Malaysia: Truly Asia's Best Business Destination

Perspective

A dynamic business environment supported by liberal, pro-business government policies, numerous incentives, a highly educated and multilingual workforce, world-class infrastructure and a high quality of life at par with many developed countries have enabled Malaysia to emerge as the best business destination in Asia, believes Jatswan S Sidhu

Malaysia’s transformation from an agrarian-based economy into a highly diversified one is the developing world’s remarkable success story. This marked transformation, which began in the early 1980s, was the contribution of the country’s third Prime Minister, Mahathir Mohamed, who weaned the country’s economy away from dependency on export of primary commodities – mainly tin and rubber – and steered it to emerge as a trading nation. In fact, Malaysia is one of the most trade-dependent countries in the world, with trade reaching 200 percent of its GDP. It also currently ranks fifth out of the 189 economies in terms of ease of trading across borders.

Malaysia is uniquely situated in the middle of Southeast Asia and major sea lanes connecting the East and West, thus providing the country with a clear advantage in terms of international trade. In addition, the country also provides a dynamic business environment which is supported by government policies that are liberal and pro-business and come with various incentives. The country also has a highly educated and multilingual workforce, developed infrastructure and a high quality of life, at par with many developed countries.

Promoting an Open Trade and Investment Regime

Malaysia not only offers a stable political climate, but also pro-business, highly consistent government policies. In fact, prior to independence in 1957, British colonial authorities in Malaysia practiced an open-door policy for trade and industry. Since independence, the Malaysian government has undertaken further initiatives to ensure an open trade and investment regime. As early as the 1960s, the Malaysian government embarked on a drive to encourage industrialisation through import substitution. In the early 1980s, further initiatives were undertaken to consolidate conditions for enhancing export-oriented industrialisation by encouraging the inflow of FDI, where 100 percent ownership was allowed for foreign firms exporting 80 percent or more of their output. At the same time, the government also undertook efforts to increase the role of the private sector with privatisation and restructuring of state-owned enterprises.

In 1986, the Promotion of Investment Act was promulgated which provided more generous incentives to private investors. In addition to these legal mechanisms, there is also the 1969 Ministerial Functions Act that confers relevant ministries with broad discretionary powers to approve specific investment projects where investors can negotiate favourable terms with the ministry or any other regulatory body in-charge of the project.

Vision 2020: Building a Developed Nation

The late 1980s saw increased efforts aimed significantly at reducing tariffs and the removal of quantitative import restrictions. Further, in the 1990s, the Malaysian government introduced a policy blueprint – Vision 2020 – aimed at transforming the country into a developed nation by 2020, based on tenets of an open trade and investment regime. Current government initiatives are mainly driven by the New Economic Model (NEM) – introduced in 2010 – which aims to transform the country’s economy into one that generates high income and quality growth. In line with this, the Economic Transformation Programme (ETP) was launched in the same year, and is aimed at propelling Malaysia towards the status of a developed nation as set in its Vision 2020 blueprint. There is also the Government Transformation Programme (GTP) aimed at identifying and evaluating bureaucratic impediments to doing business and undertaking administrative reforms, which is spearheaded by the PEMUDAH – a special task force comprised of 23 top-level public and private sector representatives.

World Class Infrastructure

In terms of infrastructure, Malaysia boasts of a world class system of highways, airports, rail links and seaports. The country’s entire road network covers some 144,403 km of which the expressway network comprises 27 expressways at a total length of 1,821 km. In fact, Malaysia’s expressway network is considered the best in the region and fifth best in the world. The main expressway that links Thailand in the north and Singapore in the south alone covers some 800 km. In addition, there is also a rail network linking Thailand and Singapore, which runs for around 1,849 km. The seven major international seaports cater to the country’s vast proportion of seaborne trade. Port Klang and Port of Tanjung Pelepas are considered among Asia’s top 10 best seaports as well as top 10 best container terminal operators. In addition, there are six major international airports in Malaysia, with the Kuala Lumpur International Airport (KLIA) being the largest. The KLIA has the capacity to handle 40 million passengers and 1.2 million tonnes of cargo annually, and is considered the ninth busiest airport in the world in terms of passenger traffic and the 19th busiest in terms of cargo traffic.

Industrial Estates and Zones

To encourage and facilitate the growth of industrialisation, the government has created more than 500 industrial estates or parks and 14 free industrial zones (FIZs) equipped with necessary infrastructure. To support export-oriented industries, the FIZs function as export processing zones and are allowed duty free imports of all components necessary in the manufacturing process. Besides that, companies are also allowed to establish Licensed Manufacturing Warehouses (LMWs) in areas where FIZs are not available and are accorded the same facilities like the FIZs. In addition, there are a number of specialised parks, catering to specific industries in niche areas such as the Technology Park Malaysia located in Kuala Lumpur and Kulim High-Tech Park, a self-contained township, situated in the northern part of the country. Spread over an area of some 1,450 hectares, it is the country’s first fully-integrated technology park that is equipped with world class infrastructure for high technology manufacturing and R&D.

A Slew of Incentives

It is faster and far cheaper to start a business in the country when compared with other Asian countries. According to Doing Business 2014, it only requires three procedures, a mere six days and costs 7.6 percent of income per capita to start a business in Malaysia.

Whilst the rate of corporate tax is 25 percent, Malaysia also provides a host of other incentives such as pioneer status, investment tax allowance, reinvestment allowance, incentives for high technology industries, and establishment of international/regional service-based operations. The country also practices a single-tier company income tax system where only the company’s profits are taxed, and dividends for shareholders are exempt.

These liberal policies and incentives implemented by the Malaysian government over decades have created a highly conducive environment for business enabling the country to emerge amongst the top destinations for offshore manufacturing operations. As a result, it has managed to attract more than 5,000 companies from over 40 countries that have established their operations in Malaysia. Malaysia currently ranks 16 out of 189 countries around the world in terms of ease of starting a business, ranks first in terms of ease of getting credit and fourth for investor protection. The Malaysian government has never wavered from its long-standing commitment to maintain an open trade and investment policy regime that has been undertaken in a unilateral and voluntary manner, and not as a result of external pressure. Malaysia is indeed the best destination for business in Asia.



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Author

Jatswan S Sidhu
Jatswan S Sidhu (PhD) is Associate Professor at the Department of International and Strategic Studies, University of Malaya in Kuala Lumpur.

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