Country Profile:
Malaysia
Malaysia
Malaysia has experienced substantial economic expansion in recent years, due primarily to a handful of major domestic industries, including manufacturing and plantation commodities. Under the 10th Malaysia Plan, which was unveiled in mid-2010, the state plans to move towards a knowledge economy, primarily by funneling an increasing amount of government funding into “soft” infrastructure, including education, research and innovation projects. This, in turn, has the potential to unlock new value in the country’s manufacturing and commodities sectors, in addition to ensuring economic growth for many years to come.
ISBN: 9781907065019
ISSN (Online): ISSN 1755-232x
ISSN (Print): ISSN 1755-2311
TABLE OF CONTENTS
COUNTRY PROFILE
This section provides a quick overview of the country, its population, languages, culture, natural resources, geography, climate, religion and history.
POLITICS
Born on August 31st, 1957, the contemporary state of Malaysia is a federal constitutional monarchy with an elected monarch, though executive power is concentrated in the cabinet, which is led by the prime minister. Legislative powers lie with the bicameral parliament, which consists of an upper house (the 70-seat Dewan Negara) and a lower house (the 222-seat Dewan Rakyat). The country’s judiciary, like the rest of the government, is based on the UK system of common law, though with a number of differences. In addition to federal laws, for example, certain regions in Malaysia – such as Sarawak and Sabah – have their own state legal systems. Malaysian Muslims are subject to a separate system of sharia law.
Boasting a multi-party political structure, the state has worked to balance the demands of the nation’s racially, ethnically and religiously diverse population since the country achieved independence from Britain over 40 years ago. The government is traditionally composed of coalitions of individual political parties. Currently, these include the ruling Barisan Nasional (BN) coalition, which consists of 13 parties, and the opposition Pakatan Rakyat, which consists of three parties. In general, parties are organised around ethnic or religious communities, though in order for any one party to hold power in a given coalition, consensus building and negotiation are key.
This chapter includes an interview with Prime Minister Najib Tun Abdul Razak and a viewpoint from HRH Prince Andrew, Duke of York.
THE ECONOMY
The nation fared relatively well during the international economic downturn and is on the way to recovery, largely thanks to a massive state-sponsored fiscal stimulus package, which was estimated to be worth around 10% of Malaysia’s GDP. In 2009 and the first few months of 2010 the economy was in good shape. In the last quarter of 2009 Malaysia saw economic expansion of 4.4%. This number rose to a robust 10.1% in the first quarter of 2010. Growth was led primarily by a surge in export demand for plantation commodities and electrical and electronic products, both of which are major local industries. According to the IMF’s World Economic Outlook, which was released in April 2010, the nation is expected to see GDP growth of around 6% in 2010 as a whole, which would make it one of the fastest-growing economies in the world. The government’s primary challenge going forward will be to ensure that the private sector continues to expand, so that it eventually replaces the state as the driver of economic growth. This is one of the primary pillars of Vision 2020, the government’s long-term plan to reach developed-nation status by 2020. While the manufacturing and commodities sectors will continue to contribute to economic expansion, the state is working to find new sources of income as well.
This chapter includes interviews with Nor Mohamed Yakcop, Minister in the Prime Minister’s Department; Izzadin Idris, Group Managing Director/Chief Executive Officer, UEM Group; Hamad Kama Piah Che Othman, President, Permodalan Nasional; Ahmad Husni bin Mohamad Hanadzlah, Minister of Finance II; Paul Krugman, Nobel Laureate and Professor of Economics, Princeton University; and Noharuddin Nordin, CEO, Malaysia External Trade Development Corporation. Also included is a viewpoint from Charles Prince, retired Chairman and CEO, Citigroup, and Senior Counsellor, Albright Capital Management and Albright Stonebridge Group.
BANKING
Malaysia’s banks performed well during the international economic downturn, due in large part to reforms put in place in response to the 1997-98 Asian financial crisis, which hit the local banking sector hard. Rigorous regulatory oversight resulted in high levels of liquidity, careful risk management and more than adequate capitalisation at most institutions. In 2009 the government put in place a number of initiatives meant to support additional economic growth. These included loosening monetary policy and cutting the required level of mandatory reserves that banks must hold against their liabilities from 4% to 1%, which resulted in increased liquidity in the system.
The state has adopted a slow but steady approach to opening up the sector to foreign institutions. Consequently, local banks currently dominate the country, though a number of foreign players are active in the local market and more are expected in 2010. The financial sector is expected to play a major role in the country’s move to become a high-income economy by 2020, which is the primary goal of Vision 2020. In particular, banks are expected to be a major source of capital for new government-sponsored research and innovation programmes, which are integral to the state’s plan to move the country towards a knowledge economy. In addition to supporting Vision 2020, banks are expected to see growth in project finance, loans to small and medium-sized enterprises, and the health sector.
TThis chapter includes interviews with Zeti Akhtar Aziz, Governor, Bank Negara Malaysia; Abdul Wahid Omar, President and CEO, Maybank; and Tajuddin Atan, Managing Director, RHB Bank.
CAPITAL MARKETS
Despite increased volatility in the wake of the international economic downturn, the FTSE Bursa Malaysia remains one of the most liquid markets in the region, and boasts the second highest capitalisation in South-east Asia, after Singapore’s exchange. After losing around 39% of its total value during the crisis, Bursa Malaysia staged a strong comeback in 2009 and early 2010, reaching a two-year high of 1328 points in March 2010. Growth in 2010 as a whole is forecast to hit 10%, as recovery continues and the ringgit, which has shown signs of appreciation recently, attracts additional investment from foreign markets.
Despite this rebound, the bourse has yet to fully emerge from the crisis. At the end of 2009, total market capitalisation and trading volumes were down by 10% and 4.7%, respectively, from the previous year. Still, the market managed to support 14 initial public offerings (IPOs) in 2009, raising a total of RM12bn ($3.6bn). Seven additional IPOs were launched in the first five months of 2010, which reflects a return to normalcy on the market. While Malaysia is by no means immune to rapid changes in investor sentiment in the coming months and years, Bursa Malaysia continues to be a solid choice, due to the country’s quick recovery and positive growth characteristics.
This chapter includes interviews with Professor Chan Ka Keung, Secretary for Financial Services and the Treasury, Hong Kong Special Administrative Region; Craig Donahue, CEO, Chicago Mercantile Exchange Group; and Yusli Mohamed Yusoff, CEO, Bursa Malaysia.
INSURANCE
The local insurance sector has matured substantially over the past decade, due in large part to consolidation efforts and increased competition among major players. Insurance companies have worked to introduce new products and technologies and to increase the quality of their service staff, all of which helped the sector ride out the international economic downturn in late 2008 and early 2009. In terms of gross written premiums, the industry saw growth of 11.2% in 2009. The majority of this expansion took place in the motor segment, which clocked a rise in gross written premiums of 17.1%. Other major sector drivers included liability insurance and medical insurance.
As of the end of 2009, there were a total of 127 licensed firms in the sector, 39 of which were direct insurers. Most firms are expecting to see growth in 2010, though this will rely largely on overall economic growth. A number of changes introduced as part of the 2010 national budget could have an effect on the industry, including a new motor insurance policy that will see the state taking over the compulsory auto insurance segment, which would allow private firms to focus on more profitable areas. Another major proposal in the 2010 budget could result in the development of an affordable microinsurance industry, which would boost overall penetration and benefit a substantial percentage of society.
This chapter includes an interview with Aminuddin Md Desa, CEO, Etiqa Insurance & Takaful.
ISKANDAR
Iskandar Malaysia, one of the country’s first development corridors, recently saw the completion of initial infrastructure work. The 2217-sq-km development area has the potential to become the economic centre of southern peninsular Malaysia. The project is the result of the Ninth Malaysia Plan, which seeks to spread economic development more evenly throughout the country via a number of regionally focused, large-scale projects. The Iskandar region is well situated to support these projects, due to its location at the centre of some of the most important shipping lanes in the world and proximity to a variety of major markets, including China, India and South-east Asia.
Overseen by the Iskandar Regional Development Authority, a statutory federal body, the corridor has also benefitted from the involvement of Khazanah, the state’s investment arm; and Iskandar Investment Berhad, which focuses on greenfield projects. As of the end of 2009 Iskandar Malaysia had attracted RM55.56bn ($16.61bn) in investment. By 2025 the region is expected to have brought in RM382bn ($114.22bn) of investments. If all goes according to plan, Iskandar Malaysia will eventually become a centre for high-value sectors, start-up companies and innovative new segments.
This chapter includes interviews with Ismail Ibrahim, CEO, Iskandar Regional Development Authority; and Arlida Ariff, President & CEO, Iskandar Investment Berhad.
ECER
Traditionally, both local and international investors have focused on the west coast of Malaysia, but with the development of the East Coast Economic Region (ECER) in 2008, this is set to change. Boasting strong state and federal government support, the region is poised to become a major centre for economic expansion and activity in the coming years. The ECER Development Council, which is overseeing the project, has identified five clusters that could become key drivers in the region. These include the oil, gas and petrochemicals sector, which is already a major focus in the region; tourism, manufacturing, education and agriculture. Much of the initial activity in the region will be centred in and around the ECER Special Economic Zone, which was launched in 2009 and covers a 25-km by 140-km strip of land on the coast.
While the government will continue to be involved in the project for many years to come, the bulk of future activity is expected to come from the private sector, both in the form of foreign direct investment and local start-ups. If all goes according to plan, ECER’s unique selling points will make it an attractive spot for local and foreign businesses alike, which will in turn further boost the country’s economy.
This chapter includes an interview with Jebasingam Issace John, CEO, ECER Development Council.
ISLAMIC FINANCIAL SERVICES
Under the 10th Malaysia Plan, the Islamic financial services sector is expected to take a leading role in economic development. The sector is seen as a key component of the government’s long-term strategy of moving the country towards higher-value-added industries and new products. Malaysia has been home to Islamic financial services firms since the 1960s, when Tabung Haji – which is currently one of the world’s largest Islamic investment institutions – launched structured funds to help Muslims save for the hajj, the annual pilgrimage to Mecca. Since then, the country has become a leader in the field, burnishing its credentials by establishing sharia advisory councils and central bank-sponsored industry references guidelines.
As of the end of the first quarter of 2010, the Islamic banking sector had total assets of RM240bn ($71.8bn), which means that the industry has more than doubled in size since 2005 and is one of the largest Islamic banking industries in the world. Similarly, the country is also an international leader in takaful, or Islamic insurance. Developing a standard set of sharia rules and laws that can be applied to Islamic financial products and services around the world has been one of Malaysia’s primary goals in recent years, and the country has made progress on this issue. In 2010 the government is expected to work to further strengthen the nation’s credentials as a major Islamic financial centre, which could very well result in an increase in foreign investment.
This chapter includes interviews with Mohd Razif bin Abd Kadir, Deputy Governor, Bank Negara Malaysia; Zukri Samat, Managing Director, Bank Islam; and Mohamad Nedal Alchaar, Secretary-General, Accounting and Auditing Organisation for Islamic Financial Institutions.
CONSTRUCTION & REAL ESTATE
In 2010 the government will continue to be the primary source of major construction projects in Malaysia, due largely to two state-sponsored stimulus packages, both of which were successful in terms of encouraging economic recovery but also added substantially to the public deficit. The international economic downturn had a negative effect on construction firms in late 2008, but by early 2009, according to figures from the Master Builders Association of Malaysia, the sector was contributing to GDP growth again, posting growth of 1.1% in the first quarter of 2009, 4.5% in the second quarter and 7.9% in the third quarter.
The government’s efforts to revitalise construction in the country have filtered down into the real estate sector in a number of areas. Mortgages, for example, are currently available at very reasonable rates for buyers, which is helping the sector maintain healthy growth and continue to attract investors. Similarly, a government focus on “green” building practices is expected to draw in additional investors in the coming years.
This chapter includes interviews with Mustapha Kamal, Chairman, Setia Haruman; and Francis Yeoh, Managing Director, YTL Corporation.
TOURISM
Due in large part to the success of the country’s “Malaysia: Truly Asia” promotional campaign, the tourism sector has become the single biggest component of the services sector, which in turn is the largest contributor to GDP. According to Tourism Malaysia, the country’s official promotional organisation, the sector attracted RM53.57bn ($16.03bn) in receipts in 2009, up from RM49.56bn ($14.83bn) in 2008. Under the 10th Malaysia Plan, the government hopes to bring the nation into the top 10 countries worldwide in terms of tourism receipts. To achieve this, the state is focusing on attracting visitors from higher-income and higher-spending countries and areas, such as the Russian Federation, India, China and the Middle East. Additionally, the government hopes to increase the average length of stay and boost the proportion of repeat visitors from developed nations.
That said, the sector faces a number of challenges, including increased long-term competition from neighbouring tourism markets and occasional labour shortages. In the long-term there will likely be an increased emphasis on hiring well-trained Malaysians to fill many of the positions that are currently occupied by foreign workers. These and many other issues are being addressed by the government’s New Economic Model, which is meant to ensure sustainable, long-term economic expansion in Malaysia and emphasises the importance of the tourism sector to the country’s ongoing growth.
TRANSPORT
Expanding and improving upon Malaysia’s transport infrastructure has been a major focus of the government’s numerous national development plans in recent years. These efforts have had a real impact: currently the country has one of the most developed transport systems in the world, boasting high quality and far-reaching road, rail, air and sea links. Improving the national transport network further is a key initiative of the 10th Malaysia Plan (10MP), which has the potential to turn the nation into a regional transport centre.
Projects currently under way include a large-scale airport and airline expansion initiative, privatising maintenance on some major roadways, expanding the federal road system, and upgrading port facilities in the nation’s new economic corridors. The national rail system is also seeing a massive overhaul, which, when completed, will give a substantial boost to the shipping segment. Despite a number of challenges – the international economic downturn has hit the shipping segment especially hard, for example – the country’s transport operators are looking forward to a bright future.
This chapter includes interviews with Azmil Aziz, CEO, Malaysia Airlines; Noorizah, Abd Hamid, Managing Director, PLUS Expressways; and Bashir Ahmad, Managing Director, Malaysia Airports Holdings.
ENERGY
Petroliam Nasional Berhad (Petronas), the state-owned oil and gas company and the 80th largest firm in the world, dominates the energy sector. Founded in 1974, the operator holds exclusive rights to all exploration and production (E&P) work in the country and has subsidiaries in nearly every segment of the industry, including oil refining, petrochemicals, oil and gas storage and pipelines, transport, liquefied natural gas and research and development. Petronas is also heavily invested in oil and gas markets in Africa, the Middle East, Central Asia and elsewhere in South-east Asia – as of early 2010 the firm had operations in more than 30 countries around the world. Most recently, the company won contracts to develop the 12.5bn-barrel Majnoon field and the 863m-barrel Gharraf field in Iraq, in partnership with Shell and the Japan Petroleum Exploration Company, respectively.
A number of international firms hold production-sharing agreements with the dominant player, including Mobil, Shell Malaysia, ConocoPhillips and the Murphy Oil Corporation. Additionally, a number of smaller local service companies benefit from licences issued by Petronas, including Ramunia, Kencana Petroleum, SapuraCrest Petroleum and Tanjung Offshore. While the sector will face a number of challenges in the coming years, including maintaining current production levels in the face of declining output, major investments in deep-water E&P are expected to continue, which bodes well for the future.
This chapter includes interviews with Hugh Thompson, Chairman, ExxonMobil Malaysia; and Peter Chin Fah Kui, Minister of Energy, Green Technology and Water.
INDUSTRY
The industrial sector has become an increasingly important contributor to growth over the past few decades. Under the government’s recently unveiled New Economic Model (NEM), the sector is expected to move into the forefront, with the manufacturing and industrial services segments, in particular, poised for substantial growth. Since 2002 the sector as a whole has posted annual growth of between 4.6% and 6.2%, though in 2009 this fell of slightly due to the international financial crisis. Through 2015, however, the sector is expected to grow by 5.7% every year, in line with general economic growth.
The NEM, which is meant to encourage expansion in high-value industries and leverage natural advantages and resources more effectively, will affect a number of segments, including electronics and electrical products, biotechnology, information technology, renewable energy, the automotive segment, the aerospace industry, halal food products and pharmaceuticals. Additionally, the model will encourage innovation and research among private sector institutions and additional training programmes.
This chapter includes interviews with Jalilah Baba, Director-General, Malaysia Investment Development Authority; Syed Zainal Abidin Syed Mohamed Tahir, Managing Director, Proton; Michael Tio, Group Chief Executive, PKT Logistics; and Mustapa Mohamed, Minister of International Trade and Industry.
TELECOMS
With steadily improving technologies, heightened competition among major operators and increasingly sophisticated services on offer, the local telecommunications sector is maturing rapidly. By the end of 2009, mobile phone penetration in Malaysia had reached 106.2%, up from 98.9% at the end of 2008. Despite these high rates, there is still room for growth in the segment, due largely to the fact that the country has a young population that is growing rapidly. Future expansion will likely be driven by data services, including high-speed mobile broadband.
Four major players dominate the mobile market, including Celcom, DiGi, Maxis and U-Mobile, the latter of which was launched in 2009. Additionally, a number of mobile virtual network operators are active in Malaysia, catering primarily to the youth market. The launch of mobile number portability technology in 2008 has resulted in increased subscriber numbers at all operators. Most carriers have already established 3G networks or are in the process of doing so, and some have already begun to look ahead to 4G.
This chapter includes interviews with Johan Dennelind, Former CEO, DiGi; and Zam Isa, Group CEO, TM Group.
IT
Expanding the information and communications technology (ICT) sector has been a primary goal of the government’s ongoing economic development projects in recent years. Under the 9th Malaysia Plan, which was wrapped up in 2010, the state implemented a number of strategies to encourage growth in the sector, including an incentive programme to increase broadband penetration, additional government-sponsored low-cost loans to enable citizens to purchase computers, and low-cost broadband package offers for university students. Under the 10th Malaysia Plan, the government will continue this work and introduce new measures to move the country towards becoming a knowledge society.
In 2009, according to the National ICT Association of Malaysia, the country spent 2.8% of GDP on ICT, more than India, China and Japan, though slightly less than Singapore and the US. Broadband penetration reached 31.7% by the end of 2009, though high-speed service is concentrated primarily in major urban centres. Under the National Broadband Initiative, the government hopes to boost penetration in households to 50% by the end of 2010. A number of other technologies have also recently been introduced in Malaysia, including mobile broadband and WiMAX. If the government has its way, Malaysia will continue to see a substantial amount of private sector-led ICT innovation in the years to come.
HEALTH
Health care in Malaysia is dominated by the public system – around 80% of the population receives care at public clinics and hospitals, which offer high-quality service at heavily subsidised prices. Government spending on health care has jumped from 2.9% of GDP in 2007 to 4.7% of GDP in 2009. Consequently, the state is working to encourage more private sector participation in the coming years. The government has also increasingly emphasised the importance of preventative and curative care. The Health Promotion Board, for example, has overseen a variety of public health initiatives recently, including campaigns aimed at alleviating obesity and tobacco use, and encouraging Malaysians to eat healthy foods and exercise regularly.
In 2010 the government launched the Traditional and Complementary Medicine (T&CM) Act, which will regulate the use of traditional medical practices – of which there are many due to the country’s multi-cultural and multi-ethnic make-up – in public and private clinics and hospitals. Additionally, the state and a number of private hospitals are working to attract medical tourists to Malaysia, as the country boasts high-quality care at competitive prices.
This chapter includes interviews with Liow Tion Lai, Minister of Health; and Siti Sadiah Sheikh Bakir, Managing Director, KPJ Healthcare.
EDUCATION
Overhauling the education sector is a central part of the government’s 10th Malaysia Plan (10MP). Expected reforms under the initiative will result in education providers emphasising entrepreneurial skills and professional training, the introduction of new teaching methods and high-tech equipment at all levels of education and a move to attract increased private investment in the sector. While the 10MP will have an effect on the quality of education at all levels, the pre-primary segment is a key focus. Other areas of focus include increasing English-language training, improving teacher training across the board and doing more to encourage underprivileged students to succeed.
While the majority of these reforms will be rolled out in public sector institutions, the private sector is set to play an increasingly important role in the years to come as well, especially in higher education. The state is also working to improve enrolment at institutions that offer technical and vocational training, as technical workers are expected to be in demand in the coming years.
This chapter includes interviews with Mohamed Khaled Nordin, Minister of Higher Education; Nik Mustapha Abdullah, Vice-Chancellor, Universiti Putra Malaysia; and Sahol Hamid Abu Bakar, Vice-Chancellor, Universiti Teknologi MARA.
RESEARCH & INNOVATION
Building on the government’s plans to improve Malaysia’s education facilities across the board, the New Economic Model will see the state undertake fundamental reforms in research and development, moving the nation away from capital-driven growth and towards productivity-driven growth. The state will work to increase opportunities for entrepreneurship, especially in the technology segment, and will encourage scientific advances that result in marketable products and services and contribute to wealth creation.
While the private sector is expected to play an increasingly important role in this area, the government will be the primary driver behind the switch to a knowledge-driven economy. In 2007 the Ministry of Science, Technology and Innovation introduced the National Innovation Model, which argued that domestic private enterprises should lead the switch to the new economy and the government should play a major role in terms of funding basic scientific research, among other things. Based on these recommendations, the state has worked to encourage the development of new research centres at national universities. A number of these centres have partnered with private sector firms in order to commercialise scientific discoveries.
This chapter includes interviews with Maximus Johnity Ongkili, Minister of Science, Technology and Innovation; Sharifah Hapsah Shahabudin, Vice-Chancellor, Universiti Kebangsaan Malaysia; and Badlisham Ghazali, CEO, Malaysia Multimedia Development Corporation.
PLANTATIONS & FORESTRY
Plantation crops, including rubber trees, oil palm and timber, account for a substantial percentage of Malaysia’s export earnings, and this is set to increase in the coming years due to a new focus on private-sector led, knowledge-intensive development. While the country’s commodities have been major contributors to GDP for many years, a focus on scientific research is expected to increase the quality of the country’s crops and improve yields. Additionally, the state is working to link commodities producers with the fast-growing local downstream segment, which will add value to the raw products and put them on the global market, thereby increasing productivity and profits across the board. These advances will largely benefit smallholders, who continue to be the primary owners and operators of Malaysia’s many plantations. In addition to improving productivity, the government is working to increase sustainability in the oil palm, rubber and timber segments, by enhancing environmental conservation and lowering the sector’s net carbon impact.
This chapter includes interviews with Mohd Basri Wahid, Director-General, Malaysian Palm Oil Board; Bernard Giluk Dompok, Minister of Plantation Industries and Commodities; and Lee Yeow Chor, Chairman, Malaysian Palm Oil Council and Group Executive Director, IOI Corporation.
AGRICULTURE
Over the past decade the government has successfully worked to introduce large-scale commercial farming and modern farming techniques to Malaysia. Under the 10th Malaysia Plan, agriculture has the potential to become a key economic driver. The 2010 budget outlines a number of initiatives, which are collectively meant to move the sector up the value chain. These include encouraging agricultural entrepreneurship, instituting best practices, increasing overall output and upgrading infrastructure. Upcoming reforms are also meant to revitalise certain segments in the sector, a number of which have been negatively affected by inflation and the international economic downturn in recent years. The government is also working to turn Malaysia into a regional player in the halal food production and export segment, which has grown exponentially over the past decade. Other major areas of focus include aquaculture and encouraging the launch of new smaller businesses, which still account for a substantial percentage of the country’s total agriculture companies.
This chapter includes an interview with Azizi Meor Ngah, CEO, Malaysia Agrifood Corporation.
THE BUSINESS GUIDE
In conjunction with Russell Bedford, OBG takes a look at the country’s accountancy and tax system. Additionally, in partnership with Zaid Ibrahim & Co, OBG looks at the local legal system.
This chapter includes viewpoints from Cecil Chin Kim Chung, Partner, Russell Bedford LC & Company; and Nik Norzul Thani, Chairman, Zaid Ibrahim & Co.
THE GUIDE
This chapter includes listings of the country’s leading hotels and resorts, useful telephone numbers, and helpful facts for visitors, including information about currency, visas, electricity, etiquette, language, dress, transport, communications and business hours.
