Malaysia's ability to attract and accommodate business endures

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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 a vibrant private sector, the country possesses sound infrastructure, well-established health care and education systems, and an increasingly advanced and diversified economy. Its diversity may be one of the country’s 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 is made up of 13 states and three federal territories. 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 to the west and the east by the Titiwangsa Mountains, and the capital Kuala Lumpur is located in the south-east, approximately 300 km from Singapore. 

In close proximity to the equator, Malaysia has a tropical climate with 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 a rainy season between December and March, and a dry season from June to September. The landscapes to the east and to the 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 326 species of birds. Sabah also features the country’s tallest mountains, including Mount Kinabalu, which attracts tens of thousands of climbers each year. 


According to the Department of Statistics (DoS), Malaysia’s population reached 31.29m in early 2016. Data gathered from the decennial 2010 population and housing census, the most recent official statistics as of early 2020, showed the Bumiputera – which includes ethnic Malays and other indigenous groups – made up 67.4% of the population. The next-largest ethnic cohort was Chinese (24.6%), followed by Indian (7.3%) and other ethnicities (0.7%). In 1960 average life expectancy stood at 59.4 years, but this has improved significantly in the intervening decades, with DoS data from August 2018 reporting an average life expectancy of 75 years – 77.6 for women and 72.7 for men. Of the three main ethnicities, the Chinese have the highest averages (80.2 for women and 74.9 for men), followed by the Bumiputera (76.4 and 71.3) and Indian (76.2 and 69.2) communities. 


Indigenous Malays began arriving from south-western China in 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. 


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 (FTA) with Japan, and since then the country has maintained a positive attitude towards free trade. In addition to Japan, Malaysia is party to another six bilateral FTAs with Pakistan, India, New Zealand, Chile, Australia and Turkey. As a member of ASEAN, it is involved in another six ASEAN FTAs with China, South Korea, Japan, Australia, New Zealand and India. In 2020 Malaysia is expected to sign and ratify the Regional Comprehensive Economic Partnership between ASEAN and the six countries it has existing FTAs with, establishing the world’s largest free trade area. Mahathir Mohamad became Malaysia’s seventh prime minister upon his most recent election in 2018 – after already having served as the country’s fourth prime minster from 1981 until he stepped down in 2003.


Malaysia is a federal constitutional monarchy ruled by an elected king 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. Sultan Abdullah Ri’ayatuddin of Pahang is the current ruler, having been crowned in July 2019 following the abdication of his predecessor. 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: 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 and 14th general election, in 2018, saw the opposition coalition Pakatan Harapan (PH) elected over the ruling coalition, the BN. The PH took 113 seats to the BN’s 79. 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 2020” report, which covers 190 economies and assesses key indicators for doing business, such as acquiring electricity and starting a company. Malaysia is positioned at 12th globally, an improvement on 15th the previous year, and is second only to Singapore within ASEAN. 
Malaysia’s attractive tax policies, investment incentives, highly-skilled workforce and booming manufacturing industry helped to secure a reported $11.3bn of foreign direct investment in the first half of 2019 alone, according to the Malaysian Investment Development Authority. Moreover, the country has prioritised technological development, and offers tax incentives and breaks to key players who integrate artificial intelligence and internet of things into their digital growth strategies. 


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