AT A GLANCE

  • In 2014, Malaysia had a real GDP growth of 6 percent, the second-highest performance in South East Asia
  • The World Bank recently stated that lower oil prices would slow growth through delays in capital expenditures in the oil and gas sector; in 2015, Malaysia’s economic growth is expected to slow down to 4.7%, before normalizing at 5% in 2016
  • At the National Council of Professors (MPN) Conference in December 2014, it was stated that there were about 2.9 million legal foreign workers in Malaysia

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May 01, 2015

Malaysia: Oil Prices Pose Threat to Economy

Many labor experts consider Malaysia to be one of Southeast Asia’s success stories. With a population of around 30 million, it is the region’s third-largest economy and has a relatively strong literacy rate. It is a moderate and democratic Muslim state, where the Islamic majority lives mostly in harmony with the country’s Chinese and Indian communities.

Malaysia Labor Market at a Glance

Malaysia Labor Market at a Glance

Source: Trading Economics

However, recently the delicate political and ethnic balance of the country is starting to unravel. Since 1957, Malaysia has been ruled by the United Malays National Organization (UMNO). In recent years, however, the opposition political party has won more of the popular vote. Experts worry that if political tension grows it could have a damaging impact on Malaysia’s economy.

In 2014, Malaysia had a real GDP growth of 6 percent, the second-highest performance in South East Asia. But the country is a significant net exporter of energy, which makes it vulnerable to fluctuations in oil prices. Also, foreign bond ownership is high at more than 40 percent, and political and economic instability could make foreign bondholders wary.

Malaysia’s Imports and Exports

Malaysia’s Imports and Exports

Source: Trading Economics

Malaysia’s Economy Expected to Slow

The World Bank recently stated that lower oil prices would slow growth through delays in capital expenditures in the oil and gas sector. In 2015, Malaysia’s economic growth is expected to slow down to 4.7 percent, before normalizing at 5 percent in 2016. 

Comparativley, the World Bank expects other countries in Southeast Asia to grow, with Indonesia projected to grow 5.2 percent this year, Thailand to grow 3.5 percent, and the Philippines to grow 6.5 percent.

According to the World Bank reports, a fifth of the government’s revenues depend on oil, so a decline in oil prices is a key risk to near-term growth, fiscal and external accounts.

Education at the Crux of the Employment Challenge

Malaysia’s Education by Attainment

Malaysia’s Education by Attainment

Source: Ministry of Education, Malaysia

In Malaysia, traditional sources of employment in extractive industries (mining, quarrying, dredging, and oil and gas extraction) and light manufacturing are slowing down. Many labor experts believe that employment will depend on how quickly Malaysia can adopt the workplace methods of a global economy.

“People here are willing and able to work, and the country has good connections to the region and decent infrastructure. They could make this place the back-office to the economy of the Internet. But they need more and better basic education for this to become a reality.” ~Kal Joffres, Local Consultant at Tandemic

A recent study by the Organization for Economic Cooperation and Development (OECD) ranked Malaysian students at number 39 among its 44 countries in problem-solving, comprehension, language, computation, and analysis. A recent government study says this has long-term implications for employment, as Malaysia’s percentage of skilled workers in the workforce is 25 percent, less than half that of neighboring Singapore. The use of English, the language of the global economy, has actually declined in Malaysia over the last 40 years.

Educational Attainment of Population Aged 25 and Older

Educational Attainment of Population Aged 25 and Older

Source: UNESCO Institute for Statistics

In recent years, electronic companies have pulled thousands of jobs out of Malaysia, in order to pay lower wages for comparable skills in China and other nearby countries.

Average Monthly Wages, Manufacturing

Average Monthly Wages, Manufacturing

Source: Trading Economics

According to the World Bank, Malaysia faces the challenge of implementing productivity-enhancing reforms to support long-term growth. This includes modernizing social policies towards income-targeted programs focused on equality of opportunities, reforming the education system without public spending, reducing dependence on energy revenues, and enhancing competition in the economy.

Malaysia’s Migrant Workers

In Malaysia, according to the Fair Labour Association, workers come from more than 12 countries in Asia with the majority coming from Indonesia. At the National Council of Professors (MPN) Conference in December 2014, it was stated that there were about 2.9 million legal foreign workers in Malaysia. National labor statistics show that 40 percent of migrant workers have no formal education.

The Malaysia Employers Federation (MEF) says that foreign labor, especially blue-collar workers, contribute significantly to the national economy. Datuk Shamsuddin Bardan, Executive Director of MEF, says that while these foreign workers contribute positively to the country, there is a negative perception towards them among Malaysians, with migrant workers being blamed for increasing crime rates and other issues.

According to the International Labour Organization (ILO), foreign workers make up around 50 percent of the construction workforce in the country, and nearly 60 percent of the workforce in the manufacturing sector.

“As a net hydrocarbon exporter, lower oil prices will dampen the outlook for investments and growth. The outlook for 2016 and beyond is clouded by uncertainty in the direction of commodity prices and the pace of structural reforms to move investments decisively to skills-intensive sectors.” ~World Bank

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