The Report: Malaysia 2014
Malaysia’s natural resources and its well-educated population are some of the many credentials that keep the country in good stead, with priorities centred on preparing for the ASEAN Economic Community in 2015 and steering the policy framework toward more inclusive political representation. The economy is built around global trade, and the government is working to encourage greater private investment.
Country Profile
Malaysia consists of 13 states across a total land area of 330,000 sq km; its capital, Kuala Lumpur, is located approximately 300 km from Singapore. According to the Department of Statistics, Malaysia’s population reached 29.95m in 2013, with an average growth rate of 1.45% between 2012 and 2013. “Malaysia Truly Asia,” the country’s tourism slogan reflects who Malaysians are: an amalgamation of ethnicities, religions, cultures and languages. While the government aims for Malaysia to reach developed nation status by 2020, the key to reaching this goal lies in its handling of political and social challenges. Keeping the country’s different ethnicities and faith communities together in a workable social contract and balancing the impact of changing times with the need for continuity and respect for tradition will ensure impressive results. This chapter contains a country profile viewpoint from Prime Minister Najib Razak.
Explore chapterTrade & Investment
Already one of the most trade-oriented economies in the world and an established regional leader in attracting foreign investment, Malaysia now aims to compete with Singapore as an alternative regional trade and investment hub for rapidly developing ASEAN. Although it boasts a liberal investment environment, foreign investment is restricted in certain sectors, especially retail, banking, agriculture and energy. The government is working to persuade multinationals to locate in Kuala Lumpur with a target to attract 100 firms from the Forbes 2000 list to invest in the Greater KL area by 2020. Negotiations for the Trans-Pacific Partnership have been ongoing since 2010, but have been delayed by disagreements between the various economies involved. However, a text could now be concluded by the end of 2014. Likewise, the ASEAN bloc’s integration process has significant momentum, and, with its well-funded banks and deep corporate equity and bond markets, Malaysia is well positioned to play a greater role in the entire region’s development. This chapter contains an interview with Anifah Aman, Minister of Foreign Affairs; Ratan Tata, Chairman Emeritus, Tata Group; Le Luong Minh, Secretary General, ASEAN; Zainal Amanshah, CEO, InvestKL; and Wan Saiful Wan Jan, CEO, Institute for Democracy and Economic Affairs. It also contains a viewpoint from US President Barack Obama.
Explore chapterEconomy
Malaysia is supported by abundant natural resources, in particular offshore oil and gas, and foreign investment-friendly policies have nurtured a globally competitive electrical and electronics industry, while a strong banking system has financed rapid growth in consumer sectors and construction. The country has much reason for optimism through its successful transition to the top-tier in the World Economic Forum’s “Global Competitiveness Report 2013-14,” which ranked Malaysia 24th of 148 countries. The ranking implies the country already has policies and business conditions in place that are comparable to many advanced economies. The country’s biggest challenge is to channel its growing financial capital into more entrepreneurial companies able to compete against peers in the global arena. This chapter contains interviews with Ali Hamsa, Chief Secretary to the Government; and Johan Mahmood Merican, CEO, TalentCorp. It also includes a viewpoint from Syed Haizam Jamalullail, Vice-President, Malaysia-America Foundation (MAF).
Explore chapterSabah
Sabah is a dynamic area for growth, new discoveries and investments. Sabah is one of the five regional development corridors and hosts a number of sectors that fall under the federal government’s National Key Economic Areas, such as oil palm and rubber, among others. Services accounted for 47.4% of the state’s 2012 GDP, followed by agriculture with 20.8%; mining and quarrying, 20.7%; manufacturing, 7.9%; and construction, 2.9%. Tourism is also a growing sector; the state brought in $1.98bn in tourism revenues in 2013, up from $1.72bn in 2012. To encourage further development the government has put a set of tax incentives in place. However, varied terrain and inadequate transportation networks make coordination difficult and hinder development efforts. Bolstering infrastructure and talent is key to moving Sabah forward, and there are plenty of indicators that the state and federal governments are active on these fronts. This chapter contains interviews with Musa Aman, Chief Minister of Sabah; Mohd Yaakub Johari, President and Chief Executive, Sabah Economic Development and Investment Authority (SEDIA); Abdul Kadir bin Abdullah, CEO, Sipitang Oil and Gas Industrial Park (SOGIP); Faisyal Hamdain Diego, Chairman, Suria Capital Holdings; Johnson Koh Yong Siang, Executive Director, Waterfront Urban Development; and KP Kuok, Executive Director, Pacific Sanctuary Holdings.
Explore chapterBanking
In a stress test conducted in early 2014, the central bank found that Malaysia’s banks would be able to hold up even if the system faced shocks greater than those in the 2008 crisis. After a number of years of consolidation and in an environment of tight regulation, Malaysia’s commercial banks have continued to improve. Local banks have been ordered by Bank Negara to increase their collective assessment ratio to 1.2% by the end of 2015. The ratio was previously called the general provisions ratio and was set at 1.5%. Macroprudential measures will help the country get its household debt under control while small and medium-sized enterprise financing is likely to improve over time. The vision of creating a regional banking giant remains unfulfilled for the time being; nevertheless, organic growth opportunities exist and banking targets may become available from time to time, allowing some of Malaysia’s larger players to cobble together a regional footprint. This chapter contains an interview with Kelee Kam, Group Managing Director, RHB Capital.
Explore chapterCapital Markets
While the possibility of loose monetary policy ending in the US raised concerns in the Malaysian markets, 2013 turned out to be a strong year for new offerings and for the benchmark index. In the first six months of 2014, nine IPOs were reported by the stock exchange. In 2013, $2.56bn was raised in IPOs. That was considerably less than in 2012, when the exchange raised $7.15bn, but up from $2.09bn in 2011. In December 2013 Bursa Malaysia upgraded its trading engine, utilising NASDAQ OMX technology. Bursa Trade Securities 2 replaced a 2008 system. The new engine is 1000 times faster in terms of trade. As in much of the region, Malaysia is facing headwinds related to changes in monetary policy in the West and the tapering of quantitative easing. Foreign investment will likely become more volatile going forward. Nevertheless, Malaysia is well positioned not only to weather any difficulties ahead, but it is in a good position to outperform. It has a well-regulated market, a strong domestic investor base, and its listed companies are well governed. This chapter contains an interview with Shahril Ridza Ridzuan, CEO, Employees Provident Fund.
Explore chapterIslamic Financial Services
As a result of government promotion, increased interest among Muslims and non-Muslims, heightened awareness of the benefits of Islamic finance and improved regulation, sharia-compliant financial products have been gaining on conventional finance. The country’s IFS sector dates back to 1969, when the government established the Pilgrims Management and Fund Board to help Malaysians pay for the Hajj. According to recent estimates, around half of all outstanding debt securities are sharia compliant, with the annual trading volume of the IFS market reaching $312.1bn. The 2013 Islamic Financial Services Act will improve regulation and supervision in the sector by giving the central bank the power to intervene in financial institutions’ operations if it feels they are endangering the financial system. The IFS sector will no doubt continue to expand rapidly. Regulation may create new challenges for some business in the sector, but it will also increase confidence in and understanding of IFS. Once the sector digests these new rules, it will likely come back stronger and in a better position to take on a larger share of conventional financial services. This chapter contains interviews with Rauf Rashid, Country Managing Partner, EY Malaysia; and Daud Vicary Abdullah, President and CEO, INCEIF.
Explore chapterInsurance
Despite being well established in the country, insurance remains a fairly small part of Malaysia’s financial industry. According to IMF calculations the insurance sector accounts for 6% of total financial assets, and insurance assets are equal to around 15% of GDP. Insurance penetration, though improving, remains low. More foreign investment and consolidation may help, as critical mass and technology could improve products and marketing and result in a wider range of Malaysians buying insurance. More mergers can be expected, and as that happens insurance firms are likely to improve their operations and management. The insurance sector should become more like the banking sector, with a few solid and profitable players. This chapter contains an interview with Kamaludin Ahmad, CEO, Etiqa Insurace & Takaful.
Explore chapterEnergy
With Malaysia’s steady economic growth and expected regional surge in energy demand, the country’s oil and gas sector continues to play a key role economically, socially and strategically. Most of the country’s major oil-producing fields are in the west, with the Sabah and Sarawak basins in the east. As mature oil fields continue to decline in production, development of new fields has shifted to more technically and economically challenging areas. Expanding on past successes, Malaysia is gearing up investments in the upstream sector to cope with overall energy demand that is expected to be about 50% greater in 2040 compared to 2010 levels, according to projections by ExxonMobile. Alongside fiscal initiatives for trading, Malaysia continues to expand its liquefied natural gas (LNG) infrastructure to accommodate increasing supplies of natural gas. The country’s first floating LNG facility is currently being constructed and is expected to come online by the end of 2015. Eagerly awaited reforms in power generation should also positively affect public and private stakeholders as fuel and electricity subsidies are phased out and tender process for new plants become competitive and transparent. This chapter contains an energy viewpoint from Greg Rickford, Canadian Minister of Natural Resources.
Explore chapterTransport
As Malaysia aims to achieve high-income country status by 2020, the key to reaching the goal is enhancing transport infrastructure, with major investments in air and sea, road and rail currently under way. At the same time, the logistics sector remains highly competitive, with air transport in particular seeing some fierce price wars in 2013-14. The most recent census – for 2010 – confirmed a trend of expansion in the sector, with a compound annual growth rate of 4.5% in the number of transport establishments between 2003 and 2010, and a 1.5% CAGR in employment in the sector. One National Key Results Area under the Government Transformation Programme is to increase urban public transport’s share of passenger journeys from 12% currently to 40% by 2030. With heightened competition in air, major road and rail projects under way on land, and a significant boost in port capacity, the Malaysian transport sector is likely to have some significantly busier times in the years ahead. This chapter contains an interview with Jean-Bernard Levy, Chairman & CEO, Thales.
Explore chapterConstruction & Real Estate
The construction sector has experienced consistently strong growth in the past four years as the industry expanded by 11.4%, 4.7%, 18.1% and 10.1% each year from 2010 to 2013. Sector growth has surpassed GDP growth in recent years, spearheaded by the government’s Economic Transformation Programme (ETP) and public-private partnership (PPP) projects. Counterbalancing the interest shown in the more profitable high-end properties, the government has also been mindful of developing more affordable options through various government programmes. Mixed-use mega projects in Kuala Lumpur and Iskandar are expected to produce stable demand for construction services. Sustained economic expansion, a youthful and growing population and an investor-friendly market amenable to foreign and domestic investments have continued to drive Malaysia’s real estate market forward in 2013. The government is seeking to rein in residential property growth to limit broader economic damage in the event of a market downturn as well as to keep home prices affordable for the less affluent. Although investment in the residential sector is expected to remain firm within the short term, particularly with regards to mid-range projects, the market is likely to continue its correction course throughout 2014. This chapter contains interviews with Michael Yam, President, Real Estate and Housing Developers’ Association; and Mohamad Salim, Group Managing Director, MRCB.
Explore chapterIndustry & Retail
A key contributor to the economy, manufacturing accounted for 24.5% of Malaysia’s GDP in 2013, ranking it second only to the services sector (55.2%) and well ahead of mining (8.1%), agriculture (7.1%) and construction (3.8%). As Malaysia increases its global trade via participation in trade agreements such as ASEAN and the Trans-Pacific Partnership Agreement (TPPA), enhancing efficiencies and competencies is becoming crucial for the country to maintain its economic edge. As the global economic recovery begins to accelerate, investment into Malaysia’s industrial sector is rebounding from an off year, with the country attracting 29% more approved capital inflows in 2013 than the previous year. With Malaysia’s natural resource base able to provide a wealth of inputs for downstream applications, in addition to the country’s strong base of supportive services, cost competitiveness and strategic location within ASEAN, the domestic manufacturing sector is well placed for further expansion. This chapter contains an interview with Alois Hofbauer, Regional Head, Nestlé Malaysia/Singapore.
Explore chapterTourism
In 2013 tourism was the sixth-largest contributor to Malaysia’s economy, making up $16.1bn of gross national income, from seventh place in 2012. The government and the private sector have taken many concrete steps in recent years to ensure the arrival of more and more visitors, be it for business or leisure. In the year marked by two Malaysian Airlines tragedies, the industry is making a strong effort to regain the confidence of travellers, both foreign and local. ASEAN was Malaysia’s largest source of visitors in 2013, with 19m arrivals, or 74% of the total, according to the Ministry of Tourism. Top source countries were Singapore, Indonesia and China. An open-skies policy for ASEAN members, set to take effect in 2015, is likely to boost competition between carriers and lead to improvement in services. As South-east Asia in general becomes an increasingly popular destination, Malaysia’s tourism sector looks likely to loom increasingly large on global travel maps in the years to come. This chapter contains an interview with Ahmad Razlan, CEO, Sepang International Circuit (SIC).
Explore chapterAgriculture & Plantations
A major push to boost efficiency in the agriculture and plantations sectors is under way, with the government allocating some RM6bn ($1.8bn) to the sector in its 2014 budget to support a drive for greater productivity, among other strategies. The bulk of agriculture’s contribution to GDP comes from plantation crops, which accounted for 36.5% of the sector’s value in 2012, followed by rubber (8.2%), forestry and logging (11%), poultry (7.3%) vegetables (8%), fishing (14.4%) and fruits (4.1%). The state aims to transform the sector from its small-scale production model into an agribusiness-based sector with more efficient holdings producing more value-added products. Meanwhile, higher-value products will require the implementation of higher-quality standards and well-certified production processes when it comes to ensuring sustainability. In the future, the sector may see its valuable contribution to the country’s economy continue to grow, along with prosperity of rural and urban populations. This chapter contains an interview with Emir Mavani, Group President & CEO, Felda Global Ventures. (FGV).
Explore chapterTelecoms & IT
In 2014 Malaysia’s ICT sector ranked highly in international indices, including internet and telephony competition, knowledge absorption and cluster development among other measures. Out of Malaysia’s population of 30m, 15.2m people use the most popular networking sites, spending an average of 16 hours a week online, far more than their counterparts in other South-east Asian countries. With a good base of talent, skills and technology, a wide range of supporting policies and programmes, an active local market and a good reputation, Malaysia has built an impressive foundation in IT. It now has to focus on going from a strong local player to becoming a regional leader and finding a way to establish its IT corporations and entrepreneurs internationally. This chapter contains interviews with Zam Isa, CEO, Telekom Malaysia; and Badlisham Ghazali, Former CEO, Multimedia Development Corporation (MDeC).
Explore chapterEducation & Health
The Malaysia Education Blueprint 2013-25 was launched in September 2012 and is now implementing phase one, which runs to 2015. With a solid foundation to build on, the government is eager to raise education standards and broaden access in conjunction with the goals it has set for 2020. Two key elements of this are foreign direct investment and collaboration from private institutions. For Malaysia to achieve its developed nation goals by 2020 it will need 500,000 new employees in the fields of science and technology, according to the Ministry of Science. One government goal is to have at least one domestic institution ranked among the world’s top 50 by 2020, and at least three in the top 100. The highest-placing university in recent rankings made 167. Malaysia boasts a strong health care sector backed by government investment and engagement with the private sector. The number of medical tourists to Malaysia rose from 617,000 in 2012 to about 700,000 in 2013, a function of the country’s rising global reputation. With the ASEAN Economic Community single market set for launch in 2015, the Malaysian health industry needs to prepare for an increased flow of workers and stiffer competition in segments like medical tourism. Higher standards and quality should be the sector’s aim as it tackles new public health concerns and begins to adapt. This chapter features an interview with Idris bin Jusoh, Minister of Education II.
Explore chapterTax
This chapter gives an overview of Malaysia’s tax environment, focusing on the regulations and rates that affect businesses and investments. It also features an analysis of the new tax on goods and services that is set to go into effect in 2015.
Explore chapterLegal Framework
Focusing on corporate environment, foreign direct investment, tax and incentives, ownership, and competition law, this section examines the legal framework for operating businesses and investing in Malaysia. This chapter also features a viewpoint from Raphael Tay, Corporate and Practice Development Partner, Chooi & Company.
Explore chapterThe Guide
This chapter features useful information for visitors to Malaysia, including suggested hotels, contact information for government ministries, business associations, foreign missions and other important resources, and facts about language, visas, etiquette and other useful tips. It also includes a features piece navigating the use of titles in Malaysian society.
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