As the first quarter of 2022 comes to an end, Malaysia is about to see the opening of its borders come April 1, as we begin transitioning into the endemic phase. With most of the standard operating procedures (SOP) greatly loosened, most businesses, except nightclubs and pubs, have resumed normal business operations. Things are looking up, as the Malaysian Investment Development Authority (MIDA) said in early March that the foreign direct investments (FDI) net inflow in 2021 was RM54.9bil, far exceeding 2020’s RM14.63bil and better than 2016’s RM47.02bil. Among the FDI, the newly approved investment capital of RM306.5bil was mainly from the electrical and electronics (E&E) industry. In January 2022, Malaysia's foreign trade volume reached RM203.05bil, a 24.8% year-on-year increase, while the trade surplus was RM18.4bil, an increase of 10.9%. These clearly showed that Malaysia's economy is on track towards recovery.
The good vibes, however, were somewhat dampened by the Russian-Ukrainian war since late February, causing turbulence to the global economy. Also, the raging Omicron variant of the Covid-19 has seen our daily positive cases lingering between 20,000 and 30,000. Besides, rumours of the general election following Barisan Nasional's landslide victory in the recent Johor state election is still looming. These uncertainties have more or less cast a shadow on our road to recovery.
I recently spoke at a webinar by the China Enterprises Chamber of Commerce about Malaysia's business environment in 2022, where I shared my insight on the potential challenges posed by an uneven economic recovery. We have often talked much about the crises and threats we face in the past two years. Now, let's look further into discovering the underlying opportunities to fully capitalise on them amid the current "dual war" situation - fighting a global health crisis and a war.
The Regional Comprehensive Economic Partnership (RCEP) came into effect in Malaysia on March 18. The Ministry of International Trade and Industry has estimated that Malaysia would be the most-benefited Asean member country from RCEP in terms of exports. Before RCEP came into effect, 64.6% of Malaysia's tariff items enjoyed zero-tariff treatment among RCEP member countries. With RCEP now, an additional 5.4% of tariff items enjoy this treatment. While RCEP's ultimate goal is for 90% tariff items to enjoy zero tariffs, RCEP will bring more space for new exports growth and easier access among Malaysian enterprises to the RCEP member countries' markets. Local manufacturers and suppliers can obtain cheap and high-quality raw materials, provide more competitive products and services, which in turn benefit related industries and consumers.
With opportunities, RCEP also comes with challenges. This is especially for the textile and timber industries, where businesses will see fierce competition from other low-cost Asean countries, such as Vietnam and Cambodia. However, the more open the market means more opportunities for the enterprises. We should not close ourselves off to avoid competition. Instead, enterprises need to ensure that their products and services meet the market requirements, and they can even create demand and be the leader in the market. After all, it has been years since the RCEP negotiation began while its content has been finalised then. Enterprises should have been prepared instead of only reacting to it.
Malaysia’s economic prospects are optimistic moving forward. Our FDI rose significantly in 2021, and the Netherlands is now the country with the largest investment in Malaysia. U.S. News & World Report ranked Malaysia as the 5th best country to invest in the world in 2021. In the 2022 Global Opportunity Index published by the Milken Institute, Malaysia is the only nation among selected Asean countries, where its Emerging Markets and Developing Economies Benchmarks (EMDE Benchmarks) were rated above the standard index for business perceptions, economic fundamentals, financial services, institutional frameworks, and international standards and policies.
The government has introduced various preferential policies and tax subsidies to encourage more FDI. These perks include enjoying between 0% and 10% tax rate for 5 to 15 years proposed in Budget 2021 for companies that relocate to Malaysia, including manufacturers of pharmaceutical products to invest in Malaysia, to establish Global Trading Centre and Principal Hub in Malaysia. Enterprises that invest in the five special economic zones can also enjoy special tax incentives and subsidies. Also, there are other investment incentives to spur economic growth, especially in the lucrative high-tech manufacturing and service industries, such as the information, technology and green industries; halal financing, products and markets; traditional medicine and healthcare, as well as shipping and logistic industry.
These incentives are also meant for local enterprises and investments. Therefore, we should seize the opportunity to make good use of these perks and various financial assistance to transform and automate. This is especially important following the worsening labour shortage and the increase of the minimum wage - which warrant a gradual shift from a labour-intensive operation. We can only improve our productivity and competitiveness by adopting automation and going electronic. For operations that must rely on a lot of manpower, companies may consider making good use of the RCEP regulations and outsourcing these requirements to other member countries with lower labour costs, so that they can focus more on developing their core technologies and services.
The 12th Malaysia Plan announced last year has mapped out Malaysia’s development direction in the next five years, as well as the key industries to focus on, following analysis of the international development trends and Malaysia's situations. The key industries are the high value-added, diversified and comprehensive manufacturing industries; high-growth service industries, including halal food, creativity and tourism; and smart agriculture industries. Enterprises should digest the content of the 12th Malaysia Plan carefully, and strive to keep pace with the development trend so that they will have more advantages when applying for various preferential policies and assistance packages while staying in line with international development.
Innovation is important in keeping us relevant nowadays. We saw how some companies came up with innovative business methods to encourage sales when our movements were restricted during the pandemic earlier on. We also saw how the online platform became a big part of our life in ensuring smooth business operations, continuous learning and constant communication, reflecting in the brisk sales of the relevant enabling devices and products. With a unique vision and courage to try out new things back then, these businesses have successfully turned the threat into opportunities. Scientist Albert Einstein once said, "the formulation of a problem is often more essential than its solution." By identifying new problems, one avoids being trapped in old ones and be able to see things from a new perspective, hence formulating new possibilities to stay ahead. So, let’s work hard towards recovery and bid goodbye to the pandemic that has been upending lives for over two years.
- this article is published on The Star "Insights" on 28th March 2022
Koong Lin Loong
• Managing Partner, Reanda LLKG International
• Treasurer General cum Chairman of SMEs Committee, The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM)