For centuries, Malaysia has profited from its location at a crossroads of trade betweenthe East and West, a tradition that carries into the 21st century. Geographically blessed, peninsular Malaysia stretches the length of the Strait of Malacca, one of the most economically and politically important shipping lanes in the world. Capitalizing on its location, Malaysia has been able to transform its economy from an agriculture and mining base in the early 1970s to a high-tech competitive nation, where services and manufacturing now account for 80% of GDP.
U.S.-Malaysia bilateral trade totaled U.S. $44 billion in 2005, ranking Malaysia as America’s 10th largest trade partner and its largest trade partner in SE Asia. Trade data for Jan-Nov 2006 indicates a 17.8% increase in bilateral trade, due entirely to a rise in Malaysian exports. Though the U.S. is Malaysia’s top trade partner, neighboring ASEAN nations and Japan lead as a source of Malaysia’s imports.
The National Association of Manufacturers reports that Malaysia is the 10th largest export market for U.S. manufactured goods. Additionally, Malaysia purchases more U.S. exports per capita than European powerhouses Germany and France, as well as Asian giant Japan.
The U.S. has consistently been the largest foreign investor in Malaysia, with significant presence in the oil and gas sector, manufacturing, and financial services. The cumulative value of U.S. private investment in Malaysia exceeds $30 billion according to latest Amcham estimates (see Investment Climate section below), 60% of which is in the oil and gas and petrochemical sectors with the rest in manufacturing, especially semiconductors and other electronic products.
The Malaysian economy grew 5.2% in 2005. GDP growth for 2006 is expected to be 5.8 %. The GOM plays a very active role in the development and industrialization of the Malaysian economy. This includes facilitating infrastructure projects through significant state investment, fostering a close alliance between government and the private business sector, and designing and implementing a variety of policies and programs to bolster the overall economic environment, with special attention to the economic status of the ethnic Malay and indigenous communities or bumiputra. The Government of Malaysia encourages economic development as an alternative to the militant Islam that affects Malaysia’s neighbors in the Islamic world.
Market Challenges
Duty rates in protected industries, such as automotives and motorcycles, combined with excessive excise taxes, continue to block open trade in these sectors. Government restrictions hamper foreign involvement in several areas, including government procurement contracts, financial and business services, and telecommunications. In many cases it is imperative to have a local partner in order to effectively compete in the market. There are continued concerns regarding Malaysia’s effectiveness in protecting IPR, as evidenced by the continued high rate of production and export of pirated optical disc media, counterfeiting, lack of effective patent and data protection for pharmaceutical products, and lax enforcement and prosecution. Insufficient IPR protection will impact the country’s goal of increasing foreign investment in new areas, such as the high-tech and biotech fields.
In 2006, Malaysia was at 44th place on Transparency International’s Corruption Perceptions Index, and its score was 5.0 (out of 10). The 2005 Index of Economic Freedom upgraded Malaysia to “Mostly Free,” a slight improvement from a 2004 ranking that had unfavorably high scores in government intervention in the market, and for significant barriers to capital flows and foreign investment in banking and finance.
Market Opportunities
Though Malaysia’s per capita GDP is only $5,100, its purchasing power is among the highest in Asia, as evidenced by the strong consumer market. U.S. branded products and franchises are popular, with the U.S. accounting for 70% of foreign franchises. Malaysia’s strong middle class also provides opportunities to U.S. organizations involved in the tourism and education sectors.
The U.S. and Malaysia signed a Trade and Investment Framework Agreement (TIFA) in May 2004, leading to a series of bilateral meetings to address such issues as market access, investment, intellectual property rights, and regulatory issues. The TIFA is a precursor to potential negotiations for a bilateral free trade agreement (FTA). Should the U.S. and Malaysia move forward on a FTA, U.S.
firms already active in the market will have a significant advantage over the rush of new market entries that tend to follow the signing of a trade agreement.
In July 2005, just after China revalued the yuan, Malaysia allowed the ringgit to operate in a managed float against a currency basket. The ringgit, which was previously pegged to the dollar at a rate of RM3.8 = USD1, was readjusted to a trade-weighted index of Malaysia’s major trading partners. However, the revaluation has been minor, and at the timing of this report the exchange rate is RM3.5 to the US dollar. It is not predicted that the ringgit will appreciate vs. the dollar enough to have a significant positive impact on U.S. exports.
