Malaysia's missing economic map

KUALA LUMPUR: Malaysia measures what its states produce. It does not yet adequately measure what they produce together.

We know the size of each state economy, its industries, household incomes and international trade. Less visible are the goods, services, workers, capital and knowledge crossing state boundaries before final output reaches the market.

This gap affects how Malaysia understands regional inequality, designs infrastructure and distributes development expenditure. State GDP identifies where value is created. It cannot, alone, explain how that value moves through the federation or reaches households.

Malaysia already publishes national input-output accounts and has valuable regional research. It needs a regularly updated, publicly accessible official framework measuring production flows between individual states.

States Apart, Factories Together

Penang and Kedah are separate jurisdictions but increasingly connected production locations. Bayan Lepas, Perai, Batu Kawan and Kulim draw upon overlapping suppliers, skills, logistics and multinational networks.

Penang contributes accumulated industrial capabilities. Kulim offers additional land, utilities and manufacturing capacity. Firms can expand while retaining access to Penang's ecosystem. This is a regional division of productive functions.

The Northern Corridor Implementation Authority has a statutory mandate to coordinate development across Penang, Kedah, Perlis and Perak. Better interstate production accounts would strengthen its decisions on infrastructure, supplier development and investment, helping establish what each state contributes and captures.

Penang accounted for 38.1 per cent of Malaysian exports in 2025. That demonstrates international exposure, without revealing purchases from Kedah or where the resulting wages and profits accrue.

Malaysia measures the corridor's transactions with the world more readily than the domestic relationships making them possible.

Industrial expansion also needs to deliver technological upgrading. More factories do not automatically create Malaysian intellectual property or stronger domestic ownership. The test is whether supplier capabilities deepen, firms enter higher-value activities and workers' incomes rise.

Output Is Not Household Prosperity

Sabah and Sarawak expose different weaknesses in the same statistical picture.

Sabah's economy grew by 5.1 per cent in 2025, yet manufacturing contributed only 7.2 per cent of state GDP, compared with Sarawak's 24.9 per cent and Penang's 47.3 per cent. Its challenge concerns the structure beneath growth.

When commodities leave Sabah for processing elsewhere, potential gains extend beyond factory margins. Testing, engineering, branding and supplier relationships accumulate where production occurs. Rebuilding those capabilities later is difficult.

Sabah needs commercially viable downstream production around palm oil, fisheries and food processing. Incentives should reward operating facilities, skilled jobs, local purchases and products delivered.

Sarawak's GDP per capita exceeded the national average in 2024. Yet its mean monthly household income was RM6,947, below Malaysia's RM9,155 that year. Annual output per person and monthly income per household are not directly comparable. The two comparisons nevertheless warrant investigating how production translates into residents' welfare.

They do not establish that profits are leaving Sarawak. Ownership, labour compensation, household composition and the destination of operating surpluses remain matters for investigation.

Sarawak's Global Supply Chain and Sourcing Programme connects anchor investors with local suppliers. Its success should be measured through procurement, contracts, technology transfer, wages and projects reaching commercial production. Durable economic relationships are the objective.

Production networks also explain vulnerability. Diesel connects plantations, harvesting crews, mills, ports and exports. Higher costs or shortages propagate through these chains, with distance and infrastructure shaping the regional burden.

Count Connections, Not Just Allocations

Budget 2027 supports initiatives including Kulim Hi-Tech Park, Sibu Special Economic Zone negotiations, Sabah's electricity projects and RM3.3 billion for roads in Sabah and Sarawak. Alongside the Perak–Penang bulk-water agreement, these form elements of a national production architecture.

Water security supports Penang's industry. Reliable electricity affects Sabah's capacity to industrialise. Roads can lower the cost of building Borneo supply chains. Their value extends beyond the jurisdiction where expenditure occurs.

Federal spending should therefore be judged by the connections it enables and the distribution of benefits, alongside allocations received.

The six less-developed states allocated RM21.26 billion in federal development expenditure cannot be treated as one category. Kedah needs deeper participation in advanced manufacturing networks; Sabah needs downstream capacity and reliable infrastructure; Sarawak needs stronger conversion of production into household prosperity.

Malaysia's New Incentive Framework shifts attention towards outcomes. Monitoring should include where suppliers, workers and research activities are located and whether investment strengthens domestic firms across state boundaries. Does a Penang project purchase inputs from Kedah? Does a Sarawak investment create local supplier contracts and skilled employment for resident workers?

Existing research offers a foundation. A January 2026 study by Pang Chun Sian and Mohd Khairul Hisyam Hassan constructs a 2015 interregional input-output table covering Sabah, Sarawak and Peninsular Malaysia, estimating flows across 30 sectors. This work should be extended and institutionalised. However, treating the peninsula as one region cannot reveal production relationships between its individual states.

The Department of Statistics Malaysia (DOSM) could build linked state and interregional accounts using administrative records and targeted surveys. A table linking states would show which industries buy from which locations, making interdependence visible. Estimates should be balanced, validated and published with uncertainty ranges. Policymakers need reliable answers to specific questions while more comprehensive accounts develop.

Three pilots would be useful: Penang–Kedah semiconductor dependence, Sabah's downstream-processing deficit and Sarawak's energy-transition exposure. Each should identify essential purchases by origin and destination, freight flows, supplier locations, commuting patterns and employment links.

Linking production accounts to social accounting matrices would help trace payments to workers, owners and households. Ownership, wage and income data could distinguish each state's contribution to production from the benefits retained by residents and test whether growth is narrowing regional disparities.

Comparable benefit-cost analysis should guide interstate electricity, water, transport and digital infrastructure. It must identify who finances shared assets, who benefits and where investment follows. Energy-transition gains and losses may occur in different states and affect different workers.

The federalism question concerns how states produce together and whether the gains are shared.

Malaysia already finances interstate production architecture. Its accounting framework should make those connections and their distributional consequences clearer.

Regional policy must move from counting allocations to measuring connections, and from celebrating output to examining household prosperity.

Malaysia's economic map is not empty. It is incomplete. The task is to draw the missing lines.

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Economist Samirul Ariff Othman is an international relations analyst and a senior consultant with Global Asia Consulting (GAC). Samirul has a background as a senior researcher at the Malaysian Institute of Economic Research. The viewpoints articulated are solely those of the author.