AN ANALYSIS OF MALAYSIA’S DEVELOPMENT USING ROSTOW’S GROWTH MODEL

APPLICATION OF MALAYSIA’S DEVELOPMENT CYCLE TO THE CAMEROONIAN ECONOMY

Abstract

This paper detailly analyzes the processes or phases Malaysia has gone through from the time it achieved independence in 1957, using Rostow’s Growth model. It attempts to unveil the arms employed by Malaysia to become a ‘Newly Industrialized Country (NIC)’. The second section of this write-up attempts solutions that could be envisaged by the Cameroonian government in order that Cameroon, which got independence a few years later than Malaysia (1960), could become as prosperous as Malaysia which is barely a few years older in terms of independence, but the two economies are as contrasting as day and night.

Introduction

All through the analysis, we shall come across the term ‘development’, so we must ask ourselves; ‘What is development?’ answering this question will help us in better appreciating the magnitude of the research. Development is defined as being a multi-dimensional process which involves transformation in structures, attitudes and institutions as well as the acceleration of economic growth, reduction of inequality and the eradication of absolute poverty. 

In the 21^st century in which we live, countries/economies are ranked based on the level of development they have achieved since their existence (for countries that have never been colonies)/independence (for former colonies). Following this ranking index, there are three categories of economies, namely: underdeveloped/Low Economically Developed Countries/developing economies, Newly Industrialized Countries (NICs)/Tiger economies (due to their very high growth rate), and finally, the Developed/More Economically Developed Countries (MEDCs).

Studying and analyzing the development cycle of NICs like Malaysia is of utmost importance to policy makers and international monetary organizations like The World Bank and The International Monetary Fund (IMF), and the governments of developing African, Asian, and South American countries. This could serve as a guide as to what policies to implement and when.

Tutor2u.net defines Newly Industrialized Countries (NIC's) as LDC's that have undergone recent, rapid industrialization and experienced rising incomes, high growth rates and international involvement; notably the Asian tigers Taiwan, Singapore, Hong Kong, and South Korea,  which achieved high rates of growth in the late 20th century.

Peculiarities to the Malaysian Nation

According to the World Bank, Malaysia ranks 18th in Ease of doing business. Malaysia's strengths in the rank includes getting credit (rank 1st), protecting investors (ranked 4th) and doing trade across borders (ranked 29th). Weaknesses include dealing with construction permits (ranked 113th). The study ranks 183 countries in all aspect of doing business (Economy Rankings Retrieved 4 October 2012, 2012). 
Sheikh Muszaphar Shukor, is the first Malaysian in space. He was the only Malaysian on board the Angkasawan spaceflight program that saw life in 2006.
Malaysia is being promoted as a destination for Medical tourism, regionally and internationally (The Official Site of Malaysia Healthcare Travel & Medical Tourism, 2009 ).
Malaysia industrial sector accounts for 48.1 percent of total GDP or 63.4 billion US dollars. The industrial output is ranked 32nd in the world (List of countries by GDP sector composition, 2008).
Malaysia has 17 companies that rank in the Forbes Global 2000 ranking for 2014.
Malaysia is the world’s largest Islamic Banking and Financial center.
In 2012, the Malaysian economy was the third largest economy in South East Asia behind more populous Indonesia and Thailand and 29th largest economy in the world by purchasing power parity with gross domestic product stands at US$492.4 billion and per capita US$16,922. In 2010, GDP per capita (PPP) of Malaysia stood at US$14,700 (Malaysia , 2010).
Malaysia is one of the three countries that control the Strait of Malacca, which is the main South-East Asian Shipping route. 
Malaysia has the largest operational stock of industrial robots in the Muslim world.

Background Information about Malaysia

Malaysia  covers  an  area  of  about  330,803  square  kilometers,  consisting  of  states  in  Peninsular Malaysia, namely Johor, Kedah, Kelantan, Melaka, Negeri Sembilan, Pahang, Perak, Perlis, Pulau Pinang, Selangor, Terengganu and the Federal Territories of Kuala Lumpur and Putrajaya, Sabah and  Sarawak  on  the  island  of  Borneo  and  the  Federal  Territory  of  Labuan  off  Sabah.  Malaysia lies entirely in the equatorial zone and the average daily temperature throughout Malaysia varies from 21°C to 32°C.

Malaysia gained independence from Britain in 1957. Since independence, Malaysia’s GD has grown by an average of 6.5% per year from 1957 to 2005. Malaysia witnessed a peak in its economic performance in the early 1980s through the middle 1990s; owing to its rapid sustained growth averaging approximately 8% per annum. Malaysia was once heavily dependent on its primary sector, focusing on products like rubber and tin. Today, it is a middle-income nation with a multi-sector economy based on servicing and manufacturing. Today, Malaysia is one of the world’s largest exporters of semiconductor components and devices, electrical goods, ICT derivatives, and of recent, solar panels (Malaysia; State of Governance, 2010).

Malaysia practices a system of Parliamentary Democracy with Constitutional Monarchy. It has three branches of government, namely the Executive, the Legislature and the Judiciary. The  Malaysian Parliament is made up of the King, His Majesty Yang di-Pertuan Agong, the Senate  (upper house) with 70 senators and the House of Representatives (lower house) with 222 members.  Out of the 70 senators, 44 are appointed His Majesty Yang di-Pertuan Agong while 26 are elected by the State legislatures. The general election for the members of the lower house must be held every five years.

Malaysia was formerly known as Malaya. As Malaya moved towards independence, the government started implementing five-year economic plans, starting with the First Malayan Five Year Plan in 1955. Upon Malaysia’s establishment, these Five Year plans were re-titled and renumbered, starting with the First Malaysia Plan in 1965. In 1991, Mahathir bin Mohammad, former Malaysian Prime minister, outline his Malaysian ideal; Vision 2020, in which the Malaysian nation would attain self-sufficiency and absolute industrialization, come 2020 (Mahathir Bin Mohammad, The Way Forward, 2008). According to Tan Sri Nor Mohammad, one of Malaysia’s ministers, Malaysia could attain a developed country status in 2018 if the country’s economic growth rate increases or at least remains constant.

Malaysia: Political, Economic, and Financial Statistics 

An overview of Malaysia

Kuala Lumpur, is Malaysia’s financial center.
Bank Negara is the Malaysian Central Bank.
The  Malaysian currency is the Malaysian Ringgit (RM).
Malaysia belongs to the following the following Trade organizations: APEC, ASEAN, IOR-ARC, and WTO.
Malaysia is a multi-ethnic country with three dominant ethnic groups; The Malays, The Indians, and The Chinese. Other significant groups are the indigenous people of Sabah and Sarawak, including Kadazan, Dusun, Bajau, Murut, Iban, Bidayuh and Melanau.

Malaysia’s Economic and Financial Statistics

Malaysia ’s GDP (Gross Domestic Product) stands at $525 billion (PPP (Purchasing Power Parity), 2013 estimate)/ $312.4 billion (nominal 2013 estimate).
Malaysia has a GDP growth of 4.7% (2013 estimate).
Malaysia’s GDP per capita stands out at $17,500 (PPP, 2013 estimate.)/ $10,412 (nominal, 2013 estimate).
Malaysia has a 3.5% inflation rate - CPI (Feb 2014).
Malaysia ’s labor force stands at 13.19 million (2013 estimate).
Labor force by occupation - agriculture: (11.1%), industry: (36%), services: (53.5%) (2012 estimate).
Unemployment rate is a mere 3.1% (2013 estimate).
Less than 1.7% of its population live below the poverty line.

Analysis of Malaysia’s Development using Rostow’s Growth Model

The Traditional Society/Agrarian Economy

According to W.W. Rostow, the following traits plague nations when they are in their Traditional/Agrarian phase:

The core economic fact about traditional societies is that they evolved within limited production functions.
Agriculture/food production absorbed 75% or more of the working force and a greater proportion of income above consumption levels was spent in non-productive or less productive outlays such as wars and religion.

Malaysia in the Traditional Society/Agrarian Economy (1955-1971)

Records

The ‘First Malaysian Plan’ was established in 1965.

Before 1969, the poverty rates among Malays were extremely high (at 65%) as was discontent between races, particularly towards the Chinese, who controlled 34% of the economy at the time (Jabatan Penerangan Rakyat: Dasar Ekonomy Baru (in Malay), 2008).

Strategies

Exploitation of Forestry Resources: Logging only began to make a substantial contribution to the Malaysian economy during the nineteenth century. Today, an estimated 59% of Malaysia remains forested. The rapid expansion of the timber industry, particularly after the 1960s, has brought about a serious erosion problem in the country's forest resources. In line with the Government's commitment to protect the environment and the ecological system, forestry resources are currently managed on a sustainable basis which has led to a decline in the rate of tree felling.

Dependence on Tin and Petroleum Exploitation: Malaysia was once the world's largest producer of tin until the collapse of the tin market in the early 1980s. In the 19th and 20th century, tin played a predominant role in the Malaysian economy. It was only in 1972 that petroleum and natural gas took over from tin as the mainstay of the mineral extraction sector. Meanwhile, the contribution by tin has declined.

Pre-conditions for take-off

The following are general characteristics/traits of countries experiencing pre-conditions for take-off: 

There is a radical change in the following non-industrial sectors.
There must be a build-up of social overhead capital; particularly in the transport sector. This would then give room for the creation of economic national markets, allow for the productive exploitation of natural resources, and permit effective national governance.
A technological evolution in agriculture is a necessary condition as well.
Lastly, there ought to be an expansion in imports financed by the more efficient production and marketing of key natural resources. Capital imports should also be considered. The increased access to foreign exchange was required to permit the underdeveloped nation to increase the supply of the industrial raw material and equipment it needed in production: since it could not supply these itself.

Malaysia experiencing pre-conditions for take-off (1971-1988)

Strategies

Transition from Agriculture to Manufacturing: In the 1970s, Malaysia began to imitate the four Asian Tiger economies (South Korea, Taiwan, the then British Crown Colony of Hong Kong, and Singapore) and committed itself to a transition from being reliant on mining and agriculture to an economy that depends more on manufacturing. The early 1970s saw the predominantly mining and agricultural based Malaysian economy moving from an Agrarian economy towards a more multi-sector economy.

The Malaysian New Economic Policy: The Malaysian New Economic Policy was created in 1971 with the aim of bringing Malays a 30% share of the economy of Malaysia and eradicating poverty amongst Malays, primarily through encouraging enterprise ownership by Bumiputeras.

The Take-off stage

In essence, the take-off stage consists of the achievement of hastened/rapid growth in a limited range of sectors, where modern industrial techniques are applied.

The following key traits are peculiar to the take-off stage:

• A key manifestation of take-off is the society’s ability to sustain a minimal annual net investment rate of 10%.
• The corps of technicians and entrepreneurs must be widened; likewise, the sources of capital must be institutionalized such that the economy can undergo structural shocks, redispose its investment resources, and resume growth.
• The take-off time interval is averagely 20 years.

Malaysia experiencing the Take-off stage (1988 – 1997)     

From 1988 to 1997, the Malaysian economy experienced a period of broad diversification and sustained rapid growth averaging 9% annually. First established in 1971 following race riots, commonly known in Malaysia as the May 13 Incident, it sought to eradicate poverty and end the identification of economic function with ethnicity. In particular, it was designed to improve the distribution of wealth among the country's populace.

Records

By 1999, nominal per capita GDP had reached $3,238. New foreign and domestic investment played a significant role in the transformation of Malaysia's economy. Manufacturing grew from 13.9% of GDP in 1970 to 30% in 1999, while agriculture and mining which together had accounted for 42.7% of GDP in 1970, dropped to 9.3% and 7.3%, respectively, in 1999. Manufacturing accounted for 30% of GDP (1999). Major manufactured products include electronic components – Malaysia is one of the world's largest exporters of semiconductor devices – electrical goods and appliances.

Strategies put in place for Take-off

Sovereign Wealth Funds: The government owns and operates several sovereign wealth funds that invests in local companies and also foreign companies. One such funds are Khazanah Nasional Berhad which was established in 1993 (Sovereign Wealth Fund Acquisitions and Other Foreign Government Investments in the United States: Assessing the Economic and National Security Implications).

Its objective is to help shape selected strategic industries in Malaysia and develop those investment for the benefit of Malaysia (Khazanah Nasional Berhad: About ). The fund invest in major companies in Malaysia such as Proton Holdings in the automotive sector, CIMB in the banking sector, Pharmaniaga in the medical sector, UEM Group in the construction sector, Telekom Malaysia in the communications industry and many other companies in many other industries (Khazanah Nasional: Portfolio). It is estimated that the fund size of Khazanah Nasional stands at around US$19 billion.

New Economic Policy: Within this time frame (1988-1997), the government tried to eradicate poverty with a controversial race-conscious positive program called New Economic Policy (NEP). The NEP was ostensibly ended in 1991, however the policies persist in the form of other programs like the National Development Policy. Sadly, the policies are enforced overtly through race-based quotas for low-cost housing units, university placement, business equity ownership, etc.

Privatization: The rapid growth in the Malaysian economy was partly achieved through the privatization of inefficient state owned enterprises, hence subjecting them to commercial pressures and obliging them to better utilize their resources. Many deals were struck behind closed doors and put through rather quickly. As example, Khazanah Nasional alienated shares in DRB Hicom to Mega Consolidated. This led to such deals being labelled mega projects.

Influx of Foreign Investment: Foreign investors were attracted to invest making the local money market and bourse (Stock Exchange Market) liquid. This created opportunity for local businesses to raise capital on the KLSE, and carry out infrastructure development in areas like telecommunications, highways and power generation to conquer bottlenecks caused by rapid industrialization. An intense labor shortage created employment for millions of foreign workers.

The rapid influx of foreign investment led to the KLSE Composite index trading above 1,300 in 1994 and the Ringgit trading above 2.5 in 1997. At various times the KLSE was the most active exchange in the world, with trading volume exceeding even the NYSE. The stock market capitalization of listed companies in Malaysia was valued at $181,236 million in 2005 by the World Bank.

Major Achievements

The most visible projects from that period are: Putrajaya, a new international airport (Kuala Lumpur International Airport), a hydroelectric dam (Bakun dam), the Petronas Towers and the Multimedia Super Corridor. Proposals that were eventually suspended include the 95 km Sumatra–Malaysia Bridge (which would have been the world's longest), the Mega International Sea and Air port on reclaimed land in Kedah (would have been the world's biggest) and the KL Linear City (which would have been the world's longest mall and the world's first city built over a river).

Drive to Maturity (Technological maturity)

A country is considered as having attained the Drive to Maturity only when it has effectively applied the range of the then modern technology to the bulk of its resources.

This trend, characteristically, has been observed among nations that have attained the drive to maturity; which is the fourth stage Rostow’s development model:

The proportion of the population in agriculture and rural life decreases; and within the urban community, the proportion of semi-skilled and white-collar workers increases.

Industrial leadership changes as well; leaders have more grandiose visions, and possess a more acute sense of scale and power.

There is a significant rise in per capita income.

Malaysia experiencing the Drive to Technological Maturity (1998-present)

Records

The Malaysian economy recovered from the 1997 Asian Financial Crisis much earlier than its South-East Asian neighbors, and has since recovered to the levels of the pre-crisis era with a GDP per capita of $14,800 (Malaysia’s stockmarket; Daylight Robbery, 1999).

The post Y2K slump of 2001 did not affect Malaysia as much as other countries. This may have been clearer evidence that there are other causes and effects that can be more properly attributable for recovery. One possibility is that the currency speculators had run out of finance after failing in their attack on the Hong Kong dollar in August 1998 and after the Russian ruble collapsed. (See George Soros).

Strategies

Government Subsidies and Price Controls: The Malaysian government subsidizes and controls prices on a lot of essential items to keep the prices low. Prices of items such as palm oil cooking oil, petrol, flour, bread, rice and other essentials have been kept under market prices to keep cost of living low. In 2008, the government announced that it has spent RM40.1 billion in 2007 in subsidies to keep prices leveled. As of 2009, 22 per cent of government expenditures were subsidies, with petrol subsidies alone taking up 12 per cent (Economic numbers bode well for Malaysia, 2009).

Transition from a Pegged Exchange Rate to a Floating Exchange Rate System: The fixed exchange rate was abandoned on July 21, 2005 in favor of a managed floating system within an hour of China announcing the same move (Global Economy Malaysia). In the same week, the ringgit strengthened a percent against various major currencies and was expected to appreciate further. As of December 2005, however, expectations of further appreciation were muted as capital flight exceeded USD 10 billion. (Global Economy Malaysia). 

According to Bank Negara's published figures, Malaysia's foreign exchange reserves increased steadily since the initial capital flight, from USD75.2 billion as at 15 July 2005 (just before the peg was removed) to peak at USD125.7 billion as at 31 July 2008, a few months before the global credit crisis that started in September 2008.    

The Age of Mass Consumption

The age of mass consumption specifically refers to this contemporary period of comfort afforded by most Western countries whereby consumers now concentrate on durable commodities and seldom remember subsistence concerns of previous stages of development.

At the Age of Mass Consumption,

• A society is able to choose between concentrating on military and security issues, on equality and welfare issues or on developing great luxuries for its upper class.
•  Each country at this stage chooses its own balance between these three goals.
• There is widespread and normative consumption of high-value consumer goods like automobiles, computers etc.
• Most consumers have disposable income generally, beyond all basic needs for additional goods.

Conditions necessary for Malaysia to attain The Age of Mass Consumption

As rightly heard from the Malaysian Prime Minister’s office, there can be no fully developed Malaysian nation until Malaysia finally gets to overcome the nine central strategic challenges to which they have been confronted since independence.

Establish a united Malaysian Nation: This is the first of the Malaysian challenges. The Malaysian people must be united and carry a common and shared destiny. Territorial and ethnical integration must be achieved at all cost, else, this would be the major impediment to them being fully developed. The Malaysians must become one 'Bangsa Malaysia' with political loyalty and commitment to the nation. This is the most basic and fundamental condition for Malaysia to become fully industrialized. Without this, there isn’t no way forward.

Create a psychologically liberated, secure, society: This is the second challenge. The Malaysian society must muster confidence and faith in itself. Their accomplishments so far, and potential to do even better justify this confidence. Malaysia must be psychologically subservient to none, and distinguished from other nations by the pursuit of excellence.

Foster democracy: This is the third challenge which entails fostering and developing a mature democratic society, practicing a form of mature consensual, community-oriented Malaysian democracy that could be a model for many developing countries.

Establish an ethical society: The fourth challenge is more of a global challenge. All, or approximately all countries in the world face the same challenge. We need to bring up a moral and ethical society, whose citizens have solid religious and spiritual, and ethical values embedded in them.

Establish a Liberal, Tolerant society: The fifth challenge has plagued the country since independence. Malaysia needs a matured, liberal and tolerant society in which Malaysians of all skin color types and creeds are free to practise and profess their customs, cultures and religious beliefs and still share the feeling of belonging to a single nation; ‘united in diversity’.

Establish a scientific and progressive society: This is the sixth challenge. The Malaysian society must get innovative, scientific, and progressive, and forward-looking. Malaysia should not just be a technology consumer, but should also contribute to the scientific and technological growth of civilization.

Appropriate the culture of Caring: The seventh challenge entails building/constructing a sort of ‘one-for-all” and ‘all for one’ society. Also, people’s welfare would not revolve around the state, but rather around a supportive and resilient family system. 

Acquire economic justice in the society: Challenge eight seeks to bring about fair and equitable distribution of the wealth of the nation, in which there is full partnership in economic progress. This society will only exist when race is no longer identified with economic function, and economic backwardness with race.

Establish a prosperous society: Such an economy should be fully competitive, dynamic, robust and resilient. This indeed is the Malaysian ideal!

Acquire economic justice in the society: Challenge eight seeks to bring about fair and equitable distribution of the wealth of the nation, in which there is full partnership in economic progress. This society will only exist when race is no longer identified with economic function, and economic backwardness with race.

Establish a prosperous society: Such an economy should be fully competitive, dynamic, robust and resilient. This indeed is the Malaysian ideal! 

Cameroon as a Newly Industrialized Country; Limitations and Remedies/Solutions

Cameroon: Brief Post-Colonial History

French Cameroon achieved independence in 1960, and British Cameroon followed a year later in 1961. Prior to 1972, Cameroon was managed as a Federation, then known as The Federal Republic of Cameroon. Frankly, Cameroon saw brighter days as a federation as there was less corruption and more efficient resource management. Cameroon became a Republic and got renamed the ‘Republic of Cameroon’ in 1972, after The Foumban Conference. 

Cameroon is managed under the Democratic regime. Cameroon’s growth rate as per October 2013 still stands as low as 4.8%, which is grossly insufficient for a country willing to emerge by 2035.Cameroon’s external debt roughly stands out at 10,000 billion FCFA (2013 estimate). 5 million Cameroonians out of the 21 million Cameroonian population live in abject poverty and hunger; living below the poverty line (less than a dollar per day).

Situating Cameroon in Terms of Development as per Rostow’s Model

Cameroon is still in between the Agrarian society and pre-conditions to take off. Over 70% of the Cameroonian workforce still depends on subsistence agriculture for their livelihoods, using crude agricultural tools. Cameroon is still plagued by Agrarian society deficiencies such as poor leadership systems and acute corruption. 

For Cameroon to effectively go through the Pre-conditions for take-off, a lot of investment has to be made in order to revolutionize our agricultural systems and produce in large scale, thereby eradicating poverty and hunger for good. We also need daring entrepreneurs who are risk-friendly, and a more favorable business environment. The Malaysian example is a good lesson/model of what it takes for a country to move from ‘grass to grace’.

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