Strategic location
Malaysia is a country in Southeast Asia with a population of 33.6 million. Since its independence in 1957, Malaysia has experienced rapid economic growth. While categorized as a developing country, Malaysia ranks as a leading economy in the region, alongside Indonesia and Thailand. Malaysia is a member of the Association of Southeast Asian Nations (ASEAN) and the Organization of Islamic Cooperation (OIC).
As a country marked by dynamic economic growth, Malaysia is considered a prospective market for international trade. In 2021, the gross domestic product was $372.9 billion ($11,109 per capita). Regarding the GDP structure, services account for 51.6% of GDP, industry – 37.8%, and agriculture – 9.6%. And as for the business environment, 97% of companies (1.15 million) are small or medium-sized enterprises.
The main resources include oil, gas, zinc, cobalt, iron, timber, rubber, and palm oil. Oil is drilled in Sabah, Sarawak, and Terengganu, and Malaysia is ranked 28th in world oil reserves statistics. Malaysia is the world’s second-largest producer of palm oil after Indonesia. Oil palm monocultures have been cultivated since the 1960s, mainly in Borneo. There were 5.73 million hectares allocated for their cultivation in 2021.
Population of Malaysia
Malaysia’s population is 33.6 million. The country’s capital, Kuala Lumpur, is home to more than 1.9 million people. The official language is Malay, but English proficiency is widespread. According to various estimates, Malaysia hosts 2.1 million foreign workers, mainly from Bangladesh, Indonesia, and Nepal.
Malaysia is an ethnically and religiously diverse country. 69.9% of the population is Malay (Bumiputera), 22.8% is Chinese, and 6.6% is Indian. Malaysia is predominantly Muslim (63.5%). Other larger groups are Buddhists at 18.7%, Christians at 9.1%, and Hindus at 6.1%. The government’s pro-Malay policy, outlined in the constitution, brings about so-called “positive discrimination,” which gives Bumiputera financial benefits and support in running their businesses.
Malaysia, like other Asian countries, has become an aging society. The percentage of the population aged 65 and over rose to 7.3 percent in 2022. It indicates an increase in healthcare spending and investment in the medical equipment market in the coming years, including innovations in the agetech area, that is, technologies that improve the quality of life for seniors.
Economy of Malaysia
Malaysia is the world’s 37th largest economy by gross domestic product. Driving its robust economic growth of 8.7% in 2022 were exports of products from the electrical and electronics sector. Demand for electronics will grow due to the prospects of 5G technology, industrial automation, and the Internet of Things (IoT) expansion. Strong economic performance and a strategic location make Malaysia an attractive investment destination. Foreign investors are coming to Malaysia mainly from China, Singapore, Japan, and the United States.
In the past decade, governments have made efforts for significant structural reforms to sustain economic growth. One such plan was the “Shared Prosperity Vision 2030“, which aimed to address social inequality. The plan was intended to benefit the so-called B40 group, comprising the poorest 40% of society, mostly Malays. The COVID-19 pandemic and the trade war between China and the United States hampered its implementation.
The period 2021-2025 will see the deployment of the 12th Malaysia Plan, which aims to increase population income and develop a carbon-neutral economy. In late 2022, Prime Minister Anwar Ibrahim announced the implementation of the “Malaysia Madani” plan. The main areas of reform include economy and infrastructure, social policy, law, and public services. In this inclusive concept, the utmost emphasis will be placed on social stability so that economic growth is shared by society as a whole.
International trade
Malaysia is the world’s 23rd largest exporter and 25th largest importer. Malaysia’s main trading partners are China, Singapore, the United States, Japan, Indonesia, South Korea, Thailand, Germany, India, and Vietnam. In 2021, Malaysian exports were worth $256.8 billion, and imports were worth $230.2 billion.
The largest group of imported goods are electrical equipment (30%), oil and mineral fuels (12.5%), industrial machinery (9.09%), plastics (4.02%), iron and steel (3.08%), precious stones and metals (2.69%), precision instruments (2.66%), motor vehicles and parts (2.49%), rubber (2.44%), and chemical products (1.97%). Other goods include organic chemicals, copper, aluminum, fats and oils.
Among the most frequently exported goods are electrical equipment (34.4%), oil and mineral fuels (12.5%), industrial machinery (8.37%), fats and oils (6.58%), rubber (5.59%), precision instruments (4.23%), plastics (3.44%), aluminum (2.43%), iron and steel (2.22%), and chemical products (2.02%). These are followed by organic chemicals, furniture, copper, wood, iron and steel articles.
Trade agreements
Malaysia has signed many trade agreements. Some of these have been concluded by the Association of Southeast Asian Nations (ASEAN), of which Malaysia is a member.
Malaysia has signed free trade agreements with the following countries:
Australia
Chile
India
Japan
New Zealand
Pakistan
Turkey
Agreements with associations of countries:
Association of Southeast Asian Nations (ASEAN)
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
Regional Comprehensive Economic Partnership (RCEP)
Agreements as an ASEAN member:
Australia and New Zealand (Free Trade Area between ASEAN, Australia and New Zealand, AANZFTA)
China (ACFTA)
Hong Kong (AHKFTA)
India (AIFTA)
Japan (AJCEP)
South Korea (AKFTA)
Malaysia – European Union relations
Malaysia and the European Union began negotiating a free trade agreement in 2010. The deal, so far, has not been reached. “The Partnership and Coordination Agreement” was signed in December 2022. It covers cooperation in sustainable development, energy, transportation, trade, education, security, research, and combating climate change. The agreement will also deepen political dialogue on global issues.
The European Union is Malaysia’s fifth largest trading partner, and Malaysia is the Union’s 20th largest trading partner. Malaysia is also the EU’s third largest trading partner in ASEAN. In 2020, trade was worth 35.2 billion euros. The EU’s imports from Malaysia amounted to €24.7 billion, and exports amounted to €10.5 billion. The EU and Malaysia mainly trade in semi-finished and finished industrial products. The EU primarily imports machinery, electrical parts, rubber, and oils.
The European Union is trying to limit the use of palm oil in biofuels, which has negatively affected relations with Malaysia. The decision has also stalled negotiations on a free trade agreement. Other important issues concern the regulation of halal products, key sectors, and the “positive discrimination” policy.
Opportunities and challenges
Protectionism and preferential treatment of companies owned by native Malaysians is one issue that can make conducting business in Malaysia much more difficult for foreign investors interested in expanding. In addition, the extensive bureaucracy and licensing and accreditation systems, especially in the food sector, pose a significant challenge.
Malaysian halal regulations are among the most restrictive in the world. Malaysia does not recognize certificates approved in other countries. Commodities such as pork and alcohol, along with cosmetics containing it, require proper licenses.
Malaysia’s core sectors are tied to its main resources, such as rubber, palm oil, zinc, timber, oil, and gas. The most promising sectors are biotechnology, electronics, transportation, renewable energy, tourism, cosmetics, healthcare, construction, and space tourism. The government has a monopoly in some sectors, mainly in manufacturing.