2006 was marked by major developments in Malaysia with regards to the launch of the Ninth Malaysia Plan, ASEAN integration, big construction projects abroad and the development of Islamic finance.
Much of Malaysia’s macroeconomic news in 2006 evolved around the announcement of the Ninth Malaysia Plan in March 2006. Under the five-year plan, the government has allocated R200bn ($54.34bn) in spending for development projects while another R20bn ($5.43bn) will be raised through Private Finance Initiatives. One of the primary objectives is to move the Malaysian economy up the value chain, in tandem with the Third Industrial Master Plan announced in August. That means increased spending on technology, education and value-added industries, particularly in the manufacturing and agriculture sectors.The plan aims to grow Malaysia’s service industries, particularly in terms of technology, logistics, Islamic finance and tourism. As part of the plan, the government has committed to construction projects worth round R15bn ($4.08bn). Projects begun in 2006 including the construction of education facilities, water supply projects, bridges, and roads. Larger projects include the Penang monorail, the second Penang bridge and the development of Johor state as a major driver of industry and growth in the country.
2006 also saw progress towards the liberalisation of trade in goods and services. In August 2006 ASEAN trade ministers announced that they would accelerate plans to create a single market within the region, recommending 2015 as the target year for the creation of the Asean Economic Community, an advance of five years from the previous target. This move is perhaps the most significant result of Malaysia’s year-long chairmanship of the 10-member body, and would offer access to a large integrated market with a population of more than 530 million.
Though ASEAN has deals pending with China, Japan and India, bilateral free trade agreement (FTA) negotiations began in 2006 between Malaysia and multiple international partners. In July 2006 ,Malaysia's agreement with Japan came into effect, eliminating goods tariffs of US$27 billion within 10 years, and aiming at boosting trade and investment between the two countries. Bilateral negotiations also began with Pakistan, Chile, Australia, New Zealand and the United States. A third round of talks with the US was held in November, and a deal should be concluded early this year.
An overall bearish domestic industry has led Malaysian firms to look abroad, and several firms have netted large deals overseas. In July, Malaysia's largest infrastructure company, Gamuda, beat nine international firms to clinch a RM640m (US$174m) contract to build a bridge in Bahrain. The deal followed on the heels of a 2005 deal with its partner WCT Engineering for two Qatar contracts - a highway and the airport - worth some RM2.7bn (US$734m) together. Ranhill, the country's largest engineering firm, has an order book of above RM6bn (US$1.6bn), of which slightly more than 50% of the contracts are from abroad - including infrastructure projects in Libya, Turkey and Pakistan. Last but not least, in November, Malaysian conglomerate MMC Corporation announced a mega-deal to manage and develop Jizan Economic City in Saudi Arabia.With a US$30bn price tag and a 30-year timeframe for implementation, the massive project is Malaysia's most valuable overseas contract. MMC will develop the new city in partnership with a Saudi firm.
In August 2006, Malaysia Central Bank announced a series of measures designed to attract more investors to Islamic banking and to strengthen Malaysia's position as an international hub for Islamic finance. Among the new measures, the government will issue new licences and registrations to foreign and local financial institutions and takaful companies to conduct a full range of Islamic operations in foreign currencies. Moreover, the 2007 budget includes tax cuts and incentives to further boost the country's Islamic finance industry.
Malaysia hopes for Islamic funds to make up 20% of total assets by 2010, a figure that is expected to be surpassed much sooner. The increasing demand for Islamic instruments from a Middle East flush with petrodollars as well as the emergence of rival centres of Islamic finance in Singapore and Dubai have encouraged Malaysia to become more innovative and introduce increasingly outward-looking measures in recent years.