Focus on...Malaysia

An interview with PwC Malaysia on the prospects for the Malaysian economy

In our recent ESCAPE index* report Malaysia performed well, ranking 14th out of our sample of 42 countries. We caught up with Patrick Tay, Economics Advisory, PwC Malaysia

What have been the drivers of Malaysia’s success and how will they develop?

I think the situation in Malaysia right now shows that growth is solid and momentum in the economy is picking up. For example, overall growth for 2013 was 4.7%, but in the fourth quarter the economy expanded by 5.1% year on year. One of the key reasons for this pickup has been high levels of investment into infrastructure to remove some supply side bottlenecks.  Additionally, this has been supported by household spending: Malaysia has very stable employment conditions so this is helping to sustain real growth in the economy.

The Malaysian government has also been enacting a number of reform measures that reach across the whole economy. The effects of these reforms are beginning to kick in now and will continue to do so. In addition to measures to restrain spending growth so as to manage the budget deficit, the government is also progressively liberalising certain sectors and installing a competition commission to oversee these new markets.

Where do you see the sectors in Malaysia’s economy that will prosper in the future?

The government has identified 12 key  economic areas, which it has identified as sectors with significant growth opportunities where Malaysia can compete globally. There are several that are particularly important to the economy, including “soft” commodities related to food and sectors where Malaysia can leverage its skilled workforce and good labour market conditions.

Malaysia exports a significant amount of palm oil, which is used in a variety of food and consumer products like shampoo and cosmetics. Demand for these products (and the demand for palm oil) is expected to rise as incomes increase across the South East Asian region.

Healthcare services (particularly for overseas visitors) is another area that Malaysia can exploit. It has a good supply of highly skilled medical labour and good infrastructure. This means that Malaysia can deliver comparably quality healthcare to that in Singapore but 30-40% cheaper

Conventional tourism is also a growth sector for Malaysia - it currently attracts around 26m visitors per year. In 2014 the government is targeting a “Visit Malaysia” year and is hoping to increase tourist numbers by 10%.

Another key growth sector is services outsourcing, particularly MRO (maintenance and repairs), where airlines in particular are outsourcing skilled maintenance work to Malaysia due to our competitive labour rates and infrastructure capacity.

How are local and international businesses positioning to take advantage of Malaysia’s growth and position in the Asian economy?

Malaysia’s position in a fast growing economic region means that it has a strong external focus. What is more interesting is that Malaysian businesses are looking further afield for growth. From 2000-2011, exports to non TPPA members (Trans Pacific Partnership Area, 12 predominantly advanced economies across the Asia-Pacific rim) have grown 5 times faster than exports to TPPA members (160% to 30%), driven by strong growth in China, Indonesia and Thailand.

Malaysia’s businesses, particularly its property developers, are also looking even further afield for growth. A very interesting current example is the Battersea regeneration in London, where businesses from Malaysia and other Asian economies are key investors. It’s a really interesting signal of how dynamic and interlinked the global economy has become.

*ESCAPE index available here