From A Capital City to A World City Vision 2020, Multimedia Super Corridor and Kuala Lumpur

From a Capital City to a World City: Vision 2020, Multimedia Super Corridor and Kuala Lumpur A thesis presented to the faculty of the Center for International Studies of Ohio University.

From a Capital City to a World City:

Vision 2020, Multimedia Super Corridor and Kuala Lumpur

A thesis presented to the faculty of the Center for International Studies of Ohio University

This thesis entitled From A Capital City to A World City:

Vision 2020, Multimedia Super Corridor and Kuala Lumpur

BY JEN YIH YAP

has been approved for the Program of Southeast Asian Studies and the Center for International Studies by

Yeong-Hyun Kim Assistant Professor of Geography

Josep Rota Associate Provost, Center for International Studies

YAP, JEN YIH M A August 2004 Southeast Asian Studies

From A Capital City to A World City: Vision 2020, Multimedia Super Corridor and Kuala Lumpur (121pp.)

Advisor of Thesis: Yeong-Hyun Kim

In 1991, the former Prime Minister Tun Dr Mahathir Mohamad introduced an initiative called Vision 2020, designed to bring Malaysia to a developed country status, and this initiative will eventually support Kuala Lumpur’s position to become a world city This thesis examines the recent urban restructuring of Kuala Lumpur in terms of the

Malaysian government’s current aspiration for world city status Many capital cities in the developing world have been undergoing various world city projects that aim at, among other things, improving their international visibility, advancing urban

infrastructures and promoting economic competitiveness in a global world economy This thesis focuses on four large-scale constructions in the Multimedia Super Corridor, namely, the Kuala Lumpur City Center, Kuala Lumpur International Airport, Putrajaya and Cyberjaya In addition, this thesis will provide a comparison of Kuala Lumpur’s status in Southeast Asia

Approved: _

Yeong-Hyun Kim Assistant Professor of Geography

to Kuala Lumpur, Malaysia and collect data for this thesis

I also would like to thank all my friends in Ohio University for their informative discussions and sharing of their knowledge I thank Marianne and the tutors in the

Academic Advancement Center (especially Rachel and Micah) for proofreading

my thesis I am also thankful to the Southeast Asian Collection, Ohio University library for its resourceful academic collections on Malaysia

I sincerely thank my parents, Yap Yew Tack and Law Seang Foong, my brother, Kim Bee, and my sisters, Siew Pheng, Shiow Wen, and Siew Ruenn for their love and support over all these years Last but not least, I would like to thank my close friends, Sean Hsieh, Yang Pei, and Vichea Tieng for their encouragement

Table of Contents

Page

Abstract 3

Acknowledgements 4

List of Tables 6

List of Figures 7

List of Abbreviations 9

Chapter 1 1.1 Introduction 10

1.2 Study Area 14

1.3 Research Methods 16

1.4 Literature Review 18

Chapter 2 – The Malaysia Economy and Vision 2020 2.1 The Growth of the Malaysian Economy 24

2.2 The Malaysian Government’s Economic Plans 33

2.3 Vision 2020 37

Chapter 3 – Kuala Lumpur as the Center of the Malaysian Economy 3.1 The Old Kuala Lumpur 41

3.2 The Modern Kuala Lumpur 45

3.3 Kuala Lumpur and Vision 2020 50

3.3.1 Regional Information and Communication Technology and Multimedia hub 51

3.3.2 Regional Hub (Air Transportation Connections) 54

3.3.3 Regional Islamic Financial Center 56

3.3.4 Regional Education Center 59

3.4 Kuala Lumpur as a World Class City 60

Chapter 4 – Grounding Works for World City Status 4.1 The Kuala Lumpur City Center 62

4.2 Kuala Lumpur International Airport 68

4.3 Putrajaya 76

4.4 Cyberjaya 81

Chapter 5 – Kuala Lumpur as a Regional Center of Southeast Asia 5.1 Urban Restructuring in World Cities in Southeast Asia 93

5.2 Kuala Lumpur and Southeast Asian Cities 97

Chapter 6 6.1 Conclusions 111

References 114

List of Tables

3.1 Malaysia Plans’ Budget Allocation for Kuala Lumpur 47

3.2 Kuala Lumpur as the Regional Center 51

3.3 Southeast Asian Stock Markets: Composite Index 57

4.1 Proportion of Land use in the Putrajaya 77

4.2 Number of Students Graduated from Multimedia University at Cyberjaya, 1999-2003 86

4.3 Malaysian Companies in the Deloitte Tohmatsu Technology Fast 500 in 2002 89

5.1 The Ranking of World’s Tallest Building and Planned Constructions of the Next World Tallest Building 98

5.2 World Airport Ranking for the Number of Passengers in 2002 100

5.3 World Airport Ranking for the Total of Cargo in 2002 101

5.4 New Airport Projects in Asia Pacific 102

5.5 Top Five Digital Access Countries in the Developing Asia-Pacific 104

5.6 Asian Urban Hierarchy in Selected World Cities Studies 109

List of Figures

1.1 Vision 2020, Multimedia Super Corridor and Kuala Lumpur 13

1.2 Map of Malaysia 14

1.3 Kuala Lumpur Metropolitan Area and the Multimedia Super Corridor 15

2.1 Gross National Income (Atlas Method) of Malaysia, 1962-2002 25

2.2 Gross Domestic Product Per Capita of Malaysia, 1960-2002 26

2.3 Changes in the Economic Structure of Malaysia, 1960-2002 27

2.4 Malaysian Export and Import of Goods and Services, 1960-2002 28

2.5 Malaysian Foreign Direct Investment, 1974-2001 30

2.6 Gross Domestic Product Growth of Malaysia, 1961-2001 31

3.1 Urban Growth in the Klang Valley for Selected Years, 1990-2005 44

3.2 General View of Kuala Lumpur in the 1980s 45

3.3 Population of Kuala Lumpur 46

3.4 Distribution of Employment by Organizational Groups in Five Major States, 1999 48

3.5 Functions of Kuala Lumpur Metropolitan Region 49

3.6 General View of Kuala Lumpur in the 1990s 50

3.7 The Developmental Phases of Multimedia Super Corridor 53

4.1 The Master Plan of Kuala Lumpur City Center 64

4.2 The Development Phases of Kuala Lumpur International Airport, 1998-2012 69

4.3 Total Passengers Handled by Kuala Lumpur International Airport

(1998 to 2002) 71

4.4 Total Domestic and International Passengers Handled by Kuala Lumpur International Airport and All Other Airport in Malaysia, 2002 72

4.5 Total Cargo Handled by Kuala Lumpur International Airport, and All Other Airports in Malaysia, 2002 73

4.6 Total Cargo Handled by Sultan Abdul Samad International Airport (1992-2002), and Kuala Lumpur International Airport (1998-2002) 74

4.7 Total Commercial Aircraft Movement Handled by Kuala Lumpur International Airport and All Other Airports in Malaysia, 2002 75

4.8 Map of Putrajaya 76

4.9 A Three-Year Physical Developmental Plan of Cyberjaya 82

4.10 MSC-status and Non MSC-status Companies in Cyberjaya 83

4.11 Employment in Multimedia Super Corridor, 1997-2003 (October) 87

4.12 Multimedia Super Corridor Companies by Sectors, 2003 88

5.1 A poster used for a joint tourism promotion for Malaysia and Singapore 99

5.2 A book cover on urbanization in Southeast Asia 99

5.3 World Competitiveness of Infrastructure, 2002 105

5.4 Estimates and Rankings of e-Government Maturity by Country 106

5.5 Cities Bidding for the Summer Olympics, 2008 107

List of Abbreviations

ASEAN Association of Southeast Asian Nations

KLIA Kuala Lumpur International Airport

KLMR Kuala Lumpur Metropolitan Region

MITI Ministry of International Trade and Development

SARS Severe Acute Respiratory Syndrome

CHAPTER 1

1.1 Introduction

This thesis examines the Malaysian government’s efforts to promote its capital city, Kuala Lumpur, as a world city “World cities” are defined as primary centers of the globalizing world economy (Short & Kim, 1999) According to this definition, New York, London and Tokyo are three major world cities that have been recognized for their disproportionate share of multinational corporation headquarters, stock markets,

international organizations, and global air networks Thus, these cities are often called first-tier world cities and global cities (Sassen, 1991)

After these three primary cities, however, there have been some disagreements on what cities should be considered second-tier world cities Friedmann (1995) argues for Amsterdam, Frankfurt, Los Angeles, Miami and Singapore as regional centers following the three major global centers in the hierarchy, while some argue that Paris and Chicago should be included in the list of second-tier world cities (Beaverstock et al., 1999) Understandably, more disagreements are observed further down in the global urban hierarchy, since different indicators value different assets and characteristics that

individual cities have developed over the last decade

There is a group of world cities commonly called “emerging world cities” (Lo & Yeung, 1996), “wannabe cities” (Short & Kim, 1999) or gateway cities (Short et al., 2000) These are large cities, mostly capital cities, in developing countries which have served as connecting points between their respective countries and the wider world A lot

of these cities’ world city status has been promoted by their national governments

through large-scale urban projects and/or international sports competitions (Olds, 1995)

Kuala Lumpur is such an example of an emerging world city Indeed, many capital cities in Southeast Asia have dreamed of attaining world city status, and, their governments have undertaken various urban development projects in recent years In

1991, Tun Dr Mahathir Mohamad, former Prime Minister of Malaysia introduced a term vision of the country, named “Vision 2020,” to achieve the goal of becoming a developed economy by the year 2020 To become a developed country based on Vision

long-2020, Malaysia needs to prepare for a major shift from a manufacturing economy to a knowledge-based economy Much of the long-term national development plan is

concentrated on the restructuring of Kuala Lumpur, the country’s capital city In an effort to materialize the vision, the Malaysian government launched the Multimedia Super Corridor (MSC) to promote its knowledge-based industries The Multimedia Super Corridor consists of four major large-scale projects, the Kuala Lumpur City Center, the Cyberjaya, the Putrajaya and the Kuala Lumpur International Airport Along with these projects, the Kuala Lumpur government has also drafted the Kuala Lumpur Draft Structural Plan 2020 in early 2003 to promote Kuala Lumpur for world-class status (Figure 1.1)

The thesis pays particular attention to the Multimedia Super Corridor projects that have significantly upgraded Kuala Lumpur’s infrastructure in the past decade, regardless

of the occurrence of the Asian financial crisis in 1997 to 1998 The construction of these four large-scale projects continued despite the national economic growth plummeting to -7% The Malaysian government’s action to continue these constructions was strongly

criticized by some Malaysian societies However, the voices of criticism on the

Malaysian government’s large-scale projects have becoming less as the national

economic growth has been recovering since 2001 Therefore, this thesis seeks to

examine the ways in which Kuala Lumpur has been restructured along with the Vision

2020 concept in pursuit of becoming a world city within the next 20 years

Malaysia Vision 2020

Regional Information and Communication Technology Hub

Regional Hub Air Transportation Connections

Regional Islamic Financial Center

Regional Education Center

Kuala Lumpur Structural Plan 2020 Kuala Lumpur Metropolitan Area

Figure 1.1: Vision 2020, Multimedia Super Corridor and Kuala Lumpur

1.2 Study Area

This thesis examines the recent urban restructuring of Kuala Lumpur, which has been a capital city since 1896 Kuala Lumpur has been the primary center of Malaysia’s economic growth in the past few decades, and it is again at the center of Malaysia’s goal

to become a developed country through the notion of Vision 2020

The study focuses particularly on four large-scale construction projects of Kuala Lumpur City Center, Cyberjaya, Putrajaya and Kuala Lumpur International Airport These four large-scale projects are all located in the Multimedia Super Corridor which is

in the Federal Territory of Kuala Lumpur including the urban area of Klang Valley and part of the states of Negeri Sembilan and Selangor (Figure 1.2 and 1.3)

Figure 1.2: Map of Malaysia

Source: Primedia Company http://geography.about.com

Figure 1.3: Kuala Lumpur Metropolitan Area and the Multimedia Super Corridor

Source: Kuala Lumpur Structural Plan 2005 with modification

1.3 Research Methods

This thesis draws primarily on the information that I collected while conducting a fieldwork in Kuala Lumpur in December 2003 and published statistical data on the Malaysian economy, Kuala Lumpur and other Southeast Asian cities The details of Vision 2020 and the Multimedia Super Corridor were obtained from the Malaysian government and Kuala Lumpur city government

The economic statistical data are important to illustrate the economic

development of Kuala Lumpur and Malaysia beginning from Malaysia’s national

independence in 1957 It is also useful to compare Kuala Lumpur’s position with other Southeast Asian cities in the regional urban hierarchy I analyzed the content of Vision

2020 that is related to recent urban restructuring in Kuala Lumpur Furthermore, a series

of unstructured interviews were conducted with some officials to ensure that some of the information and data were accurate as well as to learn the officials’ views on Kuala Lumpur becoming a world city

I visited both the Malaysian-Industry Government Group for High Technology (MIGHT) and the Ministry of Transportation, both of which are located in the Malaysian government administration city of Putrajaya, part of the Multimedia Super Corridor project I collected statistical data on the economic and social development of Malaysia,

as well as statistics for air transportation As for the information on Kuala Lumpur, I visited the Kuala Lumpur city government to get a copy of Kuala Lumpur’s Structural Plan and to gather information on Kuala Lumpur’s role and plan for the 21st century I

also visited the economic department and tourism department of the Kuala Lumpur city government

In addition to collecting statistical data in Malaysia, I gathered statistical data from several international organizations including the World Development Indicators database of the World Bank and the ITU World Telecommunication Indicator database in order to illustrate the economic development of Malaysia and to compare Kuala

Lumpur’s position in the Southeast Asian regional urban hierarchy

While collecting the information and data, I also carried out unstructured

interviews with several officials associated with the four large-scale projects I met with the Principal Assistant Secretary of the Policy Unit (Corporate and International

Division) of the Ministry of Transportation, an executive in the corporate planning and development of Kuala Lumpur city government, an officer in the Domestic and

International Affairs Department in the Kuala Lumpur city government, a Public

Relations manager of Kuala Lumpur City Center Bhd., a media relation executive of the Multimedia Development Corporation, and an executive in the Corporate Services

Department of Bank Negara Malaysia (Central Bank of Malaysia) I also contacted a senior manager from the research and planning department of Kuala Lumpur

International Airport and an officer from the Corporate Communications Division of Putrajaya

1.4 Literature Review

The notion of “world cities” emerged with the growth of an integrated and

dependent global economy Generally speaking, world cities have a population of one million or more However, population and demographic aspects are not necessarily the crucial element in the status of world cities (Yeung and Lo, 1998; Sassen, 1998) The cities with high populations are rather known as the “mega-cities” (Beaverstock et al, 1999), and do not necessarily have as significant a role as world cities in the world’s economic hierarchy Therefore, the functions of the cities’ linkage with the global economy, politics, and telecommunication networks (Smith and Feagin, 1987; Castells, 1989; Sassen, 1991; Friedmann, 1995; Yeung and Lo, 1998) are the key parameters to acknowledge a city’s status as a world city

The term “world cities” was first used by Patrick Geddes (1915) to describe the place where world business was being carried out Subsequently, Hall (1966) developed the idea of world cities as “those in which quite a disproportionate part of the world where most important business is conducted” (p.7) Although Hall did not provide any explicit definition of world cities in his work, his general characteristics of world cities have been echoed in much of his later world city research

Friedmann’s work on “The World City Hypothesis” in 1986 was useful as a framework for research on world cities (cited in Knox & Taylor, 1995, pp.317-331) Friedmann revised the hypothesis a decade later but maintains the similar structure He defines world cities as “the centers for managing regional, national and international global economic transactions; the centers used by global capital collection and capitalism

for production and markets; the urban areas of intense economy and social interaction; the centers that can be ranked in hierarchically according to their economic power; and a metropolitan area for the transnational capitalist social class” (Friedmann, 1995, p 25-26) According to these criteria, London, Paris, Rotterdam, Frankfurt, Zurich, New York, Chicago, Los Angeles and Tokyo are the primary cities of the core countries’ category (Friedmann, 1995) in his research

Sassen (1991) ranks cities around the world according to the level of financial and business services that individual cities provide She also suggests that worldcity

functions include highly concentrated command points in the organization of the global economy, the main location for finance and for specialized service firms, sites of

production of innovations and as markets for the products and innovations produced She has identified New York, London and Tokyo as the three major “world cities” based on the cities’ domination in financial and producer services in the world

Beaverstock et al (1999) conducts an extensive data collection project, named Globalization and World Cities (GaWC), to rank cities around the world according to their housing of major producer services firms in accountancy, advertising, financial institutions and legal services Through the study, Beaverstock et al rank cities from the top, medium, and lower level of world city status as “Alpha, Beta and Gamma” world cities respectively In their research, London, Paris, New York and Tokyo were the most qualified top level, followed by Chicago, Frankfurt, Hong Kong, Los Angeles, Milan and Singapore which were also included in the Alpha world cities (Beaverstock et al., 1999,

p 456)

Other characteristics of world cities are explained in Pacione (2001) He

characterizes world cities according to their function as major centers for the public and private business relations, political power and the major ports and airport hubs Hall (2001) also mentions that world cities can be distinguished by their concentration of government and international agencies and headquarters, financial and commercial services center (consultancy, accountancy, law firms, etc), urban tourism and cultural entertainment centers (museums, performing arts, symphonies, etc) Furthermore, Short

& Kim (1999) describe world cities as control, command and management centers to coordinate global manufacturing production, financial transactions, producer services and telecommunication networks” (p 54)

Despite all these efforts to identify world cities at the apex of global urban

hierarchy, exactly what constitutes a world city still remains vague This remains so, partly because the existing research has focused attention on the individual cities’

housing of major firms, banks and/ or stock markets Also, cities’ international

connections are crucial to identify world cities in the era of globalization (Taylor, 1997; Short et al., 2000) Beaverstock et al (2002) identify the economic growth of world cities as more related to the external relations than the internal assets that world cities possessed with the case study of London, New York and Singapore

Similarly, Short et al (2000) identify those cities as “gateway cities,” which widens the scope of identifying world cities Their study of gateway cities has helped identify the impact of globalization on cities that are below the top urban hierarchy of world cities Case studies on seven non-world cities including Barcelona, Beijing,

Havana, Prague, Seattle, Sioux Falls, and Sydney have shown the evidence of cities

connections with the wider world in different aspects These cities have represented themselves as “gateway cities” through their international competitiveness in

international events, their cultural uniqueness, global networks and economic growth Examples include Barcelona hosting the Olympics and World Cup Soccer, Prague

receiving the “European City of Culture” honor which has been used for tourism

publicity, global networks with Beijing’s urban area being opened to foreign investment, and Seattle’s success economic growth with headquartering Starbucks and Amazon

In efforts to rank cities according to certain indicators, many have looked also at urban restructuring in world cities Much attention has been paid to economic and spatial changes in the so-called Third World cities (Smith, 1996; Armstrong and McGee, 1985), emerging world cities (Lo and Yeung, 1996), world cities in poor countries (Gugler, 2004), or capital cities in developing countries such as Seoul (Kim, forthcoming),

Bangkok (Krongkaew, 1996; Kittiprapas, 2001; Jenks, 2003), Jakarta (Firman, 1998), Singapore (Pow, 2002)and Kuala Lumpur (Bunnell, 1999; Bunnell et al., 2002)

Kim (forthcoming) explains that Seoul gained international visibility through hosting the Olympic Games in 1988 and co-hosting FIFA World Cup Korea/Japan in

2002 The preparation of both games also upgraded the construction infrastructure of the city The construction of the waterfront, the freeway, the Olympic park, and the business and financial districts have upgraded Seoul’s image of becoming a second-tier world city The Extended Bangkok Region has been attracting large amount of international

investment in the heavy industries in this extended region (Kittiprapas, 2001) Laem Chabang Port, Bangkok International Airport and the transportation system in Bangkok

have been upgraded to assist the economic growth of the city (Kittiprapas, 2001; Jenks, 2003)

The development of Hanoi began with the introduction of Doi Moi policy, which

is an open-door policy to promote economic growth in Vietnam This policy has

encouraged the development of commercial and retail centers in Hanoi (Quang &

Kammeier, 2002) Firman (1998) indicates that Jakarta has been playing a major role as the mediator for foreign investment in the industrial area of Jakarta Metropolitan Area, which consists of the three large cities of Jakarta, Bogor and Tangerang (Jabotabek) To accommodate the growth of the services sector in Jakarta, the local government has converted slum areas into office spaces and integrated and multiuse complexes

According to Pow (2002), the city-state development of Singapore is supported by the Urban Redevelopment Authority The authority implemented a “pro-business” strategy to boost the city-state to become a “international business hub.” Suntec city is an example of the private and world class commercial development of real estate by Hong Kong’s investors (Pow, 2002) In the case of Kuala Lumpur, Bunnel (1999) and Bunnell

et al (2002) have described that both the Malaysian federal government and Kuala

Lumpur city government have also been upgrading the Kuala Lumpur Metropolitan area with the large-scale construction of Kuala Lumpur City Center, Cyberjaya and Putrajaya

to be competitive in the globalizing economy

Gugler (2004) examines major cities in developing countries which have recently experienced significant makeovers, while their national governments have promoted them to play major regional and global roles Thus, the specific definition of world cities

is difficult because of the diversified characteristics of each city, but they are all at the point of integration with globalization (Gugler, 2004)

Similar to other emerging world cities such as Bangkok (Krongkaew, 1996), Jakarta (Firman, 1998), and Manila (Solon, 1996), Kuala Lumpur has been upgraded with large-scale infrastructure, including advanced information and communication

technology facilities to integrate with the global networks, especially with cities in

developed nations The “Information Age Project” in Malaysia started with the

introduction of the Multimedia Super Corridor, which will be the engine of economic growth in Malaysia Therefore, this thesis seeks to look at recent changes in Kuala Lumpur which have been supported by the Vision 2020 concept in pursuit of world city status

CHAPTER 2 The Malaysian Economy and Vision 2020

2.1 The Growth of the Malaysian Economy

Peninsular Malaysia was known as the Federation of Malaya when it gained independence in August 31, 1957 The Federation of Malaya was then replaced with

“Malaysia” when Sabah, Sarawak, and Singapore joined the federation in 1963

However, Singapore was expulsed from the federation in 1965 for political reasons Malaysia covers an area of 128,606 sq mile (329,758 sq km.), and is comprised of fourteen states and two federal territories with a population of 24 million people Its national independence marked the starting point of the country as endeavor to build its own future

Malaysia has had stable economic growth since its independence in 1957 The annual Gross National Income (GNI) growth rate average was 6% in the 1960s and increased to an average of about 8% in the 1970s and 1980s (Figure 2.1) (World Bank, 2004) It continued to grow rapidly on an average of about 12% in the 1990s prior to the Asian financial crisis The Gross Domestic Product (GDP) per capita was less than US$1,000 following the national independence After 45 years of national independence, the present (2003) GDP per capita has increased almost five-fold, to US$4,811 (World Bank, 2004) This GDP growth has been enabled by export-oriented industrialization in the 1980s, which had an average of 5% annual GDP growth, and the high-technology manufacturing industry in the 1990s, which had an average of 7% annual GDP growth

However, the GDP growth was not sustained during the Asian financial crisis that started

in mid-1997 and lasted through 1998 The financial crisis pulled the Malaysia’s GDP growth to -10% in 1998 (Figure 2.2)

Figure 2.1: Gross National Income (Atlas Method) of Malaysia, 1962-2002

Source: World Development Indicators Database by World Bank (2004).

Figure 2.2: Gross Domestic Product Per Capita of Malaysia, 1960-2002

Source: World Development Indicators Database by World Bank (2004).

Malaysia’s sustained economic growth in the past few decades has been attributed mainly to the national government that laid out new economic plans over the years The economic plans in the 1960s were aimed towards a structural shift from an agricultural and mining oriented economy to a manufacturing-oriented economy The Malaysian government subsequently promoted the manufacturing sector by encouraging foreign investments in several free trade zones in the 1980s and in the high-technology sector in the 1990s The manufacturing sector has risen over the agricultural and mining sector since changes were made in economic structure (Figure 2.3) The demand in the service sector has also increased in accordance with the growth in the manufacturing sector

Agriculture, value added (current US$) Industry, value added (current US$) Services, etc., value added (current US$)

Figure 2.3: Changes in the Economic Structure of Malaysia, 1960-2002

Source: World Development Indicators Database by World Bank (2004).

In 1960s, the Malaysian economy shifted from the agricultural and mining sector

to the manufacturing sector The Malaysian economy was still associated with

agriculture, but with a different form of production; the manufacturing sector processed and made goods from natural resources such as palm oil, wood, tobacco, rubber, and petroleum To enhance the industrial sector, import-substitution policies were

implemented from 1960 to 1975 The import-substitution strategy was aimed at

promoting employment for the growing population and creating economic diversification However, the strategy failed to respond to its expectations due to its narrow nature, which was only suitable for resource-based industry (Salih, 2002)

In place of the import-substitution strategy, industrial policies were implemented

in 1975 to promote the export-oriented industries and to encourage the manufacturing of

higher value-added goods The introduction of free trade zones was successful to attract large foreign direct investments from multinational corporations invested in

semiconductors and electronic equipment and parts, dominating the Malaysia oriented industries Along with the free trade areas, the Malaysian government also took steps to improve and align the standard of Malaysian products with the international standard These actions led a decade of a rapid growth in export-oriented industries from

export-1986 to 1996, as well as promoting Malaysia as one of most attractive export platforms (Figure 2.4) Although the trading industry plummeted during the Asian financial crisis, the country managed to stabilize and provide a larger surplus of balance of payments compared with before the crisis

Exports of goods and services (current US$) Imports of goods and services (current US$)

Figure 2.4: Malaysian Export and Imports of Goods and Services, 1960-2002

Source: World Development Indicators Database by World Bank (2004).

To enhance the growth of export-oriented industrialization and to attract Foreign Direct Investment (FDI), physical infrastructure such as free trade zones were built, incentive policies such as the Investment Incentives Act 1968 and Federal Industrial Authority were enacted, the Capital Issue Committee and Foreign Investment Committee were formed, and finally the open-door trade strategy was implemented to facilitate foreign investment (Salih, 2002; Okposin et al., 1999) The Foreign Direct Investment was US$570 million in 1974, and the amount doubled to US$1.2 billion in 1983 (Figure 2.5) The export-oriented industrialization contributed to the fast growth of GDP at an average of 11.7% annually

In the 1980s the export-oriented industrialization in Malaysia shifted its

concentration to non-resource based industries such as electronics and machinery

appliances The government also supported the development of heavy industry The Heavy Industries Corporation of Malaysia was established in 1983 in order to shift from a industrial-driven economy to a productivity-driven economy Training for employees, and research and development activities were encouraged to achieve this new economic goal In 1985, the First Industrial Master Plan was introduced to promote investment and reinvestment However, because the recession in 1985 slowed down the growth of

foreign investment, the GDP during this decade grew at an average of about 9.2%

annually

In the 1990s, the manufacturing industry made a shift to a capital-intensive and high technology manufacturing industry, and to a knowledge-based industry In addition, the service sector became a main concern of economic development in the capital-

intensive industry The service sector includes not only retailing and wholesale industries

in its traditional form but also financial, information and communication technology, education, tourism, and producer services These industries are needed for the economy

to grow because they support the operation of all other industries, such as government, business, agriculture, and manufacturing (Figure 2.5)

Figure 2.5: Malaysian Foreign Direct Investment, 1974-2001

Source: World Development Indicators Database by World Bank (2004).

Although Malaysia has show overall growth over the decades, it encountered four economic crises during the 1973-1975 and 1980-1981 oil crises, 1985-1986 commodity crisis, and 1997-1998 financial and currency crisis All of the recessions did not interrupt the economy as drastically as the final recession in 1997-1998 The 1997-1998 Asian Financial Crisis struck when Thailand depreciated the Thai Baht on July 1997 This action caused foreign investors to lose confidence in the reliability of Asian economies

and they withdrew their capital investments, as well as the portfolio investments in local commercial banks in Asia The majority of the countries in Southeast Asia were affected

by the sudden outflow of capital, and their annual GDP growth in 1998 contracted to negative figures Prior to the crisis, Malaysia had an average growth of 9% to 10% in the mid 1990s; however, the GDP growth contracted to -7% during the Asian Financial Crisis (Figure 2.6) The causes of the Asian Financial Crisis are still debatable issues Some economists argue that the causes were the excessive short-term foreign currency borrowing, lack of local banks transparency, poor regulatory supervision, and crony capitalism (Sharman, 2003) Contrarily, some Asian economists claim otherwise, that the unprepared and ineffective Southeast Asian financial policies on the financial

liberalization and globalization caused the recession (Jomo, 2001, p 12)

8

1

12

8 7 9

7 7

6 6 8

-1 1 5

10

9 9 10 9 10 9

10 10

7

-7

6 8

0 4

Oil Crisis Commodity Crisis Asian Financial Crisis

Figure 2.6: Gross Domestic Product Growth of Malaysia, 1961-2001

Note: Numerals on line graph represent percentage of Gross Domestic Product Changes

Source: World Development Indicators Database by World Bank (2004).

Nevertheless, the Malaysian government responded to this crisis with some

dramatic measures Similar to other Southeast Asian countries, Malaysia took the

suggestions of the International Monetary Fund (IMF) for crisis economies, such as raising interest rates and reducing government expenditure However, these actions did not provide any improvement in the Malaysian economy Thus, Malaysia took a bold step to drop IMF suggestions and consulted more than 200 organizations and individuals

in the National Economic Action Council (NEAC) for suggestions to recover from the crisis (Cheng and Sayed Hossain, 2001) The new package to recover from the internal financial problem was the establishment of Pengurusan Danaharta Nasional Berhad to acquire non-performing loans from local banks and to manage their assets, Danamodal

Nasional Berhad to assist bank restructuring and recapitalizing through the help from

Bank Negara (Central Bank) and bonds from other financial institutions, and Corporate Debt Restructuring Committee (CDRC) to coordinate with debt settlements and to

minimize debts of large major creditors

Additionally, the Malaysian currency was pegged at RM3.80 to the U.S dollar, and moratorium was introduced on outflow of capital and profits for 12 months to control external influences of Malaysian financial situation (Cheng and Sayed Hossain, 2000) Through those strategies, the Malaysian economy illustrated a positive growth in the second quarter of 1999 with a GDP growth of 6% (World Bank, 2004) in the same year Malaysia was the first country in Southeast Asia to refuse IMF recovery suggestions, and

it proved successful in that the economy has been better off without the IMF intervention

2.2 The Malaysian Government’s Economic Plans

The success of economic development in Malaysia was fundamentally supported

by its national government’s pro-growth economic plans, under “the developmental state” governance The notion of developmental state governance suggests that national government controls and decides on the economic sectors that are presumably critical to the country’s economy (Pempel, 1999) Along with the Japanese, South Korean and Taiwanese governments, the Malaysian government has been a typical example of a developmental state It has implemented five-year economic plans since 1960, which are known as the “Malaysia Plan.” The First Malaysia Plan was implemented in 1966 to

1970, followed by the Second Malaysia Plan (1971-1975), the Third Malaysia Plan (1976-1980), the Fourth Malaysia Plan (1981-1985) and the Fifth Malaysia Plans (1986-1990) All five of these plans have focused on eradicating poverty and balancing

economic distribution among ethnic groups

In this section, the lastest 3 plans, from the Sixth to Eighth are detailed with relation to Vision 2020 The Sixth Malaysia Plan (1991-1995) set up foresighted

strategies on building the basic foundation for economic growth It focused on three main sectors, transportation and communication systems, human resources, and the science and technology sectors In 1996, another bold transformation was taken by the Seventh Malaysia Plan (1996-2000), where the focus was on the capital-intensive, high technology and knowledge-based industries with the development of information and communication technology (ICT) During the period of this plan, former Prime Minister, Tun Dr Mahathir Mohamad, also introduced Vision 2020 Apart from achieving a

harmonious nation, Vision 2020 also set out to prepare Malaysia to become a based economy and to achieve the status of a developed nation by 2020

knowledge-The Sixth Malaysia Plan played a significant role in accelerating the results of current economic achievement The Sixth Malaysian Plan was implemented from 1991

to 1995 with a goal to continue economic growth and to achieve equal wealth distribution among all Malaysians The plan focused on the liberalization of trade and investment policies that were introduced in 1985, which attracted the influx of foreign direct

investment (FDI) into the country The government began to emphasize human resources development and to provide physical infrastructure to support the private sector It formed three agencies, the Ministry of International Trade and Development (MITI), Foreign Investment Committee (FIC), and Capital Issues Committee (CIC) to further facilitate the private sector growth

As the foundation to support economic growth, the transportation and

construction sectors were allocated most of the budget The Malaysian government allocated US$14.4 billion (RM54.7 billion) for public expenditure, and transportation development accounted for the major portion of the expenditure at around US$3.2 billion (22.4%) (Sixth Malaysia Plan 1991-1995, 1991) In accordance with the objective of Vision 2020, major infrastructure and construction took place in the capital city, such as construction of Kuala Lumpur City Center, Kuala Lumpur Tower, National Sports

Complex, Kuala Lumpur International Airport, port expansion at Port Klang, and the electrified double tracking project of Keretapi Tanah Melayu (National Train System) (Seventh Malaysia Plan 1996-2000, 1996)

Privatization is another factor that was recommended in the Sixth Malaysia Plan

to attract private investment in the development of transportation and communication systems, human resources, and the science and technology projects (1991) Thus,

privatization reduced the financial burden of the Malaysian government, allowing the foreign companies to transfer technology to the Malaysians, and increased the

productivity of privatized companies to be competitive enough to challenge the

international standard

Building on the Sixth Malaysia Plan, the Seventh Malaysia Plan (1996-2000) was the grounds for economic growth in Malaysia from the mid 1990s Under the Seventh Malaysia plan, the economic strategy shifted from an input-driven strategy to a

productivity-driven strategy The Malaysian government recognized the importance of information and communication technology (ICT) in the economic development in the competitive globalization process Thus, the Multimedia Super Corridor (MSC) was introduced to provide high technology facilities to lead the country into a knowledge-based economy by 2020

On top of the focus of communication and information technology, privatization activities continued to accelerate with the guidance of the Privatization Action Plan The plan has privatized a total of 472 projects (347 were existing projects and 125 were new projects) from 1983 to 2001 The Malaysian government has saved US$35.5 billion (RM123.6 billion) from the capital expenditure during the same period, and contributed 26.5% of the total Kuala Lumpur Stock Exchange capitalization (Economic Report 2003/2004, 2003)

The Seventh Malaysia Plan promoted cross-border trade cooperation with

countries in Association of Southeast Asia Nations (ASEAN) in trade and investment for mutual economic development benefits Two of the Plan’s major accomplishments are the Common Effective Preferential Tariff (CEPT) Scheme, and the ASEAN Growth Triangles The CEPT introduced the ASEAN Free Trade Area in 1993 to provide tax exemption in trade for the ASEAN members This trade agreement has promoted

regional trade activity, to attract investment from other regions, and increase industrial competitiveness According to the Malaysian Ministry of International Trade (2004), Malaysia had reduced 99.3% of its products for the ASEAN trade to the 0-5% tariff line (products)

In the cross-border trade, Malaysia formed three Growth Triangles including the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT), the Indonesia-Malaysia-Singapore Growth Triangle (IMS-GT), and the Brunei Darussalam-Indonesia-Malaysia-Philippines-East and ASEAN Growth Area (BIMP-EAGA) (Seventh Malaysia Plan 1996-2000, 1996) The development in these two aspects adds to the GDP, GNP and Foreign Direct Investment of the Malaysian economy

The Eighth Malaysia Plan (2000-2005) will continue to expand the objectives in the Seventh Malaysia Plan with an emphasis of information and communication

technology and knowledge-based human resources During this period, the Malaysian economy is becoming more globalized and liberalized in accordance with the world market, such as joining the ASEAN Free Trade Area (AFTA) and the World Trade Organization (WTO) Thus, sustaining the Malaysian economy at the macroeconomic level is a critical aspect of the plan

2.3 Vision 2020

In 1991, former Prime Minister Tun Dr Mahathir Mohamad announced Vision

2020 It is a foresight for Malaysia to achieve being a characteristic of harmonious nation and to prepare Malaysia to become a knowledge-based economy and achieve the status of

a developed country by 2020 It is a visionary aim set out for the Malaysians exceeding all other Malaysia Plans

The primary objective of Vision 2020 is for Malaysia to become a developed country status by its own manner rather than by duplicating the success of presently developed country, as well as to unite and integrate Malaysians on building a harmonious and unified multiracial nation together with the competitive and resilient economic

development in the globalizing world (Mahathir, 1991)

There are nine challenges noted by Tun Dr Mahathir Mohamad (1991) that the nation has to overcome to prepare itself to become a developed nation and to achieve the vision 2020 The challenges are:

1 The challenge of establishing a united Malaysian nation with a sense of common and shared destiny A nation at peace with itself, territorially and ethnically integrated, living in harmony and full and fair partnership, made up of one

Bangsa Malaysia (Malaysia nation) with political loyalty and dedication to the nation

2 The challenge of creating a psychologically liberated, secure, and developed Malaysian society with faith and confidence in itself, justifiably proud of what it

is, of what it has accomplished, robust enough to face all manner of adversity

This Malaysian society must be distinguished by the pursuit of excellence, fully aware of all its potentials, psychologically subservient to none, and respected by the peoples of other nations

3 The challenge of fostering and developing a mature democratic society,

practicing a form of mature consensual, community-oriented Malaysian

democracy that can be a model for many developing countries

4 The challenge of establishing a fully moral and ethical society, whose citizens are strong in religious and spiritual values and imbued with the highest ethical

standards

5 The challenge of establishing a mature, liberal and tolerant society in which Malaysians of all colors and creed are free to practice and profess their customs, cultures, and religious beliefs and yet feeling that they belong to one nation

6 The challenge of establishing a scientific and progressive society, a society that is innovative and forward looking, one that is not only a consumer of technology but also a contributor to scientific and technological civilization of the future

7 The challenge of establishing a fully caring society and a caring culture, a social system in which society will come before self, in which the welfare of the people will evolve not around the state or the individual but around a strong resilient family system

8 The challenge of ensuring an economically just society A society in which there

is a fair and equitable distribution of the wealth of the nation, in which there is full partnership in economic progress Such a society cannot be in place so long

as there is the identification of race with economic function, and the

identification of economic backwardness with race

9 The challenge of establishing a prosperous society, with an economy that is fully competitive, dynamic, robust and resilient

In terms of economic development, Malaysia has to prepare itself to be globally competitive and to sustain economic growth in the globalization process in this 21st

century Malaysia targets to sustain an average GDP growth of 7% per annum to the year

2020 (Mahathir, 1991) With this average growth percentage, Malaysia will generate GDP per capita income that is parallel to the developed countries

Therefore, the following are detailed elements based on the ninth challenge in the Vision 2020 that are preparing Malaysia with a competitive, dynamic and resilient

economy (Mahathir, 1991):

1 A diversified and balanced economy with a mature and widely based industrial sector, a modern and mature agriculture sector and an efficient, productive and equally mature services sector

2 An economy that is quick on its feet, able to quickly adapt to changing patterns of supply, demand and competition

3 An economy that is technologically proficient, fully able to adapt, innovate and invent, that is increasingly technology-intensive, moving in the direction of higher and higher levels of technology

4 An economy that has strong and cohesive industrial linkages through-out the system

5 An economy driven by brainpower, skills and diligence in possession of a wealth

of information, with the knowledge of what to do and how to do it

6 An economy with high and escalating productivity with regard to every factor of production

7 An entrepreneurial economy that is self-reliant, outward looking and enterprising

8 An economy sustained by an exemplary work ethic, quality consciousness and the quest for excellence

9 An economy characterized by low inflation and a low cost of living

10 An economy that is subject to the full discipline and rigor of market forces

This chapter illustrates that the national economic growth of Malaysia has been stable and well managed by the federal government Indeed, Kuala Lumpur has been the major engine to support and facilitate this economic growth Therefore, the four large-scale projects further enhance Kuala Lumpur’s position as the major engine and

ultimately it becomes a world class city The next chapter details Kuala Lumpur’s role in the Malaysian economic success and the Vision 2020