Aiming high: Melaka’s location and existing infrastructure give it an edge as the state looks to develop further


From distant beginnings as a key South-east Asian trading settlement, Melaka has since grown into a vibrant, multicultural, global entrepot – in many ways, a distillation of modern Malaysia. Like the country too, the state is also now looking towards the future, with its sights firmly set on the power of the sun, travel and space – as well as on a major boost for already healthy manufacturing and service sectors. Indeed, a major drive to boost both foreign and domestic investment is now under way, with plenty for all to play for.

GLOBAL HERITAGE: Historians debate the exact time of the foundation of both the city and the kingdom of Melaka, but most agree it was around the late 14th to early 15th centuries. There is broad agreement that it was a Sumatran prince, Parameswara, who founded the future city. Political exigencies had forced the prince to flee Palembang, and he set out along the west coast of the Malay Peninsula in search of refuge. According to legend, Parameswara was standing under a tree when he saw a normally meek mouse-deer kick one of his hunting dogs. Taking this defiant gesture as an encouraging sign, he built a city on the spot and named it after the Melaka tree under which he was standing.

Whether the myth of Melaka’s founding is factually accurate or not, it is certain that Parameswara chose the site for his new home wisely.

In addition to its pleasant climate, abundant fresh water and a hilltop vantage point giving it a highly defensible position, Melaka’s deep, sheltered harbour on the channel which took its name – the Straits of Melaka – positioned the city at the convergence of some of the busiest sea lanes in the world, linking India, China, Japan, Arabia and East Africa.

Then as now, this harbour would prove to be of great strategic importance, with Melaka soon becoming a centre of global maritime trade. The new city thus grew rapidly: within 50 years, Melaka had a population of more than 50,000 and was a powerful, wealthy centre of international commerce. Hundreds of ships visited its port each year, and the city of Melaka blossomed into a centre for international trade in the most exotic and sought-after articles of the day: Indian textiles, Chinese silk and porcelain, Moluccan spices, Sumatran gold and pepper, Timorese sandalwood, Bornean camphor and Malayan tin. By the end of the 15th century, the kingdom of Melaka had become a Muslim sultanate and a commercial and religious centre exercising profound influence on other Muslim kingdoms.

It was also well-known as a wealthy trading centre, making it a prime target for European states looking to extend their powers overseas. In 1511 the Portuguese conquered Melaka, controlling it for around 150 years. In 1641, however, the Dutch captured the city and began using it primarily as a military base from which to control the Straits of Melaka. Dutch rule ended in 1795, when the British took over, running Melaka until independence in 1957.

LOCAL GOVERNMENT: As one of the non-monarchical Malaysian states, modern-day Melaka has a yang di-pertua negeri, or governor, that serves as the head of state. He or she is appointed by the king, on the recommendation of the prime minister. The governor in turn appoints the chief minister (CM), an elected member of the state parliament, who ordinarily represents the majority party there.

The unicameral parliament, known as the State Legislative Assembly, functions as the highest state-level policy-making authority. The State Legislative Assembly consist of 28 deputies elected from single-member constituencies for five-year terms. During the last state election, held in 2008, the National Front (Barisan Nasional, BN) won 23 seats and the People’s Alliance (Pakatan Rakyat, PR) the remaining five.

The CM leads the state government, with a cabinet known as the Executive Council (EXCO). The EXCO is made up of deputies in the assembly plus the state secretary, legal and financial advisors. Four councils (known as majlis) then make up the state’s local government.

These are the Melaka City, Alor Gajah, Jasin and Hang Tuah Jaya councils, which provide services and their local populaces. Council members and leaders are appointed by the state government.

BY THE NUMBERS: The state consists of 1664 sq km on the western coast of Peninsular Malaysia. Its northern boundary is with the state of Negeri Sembilan, its southern boundary with Johor and its western boundary is the Straits of Melaka. In 2011, the most recent year for which figures are available, Melaka had an estimated population of about 800,000 (based on the adjusted 2000 census). The state reached 7% GDP growth in 2011, according to Mohd Khalil Yaakob, Melaka’s state governor, speaking at the opening of the state assembly in March 2012. The governor also said per capita income had increased from RM16,674 ($5379) in 2001 to RM24,000 ($7742) in 2011.

Before that, according to Malaysia’s Department of Statistics (DoS), in 2010 the state’s GDP grew 5.6% (at constant 2000 prices), coming in second only to Perak’s 5.7% that year. Melaka’s growth was up considerably from 0.2% in 2009 and 4% in 2008.

GDP at constant prices was RM15.28bn ($4.9bn) in 2010, according to the DoS data, up from RM14.47bn ($4.7bn) in 2009 and RM14.45bn ($4.7bn) in 2008. The state’s manufacturing and services sectors registered the most favourable growth in 2010, with an almost equal contribution between the two sectors: services contributed 46.4% and manufacturing 44%. The state’s other contributors to GDP growth were agriculture (6.5%), construction (3%), mining and quarrying (0.1%), and import duties (0.1%).

MAJOR WORKS: Several key projects are under way in the state that look likely to help maintain this track record of growth. One of these is being undertaken by Petronas Gas, which in late 2012 will begin operating Malaysia’s first liquid natural gas (LNG) regasification terminal in Melaka. The terminal will have the capacity to receive, store and vaporise up to 530m standard cu feet of gas per day (mmscfd) – or 3.8m tonnes annually – of LNG. The terminal’s capacity will be increased to 2.5bn mmscfd. The LNG will be imported from various international supply sources to the terminal, which is located around 3 km offshore from Sungai Udang.

In the industry, the terminal’s design is widely seen as a major engineering achievement. A regasification unit located on an island jetty is designed to receive LNG, regasify it and deliver natural gas via the subsea pipeline to the Peninsular Gas Utilisation (PGU) pipeline. Two floating storage units make it unnecessary to build land-based regasification and storage facilities. From there, a 3-km subsea pipeline connects to a new 30-km onshore pipeline, which links to Petronas’s existing PGU pipeline network. Petronas is set to take up all of the regasification terminal’s capacity. However, the state-owned energy company is reportedly willing to reduce its volume to make room for any third parties interested in using the facility.

Other key projects are in the state’s manufacturing sector, which came in a close second to services in contribution to the state’s GDP in 2010, with the sector maintaining its importance to the state’s growth since. Developments in the automotive and semiconductor sub-sectors have been just two of the manufacturing standouts of 2012 so far.

In automotives, Melaka has long provided a home for Honda, with Malaysia being a major plant location and the Japanese car giant’s largest market for hybrid cars in South-east Asia. In 2012 too, Honda announced it will double the capacity of its Melaka plant to 100,000 vehicles by the end of 2013 and invest a total of RM350m ($112.9m) for a second production line. The company also plans to hire an additional 700 staff to develop and manufacture compact and hybrid vehicles. In 2011 Honda sold 4600 hybrid vehicles in Malaysia, with the firm planning to more than double sales to about 10,000 vehicles in 2012.

Meanwhile, German semiconductor company Infineon Technologies is set to invest some RM500m ($161.3m) in its Melaka operations. Infineon has been operating in Melaka since 2005, producing integrated circuit packaging solutions. The company will use this new investment to expand research and development (R&D), manufacturing capacity and facilities, with Melaka the location for an upgrading of the company’s largest backend manufacturing operation.

The expansion, which will include the construction of a centre to house development labs and offices for staff involved in R&D spread over 3000 sq metres, is expected to be completed by April 2013. The company will need the space for the planned addition of 140 engineers to its workforce, bringing its total R&D team to 400 by the end of 2013. The new emphasis on R&D will allow the company to undertake activities related to application engineering and test technology.

GREENING MELAKA: Elsewhere, renewable energy has been identified by the government as a new driver of economic growth. With this in mind, Melaka is aspiring to become a “green state” by emphasising the use of sustainable technology and renewable energy, with a particular focus on solar panel manufacturing.

Perhaps the most high-profile project in this area is a joint venture between SunPower Corporation, a US manufacturer of residential and commercial solar systems, and AU Optronics (AUO), a Taiwanese producer of thin-film liquid-crystal displays. The companies’ joint enterprise, AUO SunPower, operates a 108,000-sq-metre solar cell fabrication facility in Melaka’s “solar valley”, the Rembia Technology Park. It has produced approximately 5 MW of Gen 2 solar cells with up to 22.5% conversion efficiency since opening in October 2010, and production is now scheduled to reach full capacity by 2013. When completed, the plant it will generate 1400 MW of high-efficiency solar cells and have an installed capacity of 28 solar production lines.

BRINGING THEM IN: As an international business and tourism centre, Melaka is keenly aware of the importance of good transport links. Key here is Melaka International Airport (MKZ), which underwent upgrades in February 2011. Airlines operating out of MKZ currently include Melaka Air, operated by Melaka Holiday, while Sky Aviation and Wings Air also fly to the airport.

Anticipating growing future demand, in April 2012 Melaka Air, in collaboration with Firefly, launched its first Melaka-Penang return flight. At the time, Mohd Ali Rustam, Melaka’s chief minister, told local reporters that he hoped the domestic flight would increase tourist arrivals from the north to Melaka by at least 15,000 annually, but the flights were also expected to attract corporate domestic commuters who travel between Melaka and Penang. The minister said that Melaka Air plans eventually to launch international routes using Penang as a transfer hub to spots such as Bangkok, Hong Kong, Guangzhou and Taipei. In late October 2012, however, Melaka Air cancelled its deal with Firefly, saying it was not satisfied with the level of cooperation, and announced plans to buy a ATR-42 within the next three months to serve the Melaka-Penang route.

International transit connections between Melaka and Indonesia have also proliferated in the past year, with several new routes opening up. In March 2012 Indonesia’s Sky Aviation inaugurated twice-weekly flights between Tanjung Pinang in Indonesia’s Riau Islands and Melaka. The airline already operates a flight from Pekan Baru to Melaka. Sky Aviation reportedly also has plans to add another route connecting Melaka and Jambi, on the east coast of central Sumatra.

GROUND TRANSPORT: Back on the ground, in an effort to enhance the services of Melaka’s monorail line, Mohd Ali Rustam announced plans for a RM272m ($87.7m) tram project in late 2011. The Melaka Tram, to be built by Syarikat Mrails International, with the cooperation of the Chief Minister Incorporated, is expected to have a 40-km run, traversing many of the city’s tourist spots and reducing overall traffic congestion.

Melaka’s bus system is also set for improvements. In early 2012 the state government of Melaka assumed management of the city’s stage buses through its subsidiary, Panorama Melaka, at a cost of RM7.7m ($2.5m). Previously, the city’s bus system had been operated by 10 private bus operators. Melaka is the first Malaysian state to take over the ownership, management and operation of its stage buses.

HEADING FOR THE STARS: Melaka is the location of one of the country’s most innovative transport projects – Spaceport Malaysia. When completed in 2015, the spaceport facility will give the state and the country a launch strip for suborbital flights consisting of two areas, the Melaka Space Centre and the Spaceflight Terminal in the MKZ. Together, these will form a centre for operating sub-orbital space planes, introducing space tourism to the region, while also boosting rocket propulsion and space plane R&D, commercial zero-gravity flights, low-earth orbit research, and space-related education and entertainment.

The plans for the space centre also include a university with a zero-gravity research programme, led by the University of Zurich under a grant from the European Space Agency and the German Aerospace Centre. The space centre and the spaceport will occupy a site located around 20 km south of Melaka at Bandar Jasin Bestari.

The Space Tourism Society Malaysia Chapter is the owner of the development and the International Association for the Advancement of Space Safety is a consulting partner on the venture. Along with these two organisations, Germany’s Talis Enterprise is developing a suborbital space plane to be hosted at the spaceport. Planning and design work for this ambitious project is currently under way, with land purchasing expected to commence by the end of 2012.

TOURISM & HERITAGE: With such a long and varied history – much of it preserved in the buildings and streets of its capital – Melaka has long been a natural destination for visitors. Now, the state government and tourism sector professionals are combining to take the state’s attractiveness to a new level, further capitalising on the multicultural heritage and unique environment of this coastal territory.

UNESCO first added Melaka to its World Heritage List back in 2008, in recognition of Melaka’s 500-year history of trade and its Asian and European cultural influences. As a World Heritage site, Melaka gains UNESCO assistance in preserving and renovating its historic architecture – which includes colonial government buildings, squares, fortifications and churches – as well as in preserving the unique way of life successive waves of cultures, religions and ethnicities have brought to the state. This UNESCO status has undoubtedly helped tourism sector development, too.

BUILDING ON SUCCESS: Indeed, in 2011 Melaka recorded its highest-ever number of tourist arrivals – 12.2m. This was an increase of 454% from the 2.2m arrivals in 2000, according to the State Tourism, Culture and Heritage Committee, while also being 17.5% higher than in 2010. The 2011 figure also surpassed the state’s annual target of 11m arrivals. In January-April 2012 the state’s popularity as a tourism destination continued to rise, according to a June 2012 report issued by the State Tourism Department. In this period Melaka welcomed 4.11m visitors, a rise of more than 13% over the same period in 2011.

Of the 4.11m tourists, 2.92m were domestic. However, the number of foreign tourists had increased sharply, by 37.3% or 321,441 visitors, over the same period the year before, while domestic visitors grew by 5.8% or 159,776 visitors. State officials project 12.5m tourists will visit Melaka by the end of 2012.

In terms of countries of origin, China topped the list, with 222,999 arrivals, followed by Singapore, with 185,277; Indonesia, with 168,190; Taiwan, with 108,128; and Hong Kong, with 57,241. Domestic tourists arrived principally from Selangor, Kuala Lumpur and Johor, with those states showing 773,271, 666,520 and 484,748 arrivals respectively into Melaka.

MANY ATTRACTIONS: The State Tourism Department report also highlighted that Melaka’s museums have proved to be the most popular tourist attractions. Some 312,058 people visited them during the period, followed by 279,338 taking a Melaka River cruise, 176,943 visiting the Melaka Zoo and 169,340 visiting the Menara Taming Sari, a revolving tower which allows visitors a 360-degree view of the entire city. The tower is an important example of the state government’s initiative to develop a wider variety of attractions in the state.

Another example of this is medical tourism, for which 141,602 people travelled to Melaka in the first four months of 2012. The majority (29,789) of these tourists were made up of Indonesians, followed by Singaporeans, Chinese, visitors from the Middle East and Bangladeshis. According to a statement by Mohd Ali Rustam in 2012, Melaka received 350,133 tourists from Indonesia in 2011, 80,056 of whom were medical tourists who sought treatment at Melaka’s specialist hospitals.

Three private hospitals – Putra Specialist Hospital, Mahkota Medical Centre and the Pantai Hospital Ayer Keroh – operate in the state and provide the majority of health care to foreign visitors.

Another popular visitor choice is home-stay. The state offers seven home-stay programmes, with these jointly supported by the state government and the federal Ministry of Tourism, with the former spending RM885,000 ($285,500) to promote home-stay locally and abroad, and the latter taking care of maintenance and upgrades to home-stay facilities. In 2011 homestays, which are registered with the Ministry of Tourism, brought in revenue of RM1.57m ($506.5m) from 25,109 visitors, 8883 of whom were foreigners.

Of the 3,903,048 visitors who stayed in Melaka’s hotels in 2011, 1,811,799 were domestic tourists, up 0.66% from 2010, according to statistics from Tourism Malaysia. Foreigners made up 2,091,249 of the state’s hotel stays in 2011, a 0.1% rise over the previous year. The total number of hotel stays increased 0.36% over 2010’s 3,888,993. Thus, Melaka is steadily becoming a more popular destination on tourist itineraries.

Diversifying into areas such as medical tourism is also likely to boost revenues, particularly given its close proximity to Indonesia, where health care facilities are often of a lower standard. High-value projects such as the spaceport may also give the state a new tourism icon, combining the heritage of the past with a forward-looking future. With the state now literally reaching for the stars, these are exciting times for Melaka. With so much potential in energy, tourism, manufacturing and services, based on the strong fundamentals of Melaka’s location and its existing infrastructure, the state is well placed for further growth in the years ahead.

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The Report: Malaysia 2012

Regions chapter from The Report: Malaysia 2012