Global Invest

Malaysia Joins Asia’s Economic Development Transformation

Malaysia is a country on the go as it strives to become an ASEAN leader in ICT and a hub for regional business activities. Foreign direct investments are actively sought in order to accelerate progress.
— By William Bell

Foreign direct investment (FDI) has proven to be a strong source of capital for Asian countries, and that includes Malaysia. The country has come a long way since obtaining independence in 1957, and it is now an industrialized economy. The FDI to date includes more than 5,000 international companies, but there are many more opportunities available in technology, health services, financial services and manufacturing.

As Malaysia continues to make significant progress toward becoming an attractive regional hub for services, the opportunities for FDI will continue to grow.

Adding up to Many Opportunities
Just north of the equator in Southeast Asia is Malaysia, which actually consists of two noncontiguous regions. Peninsular Malaysia (aka West Malaysia) is on the Malay Peninsula, and this is where the capital city of Kuala Lumpur is located. East Malaysia is on the Borneo island.

The two regions are separated by 400 miles of the South China Sea, making this a very unusual country. At the tip of the peninsula is the independent country of Singapore, and across the Strait of Malacca (on the peninsular region) is Indonesia’s Sumatra island. The north Peninsula Region is bordered by Thailand. The Borneo island Malaysia region is bordered by Indonesia. The majority of Malaysians live in Peninsular Malaysia.

Malaysia has long been recognized as a major producer of tin and rubber, mostly on the west side of the peninsula. Since the 1970s, Malaysia has experienced rapid urbanization, and while mining has been a major industry, the country has also focused on manufacturing, industry development, and trade to diversify the economy.

In fact, the economy has transformed from being primarily reliant on the export of rubber and tin to also becoming a major exporter of palm oil, petroleum, natural gas, and commercial hardwoods. Malaysia has emerged as an attractive regional hub for financial, information and communications technology (ICT) and logistics services, offering foreign investors many opportunities.

A robust economy; a government reforming public services and making it easier to do business; a population mix of Malay, Indian, and Chinese; and a great location next to one of the world’s busiest shipping lanes are just some of the features that make Malaysia a good target for FDI.

There are other features which include the fact English is widely spoken, it is considered an upper middle income country, and it is 12th out of 190 economies in the World Bank’s Doing Business 2020 ranking. If that is not enough to prove Malaysia deserves foreign investment consideration, there is an established legal system, a stable government, and a stable economic growth, and it is one of East Asia’s most open economies.

Technology Across the Industries
Financial and economic analysts that track trends have found the service sector is the fastest growing sector in Malaysia, followed by manufacturing. Health, financial activities, real estate and insurance services are rapidly growing. Malaysia is establishing its first virtual bank in 2020.

The ICT sector is particularly open to investment across industry sectors. For example, development of manufacturing opportunities include tech-based R&D and design capabilities. The manufacturing of electronics and electrical products is one of the fastest growing sub-sectors. Supporting businesses for manufacturing is another wide open opportunity and includes packaging, marketing, and distribution.

The introduction of 5G technology is accelerating growth in the ICT industry. The full implementation of 5G is expected to strengthen Malaysia’s ability to fully utilize advanced technologies that include artificial intelligence, virtual reality and robotics.

Malaysia has also launched the Green Technology Financing Scheme where financial support is directed toward accelerating the production and deployment of green technology. Foreign investors have an excellent opportunity to build partnerships with Malaysian-owned businesses that are eligible for the financing benefits. Malaysia’s government has also developed a Digital Free Trade Zone that allows investors to leverage cross-border trade and logistics opportunities.

Opening the Gates of Economic Opportunity
Malaysia is positioning itself as a gateway to the ASEAN market by offering a variety of incentives to foreign firms. The incentives include ease of starting a business, tax reform that includes tax reductions and status of pioneer company.

A company declared a pioneer status company is subject to paying corporate income tax on only 30 percent of income earned from Malaysian-promoted activities or products. The other 70 percent is tax exempt. The pioneer status is allowed for five years.

The measures for determining pioneer status include technology used, value-added and industrial linkages. Some of the promoted activities and products include components for energy-efficient vehicles, utilization of palm oil to produce value-added products, selected agricultural activities for the purposes of automation or modernization, waste recycling, and green technologies and services, to name a few. Some of the incentives require the company to have Malaysian ownership of 50 percent, presenting excellent opportunities for foreign firms to form lucrative partnerships.

Determined to Succeed
There are several government agencies that can provide assistance, information and guidance to foreign investors.

The Malaysian Investment Development Authority (MIDA) assists with investments in the manufacturing and services sectors, while the Ministry of International Trade and Industry is responsible for international trade and industrial development.

The Malaysian Economic Corridors are statutory bodies that are federally formed for the purpose of driving development in particular Malaysian regions. Right now there are five economic corridors.

The Companies Commission Malaysia is the agency responsible for incorporating and registering companies and offers a wealth of information.

Malaysia is a determined country – determined to continue economic expansion. As the government vigorously pursues becoming an ASEAN hub, the opportunities will continue to expand. The rebranding taking place now is driving Malaysia to become a major player in a short period of time in technology-based industries. Malaysia refers to it as the Fourth Industrial Revolution (4IR), Industry 4.0 (I4.0), and Smart Manufacturing.

Foreign businesses ready to expand into new global locations would be wise to consider Malaysia.