National | Malaysia special

Strong, diverse economy has much to offer investors

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It is often said that statistics only tell half the story, and for anyone interested in investing in Malaysia, it’s well worth taking a closer look.

According to the International Institute for Management Development’s (IMD) World Competitiveness Rating, the Malaysian economy was the 22nd most competitive market in the world — eighth if the parameters are limited to countries with a population of over 20 million.

Of the 63 nations surveyed for the IMD’s World Competitive Yearbook 2018, Malaysia was also listed as the 10th most digitally competitive nation.

Meanwhile, The World Bank ranked it the 24th easiest country out of 190 in the world to do business — placing it above the likes of Japan, France, Belgium, the Netherlands and China.

Additionally, Malaysia placed 14th in Global Finance magazine’s ranking of countries doing the most to attract foreign direct investment, just one place below the United States.

An even more compelling picture is revealed through the World Economic Forum’s latest Global Competitiveness Report, which places Malaysia as the 23rd most competitive of 137 nations ranked, up two places from 2017. The southeast Asian nation has shown year-on-year increases in almost all areas measured by the WEF, including business confidence, industrial and manufacturing production and auto production.

The stats emphatically indicate that Malaysia can rightly boast a healthy business environment, even if they are no match for the country’s heyday when, in the 1980s and ’90s, Malaysia’s average gross domestic product growth was 6.7 percent, peaking in 1996 at 10 percent, making it one of the best-performing economies in the region. The stats suggest that is a status it still enjoys.

In recent years, Malaysia has successfully transformed itself from being an exporter of raw materials such as rubber and palm oils into a diversified economy whose largest sector is services, which account for 54 percent of GDP.

According to the Malaysian Investment Development Authority, in order for Malaysia to continue its march toward gaining “developed nation” status, “greater emphasis should be targeted on the development of the services sector to serve as the engine of growth to propel and sustain the economy.”

The growth of the services sector is one of the telltale signs that one of the long-revered tiger cub economies of Asia has grown into a shrewd adult, despite, or arguably, because of its annual GDP growth falling to an average of about 1.2 percent since 2000, according to Malaysia’s Department of Statistics.

“In the 1980s and ’90s we were on a manufacturing drive and growing rapidly, but I think we have matured since then,” said Yee Yang Chien, president and group CEO of international energy-related maritime solutions and services provider MISC Berhad. “Back then there was a migration of manufacturing to the East, so we were in a sweet spot. We can no longer compete with countries such as Vietnam and Cambodia that are now able to supply manufactured products a lot cheaper than us. But one way we can compete is by investing in the human element.”

Indeed, officials have pointed to Malaysia’s educated and talented workforce as being among its major selling points. Additionally, its championing of creativity and innovation, as well as its strategic location, linked to its proximity to the main Asian markets, are touted as other notable points.

Yet, while Global Finance magazine cited steady growth as a main reason for Malaysia’s stellar performance in its global FDI Superstars survey, it also mentioned political stability. The last election brought about the country’s first change in government since Hari Merdeka — Malaysia’s independence day — in 1957.

That change has brought some uncertainty both at home and abroad.

Some of this relates to new policies and the cancelation of large China-backed infrastructural projects by the government of newly elected Prime Minister Mahathir Mohamad. The World Bank, in its July Malaysia Economic Monitor Report, stated that policy changes introduced in line with Mahathir’s election mandate would need to be “managed carefully to minimize additional risks to the economy.”

Meanwhile, however, Malaysia’s new leaders have made it clear that Kuala Lumpur still welcomes foreign investors with open arms and, what’s more, has much to offer them.

“I would like to take this opportunity,” said Darell Leiking, Malaysia’s minister of international trade and industry, when addressing business leaders in Kuala Lumpur on Aug. 13, “to reiterate and provide assurance that Malaysia will continue to be an open economy with a business friendly environment, and MITI (Ministry of International Trade and Industry) will strive to work hard in making Malaysia the preferred investment destination and among the most globally competitive trading nations in the world.”

Trade, he added is “our lifeline” and “central to our vision” to join the ranks of advanced developed nations. “With our trade to gross domestic product ratio of 136 percent, naturally the government will continue the practice of an open economy to encourage and facilitate businesses,” he said.

Outside the leadership, too, there appears to be optimism over what this new era of Malaysia’s economic history could deliver.

The World Bank’s Malaysia Economic Monitor report noted that “Malaysia is entering into a new period that offers an opportunity to strengthen structural reforms and accelerate its convergence with high-income economies.”

One way the Malaysian authorities have tried to achieve the goal of making the country an important gateway into the Association of Southeast Asian Nations’ market is by offering an array of investment incentives.

In the manufacturing and services segment, it offers pioneer company status, allowing income tax exemption of between 70 percent and 100 percent for five to 10 years. It also offers investment tax allowances of 60 to 100 percent on qualifying capital expenditure.

As part of Malaysia’s efforts to rebrand its image as a high tech and global activities center, there are investment incentives specifically targeting new and emerging technologies such as high technology-intensive industries and the setting up of regional operations.

Biotechnology, agriculture and shipping and transportation are among other industries for which incentives are available. Among other exemptions are accelerated capital allowance, infrastructure allowance and import duty exemptions on raw materials, components, machinery and equipment.

Mahathir’s government has also reportedly said that it is mulling tax breaks for key foreign investors who can guarantee the creation of better-paying jobs for Malaysian nationals.

Another attractive feature is Malaysia’s well-developed infrastructure and business facilities, including fully integrated industrial parks such as the Kulim Hi-Tech Park, a self-styled “Global Science City” in the state of Kedah.

According to MISC’s Yee, a potential growth area is the ever-growing e-commerce sector and warehouses to store e-commerce goods. While Singapore is clearly ahead in this sector, it will eventually run out of space. To this, he added that Asia is also in need of a hub for oil and gas services.

“It’s not just about manufacturing in Malaysia anymore, but being more creative and seeing how the world is changing,” he said. “It’s not just about infrastructure, either, it’s people; big organizations setting up their bases and operating out of Malaysia. We have all the ingredients to help set this up.”


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