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Malaysia Economic Structure

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Tips:Economic StructureThe Government of Malaysia (GOM) in general strongly encourages foreign direct investment (FDI), altho
 Economic Structure

The Government of Malaysia (GOM) in general strongly encourages foreign direct investment (FDI), although it maintains restrictions or limits on investment in some sectors. It provides a number of incentives, particularly in export-oriented high-tech industries and "back office" service operations. The GOM also hosts international trade shows and advertises broadly to attract FDI. Many U.S. companies have extensive operations in Malaysia, including ExxonMobil, ConocoPhillips, Intel, Microsoft, Dell, GE, Mattel, First Solar, Sun Power, Agilent, and Motorola. Prime Minister Najib Razak (Najib) has made generating new private investment a centerpiece of his economic reform program introduced in March 2010 as the New Economic Model (NEM). The National Economic Advisory Council (NEAC), a blue ribbon panel of experts on Malaysia’s economy, in 2010 issued two reports identifying shortcomings in Malaysia’s investment climate and proposing policies necessary to improve Malaysia’s competitiveness as a foreign investment destination. The Najib administration embarked on four different economic programs during 2010 to spur additional investment: the NEM economic policy reform platform, the Economic Transformation Program (ETP) intended to stimulate foreign and domestic private investment, the Government Transformation Program (GTP) to decrease corruption and improve Malaysia’s social safety net, and the Tenth Malaysia Plan (10MP) to guide public sector capital expenditures.

 

The GOM actively reaches out to targeted industries and negotiates terms that successfully attract FDI. According to the Malaysian Industrial Development Authority (MIDA), total value of foreign manufacturing projects approved in 2010 was $9.5 billion, of which $5.3 billion was approved during the fourth quarter. The surge in fourth quarter investment could be a result of the ETP stimulating private investment. 2010 manufacturing FDI approvals were 50% higher than the 2009 annual total of $6.5 billion, but less than the $13.3 billion approved in 2008. The U.S., Japan and Hong Kong are the top three countries investing in Malaysia.

Inflows of actual FDI to Malaysia in 2010 increased to $7 billion, a 409.7% increase from $1.4 billion in 2009, while the inflows for 2008 were $8.1 billion, according to the UN Conference on Trade and Development (UNCTAD). PM Najib announced over $10 billion of new investments in January 2011, including a new $3 billion investment by ExxonMobil in upstream oil production.

 

Malaysia has experienced negative net FDI in 13 of the past 14 years. GOM officials attribute the consistent outward investment flows largely to cross-border assets acquisitions and portfolio investment outflows as a result of a “flight to safety” during the global financial crisis.

 

As a destination for FDI, Malaysia’s attractiveness for lower-wage manufacturing has diminished as years of steady economic growth have increased average wage levels making Malaysia a middle-income country. The NEM seeks to move the economy “up the value chain” by promoting investment in higher value added manufacturing and service sectors. The ETP identified 13 specific sectors that the GOM is encouraging foreign and domestic investment, including: electrical & electronics; medical devices; green energy, machinery & equipment; oil and gas, and transportation equipment. Also targeted for growth were a number of resource-based industries and some services sub-sectors including logistics; however, the extent to which foreign investors are allowed to participate in these sectors is highly controlled by the government.

 

Industry

Malaysia industrial sector accounts for 48.1 percent of total GDP or 63.4 billion US dollars. The industrial output is ranked 32nd in the world. The industrial sector is regulated and promoted by Malaysia Industrial Development Authority. International trade, facilitated by the adjacent Strait of Malacca shipping route and manufacturing are both key sectors of the country's economy. Manufacturing has a large influence in the country's economy, although Malaysia’s economic structure is moving away from it.

Malaysia has 18 companies that rank in the Forbes Global 2000 ranking for 2009.

 

World Rank

Company

Industry

Revenue
(billion $)

Profits
(billion $)

Assets
(billion $)

Market Value
(billion $)

493

CIMB Group Holdings

Banking

4.24

0.82

70.14

14.05

599

Sime Darby

Conglomerates

8.82

0.65

9.92

15.27

642

Public Bank

Banking

2.75

0.74

63.27

11.52

706

Maybank

Banking

4.63

0.20

87.98

14.70

709

Tenaga Nasional

Utilities

8.17

0.26

20.26

10.21

904

Axiata Group

Telecommunications Services

3.83

0.48

10.80

9.71

907

MISC Berhad

Transportation

4.33

0.39

10.08

10.66

1179

Genting

Hotels, Restaurants & Leisure

2.60

0.31

12.68

6.81

1192

RHB Capital

Banking

1.57

0.35

33.49

3.49

1205

Maxis

Telecommunications Services

2.22

0.46

5.17

12.08

1224

IOI Group

Food, Drink & Tobacco

4.15

0.28

4.53

10.78

1292

AMMB Holdings

Banking

1.45

0.24

24.56

4.42

1485

PPB Group

Food, Drink & Tobacco

0.57

0.46

3.82

5.60

1501

YTL

Utilities

2.53

0.24

12.92

4.16

1613

Hong Leong Financial Group

Banking

1.08

0.18

24.54

2.39

1643

PLUS Expressways

Transportation

0.93

0.35

5.36

5.11

1755

Petronas Gas

Oil & Gas Operations

0.94

0.25

2.76

5.70

1987

Petronas Dagangan

Oil & Gas Operations

60.69

11

1.81

2.63

Finance and banking

Finance and Banking sector in Malaysia is regulated by Bank Negara Malaysia. The central bank limits foreign participation through licensing limits. The central bank launched a Financial Sector Master plan in 2001 to revamp the finance sector following the Asian Financial Crisis. The master plan calls for emphasis on Islamic Banking,[124] of which Malaysia has become a centre of. Malaysia has the highest number of female workers in Islamic banking.

Maybank is Asia-Pacific's largest Islamic banking service provider with US$6.4 billion (RM22.48 billion) Syariah-compliant assets. Malaysia also accounts for two thirds of global $82.2 billion sukuk market in 2007. Khazanah Nasional owns the largest retakaful company in the world, ACR Retakaful Holdings Limited, with capital base amounting to 300 million US Dollars.

A quarterly report prepared by the Economist Intelligence Unit on behalf of Barclays Wealth in 2007 estimated that there were 48,000 dollar millionaires in Malaysia (over twice that of China).

In April 2009, the government announce new licenses will be issued for investment banking Islamic banking, takaful and insurance business between 2009 to 2011. It also announced that the threshold foreign equity ownership has been raised from 49% to 70% and allowed foreign banks to open up new branches and micro-credit facilities. This move was done as an attempt to put Malaysia in as center for Islamic banking and also to liberalize the financial sector.

Oil and gas

Malaysia has a vibrant oil and gas industry. The national oil company, Petronas, provides about 40% of the federal budget in taxes, dividends and royalties. The oil company ranked 121 in Fortune Global 500 list of companies in 2007. It also ranked 18 in the industry of the same list. The company has ove up to the rank by being 95th in 2008 in terms of revenue and 8th most profitable company in the world and the most profitable in Asia. Since inception in 1974, Petronas have paid the government RM 403.3 billion, with RM 67.6 billion in 2008. The payment represents a 44% of the 2008 federal government revenue.

Petronas is also the custodian of oil and gas reserves for Malaysia. Hence, all oil and gas activities are regulated by Petronas. Malaysia encourages foreign oil company participation through production sharing contracts, in which significant amount of oil will be given away to the foreign oil company until it reaches a production milestone. Currently, many major oil companies such as ExxonMobil, Royal Dutch Shell, Nippon Oil, and Murphy Oil are involved in such contracts. As a result, 40% of oil fields in Malaysia are developed.

Malaysia and Thailand has a wedge shaped area 150 km from Kota Bharu, Kelantan and 260 km from the shores of Songkhla, Thailand which is jointly developed by Petronas and its Thailand counterpart. The area, which is called Malaysia-Thailand Joint Development Area, has 4.5 trillion cubic feet (130 km3) of proven reserves.

Tourism

.

In an effort to diversify the economy and make Malaysia’s economy less dependent on exported goods, the government has pushed to increase tourism in Malaysia. As a result tourism has become Malaysia’s third largest source of income from foreign exchange, although it is threatened by the negative effects of the growing industrial economy, with large amounts of air and water pollution along with deforestation affecting tourism. The majority of Malaysia's tourists come from its bordering country, Singapore. In 1999, Malaysia launched a worldwide marketing campaign called “Malaysia, Truly Asia” which was largely successful in bringing in over 7.4 million tourists. In recent years tourism has been threatened by the negative effects of the growing industrial economy, with large amounts of air and water pollution along with deforestation affecting tourism.

The Ministry of Culture, Arts and Tourism (MOCAT) was established in 1987 under which the TDC was incorporated. TDC existed from 1972 to 1992, when it became the Malaysia Tourism Promotion Board (MTPB), through the Malaysia Tourism Promotion Board Act, 1992. Tourism Malaysia aims to market Malaysia as a premier destination of excellence in the region.

Science and technology

Science Policy in Malaysia is regulated by the Ministry of Science, Technology, and Environment. Other ministries, such as the Ministry of Agriculture and the Ministry of Health also have science departments. Training in scientific areas was promoted during the 1970s and 1980s. From 1987-1997 research and development used 0.24% of GNP, and in 1998 high-tech exports made up 54% of Malaysia's manufactured exports. The country is one of the world's largest exporters of semiconductor devices, electrical goods, and information and communication technology products.

In 2002 the Malaysian National Space Agency (Angkasa) was formed to deal with all of Malaysia's activities in space, and to promote space education and space experiments. It is focused on developing the "RazakSAT" satellite, which is a remote sensing satellite with CCD cameras. In early 2006, Sheikh Muszaphar Shukor and three other finalists were selected for the Angkasawan spaceflight programme. This programme came about when Russia agreed to transport one Malaysian to the International Space Station as part of a multi-billion dollar purchase of 18 Russian Sukhoi Su-30MKM fighter jets by the Royal Malaysian Air Force.

In an effort to create a self-reliant defensive ability and support national development Malaysia privatised some of its military facilities in the 1970s. This has created a defence industry, which in 1999 was brought under the Malaysia Defence Industry Council. The government continues to try to promote this sector and its competitiveness, actively marketing the defence industry. One way it does this is through the Langkawi International Maritime and Aerospace Exhibition, one of the largest defence and civil showcases in the Asia Pacific, regularly attended by over 500 companies The Malaysian Armed Forces relies heavily on local military technology and high-tech weapons systems designed and manufactured by foreign countries.

Others

Knowledge-based services are expanding in Malaysia. Malaysia is being promoted as a destination for Medical tourism, regionally and internationally.
 



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