Malaysia - Overview

An Expert's View about Business Environment in Malaysia

Posted on: 30 Jul 2012

Latest Development
•Malaysia’s economy registered a slower growth of 4.7% YoY (year-on-year) in the first quarter of 2012 compared to 5.2% in the previous quarter, constrained by slower export growth.
•Malaysia’s services sector, accounting for more than half of GDP, grew 5% YoY in the first quarter of 2012, driven by robust wholesale & retail trade and a strong communication sector.
•In the first quarter of 2012, Malaysia’s exports grew 2.8% YoY to US$57.6 billion while imports edged up 6.8% YoY to US$51.2 billion. Import growth is expected to outperform export growth amid the economic slowdown of major trading partners.
•Hong Kong's exports to Malaysia surged 9.3% YoY to US$1.6 billion in the first five months of 2012, while imports fell 6.3% YoY to US$2.8 billion in the same period.

Current Economic Situation

Malaysia’s economy registered a slower growth of 4.7% YoY in Q1 2012 compared to 5.2% YoY in Q4 2011, constrained by slower export growth. The services and manufacturing sectors contributed to economic expansion, accounting for 1.0% and 2.6% GDP growth respectively.

The services sector, accounting for more than half of GDP, grew 5% YoY in Q1 2012. The wholesale and retail sector expanded 6.4% YoY, mainly driven by strong retail sales in appliances & equipment, pharmaceutical products and personal care products. The communication sector posted a significant growth of 9.4% YoY in Q1 2012 on the back of higher consumption of mobile phone services and data communication. Furthermore, robust construction and oil & gas exploration activities boosted the business services sector, also helping drive a 16.1% YoY increase in investment spending in Q1 2012.

The manufacturing sector expanded 4.2% YoY in Q1 2012. Due to the turnaround in the production of refined petroleum products, growth was mainly supported by the 5.6% YoY growth in the sector covering petroleum, chemical, rubber and plastic products. The non-metallic mineral, basic metal & fabricated metal products registered YoY growth of 10.2%, led by strong sales of fabricated metals and non-metallic mineral products.

In Q1 2012, Malaysia’s exports grew 2.8% YoY to US$57.6 billion while imports edged up 6.8% YoY to US$51.2 billion. Export growth was due to stronger sales of petroleum, manufactured and chemical products. However, electrical & electronics (E&E) products, accounting for more than one-third of total exports, decreased 6% YoY to US$6.7 billion in March 2012. Main imports to Malaysia included electronics, machinery, petroleum products, plastics, vehicles, iron and steel products and chemicals. In Q1 2012, major trading partners included China, Singapore, Japan, the EU and US. Import growth of both goods and services is expected to remain higher than export growth amid a slowdown of major trading partners.

With the price declines of many non-oil commodities, the IMF expects inflation in Malaysia to moderate to 2.7% in 2012. In July 2011, the Royal Malaysian Customs drafted the Goods and Services Tax (GST) General Guide and proposed to introduce GST in 2013. Besides, the government intends to rationalise its subsidy scheme. In May 2012, the minimum wage for low income workers was introduced with a 12-month grace period for companies adapting to the new wage policy. These measures will exert an upward pressure on the price level in coming years.

The Tenth Malaysia Plan, a medium-term spending plan covering 2011-15, targets 12 national key economic areas, including palm oil cultivation and tourism, which are believed to have the greatest potential to boost overall economic growth. The IMF expects the Malaysian economy to grow 4.4% in 2012.

Trade Policy

Malaysia is a member of the World Trade Organisation (WTO), and it adopts a liberal trade regime. Companies are allowed to trade freely without special restrictions.

Import tariffs, where applicable, are mostly imposed on an ad valorem basis. The import duty ranges between 2%-60%, and the average applied duty rate was 7.4% in 2009. About 60% of tariff lines were duty-free. Raw materials, machinery, essential foodstuffs and pharmaceutical products are generally non-dutiable or subject to duties at lower rates. The trade regime has been progressively liberalised to encourage integration at the regional and global level.

Malaysia has abolished import tariffs on a wide range of items, including raw materials, components equipment and machinery that directly used in manufacturing process.

Further, as Malaysia is a member of ASEAN, the country is committed to the ASEAN Common Effective Preferential Tariffs (CEPT) scheme, under which all industrial products traded within ASEAN are subject to import duties of 0%-5% only.

Malaysia has continued to participate in various free trade arrangements (FTAs). Bilateral FTAs include those forged with Japan, Pakistan, New Zealand, India, Chile and Australia. Lower import duties are applied to imports originated from the trading partners under different arrangements. Also, bilateral negotiations are on-going with Turkey and the EU.

At the regional level, Malaysia together with ASEAN has concluded agreements with China (i.e. CAFTA, which was signed in November 2002), Korea (signed in November 2004), Pakistan (signed in November 2007), Japan (signed in April 2008), Australia-New Zealand (signed in February 2009) and India (signed in August 2009). Effective 1 January 2010, under the ASEAN-China (ACFTA) and ASEAN-Korea Free Trade Agreements, duties on 90% of the concerned were eliminated. Several regional FTAs are still under negotiations, including the Trans-Pacific Partnership Agreement (TPP), Trade Preferential System-Organisation of Islamic Conference (TPS-OIC) and Developing Eight (D-8) Preferential Tariff Agreement (PTA).

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Posted: 30 July 2012

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