How Malaysia’s Lockdown has impacted the Global Economy.

As a Malaysian, even as an Economics student, I have not realised what Malaysia’s lengthy lockdowns in 2021 has done to the global economy and more specifically its supply chains.

Perhaps seeing the case numbers grow week by week and me getting used to staying at home for long periods at a time has gotten into me. But, recent news I’ve read has made me realised how essential Malaysia is to the Global Supply Chain.

After all, exports make up a huge chunk of Malaysia’s GDP, around 60-70% in recent years. (It was 121% in 1999).

Chips

No not potato chips (for Americans) nor the kind served with Fish (for British).

The semiconductor chips that are used in your laptops, your phones and also automobiles like cars.

Increasingly, cars are beginning to use more and more semiconductors in them to regulate the driving systems such as brakes, entertainment systems, engine systems etc. And with the further advancements of Electric Vehicles and Self Driving technology, cars will only use more chips in the future.

So it is clear to see how important chips are to Car Makers. And Asia’s lockdowns have slashed Global Chip Supplies.

Bar chart of Car units lost during crisis (m) showing Carmakers could shed 9.5m cars due to chip crisis

Toyota has had to cut production by 400,000 units in September and October because of shutdowns of factories in Malaysia and Vietnam with the surging Delta variant. Its not just Toyota. Ford, General Motors, Volkswagen, Daimler (Mercedes) are all facing chips shortages. Right now, all the major automakers have cars sitting uncomplete on factory sites, waiting for chips to be placed in them to complete its build.

Who's loving the semiconductor chip shortage? Car dealerships - Roadshow — Cars sitting idle because they still need chips

Malaysia is a very important production site for chips in Asia. In 2019, it exported more than $70 billion worth of Integrated Circuits (chips) and Semiconductor Devices. It is an integral part of the supply chain, providing testing and packaging for Global Chip Giants like Intel, AMD, Bosch and Broadcom. Lockdowns have only caused a backlog of of these important processes and slowed down the global chip manufacturing industry.

Palm Oil

Malaysia’s palm oil industry is facing labour shortages. Probably due to lockdowns causing workers to be forced to stay home or fear of catching the virus at work, which is happening all around the world from China to the UK. Moreover, Covid has forced the regular supply of migrant workers to be cut off.

Malaysian Palm Oil Board (MPOB) at a World Palm Virtual Expo and Conference said the labour pool shrunk 6.6% between April 2020 and June 2021.

Malaysia produces 33% of Palm Oil exports in the world. But labour shortages have forced Malaysia’s Palm Oil forecasted production in 2021 to shrink to 18 million metric tones. It produced 19.14 million metric tones in 2020. The lower supply has caused Palm Oil prices to surge to all time highs.

What does this do to the global economy ?

Palm Oil is essential for producing soap and shampoos. And if the raw material prices rise, so will the price of the completed product. Unilever which is a consumer good giant has already warned that raw material price rises like Palm Oil will result in price rises of its toiletries and cleaning products.

Moving Home

This is precisely why more and more countries want to move supply chains closer to home. They have experienced first hand that they cannot rely on far away factories in times of crisis such as a Pandemic or Geopolitical conflicts.

Europe and America are both prepared to bring chips production closer to home. The US are prepared to spend $54 billion to subsidize US chip production and rely less on Asian supply chains. Recently, European Commission president Ursula von der Leyen announced plans for a new “Chips Act” that will help create top notch European chip ecosystem which includes production.

As for Palm Oil, it doesn’t look very likely that it will shift away from Malaysia and Indonesia who both account for 90% of Global Palm Oil exports. But, if you look at the bigger picture, this could see more and more manufacturing jobs go back to the West.

Or it could bring more jobs instead if Western economies want it to remain east but away from China.

Anything could happen in these uncertain times.