Exporting to Malaysia - Market OverviewMalaysia - Market Overview
On May 9, 2018, Malaysians cast their votes in the general election that changed Malaysia’s political landscape. For the first time after 61 years of rule by the Barisan Nasional (BN) party, Malaysia had a change of government and the Pakatan Harapan (PH) party coalition peacefully came into power, ousting BN and Prime Minister Najib. During the campaign, the PH party published a manifesto outlining the party’s vision. The included scrapping the goods and services tax (GST), implementing targeted petrol subsidies, steamlining minimum wage, implementing a healthcare scheme for lower income Malaysians, investigating and prosecuting corruption, and reviewing all past and present mega projects. PH won, and PM Mahathir, previously Malaysia’s longest serving Prime Minister under BN and now in his nineties, became the new head of the PH-led coalition government.
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 an upper middle income, competitive nation, where services and manufacturing now account for 75.8 percent of GDP (55.5 percent in services and 20.3 percent in manufacturing in 2018).
Malaysia’s GDP projection for 2019 is between 4.3-4.8 percent. In 2018, Malaysia’s GDP growth was at 4.7 percent; 2017 GDP was 5.9 percent and 2016 GDP growth was 4.2 percent. Malaysia’s economy recorded an annual average growth of 5.0 percent during the period 2015 to 2018. Two lynchpins of the Malaysian economy are oil and gas and palm oil, and the government budget is impacted by the price movement of these commodies.
Over the past few years Malaysia’s currency, the Ringgit (RM), has experienced downward pressure. The exchange rate of Malaysian Ringgit to United States dollar (USD) for the first four months of 2019 averaged about 4.1 RM to the dollar. The small exception to the downward pressure and respite was during the first five months of 2018 where it strengthened to US$1 = RM3.92. The 2018 annual average for RM against USD was around the 4.05 range. For 2017, it averaged around RM4.30 and in 2016 it hovered around US$1 to RM4.15. The lower exchange rate impacted Malaysia’s economy, and the government has been taking financial policy steps to strengthen its currency. Malaysia’s central bank, Bank Negara, recognizes the downside risks of current global economic conditions and the impact on the Malaysian economy, and acknowledges the increasing risks to growth as exports moderate amid weakening global demand. U.S. – China trade tensions also cause concern, though some see this as an opportunity if manufacturing companies relocate to Malaysia to avoid tariffs.
According to the Department of Statistics, Malaysia’s per capita income in 2018 was RM43,086 which is approximately US$10,639 based on 2018 average exchange rate. Translated in purchasing power per capita terms, it is the third highest in ASEAN in 2018, after Singapore and Brunei, at approximately US$30,860 (IMF) or $29,432 (World Bank). 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 brands, better education, quality healthcare products and services, as well as increasingly to ecological lifestyle offerings.
Malaysia reported its population size to be 32.4 million at the end of 2018. According to Bank Negara (Malaysia’s Central Bank), Malaysia’s 2018 GDP was RM1,429,842 million (US$353,047 million). Looking back, Malaysia’s 2017 GDP was RM1,353,381 million (US$338,345 million), whilst its 2016 GDP was RM1,230,121 million (US$298,573 million). The World Bank classifies Malaysia as an upper-middle income nation.
Malaysia’s total trade for 2018 was $465 billion. This is a 13 percent increase in value compared to 2017. China is Malaysia’s top trading partner, with double the total trade Malaysia has with the U.S., its third largest trading partner.
Malaysia Total Trade with Top 10 Partner Countries
|Source of Data: Department of Statistics Malaysia|
According to the Bureau of Economic Analysis, in 2017 (latest available data) the U.S. direct investment position in Malaysia was US$15,080 million, compared with US$14,606 million in 2016, and $15,765 million in 2015. The direct investment position from Malaysia in the United States on a historical-cost basis was $1,101 million in 2017, US$1,134 million in 2016 and US$1,278 million in 2015. In 2017, Malaysian FDI in the U.S. was mainly concentrated in the following sectors: wholesale trade, professional scientific and technical services, depository institutions, and chemicals 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
With the recent change in the Government in 2018, Malaysia still maintains its position as a business-friendly destination and there are several factors why U.S. companies should consider exporting to Malaysia. These factors include the widespread use of English, the ability to repatriate capital and profits, a well-established legal framework, excellent infrastructure, emerging technologies, dynamic business environment and an affinity for U.S. products. Despite corruption scandals, the investment environment remains promising for foreign investors. The continued growth of the services and manufacturing sectors, not to mention private consumption as the top growth performer, makes Malaysia a profitable destination for exporters. In addition, Malaysia enjoys a high visa approval rate (~ 96 percent) and a 10-year maximum validity visa makes it easy for business partners to travel to the United States.