Economic complexity is a summary measure of the productive capabilities within a country, as reflected by the diversity and complexity of products it makes and exports.
The BNM Annual Report 2017 revealed that to enable further diversification and ventures into more complex industries, focus should be directed towards modernising and augmenting the supporting ecosystem of pertinent industries.
"Firstly, a sustainable supply of a well-educated and experienced talent pool forms the bedrock for the diffusion of knowledge within and across industries and new trends such as Industry 4.0 would have significant consequences on the labour market, requiring an adaptable workforce that can be reskilled and retooled.
"While institutions were created in the past to address skill shortages, they should now proactively embed joint industry-academia element in new and existing course and training curricular, and research programmes, which eventually will ensure that the talent produced matches the dynamic needs of industries, anchored firmly with strong research skills to drive innovative change," it said.
As for financing, regulators and private sector players must work closely to encourage more widespread use of alternative financing platforms, such as crowdfunding, peer-to-peer lending and venture capital.
And this could be an important source of funds for businesses, particularly small medium enterprises involved in innovative or new growth areas which entail higher risks as bank-based financing may not be the best means to finance these activities.
"Banks often require comprehensive credit-risk assessment, established credit history and collateral, which start-ups in new growth areas often lack," it said.
For infrastructure, more attention should be placed on upgrading virtual and digital infrastructures in the country, as this could encompass the integration of big data analytics into national databases, greater use of remote desktops and improving broadband connectivity.
Lastly, the central bank said the regulatory environment would need to adapt to and leverage the rapid technological change taking place and ongoing efforts to reduce regulatory red tapes and reorientated incentives such as taxes, subsidies would encourage quality investments in more innovative and complex industries, particularly those that involved down streaming and research and development activities.
The annual report also explained that the advancement in economic complexity would have impact on Malaysia's economic growth prospects, as the gap between a country's complexity and its level of per capita income could be used to predict future gross domestic product growth.
If a country's income level is lower than average at a given Economic Complexity Index (ECI), income is likely to grow at a faster pace going forward because the country already possesses the necessary productive capabilities to easily diversify into more complex products within a short time-frame.
Hence, this allows the country's income to converge to the levels that are consistent with other countries possessing similar levels of economic complexity.
Even though Malaysia's economic complexity has grown over the years, the country remains behind advanced and fast-growing regional peers.
Against selected Asian countries, South Korea is deemed the most complex economy with an ECI of +1.79 in 2016, followed by Singapore (+1.61) and China (+0.94).
With the changes in ECI over the recent decades, most regional countries have accomplished greater complexity gains than Malaysia's improvement of +0.21, which suggested that these countries experienced more substantial diversification in their product mix or have ventured faster into highly complex products.
The improvement in Malaysia's ECI is relatively slower as the export mix diversified by a smaller extent and the entry into new products has yet to materialise significantly.
This can be seen in certain sector, for instance Malaysia's concentration in electronic products (PCI: +0.76) rose to 44 per cent from 37 per cent of total exports over the last decade as the country remains firmly plugged in the global value chain.