Malaysia Country Brief - April 2008
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 (198,000 sq 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 27.3 million as of October 2007. Over 22 million people live on Peninsular Malaysia, with about 5 million living in East Malaysia. The country’s ethnic groups include Malay and other indigenous groups (66 per cent), ethnic Chinese (25 per cent) and ethnic Indians (7.5 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 particular 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.
On 31 October 2003, Prime Minister Tun Dr Mahathir Mohamad resigned after 22 years in office. His successor, Dato’ Seri Abdullah Ahmad Badawi, led the Barisan Nasional to electoral victory at the March 2004 general election, winning 199 of the 219 Federal seats, representing the highest-ever proportion of seats won in Federal Parliament.
The most recent general elections in Malaysia were held on 8 March 2008. The ruling Barisan Nasional (BN) was returned to power but with a significantly reduced majority. The BN’s seat count in the federal parliament now stands at 140 of 222 seats (63 per cent of seats). The remaining seats were won by Parti Keadilan Rakyat (People’s Justice Party, PKR) with 31, the Democratic Action Party (DAP) with 28, and Parti Islam Se-Malaysia (Islamic Party of Malaysia, PAS) with 23.
BN lost its two-thirds majority in federal parliament, which is needed to change the constitution.
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.
At the state level, PAS retained control of government in the northern state of Kelantan. In addition, opposition parties, as a coalition called Pakatan Rakyat (People’s Alliance), now hold power in the states of Penang, Kedah, Perak and Selangor.
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), and was the Chair of ASEAN from 2005 to 2006.
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 200 per cent of GDP. Manufactured goods make up a large portion of Malaysia’s exports, including electronic and electrical products – which comprise over 40 per cent of the value of total 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 GDP per capita of $US6,721 in 2007, life expectancy of 73 years and gross primary school enrolment of 93 per cent of the school age population. Malaysian statistics suggest poverty has fallen from 49 per cent of households in 1970 to 5.7 per cent in 2004.
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).
In 1991 the Malaysian Government launched Vision 2020 – a plan for Malaysia 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.
Recent Economic Performance and Outlook
Malaysia’s economy, now the third largest in South-East Asia behind Indonesia and Thailand, has grown steadily since recovering from the Asian financial crisis. GDP growth for 2007 was 6.3 percent, and the economy grew by 5.9 per cent in 2006. The Malaysian Government forecasts GDP growth between 5 and 6 percent in 2008. This takes into consideration the US slowdown, but is otherwise based on continuing global economic growth and high prices for primary commodities (including crude petroleum and palm oil). The sub-prime fallout in the US financial markets has not had an immediate effect on the Malaysian economy.
Malaysia continues to have a large trade surplus (since November 1997). Annual inflation was 3.6 per cent in 2006 and the Malaysian Government preliminary estimate of inflation in 2007 was 2 percent. Rising global food and commodity prices are masked to some extent in Malaysia by a range of price controls on foods and commodities. The unemployment rate was 3.3 per cent in 2007 and is expected to remain below 4 per cent in 2008.
Malaysia has run a fiscal deficit since 1998, although the Malaysian Government has reduced the deficit in recent years. The budget deficit was 3.2 per cent of GDP in 2007 (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 sees an increase in budgeted expenditures of 11 per cent over 2007. The expenditure increase in the budget is, in part, financed by the huge contribution of revenue earned from the oil and gas sector.
Major announcements in the Malaysian Budget 2008 included a further proposed reduction of company income tax to 25 per cent in 2009. This followed the announcement in the 2007 Budget of a 26 per cent rate by 2008. In the finance sector, the budget provided further incentives aimed at making Malaysia an Islamic finance hub. Other priority sectors of the budget include education, agricultural development, housing, security, civil service reform, and reducing the cost of red tape on business.
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.
Of considerable significance for Australia was the April 2005 decision to begin negotiations on a bilateral Free Trade Agreement (FTA). Malaysia is also pursuing bilateral FTA negotiations with the USA, New Zealand, Chile and Pakistan, and is part of the ASEAN-wide negotiations for ASEAN-Australia-New Zealand, ASEAN-China, ASEAN-India, ASEAN-Japan, ASEAN-Korea and ASEAN-EU FTAs. Malaysia has concluded an FTA with Japan.
Foreign Direct Investment (FDI) has played a large part in Malaysia’s development. As a share of GDP, gross FDI has been sustained at 6 per cent in the post-Asian financial crisis years, compared with an average of 8 per cent in the mid-1990s when FDI flows peaked. 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.
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 joint 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 Ministerial-level Joint Trade Committee;
- bilateral defence and security cooperation, including through the Malaysia-Australia Joint Defence Program and the Five Power Defence Arrangements.
A number of activities marked the 50th anniversary of Malaysia’s independence on 31 August 2007. The 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 (DFAT) released a bilingual photographic publication entitled Australia-Malaysia: Celebrating 50 Years, whichchronicles some of the important events and achievements shared by Australia and Malaysia over more than five decades. DFAT also supported the My.OZ program of cultural events to commemorate 50 years of bilateral relations. The series of 20 high-profile events in Malaysia included the theatre production Alias Grace, an Australian film festival, concerts by acapella group Idea of North, a performance of Ruby’s Story and the Independence Project, a major collaboration between Malaysian and Australian visual artists at the Petronas Gallery in Kuala Lumpur.
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.
The official visit to Australia in April 2005 by Prime Minister Abdullah – the first by a Malaysian Prime Minister in 21 years – provided an opportunity to build on long-standing cooperation in a range of areas. A key outcome of the visit was the decision to proceed to bilateral free trade agreement negotiations. The then Prime Minister, John Howard, visited Malaysia in late 2006. In May 2007, Prime Minister Abdullah attended the launch of an exhibition of traditional Malay women’s garments (kebaya) collected by his late wife, Datin Paduka Seri Endon Mahmood, held at the Immigration Museum in Melbourne.
Prime Minister Abdullah also attended the APEC Leaders’ Meeting in Sydney on 8-9 September. Malaysia’s then Minister of International Trade and Industry, Rafidah Aziz, and the then Deputy Minister of Foreign Affairs, Joseph Salang, attended the APEC Ministerial Meeting in Sydney on 5-6 September. Five other Malaysian ministers also made working visits to Australia during 2007.
The King of Malaysia, His Majesty Tuanku Mizan Zainal Abidin, visited Australia from 6-10 June 2007 to participate in an Endurance Horse Race in Nanango, Queensland. Malaysian Parliamentary Delegations visited Australia in June 2006 and June 2007, following an Australian Parliamentary Delegation visit to Malaysia in April 2006.
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.
In February 2005, DFAT published a book entitled Australia and the Formation of Malaysia 1961-1966, which documents Australia’s support for the establishment of Malaysia and defence of its territorial integrity.
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 an MoU on cooperation to combat international terrorism. Bilateral agreements on mutual assistance in criminal matters, and extradition, entered into force on 28 December 2006.
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 including Monash University, and in Sarawak – Curtin University and Swinburne University of Technology.
As of August 2007, 19,369 Malaysian students were enrolled in Australian education institutions onshore, making Malaysia our fourth-largest source for international students. The offshore provision of education is also growing in importance with more than 15,000 students at Australian higher education institutions in Malaysia.
Migration/Tourism
The 2006 census showed 92,337 Malaysian-born people lived in Australia, an increase of 17 per cent from the 2001 census.
Malaysia recorded 277,125 Australian visitors in 2006, while there were 157,600 short-term visitor arrivals from Malaysia to Australia for the year to 31 August 2007, making it our second-largest source of visitors from South-East Asia.
An air services agreement is in place between Australia and Malaysia. In the past year, Jetstar and Malaysian airline AirAsia commenced direct flights between Malaysia and Australia, adding to Malaysia Airlines direct routes.
Other Areas of Cooperation
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, Muslims and journalists between Australia and Malaysia.
The Malaysia Australia Business Council (MABC) and the Australia Malaysia Business Council (AMBC) 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.
The Malaysian Australian Alumni Council (MAAC) is a national organisation 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 2006-07 was $11.9 billion (2.7 per cent share of Australia’s total trade) up 5.1 percent from 2005-06. In 2006-07, total merchandise trade between Australia and Malaysia grew 4.5 percent to $9.7 billion (Australian exports of $3.1 billion, imports of $6.6 billion). Total two-way services trade in 2006-07 grew 7.7 percent to $2.2 billion (Australian exports of $1.2 billion, imports of $936 million).
Major merchandise exports from Australia to Malaysia include copper, aluminium, coal, ferrous waste and scrap, milk and cream, medicaments (including veterinary), zinc, food and live animals, chemicals and related products, and refined petroleum. Australia is a major provider of education services to Malaysia. Major Malaysian merchandise exports to Australia include crude petroleum, computers, telecommunications equipment, integrated circuits, furniture, gold, refined petroleum, computer parts, radio receivers, and electrical machinery and appliances.
Malaysian investment in Australia has grown strongly in recent years. At the end of 2006, the level of Malaysian foreign direct investment in Australia was $3.99 billion, making Malaysia the twelfth-largest investor in Australia. Australian companies continue to pursue opportunities in Malaysia. At the end of 2006, the stock of Australian foreign direct investment in Malaysia was $385 million. Several Australian companies have made substantial investments in Malaysia since then (see section below on Trade and Investment Successes).
In February 2005, DFAT published a report entitled Malaysia: An Economy Transformed. The report analyses the challenges to Malaysia’s economic development and the Malaysian Government’s plans for new drivers of growth. It also discusses opportunities for expanding the Australia-Malaysia commercial relationship further.
Australia and Malaysia have a double taxation agreement.
Malaysia-Australia Free Trade Agreement
On 7 April 2005, Australia and Malaysia agreed to launch negotiations on a bilateral Free Trade Agreement (FTA).
The decision to begin FTA 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 an FTA. The studies reached the conclusion that an FTA would deliver significant benefits to both countries.
There have been four full rounds of bilateral FTA negotiations since May 2005, the most recent being held in Kuala Lumpur in July 2006. Both sides have committed to completing a comprehensive, high-quality agreement. Ministers have not sought to apply a rigid timetable to the FTA negotiations. Malaysia and Australia are also together engaged in negotiations for the regional ASEAN-Australia-New Zealand FTA.
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.
At the 13th JTC, held in Adelaide on 3 August 2006, ministers underlined their commitment to negotiating a high quality bilateral FTA. Ministers also reviewed progress on a range of activities under the Malaysia-Australia Agricultural Cooperation Working Group (which was reactivated in August 2005), as well as developments in cooperation initiatives in the franchising, medical devices regulation and coal and energy sectors.
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. Austrade Malaysia can also provide advice on accessing opportunities in Malaysia. They can be contacted at kuala.lumpur@austrade.gov.au.
Trade and Investment Successes
In February 2005, Grange Resources announced they had entered into a Heads of Agreement to acquire land in the Malaysian port city of Kemaman to build a magnetite pellet project and secure port facilities.
In March 2005, Macquarie Bank successfully obtained one of five foreign stockbroking licences to establish operations in Malaysia.
In March 2006, insurance group IAG acquired a 30 per cent interest in AmAssurance, Malaysia’s second-largest motor insurer and fifth-largest general insurer.
On 18 May 2007, ANZ Bank acquired a 19.1 per cent stake in Malaysia’s fifth-largest financial institution, AMMB Holdings (AmBank Group).
In August 2007, Rio Tinto commenced a feasibility study with Malaysian company, Cahya Mata Sarawak, to build a large aluminum smelter in Sarawak, East Malaysia. Meanwhile, BHP Billiton opened an office in Kuala Lumpur earlier this year as base for its gas exploration operations off the coast of Sabah.
In December 2007, Qantas signed a Memorandum of Understanding (MoU) with MAS Aerospace Engineering (MAE), a subsidiary of Malaysia Airlines, to establish a joint venture company to provide airframe maintenance services from Malaysia.
The commencement of direct flights to Kuala Lumpur by Jetstar in September 2007 provides another attraction for Australian investment.
TradeWatch Contacts
If you would like more information on the trade and economic conditions in Malaysia, please email the Department of Foreign Affairs and Trade.