Malaysia Economic Initiatives: Market Outlook
Malaysia is the fourth largest Southeast Asian economy and the 38th largest in the world with a current estimated nominal GDP of $364 billion and an impressive 7.2% GDP growth[1] rate in 2017 (for comparison China grew by 6.7% in the same year). Malaysia’s economy has continued to perform strongly and recovered very quickly after the 2008 recession. In the words of the IMF: “the country is well on its way to achieving high-income status” and it shows no sign of slowing down.
Geographically located along the shipping lanes of the East and West, Malaysia is an economy that has been largely dependent on raw materials and agriculture into an export-driven and competitive economy spurred by high – technology and capital-intensive industries. The country strongly acknowledges the significance of international trade and relations to country’s growth and development. In fact, in 2017, 73% of the country’s GDP consist of the gross exports of goods and services. Fifty-one percent of which was in services and twenty-two percent in manufacturing.
Consequently, Malaysia has adopted a liberal trade policy which placed a strong emphasis on regional and bilateral trade agreements. Hence, the country has been a member of various trade agreements including the World Trade Organization (WTO), where it is a founding member, Free Trade Agreements (FTAs), and Association of Southeast Asian Nations (ASEAN).
In addition, the Government has currently put in place a nation-wide productivity agenda to drastically increase the output of Malaysia via the implementation of regulatory reforms and the encouragement of re-skilling. With its strong industrial sector already attracting foreign investors, a stimulus will no doubt increase aggregate demand and encourage further economic growth.
Another important initiative the encouragement of e-commerce. Various resources have been pledged to fast track its development. This was evident as we saw the government’s partnership with Jack Ma and Alibaba to set up a Digital Free Trade Zone (DFTZ), the first of its kind outside of China. This is massive for SMEs and 1,900 export-ready SMEs will be flagged to begin their export journey. The budget allocation will see the initiation of physical and virtual zones aided with online and digital services to facilitate cross border e-commerce and invigorate internet based-innovation. This initiative is expected to generate 60, 000 new jobs in Malaysia by 2025.
Moreover, in 2018 the Malaysian government announced an all-encompassing incentive for businesses that will include the following: capital allowance for ICT equipment and software, GST relief on services provided by the local authorities, and extended application period for principal hub tax incentives, etc. Specifically, the principal hub tax incentive intends to increase the country’s global competitiveness as a hub for multinational companies by offering tax exemptions.
Personal income tax cuts and cash handouts were also announced in its 2018 budget that aims to help its consumers and the country to become a high-income economy. Lastly, it has its Transformasi Nasional 2050 (National Transformation 2050) vision that aims to improve its labor force for future challenges.
References
Asian Briefing. (2018, January 12). Malaysia’s Investment Outlook for 2018 – ASEAN Business News. Retrieved from Asian Briefing: https://www.aseanbriefing.com/news/2018/01/12/malaysias-investment-outlook-2018.html
Malaysia Country Commercial Guide. (2018, July 19). Malaysia – Trade Agreements | export.gov. Retrieved from Export.gov: https://www.export.gov/article?id=Malaysia-Trade-Agreements
Ministry of International Trade and Industry. (n.d.). Ministry of International Trade and Industry: Ministry of International Trade and Industry. Retrieved from Ministry of International Trade and Industry: http://www.miti.gov.my/index.php/pages/view/2460?mid=118
[1] Real GDP growth rate.
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