[E]. PERIOD: 1957 - 1970
This section provides a brief background on the general characteristics of the Malaysian economy as well as government policies to promote agricultural diversification and industrialisation. It outlines policies implemented under the First and Second 5-Year Malaya Plans (1956-1960 and 1961-1965) and the First Malaysia Plan (1966-1970), under Tunku Abdul Rahman's premiership. Economic development during this period was based mainly on agriculture, and growth was precariously dependent on rubber and tin exports. During this period, the two commodities accounted for 85% of Malaysia's exports. In the past, this over-dependence made domestic economic stability extremely vulnerable to external shocks. Hence, policies strived to promote agricultural diversification alongside industrialisation efforts.
From 1957 onwards, efforts to reduce dependence on rubber began as competition from synthetic rubber put price stability of natural rubber at stake. This desire was also due to past lessons learnt, whereby the economy fluctuated with movements in rubber prices, ie when rubber prices rose, the economy boomed, and vice versa. Hence, various efforts were undertaken to increase prominence of palm oil, as it was perceived to have better prospects. Figure 4 below shows the diminishing importance of rubber and the reverse in the case of palm oil after 1957. Additionally, rubber as a proportion of total merchandise export receipts fell from 55% to 34% between 1960 and 1970. Conversely, exports of palm oil rose almost fourfold from $71.6 mln in 1960 to $273.6 mln in 1970.
Figure 4: Hectarage Under Estates
Nevertheless, efforts to sustain the rubber industry persisted, and although planted area fell, output continued to rise. The government devoted M$153.4 mln, M$467.9 mln and M$160.2 mln in the 3 respective plans (First and Second Malaya Plans and First Malaysia Plan) for the replanting of higher yielding trees to remain competitive against synthetic rubber.
Additionally, the Federal Land Development Authority (FLDA), now known as FELDA, was established in 1956 to open up virgin jungles to increase land available for agriculture. Settlers were then carefully selected to develop the area, build houses and plant rubber. Since rubber takes 7 years to mature, settlers can meanwhile, plant paddy and raise livestock to make a living. FELDA would then recover the expense in the seventh year when the rubber is ready for tapping. The main beneficiaries of this scheme were the Malays.
Figure 5: Rubber Production
As a result of these efforts, rubber production increased. Unfortunately, despite increased output, export earnings fell because of falling unit price (see figure 5) in the face of intense competition from synthetic rubber. Nevertheless, the fact that output increased indicates that efforts were a success (see figure 6).
Figure 6: Rubber Price 1957 - 1970
During this period, efforts to improve irrigation and reduce dependence on imported rice intensified. As Table 15 below illustrates, government expenditure on irrigation and drainage rose dramatically between 1956 and 1970. These efforts include the development of the extensive Muda River catchment with expected irrigation potential of approximately 200,000 acres in the North Kedah plain.
Table 15: Government Expenditure on Selected Agriculture
The FELDA land development schemes involve the opening up of virgin jungles for agricultural activities. As shown in Table 15, expenditure for land development rose tremendously from 1956 to 1970. The following were several of the numerous efforts undertaken by FELDA to kick-start land development:
Table 15 shows government expenditure on selected agricultural items during Tunku's premiership.
- Clearing, cultivating and settling projects of up to 250,000 acres.
- A yearly programme of 12 land settlement schemes, whereby 400 families would be granted 7 acres of rubber or oil palm land and 3 acres for paddy, vegetables, fruits, etc. per family.
- Develop a targeted area to accommodate 24,000 families, with rubber planted as the main crop. However, if conditions are conducive, planting of oil palm is prioritised.
- Of the M$191 mln allocation from 1961-1965, M$175 mln was allocated for FELDA to open up 250,000 acres of land. By 1970, FELDA had developed 308,400 acres and settled 20,700 families through 90 schemes.
Overall, public expenditure on agriculture development constituted 23.6%, 20% and 26.3% of total public investment during the First and Second Malaya Plans, and First Malaysia Plan respectively. Expenditure for agricultural development accounted for one of the largest sectors of public spending during the First and Second Malaya Plans, and the largest sector during the First Malaysia Plan. Additionally, agriculture was also the largest contributor to Malaysia's GDP (illustrated in Table 16). This of course is an indication of the level to which economic growth, as well as employment relied on agriculture.
Table 16: % of GDP by Industry of Origin 1960 - 1970
An examination of the structural changes over time in the Malaysian economy would reveal that the economy (ie GDP, exports and employment) became less dependent on the primary sector and more dependent on the secondary sector. From 1960 onwards, government policies adopted to promote industrialisation were notable. The following were some of the policies employed:
Encourage private sector-led industrialisation by improving facilities and infrastructure available to foster a more conducive environment
Allocation of $10 mln for establishing RIDA (Rural and Industrial Development Authority)
- $1.8 mln for the establishment of Institute of Industrial Technology and an Industrial Productivity Centre to provide technical and other advisory services and assistance to the industry.
- $2.5 mln to provide financing to Malayan Industrial Development Finance (MIDF) for industrial credit activities.
Industrial Development Policy
- Focuses mainly on the development of small-scale industrial enterprises in rural areas.
- Provides advisory services, credit extension and provision of processing and marketing services.
- Objectives include promotion of private sector led growth and stimulating interests of both local and foreign entrepreneurs.
- Tariff protection for infant industries.
- Tax incentives to accelerate capital formation.
- Provide industrial credit though MIDFL, whereby MIDFL relies on the World Bank for sources of finance.
- Provide financial assistance to Bumiputra small-scale enterprises through MARA (Majlis Amanah Rakyat) and extension of MIDFL's services - establishment of MIEL (Malaysian Industrial Estates Limited) to provide exclusive assistance to small industries.
- Provide industrial training.
- Facilitate industrial research by allocating $5 mln and $0.1 mln to establish a National Institute of Scientific and Industrial Research and Malaysian Standards Institute respectively.
- Allocate $5 mln for the establishment of FIDA (Federal Industrial Development Authority) to supervise the execution of plans of various agencies such as MARA and MIDFL. This is to ensure uniformity of direction and effective implementation.