade Area (AFTA)
will provide the impetus for trade expansion. The prospects for further trade
liberalization remains good with the progress made in the implementation of the
Common Effective Preferential Tariff (CEPT), the main instrument for realizing
AFTA. AFTA, which was originally targeted for full implementation by 2008,
will be realized by 2003, with some flexibility given to its new members. Under
the CEPT, ASEAN member countries will reduce intra-regional tariffs and eliminate
quantitative restrictions and other non-tariff barriers. A summary of Malaysia’s
World Trade Organization and AFTA commitments and implications is shown
in Box 3-1.

3.05 On the downside, however, the presence of economic and financial
imbalances in the USD, Euro and Yen currency areas is significant and poses
continued risk to global economic expansion. Further, the continued lack of
constructive initiatives to strengthen the international financial architecture
particularly in respect of the increased movement of speculative short-term
capital remains a potential source of instability for international financial markets
and the recurrence of financial and economic crises. In addition, the economic
recovery in East Asia will depend on the commitment of the countries affected
by the financial crisis to continue to undertake comprehensive restructuring of
the economy, including their financial sector, as well as restore political stability.

3.06 There are limited prospects for a recovery in commodity prices. Non-oil
commodity prices are expected to increase at an average rate of 3.0 per cent in
nominal terms (0.3 per cent in real terms) and are not likely to return to the peaks
of 1995-1996. Although increased demand in industrial countries will provide
the support for higher commodity prices, supply is expected to outpace demand.
On the other hand, crude petroleum prices, which reached a 10-year high in
2000, will face constant downward pressure resulting from limited growth in the
demand for Organization of Petroleum Exporting Countries crude oil and increasing
competition from both oil and non-oil energy producers.


BOX 3-1
MALAYSIA’S WTO AND AFTA COMMITMENTS AND IMPLICATIONS
Malaysia’s commitments in the WTO and AFTA cover market access in goods and services and the
protection of intellectual property. Commitments under WTO are legally binding, monitored and
effectively enforced where non-compliance will be subject to dispute settlement with very specific
remedial measures. AFTA commitments are made pursuant to negotiated agreements where the
enforcement mechanism is more flexible and remedial measures are settled through consultations,
usually at the political level.

Malaysia’s WTO commitments include:
o general obligations as stipulated in the individual WTO agreements cover:
– periodic notification of legislation, measures undertaken in compliance with
specific commitments (agriculture) and the introduction of new measures (subsidies,
import licensing, technical standards and regulations, sanitary and phytosanitary
measures);
– enactment or amendment of domestic legislation (anti-dumping, trade related intellectual
property rights (TRIPS), and customs valuation); and
– establishment of enquiry points or focal points phasing out of prohibited measures
(trade related investment measures (TRIMS) and subsidies).
o specific commitments related to trade liberalization in goods and services with bound concessions,
where breach of levels will require the payment of compensation, cover:
– goods – binding tariff lines on agricultural and non-agricultural items, reducing
import duties on non-agricultural items, converting non-tariff barriers to tariffs and
reducing tariffs on agricultural products, granting of minimum market access to
agricultural products previously subjected to import restrictions and reducing tariffs
to zero duty for selected information technology products;
– services – allowing foreign equity participation consistent with national policy in
telecommunications, audio-visual, health-care, accounting, advertising, architecture
and engineering, construction, travel/tourism, sea transport, business and financial
services as well as limiting commercial presence of legal services to the Federal
Territory of Labuan;
– TRIMS – addressing WTO inconsistent measures such as local content requirement,
trade balancing requirement, foreign exchange restrictions and domestic sales
requirements; and
– TRIPS – adopting and enforcing the WTO TRIPS Agreement providing minimum
standards for the protection of intellectual property rights..63
Malaysia’s commitments under ASEAN include:
o AFTA commitments under the Common Effective Preferential Tariff (CEPT)
– Reduction of tariffs on industrial, manufactured and processed agricultural products and
unprocessed agricultural products as well as the inclusion of rice into the CEPT; and
– Removal of all quantitative restrictions and non-tariff barriers within five years from
the date of inclusion into the CEPT.
o The Framework Agreement on the ASEAN Investment Area (AIA)
– Opening up of investments in the manufacturing sector to ASEAN nationals by 2003
except for certain sensitive sectors as defined by each member country and the opening
of all industries to ASEAN investors by 2010; and
– Opening up to non-ASEAN investors by 2020.
o The ASEAN Agreement on Services Liberalization
– Participation in computer reservation system and maritime freight forwarding for air and
maritime transport, respectively;
– Development of convention centres and theme parks for the tourism sector;
– Limitation of foreign equity for wholesale and retail trade business to 30 per cent and
the commercial establishment of MSC status companies in engineering services;
– Limitation of foreign equity in telecommunications and construction services to 35 per
cent and 40 per cent, respectively; and
– Employment of not more than three foreign experts for operational headquarters for
financial and insurance services.
Implications of Malaysia’s commitments under WTO and AFTA
o Overall improvement in market access as a result of tariff reductions on a WTO wide
basis and the phasing in of AFTA;
o Continued efforts of industries to sustain and expand market share in face of greater
competition as tariff barriers are gradually dismantled;
o Move towards more skills- and technology-driven strategy to enhance competitiveness
under the WTO trading regime and the step towards more intra-regional alliances under
the AFTA trade and investment regime to intensify industry’s resilience and competitiveness;
o Mechanisms under the WTO and AFTA to safeguard domestic producers against sudden
surges of imports that will cause serious injury; and
o Gradual phasing in of commitments to commensurate with the level of development..64
Macroeconomic Thrusts

3.07 Malaysian’s performance will be influenced by developments in the external
environment as it is highly integrated with the global economy. It will be exposed
to the risks of economic and financial shocks, which transcend national borders
and regions and are difficult to predict. The achievement of the growth and
structural transformation targets will hinge on Malaysia’s ability to strengthen
its resilience and competitiveness.

3.08 During the OPP3 period, the focus of macroeconomic management will
be to strengthen economic fundamentals so that the economy will continue to
grow rapidly, while being able to withstand cyclical downturns or external
shocks. Efforts will be taken to ensure that the nation is able to achieve sustainable
long-term growth with low inflation and price stability and a healthy resource
and external balance position. The development of the knowledge-based economy
will also provide a platform to move the country’s productivity and potential
output along a higher growth path. In this context, the thrusts of the macroeconomic
agenda under the National Vision Policy will be as follows:
o improving productivity by enhancing the contribution of total factor
productivity (TFP) to growth;
o achieving domestic demand-driven growth;
o enhancing private sector-led growth;
o reducing import intensity and increasing services receipt to maintain a
sustainable balance of payments account;
o promoting further the growth of the manufacturing, services and agriculture
sectors;
o maintaining a low rate of inflation and price stability;
o achieving surplus in the public sector account; and
o maintaining a reasonable level of domestic savings as an important source
of investible resource.
Prospects for the Malaysian Economy

3.9 During the OPP3 period, Malaysia’s GDP is targeted to grow at an average
annual rate of 7.5 per cent in real terms, taking into account the projected trends.65
in the world economy, growth in domestic savings and investment as well as
expected productivity improvements. In addition, the development of a knowledge-based
economy will equip Malaysia with the capability to develop indigenous
technology and create new products, thereby providing the basis for endogenously-driven
growth. To support the strategy, measures will be introduced to increase
the pool of skilled human resource, accelerate technology adoption and utilization,
strengthen hard and soft infrastructure as well as the adoption of pro-business
strategies and policies.

Sources of Growth
3.10 To achieve sustainable rapid growth, productivity will be improved with
emphasis on increasing the contribution of TFP to output. During the OPP3
period, TFP is targeted to contribute 42.5 per cent of GDP growth, while labour
and capital will constitute 20.9 per cent and 36.6 per cent, respectively, as shown
in Table 3-2. Improvements in technology and the organization of the production
process are expected to drive TFP growth. The increased use of computers and
information and communications technology (ICT) as well as enhanced capabilities
in the Internet, in addition to investment spill-over effects, will contribute
significantly to improvements in TFP. The contribution of labour is expected to
be derived from quality and productivity improvements following the decline in
the growth rate of the labour force and the Government’s efforts to reduce
dependence on unskilled and semi-skilled foreign labour in the medium and long
term. Efforts to improve the level of education, intensify skills training and
attract highly specialized foreigners and Malaysians abroad, will contribute to
the improvement in the quality of labour. Efficiency of capital, measured in
terms of the incremental capital output ratio, is also expected to be better,
averaging 4.6 during the OPP3 period compared with 6.1 during the OPP2
period.

3.11 During the OPP3 period, concerted efforts will be taken to stimulate
endogenously-led growth, where indigenous capabilities in innovation and
technology development as well as human capital will be the main contributors
to wealth creation and economic growth. These factors will provide increasing
returns to growth and enhance the potential output of the economy. To build a
strong base for endogenously-driven growth, efforts will be taken to strengthen
science and technology (S&T) and research and development (R&D), enhance
technology absorptive capability, improve efficiency in resource utilization and
nurture industries where Malaysia has a competitive advantage..66
Private Sector Expenditure

3.12 To strengthen the resilience of the economy, domestic demand particularly
private investment will be strengthened to drive economic growth, while continuing
to promote foreign direct investment (FDI) in strategic areas. Private consumption
is anticipated to increase by 7.4 per cent per annum during the OPP3 period,
as shown in Table 3-3, mainly resulting from higher disposable incomes and
positive wealth effect. Private consumption per capita in current terms is expected
to double from RM6,198 in 2000 to RM13,303 in 2010, accompanied by a low
inflation environment.

3.13 Private investment is expected to witness strong growth, increasing at
12.7 per cent per annum in real terms and is estimated to total RM1,051.9 billion
in nominal terms. While Malaysia will continue to attract FDI into manufacturing
and related sectors, emphasis will be placed on capital-intensive and high-technology
industries as well as higher value-added activities with strong knowledge
and skill content. Foreign investors will also be encouraged to locate their R&D
regional headquarters as well as carry out R&D in Malaysia, particularly in the
Multimedia Super Corridor (MSC). In addition, re-investments will be encouraged
for the expansion and diversification of existing operations.

3.14 During the OPP3 period, greater efforts will be taken to promote domestic
investments to accelerate the development of local industries as well as create
Malaysian multinational corporations (MNCs) in order to broaden the industrial
base and composition. This will also contribute towards increasing economic
resilience. Local businesses and institutions will be encouraged to collaborate
with foreign businesses to form strategic alliances in R&D, product design,
production, distribution and marketing. The manufacture of capital and intermediate
goods in which Malaysia has competitive advantage will be intensified, to supplement
and substitute for the import of such goods. Malaysian businesses will also be
encouraged to strengthen their linkages with MNCs in order to take advantage
of global outsourcing and be part of the global value chain. They will need to
build their capabilities in niche areas as well as participate in upstream and
downstream activities within industrial clusters. The development of small- and
medium-scale enterprises (SMEs) will be promoted as an important vehicle to
increase inter- and intra-industry linkages and strengthen the industrial base.
Concerted efforts will be made to provide a conducive environment for innovation
and the generation of new ideas by private enterprise. In this regard, the legal
and institutional framework will be reviewed to generate a dynamic environment
for enterprise and innovation. Promising local enterprises will be provided
appropriate incentives to enable them to compete succesfully.
Structure of Exports and Imports

3.15 The share of manufacturing exports will increase to 90.7 per cent, while
the share of the agriculture and mining exports are expected to decline to 4.3
per cent and 2.1 per cent, respectively, by the end of the OPP3 period, as shown
in Table 3-4. The exports of agro-based manufactured products, however, are
expected to increase with the expansion in domestic processing of agricultural
products as well as the development of Malaysia as an international halal food
hub. Within the primary commodities sector, palm oil, petroleum and liquefied
natural gas (LNG) will continue to be the main contributors to export earnings.
The electrical and electronics subsector will continue to be the major contributor
for manufacturing exports accounting for 75.6 per cent.

3.16 With regard to imports, the share of capital and intermediate goods are
expected to continue to constitute the major portion, at about 87 per cent of total
imports. The import of these goods are, however, expected to increase at a lower
rate, with the growth rate for capital goods falling from 12.1 per cent per annum
T 3 5.69
during the OPP2 period to 8.5 per cent per annum during the OPP3 period and
for intermediate goods from 16.2 per cent per annum to 9.7 per cent per annum
during the same period. This trend is attributed to increased domestic capability
to produce some of these goods, including more SMEs producing intermediate
goods.

Growth and Structural Transformation of the Economy
3.17 The manufacturing, services and agriculture sectors will provide the impetus
for economic growth during the OPP3 period, as shown in Table 3-5. These
sectors are expected to be strengthened following the development of the knowledge-based
economy which will accelerate the infusion of technology and modern
management practices and increase the value added and productivity. The
manufacturing sector is expected to grow at an average rate of 8.3 per cent per
annum with its share to GDP rising to 36 per cent by 2010. Modernization of
plant and machinery and the training of knowledge and skilled workers will
permit the absorption of a new generation of technologies. Although the
manufacturing sector will continue to be heavily concentrated in electrical and
electronic products, the subsector is expected to become increasingly diversified
and sophisticated, thereby generating higher value added. Efforts will be made
to accelerate the shift towards higher-end activities and products as well as
strengthen the linkages within the subsector and with the rest of the economy.
Resource-based industries, such as petrochemical, pharmaceutical, oleochemical,
wood-based and food products will be promoted alongside other industries such
as automotive, aerospace and fabricated metal products.

3.18 Policy reforms in the manufacturing sector would focus on removing the
constraints and rigidities facing the sector as well as broaden and deepen its
base. The aim is to have a more diversified growth within the electronics as well
as other subsectors, particularly food processing, industrial chemicals including
fertilizers, other chemical and plastic products, and petroleum products, including
petrochemicals. Since technology is the key for Malaysia to achieve its aspiration
of becoming a developed nation, R&D will be promoted among Malaysian
industries. Networking or collaborative linkages between the public sector research
institutes and industry will be encouraged. Efforts will be intensified to promote
indigenous technology and link technological resources, both from local and
foreign sources to markets in Malaysia. With ICT, Malaysian companies will
also be engaged in international subcontracting and outsourcing to produce and
market goods at competitive prices. There is also greater scope for the customization
of products.

3.19 To enhance the contribution of SMEs to economic growth, efforts will
be taken to improve their financial management and marketing skills as well as
strengthen their links with large-scale industries. A specialized estate with support
services will also be established to locate SMEs in order to achieve economies
of scale. Efforts will also be made to assist industry clusters to share resources
such as information, experience and innovation as well as produce final goods
and services in an integrated manner..

3.20 During the OPP3 period, the Government will continue to promote the
services sector as a catalyst for growth and potential source of exports to strengthen
the balance of payments position. A more efficient services sector will be developed
to promote greater industrial efficiency and competitiveness. The services sector
is expected to grow by 8.4 per cent per annum and its share to GDP is estimated
to increase to 57.4 per cent per annum by 2010. Efforts will continue to develop
Malaysia into a regional hub for air and sea transportation as well as a regional
centre of educational excellence. The transport and communications sector; the
finance, insurance, real estate and business services sector; and the wholesale
and retail trade, hotels and restaurants sector are expected to register the fastest
growth rates. As the knowledge-based economy develops, a new wave of service
activities particularly related to ICT are expected to be generated.

3.21 The transport, storage and communications sector will be driven by more
affordable and accessible products and the greater integration in transportation.
Developments in this sector will make it possible for the country to build its
strength as a major regional trading centre. The finance, insurance, real estate
and business services sector will benefit from continued consolidation and
restructuring efforts. The Financial Sector Master Plan will guide the development
in finance and insurance. The development of the bond market and the greater
use of e-commerce will provide the impetus for growth of this sector. The
wholesale and retail trade, hotels and restaurants sector will be propelled by the
positive wealth effect as well as concerted efforts to make Malaysia a major
tourist destination and a shopping haven. The country will continue to be promoted
as a centre for international meetings, conventions and exhibitions. In addition,
the promotion of tourism products, such as eco- and agro-tourism, cultural
attractions, leisure and sports-related activities, as well as education and health
tourism, is expected to further boost the tourism sector. The development of the
MSC as an information technology and e-commerce hub will see increased
development of multimedia products and services, including the development of
software required by the contents industry involved in electronic media, animation
and post-filming production.

3.22 The agriculture sector is expected to register a growth rate of 3.5 per cent
per annum with palm oil remaining as the major contributor. Food production
is expected to increase substantially through greater involvement of the private
sector in modern and large scale farming, particularly in the permanent food
production areas including aquaculture zones, and agro-technology and urban
horticulture parks. While the sector remains an important supplier of food, new
sources of growth will be exploited particularly in the high value herbal-based
products, ornamental fish and floriculture as well as agro- and eco-tourism. For.73
rubber, although its production is expected to continue to decline, efforts will be
undertaken to improve its viability by increasing yield, promoting Latex Timber
Clones, adopting new technologies and integrating rubber plantation with other
viable economic activities. Efforts to promote reverse investments for food and
plantation crops will continue to ensure supply of raw materials to industries while
taking advantage of the cheaper production cost and the availability of resources
overseas.

3.23 The construction sector is expected to grow at 6.6 per cent per annum
during the OPP3 period. The major contributor to this growth will be the ongoing
infrastructure projects initiated towards the end of the OPP2 period, such as the
Express Rail Link for Kuala Lumpur International Airport and the development
of Putrajaya, as well as other projects to strengthen the social infrastructure. The
residential and commercial space subsectors are expected to experience slow
growth during the first half of the Plan period mainly due to the supply overhang.
The unsold units of residential property stood at 45,500 units and the occupancy
rate for commercial space at about 75 per cent as at mid-2000.

3.24 In line with the National Depletion Policy, the mining sector is expected
to contract by 2.7 per cent per annum during the OPP3 period, with the anticipated
decline in the output of crude oil at 7.5 per cent per annum. The crude oil
subsector, however, will still remain important, contributing 79.8 per cent to the
mining sector output. In addition, with the full operation of the Malaysia LNG
III plant, the gas subsector is expected to expand by 7.9 per cent per annum
during the OPP3 period. Malaysia is expected to become a net importer of
petroleum during the second half of the OPP3 period.

Price Development
3.25 During the OPP3 period, the rate of inflation is expected to average 2.7
per cent per annum. The imports price index is estimated to record a moderate
increase averaging 2.2 per cent per annum. Monetary policy will ensure that the
growth of money supply and credit creation does not contribute to higher inflation.
The Government will continue to adopt a prudent fiscal policy to achieve a
balanced budget during the second half of the OPP3 period. Efforts are also
being made to keep wage increases in line with productivity improvements.
Measures to encourage automation and labour-saving techniques as well as
encourage higher participation of women and retirees in the labour market will
moderate labour demand pressures. Efforts to ensure adequate supply of goods
and services as well as reduce distribution and marketing costs will ease supply
constraints and bottlenecks.

Financing Development
3.26 With the economy back on track, the public sector is expected to revert
to its role as the facilitator for the private sector to lead economic growth.
Federal Government operating expenditure will be lower at around 14.0 per cent
of GNP during the OPP3 period through prudent fiscal management and efficient
use of resources. During this period, Federal Government development expenditure
is expected to be RM250.0 billion or 5.1 per cent of GNP, as shown in
Table 3-6. The Federal Government development expenditure will continue to
focus on the provision and maintenance of social and physical infrastructure to
further reduce poverty, improve social facilities, modernize the security sector,
reduce regional imbalances and facilitate private sector initiatives. High priority
will also be accorded to human resource development and the Government will
also continue to recruit competent and well qualified people to enhance the
quality of the public service.

3.27 For the public sector as a whole, operating expenditure is estimated to be
around 16.4 per cent of GNP, as shown in Table 3-7. The development expenditure
of the public sector is estimated to be higher at RM517.4 billion during the OPP3
period compared with RM364.5 billion in the OPP2. Of this total, 48.4 per cent
will constitute the development expenditure of the Federal Government and the
balance, largely that of the Non-Financial Public Enterprises (NFPEs). Although
in current terms, public sector development expenditure is larger compared with
the OPP2 period, in real terms, however, it will be lower. This is in line with the
policy of reducing the direct participation of the public sector in economic activities.

3.28 During the OPP3 period, the consolidated public sector account is expected
to register an overall surplus of about RM74.1 billion or 1.5 per cent of GNP,
resulting from better revenue collection and improvement in the current surplus
of the NFPEs. This surplus will be used to finance development expenditure, and
the public sector, therefore, will not need to borrow substantially from external
sources or crowd out the private sector.

Balance of Payments
3.29 The surplus in the merchandise account is expected to decline gradually
with exports growing slower than imports throughout the OPP3 period, as shown
in Table 3-8. The imports are attributed to the high level of private investment
activity requiring capital and intermediate goods imports. However, efforts will
be taken to reduce the import value of intermediate goods, among others, by
encouraging greater domestic sourcing and global sourcing for cheaper imports.
In line with this, import elasticity is expected to decline from 1.6 during the
OPP2 period to 1.0 during the OPP3 period.

3.30 The services deficit is expected to worsen during the first half of the
OPP3 period but improve during the second half. The deficit will be largely
attributed to higher payments for freight and insurance as well as outflows in
investment income. In this regard, the efficiency and capacity of the domestic
shipping industry will be increased. For the air transport and insurance industries,
efforts will be taken to further enhance their level of efficiency and productivity.
In addition, measures will be introduced to improve the quality of foreign
investments as well as slow down the repatriation of profits abroad by encouraging
reinvestments.
3.31 Efforts to promote Malaysia as a tourist destination and a regional centre
of educational excellence will result in higher receipts in travel and education and
this will help to mitigate the services deficit. In addition, the structural changes
in the economy, which is expected to result in reduced dependence on foreign
labour, is expected to decrease transfer payments.

3.32 With the continuing services deficit, the current account is expected to
register a small surplus in 2010. To maintain a healthy balance of payments
position, the Government will, among others, introduce a right mix of fiscal,
monetary and exchange rate policies to promote capital formation, export
competitiveness and low domestic inflation.

Terms of Trade
3.33 The terms of trade is expected to decline by 1.2 per cent per annum during
the OPP3 period. Export prices are estimated to record a smaller annual increase
of 1.0 per cent as against 2.2 per cent for import prices. The decline in the terms
of trade is associated with the expected fall in prices of major export primary
commodities, such as crude petroleum, saw logs, tin and LNG. However, export
prices for manufactured goods are expected to increase by 2.5 per cent per
annum, thereby improving the earnings for exported manufactured products
from 85.2 per cent of total exports in 2000 to 90.7 per cent in 2010. The GDP,
in terms of real purchasing power, will increase by about 6.0 per cent, at a rate
that is slightly lower than the rate of output growth of 7.5 per cent.

Resource Balance
3.34 The profile of the savings-investment gap during the OPP3 period augurs
well for sustained growth of the Malaysian economy. Savings as a percentage
of GNP is estimated to average 33.9 per cent, while investment is estimated to
be 31.6 per cent, recording a surplus of savings over investment of about 2.3
per cent of GNP, as shown in Table 3-9. The public sector is anticipated to have
a surplus of 1.6 per cent of GNP while the private sector will have a surplus
of 0.7 per cent during the period.

Employment
3.35 The growth of labour supply during the OPP3 period is anticipated to be
3.1 per cent per annum. With GDP projected to grow at 7.5 per cent per annum
and labour demand growing by an annual rate of 3.1 per cent, the unemployment
rate is expected to decline from 3.1 per cent in 2000 to 2.5 per cent by 2010. The.78
main sources of employment growth will be from the manufacturing and services
sectors, which are expected to grow at a rate of 4.1 and 3.7 per cent per annum,
respectively. Employment in the government sector is estimated to record a smaller
increase of 2.1 per cent per annum during the OPP3 period against 4.1 per cent
for non-government sectors.

3.36 The emphasis of human resource development will be to build a critical
mass of skilled manpower and knowledge workers, encourage greater labour
mobility and provide market-oriented education and training to reduce structural
unemployment. The labour force participation rate is expected to increase with
higher participation of women and retirees and increasing work flexibility, such
as teleworking and part-time jobs. The dependence on low-skilled immigrant
labour will also be reduced, while foreign workers with the appropriate expertise
will be recruited on a selective basis.
III. CONCLUSION

3.37 The OPP3 period will present considerable challenges to the Malaysian
economy. In this context, Malaysia will have to enhance its resilience, productivity
and competitiveness to achieve high and sustainable rate of growth. The targeted
growth will be in line with the potential output of the economy and accompanied
by low inflation and price stability as well as healthy fiscal and external balances.
The increase in knowledge intensity of economic activities, productivity
enhancements, and efficient resource utilization will be the key drivers of growth.
The infusion of knowledge into the agriculture, manufacturing and services
sectors is expected to increase their contribution to growth. The foundation for
an endogenously-driven growth strategy will also be strengthened during the
period. The private sector will continue to be the engine of growth while the
public sector will provide the enabling environment..

CHAPTER 4
Building a United and Equitable Society
I. INTRODUCTION

4.01 During the Third Outline Perspective Plan, OPP3 (2001-2010), the objectives
of the distributional agenda will be re-emphasized through the National Vision
Policy (NVP) to ensure balanced and equitable participation among and within
ethnic groups as well as regions. The NVP will maintain the basic thrust of the
New Economic Policy (NEP) where the two-pronged strategy of poverty eradication
irrespective of race and restructuring of society in the context of rapid growth
will remain vital to achieve the overriding objective of national unity. The
implementation of the NVP will also build upon the successes that were achieved
in the past, particularly through the NEP and the National Development Policy
(NDP).

4.02 With the significant achievement in poverty reduction under the NEP and
NDP, the focus of the poverty alleviation programme will be towards increasing
income and quality of life of the poor and low-income groups. However, in order
to eradicate pockets of poverty during the OPP3 period, the broad-based approach
of the past will be reoriented to target disadvantaged groups and those in remote
areas. Meanwhile, programmes under the strategy of restructuring of society will
be streamlined towards correcting economic imbalances. To enhance Bumiputera
participation, the NVP will re-emphasize the need to achieve numerical targets
by end of the OPP3 period while continue instituting qualitative improvements.
Measures will also be taken to build a dynamic Bumiputera Commercial and
Industrial Community (BCIC), promote active Bumiputera participation in the
knowledge-based economy as well as strengthen their resilience and competitiveness
to meet the challenges of globalization. To achieve regional balance, efforts will
be taken to reduce imbalances between the developed and less-developed states.

II. FUTURE DIRECTIONS TO ACHIEVE DISTRIBUTIONAL
OBJECTIVES
4.03 The main emphasis of the distributional objectives during the OPP3
period will be to ensure a more balanced and equitable participation among the
various ethnic groups. Steps will be undertaken to consolidate and streamline
restructuring programmes, improve the delivery mechanism as well as introduce
new measures. Special attention will continue to be given to improve the quality
and ensure the sustainability of Bumiputera participation. The thrusts of the
distributional agenda are as follows:
o eradicating absolute poverty and raise income share of the lowest 30 per
cent of the households irrespective of race;
o increasing the size of middle income group;
o attaining effective Bumiputera participation and equity ownership of at
least 30 per cent by 2010 in the context of economic growth without
resorting to micro-restructuring of existing ventures;
o creating self-reliant and sustainable Bumiputera entrepreneurs through
programmes to develop the BCIC;
o providing an enabling environment for Bumiputera to face the challenges
of globalization;
o promoting effective participation of Bumiputera and other disadvantaged
groups in the knowledge-based economy;
o ensuring employment participation reflects the ethnic composition of the
population;
o improving the quality of life of all Malaysians; and
o enhancing regional balance through rapid development of the less-developed
states.

Poverty Eradication and Income Distribution
4.04 The success of poverty eradication programmes remains as a prerequisite
to create a united and equitable society. The highlight of antipoverty programmes
undertaken during the NEP and NDP is as shown in Box 4-1. With the overall
incidence of poverty being reduced significantly to 7.5 per cent in 1999, the
poverty eradication programmes during OPP3 period will be more target-specific..85
Measures will be directed towards addressing pockets of poverty in different
regions, particularly in remote areas as well as among disadvantaged groups
such as the Orang Asli and other Bumiputera minorities in Sabah and Sarawak.
The facilitate the implementation of the target-specific programmes, a study on
the profile of the poor and hardcore poor will be undertaken. Efforts will also
be taken to address urban poverty, particularly among those residing in the
periphery of urban areas. Absolute poverty is expected to be reduced to 0.5 per
cent by the end of 2005. As for income distribution, the thrust of the programme
will be to create a larger middle-income group. In addition, efforts will continue
to be taken to increase income and improve the quality of life of the lowest 30
per cent of the population. The Government will streamline the eligibility criteria
for assistance based on household income, which will be adjusted every three
years. For the first three years of the OPP3 period, the income eligibility is set
at RM1,200 per month per household.

4.05 As a long-term measure to address poverty and income inequality, education
will remain as the main vehicle to promote upward mobility in the society.
Efforts will be intensified to ensure that the poor and low-income groups benefit
from various measures implemented in the education system. Financial assistance,
will be given up to tertiary level to students from poor households. Steps will
also be taken to improve the performance of students from poor and low-income
households, especially among Bumiputera students in rural schools. Emphasis
will be placed on improving their performance on subjects such as the English,
mathematics and science. This will include, among others, the establishment of
benchmarks and targets in terms of the performance of students and improvements
in the delivery mechanism to ensure that the rural schools are at par with urban
schools. Efforts will also be undertaken to reduce the incidence of dropouts
among students from the poor and low-income households. The Government will
also build more schools, including boarding schools, and related infrastructure
in rural areas as well as upgrade existing schools.

4.06 Besides education, the provision of health services and other social amenities
is also an important long-term measure to alleviate poverty and improve the
quality of life. The Government will continue to ensure that the needs of the poor
and low-income groups are met when implementing health programmes. The
poor and low-income households will be exposed to better nutritional practices
to improve their health status. In addition, the coverage of amenities such as
electricity, safe water and transportation and communications will be further
widened to reach remote and outlying areas, particularly in Sabah and Sarawak.
The Government will ensure that more low-cost houses are built by the private.86
sector to benefit the poor and low-income groups through measures such as the
tightening of enforcement on housing developers and improve the distribution
of low-cost houses based on needs and eligibility. Loans will be made more
affordable and accessible to the poor and low-income groups. On micro-credit
financing, the provision of loans through Amanah Ikhtiar Malaysia (AIM) will
be extended to every state.

4.07 During the OPP3 period, emphasis will be geared towards ensuring that
the quality of life of the elderly and the disabled is further enhanced. For the
elderly, their welfare will be taken into account in the national development
efforts. Among the facilities that will be improved for the benefit of the disabled
include public transportation, schooling, housing and sports. All new and existing
buildings, shopping complexes, hospitals, banks, offices and public amenities
will be made more disabled-friendly. Greater efforts will be undertaken to provide
training and education to this group and facilitate their placement and employability.
At the same time, the private sector and non-governmental organizations (NGOs)
are expected to be more receptive towards meeting the needs of this special
group.

BOX 4 - 1
POVERTY ERADICATION PROGRAMMES
Poverty eradication ranks high on Malaysia’s development priority. The target for the New Economic
Policy (NEP) was to reduce the incidence of poverty in Peninsular Malaysia from 49.3 per cent in
1970 to 16.7 per cent in 1990. Subsequently, under the National Development Policy (NDP), the
target was to reduce the incidence of poverty in Malaysia to 7.2 per cent and the incidence of hardcore
poverty to 0.5 per cent by 2000.
The incidence of poverty is based on the poverty line income (PLI). The PLI is defined as an income
sufficient to purchase a minimum basket of food to maintain household members in good nutritional
health and other basic needs such as clothing and footwear, rent, fuel and power, transport and
communications, health care, education and recreation. The PLI is updated annually on the basis of
the Consumer Price Index.
Strategy and Programmes
The main strategy for poverty eradication was providing employment opportunities in higher-paying
jobs, while welfare handouts were reserved for the aged and disabled who could not find employment.
Since the poor were largely engaged in agriculture, they were encouraged to be involved in modern.87
farming and non-farm or off-farm activities. The programmes implemented under the NEP and NDP
are as follows:
o Resettling the landless and those with uneconomic holdings in new land development schemes.
The settlers were provided with single unit houses complete with piped water and electricity;
o Undertaking in-situ development of existing agricultural land through rehabilitation and
consolidation of the land, replanting of old commercial crops with new higher-yielding clones
and better planting techniques;
o Integrating agricultural and rural development with downstream processing of farm products
and encouraging village industries and rural entrepreneurship to generate additional sources
of income;
o Introducing double-cropping or off-season cropping for padi, inter-cropping and mixed farming
on the same plot of land to supplement the income derived from main crops;
o Establishing farmers’ markets in urban centres so that farm produce can be sold directly and
fetch better prices;
o Providing training and education on topics pertaining to farming as well as work attitudes
and values to motivate participants to become more productive farmers;
o Providing industrial and vocational training for the rural manpower, coupled with credit
facilities and related support, to enable them to be employed in non-farm occupations or start
their own businesses in rural areas and urban centres;
o Improving educational access as well as providing text books and financial assistance to
children of poor households; and
o Providing infrastructure and social amenities as part of a broader programme to improve the
quality of life of all Malaysians. For the rural population, they include the provision of
potable and piped water, electricity, roads, medical and health services and schools, including
rural hostels.
During the NDP period, the Development Programme for the Hardcore Poor or Program Pembangunan
Rakyat Termiskin (PPRT), was introduced to assist the hardcore poor. The programme established
a register on the profile of hardcore poor households and contained a package of projects tailored
to meet their specific needs, such as increasing their employability and income, better housing, food
supplements for children and educational assistance. Direct assistance was given to the hardcore poor
who are disabled and aged. In addition, the hardcore poor were provided with interest-free loans to
purchase shares in a unit trust scheme (ASB-PPRT) so that the dividends can supplement their
income.
Non-Governmental Organizations (NGOs) and the private sector complemented Government efforts
in the poverty alleviation programmes. Working in close cooperation with one another, they provided
small business loans, industrial training, job opportunities, educational support for children, and
better housing..

4.08 Measures will be undertaken to introduce more income-generating activities
to increase the household income of the poor and low-income groups. In this
respect, specific income-generating strategies for the rural and agriculture sectors
will be implemented through integrated, modern and commercial farming as
outlined in the Third National Agricultural Policy. It is essential to enhance
income-generating activities, particularly among padi farmers, rubber smallholders,
fishermen and estate workers, since the incidence of poverty among them is
high. In the rice subsector, farmers with small and uneconomical land will be
encouraged to participate in land consolidation projects, particularly in the major
granary areas. Padi farmers will also be encouraged to diversify into other
subsectors such as aquaculture and livestock farming. Income of rubber smallholders
will be increased through the promotion of innovative systems of planting latex
timber clones (LTC) and also integrating rubber with other agricultural activities
such as livestock, fruit and vegetable farming. To increase the income of fishermen,
more downstream and other non-fishing activities will be promoted. With regard
to oil palm smallholders, the Government will encourage them to utilize the
newly established replanting fund. In addition, an income augmentation mechanism
for smallholders will also be established to protect low-income farmers during
difficult periods. Measures will also be taken to increase the income and improve
the quality of life of estate workers. Appropriate programmes will also be introduced
to address problems faced by former workers of fragmented estates.

4.09 The Government will conduct specialized household income surveys for
Sabah and Sarawak to determine the state of poverty, income levels and quality
of life in different locations within the respective states as well as among various
Bumiputera groups such as the Kadazandusun, Iban, Bajau, Murut, Bidayuh and
Melanau. The findings of the survey will be used to further enhance measures
to alleviate poverty and improve quality of life of the population in Sabah and
Sarawak, particularly those in the interior and remote areas.

4.10 During the OPP2 period, the income gaps between different income
categories increased marginally. The top 20 per cent of the households experienced
a marginal increase in income share to 50.5 per cent in 1999 compared with the
decrease to 14.0 per cent for the bottom 40 per cent, as shown in Table 4-1. In
addition, the Gini coefficient, a summary measure of income inequality, increased
marginally from 0.4421 in 1990 to 0.4432 in 1999, indicating a marginal widening
of income inequality.

4.11 Appropriate measures will be taken to increase the income of the lower
and middle-income households. Workers, particularly from the lower occupational
category, will be encouraged to upgrade their skills through education and training..89
Another important measure to increase household income is to further encourage
female participation in employment. Among the steps that will be taken include
the introduction of flexi-hour employment and part-time jobs that will enable
them to work and at the same time be a homemaker. To further facilitate women
in employment, the establishment of facilities such as child-care centres and
kindergartens will be further enhanced. The space for these centres will be
included as part of the amenities to be provided by the developers in new
housing, office and commercial projects.

4.12 To effectively implement anti-poverty programmes during the OPP3 period,
existing programmes will be consolidated and improved, under the Skim
Pembangunan Kesejahteraan Rakyat (SPKR). The SPKR will encompass the
Program Pembangunan Rakyat Termiskin (PPRT) and other related anti-poverty
programmes to address issues of general and hardcore poverty, irrespective of
ethnicity in both the rural and urban areas. The Program Sepadu Pembangunan
Desa Terpencil will be strengthened under SPKR to address pockets of poverty,
particularly in remote areas and among the Orang Asli and other Bumiputera
minorities in Sabah and Sarawak. To further improve the well-being and quality
of life of the poor and low-income households, the SPKR, through its Program
Pembangunan Insan, will inculcate the concept of self-esteem and self-reliance
among the households and communities involved.

4.13 Measures will also be undertaken to ensure that inflation is contained at
a low level to make services and goods affordable for the poor and the low-income
groups. To gauge the progress of communities in both rural and urban
areas, the Government will formulate indicators to measure their quality of life.
In addition, NGOs and the private sector are expected to effectively implement
their respective anti-poverty programmes and projects as a shared responsibility
in nation building.

Quality of Life
4.14 The quality of life for all Malaysians is expected to further improve
during the OPP3 period. Real per capita income will increase by more than five
per cent per annum as a result of rapid economic growth. With the incidence
of poverty falling to a marginal level, more emphasis will be given to increase
household income, particularly those in the lowest 30 per cent income category.
Substantial investments in the provision and delivery of social services and
amenities, particularly education, health and housing, will further contribute to
the enhancement of the quality of life. In this respect, the enrolment in pre-schools,
secondary schools and universities will be increased. With a more
intensive implementation of the student-centred learning approach, creativity
and thinking skills development will be emphasized. Efforts to raise the quality
of education and training are expected to accelerate human resource development.
A larger pool of trained, skilled and IT-oriented manpower will emerge to propel
the nation towards an industrialized and knowledge based economy.

4.15 Efforts taken to increase job opportunities as well as provide an improved environment for work, including occupational safety and disputes settlement will
create better working conditions for workers. Improvements in health services and
housing will also contribute to better health, longevity and household well-being.
The expansion of transport and communication facilities will provide faster and
better services for the performance of various economic activities. The overall
quality of environment is expected to improve with more concrete efforts taken
to ensure a cleaner, healthier and productive environment through new and improved
technologies and better environmental management. As for public safety, crime
and road accident rates are expected to decline in line with concerted efforts taken
by the authorities, including awareness campaigns. With these positive developments,
Malaysians are expected to live longer, healthier and more rewarding lives, amidst
a greener and safer environment.

Equity Restructuring
4.16 Bumiputera ownership of share capital in the corporate sector decreased
marginally from 19.3 per cent in 1990 to 19.1 per cent in 1999, as shown in Tabl e
4-2. The Chinese share of capital ownership declined from 45.5 per cent to 37.9
per cent during the same period, while the Indian ownership increased to 1.5
per cent in 1999. Foreign ownership increased significantly from 25.4 per cent
in 1990 to 32.7 per cent in 1999. During the OPP3 period, concerted efforts will
be taken to increase effective Bumiputera participation as well as equity ownership
of at least 30 per cent by 2010. This restructuring will be carried out within the
context of a rapidly growing economy with increasing opportunities for all
Malaysians and without resorting to micro-restructuring measures for existing
ventures. Special attention will be given to increase equity ownership among
Bumiputera in Sabah and Sarawak such as the Kadazandusun, Iban, Bajau,
Murut, Bidayuh and Melanau. To realize this target, Bumiputera need to double
their efforts in various areas including taking advantage of the increased
complementarities and synergies created within domestic industries as well as
with foreign counterparts. Bumiputera must be prepared in terms of skill,
entrepreneurial capabilities and change their mindset to participate effectively
in opportunities that arise.

4.17 Efforts will be stepped up to increase the savings and investment of
Bumiputera and other disadvantaged groups to ensure their meaningful participation
as well as in achieving the qualitative and quantitative targets of the corporate
equity ownership. Towards this end, National Unit Trust Funds (NUTF) will be
established to ensure a more widespread distribution of equity ownership among
Bumiputera and other disadvantaged groups.

4.18 In view of the low level of corporate equity ownership among Indians,
attention will be given to increase their participation during the OPP3 period.
Efforts will thus be undertaken to increase Indian equity ownership to 3 per cent
by 2010. At the same time, a study to review the status of the Indian participation
in the economy will be undertaken to formulate appropriate strategies and
programmes.

4.19 Existing programmes will be reviewed while new and innovative measures
will be introduced. Foreign direct investment (FDI) in strategic areas will continue
to be promoted and, in this respect, Bumiputera entrepreneurial skills and
technological capabilities will be enhanced to benefit from the opportunities that
are generated. Bumiputera companies must take advantage of global outsourcing

Notes:
1 Excludes Government holdings other than through trust agencies.
2 Includes shares held through institutions channeling funds of individual Bumiputera and trust agencies, such as
Lembaga Tabung Haji (LTH), Permodalan Nasional Berhad (PNB) and State Economic Development Corporations
(SEDCs)..93
by the multinational corporations (MNCs) and move into related upstream and
downstream activities. The formation of strategic alliances with foreign companies
will also be promoted. Meanwhile, effective partnership and collaboration between
Bumiputera and non-Bumiputera ventures will be enhanced so as to create
strong, resilient and world-class indigenous businesses. In addition, a review of
the quidelines under the Foreign Investment Committee will be undertaken to
improve its effectiveness.

4.20 Promoting Bumiputera ventures in the manufacturing and services sectors.
Various measures will be undertaken to promote Bumiputera ventures in the
manufacturing and dynamic services sectors. As Bumiputera companies have
already made inroads into the construction, transportation and agricultural sectors,
they have to diversify into other higher value-added activities. To increase
Bumiputera ownership in the manufacturing sector, which is low at 12.5 per cent,
as shown in Table 4-3, efforts will be taken to increase their participation in the
manufacturing subsectors such as electrical and electronics (E&E), pharmaceuticals,
chemicals, petro-chemicals, bio-technology, composite and advanced materials,
transport equipment and food industries. To facilitate Bumiputera participation,
an enabling environment will be created including incentives and financing to
assist them acquire appropriate technology as well as management expertise.
Agencies such as the Malaysian Industrial Development Authority (MIDA) and
the Small and Medium Industries Development Corporation (SMIDEC) will
assist in identifying outsourcing opportunities as well as tracking technology
trends and seeking potential partners. These agencies will also disseminate
information more effectively to assist Bumiputera entrepreneurs.

4.21 With respect to financing arrangement, a special window will be created
in the existing funds to enable Bumiputera companies gaining greater access to
these facilities, particularly for those with minimum collateral. The capacity of
the existing venture capital also needs to be expanded to promote Bumiputera
participation in manufacturing and other innovative business deals. In order to
make financing available to more Bumiputera, specialized funds established by
the Government will be strengthened with expertise in assessing risky business
with high potential of success. Attention will be given to shorten the process of
approval, as speed is the essence of success in private ventures. The Government
will review, consolidate and streamline the existing specialized funds targeted
for Bumiputera ventures. Financing from banking system for Bumiputera businesses
will be reoriented towards the dynamic sectors. Currently out of the 27.1 per
cent of the total loans disbursed by banking institutions that benefited Bumiputera
businesses, the largest proportion was for the purchase of landed properties,
transport vehicles and securities as well as in the construction sector, as shown
in Table 4-4..94

Part II

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