KUALA LUMPUR (Oct 21): High-end manufacturing is expected to spur Malaysia's manufacturing sector to account for a larger portion of the country's economy and workforce. A move towards high-end manufacturing is crucial as the nation faces competition from low-cost producers like China and Vietnam.

According to Malaysia's Finance Ministry's 2016/2017 Economic Report, the Government has identified the electrical and electronic, aerospace, green technology, and medical devices subsectors as segments with high-end manufacturing potential.

By 2020, the country's manufacturing sector is expected to grow 5.1% a year and contribute 22.5% to the country's gross domestic product (GDP). The sector is anticipated to constitute 18.2% of the country's total employment.

In 2015, the sector, which contributed 23% to GDP, accounted for 16.5% of the nation's workforce.

Today the ministry said: "To achieve this (2020) target, Malaysia needs to accelerate the adoption of technology and innovation as well as increase investment in human capital and R&D to move up the value chain of the manufacturing sector."

"The manufacturing sector faces stiff competition from low-cost locations and inefficiencies associated with widely-used cheap labour. The biggest challenge for the high-end manufacturing subsector is to strengthen innovation, enhance productivity, upgrade skills of the workforce and increase the domestic content in the global value chains," the ministry said.

According to the ministry, the Malaysian economy is still driven by traditional production factors, which comprise capital and labour.

As such, the ministry said there was a need for a shift from labour-intensive to technology and innovation-driven manufacturing.