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Why Malaysia?

Summary

Area: 329,847 km2

Population: 32.58 million

Urban population: 76.6%

Population growth rate: 1.28% change

Capital city: Kuala Lumpur

Official language: Malay

Currency: Malaysian Ringgit (RM)

Nominal GDP: US $364.7 billion

Real annual GDP growth: 4.3%

GDP per capita: US $11,193

Annual inflation rate: 0.7%

General government gross debt: 57.2% of GDP

Fiscal balance: -3.7% of GDP

Current account balance: 3.4% of GDP/US $12.3 billion

Exports of goods to UK: £2,049 million

Exports of services to UK: £535 million

Imports of goods from UK: £1,550 million

Imports of services from UK: £1,051 million

[Source – FCDO Economics Unit (Nov 2020), DIT Overseas Business Risk: Malaysia]

Malaysia’s society is multi-ethnic, multicultural and multilingual. The newly industrialised market is relatively open and ranks highly in the World Bank’s ‘Ease of Doing Business’ survey, at 12th out of 190 countries.

Malaysia is one of the founding members of the Association of Southeast Asian Nations (ASEAN), which was established in 1967. By 2030, it is predicted that Malaysia will become the fourth-largest single market.

Malaysia is one of the top locations for offshore manufacturing and service-based operations in the world. Investment into more than 5,000 Malaysian companies has come from multinational corporations from over 40 different countries worldwide.

There are several large UK companies already present in Malaysia, including Aberdeen Asset Management, Allied Pickfords, BAE Systems, BP, BAT, Debenhams, Dyson, Pinewood Studios, Shell, Tesco and Weir Group.

[Source – DIT: Doing business in Malaysia: Malaysia trade and export guide]

 

Geography

Malaysia is situated in Southeast Asia and is split into two distinct areas by around 400 miles of the South China Sea. These areas are known as West Malaysia and East Malaysia. West Malaysia, also known as Peninsular Malaysia, is surrounded by Thailand to the north and Indonesia and Singapore to the south. East Malaysia is located on the island of Borneo and is surrounded by Indonesia to the south and Brunei to the north. The country lies close to the north of the equator. Overall, Malaysia covers an area of 330,803 km2.

Two of the largest states (Sarawak and Sabah) can be found in East Malaysia. The capital, Kuala Lumpur, is situated in West Malaysia.

Throughout the year, Malaysia tends to experience humid weather, with temperatures averaging at around 21°C and 32°C daily. Between May and September the country is affected by the Southwest Monsoon due to winds from the Indian Ocean. During November to March, winds affect the country from the South China Sea creating the Northeastern Monsoon. Due to these monsoons, 2,000 mm to 2,500 mm of rain can fall each year. This rainfall is one of the main reasons why the country is made up of rainforests. It has been recorded that over half of Malaysia is covered in rainforests, such as the world’s oldest primary rainforest in the Taman Negara National Park.

[Source – The Government of Malaysia]


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Government

Malaysia is a federation, meaning it is a country made up of several states that are regulated by the laws of a central government. The country is made up of 13 states and three federal territories. The government system is similar to the Westminster model, including a bicameral Parliament, a Prime Minister and  Cabinet Executive and a monarch as the head of state, known in Malaysia as an Agong. Malaysia also follows a common law legal system. The Executive holds most of the power, even though they have a written Federal Constitution and practice the separation of power.

Malays and other indigenous people (known collectively as Bumiputera) have formed the majority of the population since its independence in 1957. Currently, in Malaysia, Bumiputera people are recorded at 62% of the population and 20.6% are Chinese. Historically, the majority of the country's wealth has been held by the Chinese.

The economic growth of the Bumiputera is of significant importance to the country; they have sought this out through a series of Constitutional guarantees (Article 153) and affirmative action in successive National Economic Policies. There has been a degree of positivity through this; however, many Malays, especially in rural areas, remain significantly poor. 

In Malaysia, political parties tend to be universally ethnically based.

On the 1st March 2020, Muhyiddin Yassin was appointed Prime Minister of Malaysia after he and over 30 other MPs defected from the government. After weeks of political turmoil, on the 24th February 2020 the previous Prime Minister, Mahathir Mohamad, resigned after being voted in in 2018. Many Malaysians are surprised by this as they had hopes for a new beginning for the country with the new 2018 government due to corruption and conflict.

In 2018, the Barisan Nasional (BN) that is made up of a coalition of 13 ethnic-based parties led by the country’s dominant party, the United Malays National Organization (UMNO), was ousted by the Pakatan Harapan alliance. The party had been the ruling party since the country’s independence in 1957. This broke the cycle of UMNO presidents always becoming prime minister. Historically they have relied on ethnic vote banks, marshalled by the respective ethnic parties, to deliver election victories.

There are many Chinese and Indian Malaysians who are concerned when regarding the BN’s preferential economic treatment to those in the Bumiputera and have demanded a significant reduction or abolishment in order to create equality.

In 2020, Muhyiddin Yassin was sworn in by the King due to his support from other parliamentary members, including those from the UMNO Party. 

State assemblies

Political power in Malaysia operates at both federal and state levels. Elections for the state assembly are traditionally held in conjunction with the country’s general elections. Although, an exception to this is Sarawak. The state assembly is a subordinate of the federal government; however, the state assembly does have power over certain areas, such as the use of land.

See the FCDO’s Foreign travel advice page for Malaysia at: https://www.gov.uk/foreign-travel-advice/malaysia for more information regarding political risk, such as political demonstrations.

[Source – DIT Overseas Business Risk: Malaysia, Parliament of Malaysia]

 

Economic overview

Malaysia has been recorded as one of the more successful economies in Southeast Asia, and in recent years has been labelled as a High Growth Market by the Department for International Trade. In 2020, GDP per capita was recorded at US $11,193, an increase from previous years. This rise in GDP has transformed the commodity-based economy into an economy with a successful, large, export-orientated manufacturing sector.

Since the 1997-1998 financial crisis, Malaysia’s economy has continued to grow at a steady rate. In 2020 the country’s real annual GDP growth was recorded at 4.3%. Malaysia’s service sector has increased in importance over recent years, although the country’s oil and gas sector, as well as its commodities sector (palm oil and rubber), remains the most substantial.

The World Economic Forum’s Global Competitiveness Report 2019 ranks Malaysia 27th out of 141 economies: http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf

In the World Bank’s 2020 Ease of Doing Business Index, Malaysia ranks 12th out of 190 countries (the UK ranks 8th): https://www.doingbusiness.org/en/data/exploreeconomies/malaysia

Malaysia has made good progress in reforming its banking and financial system after the financial crisis in Asia. Many local banks have been consolidated and a phased liberalisation has taken place to create more competition. The country is now a major hub within the Asia-Pacific region and has developed its Islamic Finance capability. In 2005, the Malaysian Government abandoned the Malaysian Ringgit peg to the US Dollar and a managed float was favoured as a means to dismantle the exchange and other controls imposed during the Asian financial crisis. Since then, the government has continued to put in place further measures to do this.

Malaysia’s chief economic reform challenges that are now of significant importance include: improving the performance of Government Linked Companies (GLCs) that account for a large portion of the economy; achieving continued progress in corporate governance and transparency; and moving up the value-chain in response to economic challenges posed by low-cost manufacturing countries such as China. Within sectors such as biotechnology, the Malaysian administration seeks to increase their competitiveness and is also making changes to improve the country’s financial and political accountability.

Contact a DIT Export Adviser at: https://www.great.gov.uk/contact/triage/location/ for a free consultation if you are interested in exporting to Malaysia.

Contact UK Export Finance (UKEF) about trade finance and insurance cover for UK companies. You can also check the current UKEF cover position for Malaysia. See: https://www.gov.uk/guidance/country-cover-policy-and-indicators#malaysia.   

[Source – DIT Overseas Business Risk: Malaysia, DIT, UKEF]

Human rights

Although human rights are preserved in Malaysia's constitution, there are certain laws limiting civil rights, for example, freedom of speech and assembly, and freedom of religion. Migrants, such as migrant workers, as well as refugees, also experience restrictions on their rights. 

The majority of media groups are controlled by the Malaysian Government, or are considered government friendly, exercising a large degree of self-censorship, and there are restrictions on freedom of expression throughout the country. The Home Affairs Minister must grant any newspapers with a printing permit allowing them to operate. The online media in the country, however, is vibrant, with an active political blogging culture. The Malaysian Government does not attempt to censor the internet.   

In April 2012, the Peaceful Assemblies Act was established in Malaysia, meaning that police permits for assemblies are no longer necessary. The right to peacefully assemble is granted, but the police must still be notified in advance and the organisers may be subject to certain conditions. Some restrictions can be applied to public assemblies if the government deems them necessary in the interest of public order and safety.

Six of the eight International Labour Organization’s Fundamental Conventions have been ratified by the Malaysian Government: this does not include the Abolition of Forced Labour Convention. The country’s constitution makes slavery of all forms illegal; however, this law continues to be broken, especially regarding the forced labour of migrant workers in various sectors, including commercial agriculture, the fishing industry, garment production, restaurants, and domestic households.

There is no asylum system in place in Malaysia to regulate the status and rights of refugees to the country. Malaysia is not party to the 1951 Refugee Convention. Refugees cannot legally work. 

[Source – DIT Overseas Business Risk: Malaysia]

Benefits for UK businesses exporting to Malaysia

Some of the benefits for UK businesses exporting to Malaysia include:

  • a large English-speaking and educated workforce

  • the current exchange rate makes UK products and services attractive

  • the UK and Malaysia have strong historical and cultural ties

  • Malaysia has similar business and legal practices to the UK

  • Malaysia has similar technical standards to the UK

  • Malaysia is close to major Asia-Pacific economies

[Source – DIT: Doing business in Malaysia: Malaysia trade and export guide]

Strengths of the Malaysian market

Some of the strengths of the Malaysian market include:

  • its excellent infrastructure and transport connectivity

  • its well developed financial sector

  • it is a cost-effective gateway into other Asian markets

[Source – DIT: Doing business in Malaysia: Malaysia trade and export guide]

Growth potential

Malaysia’s real annual GDP growth was recorded at 4.3% in 2020. In recent years, Malaysia’s GDP growth has depended on its finite oil revenues and its narrow tax base. Growth, however, will continue to increase due to the country’s strong domestic demands and establishing resilient exports.

The Economic Transformation Programme (ETP), launched in 2010, aimed to make Malaysia a high income country by 2020. To do this they focused on 12 National Key Economic Areas (NKEAs) in order to create sustainable growth.

[Source – DIT: Doing business in Malaysia: Malaysia trade and export guide]

Free trade agreements and partnerships

Malaysia has 16 bilateral free trade agreements (FTA), including the ASEAN FTA the country has with its ASEAN partners.

The ASEAN Economic Community (AEC) was established in 2015 as a single regional common market for the ASEAN countries. The integration within the region aims to create:

  • a competitive market of over 600 million people

  • freer movement of goods, services, investment, skilled labour and capital flow

  • a Malaysia-European Union Free Trade Agreement (MEUFTA)

[Source – DIT: Doing business in Malaysia: Malaysia trade and export guide]

World rankings

In addition:

 

Trade between the UK and Malaysia

Malaysia is the UK’s second-largest trading partner out of the ASEAN countries. In October 2020, the FCDO recorded that the UK exported £2,601 million of goods and services to Malaysia. They also recorded that imports of goods and services from Malaysia reached £2,584 million. 

In 2019, Malaysia’s top ten exports to the UK included: 

  • electrical machinery, equipment 

  • mineral fuels including oil 

  • machinery including computers 

  • animal/vegetable fats, oils, waxes 

  • optical, technical, medical apparatus 

  • plastics, plastic articles 

  • rubber, rubber articles 

  • iron, steel 

  • other chemical goods 

  • organic chemicals 

You can read more about what Malaysia exports at World’s Top Exports: http://www.worldstopexports.com/malaysias-top-10-exports/.The International Trade Centre (ITC) ranks the value of Malaysia’s top services exports: http://www.intracen.org/.

[Source – DIT: Doing business in Malaysia: Malaysia trade and export guide, Trading Economics, World’s Top Exports] 


 

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