Meeting with success: The Northern Corridor Economic Region builds on its existing strengths

The north-west of Malaysia is home to the states of Penang, Perlis and Kedah, which, along with Northern Perak, together make up the territory covered by the Northern Corridor Economic Region (NCER). With an established manufacturing sector, internationally famous tourist spots and wide swathes of agricultural land, the NCER has many opportunities for growth in a variety of new sectors and more established ones.

FACTS AND FIGURES: According to Redza Rafiq, the CEO of the Northern Corridor Implementation Authority (NCIA), although the NCER’s area is only about 7% of the country, it contributes over 20% of GDP, as well as more than 60% of the total agricultural area for paddy growing, 30%-plus of tourism expenditures and, importantly, in excess of 45% of exports.

The most recent data available from the Department of Statistics for 2010 shows that at year 2000 prices, Penang’s GDP grew by 10% year-on-year, Perak’s by 5.7%, Perlis’s by 5.4% and Kedah’s by 4.4%.

The statutory body responsible for establishing direction, policy and strategy in relation to the NCER’s development is the Northern Corridor Implementation Authority (NCIA), incorporated in 2008 under the Northern Corridor Implementation Act. Working alongside the NCIA, the Malaysian Industrial Development Authority (MIDA) assists in promotion of the manufacturing and services sectors in the region.

Other key stakeholders with an input into the NCER’s trajectory are the Federal Agriculture Marketing Authority, Federal Land Consolidation and Rehabilitation Authority, Muda Agricultural Development Authority, and a subregional cooperation initiative, the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT).

PLANS: The NCIA, in consultation with the other bodies, is responsible for implementing the NCER development plan. It sets out a three-phase transformation of the corridor into a sustainable and socio-economically balanced region, with a target date of 2025. The plan’s objective is to accelerate economic growth by developing the core economic sectors of the region: agriculture, manufacturing, tourism, logistics, and education and human capital. These key thrust areas aim to boost the corridor’s development and balance the region’s socio-economic scales.

When it comes to what is the region’s other competitive advantage – manufacturing – the plan sees the NCER accelerating the implementation of high-end, value-based industries by applying knowledge transfer and establishing a developmental model based on “centres of excellence”. Meanwhile, with plans to double tourist receipts and triple tourist expenditure by 2020, tourism will be boosted by leveraging the already-strong appeal of Penang and Langkawi. These globally known resort areas will spearhead an extension of tourism into the region’s hinterland, which can host heritage, adventure and health care tourism.

The NCER aims to leverage its location both within the IMT-GT and as an area adjacent to the East Coast Economic Region to boost its logistics opportunities.

The master plan sees NCER using Penang Port, for example, to process and ship produce and goods manufactured in the hinterland. To promote the port as a trans-shipment centre, feeder services from Sumatra in Indonesia and Thailand will also be extended.

The NCIA also aims to increase the overall private-sector participation in the corridor, particularly given the renewed focus on public-private partnerships by the federal government in its national development strategy (see Economy chapter).

FISCAL TARGETS: The authority has set a target for total investments by year-end 2012 of RM12bn ($3.9bn).

This represents a 21% increase over the previous year’s investment of RM9.91bn ($3.2bn). Mid-year, the region did appear to be on target, as according to NCIA figures, in the first half of 2012, the NCER recorded total investments of RM8.51bn ($2.7bn), 78% of which was foreign direct investment (FDI).

This was a change on 2011, when almost 91% of the RM9.91bn ($3.2bn) invested came from foreign sources.

That total figure was already higher than the RM7.48bn ($2.4bn) invested between 2008 and 2010. During the NCER’s second phase, 2013-20, increased private-sector investment will be a main goal for the NCIA, while in the third phase, running from 2021-25, the NCIA aims to become a regional leader in market-led growth.

COMPETITIVE ADVANTAGES: With the bulk of its infrastructure and supply chain in place, the NCIA is looking to attract expertise and talent to the corridor. In return, it offers businesses purpose-built facilities and complementary educational and human resource establishments. The corridor’s regions are known across Malaysia for providing employees with a broad range of engineering-based skills, a competitive advantage that paves the way for the development of new, higher-value-added sectors, such as medical device manufacture, automobiles and machinery/automation.

Furthermore, a prominent agricultural research and development (R&D) regime, teamed with technological advances in the electrical and electronics sector, makes the NCER a strong choice for agricultural and electronics innovation. Indeed, two manufacturing firms, Agilent Technologies and Infineon Technologies, expanded their operations in the NCER in 2011.

The NCER’s strong electrical and electronics manufacturing sector could also provide a foundation for the design, development and manufacturing of intelligent life science technologies. Such activities are to be bolstered and supported by the Kulim Hi-Tech Park, the country’s first integrated science park. In addition, an established cluster of logistics operations and support services acts as another important facilitator of trade in the NCER, with this operating out of Malaysia’s second-busiest airport and one of its busiest seaports at Penang. Building on this to improve regional and international connectivity, the government is channelling infrastructure investments of RM20bn ($6.5bn) into the NCER. Pivotal investments here include the Ipoh-Padang Besar double-tracking project to upgrade rail capacity and the second Penang Bridge.

CREATING JOBS: In 2011 the federal Performance Management and Delivery Unit, the corridor authorities and stakeholders held the Corridors and Cities Lab, which looked at all five Malaysian development corridors. Among the lab’s findings were 26 new entry point projects (EPPs) for the NCER, with these expected to create 70,565 new jobs in the region.

The new EPPs include extensive pineapple farming, a paddy estate consolidation programme, biotechnology projects, transportation-oriented manufacturing and medical tourism. The NCIA expects to attract RM27.27bn ($8.8bn) in total investments via these EPPs, which will be implemented in the second phase of the NCER’s blueprint, from 2013-20.

MILESTONES: Major local projects that have supported growth have frequently begun as collaborations. Examples of this are NCIA’s working partnership with Global Outreach Energy, a local company that manufactures solid-state lighting and light emitting diode (LED) products, or the authority’s work with National Instruments, a research and development firm that focuses on manufacturing and the supply chain.

Working in concert with MIDA, in 2011 the NCIA also successfully negotiated the relocation of QT Hightech, an equipment refurbishment company, to Kulim Hi-Tech Park. The QT Training Centre to be located there, a wafer fabrication equipment refurbishment and process training facility, will train a total of 2500 skilled workers. The firm will invest RM100m ($32.2m) in the park, creating 75 technical positions.

To encourage other high-tech companies to locate at the park, the government aims to bring in three new service providers by the end of 2012. This should help the park reach a 2020 target of contributing RM1.3bn ($419.4m) to GNI and creating 1300 jobs. To attract firms and keep them there, the park offers incentives that include pioneer status and investment tax allowance, available both to new as well as existing semiconductor assembly and test companies.

NCIA officials also expect to see more funding coming in from Japan, especially in the agriculture and manufacturing sectors. Indeed, Japan’s investments in NCER in 2012 are expected to increase to 25% of the total RM12bn ($3.9bn) targeted for 2012.

In 2011 Japan invested RM1.35bn ($435.5m), or 13.6%, of the RM9.91bn ($4.3bn) of total investments recorded in the region, according to the NCIA. One example of this investment is Science Net, the parent company of UsefulPerson Co, which is currently providing LED technology to be produced by local firm Global Outreach Energy based in Penang. Previously, the LED units were produced in China. The firm will invest RM107m ($34.5m) to expand its Penang facility.

In 2011 the NCER contributed the most FDI to Malaysia of all of the five corridors. Maintaining this record of success in the future will be a continuous challenge, as will generating more domestic investment to diversify sources and shield against international risks. At the same time, creativity and innovation must be nurtured and brought to market. So far, the signs are good that the NCER has the formula right, building on the considerable existing strengths of this key region.