Revitalising Affected Sectors

National Economic Recovery Plan
Chapter 7


Primary Commodities and Resource-Based Industries

The primary commodities sector comprises rubber, oil palm, forestry and other minor crops such as cocoa and tobacco. In 1997, the sector accounted for 8 per cent of the countryÝs total exports of RM 115 billion and 10.5 per cent of total export earnings of RM 221 billion. The sector employs 740,000 workers or 8.6 per cent of total of 8.6 million employed in the country. More than half the sectorÝs employment is in oil palm (51 per cent), followed by forestry (30 per cent), cocoa (8 per cent) and rubber (6 per cent). Immigrant workers account for 40 per cent of the workforce in the sector.

The resource-based industries account for 17 per cent of total manufacturing value added and 10 per cent of the 2.3 million employed in manufacturing activities. The resource-based industries include the following:

  1. Rubber-based products (tyres, footwear, gloves, condoms and catheters);

  2. Palm oil-based products (oleo-chemicals, margarine, soap, detergents and personal care products); and

  3. Wood-based products (sawn timber, veneer, plywood products, furniture and mouldings).

The issues for the primary commodities are as follows:

  1. Malaysia is losing competitiveness in natural rubber due to higher production cost and wage levels, as well as the higher rate of depreciations of rupiah and baht. Rubber hectarage has declined due to conversion to oil palm and other urban uses.

  2. The export values for palm oil are sensitive to exchange rate fluctuations. A change of US1 cent in rate means a difference of RM38 million in export value. Further price increases in the palm oil could force substitution to other oils. Palm oil is sold at US$678 compared with US$634 for soya oil and US$640 for rapeseed oil. The subsector is also faced with higher cost of imported fertilisers and labour shortage.

  3. Log supply will decline in the future as the states adhere to the limits set under the National Forestry Policy. Under the Seventh Malaysia Plan, the quota is reduced to 45,000 hectares compared with 52,250 hectares under the Sixth Plan.

  4. For rubber products, the latex-based products industry is benefiting from the ringgit depreciation but firms are finding it difficult to gain access to workers. The tyre manufacturers are losing local market share to imports from Indonesia and Thailand due to the gradual reduction in import tariffs on tyres. They are also facing higher cost of imported materials and the downturn in local demand for tyres.

  5. In the furniture industry, Malaysian firms are heavily dependent on middlemen to market furniture abroad since US firms control international marketing. The middlemen use Thai and Indonesian prices as leverage to push down prices of Malaysian furniture. There is uncertainty over the supply of rubber wood, which forms nearly 80 per cent of the materials used for furniture making. Despite the publicity in the mass media on the Small and Medium-scale Industries (SMI) Fund, manufacturers are still unsure of how to apply to the fund.

The policy recommendations below are intended to meet two broad objectives:

  1. To take advantage of the positive impact of the ringgit depreciation to promote output and exports; and

  2. To provide a reprieve to industries that are adversely affected by rising import costs and falling demand.
  • Immediate Measures
  1. Review the funding for rubber replanting with a view to sustaining rubber output, raise smallholder incomes as well ensuring stable supply of rubber wood to the furniture industry.

  2. In replanting rubber, advanced planting materials should be used to reduce the gestation period before income is received. The use of latex timber clones will increase output as well as the supply of timber wood.

  3. Provide fiscal incentives for promoting the export of rubber products and furniture.

  4. Provide additional information and publicity to SMIs on how to gain access to the SMI Fund.

  5. Establish bilateral payment arrangements with non-traditional markets such as China, the Middle Eastern countries and the CIS countries that offer good prospects for the export of Malaysian primary commodities and resource-based products.

  6. Provide clear policy directions on immigrant labour and establish an effective institutional machinery to deploy surplus labour from the construction and services sectors to the plantations and resource-based industries that need workers.

  7. Review and extend the duration of work permits for skilled immigrant workers so as to enable such workers to stay for a longer period of time.

  • Medium-Term Measures
  1. Encourage the rehabilitation of the 300,000 hectares of abandoned rubber smallholdings through strategies such as mini-estates by consolidating adjacent units.

  2. Increase the hectarage under oil palm particularly in Sabah and Sarawak.

  3. Encourage R&D by PORIM on expanding and improving current use of palm oil, its production efficiency and quality of products as well as maximise the full potential of the oil palm tree.

  4. Encourage R&D by PORIM on zero-waste strategy on using trunks, fronds and empty fruit bunches in the manufacture of pulp and paper, medium density fibreboard and furniture.

  5. Encourage PORIM to explore the use of palm oil mill effluent as fertilisers so as to reduce the import bill on fertilisers.

  6. Intensify the promotion of edible (margarine, non-dairy creamers) and non-edible uses (cosmetics, detergents) of palm oil in food technology and oleo-chemical industry to reduce imports and increase exports.

  7. Provide industrial land at reasonable prices for the expansion of the furniture industry.

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