Malaysia country brief

Introduction

Geography

Located just north of the equator, Malaysia borders Thailand, Indonesian Kalimantan and Brunei, and has sea boundaries with Indonesian Sumatra (Strait of Malacca), Singapore (Strait of Johor) and, in the South China Sea, the Philippines and the disputed Spratly Islands.

Both West (or Peninsular) Malaysia (area 131,794 sq km) and East Malaysia (198,000sq km) consist of rugged forested mountainous interiors descending to coastal plains. The total area is about half that of New South Wales. Malaysia's (also South-East Asia's) highest peak is Mount Kinabalu at 4,100 metres in East Malaysia. Malaysia's climate is hot (up to 34°C) and humid (2 to 4 metres of rain annually).

Population

According to the Department of Statistics Malaysia, Malaysia's population was 27.7 million as of September 2008. Over 22 million people live in Peninsular Malaysia, with about 5 million living in East Malaysia. The country's ethnic groups include Malay (54.5 per cent), indigenous groups (11.8 per cent), ethnic Chinese (25 per cent), ethnic Indians (7.5 per cent) and others (1.2 per cent). Sunni Islam is the predominant religion in Malaysia, but a range of religions are represented, including Buddhism, Hinduism and Christianity. The official language of Malaysia is Bahasa Malaysia (Malay) but English is widely used, as are a range of Chinese and Tamil dialects within those communities.

Political overview

The Federation of Malaya was established on 31 August 1957. On 16 September 1963 the Federation was enlarged by the accession of the states of Singapore, Sabah (formerly British North Borneo) and Sarawak. The name ‘Malaysia' was adopted from that date. Singapore left the Federation on 9 August 1965.

Malaysia is a federal constitutional monarchy and a parliamentary democracy. The Head of State is the Yang di-Pertuan Agong (King). The Head of Government is the Prime Minister, who is also the head of the Cabinet.

Malaysia's 13 states are: Johor, Kedah, Kelantan, Melaka, Negeri Sembilan, Pahang, Perak, Perlis, Pulau Pinang, Sabah, Sarawak, Selangor and Terengganu. There are also three Federal Territories: Labuan, Putrajaya and Wilayah Persekutuan – the capital, Kuala Lumpur, is located in the territory of Wilayah Persekutuan. Nine of the 13 states have hereditary rulers (eight Sultans and one Rajah) who share the position of King on a five-year rotating basis. The King's functions are largely ceremonial since constitutional amendments in 1993 and 1994.

Legislative power is divided between federal (bicameral) and state (unicameral) legislatures. The Federal Parliament comprises the House of Representatives (Dewan Rakyat) and the Senate (Dewan Negara). The House of Representatives has 222 members elected for five year terms in single seat constituencies. The Senate consists of 26 members who are elected by State Legislative Assemblies, and 44 members who are appointed by the King on the advice of the Prime Minister. The tenure of office is a three year term for a maximum of two terms. States have their own elected Legislative Assemblies. Federal and state elections are held concurrently, with the exception of state elections in Sarawak which are held separately.

The governing Barisan Nasional (National Front) coalition comprises the United Malays National Organisation (UMNO), the Malaysian Chinese Association, the Malaysian Indian Congress, plus a number of other parties including some based in East Malaysia. This coalition, in which UMNO is the dominant voice, has been in power at the federal level in one form or another since the first elected government in 1955.

The Barisan Nasional Government is led by Prime Minister Dato' Sri Najib Razak. Prime Minister Najib succeeded former Prime Minister Tun Abdullah Badawi on 3 April 2009. Prime Minister Abdullah had served since 2003.

During Malaysia's most recent General Elections on 8 March 2008, the ruling Barisan Nasional (BN) under then Prime Minister Abdullah was returned to power but with a significantly reduced majority. BN lost its two-thirds majority in federal parliament, which is needed to change the constitution. The BN's seat count in the federal parliament now stands at 137 of 222 seats (62 per cent of seats). The opposition coalition, Pakatan Rakyat (PR), under the leadership of Anwar Ibrahim, holds 81 seats. (The remaining four seats are held by non-aligned parties and an independent MP).

There were significant swings to opposition parties in most of the states in Peninsular Malaysia, particularly in multi-ethnic urban areas. The predominantly Malay rural areas of Pahang and Johor, as well as Sabah and Sarawak, maintained their support for the BN. All but one of a number of by-elections at the state level since March 2008 have been won by the PR.

Malaysia's Foreign Policy

The principles of national sovereignty and mutual respect for territorial integrity, mutual non-aggression, and non-interference in domestic affairs of other countries are central tenets of Malaysia's foreign policy. This is reflected in Malaysia's membership of the United Nations and prominent roles in organisations such as the Association of Southeast Asian Nations (ASEAN), the Organisation of the Islamic Conference (OIC) – which Malaysia chaired from 2003 to March 2008, and the Non-Aligned Movement (NAM) – which Malaysia chaired from 2003 to 2006.

Malaysia sees ASEAN as the main regional institution developing an integrated South-East Asian community. Malaysia was one of ASEAN's five original members (founded in 1967).

Economic overview

Since independence in 1957, Malaysia has been transformed from a commodity-based economy, focusing on rubber and tin, to one of the world's largest producers of electronic and electrical products. Malaysia is a significant trading nation as measured by trade as a share of gross domestic product (GDP), with its total trade in goods and services amounting to more than 180 per cent of GDP. Manufactured goods make up a large portion of Malaysia's exports, including electronic and electrical products – which comprise over 45 per cent of the value of total merchandise exports. Malaysia is the world's leading exporter of palm oil and is one of the region's major oil and gas exporters.

According to key development indicators, Malaysia is now a high middle-income, export-oriented economy, with per capita GDP (in current prices) well over USD 7,000 in 2008, life expectancy of 74 years and gross primary school enrolment of 100 per cent of the school age population.

Malaysia's economic development policies are enunciated in a number of guiding documents which include: Vision 2020; the National Mission (2006-2020); and the Ninth Malaysia Plan (2006-2010).

Vision 2020, launched in 1991, sets out Malaysia’s plan to achieve developed economy status by the year 2020. Specific targets include increasing real GDP eightfold between 1990 and 2020 – translating to average annual growth of seven per cent – and increasing per capita income by a factor of four.

The National Mission provides a framework for Malaysia to achieve Vision 2020. It builds on previous policies including the National Vision Policy (introduced in 2001), the National Development Policy (introduced in 1991) and the New Economic Policy (introduced in 1970). These policies were designed to eradicate poverty and advance the economic position of Bumiputeras (‘sons of the soil' – mainly Malays but also other indigenous groups). While the Government's target of 30 per cent Bumiputera ownership of capital has not been achieved (and the timeline extended to 2020), there has been a significant shift in the balance of ownership, coinciding with the emergence of an influential new class of Bumiputera entrepreneurs.

The Ninth Malaysia Plan (2006-2010) is the Malaysian Government's current economic blueprint. The plan places an emphasis on building a sustainable economy and developing human capital. Areas of high priority in the Ninth Malaysia Plan include education, public infrastructure, agriculture and manufacturing.

Since his appointment in April 2009, Prime Minister Najib has set out a number of reforms aimed at liberalising the economy, especially the services sector. Service sector liberalisation has included the removal of the 30 per cent Bumiputera equity ownership requirement in 27 service sub-sectors, issuance of new foreign commercial banking and insurance licences, and the removal of the 30 per cent Bumiputera equity requirement for publicly listed companies.

Recent Economic Performance and Outlook

Malaysia's economy, the third largest in South-East Asia behind Indonesia and Thailand, has grown steadily since recovering from the 1997-98 Asian financial crisis. GDP growth for 2007 was 6.3 per cent, with the growth rate rising from 5.5 percent in the first quarter to 7.3 per cent in the fourth quarter. In 2008, the GDP growth rate fell from 4.7 percent in the third quarter to 0.1 per cent in the fourth quarter with total GDP growth for 2008 of 4.6 per cent. The GDP growth rate has continued to fall in 2009, due to the impact of the global economic crisis with a 3.9 per cent decline in the second quarter of 2009, compared to a 6.2 per cent decrease in the first quarter of 2009.

Malaysia continues to have a large trade surplus (with 140 consecutive months of surplus, as of June 2008). Annual inflation grew rapidly in the middle of 2008 due to rising global food and fuel prices. The consumer price index rose from 2 per cent in 2007 to 5.4 per cent in 2008, but started to fall towards the end of 2008 due to the impact of the global economic crisis and falling fuel prices.

Malaysia has run a fiscal deficit since 1998, although the Malaysian Government has reduced the deficit in recent years. The budget deficit was 4.8 per cent of GDP in 2008 (down from 5.5 per cent in 2000). The Government's stated aim is to maintain a budget that can balance the twin aims of sustaining economic growth and preserving long-term fiscal sustainability. As such, the 2008 Budget saw an increase in budgeted expenditures of 11 per cent over 2007. The expenditure increase in the budget was, in part, financed by revenue earned from the oil and gas sector.

In March 2009 the Malaysian Government announced a RM 60 billion (AUD 25 billion) stimulus package aimed at reducing unemployment, easing the burden on ordinary citizens and vulnerable groups, assisting the private sector and building capacity for the future. It is estimated that the spending and tax measures will increase the budget deficit to 7.6 per cent of GDP in 2009.

Malaysia's Trade and Foreign Investment Policy

Malaysia is a strong supporter of the multilateral trading system, in particular the World Trade Organization. Malaysia participates actively in regional economic arrangements such as the ASEAN Free Trade Area (AFTA) and the Asia-Pacific Economic Cooperation (APEC). Malaysia is also a member of the Cairns Group – which advocates more liberalised global trade in agriculture. Malaysia's major trading partners are the USA, Singapore, Japan and China.

With the conclusion of the ASEAN-Australia-New Zealand FTA, signed on 27 February 2009, Australia and Malaysia have resumed negotiations on a bilateral Free Trade Agreement. Malaysia is also pursuing bilateral FTA negotiations with the USA, India, and Chile. Malaysia has concluded FTAs with Japan, Pakistan, and New Zealand.

Foreign Direct Investment (FDI) has played a large part in Malaysia's development. As a share of GDP, gross FDI was 9 per cent in 2008. The Government has sought to channel investment into export-oriented manufacturing and capital-intensive and high technology industries.

Australia-Malaysia Relations

Malaysia's impressive economic development, active participation in our immediate region, and its long-standing relationship with Australia makes Malaysia a highly valued partner. Extensive cooperation occurs in areas such as trade and investment, tourism, education, defence, counter-terrorism and law enforcement.

Historical Background

In the 19th century Malays participated in the pearling industry off Australia's north coast. William Light, the son of Francis Light (who acquired Penang on behalf of the British East India Company in 1786), planned the city of Adelaide in 1837. Today, Georgetown in Penang and Adelaide commemorate this early link as sister cities.

Australian troops have fought on a number of occasions alongside Malaysians. This included during the Malayan Campaign of World War II, as part of a Commonwealth force to defeat the Malayan Communist insurgency during the Malayan Emergency (1950-60) and during the period of Confrontation (1963-66).

Australia was closely associated with the establishment of the Federation of Malaya in 1957 and sponsored Malaya's application for membership of the United Nations. Sir William McKell, a former Governor-General of Australia, together with four other Commonwealth jurists, helped draft the nation's Constitution. Australia also took a close and positive interest in the formation of Malaysia.

Malaysia celebrated the 50th anniversary of its independence in 2007. The then Governor-General, His Excellency Major General Michael Jeffery AC CVO MC, represented Australia at Malaysia's 50th anniversary of independence (Merdeka) celebrations in Kuala Lumpur on 31 August 2007. With support from the Australia Malaysia Institute (AMI), the Department of Foreign Affairs and Trade (DFAT) released a bilingual photographic publication entitled Australia-Malaysia: Celebrating 50 Years, which chronicles some of the important events and achievements shared by Australia and Malaysia over more than five decades.

Government Relations

Australia's formal relations with Malaysia date back to 1955 when our Commission (later High Commission) was established in Kuala Lumpur. Australia was one of fifteen countries to establish formal diplomatic relations with the Federation of Malaya in 1957 soon after independence. The current relationship draws on many long-standing associations including:

• parliamentary, legal and administrative systems with many similar features and common membership of the Commonwealth;
• people-to-people links including students, business councils and immigration;
  regular and close consultations in a variety of policy fields such as a bilateral Foreign Ministers’ Meeting and a
• ministerial-level Joint Trade Committee;
• bilateral defence and security cooperation, including through the Malaysia-Australia Joint Defence Program and the Five Power Defence Arrangements.

The then Governor-General, His Excellency Major General Michael Jeffery AC CVO MC, represented Australia at Malaysia's 50th anniversary of independence (Merdeka) celebrations in Kuala Lumpur on 31 August 2007. The Australian Parliament's Joint Standing Committee on Foreign Affairs, Defence and Trade tabled a report into Australia's Relationship with Malaysia in March 2007. The report noted the changing nature of Australia's relationship with Malaysia – from one of support in the early years of Malaysia's formation to the present wide-ranging and extensive collaboration across all fields.

Bilateral Visits

Australia's relationship with Malaysia is underpinned by strong people-to-people links with a significant program of two-way high-level visits across a broad range of portfolios, including those set out below.

Prime Minister Kevin Rudd has made two official visits to Malaysia. During his first official visit in July 2008 the Prime Minister met then Prime Minister Abdullah and the King of Malaysia, His Majesty Tuanku Mizan Zainal Abidin and agreed to a series of initiatives to extend the bilateral relationship, building on cooperation in defence and education. Prime Minister Rudd met Prime Minister Najib during his second visit to Malaysia in July 2009 and agreed to extend existing cooperation in areas such as combating people smuggling, and a range of new areas for cooperation including clean energy technologies.

The Minister for Foreign Affairs, Stephen Smith made his first official visit to Malaysia on 6 to 7 July 2009, during which he met Foreign Minister Datuk Anifah Aman for the inaugural bilateral Foreign Ministers’ Meeting. The Ministers discussed bilateral cooperation across areas of mutual interest, including defence, combating transnational crime such as people smuggling and human trafficking, counter-terrorism, and education. The Ministers also agreed to a number of initiatives including continuation of the Malaysia-Australia project to train Afghan master teacher trainers, expansion of the Australia-Malaysia Sister Schools Project, and enhanced cooperation in sports, higher education and film co-production.

In February 2009, Mr Smith welcomed then Malaysian Minister of Foreign Affairs, Dr Rais Yatim, to Canberra. A number of Malaysian Ministers also made official visits to Australia in August 2009, including the Malaysian Deputy Prime Minister and Minister for Education, Tan Sri Muhyiddin Yassin, the Minister for Home Affairs, Datuk Seri Hishammuddin Hussein, the Minister for Energy, Green Technology and Water, Datuk Peter Chin, and the Minister of Housing and Local Government, Datuk Kong Cho Ha.

The Minister for Trade, Simon Crean, and the Malaysian Minister for International Trade and Industry, Dato’ Mustapa Mohamed, co-chaired the 15th Australia-Malaysia Joint Trade Committee meeting in Melbourne in August 2009 (see below). In October 2008, Mr Crean and an accompanying business delegation visited Malaysia for the 14th Australia-Malaysia Joint Trade Committee.

In August 2008, the Minister for Immigration and Citizenship, Senator Chris Evans, and the then Minister for Home Affairs, Bob Debus, visited Malaysia for high-level bilateral meetings with their Malaysian counterparts. During the visit, Senator Evans and the then Malaysian Minister for Home Affairs, Dato' Seri Syed Hamid Albar, signed a Memorandum of Understanding (MOU) implementing a Work and Holiday visa arrangement.

Defence and Security Links

Australia's defence relationship with Malaysia dates back to well before Malaysia's independence in 1957, and reflects a common commitment to the security and stability of the region. The relationship is based on practical cooperation including the Malaysia-Australia Joint Defence Program, an ongoing Australian presence at the Royal Malaysian Air Force (RMAF) Base at Butterworth, and common membership of the Five Power Defence Arrangements.

Bilateral defence cooperation occurs through the Malaysia-Australia Joint Defence Program, which formally commenced in 1992 under this name (although Australian defence cooperation assistance to Malaysia dates back to 1964). The program includes the training of Malaysian military personnel in Australia, the attachment of Armed Forces personnel from each country to the other, and annual combined field exercises. Australia is Malaysia's major source of external military training.

Formally established in 1971, the Five Power Defence Arrangements (FPDA) commits Australia, New Zealand and the United Kingdom to consult on a response to any armed attack or threat against Malaysia or Singapore. The FPDA provides a valuable framework for conducting combined training exercises. More recently, the FPDA has expanded its focus to address non-conventional security threats facing the region, including terrorism and maritime security.

Australia and Malaysia cooperate closely on a range of security issues, with good links between police and immigration agencies. In August 2002, Australia and Malaysia signed a memorandum of understanding on cooperation to combat international terrorism. Bilateral agreements on mutual assistance in criminal matters and extradition entered into force on 28 December 2006. Australia and Malaysia signed a Memorandum of Understanding on Combating Transnational Crime and Developing Police Cooperation on 13 May 2009.

Education

Australian expertise in education and training is highly regarded in Malaysia. Bilateral links in this sector date back to the 1950s through the Colombo Plan. Education for Malaysian students has traditionally been provided at universities in Australia, but university twinning arrangements and Australian campuses in Malaysia now allow Malaysian students to undertake Australian courses in Malaysia. Three Australian universities have campuses in Malaysia – Monash University, Curtin University and Swinburne University of Technology.

In 2008 around 21,000 Malaysian student enrolments were received by Australian education institutions onshore, making Malaysia our fifth-largest source of international students enrolments across all sectors (behind China, India, the Republic of Korea, and Thailand) and third-largest international student source in Australia's higher education sector. It is estimated that more than 300,000 Malaysians have undertaken courses in Australia. The offshore provision of education is also growing in importance with more than 15,000 students at Australian higher education institutions in Malaysia.

During his first official visit to Malaysia in July 2008, Prime Minister Rudd announced the launch of a pilot Sister Schools Program which links six schools in Malaysia with six schools from Victoria. In July 2009, the Minister for Foreign Affairs, Mr Smith, announced the expansion of this program to double the number of participating schools in Australia and Malaysia. The program aims to fill a gap in Australia's education relationship with Malaysia – while there has long been a strong relationship at the level of tertiary education, much less interaction has occurred at the primary and secondary levels. The Sister Schools Program is managed by the Australia-Malaysia Institute (see below).

The Malaysian Australian Alumni Council (MAAC) is a national organisation in Malaysia for Malaysian alumni associations of Australian universities. The MAAC spearheads the Malaysia Australia Colombo Plan Commemoration Scholarship initiative, which provides for a two-way exchange of scholars between Australia and Malaysia to undertake their tertiary education at institutions in both countries.

Migration/Tourism

The Australian Bureau of Statistics publication ‘Migration, Australia, 2007-08' showed 120,053 Malaysian-born people lived in Australia, an increase of 11.6 per cent from the 2006 census.

There were 171,000 short-term visitor arrivals from Malaysia to Australia during 2008, making Malaysia our second-largest source of visitors from South-East Asia after Singapore.

An air services agreement is in place between Australia and Malaysia. In November 2007, Malaysian airline AirAsia commenced direct flights between Malaysia and Australia, adding to Malaysia Airlines direct routes.

Work and Holiday Arrangement

Australia has a Work and Holiday arrangement with Malaysia which allows both Australians and Malaysians aged between 18 to 30 years to holiday and work in each others’ country for up to12 months. For information about the requirements for this visa and how to apply, visit the Malaysian High Commission website.

Australia-Malaysia Institute

The Australia-Malaysia Institute was established by the Australian Government in April 2005 to strengthen people-to-people and institutional links with Malaysia, and to deepen mutual understanding and cooperation. It offers a grants program and organises visits by young leaders and journalists, and interfaith visits, between Australia and Malaysia.

The Malaysian Australian Alumni Council (MAAC) is a national organisation in Malaysia for Malaysian alumni associations of Australian universities. The MAAC spearheads the Malaysia Australia Colombo Plan Commemoration Scholarship initiative, which provides for a two-way exchange of scholars between Australia and Malaysia to undertake their tertiary education at institutions of higher learning in both countries.

Australia-Malaysia Economic and Trade Relations

In terms of two-way goods and services trade, Malaysia is Australia's third-largest trading partner in ASEAN and our eleventh-largest partner overall. Total trade in 2008 was $15 billion (2.7 per cent share of Australia's total trade). In 2008, total merchandise trade between Australia and Malaysia was $12.9 billion with Australian exports of $4.0 billion (growing 26.7 per cent from 2007) and imports of $8.9 billion (growing 22.2 per cent). Total two-way services trade in 2008 was $2.5 billion with Australian exports of $1.5 billion (growing by 12.6 per cent from 2007) and imports of $1 billion.

Major merchandise exports from Australia to Malaysia include coal, crude petroleum, aluminium, copper, wheat, ferrous waste and scrap, medicaments and dairy products. Australia is a major provider of education services to Malaysia. Major Malaysian merchandise exports to Australia include crude petroleum, computers, monitors and televisions, telecommunications equipment, furniture, refined petroleum, electronic integrated circuits and civil engineering equipment.

Malaysian investment in Australia has grown strongly in recent years. At the end of 2008, the level of Malaysian foreign investment in Australia was $10.1 billion, making Malaysia the fourteenth-largest investor in Australia. Australian companies continue to pursue opportunities in Malaysia. At the end of 2008, the stock of Australian foreign investment in Malaysia was $2.8 billion.

The Australia Malaysia Business Council (AMBC) and the Malaysia Australia Business Council (MABC) are important coordinating bodies for commercial linkages, and conduct regular dialogue with both governments, including through participation in the Joint Trade Committee meetings. They are an important source of information and advice for businesses active in Australia and Malaysia and play an important role in promoting strong networks in the respective private sectors.

Australia and Malaysia have a double taxation agreement.

Malaysia-Australia Free Trade Agreement (MAFTA)

On 7 April 2005, Australia and Malaysia agreed to launch negotiations on a bilateral Free Trade Agreement (MAFTA).

The decision to begin MAFTA negotiations built on an already strong and broad-ranging bilateral relationship. It also followed consideration by both governments of comprehensive scoping studies into the likely impact of a bilateral FTA. The studies reached the conclusion that MAFTA would deliver significant benefits to both countries.

Five full rounds of MAFTA negotiations have been held since May 2005. Negotiations were suspended in 2006 in favour of pursuit of the ASEAN-Australia-New Zealand FTA, which was concluded in February 2009. MAFTA negotiations resumed in August 2009. Both sides have committed to completing a comprehensive, high-quality agreement.

Australia-Malaysia Joint Trade Committee

The annual Australia-Malaysia Joint Trade Committee (JTC) meeting provides a regular forum for the two countries to discuss their respective views on international and regional trade and economic issues, as well as to explore ways to expand the bilateral trade and economic relationship.

Australia's Minister for Trade, Simon Crean, welcomed the Malaysian Minister of International Trade and Industry, Dato’ Mustapa Mohamed to Melbourne in August 2009 for the 15th JTC. Ministers discussed opportunities for cooperation in Islamic finance, green technology and clean energy, logistics, and automotive industries. The next JTC is expected to be held in Malaysia in 2010.

Export opportunities

Australian Trade Commission (Austrade)

Austrade has identified potential opportunities for Australian suppliers of goods and services in a number of sectors. Austrade's Malaysia country page supplies general information on doing business and on specific export opportunities. The Austrade website has a database that can be searched by industry. The Austrade office in Kuala Lumpur can also provide advice on accessing opportunities in Malaysia. They can be contacted at kuala.lumpur@austrade.gov.au.

Trade Info Contacts

If you would like more information on the trade and economic conditions in Malaysia, please email the Department of Foreign Affairs and Trade.

Updated September 2009