Malaysia unveiled on Friday a 15-year blueprint to attain developed country status but its target of 6.3 per cent average economic growth falls short of the pace the government previously said was needed to meet that goal.
Malaysia said it must develop its manufacturing and services sectors as other Asian exporters, such as China and Vietnam, eclipse its role as a manufacturing hub.
"Malaysia's competitive position is being challenged by emerging economies," the government said in its Third Industrial Master Plan, which covers the years 2006 to 2020.
"Malaysia needs to increase the availability of skilled and knowledge workers, strengthen R&D capabilities and improve technological readiness, telecommunications and government delivery system."
But the average growth target is less than the 7 per cent the government earlier said was necessary to take Malaysia to developed nation status by 2020.
From 1996 to 2005, the Southeast Asian economy grew 4.6 per cent a year on average, below the 7.9 per cent forecast by the government in a plan for 1996-2005.
Malaysia's growth last touched the 7-per cent mark in 2004, when the economy expanded by 7.1 per cent.
With its competitive advantage eroding, trade-driven Malaysia is racing to find new sources of growth. It is pushing manufacturers up the value chain as it develops the services and agriculture sectors.
Manufacturing and services together make up about 90 per cent of Malaysian gross domestic product.
The blueprint targets manufacturing sectors such as electronics, medical devices, textiles, machinery, petrochemicals, drugs and food-processing.
Services growth will focus on business and professional services, tourism, education, health and technology.
The plan also earmarked biotechnology, nanotechnology, radio frequency identification, wireless technology, photonics, fuel cell and laser technology for development.
Malaysia added it wanted to encourage mergers and acquisitions between local firms and multinational companies.
"Integration into the regional and global supply chains will facilitate and hasten the development of Malaysian-owned companies able to operate in an open international business environment."
In the past two decades, Malaysia has grown from an agricultural backwater into an electronics manufacturing player that houses firms such as Intel Corp, Motorola, Western Digital and Dell.
But it wants greater wealth for ethnic Malays and indigenous people, known as "bumiputra". They still lag ethnic Chinese despite a national policy to boost bumiputra business ownership, employment and education.
Bumiputras had the highest poverty level at 8.3 per cent and lowest mean monthly gross household income in manufacturing at 2,905 ringgit ($791) in 2004, data showed.
The plan will push for greater bumiputra participation in the manufacturing and services sector, the government said.
The government also vowed to keep the ringgit stable.
"The primary objective of the exchange rate policy will continue to be the promotion of exchange rate stability, against the currencies of major trading partners," the government said.
"Any misalignment in the exchange rate beyond the acceptable margins will need to be adjusted, to avoid undue difficulties in cross-border business transactions and operations."
The ringgit was freed from its peg of 3.8 per dollar in July 2005 and has since appreciated about three per cent.