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Last Published: 7/18/2018

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Doing Business in Malaysia

Malaysia, a country of Southeast Asia lies just north of the Equator and is composed of two noncontiguous regions:  peninsular Malaysia and East Malaysia (which is on the island of Borneo).  Kuala Lumpur, Malaysia’s capital, and Putrajaya, the administrative and government center are located in the western part of peninsular Malaysia.  The states of Sabah and Sarawak occupy roughly the northern fourth of the island of Borneo and share land boundaries with Indonesia and Brunei.

Market Overview

For centuries, Malaysia has profited from its location at a crossroads of trade between the East and West, a tradition that carries into the 21st century. Geographically blessed, peninsular Malaysia stretches the length of the Strait of Malacca, one of the most economically and politically important shipping lanes in the world. Capitalizing on its location, Malaysia has been able to transform its economy from an agriculture and mining base in the early 1970s to a relatively high-tech, competitive nation, where services and manufacturing now account for 73 percent of GDP (51 percent in services and 22 percent in manufacturing in 2017).
Malaysia’s GDP projection for 2018 is 5.3 percent while the 2017 GDP was 5.9 percent, 2016 GDP growth was 4.2.  Prior to this, Malaysia’s GDP growth in 2015 was 5 percent, 6 percent in 2014, and 4.7 percent in 2013. Malaysia is an oil and gas producing country and the government budget is impacted by the price movement of this commodity.
Over the past few years Malaysia’s currency, the Ringgit (RM), experienced downward pressure; however, since the beginning of 2018, it has been strengthening to US$1 = RM3.94.  In 2013, the average exchange rate for the Malaysian Ringgit against the US Dollar was US$1=RM3.12. In 2014, US$1=RM3.30. In 2015, it was US$1=RM3.90. For 2016, it averaged around RM4.15 and in 2017 it hovered around US$1 to RM4.30. The lower exchange rate impacted Malaysia’s economy and the government has been taking financial policy steps to strengthen its currency. The weaker ringgit and slower growth dampened consumer sentiment and spending throughout 2016 and into early 2017.
Malaysia’s per capita income was RM42,930/ US$10,732 (Department of Statistics Malaysia). Translated in purchasing power per capita terms, it is the third highest in ASEAN, after Singapore and Brunei, at approximately US$28,700.  Malaysia’s level of economic development drives both consumer and business demand for products and services. Its consumers, though price sensitive, are accustomed to several decades of strong growth. Thus, they are attracted to and are familiar with international branded products, better education, quality healthcare products and services, as well as ecological lifestyle offerings.
By December 2017, Malaysia reported it population size to be 32 million. According to Bank Negara Malaysia (Malaysia’s Central Bank), Malaysia’s 2017 GDP is RM1,353,381 million (US$338,345 million).  Looking back, its 2016 GDP was RM1,230,121 million (US$298,573 million), RM1,062,805 million (US$272.5 million) in 2015, and RM1,012,506 million (US$306,820 million) in 2014. The World Bank classifies Malaysia as an upper-middle income nation.
Malaysia’s total trade for 2017 was $413 billion. This is a 15.2 percent increase in value compared to 2016.  Malaysia’s top trading partners:

Malaysia Total Trade with Top 10 Partner Countries
Partner Country  
World   413,186,433,771.00   100.00
China      67,749,211,689.00   16.40
Singapore      53,213,540,405.00   12.88
United States     36,760,557,967.00   8.90
Japan      32,240,278,085.00   7.80
Thailand      22,982,448,057.00   5.56
Taiwan      18,279,200,438.00   4.42
Indonesia      16,898,516,403.00   4.09
Korea South      15,165,616,094.00   3.67
Hong Kong      14,423,358,471.00   3.49
India      14,307,314,224.00   3.46
Source of Data: Department of Statistics Malaysia 
According to the Bureau of Economic Analysis, in 2016, the U.S. direct investment positon in Malaysia was US$13.9 billion, a decrease of 7.2 percent from 2015. The direct investment position from Malaysia in the United States was $1.1 billion, a decrease of 11.1 percent from 2015.  In 2016, Malaysian FDI in the U.S. is in these sectors: wholesale trade, computers and electronic products, food, primary and fabricated metals, professional, scientific, technical services, information, transportation equipment, finance and insurance, depository institutions, holding companies and other manufacturing, and other industries. In 2015 (latest available data), U.S. affiliates of Malaysian-owned firms employed 2,400 U.S. workers.  

Top reasons why U.S. companies should consider exporting to Malaysia

There are numerous reasons why U.S. companies should consider exporting to Malaysia. These include the widespread use of English, the ability to repatriate capital and profits, a well-established legal framework, excellent infrastructure, and an affinity for U.S. products. In addition, Malaysia has a highvisa approval rate (approximately 96 percent) and a 10-year maximum validity visa make it easy for your business partners to travel to the United States.

Trade Agreements

Malaysia has always been a trading nation. Strategically located along the Straits of Malacca, it sits on a major shipping channel that connects the Indian Ocean to the west and the Pacific Ocean to the east. Malaysia recognizes the importance of international trade and relations to the nation’s growth and development; gross exports of goods and services constituted 73 percent of Gross Domestic Product (GDP) in 2017.  Fifty-one percent was in services and 22 percent in manufacturing. Given Malaysia’s reliance on international trade, Malaysia has adopted liberal trade policies and puts a high emphasis on regional and bilateral trade agreements.
Malaysia joined the General Agreement on Trade and Tariff (GATT) in 1957, and was therefore a founding member of the World Trade Organization (WTO), which replaced the GATT. Malaysia has established bilateral Free Trade Agreements (FTAs) with the following countries:​ Australia, Chile, India, Japan, New Zealand, Pakistan, and Turkey.
At the regional level, Malaysia through the Association of Southeast Asian Nations (ASEAN) has established the ASEAN Free Trade Area. In addition to Malaysia, ASEAN’s members include: Brunei, Burma, Cambodia, Indonesia, Laos, the Philippines, Singapore, Thailand, and Vietnam. The ASEAN Free Trade Area (AFTA) is a trade bloc agreement to support local manufacturing in all ASEAN countries. ASEAN collectively represents a market with a GDP of more than $2.2 trillion and a population of 620 million people. The primary goal of AFTA is to increase ASEAN's competitive edge as a production base in the world market. The secondary goal is to attract more foreign direct investment to ASEAN. The Common Effective Preferential Tariff, through elimination of tariffs and non-tariff barriers within ASEAN members are the main instruments in achieving its goals. Through ASEAN, Malaysia has regional FTAs with China, Japan, Korea and India, Australia, and New Zealand.
Other concluded trade agreements include: Trade Preferential System-Organization of Islamic Conference (TPS-OIC), and Developing Eight (D-8) Preferential Tariff Agreements (PTA). FTAs currently under negotiation are: Malaysia-European Union Free Trade Agreement (MEUFTA), Malaysia-EFTA Economic Partnership Agreement (MEEPA), and ASEAN - Hong Kong Free Trade Agreement (AHKFTA).
Since the United States’s formal withdrawal from TPP in 2017, the remaining TPP countries formed the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) and signed the agreement on March 8, 2018.  However, the new Malaysian government has stated its intent to scrutinize the agreement, including potentially reopening negotiations.
Malaysia is party to the Regional Comprehensive Economic Partnership (RCEP) negotiations, which is a FTA between the ten ASEAN members and six countries of which ASEAN has existing FTAs.  The goal of the RCEP is a more comprehensive regional economic integration among its members. The RCEP also aims to simplify and harmonize the member countries’ respective bilateral FTAs. 
The RCEP negotiating members are: Australia, Brunei, Cambodia, China, India, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam. If the RCEP is accepted, it will be Malaysia’s largest multilateral agreement, comprising about 29 percent of world trade.  The previous government had stated its intent to conclude the RCEP agreement in 2018; however, this has not yet been reiterated as a goal of the current government.


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Malaysia Trade Development and Promotion