TUTORIAL 7

MUHAMAD AMAR BIN MOHD FARID EEE080114NURUL IDAYU BINTI OTHMAN EEE080155AZIEDA BINTI MOHD ADZNI EEE080015NURNADIRAH BINTI MOHD SAUFE EEE080150

Lecturer : Mr.Azmi Shahrin

• A rapid development in the services sector will not only contribute to the overall economic growth of the country, but it will also provide a platform for the economy to move to higher value-added activities and further strengthen its external position by reducing services outflows.

• As the services sector develops, the economy can also retain a higher amount of income generated by the services sector in the country. It will also contribute to the efforts to diversify the base of the economy.

• The development of the services sector will further complement the role of the manufacturing sector in generating growth.

• Since the 1980s, the manufacturing sector has been the mainstay and engine of growth for the Malaysian economy.

• An efficient and strong services sector will further boost the competitiveness of the manufacturing sector because services form a major input to the sector.

•Also, it has been identified as the main target contributor to Malaysia’s GDP, targeted to achieve 59.7% of GDP by year 2020.

Performance in 2008Services Sector Domestic (RM

million)Foreign (RM

million)

Real Estate 25,264.8 656.2

Telecommunication 4,954.0 Nil

Energy 4,407.2 Nil

Financial Services 2,75.6 2,016.5

Hotel and Tourism 1,847.3 82.3

Support Services 1,560.1 684.1

MSC Status Companies

1,418.8 359.6

Distributive Trade 972.9 1,068.0

Transport Services 953.7 469.2

Education Services 184.7 0.2

Health Services 119.1 3.2

Others 85.0 7.3

Regional Establishments

28.4 190.8

Total 44,550.0 5,536.8

Source: MITI Report 2008

• Developments in the services sector in Malaysia in recent years include rising trade in services, deepening of manufacturing related services activity, growing outsourcing activity and increasing trend of liberalization.

• These key trends have not only boosted the development of the services sector in Malaysia, but have also contributed to the efforts to sustain long-term growth of the economy through a manufacturing-services led strategy.

• In order to further boost the development of the services sector, the Government has taken several measures.

• 2 types of measures:•Administrative•Financial Incentives

Administrative MeasuresThe empowerment of the Ministry of

International Trade and Industry (MITI) and MIDA to promote and encourage foreign investment in key manufacturing related and support services.

Malaysia External Trade Development Corporation (MATRADE) has been assigned to promote export of services, such as healthcare; education; construction and related professional services (including engineering and architecture); franchising; ICT; oil and gas related services.

• The Professional Services Development Centre (PSDC) and the National Professional Services Export Council (NAPSEC) have been established to identify potential markets for professional services

•Performance Management and Delivery Unit (PEMANDU) was established to oversee implementation and assess progress of the government transformation programme i.e NKEA, ETP as well as facilitate and support the delivery of NKRAs and MKRAs

Financial IncentivesGovernment provides fiscal and tax

incentives especially for approved services projects, tourism projects, R&D and training activities

There are numerous incentives offered. Among them are investment tax allowance, incentive for energy conservation, incentive for medical devices testing laboratories , incentive for training etc.

Possible Areas of Growth

TourismHealthcareEducation

TourismMalaysia is one of the world’s top 10

destinations, in the top 10 in arrivals as well as receipts.

The fifth largest industry, generating RM37 billion in GNI in 2009 with 24 million arrivals.

Targets by 2020:36 million arrivalsRM106 billion contribution to GNI>490,000 jobs

Under NKEA, the Gov. has identified and developed 12 Economic Partnership Programmes (EPPs) across 6 themes within a 10-year timeframe:

1. Affordable Luxury Develop a vibrant shopping district – KLCC-

Bukit Bintang Position Malaysia as a premier duty-free

shopping destination

2. Nature Adventure Develop a Econature Integrated Resort in

Sabah

3. Family Fun Create a straits Riviera cruise playground

e.g in Melaka, Penang, Kota Kinabalu etc

4. Events, Entertainment, Spa & Sports Target more international events by relaxing

some rules especially pertaining entertainment Establish dedicated entertainment zones Develop the spa industry Expand sports tourism offerings

5. Business Tourism Allocate adequate funding through MyCEB Develop one to two ‘shell’ sites to hold

business tourism events

6. Connectivity & Hotels Improve connectivity to medium-haul markets

e.g Shanghai, Beijing, Sydney, Melbourne, Tokyo, Osaka, Seoul, Delhi, Taipei

Ensure adequate supply with better mix and quality of hotels

Incentives for TourismPioneer Status – hotels granted this status may

enjoy a 5-year partial exemption from paying the income tax

Investment Tax Allowance – 60% allowance (100% for promoted area)

Incentives for the Luxury Yacht IndustryTax Exemption for Tour Operators – at least 500

foreign tourists or 1200 localsTax Exemption for Promoting International

Conference and ExhibitionIncentives for Cultural Performances…etc.

HealthcareMalaysia’s spending on healthcare at 5%

of GDP is regional peers with public spending is the major disproportionate contributor to healthcare costs.

In 2009 – contributed RM15 billion in GNIMalaysia aims to further develop 3 sub-

sectors: PharmaceuticalsHealth TourismMedical Technology Products

Targets by 2020:To generate RM35 billion incremental GNI

contribution to reach RM50 billionAttract >1 million health travelersConduct >1000 clinical trialsCreate >180,000 new jobs

6 EPPs have been categorized into 3 themes:1.Quick Wins

To mandate compulsory health insurance for foreign workers

Create an eco-system to support clinical trials

2. Strategic OpportunitiesMove from a net importer to a significant

player in the RM422bil prescription and pharmaceutical drug industry

Promote Malaysia aggressively in the world health travel map

3. Longer Term Bets Tackle difficult issues such to gain a

strong position in new high technologies i.e telemedicine

Establish Malaysia as a source of significant medical innovation

Offer more grants and incentives for R&D in health science and biomedical research

Build more partnerships with world’s leading healthcare institutions

Incentives for HealthcareInvestment Tax Allowance – up to 100% for

10 yearsIncentives for Medical Devices Testing

Laboratories Incentive for R&D in medical and health

scienceIndustrial Building AllowancePartial Income Tax ExemptionIncentives for the Usage of IT Equipments…

etc

EducationEducation is one of the most pivotal

catalysts that drives the transformation of Malaysia from a middle-to-high income nation due to its impact on productivity and human capital development

In 2009 – contributed RM27 billion or 4% of GNI

Targets under NKEA:To strengthen the private education services

sector by increasing private consumption & investments

Expand education importsMake Malaysia as an education hub in the

regionRaise the standard of education in Malaysia

and improve the access to itBy 2020, education is a big business that

delivers huge and significant impacts on GNI, >500,000 jobs are created (professional & technical) & foreign students enrolment is tripled to 200,000

13 EPPs have been developed and categorized into 3 themes under NKEA:

1. Rapid Scale-up Initiatives Scaling up early childcare and education centres Improve early childcare and early training

centres Boost international schools Expand private teacher training Increase skill training provision

2. Concentration and Specialization Initiatives Build Islamic finance and business education

cluster Build a health science education discipline cluster Build an advanced engineering, science and

innovation cluster Build a hospitality and tourism discipline cluster

3. Demand Generation Initiatives Develop Malaysia as a regional education

hub instead of just a stop-over Champion Malaysia’s international

education brand aggressively Launch EduCity at Iskandar Malaysia and

KL EduCity Introduce public-private partnership in

basic educations

Incentives for EducationExemption from income tax – up to 10 years

for private higher education institutionsMake and receive payments in foreign

currencyBorrow any amount of foreign currency from

licensed onshore banks and non-residentsUnrestricted amount of foreign-knowledge

workersInvest any amount in foreign currency,

onshore and offshore…etc.

Over the last few years, the services sector has not only continued to expand but recorded major key trends as well. Trade in services has been rising at a significant pace and growth in the MRS and outsourcing industry continued to expand. Liberalization in the services sector has continued to take place in line with Malaysia's commitment to the WTO and the AFAS.

Government remains committed to further boost the services sector and make it a new engine of growth. However, government has not only set up organizations to promote the industry but also maintain attractive investment incentives to encourage new investments. The Government also maintains a liberal equity policy in selected services industries.

ReferencesEconomic Review. (2006). Services Sector in Malaysia: Part II. Retrieved

September 29, 2010from http://ww2.publicbank.com.my/cnt_review78.html

MIDA. (2010). Invest in Malaysia: Liberalisation of the Services Sector. Retrieved September 29, 2010 from http://www.mida.gov.my/en_v2/index.php?page=liberalisation-of-the-services-sector

MIDA. (2010). Invest in Malaysia: Performance of the Services Sector. Retrieved September 29, 2010 from http://www.mida.gov.my/en_v2/index.php?page=policies-guidelines-and-incentives

Ministry of Higher Education Malaysia. (2010). Malaysia’s Incentives and Support Packages for for Higher Education. Retrieved September 29, 2010 from jpt.mohe.gov.my/.../Maklumat%20Insentif%20Untuk%20IPTS%20&%20Borang%20Yang%20Digunakan_120309.pdf

PEMANDU. (2010). National Key Economic Areas: The Economic Transformation Programme. Retrieved September 29, 2010 fromhttp://www.pemandu.gov.my/index.php?option=com_content&view=article&id=600&Itemid=83&lang=en