From William Ng In 2003, something shifted in Malaysia’s economic structure. Quietly and largely overlooked in public discourse, the services sector overtook manufacturing as the leading contributor to GDP. Two decades later, the services sector consistently contributes around 58% to 60% of GDP, compared to 24% to 27% for manufacturing. Yet, our strategic plans, budget allocations, and industrial policies still overwhelmingly prioritise manufacturing. This misalignment between economic reality and policy attention is what I call Malaysia’s manufacturing-services paradox. This disconnect is more than just a sectoral imbalance. It reveals a deeper problem: Malaysia’s economic development has not kept pace with its structural transformation. And small and medium-size enterprises (SMEs) are increasingly bearing the cost of this policy mismatch. A lopsided focus: Manufacturing’s 6% vs services’ 94% Only around 6% of all businesses in Malaysia are involved in manufacturing, according to SME Corp and the department of statistics. The remaining 94% are mostly in the services sector, ranging from retail and F&B to professional services, ICT, education, logistics, and creative industries. However, our entire institutional machinery — from incentives and tax breaks to trade missions and digitalisation grants — is designed for the former. Our key agencies are structurally geared towards industrial players. The logic is simple: manufacturing is easier to organise, regulate, and incentivise. There are global benchmarks, clearer productivity metrics, and established models for upgrading — from OEM to ODM to OBM. Services, by contrast, are fragmented, informal, and poorly understood. But this logic is increasingly outdated in the face of global economic transformation. Services: The sector we rely on, but don’t know how to grow Despite accounting for over 62% of the workforce, the services sector suffers from: Low productivity growth (compared to manufacturing and global peers). Fragmented oversight across ministries and agencies (for instance, tourism is under the ministry of tourism, arts and culture, digital services under the digital ministry, logistics under ministry of transport, and creative industries are under the communications ministry). Informality and under-reporting — particularly in micro-SMEs and gig economy. Limited access to financing, as many service businesses lack collateral, IP valuation, or credit profiles. Weak export orientation, despite the potential for digital and knowledge-based services. As SMEs account for the bulk of the sector, this has also made the SME ecosystem in services largely informal, under-productive, and under-capitalised — even though it is where most of the jobs and entrepreneurs are. And unlike manufacturing, the services sector often lacks a single, powerful champion in government. Institutional inertia and policy path dependence Much of our national strategy is shaped by institutional capability, not economic necessity. The ministry of international trade and investment is arguably the most well-organised, data-driven, and globally connected ministry in Malaysia. Its success has, ironically, led to the over-representation of manufacturing in national plans — from the New Industrial Master Plan (NIMP) 2030 to various iterations of the Malaysian plans. But this strength has turned into a form of institutional inertia. The services sector — despite its dominance in employment and GDP — is left out of the national imagination. It has no champion, no single narrative, and no coordinated strategy. As a result, NIMP 2030 becomes the flagship strategy — not because it reflects our full economic reality, but because it is the most implementable and administratively feasible. Global lessons: Beyond the factory floor Let’s look at Singapore. In 1975, Malaysia and Singapore were very close in terms of GDP per capita. Today, Singapore’s three largest banks have a combined market cap three times larger than Malaysia’s top banks (around RM280 billion versus more than RM800 billion), despite having no major OEM factories to finance. Their economic engine runs on services, finance, logistics, healthcare, and knowledge-based sectors. And these have institutional support, from regulation to workforce planning to internationalisation efforts. Likewise, countries like South Korea and Ireland have successfully transformed services — from low-end support functions to high-value business process outsourcing, fintech, education exports, and digital platforms. Malaysia lags behind not in potential but in policy coherence and institutional support. Malaysia’s failure to scale services could mean missing the next engine of growth. Services are not “low-productivity by nature” — they are low productivity because we have not modernised or invested in them. Can Bank Negara and Khazanah lead a new economic narrative? Malaysia’s future economic trajectory requires more than industrial upgrading. It demands narrative upgrading — a shift in how we define national success, economic resilience, and value creation. Institutions like Bank Negara, Khazanah, and EPF — which largely sit outside the ministerial hierarchy — must now step in to provide a broader strategic lens. Their roles in promoting financial inclusion, digital economy, ESG adoption, and new capital markets can be a catalyst for service-sector transformation. The challenge is to move beyond managing risks — to actively shaping national priorities. A country of 33 million people cannot afford to be driven by the needs of 6% of its firms. Final thought: The future won’t look like the past We often talk about SMEs as if they are a segment of the economy. In truth, they ARE the economy. And most of them are not exporters, manufacturers, or unicorn founders. They are local, service-based, underfunded, and under-supported. If Malaysia is serious about inclusive, sustainable, and future-ready growth, we must stop treating services as the economy’s “leftover” and start seeing them as the main course. The NIMP 2030 rightly aims to modernise our manufacturing base. But it’s only one piece of the puzzle. Without an equivalent national effort to grow, formalise, finance, and scale our service-sector SMEs, Malaysia will remain stuck in a development trap. The services sector is where our jobs, our entrepreneurs, and our future already live. It’s time our policies did too. The forest is growing. It’s time we stop chasing only the trees. William Ng is the national president of the Small and Medium Enterprises Association of Malaysia (Samenta), Malaysia’s oldest association for SMEs. The views expressed are those of the writer and do not necessarily reflect that of FMT.