KUALA LUMPUR (March 24): Bank Negara Malaysia (BNM) has identified talent shortage and low research and development (R&D) spending as persistent structural challenges for Malaysia’s electrical and electronics (E&E) sector, despite the country’s strong global positioning in the industry.

While Malaysia has established itself within the global semiconductor value chain, the central bank said the limited availability of skilled workers and underinvestment in R&D continue to constrain the sector’s long-term growth.

"If left unaddressed, this could potentially reduce new investments, lead to lost opportunities on new projects, and delay Industry 4.0 deployment," BNM said in its Economic and Monetary Review 2024, released on Monday.

BNM cited a survey by the Malaysia Semiconductor Industry Association, which noted that 72% of E&E firms are focused on recruitment due to high turnover rates, particularly for engineers.

Furthermore, 35% of surveyed E&E firms indicated that insufficient availability of highly skilled workers has become a core challenge.

At the same time, Malaysia’s gross expenditure on R&D remains low compared to leading semiconductor economies, lagging behind peers such as South Korea, Taiwan, and China, said BNM.

Without increased R&D investment and deeper local capabilities, Malaysia risks being locked into lower-value segments of the global E&E supply chain, the central bank warned.

To address these challenges, BNM noted that the government had introduced the National Semiconductor Strategy, which aims to enhance Malaysia’s role in the global semiconductor ecosystem.

Under this plan, efforts will focus on attracting investments in integrated circuit design, modernising outsourced semiconductor assembly and test operations, and developing advanced packaging capabilities.

The strategy also aims to develop a local talent pipeline of 60,000 high-skilled engineers and foster greater collaboration between academia, industry, and the government in semiconductor R&D.  

Beyond policy execution, BNM said the country must pursue a more integrated research, development, commercialisation, and innovation (RDCI) strategy that adopts stronger technology alliances on research initiatives.

"Specifically, there is an opportunity for domestic players to collaborate locally and internationally to co-develop advanced packaging technology, given that it is a nascent field.

"Further, to optimise investments in RDCI activity for semiconductor development, there is potential to restructure existing grants or create dedicated R&D funds to meet current needs more effectively," it added.

BNM further cautioned that broader reforms in talent development, financing mechanisms, and ecosystem support are required to sustain long-term competitiveness.

It suggested further enhancements in the ease of hiring skilled foreign talent, greater industry-academia collaboration for technology commercialisation, and targeted R&D incentives.

Click here to read more stories on BNM Annual Report 2024.