The Report: Malaysia 2012
Malaysia is a multi-ethnic society of 29m split between the Malay Peninsula and the island of Borneo. With a per-capita GDP that has hovered around $10,000 for the past decade, the country is struggling to escape a “middle-income trap” brought on by dependence on basic manufacturing and natural resource exports. An intensive Economic Transformation Programme spearheaded by the government aims to improve Malaysia’s human capital, develop a high-tech economy and incentivise advanced manufacturing. The country is also looking at a leadership position within the anticipated ASEAN Economic Community, as its banks, telcos and construction firms benefit from rapid economic growth in Malaysia’s neighbours. Making the shift from a government-driven to private sector-driven economy will be easier said than done, however, and a relatively small domestic markets may constrain Malaysia’s ambitious corporates. For further analysis on Malaysia, read our article Malaysian Quandry: Oxford Business Group View.
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Country Profile
Split between Peninsular Malaysia and the island of Borneo, Malaysia has a diverse population of 29m, mainly ethnic Malays, Chinese and Indians. Bahasa Malayu is the official national language, but Indian and Chinese languages are spoken by their respective native communities, and English is widely used even beyond the business community. Malaysia, which gained real independence in 1957, is a federated constitutional monarchy that delegates considerable autonomy to states, with special status for Sabah and Sarawak in Borneo. The current head of government is Prime Minister Najib Razak of the Barisan Nasional coalition, which has ruled since the country’s founding, although opposition party Pakatan Rakyat looks competitive in upcoming elections. This chapter contains interviews with Mohamed Mahathir, former Prime Minister of Malaysia; William Hague, UK Foreign Secretary; Sebastian Pinera, President of Chile; Alessandro Golombiewski Teixeira, Deputy Minister of Development, Industry, and Foreign Trade of Brazil; and Surin Pitsuwan, Secretary-General of ASEAN.
Explore chapterEconomy
Malaysia continued to post reasonably strong growth in 2012 despite its high exposure to trade amidst a soft global economic climate. The Economic Transformation Programme (ETP) championed by Prime Minister Najib Razak is taking hold, bringing increased expenditures on infrastructure and a growth in private sector investment. The ETP’s goal is to help Malaysia escape the “middle-income trap” and become an economy driven by advanced manufacturing, technology and financial services. Challenges to this project include a low level of talent and skills, rising cost of living and worrying increases in the national debt. This chapter includes interviews with Nor Mohamed Yakcop, Minister in the Prime Minister’s Department, Economic Planning Unit; Lord Powell, Chairman, Asia Task Force (ATF); and Jim O’Neill, Chairman, Goldman Sachs Asset Management.
Explore chapterBanking
Malaysia’s banking sector is well-capitalised and stable, with larger financial institutions now looking at overseas expansion to increase their clout. The regulators’ encouragement of consolidation under the Financial Sector Master Plan, which ended in 2010, reduced the number of banks from around 20 down to 8 major institutions. These have high capital-adequacy ratios and low ratios of non-performing loans, even as they extend a volume of credit equal to 132% of the Malaysia’s GDP. While future mergers could still occur, the larger trend is outward growth, as Malaysian institutions look to the under-banked populations of Indonesia, the Philippines, and Thailand. This chapter includes interviews with Zeti Akhtar Aziz, Governor of Bank Negara Malaysia; and Nazir Razak, CEO, CIMB Group Holdings.
Explore chapterCapital Markets
The local bourse has seen a bonanza of major offerings in 2012, from the $3.1bn IPO of plantations owner Felda Global, to the dual Singapore-Malaysia listing of hospital operator IHH Healthcare. The corporate bond market is also on a record-setting pace, thanks in large part to a string of sukuk sales that included a $9.9bn debt offering from tollway company PLUS. Meanwhile a wave of consolidation, which has already transformed Malaysia’s banking industry, is now hitting brokerages, with at least three major mergers or acquisitions occurring in 2012. Developments on the horizon include the 2016 opening of the Tun Razak Exchange, which the government hopes will become a hub for Malaysian and international financial institutions. This chapter includes an interview with Tajudin Atan, CEO, Bursa Malaysia.
Explore chapterIslamic Financial Services
Malaysia’s pioneering role in the development of Islamic finance has made it a clear leader in this field, even as oil-rich Gulf countries show increasing interest in sharia-compliant finance. It is the world’s largest sukuk market – a fact underscored by the record $9.9bn offering by highway operator PLUS in January 2012 – and the second-largest takaful market. The industry has been helped by substantial government support, including low taxes on dividends and several sharia-compliant funds for SMEs and entrepreneurs that are financed by the state. The challenge for the sector moving forward is to standardise and internationalise its products, defining clearly the requirements for sharia products and harmonising its offerings with those of other nations like Qatar.
Explore chapterInsurance
Malaysia’s insurance sector, which saw premiums rise by nearly 15% in 2011, is growing in tandem with the country’s economic development. The sector saw a wave of mergers and acquisitions for conventional insurers in recent years as regulators imposed a risk-based capital (RBC) framework. Now, with the application of RBC to takaful firms, the Islamic insurance sector is expected to consolidate as well. Other regulatory changes – the rising cap on motor insurance tariffs, potential liberalisation in the health sector – could boost the sector as well. Overall, Malaysia’s middle-income status and relatively low levels of penetration bode well for insurance growth in the medium to long term. This chapter includes an interview with Hans de Cuyper, Etiqa Insurance & Takaful.
Explore chapterEnergy
Oil and gas represent an important but slowly declining source of Malaysia’s exports and government revenues. Projected to become a net importer of both fuels by 2017, Malaysia is seeking to boost both upstream and downstream capacity, develop expertise in oilfield services, and promote renewable energy. The government has offered tax incentives for projects that use enhanced oil recovery (EOR) technology, and is integrating EOR requirements into production contract extensions. Declining oil is also spurring greater investment in new fields like the North Malay Basin. On the gas side, meanwhile, Malaysia is investing in regasification plants, floating LNG terminals, and other infrastructure in order to establish itself as a gas transport and trading centre. This chapter includes an interview with Emir Mavani, CEO, Malaysia Petroleum Resources Corp.
Explore chapterTransport
Having already developed a comprehensive transportation and logistics network across key economic regions, Malaysia is focused on improving access to rural areas and decreasing congestion in cities. The government’s biggest project is the Klang Valley Mass Rapid Transit system, which kicked off construction in 2012 on the first line, with two more to come by 2018. Other plans in the works include the extension of KL’s Light Rail Transit and a potential high-speed rail link to Singapore. New highways are also being planned in both Peninsular and Eastern Malaysia, with the latter aimed at improving logistics and facilitating access to the hinterlands. Finally, Kuala Lumpur International Airport is set for a massive new low-cost carrier terminal, which will feed the expansionary appetite of Air Asia and Malaysia’s other budget operators. This chapter includes interviews with Syed Hamid Syed Jaafar Albar, Chairman, Land Public Transport Commission (SPAD); and Bashir Ahmad, Managing Director, Malaysia Airports Holdings Berhad (MAHB).
Explore chapterConstruction & Real Estate
The construction sector is in the midst of a boom thanks to infrastructure outlays under the 10th Malaysia Plan. The highlight is the Klang Valley Mass Rapid Transit (KVMRT), which includes contracts potentially worth over $20bn through 2018. Other state-driven projects include the Pengerang petrochemical facility, the Tun Razak Exchange and several highways, although the government is promoting a private-sector-driven approach to finance these developments. Infrastructure development, particularly of the KVMRT, will help fuel the real estate market, allowing for affordable housing in Selangor Valley with access to central business districts. Developers are also looking to exploit Iskandar Malaysia’s proximity to the wealthy Singaporean market for property investment.
Explore chapterTelecoms & IT
From a regional perspective, Malaysia’s communications industry is at an intermediate level of development: significantly ahead of most ASEAN countries, but trailing “Asian tigers” like Singapore, Hong Kong, and South Korea. New developments in telecoms may be changing this, with wireless operators rolling out 4G networks and Telekom Malaysia deploying a fibre-to-the-home network in core areas. The IT sector, meanwhile, is seen as a prime candidate for powering a next-generation Malaysian economy, and possible sources of growth include the creative multimedia, outsourcing, and data centre industries. Sourcing talent for this industry, however, is proving to be a perennial headache. This chapter includes interviews with Mohamed Sharil Tarmizi, Chairman, Malaysian Communications and Multimedia Commission (MCMC), and Zam Isa, Group CEO, Telekom Malaysia.
Explore chapterTourism
With nearly 25m arrivals and $19bn in revenues in 2011, Malaysia’s tourism sector is a major contributor to employment and economic growth. Visitors are attracted by Malaysia’s cultural diversity, natural beauty, historic landmarks, and of course, the gleaming shopping malls of Kuala Lumpur. The country also offers a strong value proposition, although tourism operators are finding this something of an Achilles heel nowadays as they try to entice visitors to spend more money. Tourism promoters are hoping the “Luxury Malaysia” campaign, launched in 2012, changes these attitudes. Malaysia is also focused on attracting more Muslim travellers and improving the country’s ecotourism offerings.
Explore chapterIndustry
Malaysia has developed competitive industries in a number of key fields, from agriculture-based products like rubber and halal food, to petroleum and chemical products, to high-tech electrical and electronics manufacturing. The government’s strategy for turning Malaysia into a high-income economy includes shifting from low- to high-value production, emphasising sectors like bio-technology and pharmaceuticals that require more talent and R&D inputs. Along these lines, many firms are looking to upgrade their offerings, with medical device manufacturers moving from disposable rubber products to more high-tech equipment, and electronics manufacturers building their own tablets. Challenges for the sector include a new minimum wage introduced in 2012, although defenders of the policy say it will encourage a shift toward higher-value labour. This chapter includes interviews with Mustapa Mohamed, Minister of International Trade and Industry (MITI); and Wong Lai Sum, CEO, Malaysia External Trade Development Corporation (Matrade).
Explore chapterMedia & Advertising
Malaysia’s media scene is dominated by cross-platform conglomerates such as Media Premia, which operates the country’s most popular free TV channels and has a commanding presence in print, radio and online as well. Other groups include Star Publications, Sin Chew Media and the Redberry Media Group. Meanwhile Astro Holdings, which relisted on the KL bourse in 2012, dominates the pay-TV sector and owns various radio and magazine outfits. Print media continues to command the largest share of adex, at 42%, although this has slipped slightly with the growth of pay-TV and the internet.
Explore chapterEducation
Education is a renewed area of focus for the Malaysian government, which has increased its spending on the sector by 60% over the past two years as part of its commitment to building a high-income economy. The current system enjoys relatively high grades in global reports but suffers from low enrolment across primary, secondary, and tertiary levels. Private schools have emerged to fill this gap, especially in the kindergarten and primary market. The government also abolished school fees for primary and secondary school in 2012. One major challenge, however, will be maintaining the quality of Malaysian graduates even as the government increases quality to address labour shortfalls. This section features an interview with Lim Kok Wing, Founder and President of Limkokwing University of Creative Technology, and David Willetts, UK Minister of Universities and Science. Malaysia’s relatively low dependence on the public sector – just 4.1% of budgetary expenditures go toward health care – is fairly unique in ASEAN, but it has produced a system that most agree is fundamentally sound. Around 40% of Malaysians have medical insurance, with the rest using Ministry of Health centres, while the private sector’s share of medical spending has trebled in the past decade. This has led to retention problems in the public sector, as many doctors head for private practice or go overseas.
Explore chapterRegions
Malaysia’s government is in the midst of implementing a long-term strategy that seeks to diversity the national economy away from dependence on the core Kuala Lumpur/ Klang Valley area. This plan, introduced in 2006 under the 9th Malaysia Plan by then-Prime Minister Abdullah Ahmed Badawi, created five regional economic corridors: Iskandar Malaysia (IM), the East Coast Economic Region (ECER), North Coast Economic Region (NCER), Sarawak Corridor of Renewable Energy (SCORE), and Sabah Development Corridor (SDC). By focusing on distinct industries within each region and soliciting private domestic and foreign investment, the government is hoping to alleviate regional poverty and rebalance the nation’s economic growth. This chapter includes interviews with Jebasingam Issace John, CEO, East Coast Economic Region Development Council (ECERDC); Ismail Ibrahim, CEO, Iskandar Regional Development Authority (IRDA); and Mohd Ali Rustam, Chief Minister of Melaka.
Explore chapterPlantations & Agriculture
Malaysia’s agricultural sector continues to be dominated by the export-oriented rubber and palm oil sectors, the latter of which has achieved primacy in recent years. Palm oil accounts for as much as 8% of Malaysia’s GDP alone, and the recent listing of major plantations owner Felda raised $3.1bn and earned cash payments for upwards of 100,000 families. The sector, however, is facing the challenge of transitioning from raw, small-scale agricultural production to value-added and technology-driven agribusiness. At the same time, concerns over food security are leading some to question the dominance of commercial over staple crops. This chapter features interviews with Bernard Giluk Dompok, Minister of Plantation Industries and Commodities, and Sabri Ahmad, CEO & Group President, Felda Global Ventures Holding (FGV).
Explore chapterInnovation
Malaysia’s R&D spending has skyrocketed over the past decade, albeit from a low base: funds for research grew at an average annual rate of 18% from 1996-2007. New government-led initiatives such as the Cradle Fund and the Malaysian Innovation Agency, are helping to improve the availability of funding, especially for small businesses doing high-value, high-risk research. Biotechnology is one of the emerging industries that has benefitted greatly from this investment, and it now employs over 150,000 people and contributes 2.2% of the country’s GDP. Malaysia’s unique biodiversity has also yielded benefits for entrepreneurs – providing rare natural compounds for pharmaceuticals and biotechnology companies and allowing agribusiness firms to produce high-end rubber and palm oil products. This chapter includes interviews with Francis Gurry, Director-General, World Intellectual Property Organisation (WIPO); and Mohd Nazlee Kamal, CEO, Malaysian Biotechnology Corporation.
Explore chapterLegal Framework
In partnership with Chooi & Company, OBG takes a look at Malaysia’s legal system. Key points include the long-awaited Mediation Act 2012, as well as a number of new laws intended to improve regulations and step up protection of relevant parties. Christopher Leong, Managing Partner of Chooi & Company, offers a viewpoint on recent legal developments
Explore chapterThe Guide
This section includes an article about Fraser’s Hill, a secluded getaway from Kuala Lumpur offering unique trekking, golfing and cuisine options. OBG also offers information on hotels, government and other listings, alongside useful tips for visitors on topics like currency, visas, language, communications, dress, business hours and electricity.
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