Malaysia is a founding member of the Association of Southeast Asian Nations
Malaysia wants to be a high-income country by 2020. It has embarked upon an ambitious programme to transform its economy. But there is much to do if it is to meet this target.
Being CEO in Malaysia is one of the most rewarding roles I have had in a 30-year career at HSBC. The country is extraordinarily hospitable and beautiful. It also has significant long-term growth potential. With the working-age population set to grow significantly between now and 2050, its relative importance to the world economy is set to increase.
But Malaysia will only achieve its potential with appropriate reforms and investment. The government expects GDP expansion to slow in 2016. HSBC Global Research thinks it may fall below 4 per cent. This underlines the importance of continued progress with the country’s Economic Transformation Programme. These reforms, which began in 2010, set a target of a per capita income of USD15,000 by 2020.
Malaysia is a major commodities producer. Exports of tin, rubber and, more recently, palm oil have made a significant contribution to the country’s growth for many decades. Commodities are likely to remain an important part of the economy, with demand from fast-growing Asian countries supplementing that from the US and Europe.
The programme also aims to encourage the growth of new and advanced industries. New industries such as tourism are developing fast. The national tourism agency said Malaysia had 27 million visitors in 2014. Electronics and pharmaceutical firms have established clusters, exporting successfully around the world.
Malaysia is increasingly recognised as Asia’s centre of expertise in Islamic finance
Following the Asian financial crisis of 1997-98, regulators have worked hard to establish a framework that allows for a strong and stable financial sector, capable of sustaining the growth of the rest of the economy. Malaysia is increasingly recognised as Asia’s centre of expertise in Islamic finance. The country is the world’s largest and most liquid market for sukuk, a form of financing that is consistent with Shariah principles, according to Moody’s Investor Service.
As new industries grow, openness to trade will remain key to Malaysia’s economic success. As a founding member of the Association of Southeast Asian Nations (ASEAN) and its chair for 2015, Malaysia is playing a key role in the formal implementation of the ASEAN Economic Community (AEC) at the end of this year.
Through the AEC, much of Southeast Asia will undergo far-reaching economic integration, which will free up the flow of goods, services, investment, skilled labour and capital across the region. The economies of scale made possible by the AEC, and the region’s large and increasingly affluent consumer base, have the potential to turn Southeast Asia into a global economic force.
Chairmanship of ASEAN has been an opportunity for Malaysia to position itself as the gateway to the region. Another priority has been to become a key business hub and further increase ASEAN's contribution to global economic growth. The ASEAN countries have experienced strong growth on average over the past 20 years. While growth rates are likely to moderate, they are expected to outstrip the global average over the long term.
China will also play an increasingly important part in Malaysia’s economic future and will become Malaysia’s single most important trading partner by 2030, according to the latest HSBC Global Connections report. Chinese inward investment is expected to help build new infrastructure, such as road and rail links. We believe that the Chinese currency, the renminbi (RMB), will play a more prominent role in the Malaysian economy as time goes by, with inward investment and payment for commodities increasingly likely to be denominated in RMB.
The recent signing of the Trans-Pacific Partnership is also promising for Malaysia. The details of the trade deal are confidential but it is likely to give firms easier access to new markets in other signatory countries around the Pacific Rim. It will also probably mean new competition for Malaysian firms in some domestic markets, but on balance, the benefits are likely to outweigh the disadvantages. Crucially, the Trans-Pacific Partnership includes the US. Easier access to US markets will complement Malaysia’s growing links with China, helping Malaysia balance its relationship with the world’s two largest economies.
But Malaysia needs to confront a number of challenges if it is to achieve its long-term potential. Improving physical infrastructure will connect Malaysian companies to new opportunities. This is an area where work is underway, including extensions to the commuter rail network in Kuala Lumpur. A high-speed rail link to Singapore is also envisaged in the longer term.
Further developing economic institutions – such as stock and bond markets, well-understood regulatory frameworks and a confident and competitive private sector – will support Malaysia’s ambitions. It would also help Malaysia to retain local talent. Many Malaysians who have emigrated have been successful in a wide range of fields around the world: attracting them back could consolidate the country’s economic progress.
Malaysia is a country with significant potential and a vision for its economic future. HSBC is committed to connecting Malaysia to the world and the world to Malaysia, helping our clients – and the country – achieve their ambitions.