Penang Umno rep urges industrial diversification ahead of possible AI downturn

A Penang Umno assemblyman has called for the state to diversify its industries in preparation for a possible downturn in the artificial intelligence (AI) and semiconductor sectors.

Reezal Merican Naina Merican (BN-Bertam) said while the global outlook for semiconductors and AI remained positive, the Penang government must recognise that every industry goes through cycles of growth and decline.

He cited recent market volatility, including a 7.57% drop in South Korea’s Kospi index on Oct 15, when shares of Samsung Electronics and SK Hynix fell by 9.5% and 11.1%, respectively.

Reezal said the Nasdaq Composite fell by 2.6% on Oct 22, while China’s STAR Market lost more than a third of its value compared with its peak in July.

Reezal said these developments did not signal the end of the AI revolution but served as a reminder that market valuations, investor sentiment and demand could change rapidly.

“With more than 80% of Penang’s exports relying on the electrical and electronics (E&E) sector, we need to ask whether the state’s economy is sufficiently prepared for a slowdown in global demand, technological disruptions or shifts in investment priorities.

“We must prepare for the rain while the sun is still shining,” he said when debating the 2027 Penang budget in the state legislative assembly today.

He proposed a comprehensive industrial diversification strategy for the state, saying it was not intended to move Penang away from the E&E sector but to develop complementary, high-value industries based on its existing strengths.

More sectors, more local players

Reezal also proposed increasing local ownership of technology and intellectual property across the semiconductor supply chain.

He said investments in advanced manufacturing and wafer fabrication should go beyond expanding production capacity and creating jobs to include technology transfers, greater participation by local small and medium enterprises (SMEs) and the development of local startups.

Reezal, the Malaysian External Trade Development Corporation chairman, suggested that Penang look into expanding its medical technology and devices industry, which currently has about 40 multinational companies.

He said local talent should be developed in medical electronics, high-precision components, testing, product validation, research and development and specialised manufacturing.

Reezal also called for greater focus on the aerospace and avionics industries, which generated RM25.1 billion in revenue in 2024, up 38.7% from RM18.1 billion in 2023.

“Penang should seize opportunities in high-precision aerospace components, avionics, engineering services, as well as maintenance, repair and overhaul,” he said.

Reezal proposed that the state explore opportunities in green technology, the electric vehicle ecosystem and the halal economy.

He said Penang recorded RM7.68 billion in halal trade last year, placing it third behind Johor (RM34.29 billion) and Selangor (RM30.17 billion).

Penang is heavily reliant on the E&E sector, which accounts for 82.3% of the state’s total merchandise exports. The state also contributes between 56% and 60% of Malaysia’s total E&E exports.

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