1. Development

Malaysia is a federal elective constitutional monarchy, composed of 3 Federal Territories and 13 States, of which 9 are kingdoms and 4 are republics. The King or Supreme Head of State (Yang di- Pertuan Agong ) is elected from among the hereditary sovereigns of nine of the thirteen States that make up the Federation. The parliament is composed of the House of Representatives, which is the main legislative body, and the Senate, which has the power to suspend the legislature.

The parliamentary system is borrowed from that of the United Kingdom (Westminster system), the Senators are appointed every three years by the Assemblies of the 13 member States and by the King on the recommendation of the Prime Minister, the members of the House of Representatives are elected in general elections every five years in single-member constituencies; The Prime Minister is appointed by the King and must be a member of the House of Representatives who enjoys the support of the majority of members.

West Malaysia lies on the southern tip of the Malacca Peninsula (also known as Malaysia) and is made up of the Federal Territory of Kuala Lumpur (the capital), the Federal Territory of Putrajaya (the administrative centre of the country, immediately south of Kuala Lumpur) and 11 states, while East Malaysia lies on the northern part of the island of Borneo and is made up of 2 states and the Federal Territory of Labuan.

Since gaining independence in 1957, Malaysia has successfully diversified its economy from one based on agriculture and raw materials to one based on robust manufacturing and service sectors 1.

The main export sector is electronics (21.3% of exports in 2021) 2, followed by refined petroleum, palm oil and rubber clothing accessories (Malaysia is the world's leading producer of rubber).

Malaysia is one of the most open economies in the world, with a trade-to-GDP ratio averaging over 130% as of 2010. Openness to trade and investment has been instrumental in job creation and income growth, with approximately 40% of Malaysia's jobs being export-related. Since the Asian financial crisis of 1997–1998, Malaysia's economy has been on an upward trajectory, averaging 5.4% growth since 2010, and the World Bank projects that it will transition from an upper-middle-income to a high-income economy by 2024.

The pandemic has had a severe economic impact on Malaysia, especially on vulnerable households. After the national poverty line was revised in July 2020, 5.6% of Malaysian households live in absolute poverty. The government focuses on the well-being of the poorest 40% of the population (“the bottom 40”). This low-income group remains particularly vulnerable to economic shocks, as well as rising living costs and growing financial obligations.

Income inequality in Malaysia remains high compared to other East Asian countries, but is gradually decreasing. Although the income growth rate for the bottom 40 has outpaced that of the top 60 for much of the past decade, the absolute gap between the two groups has increased, contributing to the perception that the poor are being left behind. Following the abolition of large-scale subsidies, the government has gradually shifted to more targeted measures to support the poor and vulnerable, mainly in the form of cash transfers to low-income households.

Malaysia’s near-term economic outlook will depend more than usual on government measures to support private sector activity, as the Covid-19 shock reduces export-led growth and depleted fiscal space constrains public investment-led expansion. Over the longer term, as Malaysia converges with high-income economies, incremental growth will depend less on factor accumulation and more on productivity gains to support higher potential growth. Although significant, Malaysia’s productivity growth over the past 25 years has lagged many global and regional peers. Ongoing reform efforts to address key structural constraints will be vital to sustain Malaysia’s development path.

Bank Human Capital Index , Malaysia ranks 55th out of 157 countries. To fully realize its human potential and meet the country's aspiration to achieve high-income, developed country status, Malaysia will need to make further progress in its education, health, nutrition and social protection outcomes. Key priority areas include improving the quality of education to improve learning outcomes, rethinking nutrition interventions to reduce child stunting, and providing adequate social protection for household investments in human capital formation.

“Malaysia MADANI” is the new guiding principle of economic policy, introduced by Prime Minister Anwar Ibrahim on 19 January 2023 3, following his appointment after the 2022 general elections. MADANI is an acronym in Malay for keMampanan (Sustainability), kesejAhteraan (Prosperity), Daya cipta (Innovation), hormAt (Respect), keyakiNan (Trust) and Ihsan (Compassion); the acronym in English is translated as “SCRIPT”.

In the vision of the Prime Minister, Malaysia MADANI is a new economic paradigm, with steps towards enhancing economic growth, promoting investment and strengthening local industries to become more innovative, competitive and capable of expanding into the global market.

The Madan Economy has seven goals to achieve in 10 years 4:

• To bring Malaysia into the world's 30 largest economies.

• Place the country in the Top 12 of the Global Competitiveness Index ranking.

• Rank the country among the Top 25 in the Human Development Index.

• Ranking the country among the Top 25 in Corruption Perceptions Index.

• Reduce the deficit to 3% or less.

• Increase the share of income from work to 45% of National Income.

• Increase female labor force participation to 60%.

The Prime Minister places great importance on boosting the competitiveness of Small and Medium Enterprises, as they make up 98.5% of all businesses and employ 70% of the workforce (percentages very similar to the Italian situation). In 2021, Malaysian SMEs contributed 38% to the country's GDP.

Malaysia's economic policy is divided into five-year plans, called " Mlaysi Plan" of which the current one is the 12th for the period 2021-2025 (abbreviated 12th MP); Malaysia MADANI, therefore, is inserted halfway through the five-year plan, for this reason, on 11 September 2023, the review of the medium-term was defined, integrating it with the MADANI vision and making it a plan for the transition and reform of the economic system.

During the Review it was highlighted that 5:

• The economy is expected to grow between 5.0% and 5.5% annually over the period 2023-2025 (2021-2022: +5.9%), driven by domestic demand, especially from the private sector. Efforts to improve labor productivity will be stepped up, which is estimated to grow at 3.8% annually to support growth (2021-2022: +3.7%),

• On the manufacturing supply side, sectoral reforms will be accelerated by strengthening the

• high value, high growth industries related to energy, technology

• and digitalisation, electronics, agriculture and rare and non-radioactive earths, which should support targeted growth in all sectors

• The services and manufacturing sectors will remain the engines of economic growth, with the former and the latter expected to grow at an average annual rate of 5.7% and 4.9% for the period 2023-2025 (2021-2022: +6.5% and +8.8% respectively),

• in the services sector, support measures will be intensified to support tourism, creative industries, halal and ICT services. The electricity sub-sector will be strengthened by increasing renewable energy (RE) capacity with a target of 31% in 2025, and emphasis will be placed on increasing the deployment of solar, hydropower and bioenergy, as well as accelerating the development of new and nascent energy resources, especially hydrogen. These focuses are in line with the Madani initiatives and the National Industry 2030 Master Plan,

• The manufacturing sector will remain driven by electronics, with measures to intensify the production of complex and high-value-added products by promoting advanced front-end manufacturing activities and strengthening the overall ecosystem, especially in integrated circuit design, integrated circuit packaging, wafer fabrication, embedded systems , test services and design engineering. Efforts will also be undertaken to strengthen knowledge-intensive industries, including media and entertainment , petroleum, and chemicals and chemical products, as well as the production and installation of energy-efficient vehicles, including electric and hybrid vehicles.

• The focus in the agricultural sector will be on smart agricultural technologies, increasing high-value crops and optimizing food production areas. These measures are expected to increase the share of the agri-food subsector to around 57% of total agricultural value added in 2025.

• The construction sector will be led by the civil engineering and residential building sub-sectors , with strategic initiatives focusing on affordable housing and green building products,

• The mining sector will be driven by natural gas production, but the government will develop a new business model to promote growth in the rare earth sector,

• a progressive wage model will be introduced to accelerate wage growth and the ratio of employee income to GDP. In this context, the government will continue to limit the number of foreign workers to no more than 15% of the total workforce. This plan will include the implementation of a multi-level withdrawal mechanism, which could potentially increase labor costs for the construction and plantation industries

• From a tax/financial perspective:

  • The government maintained its fiscal deficit target of 3.0%-3.5% of GDP for 2025,

  • The government has increased its Development Spending for the period 2021-2025 from RM15 billion (US$3.2 billion) to RM415 billion (US$88.97 billion). The construction sector is the main beneficiary of the increase in Development Spending and the allocation will be prioritised in the six least developed states, namely Kedah , Kelantan , Perlis , Sabah , Sarawak , Terengganu ,

  • To broaden the tax base, the government plans to introduce a capital gains tax in 2024

  • To ensure prudent spending, the government will rationalise subsidy spending through targeted subsidies, which may include electricity, diesel, petrol and other social benefits. It is estimated that this could potentially save RM20 billion (US$4.3 billion) to the government coffers.

Table : Sustainability targets set in the revised 12th Malaysia Plan

Malaysia's infrastructure development has been a crucial factor in accelerating the growth of its economy. From a transportation perspective, infrastructure development has enabled the country to become a regional hub, attracting investors and businesses from around the world, further boosting the country's economy. Furthermore, communication infrastructure development has led to greater connectivity, which has had a positive impact on the tourism industry.

In 2021, the Government launched the National Construction Policy 2030 (NCP2030) which aims to transform the sector through digitalisation and sustainability. The programmatic document identifies 6 “drives”:

1. Strengthen quality and safety in project performance across the construction industry. This drive aims to provide a single, synergistic system of total project performance to increase project quality and safety. It aims to drive efficiency among industry players to prioritize safety management and quality standards as a prerequisite to be relevant and competitive.

2. making the built environment sustainable. Gas emissions, inefficient waste management and development in the construction sector have significant environmental impacts. Construction waste is a significant problem in the construction sector. To address these issues, the Ministry of Works focuses on supporting sustainable development throughout the life cycle of the construction sector. In the face of global change, the construction sector must align its strategy with the Sustainable Development Goals. In all aspects of national construction development, the construction sector can help the country meet its international sustainability commitments.

3. improve construction productivity. This drive aims to change construction training institutions to develop a supply of highly skilled construction workers. To achieve this specific goal, the Ministry of Works plans to change the image of the construction industry from the 4Ds of Asian neologism: “Dirty,” “Dangerous,” “Difficult,” and “Humiliating” to the 1D “Dignified” through technology and vocational training. As a result, dependence on unskilled foreign workers will be reduced indirectly, while the domestic labor supply will be compensated and construction workers will receive higher wages.

4. Strengthen infrastructure maintenance. The Ministry of Works is establishing a holistic chain of construction processes to assist in the design and management of a complete construction cycle, especially in the long-term management of infrastructure that will save costs. This will indirectly increase and expand the value of infrastructure. More importantly, the development of the infrastructure maintenance sector will provide an economic boost, creating new opportunities for industry players through the development of infrastructure maintenance capabilities. This includes training for infrastructure maintenance contractors, employee training, and facility management system certification.

5. Strengthen internationalization and competitiveness. There is a growing need for companies to maintain their dominant position in the local market and explore opportunities in global markets. Globalization and free trade have enabled Malaysian construction companies to compete in a larger market while remaining competitive domestically. Local industry players should be better equipped to meet international standards and increase their local and global competitiveness. Strategies include introducing implementable financial products for international construction projects, creating accurate, real-time and comprehensive information on the international construction industry through an integrated and open platform, and encouraging Malaysian construction companies to participate in international construction projects.

6. Strengthening good governance and adoption of best practices. Good governance is essential to providing the best services to society. Therefore, the Ministry of Works is committed to ensuring that the construction sector upholds sound governance principles while optimizing all resources, including environmental conservation. Inefficient management of construction projects has been linked to poor construction quality, delays, cost overruns, inefficiency and significant environmental damage. Transparency in public procurement is another serious issue in this sector. Therefore, the Ministry, through its agencies, seeks to improve construction project management through excellent governance and best practices to ensure public and stakeholder satisfaction.