Malaysia’s aspirations are as high as its buildings, and, with the right fundamentals in place, plans to meet its 2020 economic development commitments remain firmly on track. If the country is to achieve its Vision 2020 goal of achieving ‘developed nation’ status, it has just 10 years to make its plans a reality.

Admittedly, Malaysia has been hit by the global recession (its GDP fell by 1.7% in 2009) but industry leaders insist its economy is still heading in the right direction. In fact, in a year when many shipping lines and ports around the world experienced substantial falls in volume, Malaysia’s Port of Tanjung Pelepas ended 2009 with a year-on-year rise of 7.5% on container throughput.

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However, the country’s dwindling oil resources and the fragile shape of the global economy act as a reminder to the Malaysian government that it can leave nothing to chance, factors that have influenced it decision to switch its focus to high-value manufacturing and services sectors.

Economic boost

To mitigate the effects of the financial crisis, two stimulus packages worth a total of $19.6bn have been implemented in Malaysia, helping ease some of the economic challenges by driving demand for local products and domestic consumption.

Earlier this year, the Malaysian government also announced the first phase of its New Economic Model initiative that aims to promote innovation, creativity, enhanced productivity and high-value sources of growth.

These efforts are already paying off and the government is reporting some impressive results. “Malaysia has achieved 10.1% growth in GDP in the first quarter of 2010, its highest first-quarter economic performance since 2000,” says Datuk Jalilah Baba, directorgeneral of the Malaysian Investment Development Authority (MIDA).

The Central Bank of Malaysia forecasts that the country’s economy will continue to recover and says it is on track to achieve growth of 6% this year, driven by a gradual improvement in the global economy and strengthening domestic demand.

Key FDI sectors are performing well throughout the country, with Kuala Lumpur, Cyberjaya and Johor Bahru picking up the lion’s share of projects. Between January 2003 and May 2010, greenfield investment monitor fDi Markets recorded a total of 1141 investment projects coming into Malaysia from 760 companies. The leading sector was financial services, with 12% of projects, while the top business activity was accounting (29%).

During the first quarter of 2010, MIDA recorded potential investments worth more than $3.1bn, with major interest in the solar, manufacturing and engineering support, and transport sectors.

Approved investments in the manufacturing sector from January to April 2010 hit $2.2bn. “Of this total, $1bn [45%] was local investment, while foreign investment amounted to $1.2bn [55%],” says Ms Jalilah Baba.

Big business

Some big names are setting up in the country, including Saudi Arabia’s Al Rajhi Bank, and Germany’s Deutsche Post and Volkswagen. Al Rajhi Bank is the leading foreign investor in Malaysia with 24 projects to date since January 2003, according to fDi Markets. UK supermarket giant Tesco has also been busy in Malaysia and is the employer that has created the highest number of jobs, 10,050 in the country in the past seven years.

A swath of investment decisions have been made recently, with the growth potential of the country’s domestic market providing strong impetus – a positive sign it is taking big strides towards achieving its 2020 objectives. In May this year, for example, food and tobacco firm Cargill USA announced it was building a new vegetable oil refinery in Port Klang Free Zone. The $50m investment will double the company’s existing speciality-fats production and increase its overall processing capacity to 950,000 tonnes per year. The facility is expected to create 100 jobs and be operational by mid-2011.

CargoGulf, a global non-vessel common carrier operator, is also continuing its strategic expansion in south-east Asia and has opened an office in Port Klang in response to client demand for direct services in Malaysia. US medical device company Accellent is investing $90.4m in a 16,190-square-metre manufacturing plant in Penang. Phase one of the development will employ 300 workers, with an additional 1000 employees being taken on in phase two over a three-year period from 2010. STX Energy is constructing an $100m solar cell manufacturing plant in Senai High Technology Park and establishing solar farms in the park, which could potentially generate up to 100 megawatts of electricity. PayPal is planning to open a service operation centre in Kuala Lumpur by the end of the year to cater for the increasing demand for e-commerce in Asia. The centre will employ between 250 and 400 people. Russian aircraft maker Irkut plans to set up a $5bn plant in a technology park in Perak. The facility will focus on R&D, design, manufacture of components and parts, and maintenance services for the defence and aerospace industries.

Citibank has also expanded its presence in the country by opening new branches in Malacca, Taipan USJ, Cheras and Kuantan. These branches will be managed by more than 80 qualified staff and will help the company deliver new credit card and mobile products.

Malaysia achieved
10.1% growth in
GDP in the first
quarter of 2010

The third way

Malaysia is maintaining its competitiveness to attract FDI in its manufacturing and services sectors through its Third Industrial Master Plan (IMP3), which covers the period 2006 to 2020. “This has set strategies and policies, including the adoption of a more focused approach in attracting FDI,” says Ms Jalilah Baba. She adds: “Total private investments targeted in the manufacturing and services sectors under the IMP are expected to reach $300bn. The manufacturing sector is expected to achieve $129.1bn – or $8.6bn annually – and the services sector, $215.4bn, or $14.3bn annually.” New sources of growth identified in the manufacturing sector under the IMP3 include electrical and electronics, medical devices, machinery and equipment, pharma and transport equipment. The services sector is also providing substantial opportunities for investment, with IMP3 promoting sub-sectors such as integrated logistics, information and communication technologies, education and training, healthcare, and tourism and hospitality. The services industry looks set to become a major contributor to Malaysia’s economy over the next decade. “In 2008, the services sector.

In 2008, the services sector
contributed close to 54% to
[Malaysia’s] GDP and this could
be as high as 60% by 2020

contributed close to 54% to GDP and this could be as high as 60% by 2020,” says Ms Jalilah Baba. As services become more important to the economy, Malaysia’s government is taking steps to realise the sector’s potential. In 2009, it liberalised 27 services sub-sectors. “Foreigners can now hold 100% equity in services sub-sectors such as computer and related services, health and social services, tourism and transport services,” says Ms Jalilah Baba.

And the country has also made progress with its plans to turn Kuala Lumpur into an Islamic finance hub, thanks to the 2006 launch of the Malaysia International Islamic Financial Centre (MIFC). Since it was established, the MIFC has helped Malaysia carve out a niche in areas such as sukuk (Islamic bond) origination, Islamic fund and wealth management, international Islamic banking and takaful (Islamic insurance). It has also put an emphasis on professional development to ensure the availability of a strong pool of talent in this market. There are various incentives for the financial institutions involved in the MIFC, including new licences for conducting foreign currency businesses, attractive tax breaks and supportive immigration policies.

The hard work is paying off and MIFC now has a string of awards to its name. It was named Best International Islamic Finance Centre in 2008, 2009 and 2010 at the Annual London Sukuk Summit Awards of Excellence. It also won Islamic Finance Hub of the Year 2009, while Bank Negara Malaysia scooped the Best Central Bank in Promoting Islamic Finance Award at the 2009 Islamic Finance Awards.