Malaysia is currently experiencing moderate economic growth due to a drop in oil and commodity prices, and declining exports due to soft global demand. The authorities have long recognized the need to reduce Malaysia’s dependence on commodities as the main source of national revenue and have put in place two strategies to diversify its economy:
- Identification of focused growth sectors
- Exploring growth in less developed areas
The government aims to increase investment, create more jobs, and shift the country into high-income classification by 2020 and therefore, as part of the first strategy, the Economic Transformation Programme (ETP) was introduced in 2010. As a result, 12 National Key Economic Areas (NKEAs) were identified based on Malaysia’s competitive advantages. Each of the NKEA will receive prioritized investment and government support, thereby creating a conducive investment environment for multinationals.
A clear example of the state’s commitment to the ETP is the Greater Kuala Lumpur/Klang Valley (GKL/KV) area. The government has invested approximately US$8 billion to develop the Mass Rapid Transit (MRT) line and improve connectivity in the GKL/KV area. The recent signing of a memorandum of understanding between Singapore and Malaysia for a high-speed rail project will also seek to shorten travel time between Singapore and Kuala Lumpur, and accelerate economic activities in the Kuala Lumpur area. The other NKEAs will focus in varying sectors including commodities, financial services, tourism, electronics, business services, retail, education, healthcare, communications and agriculture.
Progress on the ETP has been largely impressive. In a scorecard released by the government agency in charge of the ETP, all 12 NKEAs attained at least 70% of their key performance indicators by the end of 2015. As 2020 approaches, support will likely increase in sectors such as healthcare, business services, and the commodity sectors.
As part of the second strategy, the government has identified five regional economic corridors to bridge development gaps throughout Malaysia, as shown in the map below. Tax incentives are being offered in each economic corridor to attract investment and promote economic growth. For example, by the end of 2015, the East Coast Economic Region (ECER) has successfully created 133,000 jobs and attracted approximately US$20.8 billion in private investment, achieving 76% of its investment target. Various sector-specific incentives in manufacturing, food processing, electronics, healthcare and the creative industries will give rise to opportunities in consumer goods, pharmaceutical, industrials and technology companies along the regional economic corridors.
Overall, the economy is still growing at a respectable 4% and companies should remain positive about doing business in Malaysia, despite recent domestic political challenges and a sluggish global economy. The pro-investment policies put in place by the Malaysian government will appeal to multinationals that are looking for market expansion opportunities in Southeast Asia as well as domestic investment in Malaysia.
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