Successfully investing in Malaysia

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last updated on 2 September 2022 | reading time approx. 3 minutes

 

 

 

How do you assess the current economic situation in Malaysia?

Malaysia has experienced consistent econimoic growth since the 1990s. In the latest World Economic Outlook, the IMF reduced GDP growth forecasts for Malaysia from 6 to 5.1 per cent for 2022, but the country is recove­ring from the economic impact of the pandemic. As Southeast Asia's fourth-largest economy, Malaysia has developed strongly in recent years due to a global demand for electronics as well as commodities such as oil and gas. An improved labour market, comparatively liberal investment conditions and sufficient infrastructure spending have also contributed to the solid performance.
 
Besides the production of crude and palm oil, Malaysia has a well-established industrial sector, for example in electronics, pharmaceuticals and telecommunications. The country benefits not only from its competitiveness in international markets, but also from high domestic demand. Together with Singapore, Thailand and Indonesia, Malaysia is considered the leading economic power in the ASEAN region.
 

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

The Malaysian economy was affected by the pandemic and a concurrent government crisis in 2021, but is now on a recovery path. Continued positive forecasts in IMF and World Bank rankings make Malaysia an attractive destination for long-term investment. The good general business climate and the investor-friendly basic atti­tude make Malaysia an interesting investment location for German companies. In a regional comparison, Malaysia convinces with its solid infrastructure, investor-friendly policies, a sound legal system and, last but not least, the fact that English is a lingua franca and thus communication problems are avoidable. 
 
For German companies, the industrial sectors of electronics, machinery, equipment, chemicals, medical devi­ces, aerospace and automotive in particular offer interesting business opportunities in Malaysia. Due to the tensions between the USA and China, Malaysia is also gaining increasing importance in global supply chains as a location for semiconductor and chip manufacturing. The Malaysian government has also recognised the opportunities that the digital economy offers as a new growth engine for the economy. Through the use of the internet, smartphones, big data, the internet of things, artificial intelligence and other technologies, Malaysia aims to increase its productivity, drive innovation and improve the living conditions of the population as part of the so-called MyDigital initiative.

 

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

The highest volume of foreign investment in the European Union flows from Germany to Malaysia. In general, Malaysia offers an investment-friendly environment and no protectionist tendencies are apparent in most sec­tors. Nevertheless, under Malaysia's "Bumiputera" policy, local shareholdings or managing directors are still prescribed for some business areas, such as telecommunications or logistics; in addition, investors must be prepared for sometimes time-consuming administrative procedures to obtain investment and business licences, which can take up to 6 months. For historical reasons, Malaysia follows English common law. For German companies, it is therefore essential to draft contracts carefully, taking into account the special features of this legal system.
 
Negotiations on a free trade agreement between the EU and Malaysia are currently suspended due to disagree­ments over palm oil, a very important commodity for Malaysia. European companies must thus continue to wait for trade and investment facilitation through such a free trade agreement.
 
For German investors, there is a certain level of protection from the 1962 bilateral investment protection treaty between Germany and Malaysia. However, this investment treaty offers lower standards than is common today in corresponding EU agreements, for example. In particular, no investor-state dispute settlement mechanism is provided for.

  

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

The multilateral RCEP is the latest free trade agreement concluded by Malaysia. Malaysia had submitted its ratification to the ASEAN Secretariat in January 2022 and subsequently became the twelfth signatory state of the RCEP on 18 March. This world's largest free trade agreement outside the World Trade Organisation entered into force on 1 January 2022 and is expected to have a particularly positive impact on trade in goods in the region, less so in services and direct investment. Thus, manufacturing companies in Malaysia can also benefit from preferential tariffs and the partial dismantling of trade barriers, provided that the regional value-added share specified in the RCEP is met. German companies doing business in the Asia-Pacific region should be aware of the complex and overlapping free trade agreements. Malaysia is also a member of the ASEAN Free Trade Area (AFTA) of the ASEAN Plus Free Trade Agreement with China, Japan, Korea, Australia, New Zealand and India, as well as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). There are also other bilateral free trade agreements with other countries. This multitude of free trade agree­ments therefore requires in-depth planning and assessment of the applicable regulations in each case in order to optimally design regional supply chains.

 

In your opinion, how will Malaysia develop?

Over the past decades, Malaysia has developed into one of the most dynamic economies in Southeast Asia and an attractive investment location. Having previously been heavily dependent on agriculture and raw materials industries, the country has diversified economically and successfully focused on the manufacturing and service sectors with a combination of a skilled workforce and a highly developed infrastructure. Important courses for the country's future success are likely to be, in particular, the further opening of the labour market for foreign workers, modernisation of the administration, reduction of the sectoral investment restrictions that still exist in some cases, and, in the medium term, the conclusion of a free trade agreement with the EU.

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