KUCHING: MIDF Amanah Investment Bank Bhd (MIDF Research) reaffirmed its opinion that Brexit has minimum impact on Malaysia’s economics fundamental in the near term, having only minimum direct impacts on the domestic economy in general due to several factors.
These factors can be seen from the relationship perspective between Malaysia and UK particularly in relation to trade and foreign direct investments, it said.
“In regards to trade, Malaysia’s exposure to the UNited Kingdom as a trade partner is relatively small,” it explained in a note. “Malaysia total trade with UK constitutes only about 1.2 per cent of Malaysia total trade – or RM2.78 billion – in the first four months of 2016.
“As for FDI, the percentage contribution from UK is significant at 9.3 per cent of total FDI during the first quarter of 2016. The mid to long term nature of FDI itself present less downward risk to Malaysia,” it opined, adding that direct trade impact to Malaysia should be minimal.
“The UK was once our fourth biggest trading partner behind Singapore, US, and Korea in 1990. Over time the bilateral trade significance had declined.
“Year-to-date, UK has only contributed 1.1 per cent to the total trade and ranked 17th out of 240 trading partners,” it stated.
“This should not be a surprise since the value of the trade itself is declining over time. In 2015, exports to the UK were 19.4 per cent less than the exports value recorded in 2000.
“We note that most of the time, we have had trade surplus with the region except year 2012 and 2013 when our exports growth decelerated following the Euro debt crisis.”
MIDF Research went on to outline that indirect trade impact could be more prevalent – potentially posing a posed threat to the export sector as whole.
“For instance, our main export to UK namely from the electrical and electronics (E&E) sector are known to be fragmented in nature.
“This is reflected in the global value chain of E&E which each stage of production located in different countries depending on their competitive advantage.
“Therefore, a sizeable contraction in demand for E&E from UK due to uncertainties post Brexit will have indirect impact for all the countries in the value chain, including Malaysia.”
Notably, Malaysia will have less reliance on UK and EU as exports destinations as the research firm believed a decline in the trade significance is not unique to UK but to the EU bloc as a whole.
“In 2000, our exports to the EU bloc stood at 14 per cent of total exports value. In 2015, the contribution has dropped by 3.9 per cent to 10.1 per cent of total exports value.
This is largely due to the slow trade growth to the region which had only expanded by 2.8 per cent per annum.
“Similar to trade, we see FDIs from UK and EU in the near-term to remain intact as it weighs more on medium to long-term factors.
“There is a valid concern with regard to FDI especially when the region is contributing significantly to our country.”
As at 1Q16, the UK contributed RM1.9 billion of FDI or 9.3 per cent of Malaysia’s total FDI. This was an increase of 54.1 per cent compared to the same period in last year.
“In the same quarter, EU was largest contributor to Malaysia at RM6.5 billion or 39 per cent of total FDI – an increase of 21.8 per cent from 2015’s figure.
“However, we opine that FDI from this region to remain unaffected in the short term due to the fact that it involves more of medium-long factors.”