Vertical Limit Consulting - ADB: Malaysia's GDP to grow 5.8%

Business Opportunities in Malaysia

October 14, 2005 - This is a summary of a seminar and road show carried out by the Malaysian International Trade Ministry in the United States (U.S.). It is the aim of this seminar to:

.	reiterate that Malaysia is a profitable location for doing business and investing; and

.	provide an update on economic developments and business opportunities in Malaysia and the region.

Performance of the Malaysian Economy

The continued growth and strength of the Malaysian economy provides a conducive environment in which foreign companies can operate. The Malaysian economy registered a GDP growth rate of 7.1 per cent in 2004. In the first half of 2005, the Malaysian economy grew by 4.9 per cent.The growth was broad-based, with most of the sectors registering positive growth rates. The services and manufacturing sectors were the main contributors to the growth. In the second quarter of this year, the services sector grew by 5.4 per cent, while the manufacturing sector expanded by 3.2 per cent. The near term outlook for the second half of 2005 remains optimistic, with global demand expected to be sustained. The Malaysian economy is forecast to grow between 5 - 6 per cent in 2005. The inherent strength of the Malaysian economy is reflected in Malaysia's economic fundamentals, which remain strong:

.	Gross national savings (as percentage of GNP) - 37.1 per cent


.	Unemployment rate - 3.5 per cent


.	Inflation rate - 3.0 per cent


.	International reserves (as at 15 August 2005 ) - US$80.4 billion


.	Total exports in 2004 - US$126.3 billion


.	Manufactured exports in 2004 - US$99.2 billion


.	Trade surplus of US$1.6 billion in July 2005 - the surplus being for 93rd consecutive month, beginning from November 1997.

Recently, the Malaysian ringgit's peg against the US dollar was removed and replaced with a managed float. This will allow the value of the currency to reflect its fundamentals and enable the Malaysian economy to grow and expand, thus continue to provide the predictability and stability to the Malaysian currency. Floating the ringgit against a basket of currencies will allow Malaysia to minimise any risks associated with potentially wide adjustments of currency, such as the US dollar.

Why Malaysia

According to the American Malaysian Chamber of Commerce (AMCHAM), US companies operating in Malaysia are optimistic about doing business and maintaining good profitability in Malaysia. The organisation has cited Malaysia's economic policies as being very conducive in providing a good business environment. This finding is not surprising, considering that the Malaysian government is committed to ensuring that Malaysia remains a cost-competitive and business-friendly location, through liberal equity and expatriate employment policies and the provision of attractive tax incentives. Moreover, policies are fine-tuned to address the needs of businessmen. Malaysia's competitiveness is confirmed by the 2005 World Competitiveness Report published by the International Institute for Management Development based in Switzerland :

.	For countries with a population of more than 20 million, Malaysia's competitiveness ranking was at 10th position among 30 countries;


.	On international trade, Malaysia improved to 6th position from 9th last year; and


.	In terms of economic performance, Malaysia improved to 8th position from 16th position in 2004.

Malaysia offers investors a young, educated and productive workforce at competitive costs. The multi-ethnic, multi-lingual and multi-religious character of Malaysia's workforce, is certainly a strength for foreign companies establishing a base in Malaysia, to penetrate markets in the Middle East, China and India.

Malaysia has a strong intellectual property protection regime. Malaysia's intellectual property protection laws are in conformance with international standards as Malaysia is:

.	a signatory to the Agreement on Trade Related Aspects of Intellectual Property Rights signed under the auspices of WTO;


.	a member of the World Intellectual Property Organisation (WIPO); and


.	a signatory to the Paris and Berne Conventions governing intellectual property rights.

Other advantages offered by Malaysia are its well-developed infrastructure, the presence of a vibrant business environment and a safe and comfortable living environment.

Bilateral Relations

Bilateral trade between Malaysia and the US has increased by more than two-fold from US$18.3 billion in 1995 to US$38.9 billion in 2004. For the period January-July 2005, total trade stood at US$23.6 billion.
In 2004, exports to the US accounted for 18.8 percent of Malaysia's global exports. It has increased by 15.8 per cent to reach US$23.7 billion in 2004, compared to US$20.7 billion in 2003. Malaysia's major exports to the US in 2004 were:

.	electrical and electronic products;

.	wood products;

.	textiles and apparels;

.	optical and scientific equipment; and

.	rubber products.

Exports of these products accounted for 87.5 per cent of Malaysia's total exports to the US. For the period January-July 2005, total exports to the US stood at US$15.3 billion. In 2004, Malaysia was the:

.	6th largest exporter of machinery to the US with exports valued at US$11.42 billion or 5.7 per cent of the US's import of the product;


.	5th largest exporter of electrical machinery to the US with exports amounting to US$11.09 billion or 6 per cent of the US's import of the product; and


.	6th largest exporter of furniture to the US with exports valued at US$650 million or 1.9 per cent of the US's import of the product.

Malaysia was the 16th largest market for the US. US exports to Malaysia is larger than its exports to India and Russia combined.
Malaysia's imports from the US in 2004 increased by 18.8 per cent to US$15.2 billion from US$12.9 billion in 2003. The imports were mainly of manufactured goods which include:

.	electrical and electronic products;

.	machinery and appliances;

.	optical and scientific equipment;

.	chemicals and chemical products; and

.	transport equipment.

Imports of these products made up 86.7 per cent of total imports from the US. Imports for the first seven months of 2005 stood at US$8.3 billion.

US Investments in Malaysia

Malaysia has a wide range of competitively priced products and services to offer to the US industrial and consumer markets. The products and services from Malaysia meet internationally recognised standards as reflected by its ability to export to more than 230 countries.
In 2004, approved investments from the US in manufacturing projects totalled US$278.6 million, accounting for 8.4 per cent of total approved foreign investments. The US ranked as the third largest source of foreign investments.
US investments were mainly in:

.	petroleum products;

.	electrical and electronic products;

.	fabricated metal products;

.	transport equipment; and

.	machinery manufacturing.

For the period January-July 2005, approved investments from the US totalled US$287.4 million and exceeded the total approved foreign investments for the whole of 2004.
For the period January-July 2005, investments from the US accounted for 13.8 percent of the total approved foreign investments.
US companies based in Silicon Valley with production facilities in Malaysia include:

.	Agilent (semiconductors);

.	Altera Corporation (chip design);

.	AMD (semiconductors);

.	Flextronics (electronic manufacturing services);

.	Intel (semiconductors);

.	Komag (disk media);

.	Linear Technology (semiconductors);

.	National Semiconductor (semiconductors);

.	Seagate (data storage devices);

.	Solectron (electronic manufacturing services); and

.	Smart Modular Technologies (memory and communications products)

Malaysia and the US are continuously exploring areas to strengthen bilateral cooperation. In the area of trade and investment, they have already established the Joint Council on Trade and Investment under the Trade and Investment Framework Agreement (TIFA) signed in May last year.

Malaysia Gateway to the Asean and East Asia Region

Malaysia is currently negotiating bilateral FTAs with Japan, Pakistan, Australia and New Zealand. A joint study is being undertaken with India on the feasibility of establishing a Malaysia-India FTA. With Japan, agreement in principle has been reached to establish a free trade agreement and the text of the bilateral agreement is being finalised. The implementation of these FTAs provides greater market access for goods and services for Malaysian-based companies at preferential or zero duties.

ASEAN

The 10 member countries of ASEAN, with its population of 557 million and a combined GDP of approximately US$797 billion, is now a Free Trade Area. The original six ASEAN members are offering 98.5 per cent of their products for tariff concession, of which 98.9 per cent are at tariff rates of between 0-5 percent.
ASEAN as a region is also continuing to build linkages with other major trading nations in the world. Currently, ASEAN is in the process of moving towards the establishment of Free Trade Areas with its major trade partners including China, Japan, Korea, India, Australia and New Zealand.
The ASEAN-China FTA on goods has been completed and came into effect on 1 July this year while negotiations to conclude the services and investment agreements are ongoing. By 2010, ASEAN-China FTA will be realised, where duties will be eliminated on most products.