KUALA LUMPUR: Malaysia's electronics and semiconductor industries often dominate discussions on the country's economic growth, but industry players say the chemical sector plays a less visible yet equally important role in generating domestic economic value.
The sector also supports high-skilled jobs and strengthens industrial resilience.
A recent analysis by the World Bank highlights this hidden strength using a concept called Domestic Value Added (DVA), a measure of how much money from a product actually stays in Malaysia versus how much leaks out to foreign countries.
While Malaysia's electrical and electronics (E&E) industry remains the country's largest export engine, it retains about 54 per cent of its economic value domestically, reflecting its reliance on imported components and machinery for assembly and re-export.
By comparison, the chemical sector retains about 61 per cent of its value within Malaysia, underscoring its deeper integration into the domestic economy.
According to Ancom Nylex Bhd chief executive officer Datuk Lee Cheun Wei, the stronger value retention reflects the structure of the industry, which functions as a critical midstream engine that transforms raw inputs into higher-value outputs.
"We take primary feedstocks, whether sourced locally or imported, plus intermediates which are mostly locally produced, and subject them to complex industrial processes and proprietary formulations to create specialised outputs," Lee said.
Because this process requires expensive, heavy-duty factories and high-level technical expertise, a much larger slice of the economic pie stays within the country.
He added that fields like fertiliser production and speciality chemical manufacturing require a highly skilled local workforce, including chemists, engineers, and technical teams.
By growing this industry, Malaysia isn't just making products; it is building a community of high-skilled professionals and keeping top-tier job opportunities local, he said.
The Economy's Unsung Hero
Lee described the chemical industry as the "invisible backbone" supporting almost every other major sector in Malaysia.
In agriculture, it supplies fertilisers and herbicides critical for palm oil and food production, while in manufacturing and construction it provides resins, adhesives and coatings. The semiconductor industry, meanwhile, depends on high-purity solvents and speciality gases.
"Without a strong local chemical sector, these critical pillars of the Malaysian economy would be forced to rely on expensive, complicated imports from overseas," Lee said.
Despite its strengths, the industry faces challenges in moving up the value chain, particularly in developing advanced materials that require heavy investment in research and development as well as specialised production facilities.
Global uncertainties are also adding pressure, with disruptions in major shipping lanes and geopolitical tensions in the Middle East driving volatility in energy prices and increasing logistics and insurance costs.
Lee said these unpredictable global events make it incredibly difficult for companies to plan long-term investments.
Despite the rough waters, local players see a bright future.
As Southeast Asia demands better food security and the global tech world demands more advanced microchips, the need for high-end chemicals is skyrocketing, said an industry insider.
"By carving out a specialised niche in ultra-pure chemicals, Malaysia's chemical sector is positioning itself to capture an even bigger, more lucrative slice of the global supply chains," he said.