Special Economic Zones in the OIC Region:

Learning from Experience

5.2

Case Study 1: Penang SEZ, Malaysia

5.2.1

Overview and Description

This case study focuses on the State of Penang in Malaysia. The State is divided into two halves;

Penang Island which is located on the Strait of Malacca and Seberang Perai which is a narrow

stretch of hinterland on the mainland of Malaysia bordered by Kedah in the East and North and

by Perak in the South.

Penang benefits from strong trade related infrastructure including the Bayan Lepas Airport and

the Seberang Perai sea port.

Table 5-2 - Penang SEZ Overview

Zone

Primary Activities

Established

1972

Area

~ 3,160 ha

No. of firms on-site

~830

Authority in Charge

Penang Development Corporation (PDC)

Source: PDC interview (2017)

Vision and Objectives

In the early 1960s, following a period in which Penang’s trade-dependent economy had

stagnated, the State government embarked on a programme of import substitution based

industrialisation to boost the local economy. However, given its relatively remote location

within North West Malaysia and the small domestic market, many industries failed within the

first three years. By the end of the decade, these programmes had not succeeded in stimulating

economic growth within the state and as a consequence Penang’s per capita income was 12%

lower than the national average, whilst unemployment had reached 9%.

Following the loss of Penang’s free-port status in 1969, the Malaysian government

commissioned a study by Robert R. Nathan Associates to analyse the challenges and

opportunities for Penang’s economy. The report identified that an export-led growth strategy

would be the only viable solution with a focus on Bayan Lepas given its transport accessibility

(proximity to the airport) and access to a large pool of labour.

Athukorala (2014) Growing with Global Production Sharing: The Tale of Penang Export Hub, Malaysia