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All eyes on Malaysia, as economy receives a crucial double boost

Market Insights | March 22, 2023

At a press conference on 8 March, Malaysian prime minister Ismail Sabri made a momentous and welcome announcement – the re-opening of Malaysia’s international borders from 1 April, along with a whole host of other measures signalling a transition to the “endemic phase”, with regards to Covid-19.   

From this date, travellers only need valid documents in order to travel to and from other countries with similar open borders, and though testing is still required before departure and after arrival, fully-vaccinated passengers will not need to be quarantined.  Furthermore, Covid-related limits to business operating hours are being lifted, so that businesses can return to normal again – good news all round, not least for restaurants, who, during Ramadam, need to the freedom to serve hungry customers outside daylight hours.

Every ASEAN country has struggled during the last two years, each in their own individual ways – and each has its own unique trajectory of recovery.  Malaysia, the fourth largest economy in south east Asia, ranked by the World Bank as the twelfth easiest country in the world in which to operate just a few years ago (Doing Business 2020), and one of only two Asian nations in the top-thirty of Milken Institutes Global Opportunity Index (the other being Japan), she has, maybe surprisingly, not enjoyed quite the same bounce-back as Vietnam, Thailand and the Philippines.   Full-year GDP growth in 2021 was 3.1%, well below the government’s official projection of 7.5%, as her economy was hit not only by the omicron variant, but also by flooding described as the worst in a century, leading to billions of ringgit in damage nationwide in December 2021.

Though Malaysia plays a dominant role in the global production of palm oil and rubber, agriculture contributes only 7.4% of GDP.  By contrast, Malaysia’s growing services sector accounts for 63%, and her digital economy is booming – predicted to reach USD21 billion in gross merchandise value (GMV) this year, and £35 billion in 2025 (according to a recent e-Conomy SEA report), reflecting deep and no-doubt irreversible changes in personal and social habits. 

Manufacturing (not including mining and construction) makes up around 27% of GDP, and this sector will, like services, receive a strong boost as the new opening-up policies take effect.  Electronics manufacturers will be hoping for another upswing in direct foreign investment too, which hit record levels in 2019-2022 as US companies in particular sought to diversify away from China and escape from trade tariffs. Electronics and associated industries are the key driver for Malaysia’s exports. 

Also announced in March (on the eighteenth) – Malaysia signed into effect its involvement in the China-backed Regional Comprehensive Economic Partnership.  The world’s largest trade pact, covering nearly 1/3 of the world’s population and 30% of global GDP, RCEP could well bring export gains of around USD200 million to Malaysia, who are expected to be one of the biggest beneficiaries of the deal.

So, in April the Malaysian economy is receiving a much-needed “double boost”: a significant relaxing of Covid rules, and the first full month of RCEP membership.  We’re watching closely, and look forward with anticipation to see how business opportunities and investment pick up during Q2 and the rest of 2022.

Melchers in Malaysia

Melchers Malaysia has been coordinating the company’s trading activities in Malaysia since 1958 with offices located in Kuala Lumpur, Petaling Jaya, Penang, and Kota Kinabalu. By combining a strong tradition of quality with innovation and reliability, Melchers Malaysia has acquired a steadily expanding customer base.  Today, our activities in Malaysia involve a broad range of machinery, industrial materials, construction equipment, and instrumentation. These business operations are coordinated in separate divisions by regional and local sales managers with specific knowledge in their respective fields.    

Established in 1806, and with more than 150 years of experience in East Asia, Melchers is trusted by many international brands and producers to be their “feet on the ground” in this region’s diverse markets, drawing on deep local networks and knowledge, and combining them with dynamic business services and trade infrastructure, to create powerful synergies that deliver results for your business.

#asiarevisited #Malaysia #ASEAN #RCEP

References:

https://milkeninstitute.org/global-opportunity-index
https://tradingeconomics.com/malaysia/indicators
https://www.asiafundmanagers.com/GBR/malaysia-building-a-digital-economy/
https://www.straitstimes.com/asia/se-asia/malaysia-q4-gdp-rebounds-but-full-year-2021-figure-well-below-official-forecast-due-to-covid-19
https://www.scmp.com/economy/global-economy/article/3170921/malaysia-confirms-china-backed-rcep-free-trade-pact-comes
https://www.aseanbriefing.com/news/comparing-mexico-and-malaysia-as-investment-destinations-for-us-businesses/

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