Malaysia's New Northern Economic Region

First we had the Southern Economic Region, named Iskandar Development Region (IDR), reminiscent of the special economic region of China's Shenzhen, which closely link with its counterpart Hong Kong. In IDR's case, it's an open economy that targets foreign investors focusing on service related sectors, tourism and properties with close collaboration with neighbour Singapore.

Over the past 2o years, Malaysia's economic growth and competitiveness has been built around the manufacturing industries, particularly the Electronic and Electrical industry. With the emergence of China, India and now Vietnam, Malaysia's competitiveness has suffered serious threat as its cost escalates and competitive edge deteriorates. Agricultural sector has also remained stagnant over the years. In realization of the need to continue boosting Malaysia's economic growth going forward and bringing these sectors that had served Malaysia well in the past to a higher level, here comes the realisation of a new economic region that serves to propel the country to the next frontier. The investment amount potentially total 177billion Malaysian Ringgit (USD51.2 billion) in mostly private funding over 18 years to turn its mainly agricultural and manufacturing north into a logistics, food-processing and tourism hub by 2025.

There are about 4.3 million people living in this region, in which ethnic Malays forms the majority of the population, other than Penang state. About two-thirds of them are in the region's rice-growing areas. The average annual income of around 2,477 Malaysian ringgit (USD717) per household, is the lowest among the six regions in the country except for the east coast (Kelantan and Terengganu). With the NCER, the Government aims to increase annual income by three fold and boost GDP four fold by 2025. In addition, it is expected to create 500,000 jobs by 2012, doubling to a million by 2018.

The biggest beneficiary is expected to be the state of Penang, where currently high tech electronic and electrical manufacturing dominates both in the island and main land. For the past decade, the state's economy had stagnated or deteriorated due to a number of manufacturing companies moving their base to other more attractive low-cost base countries such as China. Also, it's competitiveness has suffered due to its failure to move manufacturing up the value chain. Real invention from Research and Development remains weak. So, one of the main objective is to move up the value chain such as enhancing output from research and development. But there lies other more ambitious plan. Malaysia intends to convert Penang into a major transportation and logistics hub, by building centralized and integrated infrastructure and transportation links, including highways, bridges, railway and monorail services, expansion of air links and airport to cater for budget airlines.

Other key targets include:
- enhance tourism and tourism spending;
- become a modern food zone, helping the country to increase its efficiency in food production

A grand plan indeed, but will it be successful or is this another potential mega project flop in the making? The Government do mean business, as the formation of a central implementation agency appears to suggest so. The central agency will be a government body under a council to be chaired by Malaysia's Prime Minister and comprising the deputy PM, the chief ministers of Penang, Perlis, Kedah and Perak, as well as some cabinet ministers. It will be responsible for implementing the detailed planning and will launch a one-stop centre.

Later, I shall look into where are the potential opportunities it could bring to investors.