Malaysia - Kriesemer

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SACC - Potential
C M Y K
By Patrick H. Kriesemer,
Member of the Executive Board and
Chairman Malaysia Committee
Kriesemer & Partner, Zurich
E-mail: pkriesemer@kriesemer.com
Introduction companies include Diethelm, Nestlé, F.E.
Malaysia has progressed into a nation that
Zuellig and Unisto.
has diversified successfully to rise as a top Currently there are more than 130 Swiss
exporter of manufactured goods. Other companies operating in the manufacturing
items exported are palm oil and rubber, in and non-manufacturing sector in
which Malaysia is among the top Malaysia, with some having regional
producers, as well as crude petroleum and responsibilities. In the manufacturing and
liquefied natural gas. Malaysia is manufacturing related services sectors,
considered a major producer of cocoa and over 30 projects with Swiss participations
pepper, with significant exports of timber were approved in the last five years in
and wood products.
Malaysia. The Swiss investments are
Malaysia is the largest producer of palm oil
in the world. Palm oil products were
exported, with the major markets being
China, Pakistan and Singapore. The third
largest in natural rubber production,
mainly concentrated in food
manufacturing, machinery manufacturing
and E&E products. It is estimated that
current Swiss investments in Malaysia
amount to around CHF 1.5 billion.
Malaysia exported 17.1 percent of the Business environment
world's production, with the major
markets being the EC, Republic of Korea,
USA, Japan, Singapore, China and Russia.
According to the World Bank, Malaysia
ranks 24th in Ease of Doing Business.
Malaysia's strengths in the rank include
Timber is the second largest foreign getting credit (rank 3rd), protecting
exchange earner, with petroleum being investor (ranked 4th) and doing trade
the first. The major importers of sawn across borders (ranked 21st). Weaknesses
lumber and saw logs were Japan, Taiwan, include dealing with licenses (ranked
and the Republic of Korea, with the EC, 105th). The study ranks 178 countries in
Thailand, Singapore, Japan and the all aspect of doing business. In the investor
Republic of Korea importing sawn timber protection category of the survey,
imports.
Malaysia had scored a perfect 10 for the
While Malaysia is already recognized as a
manufacturing hub for many industries,
the Government's objective is also to
make Malaysia a hub for other activities
such as R&D, design & development,
extent of disclosure, nine for director
liability and seven for shareholder suits.
Malaysia is behind Singapore, Hong Kong
and New Zealand in the investor
protection category of the survey.
procurement, logistics, distribution and The government is moving towards a more
marketing, business support services and business friendly environment by setting
shared services.
up a special task force to facilitate business
In the last few years, through fiscal
stimulus and accommodative monetary
policies, the government was able to
sustain growth and in 2007, the Malaysian
economy grew 5.9 percent.
called PEMUDAH, which means simplify
in Malay. Highlights include easing
restrictions and requirement to hire
expatriates, shorten time to do land
transfers and increasing the limit of sugar
storage (a controlled item in Malaysia) for
Swiss companies have a long history in companies. The Government aims to be in
Malaysia, and this is not only true for the top 10 in the Ease of doing business
multinationals but also of smaller survey before 2010 in order to attract
enterprises as well. Those early Swiss event more foreign investors.
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SACC / JOURNAL 1/2008
Global Growth Prospects to
Drive Malaysian Economy
to New Peak

Growth arguments
C M Y K
SACC / JOURNAL 1/2008
Higher Growth in 2008 Driven by
Domestic Demand
projected to grow at 8.6 percent, a tad In the process, this has helped cushion the
slower than an expected 9.0 percent country against adverse external
growth in 2007. Strong domestic developments and improved economic
consumption spending, higher tourist resilience.
arrivals and stronger wholesale and retail
trade will spur growth. Additionally,
Revival of Private Investments
impetus will come from the real estate, Domestic demand has become a key
business services and finance as well as growth driver in recent years and it is
insurance sub-sectors.
expected to play a central role in the
domestic economy in the years to come.
The Malaysian economy is expected to
expand faster in 2008, with real gross
domestic product (GDP) growth projected
at between 6.0 and 6.5 percent. Inflation is
projected to remain low, as output growth
is below potential level. Furthermore,
global inflation is also seen cushioned by a
weaker US dollar, higher productivity
growth and proactive measures taken by
major economies to curb inflationary
pressures. This year, GDP growth is
projected at 6.0 percent with inflation at 2
percent.
Construction sector: The construction
sector is projected to expand at 6.3
percent, substantially higher than the 5.2
percent in 2007, boosted not only by
ongoing infrastructure projects but also
newly launched ones under the Ninth
Malaysia Plan (9MP), which include the
development of growth corridors and the
Growth is projected at 6.8 percent in
2008, compared with 9.0 percent in 2007,
and will come from higher private sector
expenditure, which is seen growing at 8.2
percent, compared with 8.6 percent in
2007.
“The role of the private sector as the key
Favorable World Growth
implementation of the Second Penang engine of growth is reflected by its high
The brighter outlook for the economy is
premised on favorable global growth
prospects and positive contribution from
all sectors of the economy, says the
Ministry of Finance's 2007/2008
Economic Report.
Global growth is projected at 5.2 percent
next year, little changed from 2007, and
supported by a balanced and broad-based
expansion across the regions. Growth, in
particular, will be led by emerging markets
and developing countries, especially
China, India and Russia. While that may be
so, an expected upturn in the US
economy, and sustained growth in the
Euro zone, will reinforce continued global
Bridge, Penang Monorail, the Ipoh-Padang
Besar double-tracking rail project and the
extension of the Ampang and Kelana Jaya
light rail transit lines.
Agriculture: The Agriculture sector is also
projected to record a higher growth rate of
3.5 percent from 3.1 percent in 2007. This
will be achieved on the back of rising
output of food commodities, as well as
palm oil and rubber. Output of palm oil is
expected to rise by 2.0 percent, following
improved yields and expansion in mature
areas. Rubber output is also projected to
go higher, supported by firmer prices,
utilization of better clones and low
intensity tapping system.
contribution of 5.1 percentage points to
GDP growth,” the report says. In contrast,
public sector contribution to growth is
seen at 0.8 percent, compared with 2.4
percent in 2007 as a result of lower growth
of 3.2 percent in spending, compared with
10.1 percent in 2007.
The report says private investment, which
has slowed significantly since the crisis,
will increase markedly by 9.5 percent in
2008, contributing 11.9 percent to GDP.
This compares with a growth of 7.1
percent in 2007, contributing 11.6 percent
to overall growth.
“Investment activity is expected to
strengthen following the various measures
expansion, according to the report.
World trade, as a result, is projected to
expand at a faster pace of 7.4 percent,
against 7.1 percent in 2008, underpinned
by strong demand for commodities, trade
in services, and sustained demand for
electronics.
This bodes well for export-dependent
economies like Malaysia, whose export
performance has been dismal in the first
months of this year, dragged down by a
contraction in the export of electrical and
electronics products.
Unlike previous years, manufacturing isn't
likely to spearhead growth this year and
the next. Instead, growth will be led by
services, reinforced by a faster pace in
construction activities.
Service Sector: The service sector is
Mining Sector: The mining sector is likely
to expand by 4.0 percent in 2008,
compared with 3.3 percent in 2007.
Growth will be supported by higher
production or crude oil and natural gas.
Crude oil production, for example, is
expected to rise because of the completion
of major maintenance and rejuvenation of
several wells over the last few years.
Manufacturing: The manufacturing
sector, a long-time engine of growth, is
projected to expand 3.8 percent,
compared with 3.1 percent in 2007. In
2006, manufacturing grew 7.1 percent.
In the 1990s, the manufacturing sector
consistently registered double-digit
growth, but in the last couple of years, it
has been overtaken by services, reflecting
the fact that Malaysia has diversified its
income base to other sectors.
taken by the government to improve the
business climate, including further
reduction of corporate tax to 26 percent in
2008,” the report says.
Additionally, measures to strengthen
intellectual property rights are expected to
boost investor confidence and generate
more R&D activities.
Greater private sector participation is seen
in 9MP (9th Malaysian Plan) projects,
including the various growth corridors, the
trans-peninsular oil pipeline and the
integrated petroleum terminal in Tanjung
Bin.
Private consumption is seen rising at 7.9
percent, from 9.0 percent in 2007,
premised on higher disposal income. The
pay hike for civil servants, effective last
July, will also enhance the propensity to
consume. Consumer spending will also be
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SACC - Potential
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C M Y K
boosted by the positive wealth effect from target of 6.0 to 6.5 percent could be at risk infrastructure development in the island
the vibrant equity and property markets. if the US sub prime mortgage crisis state of Penang. Malaysia has set ambitious
The net effect is, the share of private
consumption to GDP is expected to rise to
deepens and creates a steep fall in external
demand, economists said recently.
investment targets for the development
projects.
50.8 percent, compared with 49.9 percent The International Monetary Fund (IMF) 'The three Corridors have helped to revive
in 2007. said it is expecting Malaysian growth to investment interest, but actual investment
Public consumption is expected to slow to
5.5 percent, from 10.8 percent in 2007.
Even so, its share to GDP is seen stable at
10.8 percent, compared with 11.5% in
2007.
Monetary Policy
slow to 5.6 percent in 2008 from the 5.8
percent estimated for 2007. 'A Weaker
outlook for the advanced economies is
likely to slow export growth (for emerging
Asian economies) going forward,' the
agency said in its World Economic
Outlook report released earlier. 'Slower
commitments have been slow in coming,'
said Citigroup economist Chua Hak Bin in
a note this week. However, the Iskandar
Development has the most promising
potential, due to its management.
Internal Political Development
Prior to the 1997 Asian Financial Crisis,
the Malaysian Ringgit was an
internationalized currency, which was
freely traded around the world. Just before
the crisis, the Ringgit was traded RM2.50
at the dollar. Due to speculative activities,
the Ringgit fell as much as RM5.00 to the
dollar in matter of weeks. Bank Negara
Malaysia, the nation's central bank
decided to impose capital controls to
prevent the outflow of the Ringgit in the
open market. The Ringgit is not traded
internationally; a traveler needs to declare
to the central bank if taking out more than
RM10,000 out of the country and the
Ringgt it self was pegged at RM3.80 to the
US dollar.
demand for Asian exports, and electronic
goods in particular, and the possibility of
further global financial market turbulence
are particular downside concerns,' it said.
In September, the Asian Development
Bank (ADB), a Manila-based multilateral
institution, said it is expecting Malaysia's
GDP to grow 5.7 percent in 2008. Both the
IMF and ADB numbers are lower than the
official growth targets. 'There is a
downside risk to the official forecast as
export growth has already been slowing,'
said Lim Chee Sing, Managing Director of
RHB Research Institute.
Malaysian export growth is highly
dependent on demand from the US but the
outlook for the world's largest economy
For 50 years since independence,
Malaysia has been ruled by a coalition
dominated by the United Malays National
Organization, or UMNO. Malaysia has
prospered wonderfully, and the
arrangement seemed immutable. Not any
more. The governing coalition, the
National Front, won the election for the
federal parliament and eight of the 13 state
assemblies easily enough (see table: Seats
in Malaysia Parliament 2008 2004 and
Malaysia election results by state). But in a
huge swing it lost the two-thirds majority
in Parliament that it has enjoyed for 40
years, and which enabled it to change the
constitution at will. In peninsular Malaysia
(ie, excluding Malaysian Borneo), it
actually if narrowly lost the popular vote.
The fixed change rate was abandoned to does not look good, as chances are that the In five states, including the most populous,
floating exchange rate in July 2005, hours sub prime upheaval is not over yet and is the opposition will form the government.
after People's Republic of China
announced the same move. At this point,
the Ringgit is still not internationalized.
The Ringgit continues to strengthen to
3.18 to the dollar in March 2008.
Meanwhile, many aspects of capital
control have been slowly relaxed by Bank
Negara Malaysia. However, the
likely to get worse, Lim said. The latest
trade figures showed that Malaysian
exports to the US fell 12 percent from last
year, suggesting that the slowdown in the
US has already filtered down, he said. The
Malaysian economy grew 5.6 percent in
the first half, slightly short of the official
target of 6.0 percent. The government has
This is extremely good news for many
reasons. The most basic is that
democracies need a vibrant and credible
opposition. Any party that stays in power
for half a century is liable to show signs of
complacency, arrogance and corruption,
and UMNO is no exception.
government continues not to recently announced additional measures Malaysia's Premier Minister, Dato'
internationalize the Ringgit. The to boost the domestic economy, hoping to Abdullah Ahmad Badawi made sweeping
government stance that the Ringgit will be sustain growth and to shield it from any changes to his cabinet line-up on 18 March
internationalized once it is ready. external shocks.
2008, not re-electing his long-service trade
Monetary policy in 2008 will continue to
be directed at sustaining growth
momentum with price stability. While
inflation is expected to be benign, the
report says there are nonetheless risks and
uncertainties to the inflation outlook,
given the sustained high global prices of
Prime Minister Abdullah Ahmad Badawi is
set to unveil the East Coast Economic
Region (ECER). The ECER is one of the
three growth projects outlined in the Ninth
Malaysia Plan, the government's 200
billion Ringgit development blueprint,
which will run through 2010. The other
minister Dato' Rafidah Aziz. This was the
biggest surprise in the new line-up of the
new cabinet. Half of the cabinet will be
new faces and the cabinet will be reduced
from 45 to 36 ministers. Dato' Rafidah
Aziz's successor is the former Minister of
agriculture Tan Sri Muhyiddin Yassin.
energy, commodities and food. two Corridors are the Iskandar A pleasant surprise was the appointment of
Outlook Critical Reasoning
Development Region in the southern
Johor state and the Northern Corridor
Dato' Amirshan A. Aziz as the minister in
charge of Economic Planning Unit (EPU)
The Malaysian government's 2008 growth Economic Region, which focuses on in the Prime Minister Department. Dato'
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SACC / JOURNAL 1/2008

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SACC / JOURNAL 1/2008
Amirshan A. Aziz was the president and
CEO of Maybank, the leading bank in
Malaysia and he is a highly respected
person in the Malaysian financial industry.
International Development
force on January 1 2008. Malaysia will cut tariffs on 140 lines while Pakistan will cut 124
lines. Most tariffs and duties are expected to be eliminated by 2012.
Economic Development
The public finances will stabilize over the forecast period, but the government will
struggle to balance the budget as it allocates more resources to the development of
regional hubs. Although these hubs are expected be supported by private-sector
investment, public investment spending could be ramped up further if such private
funding fails to materialize.
The Economist Intelligence Unit expects real GDP growth to average 5.7 percent a year in
2008-12, bolstered by firm domestic demand. A major challenge for Malaysia will be
coping with competition from China. However, China will present an opportunity as well
as a threat, and Malaysia's exports to that country are likely to grow rapidly over the next
five years.
The current-account surplus will remain large, averaging 13.3 percent of GDP in 2008-12.
The merchandise trade surplus will remain substantial, rising from an estimated
US$38.1bn in 2007 to US$47.4bn by 2012. The Ringgit is expected to strengthen against
the US dollar throughout the forecast period.
Malaysia will form closer trade and
economic ties with a number of nations
following the completion of several
bilateral trade agreements, such as with Source: The Economist, Economic Data, Malaysia, February 2008
Switzerland.
Malaysia is the founding member of the
ASEAN Free Trade Area, which was
established in 1992 to promote trade
among ASEAN members. Most tariffs
Opportunities for Swiss companies
In summary Swiss companies, especially SME's entering to the Asian markets, shall
evaluate Malaysia as their regional office, manufacturing plant or Development Center
based on the following criteria:
among the first generation member states 1) Malaysia's law system is close to the British law and legal correspondence is in English
were scrapped in 2007. ASEAN itself is 2) The political environment is stable and business oriented
increasingly playing a large role in free 3) Excellent infrastructure (airport, highways, building etc)
trade negotiation on behalf of its members. 4) No natural catastrophe such as earthquake, taifuns etc.
The Malaysian Government is negotiating
currently free trade deals with Australia,
New Zealand, Switzerland and the United
States and officials have expressed desire
for free trade agreements with Singapore,
5) Well educated locals with strong skills in English
6) All signs (i.e. road signs) are in English
7) Strong relations to China through well-known Chinese businessmen
8) Free trade zones (Penang, Iskandar, ECER, Cyberjaya MSC)
9) Tax incentives (i.e. no capital gain tax for properties)
Thailand. The governments of Malaysia However, Malaysia is different to Switzerland (culture) and if a Swiss company wants to do
and Chile began negotiating a free trade successful business in Malaysia it will need a good introduction to the Malaysian business
deal on 19 November 2006. and government community. Our chamber has the key people on board to overcome this
Malaysia signed a Japan-Malaysia barrier!
Economic Partnership Agreement with Together with the State Secretariat for Economic Affairs (SECO), the Swiss Asian Chamber
Japan on 13 December 2005. This leads to of Commerce (SACC) is working on the preparation to negotiate the FTA with Malaysia in
a Free trade agreement, which was in effect the forthcoming months. We are looking very much to the conclusion of the FTA which
from July 13 2006 and expected to be fully will bring substantial benefits to our members and the Swiss-Malaysian Economic
realized in 2016. On November 8, 2007,
Malaysian and Pakistan signed a bilateral
Free Trade Agreement, which has come in
community: “Malaysia truly Asia Switzerland truly Europe”
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SACC - Potential
Key indicators 2007 2008 2009 2010 2011 2012
Real GDP growth (%) 6.1 5.5 5.7 5.9 5.8 5.8
Consumer price inflation (av; %) 2 2.8 2.1 1.9 1.8 1.2
Budget balance (% of GDP) -3.2 -3.1 -3.2 -3.3 -3.4 -3.5
Current-account balance (% of GDP) 16.4 13.9 13.7 13.3 12.8 12.7
Commercial banks' prime rate (av; %) 6.4 6.3 6.3 6.4 6.3 6.3
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