The past two months saw Malaysia taking the world by storm as it signs new bilateral trade agreements with strategic countries following the withdrawal of US from the Trans-Pacific Partnership Agreement (TPP).
There seems to be no signs of slowing down as analysts anticipate Malaysia to continue being involved in more engagements and discussions with other trading partners towards greater trade integration.
This is no surprise as the country, being an open economy with a relatively small domestic market, depents heavily on local businesses to go beyond borders and expand markets.
According to Moody’s Investors Service (Moody’s), the longer-term outlook for Malaysia’s growth was clouded by the decision of the US to withdraw from the TPP.
“Specifically, the boost to competitiveness from reform and improved market access to the US would have been an important part of attracting higher value-added investments that would have helped Malaysia escape the ‘middle income trap’.
“The government’s goal of Malaysia achieving ‘high income’ status as per the World Bank’s gross national income (GNI) per capita threshold of US$12,475 by 2020 has become more challenging,” the firm said in an annual credit analysis.
Moody’s added that Malaysia’s GNI per capita measured US$9,096 in 2016.
In an earlier report, it also stressed that Malaysia stood to gain from the opening up of trade with the US, and relatively large foreign direct investment (FDI) inflows in the longer term.
“In particular, TPP ratification in Malaysia would have necessitated reforms to state-owned enterprises (SOEs) and government procurement,” it said.
Nevertheless, Moody’s highlighted that Malaysia continues to engage other trading partners towards even greater trade integration, with active discussions on a so-called “TPP minus one,” as well as the Regional Comprehensive Economic Partnership (RCEP) with the other members of Asean and the grouping’s six largest existing FTA partners – Australia, China, India, Japan, Korea, and New Zealand.
“The Ministry of International Trade and Industry (MITI) also expects that an FTA between Asean and Hong Kong will be concluded later in 2017.
“It also intends to restart negotiations on a bilateral agreement with the European Union that had been put on hold at Malaysia’s request in 2012,” the firm said.
Building bridges
The latest statistics from MITI revealed that Malaysia’s total trade for the first two months of 2017 surged by 20.6 per cent to RM270.63 billion compared with RM224.4 billion in the corresponding period of 2016.
The ministry noted that exports were higher by 19.8 per cent to RM142.04 billion while imports increased by 21.5 per cent to RM128.59 billion, resulting in trade surplus of RM13.45 billion.
MITI went on to note that for the period of January to February 2017, trade with Asean expanded by 23.5 per cent to RM76 billion while exports rose by 23.2 per cent to RM42.47 billion.
Malaysia’s trade with China for the first two months of 2017 also expanded by 28.6 per cent to RM43.14 billion while trade with Japan over the same period was valued at RM23.23 billion, an increase of 17.6 per cent.
Meanwhile, trade with the US rose by 12 per cent to RM24.02 billion over the first two months of the year.
In its economic update on Malaysia’s trade, Affin Hwang Investment Bank Bhd (AffinHwang Capital) projected that global economy will continue to improve, as the global manufacturing purchasing manager’s index (PMI) of 53 in March was already at a 69-month high.
“Global electronic demand (semiconductors) is also expected to remain strong, with demand from the US market showing strong growth, a key product segment benefiting Malaysia’s exports of manufactured goods.
“Similarly, Malaysia’s exports of commodity products, especially palm oil and liquefied natural gas (LNG), should also benefit from demand from China and Japan in the months ahead,” AffinHwang Capital said.
As a result, based on gross domestic product (GDP) by expenditure components, the research firm expected exports of goods and services to improve and expand by two per cent in 2017 (0.1 per cent in 2016), and imports of goods and services to expand by 1.9 per cent in 2017 (0.4 per cent in 2017).
Recap of Malaysia’s global MoUs in 2017
Saudi Arabia
Saudi Arabia’s King Salman visit to Malaysia at end-February proved fruitful as it resulted in a total of seven memorandum of understandings (MoUs), with an estimated value of RM9.74 billion.
These were signed between Malaysian and Saudi companies, covering areas such as construction, halal cooperation, aerospace and haj services.
According to Bernama, Minister of International Trade and Industry, Datuk Seri Mustapa Mohamed said the signing of the MoUs signalled growing interests from both countries to leverage on mutual strengths in achieving business goals.
“As Saudi Arabia is moving away from its reliance on oil revenue, we would like to encourage Saudi investors to explore the business potentials in new growth areas particularly advanced technology products,” he said.
The visit also saw Saudi Arabia’s Aramco taking up a 50 per cent stake in the refinery and cracker assets at the Refinery and Petrochemical Integrated Development (Rapid) project in Pengerang, Johor, in a multi-billion dollar deal with Petronas.
“PIC (Petronas Pengerang Integrated Complex) is very important for us, and that US$7 billion (investment) shows you the confidence Saudi Arabia s state-owned oil company has in Malaysia.
“It will be a huge engine of growth in one of the world s busiest shipping lanes, and at the gateway into the Asia-Pacific, the most thriving region on the planet with over 60 per cent of the world s population,” Prime Minister Datuk Seri Najib Tun Razak said in his keynote address at the 2017 Global Transformation Forum .
According to MITI, Malaysia and Saudi Arabia continue to enjoy strong bilateral relations, noting that in 2016, total trade between the two countries amounted to RM14 billion, an increase of 27.8 per cent from the year before.
Malaysia’s exports to Saudi Arabia amounted to RM3.4 billion while imports stood at RM10.6 billion.
“Within the Gulf Cooperation Council (GCC), Saudi Arabia was Malaysia’s second largest trading partner, second largest export destination and the number one largest source of imports, indicating the importance of Saudi Arabia to Malaysia,” the ministry said.
In an exclusive email interview, Malaysia External Trade Development Corporation (Matrade) stressed that Saudi Arabia has been, and will always be Malaysia’s important trading partner in West Asia.
According to Matrade, Malaysia has enjoyed warm and excellent bilateral relationship with Saudi Arabia and is regarded as a modern Islamic country, which can be emulated.
“Having an excellent country brand’s reputation and highly regarded as provider of quality products and services, Malaysians and Malaysian companies are normally being highly sought after by their Saudis counterparts for doing business.
“Like many other countries, success would take a good understanding of the business culture and the way of doing business in this brotherly Muslim, an emerging flourishing market,” the corporation said in reponse to BizHive Weekly.
France
Meanwhile, President Francois Hollande’s state visit to Malaysia at the end of March resulted in the signing of six MoUs, covering the energy, solar power generation and gas sectors, between the two governments here.
One of the MoUs signed by the Malaysian and French governments involved enhancing the small and medium enterprises and innovative start-ups. It was signed between Bpifrance and PlaTCOM Ventures.
According to Bernama, “Hollande said he hoped that both nations could further consolidate their trade, defence cooperation, joint training and research programmes and cultural relations.”
“He drove home the point that both nations have created exemplary defence cooperation, based on strong mutual trust and a will to create genuine partnerships between manufacturers, which are of benefit to both parties.
“As for trade partnerships, Hollande pointed out that the volume of their bilateral trade had doubled since 2010, and that thus far French companies had set up 28 subsidiaries in Malaysia, creating 26,000 direct jobs.
“He added that there had been a significant increase in their investments and there was still plenty of room for progress on both sides.”
At a joint press conference with Hollande, Najib unveiled that trade is very much in favour of France because of the large amount of capital equipment that Malaysia purchases yearly like aeroplanes, ships and defence- and security-related equipment.
According to MITI, in 2016, France was Malaysia’s 18th largest global trading partner, 20th largest exports destination and 16th largest source of imports. MITI noted that within the EU, France was Malaysia’s fourth largest trading partner, fourth largest exports destination and second largest source of imports.
“Total trade between Malaysia and France in 2016 increased by 6.3 per cent in ringgit terms to RM15.23 billion,” the ministry said.
“Malaysia’s exports to France amounted to RM5.75 billion, while imports stood at RM9.49 billion compared with 2015.”
China
The following month saw another momentous occasion occur during the Global Transformation Forum 2017, with Najib, together with Alibaba Group founder and executive chairman Jack Ma, launching the Digital Free Trade Zone (DFTZ) in Malaysia, the first e-hub under the Electronic World Trade Platform (eWTP) outside of China.
Malaysia Digital Economy Corporation (MDEC) and China’s Alibaba Group, signed four memorandum of understandings (MoUs) to establish the DFTZ under the eWTP. The MoUs included the establishment of an e-fulfillment hub near KLIA, a one-stop online cross-border trading services platform, cooperation in e-payment and financing, as well as, development of e-talent training that will fit into Malaysia’s transportation roadmap to a digital economy.
According to MDEC, DFTZ will provide physical and virtual zones to facilitate SMEs to capitalise on the convergence of exponential growth of the internet economy and cross-border eCommerce activities.
“It will act as a microcosm to support internet companies to trade goods, provide services, innovate and co-create solutions,” the corporation said.
MDEC also noted that DFTZ will be a boost to Malaysia’s e-commerce roadmap that was introduced in 2016, which aims to double the nation’s e-commerce growth and increase the gross domestic product (GDP) contribution to RM211 billion (approximately US$47.68 billion) by year 2020.
Second International Trade and Industry Minister, Datuk Seri Ong Ka Chuan said that small and medium enterprises (SMEs) should use the e-commerce platform via the Digital Free-Trade Zone (DFTZ) to tap the vast Chinese market.
“To-date, they buy a lot of electronic components from us. There are lots of potentials for the export of white coffee and halal products,” he told reporters recently after meeting Shaanxi province’s Governor, Hu Heping.
According ot Bernama, Ong said stronger Malaysia-Shaanxi trade ties would help strengthen overall trade ties the country had with China.
“In order to do that, we have to open up new area for trade. With the DFTZ and with Alibaba Group coming in, a lot of our SMEs can go to China through Alibaba platform,” he said.
India
Another six MoUs and an agreement were signed in April between Malaysia and India, thus paving the way for further economic growth and development between the two countries.
Held in conjunction with his official visit to India, Najib had with his host and counterpart Narendra Modi, witnessed the signing ceremony at Hyderabad House in the capital.
According to Bernama, among the prominent MoUs is the proposed development of a urea and ammonia manufacturing plant in Malaysia and an Offtake of Existing Surplus Urea from Malaysia to India.
The project is expected to cost US$2 billion, with a capacity to produce 2.5 million tonnes per annum, and dedicated to supplying the Indian market.
Both countries had also signed a bilateral air services agreement which would enhance air connectivity.
“In a joint statement issued after the bilateral meeting between Najib and Modi, both sides also agreed to explore the possibility of enhancing cooperation in the financial sector.
“It includes participation in each other’s capital market, as well the grant of commercial banking licences,” Bernama reported.
MITI stated that in 2010, Malaysia and India had set a trade target of US$15 billion by 2015 but that this was not met due to the global economic slowdown and the decline in commodity prices.
“However, both countries are confident this US$ 15 billion target could be achieved in the next two to three years,” the ministry said.
MITI highlighted that trade with India accounted for 3.3 per cent of Malaysia’s total global trade in 2016, amounting to US$10.77 billion (RM44.5 billion).
“In 2016, India was Malaysia’s seventh largest trading partner and seventh largest export destination globally.
“Malaysia was India’s 11th largest trading partner globally,” it added.
Trade ties: What’s ahead?
As Malaysia moves to expand the country’s penetration into larger markets via international trade and investment, we take a look at what we stand to gain from the UK and other European counterparts.
Analysts believe Brexit would have long-run positive impacts on Malaysia especially by having bilateral free trade agreement between the two economies to enhance more trade, investment and knowledge transfer.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), the proposed EU-Malaysia free trade agreement (FTA) is still ongoing process but yet surrounded with pessimistic hope as geopolitical risks in the European region remains a dragging factor.
“In fact, uncertainties in the region is looming as several crucial EU elections are taking place this year and the results would have significant impact on the direction of EU in the future.
“On a flip coin, having a direct free trade deal with UK is beneficial for both UK and Malaysia,” MIDF Research said.
In 2016, 10.2 per cent of Malaysia’s total exports were exported to EU while only 1.1 per cent to UK, while for imports, 9.9 per cent were from EU and 0.9 per cent from UK.
Recently, EU Ambassador and Head of Delegation to Malaysia Maria Castillo Fernandez told the media that the proposed Malaysia-EU FTA is expected to boost total trade by 20 to 30 per cent from the current 10 per cent.
On when when the FTA can be concluded, Bernama reported Castillo as saying that it would be before year-end, based on a constructive meeting between European Trade Commissioner Cecilia Malmström and International Trade and Industry Minister Datuk Seri Mustapa Mohamed in Manila on March 10.
Meanwhile, MIDF Research observed that both Malaysia and UK are searching for larger market for trading of goods and services.
“Despite of populism sentiment, international trade remains important for Malaysia as well as UK to explore further,” the research arm said.
Additionally, MIDF Research pointed out that foreign direct investment (FDI) flows between Malaysia and UK have been in upward trend.
“In 2016, FDI from UK to Malaysia recorded at RM5.2 billion while FDI from Malaysia to UK registered at RM3.3 billion,” it said.
“High value added, technological oriented and services sectors are some of the potential sectors of which can attract FDI from UK.”
Overall, MIDF Research noted that Brexit can be looked as a way of liberalising the UK economy.
The research arm further noted that it is not that the UK rejects the idea of free trade; it is more about changing and searching for a new trading game with better deals and larger market penetration.
“Malaysia as an open economy should take the advantage by connecting and have closer relationship with UK and as well as EU.
“The major idea is to expand Malaysia’s penetration into larger markets via international trade and investment,” it said.
MIDF Research believed Brexit would have long-run positive impacts on Malaysia especially by having bilateral free trade agreement between the two economies to enhance more trade, investment and knowledge transfer.