Malaysia's ability to attract and accommodate business endures

Having undergone rapid development over the last half-century, Malaysia’s economy has progressed from relying on agricultural and primary commodities to being broad-based and export-driven. Benefitting from long-term political stability, sound economic management and pragmatic leadership, The country possesses sound infrastructure, established health care and education systems, and an increasingly advanced and diversified economy. Its diversity may be one of its greatest assets, and with a population that is both multi-ethnic and multilingual, it is well placed to succeed in an increasingly integrated global economy.

Geography & Climate

Malaysia’s 13 states and three federal territories span 330,000 sq km. Peninsular Malaysia is home to 11 states, while what is known as East Malaysia on the island of Borneo contains the two states of Sabah and Sarawak. East Malaysia is separated from the peninsula by the South China Sea, and both Sabah and Sarawak share their borders with Indonesia and the sultanate of Brunei Darussalam. Peninsular Malaysia is divided into west and east by the Titiwangsa Mountains, and located in the south-east is the capital Kuala Lumpur, approximately 300 km from Singapore.

With its close proximity to the equator, Malaysia has a tropical climate, meaning one can expect an average annual temperature of 27 C, high humidity and regular downpours during the rainy season. The average rainfall in Malaysia is about 250 cm per year, with the rainy season occurring between December and March and the dry season from June to September. Due to the most recent El Niño phenomenon, the beginnings of which were first felt late in 2015, Malaysia experienced unseasonably dry weather through the first quarter of 2016, with above-average temperatures over the period.

The landscapes in the east and west have similar but varied features, including coastal planes, hills, rugged mountains, flat paddy fields and both secondary and old-growth rainforests that host a wide diversity of flora and fauna. In Sabah, Kinabalu Park alone contains more than 5000 species of flowering plants, over 150 species of trees, around 100 kinds of mammals and some 326 species of birds. Sabah also features the country’s tallest mountains, including Mount Kinabalu, which attracts tens of thousands of climbers each year.

Population

According to the Department of Statistics (DoS), Malaysia’s population reached 31.29m in early 2016. Data gathered from the 2010 population and housing census, the most recent official statistics at the time of writing, showed the Bumiputera – which includes ethnic Malays and other indigenous groups – made up 67.4% of the population, the next being Chinese (24.6%), Indian (7.3%) and other ethnicities (0.7%).

In 1960 average life expectancy stood at 59.4 years, but since then the country has come a long way, with DoS data from October 2015 revealing an average life expectancy of 74.8 years – 77.4 for woman and 72.5 for men. Of the three main ethnicities, the Chinese have the highest averages (80.1 and 75.1), followed by the Bumiputera (76.1 and 71.2) and Indian (75.8 and 67.7) communities.

While the speed with which the average life span of Malaysians has increased is a clear indicator of the country’s successful development, it will soon be faced with the intrinsic challenges that accompany such a change. By 2030 it is estimated that as many as 15% of citizens will be over the age of 60; however, with the majority of the population lacking any notable financial assets or savings, finding ways to fund the retirement of this expanding demographic will become a challenge. Nonetheless, the aged care sub-segment possesses strong growth potential for companies looking to carve out a niche in a market that currently offers a limited amount of choice.

History

Indigenous Malays began arriving from south-western China around 10,000 BCE. As early as the first century CE Malaysia began developing through shipping and trading – industries that heavily influenced the settlement of the Malay Archipelago. Traders from India brought Hindu and Buddhist practices to the peninsula, and Islam was introduced by Muslim merchants travelling through the Strait of Malacca. Due to its strategic location along major trading routes, the Islamic city-state of Malacca flourished until the Portuguese invaded in 1511, starting four centuries of European rule. Johor was the last area to remain independent from European administration, submitting to British control in 1916. During the Second World War, Malaysia was invaded by Japan; however, this brief occupation ended in 1945 when British rule was restored. In 1948 Malaysia was granted semi-autonomous status as a British protectorate named the Federation of Malaya, but the emergence of a communist insurgency from 1948 to 1960 made it difficult for the British to retain control. Responding to these and other pressures, the UK officially withdrew in 1957. After lengthy negotiations, the Federation of Malaya merged with the former British colonies of Sabah, Sarawak and Singapore, forming a newly independent federation in September 1963. In 1965 Singapore seceded, resulting in the Malaysia known today.

Leadership

Tunku Abdul Rahman Putra Al Haj initially served as chief minister of the Federation of Malaya and after independence became the country’s first prime minister. He was succeeded by Abdul Razak Hussein, who introduced the New Economic Policy in 1971, partly in response to racial and economic inequality that had led to race riots in 1969. Razak also established a coalition of political parties known as the National Front (BN).

When Mahathir Mohamad became prime minister in 1981, he began implementing a liberal economic reform programme that included the privatisation of a number of state-owned industries. The economy expanded rapidly throughout the 1980s and 1990s, though growth temporarily stalled due to the Asian financial crisis of 1997-98. After entering office as prime minister in 2004, Abdullah Ahmad Badawi implemented a free trade agreement with Japan. Today the government is lead by Najib Razak, head of the BN, who became the sixth Malaysian prime minister in 2009. In 2013 his party won the closest federal election yet and claimed 133 seats.

Under the stewardship of the Najib government, Malaysia has remained committed to trade liberalisation and a responsible policy of fiscal consolidation, removing petrol and diesel subsidies and implementing a goods and services tax . In 2015 the Malaysia-Turkey free trade agreement came into force, the ASEAN Economic Community (of which Malaysia is a member) was established, and in early 2016 the country signed the Trans-Pacific Partnership agreement, a sweeping multilateral trade deal.

Governance

Malaysia is a federal constitutional monarchy ruled by an elected king – the Yang di-Pertuan Agong – who is selected for a five-year term by the Conference of Rulers. This group consists of the leaders of the nine Malaysian states ruled by monarchs and the governors of the four that are not; however, the latter do not contribute to the election process. The king’s role is largely ceremonial, but he is the final authority on the appointment of the prime minister and has other discretionary powers.

The federal government is organised into three branches: the executive, legislature and judiciary. Executive power lies with the government and the prime minister, who leads and selects a Cabinet consisting of ministers chosen from the upper and lower houses of parliament. These two separate assemblies hold legislative power, and the Senate, or Dewan Negara, supplements the House of Representatives, also known as the Dewan Rakyat. The House of Representatives, as the main legislative body, consists of 222 members elected from single member constituencies for five-year terms in a first-past-the-post electoral system. As the upper house, the Senate has 70 seats, 44 of which are appointed by the king and 26 elected by 13 state legislatures serving three-year terms.

The most recent general election, in 2013, returned the BN to power over its closest opposition – another coalition of parties known as the People’s Alliance (PR). By taking 133 seats to the PR’s 89, the BN secured another five-year term, which was achieved despite the coalition party losing the popular vote for the first time – the PR won a 50.87% majority to the BN’s 47.3%. In line with the convention of Westminster, the prime minister is able to call an early election at any time, but since independence in 1957, elections have been held at regular intervals and on time.

Malaysia’s judicial system is made up of superior and subordinate courts. The former comprise the Federal Court (the nation’s highest court), the Court of Appeal, the High Court of Malaya, and the High Court of Sabah and Sarawak. The Sessions and Magistrates’ Courts, and the Court for Children are defined as subordinate courts. A Special Court was also established in 1993 with the jurisdiction to try cases raised by or against the Yang di-Pertuan Agong, Sultans and Raja, representing the first time in Malaysia’s history that proceedings could be brought against those holding these posts.

Business Environment

Malaysia continues to be an attractive market for foreign investors thanks to its financial and political stability, physical security and sound infrastructure. This is reflected in the World Bank’s “Doing Business 2016” report, which covers 189 economies and assesses key indicators for doing business, such as acquiring electricity and starting a company. Despite falling in the rankings since 2015, positioned at 18th, Malaysia is second only to Singapore within ASEAN.

Although Malaysia and its prime minister have been in the international spotlight recently due to financial irregularities related to the sovereign wealth fund 1Malaysia Development Berhad, there is no denying the country’s solid macroeconomic fundamentals. In 2015 Malaysia also improved its position in Foreign Policy magazine’s Baseline Profitability Index, which ranks countries in order of attractiveness to foreign investors, as it jumped from 11th place in 2014 to 6th the following year.

National Resources

Malaysia has long benefitted from an abundance of natural resources, including petroleum, tin, rubber, timber and palm oil. It was tin mining that first attracted Western attention to the Malay states, and colonial British planters transformed the country’s arable land into rubber and oil plantations. Although Malaysia remains a primary exporter of rubber and palm oil, its tin mining is no longer a significant industry. Malaysia produces 39% of the world’s palm oil and 44% of its exports, and increasing global demand for the commodity bodes well for the industry. Though arable land is restricted to protect the environment, Malaysian plantations also cultivate cocoa, timber, pepper, pineapple and sugar cane. Copper, iron ore and bauxite are also present, and rice paddies dot the northern areas of the peninsula, though the country imports a significant amount of the crop to satisfy demand.

According to Wan Zulkiflee Wan Ariffin, president and CEO of the state-owned oil and gas company Petronas, at the end of 2015 Malaysia still had hydrocarbon reserves of more than 20bn barrels of oil equivalent, which is equal to 44 years’ supply of gas and 27 years of oil at 2014 production levels. National oil reserves are located almost entirely offshore, mostly in the South China Sea off Sabah and Sarawak, and current investment is focused on deep-sea exploration and production, and on enhanced oil recovery techniques designed to extend the life of the country’s older reserves. Malaysia is also intensifying research and development in renewable energy, with a growing focus on biogas derived from the heavy biomass output of the palm oil industry.

Religion, Culture & Language

Islam is both the majority and official religion of Malaysia, though other religions are freely practised. Among the population are Buddhists, Taoists, Hindus, Christians and Sikhs, and some indigenous tribes continue to practise animistic religions. According to 2010 census figures, 61.3% of Malaysians identify themselves as Muslim, 19.8% as Buddhist, 9.2% as Christian, 6.3% as Hindu and 1.3% as following a traditional Chinese religion. As the majority faith, Sunni Islam is the most prominent in national discourse. Under the Najib government, Malaysia has continued to strive for a moderate, progressive form of Islam that embraces the diversity of the country’s population, although in recent years various NGOs have raised concerns about growing religious intolerance.

Malaysia is a mosaic of cultures and this is reflected in the breadth and variety of festivals celebrated within the country. From Islam’s Hari Raya to India’s Deepavali, Chinese New Year and Christmas, barely a week goes by without a celebration. Much of Malay culture centres around its cuisine, and its culinary offerings are as diverse as the people that have affected them over the years. The most obvious influences are Indian, Chinese and Malay. A Chinese-Malay fusion known as Nyonya comes from the early Chinese immigrants to the old Straits Settlements of Penang and Melaka.

Malay and English are the country’s official languages, though a number of Chinese languages – primarily Hokkein, Hakka, Mandarin and Cantonese – are commonly spoken, along with Indian languages, particularly Tamil. English is widely used, and many official functions and speeches are conducted in English. In the states of Sarawak and Sabah, several indigenous languages have significant numbers of native speakers, such as Iban and Kadazandusun.

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This article is from the Country Profile chapter of The Report: Malaysia 2016. Explore other chapters from this report.