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Successfully investing in Malaysia

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​​​​last updated on 7 June 2024 | reading time approx. 4 minutes

 

 

 

  

How do you assess the current economic situation in Malaysia?

Malaysia was able to recover quickly from the economic effects of the pandemic and, as the fourth largest economy in Southeast Asia, is experiencing steady growth due to global demand for electronics as well as raw materials such as oil and gas. A well-educated workforce, comparatively liberal market entry conditions and sufficient infrastructure spending have made Malaysia an interesting and reliable investment destination for decades. As part of diversification strategies, many companies are currently envisaging Malaysia as a product­ion location in order to stabilize their supply chains.
   
In addition to the production of crude oil and palm oil, Malaysia has a well-established industrial sector, for example in the fields of electronics, pharmaceuticals and telecommunications, as well as a rapidly growing digital economy. The country benefits not only from its competitiveness on 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?

Sustained positive forecasts in rankings by the IMF and the World Bank as well as the good business climate make Malaysia an attractive destination for long-term investments. Malaysia's importance to Germany in terms of trade policy was recently underlined by several visits from top politicians. After German President Steinmeier travelled to Malaysia with a delegation in February 2023, Foreign Minister Baerbock visited the country in January 2024. In March 2024, Malaysian Prime Minister Anwar Ibrahim then paid a six-day visit to Germany, which also focused on expanding and strengthening trade relations. In a regional comparison, Malaysia convinces with its well-developed infrastructure, investor-friendly policies, a solid legal system and, last but not least, the fact that English is the common language and thus communication problems are mostly avoidable. 
   
For German companies, particularly the industrial sectors of electronics, machinery, chemicals and pharma​­ceuticals, medical devices, aerospace and automotive offer interesting business opportunities. Due to trade tensions between the U.S. and China, Malaysia is also gaining increasing importance in global supply chains, e.g. as a location for semiconductor and chip manufacturing. The Malaysian government has also recognized the opportunities that the digital economy offers as a new growth engine for the economy. By leveraging Big Data, the Internet of Things, artificial intelligence and other technologies, Malaysia aims to increase product­ivity, drive innovation and improve the living conditions of its people under the so-called MyDigital initiative. The country is already the leading provider of data centers in the ASEAN region.

   

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

The highest foreign investment volume of the European Union flows to Malaysia from Germany. 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 required for some business sectors, such as telecommunications or logistics. In addition, investors must be prepared for sometimes time-consuming administrative procedures to obtain investment and business licenses, which can take up to six 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, but a partner­ship and cooperation agreement was signed at the end of 2022. Negotiations are to be resumed on this basis and a current stocktaking-exercise; however, it is not yet clear when the next round will actually take place. 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, for example, in corresponding EU agreements. 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 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. 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 destination. Having previously been heavily dependent on agriculture and sourcing of raw materials, 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 milestones for the country's future success are likely to be, in particular, the further opening of the labour market to foreign staff, digitalization, modernization of the administration, reduction of sectoral investment restrictions that still exist in some areas, and, in the medium term, the conclusion of a free trade agreement with the EU.​

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