Malaysia

Malaysia

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After independence from British rule in 1957, Malaysia became an advanced economy under the 22-year (1981–2003) leadership of the former Prime Minister Dr. Mahathir Mohamad.

It has transformed from a traditional economy into one of the fastest growing ASEAN economies in the 1970s. The Malaysian economy has remained a consistent performer in the ASEAN, with an average growth rate of 5.17% during 2003–14. In 2015, the economy recorded a growth rate of 4.97%.

Malaysia is an attractive destination for foreign investment in light of the economic growth it has attained following the Asian financial crisis. Post-crisis, the government strengthened financial and capital market regulations, allowing the country to emerge as an advanced economy, and has continued to maintain a fine balance between regulation and liberalization.

Overview

Key facts

Area: 330,800 km². Total population: 32 mln. Urban population: 75%. Literacy rate: 89%

State

Multiparty federal parliamentary monarchy. There are 13 states which enjoy a fair amount of federal decentralisation.​

Economy​

Upper-middle-income economy, emerging financial market. A country specialised in the export of electronic goods and components.​

Ethnic origins​

67% Malays, 25% Chinese, 7% Indians, 1% people from other ethnic backgrounds​.

Religions​

61% Muslims, 20% Buddhists, 7% Christians, 9% Hindus, 1% Chinese beliefs​.

Political analysis

Malaysia was freed from British rule and emerged as an independent country in 1957. Although it made rapid economic progress during the 22-year rule of Dr. Mahathir Mohamad, democratic institutions were not nurtured during his tenure. Abdullah Ahmad Badawi, who had promised political reforms to reduce corruption and strengthen the judiciary, succeeded him. However, Badawi was not successful in fulfilling his promises. Najib bin Abdul Razak succeeded him as prime minister on April 3, 2009; since then, the government has announced forward-looking policies for strengthening its economic position. 

Malaysia’s cordial relations with Australia and Singapore enhance its international presence but the government’s growing authoritative policies pose a serious threat to the political stability of the country. The results of May 2013 led to huge protests and even witnessed the complete withdrawal of Chinese support to the ruling coalition. The involvement of the prime minister, Najib Razak in the scandal of 1Malaysia Development Berhad (1MDB) has impaired his popularity. 

Strong relations with Australia

With a trade volume of $11.05 billion in 2016, Malaysia is Australia’s 10th largest trading partner globally. Furthermore, trade between them increased after the Malaysia-Australia Free Trade Agreement (MAFTA) came into force from January 1, 2013. On November 22, 2015, the prime ministers of Australia and Malaysia announced entering into a strategic partnership, which is expected to further strengthen the Australian-Malaysian relationship. The partnership is aimed at strengthening bilateral ties and acknowledging their cooperation across economic, foreign affairs, defense and security, as well as people-to-people spheres between the two countries.

People to people link between the two nations are very strong based on education links, migration and tourism. As of 2017, Malaysia is the third largest source country for international students in Australia. In terms of migration, 115,000 people born in Malaysia live in Australia. On the tourism side, 387,700 Malaysians visited Australia in 2016 whereas 380,000 Australian visited Malaysia the same year.

Supportive Government Policies

Government policies over the years were targeted towards developing a conducive business environment to make Malaysia an investor’s heaven. Liberal Equity Policy of the Government adopted in 2003 allowed 100% equity for all new investment projects for foreign investors in the manufacturing sector. Another support that was received is the allowing of employment of expatriates if certain skill is not available in Malaysia. Both direct and indirect tax incentives are provided to the investors or the private players under the Promotion of Investments Act 1986, Income Tax Act 1967, Customs Act 1967, Sales Tax Act 1972, Excise Act 1976 and Free Zones Act 1990.

Poor performer in establishing democratic institutions

Although the Malaysian government adopted democracy in 1957, it has failed to establish necessary democratic institutions in the country. It was ranked in the 33.00 percentile out of 100 for voice and accountability parameter in 2016. The voice and accountability parameter measures the extent to which a country’s citizens are able to participate in selecting their government, along with freedom of expression, freedom of association and freedom of the media. The Malaysian government is yet to allow a free press and citizens’ rights in the country are restricted. The country must strengthen its democratic institutions and guarantee citizens’ rights.

Controversy over 1MDB (corruption)

The Malaysian Prime Minister, Najib Razak, is under great pressure because of his involvement in the management of a debt-ridden investment firm called the 1MDB. The firm is a state-owned enterprise and is under the ministry of finance. As the finance minister of the country, Najib Razak heads 1MDB, which has been accused of corruption in 2014-15. In September 2015, the US Department of Justice reported that there were transfers from the 1MDB fund into Razak’s bank account and real-estate deals involving his family and close associates. On August 29, 2015, tens of thousands of people protested on the streets of Kuala Lumpur, demanding for Najib’s resignation.

In October 2016, the Monetary Authority of Singapore (MAS, the central bank) assertively closed a Zurich- based private bank, Falcon Bank, while penalizing two other banks for the violation of money laundering laws linked to Malaysian state-owned investment firm 1MDB. As of October 2017, the Malaysian attorney announced to re-open the investigation to Asia’s biggest corruption scandal (1MDB).

Improving bilateral ties with Singapore

Singapore and Malaysia settled their dispute on Singapore’s land reclamation work in 2003 after both countries mutually agreed to accept the International Tribunal for the Law of the Sea (ITLOS) verdict on the issue, which unanimously decided in favor of Singapore continuing its land reclamation activities.

Singapore is the largest foreign investor (with around 16% of total investment) in the Iskander Malaysia development zone, a region three times the size of Singapore, in the Southern Malaysian state of Johor. The zone has attracted investment from Singaporeans looking to reside in the area, as the cost of living is much lower, besides which, commuting to the city has become easy as connectivity has improved. A mass rapid transit (MRT) project between Johor and Singapore is expected to start by 2018.

In February 2013, the countries also announced joint plans to go ahead with a high-speed rail link between Singapore and the Malaysian capital of Kuala Lumpur. The project, which is expected to be ready for operation by 2020, will be a public-private partnership venture and will reduce the travel time between the two cities to 90 minutes from around 240 minutes currently. Temasek Holdings, Singapore’s sovereign wealth fund, and Khazanah Nasional, its Malaysian counterpart, have embarked on joint infrastructure projects worth $9.8 billion in southern Malaysia and downtown Singapore.

Improving bilateral ties with China

The country’s relationship with China has strengthened over the years. China is already its main trading partner, and is taking a number of steps to support the country’s sluggish economy in the wake of lower oil prices, volatile currency and a scandal-ridden political scenario. Chinese help includes a series of massive investments and increasing sovereign bond purchases of the country.

Post the visit of Chinese premier, Le Keqiang, in November 2015, Chinese state-owned China General Nuclear Power Group (CGN) bought 1MDB’s energy assets in Edra Global Energy Bhd worth $2.3 billion. This provided a relief by precluding a default by 1MDB on its loans, thus providing the state finances of Malaysia a short-term relief. Secondly, China also purchased MGS (Malaysian government securities) worth $7.2 billion in April 2016. This provided an additional cushion to Malaysian finances at a time when its currency is at multi-year low. In the recent past, Malaysia has benefitted tremendously from the Chinese investments in the country and bilateral relations have grown stronger. In April 2017, the Chinese premier announced to buy more Malaysian government bonds to enhance ties with Malaysia and the region. An investment quota of MYR33.4 billion has also been granted under China’s Qualified Foreign Institutional Investor (QFII) program.

Rising dissatisfaction among ethnic minorities

Malaysia is a country known for its ethnic diversity. Although Malays form the majority of the population, around 22.6% of the population is of Chinese descent according to CIA – The World Factbook. Economically and socially, the ethnic Chinese are better off than other groups. The Malaysian government, in its endeavor to protect the economically weak Malay majority, has designed policies that offer preferential treatment to them in education, employment and business. These incentives include easy access to educational institutions, cheaper housing, low interest rates and other benefits. All these have created a sense of dissatisfaction among the ethnic Chinese. Support for Najib Razak fell from 56% in February 2013 to 37% in May 2013 among the ethnic Chinese according to a survey by the independent Merdeka Center while 30% Indians were dissatisfied with the government.

Growing authoritarianism

Malaysia’s political stability is under threat as the country risks sliding into authoritarianism. The country is flooded with strict rules curtailing freedom. Despite severe prohibitions and restrictions, demonstrations are likely to increase posing a threat to the political and economic balance. This is evident from the protests that followed the introduction of the goods and services tax (GST) in April 2015 and the protest rally demanding Najib’s resignation in August 2015.

The expansion of the Sedition Act by the prime minister, against his own promise of scrapping the same in 2012, has been followed by massive arrests of opposition politician and journalists. According to the new provisions of the law, all those who attack Islam or attempt to remove Sabah and Sarawak from Malaysian sovereignty would be held under trial. The new provisions along with the older ones, like criminalisation of seditious speeches and actions against the government, make democracy elusive in the society. The law has been criticised on the grounds that it gives too much power to the government in deciding what constitutes a seditious act and could be used by the government members and officials to curb political opponents.

Economic analysis

Malaysia

Malaysia has transformed from a traditional economy into one of the fastest growing ASEAN economies in the 1970s. The Malaysian economy has remained a consistent performer in the ASEAN, with an average growth rate of 5.17% during 2003–14. In 2015, the economy recorded a growth rate of 4.97%. However, rising household and government debts remain chief areas of concern. 

Consistent economic progress/success

Amidst global headwinds in the last couple of years, the economy of Malaysia aided by its diversified manufacturing base and strong domestic demand remained resilient. As a result of the Government’s Economic transformation program, high value jobs were created and cost of living was also eased which helped the disposable income of the population to rise. At present domestic demand contributes to more than half to the country’s GDP. This has helped the country to maintain a stable economic growth rate during difficult times in the world market. During the period from 2010-2016 the economy grew at an average rate of 5.38%.

The country is rich in natural resources like tin, rubber, timber, petroleum and natural gas, palm oil etc. Judicious policy choice of the Malaysian Government ensured that the revenues received from natural resource extraction are used in the creation of non-oil assets like infrastructure and education and the benefits of the resource wealth were carried to the future generations. The government also ensured that the economy expands both horizontally from commodities to non-commodities and vertically from raw materials to processed goods. These diversifications will help the economy avoid volatility in the external markets.

Safe haven for the investors

Malaysia’s cost competitive strategic location along with conducive business environment, excellent infrastructure and an educated workforce makes it an ideal location for the investors. Malaysian Investment Development Authority (MIDA) is the nodal agency responsible for executing the nation’s investment agenda. As per World Bank’s Ease of Doing Business 2018 report, it takes 18 days to start a business in Malaysia as compared to the East Asia and Pacific average of 22.7 days. The country ranked fourth in the indicator of protecting minority investors, eighth in getting electricity and 11th in dealing with construction permits out of 190 nations in the doing business ranking in 2018. According to the Department of Statistics, Malaysia, total FDI in the country stood at MYR47.2 billion ($11.4 billion) in 2016 as compared to MYR39.4 billion ($10.1 billion) in 2015. Of the total FDI in 2016, 74.6% were from the Asian nations followed by Europe 14.1% and rest 11.3% from other regions. Services mainly financial services and insurance and utilities received the higher amount of FDI (50.9% of the total). Mining and manufacturing together attracted 43.3% of the foreign investments in 2016.

Rising household debt

Household debt refers to the amount of money that households owe to financial institutions and includes consumer debt and mortgage loans. Rising household debt affects economic growth and financial stability. Since 2008, growing household debt has become a source of concern for Malaysia. A combination of easy credit terms and low interest rates has caused this increase. A high household debt to GDP ratio makes the economy more vulnerable to shocks. Although the household debt as % of GDP has declined marginally in 2016, it is still at one of the highest in the region. According to the BNM, the household debt to GDP ratio stood at 88.4% in 2016 as compared to 89.1% in the previous year.

Household debt since 2008 has increased by more than 12% but GDP in relation has not grown at the same rate. The debt repayment ratio measures the percentage of a household’s income necessary to repay debts and it is often used to determine the burden of household debt. BNM’s Credit Counselling and Debt Management Agency (AKPK) recommend an ideal debt repayment ratio between 30–40% on an individual basis. House prices have increased by 60% since 2008 and have surpassed the growth in income and rent. Although BNM maintains that household debt is within the manageable limit, the IMF believes that the level should be reduced.

Furthermore, the IMF has pointed out that Malaysia should take steps to protect the low and middle-income groups from economic shock. The high level of household debt is also likely to act as a dampener on the growth of private consumption.

Ambitious economic plan

The Government of Malaysia has adopted an ambitious five year Economic Development plan (2016-2020) as part of the Eleventh Malaysia Plan with the primary focus to ensure that the nation becomes a high-income advanced economy by 2020. The government has also identified six game changing innovative approaches to reach the goal including unlocking potential for productivity to ensure sustainable and inclusive growth, uplifting the B40 households (bottom 40% of the household income group), enabling industry-led Technical and Vocational Education and Training (TVET), embarking on green growth, translating innovation to wealth and investing in competitive cities.

The Eleventh Malaysia plan spelt out six multidimensional goals during the plan period which envisages real GDP to expand by 5-6% per annum, increase labour productivity to RM 92,300 ($ 23,974) in 2020 from RM77,100 in 2015 ($ 20,025), increase the GNI per capita to RM54,100 by 2020, increase monthly household income to RM10,540 by 2020 from RM 6141 in 2015, increase the share of compensation of the employees to GDP to 40% by 2020 from 34.9% in 2015 and increase the Malaysian Wellbeing Index (MWI) by 1.7% per annum. The GDP growth during the period is expected to be boosted by strong domestic demand. Government of Malaysia envisages achieving sustainable growth by ensuring price and exchange rate stability during the plan period. It aims at promoting private consumption, investments and increase exports by improving product competitiveness and diversifying the market. In a situation where risks emanate due to a plunge in oil prices, the government has introduced Goods and services tax (GST) of 6% from April 1, 2015 that acted as a cushion and helped raise revenues.

Meeting long-term energy needs

To meet power needs in the future, the government is contemplating the construction of several nuclear power plants by 2021. According to the Ministry of Energy, Green Technology and Water, an estimated MYR30 billion ($8.98 billion) will be invested in improving the supply of electricity during the next five to 10 years. The Malaysian government will accept applications from foreign and local firms for large power projects. These developments open up prospects for both local and foreign firms to develop projects in Malaysia.

Tourism Plan

The travel and tourism industry of the country has been performing quite well, especially at the time when the economy is under pressure. This sector has thus turned out to be a bulletproof sector as far as earnings are concerned for the economy. This performance has not gone unnoticed by the policymakers who have quadrupled their tourism related funding from its 2015 levels. The major reason for this stupendous growth is the tourists from neighboring China who have continued to flock the country, despite a major slowdown in home. According to China National Tourism Organization (UNWTO), tourism from China to the country has risen at the most rapid pace. According to Statistics Malaysia, the number of tourist arrivals in Malaysia increased by 4.0% to 26.7 million persons in 2016 from 25.7 million persons in 2015. The sector contributed MYR82.1 billion ($19.8 billion) to the country’s revenue in 2016. Highest number of tourists in Malaysia were from Singapore (13.27 million), followed by Indonesia (3.05 million), China (2.14 million), Thailand (1.78 million) and Brunei (1.39 million) during the same year. The Malaysia Tourism Transformation Plan 2020 aims to increase the number of tourist arrivals in Malaysia to 36 million and increase the receipt to MYR168 billion ($41.3 billion) by 2020.

Encouraging SMEs

Small and medium enterprises (SMEs) in Malaysia played an important role in shaping its economic transformation even before the country gained independence in 1957. Various organizations were created over the years to develop SMEs in the country and the Small and Medium Industries Development Corporation (SMIDEC) with its programs assisted the SMEs in terms of funding and development. In 2007, the SMIDEC came to be known as the Small and Medium Enterprises Corporation Malaysia (SME Corp Malaysia) because of the National Development Council’s (NSDC) decision to appoint a single organization to formulate all policies and strategies, and to coordinate programs across all related ministries.

As the development of SMEs is crucial to the country’s development, the budget of 2017 went a step ahead in reducing the SME tax on chargeable income up to the first MYR500,000 ($113,089) to 18% from 19% earlier, and effective from the start of the year 2017. Earlier, the 2016 budget allocated a fund of MYR1 billion ($237.98 million) to facilitate better access to financing. An additional amount of MYR60 million ($13.95 billion) for capacity and capability enhancement scheme of entrepreneurs has also been allocated. The directory is to be published bi-annually and will include relevant facts and data about important sectors such as agriculture, manufacturing, automotive, building, and construction driven by SMEs. The 2015 budget allocated a total of MYR11.4 billion ($2.71 billion) for SME development. Along with that a total of MYR310 million ($73.77 million) has been allocated for the implementation of high impact programs. Based on efforts by the SME Corp Malaysia, the Malaysian government’s target is to increase the SME contribution to GDP to 41% by 2020 from its contribution of 35.9% in 2014.

In March 2017, Digital Trade Free Zone (DTFZ) was inaugurated by the Malaysian Prime Minister that will provide physical and virtual zone to the SME’s to capitalize on the development of the internet economy and e-commerce. The establishment of the DTFZ is expected to double the growth rate of the Malaysian SME’s goods export and provide at least 60,000 jobs by 2025. As of 2017, around 1972 SME’s have shown interest in the DTFZ in Malaysia. In the 2018 budget, the government has set aside MYR83.5 million ($19.6 million) to develop the infrastructure of the DTFZ in Aeropolis, Kuala Lumpur international Airport (KLIA). According to the Prime Minister, the first phase of DTFZ is expected to attract MYR700 million ($164.1 million) investments that will create 2,500 jobs opportunities.

Inefficient bureaucracy

Although the Government had taken lot of initiatives to foster growth and development of the people and nation, it has still attracted lot of criticism due to inefficiency and corruption in the public bureaucracy. In the Global Competitiveness Report 2017-18 of World Economic Forum the most problematic factor of doing business in Malaysia is the inefficient government bureaucracy.

High government debt

Malaysia is facing a rising debt burden. According to IMF the general government debt of Malaysia increased from MYR426.6 billion ($132.4 billion) in 2010 to MYR691.59 billion ($166.7 billion) in 2016. IMF expects the general government debt to increase to 741.19 billion ($173.8 billion) in 2017. Continued borrowing at this pace is not sustainable. Since the global financial crisis, ringgit-denominated debt held by non-residents has increased rapidly. However, general government debt as % of GDP is forecasted to decline marginally to 55.2% in 2017 from 56.2% in 2016. Malaysia’s fiscal and current account balances have been adversely affected due to low global oil and LNG prices in 2015 and 2016. This is because Malaysia is a large producer and exporter of crude oil, natural gas and palm oil. Income generated from oil and gas accounted for 30% of total government revenue in 2014 in comparison to its highest contribution of 41.3% in 2009. Due to the continuously falling oil prices, oil and gas income has been declining and the resultant reduced government revenue is putting more pressure on public finances. As a result of decreased government revenue, the benefits of removal of fuel subsidies and the introduction of GST in 2015 have not been felt to a great extent. Without the implementation of bold reforms, government debt might continue to rise, with a negative impact on Malaysia’s competitiveness in the global marketplace.

Social analysis

Malaysian leaders have built a society that performs fairly well on human development indicators, although its achievement is said to be below its potential. The UNDP in its 2016 report gave Malaysia a score of 0.789 on the 2015 HDI, which placed the country 59th out of the 188 assessed nations. Malaysia has done well in terms of improving life expectancy and literacy rates, and is slowly catching up with developed nations on these parameters.

The government has made efforts to improve healthcare among the poor. The government realizes the importance of food security and nutrition but policies to alleviate poverty have failed to tackle growing disparity due to the unequal distribution of income. Furthermore, laws restricting freedom of press and other mediums of expression are posing serious threat to free speech in a democratic country like Malaysia.

Strength through diversity

One of the key drivers of innovations and business growth is diversity and inclusion in workforce as it promotes better critical thinking. Malaysia is a multi-racial and multi-cultural nation where Malays are the largest ethnic group (50.1% of the population), followed by Chinese (22.6% of the population), Indians (6.7% of the population) and others from European and Middle East countries. Although Malay is the first language and mother tongue of Malaysia, English is widely spoken and accepted in schools, colleges, universities and official purposes.

Malaysia being an open economy hosts lot of foreign entities. Therefore, leading 21st century workforce means the growing need to employ outstanding people from diverse geography. A variety of perspective can come up from employees having different background and experience that will evoke innovative approaches towards solving problems.

Improved lifestyle

Government of Malaysia has developed an index to measure the wellbeing of people covering socio economic aspects during the period from 2000-2012. It reveals that over the past 13 years, the nation has made progress in housing, leisure, governance, public safety, social participation, culture, health, environment and family index. Out of these 9 components, 4 of them (housing, leisure, governance and public safety) have made outstanding progress during the time period.

There has been a 36.9 points jump in the Housing Component Index with improvement recorded in providing low-cost housing to the poor people, decline in crowdedness reflecting improvement in quality of housing, access and quality of basic amenity like water and electricity coverage which has expanded both in rural and urban areas and garbage collection services reflecting cleanliness. An improvement in Leisure index shows a harmonious relation between friends and family which has increased by 31.4 points during the period with an increase in the number of households with paid TV subscription, recreational park visitors, cinema goers and domestic hotel guests. Good governance which is important for growth and prosperity include factors like transparency, accountability, integrity and citizen engagement improved with an increase in the index by 28.1 points over the past 13 years. One of the pre-requisite towards becoming a developed nation is to strengthen the public safety measures. In Malaysia, improvement was recorded both in the reduction in crime rate and road accidents and encouraged public participation in a volunteer program. The Public safety component index jumped 25.6 points higher during the period from 2000-2012.

In the 2017 Social Progress Index, Malaysia 50th out of 128 nations evaluated and is categorized under upper middle social progress. The index takes into account three dimensions of the social progress including basic human needs, foundation of wellbeing and opportunity. The country’s rank is higher as compared to other peer nations like Indonesia (79th), Thailand (62nd), and Philippines (68th) in 2017.

Improvement on the HDI

Malaysia achieved a high HDI score according to the UNDP’s 2016 Human Development Report. Malaysia had a score of 0.789 in 2015, which placed the country 59th out of the 188 nations assessed. Malaysia’s score in 2015 is above the average of 0.720 for countries in East Asia and the Pacific. Within ASEAN, the country is ahead of Thailand at 87th, Indonesia at 113th and Vietnam at 115th. Malaysia’s Vision 2020 program has set the objective of becoming a developed nation by 2020.

A young society

While many developed nations are facing the problem of an aging population and rising social expenditure, Malaysia’s demographic structure works in its favor with regular additions to its labor force. According to MarketLine estimates, in Malaysia 66.0% of the population belong to the 15–64 age groups, 28.2% of the population is in the 0–14 age group, and 5.9% of the population is in the 65+ group in 2016. A young society bodes well for the economy in the long run.
Priority to healthcare

Access to affordable healthcare is important for any country. The poor often fail to receive proper treatment owing to high costs, especially in the private sector. The Malaysian government has prioritized affordable healthcare and has made an effort to improve access over time. According to MarketLine estimates, government healthcare expenditure was $14.41 billion in 2015 as compared to $8.01 billion in 2009. The “1Malaysia” clinics launched in 2010 have received a positive response and have successfully helped local communities to access healthcare at lower rates. The 1Malaysia Clinic charges only RM1 for treating minors and free treatment is offered to elderly and people with disability. As of October 2017, the number of 1Malaysia Clinic branches grew to 391 throughout various strategic locations in Malaysia.

High youth unemployment rate

Although the level of unemployment is reasonable low, still the economy faces the challenge of providing meaningful employment to the university graduates. This rising trends of unemployed graduates has made news headlines and is a worrying factor. Some of the key factors for this are the lack of relevant skills required in the labor market. To address this challenge, the Ministry of Human Resource within the government introduced ‘unemployed graduate training scheme’ to train the fresher’s with certain technical skills and allocated RM 500 million for it. However, even after undergoing the train courses fewer graduates were able to secure employment. According to the World Bank, youth unemployment rate (% of total labor force aged 15-24 years) has increased from 9.97% in 2011 to 12.12% in 2016. The country level of youth unemployment is much higher as compared to that of Thailand (3.12%) and Vietnam (6.39%) in 2016.

Unequal distribution of income

Malaysia has made tremendous progress over the years and as a result has transformed from being a producer of raw materials to a multi-sector economy. Although Malaysia’s economic performance has been impressive, the country has failed to attain equitable growth. Government policies in Malaysia are mostly aimed at the betterment of ethnic Malays, with the Bumiputera Economic Empowerment Agenda (BEE) announced in September 2013. However, the agenda neglects the poor and rural people. At present, Malaysia is considered to be one of the most unequal societies in Southeast Asia.

According to the Household Income and Basic Amenities Survey Report 2016 published in October 2017, the Gini index for the country was at 0.399 at the end of 2016, where zero corresponds to complete equality and one corresponds to complete inequality. Government policies directed towards achieving equitable income distribution have apparently failed to bridge the disparities. Government programs and a change in policy direction are needed to mitigate regional and ethnic disparities in income.

Restricted freedom

Malaysia’s rank in the Press Freedom Index 2017 was 144th out of 180 countries, highlighting the situation of restricted press freedom. The country recorded a poor score of 46.89 out of 100. The country’s neighbors like Thailand (142nd) and Indonesia (124th) have done better than Malaysia. Curbing press freedom amidst growing protests since the elections in May 2013 may cause the situation to deteriorate further. In 2014, a large number of arrests, charges, and investigations, under the Sedition Act to curb opposition against the BN coalition, attracted a lot of attention with regards to the legal jurisdiction of the country. In 2015, the amendment of the Sedition Act and implementation of harsh authoritative laws, like the new Security Law, have further restricted the freedom of the press and led to the criticism of the government. Violations of these laws could result in lengthy jail terms.

According to a Freedom on the Net 2015 report, the status of internet freedom in Malaysia is partly free. Malaysia was among the worst performers in Asia under the violations of user rights and limits on content category. The report mentions the arrest of journalists who are critical of the government and the expansion of the Sedition Act in 2015 to block online material considered seditious, as the country’s main concerns for online freedom. Under the new Sedition Act, the maximum jail sentence was increased from three to seven years despite the government’s promises to repeal the Act entirely in 2012. In the early half of 2016, the state blocked the online news portal The Malaysian Insider due to its coverage of the scandal in which the prime minister is allegedly involved in a shadowy private dealing worth $700 million. All these instances are indicative of the growing threat to freedom of press in the country. In September 2016, the leader of the opposition, Anwar Ibrahim, along with former Prime Minister, Mahathir Mohamed, vehemently opposed the implementation of the security act which bestows a great degree of power in the hands of the prime minister in case of emergency. In August 2016, the critics alleged that the passage of National Security Act (NSA) will confer ultimate powers to the prime minister in case of emergencies, which can fuel dissent. According to the 2017 Press Freedom report, Malaysian Insider news website was closed in 2016 due to the government blocking. Also, several journalist and media outlets were targeted by the government who were over independent and critical on the government over the 1MDB corruption scandal.

Ambitious Education Sector Reforms

The Malaysian Government has laid out an ambitious plan to transform the educational sector which is the social economic capital of the nation and make it as per international standards. From October 2011 to December 2012 Government of Malaysia in consultation with various stakeholders of multilateral agencies like World Bank, UNESCO, OECD and other local universities, teachers, parents and students developed a new National Educational Blueprint (2013-2025) that evaluated the education system of the nation against international benchmarks.

Fight against terrorism

Terrorism has emerged as a key issue on the global stage. Apart from its political ramifications, it is an important social issue as it involves extensive youth participation. Under such circumstances, international cooperation and government initiatives may help mitigate the issue. In July 2012, the US and Malaysian officials agreed to co-operate in fighting crime and terrorism. The countries signed a MoU over the investigation of international crimes. As per the MoU, officials from both the countries will share information to prevent and investigate cross-border crimes like money laundering, human trafficking and drug trafficking.

Malaysia has increased its efforts towards combating terrorism since 2014 and passed the anti-terrorism bill in April 2015. According to the bill, suspects can be held under indefinite detention without trial. Decisions on their detention will be made by a terrorism board and not the judiciary. Malaysia is also working with the intelligence agencies of other countries like India to fight terrorism. In August 2016, the NSA Act came into force, with the prime minister being hopeful that it will be useful in fighting terrorism.

The new law allows the security council of the country to take over police and military forces in the security areas, as identified by the prime minister in case of emergency. It also gives the security forces the right to search individuals without any warrant, while allowing state investigators to do away with official enquiries in case of any death related to security forces. These moves are expected to yield favorable results so as to prevent Islamic State (IS) recruiters from using Malaysia as a transit point.

To boost the security ties between China and Malaysia, both the nations committed to form a high level defense committee in April 2017. The committee will be headed by the defense ministers of both the nations. Malaysia also launched a joint operation with Indonesia and Philippines in the Sulu Sea to fight against terrorism and transnational crime in June 2017.

Resolving the issue of food security

Regional Conference for Asia and the Pacific of the Food and Agriculture Organization, the deputy prime minister Zahid Hamidi compared the issue of food security with that of national security. He gave emphasis on the issue of food security and food sovereignty. With increasing help from international organizations the country should achieve production targets that are set for the year 2020.

Human rights violations

The government of Malaysia repealed the controversial Internal Security Act (ISA) in April 2012. The ISA, introduced during the nation’s British colonial era in the 1950s, allowed detention without trial for an indefinite period. The law was frequently used against social activists and political opponents, especially under the leadership of Mahathir Mohamad who was the fourth prime minister of the country.

However, a new security offences bill was passed by the Dewan Rakyat on April 18, 2012, which replaced this act. Amnesty International in their annual report in 2013 said that the Malaysian government should withdraw the new law as it denies vital human rights. As per the law, a person can be detained for up to 28 days without charge or access to courts. The new act also allows the police to detain a person for 48 hours incommunicado and this increases the risk of torture.

In September 2013, Malaysia’s government proposed amendments to the existing criminal code to control the growing crime rate. The law gives authorities the power to hold suspects for years without trial. The proposed amendments have political significance as security laws in the past were used to detain opposition figures and suppress government critics. According to UN Human Rights Council, since 2014, around 78 people have been investigated or charged under the Sedition Act. According to Amnesty International around 91 people were investigated or charged under the Sedition Act in 2015. State assemblymen, community and NGO activists, internet bloggers and many others have been investigated and charged.

Despite the promise made by Razak to repeal the sedition act, amendments were made to it in April 2015 which poses the biggest threat to free speech in Malaysia. According to the new amendments, the act can be used to prosecute activists and political opponents for making statements critical of the government, its political leaders, or the prime minister’s party or for remarks the government considers to be derogatory toward Malaysia’s sultans or disrespectful of religion. In the beginning of 2016, even the chiefs of other political parties opposed the bestowment of ultimate powers in the garb of acts like NSA to the prime minister in case of “emergency conditions”. The United Nations has slammed the move as a huge threat to human rights and the opposition has also condemned it as “a black day for democracy” in the Muslim-majority country. The government needs to go a long way in improving its human rights record and has to make laws that respect the citizens’ right to freedom of expression.

According to Human Rights Watch 2017 report, activists and human rights defenders continued facing harassment and politically motivated prosecution over criticizing the government’s mishandling of the 1 Malaysia Development Berhad (1MDB). It also points to the National Security Council Act that came into force on August 1, 2016 that allows the Prime Minister to declare regions in the country as security areas to protect. This gave unprecedented powers to the authority to conduct search, arrest and seizures without any warrants.

Technological analysis

Malaysia

Malaysia plans to build a strong ICT sector that will help the country to transform into a high-income country by 2020. According to the World Economic Forum’s Global Information Technology Report 2016, Malaysia was ranked 31st out of 143 economies with a score of 4.9 on the Networked Readiness Index. The index score ranges between one and 10 where one represents least ICT access and 10 represent the most ICT access. Malaysia’s technology exports are higher compared to other Southeast Asian countries (except the Philippines). The Digital Malaysia Plan aims to harness the advantages of digital systems by phasing out analogue equipment by 2020.

However, poor educational quality is expected to create a shortage of around 700,000 skilled workers according to the Educational Blueprint 2013–25, which was approved in 2013. Apart from that, increasing cybercrime and piracy continue to be major challenges.

Strong digital infrastructure

Digital infrastructure is one area that acts as a catalyst to spur growth of all sectors of the economy. Over the last five years, digital infrastructure expanded rapidly and Malaysia achieved 70.2% broadband penetration to households, 83.7% broadband coverage, 55,801 kms of fibre optics, 1.63 million ports, rolling out of Deploy Broadband for General Population (DBGP) with optic fiber backhaul links (53 links with 1,120 Fkm for Sabah, 23 links with 1,237 Fkm for Sarawak, 8 links with 300 Fkm for Peninsular Malaysia). To support teaching and learning, fibre, WiMax, Assemetric Digital subscriber line, very small aperture terminal, and wireless connectivity were provided to 10,132 schools under 1BestariNet program, the government was also successful in its digital inclusion initiative as it established 112 telecenters, connected 5737 villages, constructed 971 cellular towers and distributed one million netbooks that transformed the lives of several targeted community members.

Progress in innovations

In Global Competitiveness Report published by the World Economic Forum, Malaysia’s’ rank has improved consecutively for the last five editions. In 2017-18, it secured its place among the top 30 most competitive economies in the world and is presently the top competitive developing Asian economy. The country ranked 23rd in the Global Competitive Index in 2017-18, two places up from 25th in 2016-17. The country has made a striking improvement in the areas of increasing the capacity for innovations, quality of scientific research institutions, company spending in R&D, university-industry collaboration in R&D, Government’s procurement of advanced technologies and an increase in the number of scientists and engineers. In innovation and sophistication factors, it ranked 21st out of 137 countries in 2017-18 up from 23rd position (out of 144 countries) in 2012-13.
There is a positive correlation between innovation and creation of wealth. As per a report by Economic Planning Unit, Prime Minister’s office, Malaysia, the country has progressed in its innovation capacity but that has not yet translated into wealth creation as it stands comparatively low. This is because the economic sectors are production driven and a high number of patents owned by the research institutes and Government are not commercialized. Therefore, the 11th Malaysian plan 2016-2020 is focusing on translating innovation to wealth by strengthening relational capital that will improve co-ordination and sharing which will bring innovative products to the marketplace.

Incentives for R&D activities

To strengthen Malaysia’s foundation for a more integrated Research and Development, Government of Malaysia provides various incentives. A company that provides R&D services is eligible for a 100% income tax deduction for five years and 100% Investment Tax Allowance (ITA) for the capital expenditure incurred within 10 years. A company that that undertakes R&D activities to expand its business can apply for ITA of 50% within ten years. To promote creativity and innovation in the nation, income tax exemption of 70% is given for a period of five years to providers of industrial design services.

High technology exports

High technology exports of products like computers, pharmaceuticals, scientific instruments, aerospace systems and electrical machinery have been on the rise. The increase in the exports of products such as these, which have a high R&D intensity, highlights the country’s technical expertise. Malaysia’s performance compared to other Southeast Asian countries is quite impressive. In 2015, high technology exports of Malaysia stood at $57.26 billion. According to the World Bank data, high technology exports—as a percentage of manufactured exports—were 42.80% in 2015. Malaysia trailed behind only the Philippines (53.06%) but was ahead of Indonesia (6.62%) and Thailand (21.44%) in 2015.

Increased Internet penetration

Internet penetration has been on the rise in Malaysia. According to the World Economic Forum’s Global Information Technology Report 2016, Malaysia was ranked 31st out of 139 economies with a score of 4.9 in the world on the Networked Readiness Index. The index score ranges between one and 10 where one represents the country with the least ICT access and 10 represents the country with most maximum ICT access. Malaysia is the only country among other developing and emerging Asian economies to be listed in the top 60 countries on the Networked Readiness Index.

The country is only behind Singapore (ranked first) but ahead of countries like Vietnam (79th), Thailand (62nd), Indonesia (73rd) and the Philippines (77th). The government aims to harness IT to catapult the country into the high-income category. Businesses in Malaysia are adopting technology and becoming more innovative. According to MarketLine, internet users as a percentage of the total population stood at 78.8% in 2016 increasing from 51.63% in 2006, which is an encouraging sign for e-commerce-based industries. Rising broadband penetration is likely to support overall economic growth in the country.

Low competitiveness of the industry

Malaysia is lagging in the areas of start-ups, technology absorption and risk acceptance due to which the country is at 54th position out of 138 countries at the Global Entrepreneurship Development index 2017 report. Fear of failure prevents many Malaysians from starting their own business. Due to lack of knowledge and innovative marketing strategies, SMEs who have the potential to drive improvement in productivity were unable to capitalize. Only 16% of the SMEs in the country embark on the e-commerce activities owing to low confidence in digital platform and high cost of broadband access revealed in a report of Malaysia Digital Economy Corporation (MDEC).

Low talent in ICT industry

The world ICT industry is developing at a fast pace that are making the ICT curriculum in schools and colleges outdated and creating graduates in the market that are not industry ready. Moreover, in Malaysia there exists lack of interest among students to enroll in ICT courses. Malaysia Digital Economy Corporation (MDEC) estimated a shortage of 5,000 to 7,000 graduates during the period from 2014-2017. A significant number of companies in Malaysia don’t give priority to training and upgrading skills of the employees that had resulted in the low competitiveness in the global market.

Vulnerable to cybercrime

According to MarketLine estimates, the number of internet users in Malaysia increased from 13.70 million in 2006 to 24.77 million in 2016. Increasing use of the internet has also resulted in growing cybercrime. According to officials from the national cyber security agency, the country lost $897.60 million during 2006–11 to cybercrime, with the financial sector being the worst affected. According to the Sophos Security Threat Report 2013, Malaysia ranks fifth in the world in terms of vulnerability to cybercrime. According to Malaysian Police, 70% of the commercial crime in the country can now be categorized as cybercrime cases. According to the Science, Technology and Innovation (Mosti) Ministry, the number of cyber security reported during the period from 2012 to 2016 stood at 50,789. In the first six months of 2017, 3,928 cybercrime incidents have been reported as per the data from the CyberSecurity Malaysia. In October 31st, 2017, the country witnessed a major data breach where the personal details of 46.2 million mobile subscribers were stolen. Along with it, 81,309 records of the Malaysian Medical Council, Malaysian Dental Association and Malaysian Medical Association were exposed. The government has to take measures to reduce increasing cybercrime in the country.

High piracy levels

The International Intellectual Property Alliance (IIPA) removed Malaysia from the Watch List in 2010 partly as a recognition of the Copyright (Amendment) Act 2010 passed by the government. However, piracy continues to exist in different forms. Increased broadband penetration with internet access even via mobile phones has raised the possibility of an increase in online infringement of copyright content and BitTorrent file sharing. The local music industry has raised complaints with the Malaysian Communications and Multimedia Commission (MCMC) against a particular site that is pirating local Malay content but the site continues to operate despite the complaints. The emergence of “media boxes” has been another source of worry. These boxes, which are believed to be made and sold in China, have found their way into Malaysia, Hong Kong, Taiwan and Singapore. These boxes, when directly plugged to televisions, facilitate easy access to online sources of unauthorized entertainment including movies, television and music. Piracy over mobile devices has also increased, with illegal content coming pre-loaded or being downloaded later by customers. There are also a considerable number of hard goods piracies, which are harming copyright owners and unwitting customers. According to BSA-The Software Alliance report published in May 2016, the software piracy rate in 2015 was 53% and pegged the commercial value of unlicensed software at $456 million. Reducing piracy is likely to benefit the Malaysian economy in terms of jobs, tax revenue and growth.

Digital Malaysia initiative

In 2012, the Ministry of Science, Technology and Innovation (MOSTI) and the Multimedia Development Corporation (MDeC) launched a new national program called Digital Malaysia. The main aim of the program is to advance Malaysia towards becoming a developed digital economy by 2020. This can be achieved by combining the existing ICT and digital initiatives into an ecosystem. It is believed that the Digital Malaysia program will encourage the use of ICT in all spheres of the economy and result in increased productivity and gross national income (GNI), and will improve the standard of living. The program is likely to increase the contribution of ICT to Malaysia’s GDP to 17% by 2020. Besides, it is anticipated to create 160,000 jobs. The program will not only benefit the country economically but will strengthen its technological capacity.

Ambitious plan to develop ICT industry by 2020

The government of Malaysia envisaged increasing the contribution of the ICT industry to GDP to 18-19% by 2020 due to which it plans to undertake initiatives to reduce dependency on foreign technology, increase in R&D, expanding support facility, infusion to SMEs, strengthening ICT governance, internationalization support, intensifying capacity development, building competitive start-ups and developing technology focused areas. This will give the country a competitive edge in the global landscape.

Opportunities for Startups – technology based industries

Initiatives that the government is taking to encourage startups will create lot of opportunities in the coming years. Malaysia Digital Economy Corporation (MDeC) and SMECorp are trying to get potential local and global funders for ICT startups along with exploring crowdfunding to encourage the involvement of private sectors. Also, for training, mentoring and incubation support, the Malaysian Global Innovation and Creativity Centre (MaGIC) was established in 2013.

Skilled labor shortage

The Malaysian education system may not be able to meet the increasing demand for engineers and other skilled personnel. The shortage of labor can take a toll on the construction projects under the Economic Transformation Programme (ETP). Despite increased enrollment in tertiary education, the quality of university education is declining, as seen in the decreasing output in terms of research and publications. A poor standard of education will reduce the international competitiveness of Malaysian students, thus limiting the opportunities available to them in technology-intensive firms. According to the Educational Blueprint 2013–25, Malaysia is likely to face a shortage of 700,000 skilled workers and it is likely that the figure will rise. Around 3.3 million new positions are likely to be added by 2020 and at least 46% of them require jobholders to be trained in vocational diplomas. Vocational diplomas are a type of qualification that focus on providing job specific skills. The country needs to increase its investments in the education sector to provide the skilled manpower needed for achieving its ambition to become a high-income country.

Marketing opportunities

Television is a very effective means of reaching a wide audience, although only 56% of Malaysians watch TV daily through a traditional set. The tech-savvy younger population is very influenced by satellite television. The TV sector comprises state and private networks and pay TV. Private TVs have close ties to the ruling National Front coalition, while state outlets reflect government views. TV ad spend dropped by 3.75% in 2017 (RM 2 billion).

Main televisions: RTV1, RTV2, TV3, 8TV, TV9, NTV7

The daily press is an effective means of advertising. Newspapers must renew their licences annually, and government can suspend or revoke publishing permits. Malaysia has some of the toughest censorship laws in the world and authorities can impose restrictions in the name of national security. Print media ad spend dropped by 21% in 2017 (RM 2 billion in newspapers and RM 74 million in magazines).

Main newspapers: New Straits Times, The Star, Utusan Malaysia, Berita Harian, Sin Chew Pit Poh, Nanyang Siang Pau

Advertising sent out by post can be effective if the addressees are well targeted and the products accessible.

Posters, advertising streamers, stickers on buses, and other urban media are effective for reaching a very wide audience every day. Out-of-home advertising expenditure is forecasted to grow at a CAGR of 10% in in the next few years (digital out-of-home spending is expected to rise from USD 17 million in 2014 to USD 60 million in 2019.

Market leaders: GogoAds Outdoor Sdn Bhd

A very wide audience can be reached by radio, but it is not suitable for the promotion of all products. Private stations broadcast in Malay, Tamil, Chinese and English. The number of Malaysian radio listeners has continued to grow steadily over the past years, with 95% of people aged 10 years and above, who tuned in to their favourite radio station. Radio ad spend has also grown by 24.55% in 2017 (RM 397 million).

Main radios: Muzik FM, TraXX FM, Ai FM, Minnal FM, Asyik FM, Klasik Nasional FM, BFM 89.9

Above all, the part of the population that uses this technology can be reached by Internet. 78.8% of the population used Internet in 2017. Advertisers in Malaysia have been slow to adopt digital, but because of rapid internet adoption, particularly through smartphones, digital ad spending will surge in Malaysian market. Mobile is the main driver of digital ad spend growth, accounting for 44% ot total digital outlays in 2017 (19.7% of the total market). News websites and blogs offer a range of opinions that are absent in traditional media. In 2020, the digital advertising share is estimated to be more than 25% ot total media ad spending.

Distribution

Department stores

Foodstuffs, household items, furniture, clothes, games and toys. Parkson, Mydin, Jaya Jusco, Metrojaya, Isetan, Sogo, Robinsons, Tangs.

Supermarkets and hypermarkets

Giant, Jaya Jusco, Tesco, Carrefour.

Local shops, minimarkets

Shops with a limited range of products. Most of them are open 24/24, 7/7. Mobil, Shell, BHP, Esso, Caltex, Petronas, 7-Eleven.

Street markets

These traditional markets take place in each residential district one night a week. They offer all sorts of products including fresh foodstuffs as well as household items, clothes and costume jewellery.

Market share

The largest food retailer in Malaysia in terms of sales as well as number of retail outlets. It operates hypermarkets and supermarkets nationwide under the Giant, Cold Storage and Jason brands. The Giant supermarkets and hypermarkets are known as a home-grown trusted brand. Giant is well-known to local shoppers as the store that offers the best value-for-money products. Giant targets the mass market and is the largest supermarket chain in Malaysia. Cold Storage and Jason target the upper middle to high income shoppers as well as high income expatriates residing in Malaysia. It carries a wide variety of local products as well as imported products.

One of the largest food retailers in Malaysia in terms of sales. It operates Tesco and Tesco Extra stores in the major cities in Malaysia. Tesco Malaysia is aggressively targeting the mass market with its competitively priced products. It carries mainly locally sourced products as well as a sizeable proportion of imported products, and has the widest selection of price competitive products from the United Kingdom. Tesco is the only retailer in Malaysia that offers grocery online shopping covering certain Klang Valley areas. Its own private brands such as Tesco Value, Choice, Finest as well as Light Choice are popular among consumers.

Operates the Jusco Stores nationwide. Jusco is the largest high end department store chain in Malaysia that also operates a full scale supermarket within its stores. Jusco operates high end stores that target middle to high income shoppers. It carries a wide variety of local premium branded products as well as imported products. It also carries the widest selection of products from Japan. AEON became the second-largest retail group in Malaysia after it bought Carrefour Malaysia in 2012 and renamed it to AEON Big.

Other popular Malaysian owned premium supermarkets that carry a very wide variety of imported food products are Jaya Grocer (the fastest growing local chain) & Hock Choon, Village Grocer, Ampang Grocers, BIG (Bens Independent Grocer) and the latest addition, Sam’s Groceria. These outlets target the middle to high income shoppers and more than 50% of their products are imported.

The largest convenience store chain operating 24-hour stores. 7-Eleven stores are treated like car race pit stops by children, teenagers and young adults who usually shop for magazines, newspapers, candies, crisps and other snacks, ice cream or other single-serve food and beverages consumed “on-the- go.​