Successfully investing in Malaysia

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last updated on 19 May 2021 | reading time approx. 2 minutes

from Michael Wekezer

 

 

 

How do you assess the current economic situation in Malaysia?

Malay­sia has shown an im­press­ive growth since the 1990s. In its most re­cent Janu­ary 2021 up­date of the World Eco­nom­ic Out­look, the IMF has re­vised its GDP growth pro­jec­tions for Malay­sia to 7 per cent in 2021 and 6 per cent in 2022. Be­ing the 4th largest eco­nomy of South East Asia, Malay­sia has con­tin­ued to per­form strongly in re­cent years, due to a glob­al de­mand for elec­tron­ics as well as com­mod­it­ies, such as oil and gas. An im­proved la­bour mar­ket, a pro-cyc­lic­al budget and ample in­fra­struc­ture spend­ing have also con­trib­uted to the sound per­form­ance.

Be­side the pro­duc­tion of crude oil and palm oil, Malay­sia has a well-es­tab­lished in­dustry sec­tor, such as elec­tron­ics, phar­ma­ceut­ic­als and tele­com­mu­nic­a­tion. The coun­try is not only be­ne­fit­ing from be­ing com­pet­it­ive on in­ter­na­tion­al mar­kets, but also from a high do­mest­ic de­mand. To­geth­er with Singa­pore, Thai­l­and and In­done­sia it is one of the lead­ers in the ASEAN re­gion.

 

How would you describe the investment climate in Malaysia? Which sectors offer the largest potential?

The over­all in­vest­ment cli­mate in Malay­sia re­mains pos­it­ive, des­pite the dis­rup­tion caused by the Cov­id-19 pan­dem­ic. In the World Bank “Ease of Do­ing Busi­ness” rank­ing of 2020, Malay­sia came in 12th place, which is the second best res­ult with­in ASEAN. The coun­try has also im­proved its rank­ing to 26 from 29 among 88 coun­tries in the “Glob­al Tal­ent Com­pet­it­ive­ness In­dex 2020” (GTCI 2020). In the “DHL Glob­al Con­nec­ted­ness In­dex 2020”, Malay­sia was ranked 16th glob­ally. These rank­ings un­der­line the com­pet­it­ive­ness of Malay­sia as an in­vest­ment loc­a­tion in the South East Asi­an re­gion.

The man­u­fac­tur­ing sec­tor is the main en­gine of Malay­sia’s eco­nom­ic growth with a fo­cus on:

  • Electrical & Electronics;
  • Machinery & Equipment;
  • Chemicals;
  • Medical Devices;
  • Aerospace and
  • Automotive.
 

What challenges do German companies face during their business ventures into Malaysia?

Ger­many has been Malay­sia’s largest for­eign in­vestor from the European Uni­on. As of June 2020, a total of 461 man­u­fac­tur­ing projects with Ger­man par­ti­cip­a­tion have been im­ple­men­ted with total in­vest­ments of 9.4 bio. US Dol­lar. In gen­er­al, Malay­sia of­fers an in­vest­ment friendly en­vir­on­ment and not an over­reg­u­lated stat­utory frame­work, which also re­flects its high po­s­i­tion­ing in the pre­vi­ous men­tioned “Ease of Do­ing Busi­ness” World Bank rank­ing.

His­tor­ic­ally, Malay­sia is a com­mon law jur­is­dic­tion, which might be un­fa­mil­i­ar for Ger­man com­pan­ies which are used to a civil law sys­tem. Thus, Ger­man com­pan­ies should draft and ne­go­ti­ate com­mer­cial agree­ments care­fully.

Since ne­go­ti­ations of a Free Trade Agree­ment between the EU and Malay­sia are cur­rently sus­pen­ded and have not been re­sumed mainly be­cause of the dis­sents about palm oil, one of the ma­jor com­mod­it­ies farmed and pro­duced in Malay­sia, Ger­man com­pan­ies can­not yet be­ne­fit from pref­er­en­tial treat­ment when it comes to bi­lat­er­al trade.

Most in­dus­tries are open to for­eign in­vest­ments in Malay­sia. In some in­dus­tries, such as the oil and gas or the tele­com­mu­nic­a­tion sec­tor, cer­tain in­vest­ment re­stric­tions are im­ple­men­ted through le­gis­la­tion, guidelines, a con­di­tion to a li­cense or a com­bin­a­tion of these. The in­vest­ment re­stric­tions usu­ally would re­quire a cer­tain level of loc­al share­hold­ing or loc­al man­age­ment, also re­ferred to as “Bu­mi­putera” re­quire­ments.

Ger­man in­vestors can rely on the pro­tec­tion un­der the Bi­lat­er­al In­vest­ment Treaty between Ger­many and Malay­sia from 1962. However, this Bi­lat­er­al In­vest­ment Treaty does not provide the same level of pro­tec­tion as it is com­mon nowadays in in­vest­ment treat­ies and it does not gov­ern a state-in­vestor dis­putes set­tle­ment mech­an­ism.

  

Malaysia hopes that the Asian free trade agreement “Regional Comprehensive Economic Partnership” (RCEP) will boost growth. What is your assessment?

The RCEP is the latest Free Trade Agree­ment Malay­sia has entered in­to. Once rat­i­fied and in force, RCEP as the world’s largest Free Trade Agree­ment out­side of the World Trade Or­gan­isa­tion will fur­ther lib­er­al­ise trade in the re­gion. Ger­man com­pan­ies when do­ing busi­ness in Asia-Pa­cific should be aware of the com­plex and over­lap­ping Free Trade Agree­ments. Malay­sia is also mem­ber of ASEAN Free Trade Area (AF­TA)of the ASEAN Plus Free Trade Area Agree­ments with China, Ja­pan, Korea, Aus­tralia, New Zea­l­and and In­dia as well as the Com­pre­hens­ive and Pro­gress­ive Agree­ment for Trans-Pa­cific Part­ner­ship (CPTPP). There are fur­ther bi­lat­er­al Free Trade Agree­ments with oth­er coun­tries in place. This “Noodle Bowl” of Free Trade Agree­ments re­quires a fo­cus on trade com­pli­ance and in depth plan­ning and as­sess­ment of ap­plic­able Free Trade Agree­ments.

Bey­ond trade in goods, RCEP also provide rules on trade in ser­vices, in­tel­lec­tu­al prop­erty, elec­tron­ic com­merce, com­pet­i­tion and in­vest­ments. To what ex­tend Ger­man com­pan­ies can be­ne­fit from these rules re­mains to be seen.

 

In your opinion, how will Malaysia develop?

Malay­sia has be­come one of South East Asia’s most vi­brant eco­nom­ies. Once heav­ily re­li­ant on ag­ri­cul­ture and com­mod­ity-based in­dus­tries, the coun­try has suc­cess­fully di­ver­si­fied to fo­cus on the man­u­fac­tur­ing and ser­vices sec­tors through a com­bin­a­tion of a skilled la­bour force and highly de­veloped in­fra­struc­ture. The World Bank is pre­dict­ing that Malay­sia will trans­form from an eco­nomy in the high­er-me­di­um in­come range to an eco­nomy with high in­come by 2024.

The re­cent geo­pol­it­ic­al ten­sions between China and the West (USA, EU and Aus­tralia) might re­quire com­pan­ies to di­ver­si­fy their in­vest­ments in the Asia-Pa­cific. “China plus one” is now not just a busi­ness strategy to re­duce costs of man­u­fac­tur­ing but an es­sen­tial strategy to ad­dress the geo­pol­it­ic­al risks. Malay­sia could be­ne­fit from re­lo­ca­tion of com­pan­ies from China.

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