Chapter 7 Infrastructure Development in Malaysia

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Chapter 7 Infrastructure Development in Malaysia Chapter 7 Infrastructure Development in Malaysia G. Naidu AGN Research Associates March 2008 This chapter should be cited as Naidu, G. (2008), ‘Infrastructure Development in Malaysia’, in Kumar, N. (ed.), International Infrastructure Development in East Asia – Towards Balanced Regional Development and Integration , ERIA Research Project Report 2007-2, Chiba: IDE-JETRO, pp.204-227. Chapter 7: Infrastructure Development in Malaysia G. Naidu Abstract At independence Malaysia inherited a reasonably well-developed set of infrastructure facilities. The Government built on the initial stock of infrastructure and all categories of infrastructure have since expanded manifold and facilities have also been modernised. By and large the Malaysian Government has succeeded in meeting the growing demand for infrastructure. The Government has also made considerable progress in making infrastructure available in the less developed parts of the country. The development of infrastructure has required very large investments. The infrastructure sector has received the largest share of public sector development expenditure in every one of the Malaysia Plans. However from the early 1990s because of resource constraints faced by the public sector, among other reasons, the Government has encouraged and facilitated private sector participation in infrastructure development. In the more recent period the private sector has been investing more in infrastructure than the public sector. Inspite of the success achieved in the development of infrastructure there are many areas where policy formulation and implementation can be improved. The formulation of medium-term plans for all segments of the infrastructure sector is one area where the Government needs to act. Such plans will help avoid ad hoc project selection. There should also be a clearer specification of the areas for private sector participation in infrastructure development and all privatisation exercises should be through an open tender bidding process. Also more rigorous project evaluation is necessary to avoid 204 costly project failures. Other areas for improvement include better monitoring of performance of service providers. A new policy also needs to be formulated to promote public transport in urban areas. Finally, the development of infrastructure in the less developed parts of the country should be accorded higher priority. 1. INTRODUCTION This report contains a summary of the main findings on infrastructure development in Malaysia. It also provides a set of recommendations on how infrastructure planning and development in Malaysia can be improved. 2. SUMMARY OF FINDINGS This section summarises the important aspects of the development of infrastructure in Malaysia. The discussion covers the period 1966-2005 which coincides with the three decades from the First Malaysia Plan (1966-70) to the Eighth Malaysia Plan (2001-2005). 2.1. Background Three aspects to the Malaysian economy continue to have an important influence on infrastructure development in the country, these being the growth performance of the economy, the physical make-up of the country and the socio-economic disparities between the different parts of the country. These three matters have had to be taken into 205 consideration in the formulation of infrastructure policies and allocation of resources for infrastructure development. 2.1.1. Growth performance Since independence the Malaysian economy has been growing at a fairly rapid pace. In most years the growth rate has ranged between 5-9 per cent a year. As a result per capita income in the country in 2005 had risen to RM18, 040 from RM960 in 1966. The present average income in Malaysia, equal to about USD5154, places it in the category of middle-income countries of the world. The structure of the economy has also changed from being heavily dependent on the primary sectors, of agriculture and mining, to one in which manufacturing and services are the main contributors to national output, employment and export earnings. An important feature of the Malaysian economy is its heavy dependence on external trade. The country’s economic well-being is to a large extent tied to the performance of its exports in international markets. Massive investments for the development and modernisation of infrastructure facilities were clearly required not only to cope with the demands of a rapidly expanding economy but also to ensure that the country’s competitiveness in global markets was not compromised for lack of good quality infrastructure. 2.1.2. Physical components Malaysia consists of two physical components, these being Peninsular Malaysia and Sabah/Sarawak. The latter two states are on the island of Borneo. (Figure 1) Because 206 there is no contiguity between Peninsular Malaysia and the two states of Sabah and Sarawak, from the perspective of infrastructure planning Malaysia does not constitute a single entity. Each component part thus has to be treated as a separate physical entity, which complicates transport planning and development. 2.1.3. Socio-economic disparities There are wide disparities between the levels of development of the different parts of the country. The west coast of Peninsular Malaysia has been and remains much more developed than the other parts of the country. The west coast states of Peninsular Malaysia are also more densely populated than the east coast states and Sabah and Sarawak. Figure 1: The Map of Malaysia 207 The socio-economic differences have had to be considered by the Government in formulating its infrastructure development policy 2.2. Objectives in infrastructure development Two motives have shaped the scale and pattern of the infrastructure development strategies of the Malaysian Government. The first is the recognition that infrastructure is vital for the economic development of the country. In this regard the objective of the Malaysian Government is to expand infrastructure facilities to keep abreast of the growing demand for infrastructure arising from the growth and transformation of the economy. The avoidance of infrastructure shortages is thus a paramount aim of the Government. Meeting the growing demand for infrastructure from the modern sectors of the economy, including the external sector, is not the only objective driving the Malaysian Government’s infrastructure policy. A second aim is to develop infrastructure to serve socio-economic ends. Here the focus is on providing infrastructure to promote the development of the less developed regions of the country, including rural areas. Improving the accessibility of these regions to markets is intended to bring about a more balanced development of the country and redress economic disparities. 2.3. Investment in infrastructure facilities At independence Malaysia had a reasonably good set of infrastructure facilities. The distribution of facilities, however, was uneven with some parts of the country better endowed than others. The Malaysian Government built on the initial stock of 208 infrastructure, expanding and modernising infrastructure facilities and at the same time addressing the infrastructure inadequacies of the less developed regions of the country. Because of the importance of infrastructure for economic development and for alleviating poverty, the Government of Malaysia continues to give the highest priority to infrastructure development. This is evident from the following: (i) Infrastructure has received the largest share of public sector development expenditure in the Malaysia Plans. The amount of resources earmarked for infrastructure development has generally increased from one Malaysia Plan to the next and often by very significant amounts. By way of illustration, in the First Malaysia Plan (1966-70) the amount spent on infrastructure was RM1,387.9 million. In the eighth Malaysia Plan the corresponding amount was forty-six times higher at RM RM64,128.2 million (ii) Total investment by the Malaysian Government on infrastructure development over the last thirty years (1966-2005) was RM209,696 million, which at the current exchange rate is equal to USD63,627 million. (iii) From the early 1990s public sector investment in infrastructure has been supplemented by investment from the private sector. The Government’s privatisation policy has facilitated private participation in infrastructure development and management. Under the policy there has been divestiture in the equity of state-owned enterprises such as Klang Port, Telecom Malaysia and the electricity utility company, 209 Tenaga Nasional. Greenfield projects under various types of contractual arrangements between the Government and private sector have also been sanctioned. (The North-South Expressway and Tanjung Pelepas Port are examples of numerous BOT projects in the infrastructure sector). Over the period of the last few Malaysia Plans, the private sector, including Government-linked companies, have been investing more in infrastructure than the Government. (iv) As a proportion of GDP investment in infrastructure has been very high, ranging between a low of 1.9 per cent in the Second Malaysia Plan and a high ratio of 9.4 in the Seventh Malaysia Plan. (v) Transport has been the biggest recipient of investment in infrastructure. Within the transport sector most of the investment has gone into the construction of roads. Other infrastructure segments have also received sizeable investments in capacity expansion and modernisation. More recently the electricity and telecommunications industries have seen massive increases in
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