Miti Blog

Ministry of International Trade and Industry Malaysia Official Blog


Posted by admin2 on July 6, 2015 at 4:55 pm
Liberalisation means different things for different people, not only in application, but also its implications.

In the context of economic development, liberalisation means the removal of restrictions in order to allow “a free flow of goods, services and people across border”.

The argument for liberalisation in economic development is that freer flow of goods, services and people leads to greater efficiency, and efficiency leads to cost reduction and competitiveness. Competitiveness leads to increased sales/exports which contributes to a bigger economic pie or economic growth. Economic growth creates jobs. Factors that can impede the drive for efficiency or increase the cost of production include excessive taxes, import restrictions, poorly trained workforce, bureaucratic delays, licensing or restrictive licensing requirements.

Owners of resources or ‘factors of production’, are usually seeking the best place to employ their resources so as to achieve maximum gain. In today’s ‘borderless’ world, the owners of resources have greater choice as to where to deploy their resources, not only at home but also abroad. This is evident from the increasing flow of global foreign direct investmenrts (FDIs). In order to remain globally competitive in producing goods and services or in attracting investors, more and more countries have pursued the path of economic liberalisation, such as China, Vietnam and India.

Liberalisation is also about giving more options and choices. Liberalisation or opening up of the market give wider choices – of goods or services – for the consumers which contributes to consumer satisfaction. The consumer has a choice of whether to purchase an expensive but high quality goods or services, or a value for money goods or services that gives satisfaction, without burning a big hole in his pocket, or cheaper goods or services that matches his budget. Options are made available for consumers, instead of having to stick to a limited choice only.

The entry of foreign goods or producers in the market, intensifies competition. Foreign products or producers could generate competition due to better designs or improved technology. Competition in turn leads to further efficiency as it prompts innovation and creativity among other players in the market. Efficient producers who are competitive can create more jobs for a nation, which will in turn stimulate economic growth.

If liberalisation is so beneficial, why are there restrictions in the first place? It must be recognised that a free reign of market forces may not be effective in serving the various goals of development. Hence some restrictions are necessary. Usually, these restrictions are in place to promote certain development objectives, such as protection infant or strategic industries, creating job opportunities for locals or attainment of certain development goals. Although these objectives are valid, governments all over are faced with the difficult choice of putting scarce resources to the most efficient and effective use.

With adequate preparation, liberalisation need not be a disaster. Domestic industries must be assisted and prepared for competition from more established competitors. However, this protection and assistance cannot be open-ended as it would breeds complacency. Some form of competition have to be introduced so that industries can be competitive and consumers have better choices. Malaysia believes in an orderly form of liberalisation with progressive liberalisation as the key.

Malaysia has benefited from liberalisation measures it has undertaken in the past. Its liberal and open market policies in the manufacturing sector have contributed to Malaysia being one of the most attractive destination for FDIs in the region. Over the past 20 years Malaysia has attracted US$91 billion in foreign investments in the manufacturing sector. However the situation has changed as other countries in the region are also opening up their markets, and with their low labour costs, posing severe competition for Malaysia.

It is noted that the trend in global FDI flows is increasingly skewed towards services investment. UNCTAD’s World Investment Report 2004 indicated that the structure of FDI has shifted towards services. In the early 1970s, services sector accounted for only one-quarter of the world FDI stock. in 1990 this share was less than one-half; and by 2002, it had risen to about 60% or an estimated US$4 trillion and that of manufacturing fell from 42% to 34%. On average, services accounted for two-thirds of total FDI inflows during 2001-2002, valued at some US$500 billion. The Report also indicated that as service industry players become more transnationalised, there is scope for a further shift towards growth of services FDI

The recent announcement to liberalise 27 services sub-sectors by the Government is in line with the strategy of progressive liberalisation. Among the reasons for the liberalisation is to explore an area of new economic growth for the nation. The move to liberalise the sector will attract foreign direct investments, and inflow of technology and technical skills into the country. The presence of foreign players can help to boost the capacity of the Malayian services industry. Other benefits attached will be in the areas of employment opportunities, local and foreign joint-partnerships, and creation of export opportunities.

The local services providers are being assisted with the allocation of RM100 million Services Sector Capacity Development Fund (SSCDF) to better equip themselves in facing the open market. The fund may be used for training and outreach programmes, enhancement and modernisation, accreditation, and mergers and acquisitions. They are also being assisted through Services Export Fund (SEF) to promote their services overseas. In short, with the adequate preparation, the move to liberalise the services sector will be beneficial to the economy and to the people at large.

Malaysian industries too need to export to the global market, for our market of 27 million cannot consume all the goods and services produced in the country. If we want to sell in other markets with minimum impediments, then producers from those markets expect the same from us. The calls by leaders for all nations to refrain from protectionists measures in this time of economic slowdown is a clear indication that all parties need to be mindful of their responsibility to contribute towards an open trading environment. When the global market becomes restrictive, not only will industry be affected but consumers will also suffer from the lack of options.
Published in The Star, Policy Perspective, 6 July 2009

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