Malaysia Trade

Subchapters:

  • Business Relationships
  • Foreign direct investment
  • FTAs ​​and Treaties
  • Development Cooperation
  • Prospective fields of study (MOP)

Business relations

Trade relations with the EU

The European Union has long been Malaysia’s third largest trading partner (after China and Singapore) and is perceived as an important trading partner in the country. Bilateral trade between the EU and Malaysia is dominated by industrial products. The EU mainly imports machinery and equipment and mainly exports electrical equipment and machinery (in both cases, industrial products account for more than 90% of trade). Other important sectors in terms of imports to the EU from Malaysia are plastics and rubber and animal and vegetable fats and oils, and in terms of exports, mechanical products.

Trade exchange with the EU (million EUR)

2017 2018 2019 2020 2021
Exports from the EU (million EUR) 12,778.20 12,699.60 12,974.60 10,597.20 11,759.90
Imports into the EU (million EUR) 19,836.60 20,873.30 23,688.60 24,686.10 29,207.20
Balance with the EU (million EUR) 7,058.4 8 173.7 10,714.0 14,088.8 17,447.3

Source: European Commission

Trade relations with the Czech Republic

Malaysia is the most important trade partner of the Czech Republic within the ASEAN association and ranks 23rd worldwide. The turnover of foreign trade between Malaysia and the Czech Republic has been growing steadily in the last five years. The year 2021 was again a record year and for the first time in history it crossed the threshold of USD billion. However, most of the total volume of mutual trade is imports from Malaysia. It has been true for a long time that the Czech Republic has a significantly negative trade balance with Malaysia.

Integrated electronic circuits dominate our exports and reflect the strengths of the Malaysian electronics industry. This is also evident in the 2nd largest item of our export – chemicals for the electronics industry, used primarily for metal processing. Perhaps a little surprisingly, whey is also one of our biggest exports. Other items are not as large in volume, but still significant. One of them are explosives accessories – mainly detonators, detonators, lightning bolts, detonators and other parts thereof. In 2021, the Czech Republic also exported a larger amount of components for the automotive industry to Malaysia.

2017 2018 2019 2020 2021
Exports from the Czech Republic (billion CZK) 30 4.6 4.6 4.3 4.2
Imports to the Czech Republic (billion CZK) 5 34.8 37.8 49.1 50.1
Balance with the Czech Republic (billion CZK) -25 30.2 33.2 44.8 45.9

Source: businesscarriers.com

Trade relations with countries outside the EU

Malaysia has close trade relations with ASEAN countries due to its geographical location and free movement of goods. In 2021, Malaysian goods will be used in the greatest value in China and Singapore. From other countries, exports flow mostly to India, Indonesia, Thailand and Vietnam, with a significantly increasing tendency. On the contrary, foreign trade with Russia, be it exports or imports, has a marginal character. Export statistics, as can be seen from the above tables, have improved significantly for the vast majority of markets. This shows the high competitiveness of Malaysian products.

2017 2018 2019 2020 2021
Exports from countries outside the EU (million EUR) 172,632.3 197,638.0 189,489.5 188,410.8 241 384.6
Imports to countries outside the EU (million EUR) 146,267.0 164,089.3 150,559.7 136,690.7 177,200.9
Balance with non-EU countries (million EUR) 26,365.3 33,548.8 38,929.8 51,720.1 64 183.6

Source: EIU, Eurostat

Foreign direct investment

Malaysia is generally perceived positively by foreign investors. It ranked 12th in the Ease of Doing Business 2020 index compiled by the World Bank. (15th place in 2019). For comparison, the Czech Republic was ranked 40th in 2020 (35th in 2019). In the World Competitiveness Index compiled by the World Economic Forum, in 2021 Malaysia was ranked 25th (Czech Republic 34th).

The share of direct foreign investment is around 28%. The slight decrease is due to the slowdown in transactions in the real estate sector. Of the total volume of approved investment projects, 62% are new projects and 38% are expansions of existing ones. From a sectoral perspective, investment in services (RM121 billion, 61.4%) clearly led, followed by manufacturing (RM6billion, 32.3%) and the so-called primary sector (mining industry, agriculture and commodities). which with a final value of RM1billion accounted for 6.3%.

The Embassy of the Czech Republic in Kuala Lumpur does not register any direct foreign investments of the Czech Republic in Malaysia. In 2022, however, there is an obvious revival of the interest of Czech companies, including those with investment plans. This is a consequence of the global shift of purchasing power towards the Indo-Pacific, still low production costs, as well as a consequence of geopolitical changes and the search for new source and target markets.

FTAs and treaties

Treaties with the EU

In 2010, negotiations on a Free Trade Agreement between the EU and Malaysia began. These negotiations have not seen significant progress since 2013, and the next regular round of negotiations is awaited.

Among the main obstacles to reaching a consensus are the issues of public procurement, sustainability, biological diversity, intellectual property protection, equal access to the market or trade policy and customs. In addition, the situation is complicated by the adopted European Commission delegated regulation supplementing Directive (EU) 2018/2001 on the promotion of the use of energy from renewable sources, which, according to the Malaysian government, discriminates against palm oil used in biofuels.

Despite the agreement and finalization by the leaders of the negotiation teams in April 2016, the text of the Partnership Agreement (PCA) was ultimately not signed.

Contracts with the Czech Republic

In the economic and trade area, the most important agreements concluded are the Agreement on the Avoidance of Double Taxation and the Prevention of Tax Evasion in the Field of Income Taxes (March 9, 1998) and the Agreement on Mutual Protection and Promotion of Investments (December 3, 1998). In 2020, the Agreement on legal assistance between the Czech Republic and Malaysia in criminal matters was signed. The issue of negotiating the Agreement on Economic Cooperation between the Czech Republic and Malaysia continues to be topical. The draft agreement was presented to the Malaysian side at the expert level in 2019, but so far without a response. The main proposed priority areas of cooperation are, for example, the mining industry, ICT, space technology, medical devices and equipment. The proposal also envisages the creation of a joint economic committee,

Other contracts

Malaysia is a member of the Trans-Pacific Partnership, but has not yet ratified the agreement. In early 2022, Malaysia made substantial progress in the ratification process of the Regional Comprehensive Economic Partnership (RCEP) Agreement when it deposited the Instrument of Ratification with the RCEP Secretariat on 17 January 2022. The partnership entered into force on January 1, 2022, when the condition of needing ratification by 3/4 of the signatories, namely 6 ASEAN member states and 3 other contracting parties, had already been met. Malaysia thus kept its word when it had previously announced that joining the RCEP was only a formality and would thus become the 12th country of this economic grouping.

Developmental cooperation

Malaysia is not a classic recipient of development aid, the vast majority of development projects in the country relate to technical assistance in the field of higher and apprenticeship education, good governance, or the environment. The Czech Republic does not provide official development assistance to Malaysia, nor does it receive it from Malaysia. In the years 2007-2014, Czech development and humanitarian cooperation projects aimed at helping Burmese refugees in Malaysia took place. The projects were funded by the Ministry of Foreign Affairs through the local NGO Mercy Malaysia, the local branch of the UNHCR and other NGOs.

Prospective fields of study (MOP)

The Malaysian market offers business opportunities for Czech exporters who can offer innovative and advanced technologies and systems in promising sectors such as the aviation industry, ICT, water management industry, food industry, but also defense and security technologies, etc.

Civil aviation industry

The Malaysian Aerospace Industry Blueprint 2015-2030 maps out a long-term plan for the development of the aerospace industry, according to which Malaysia should become a regional leader in the aerospace industry by 2030. The potential can be seen in the training of the workforce, both pilots, mechanics and production workers. Another possibility is the supply of smaller transport aircraft for the purposes of local transport or the modernization of smaller airports.

The aviation industry is identified by the Malaysian government as one of the priority sectors and is an integral part of Malaysia’s strategic plan for the upcoming five-year period (2021-2025). The aviation, as well as the space industry, is one of the fastest growing industries in the country, which relies on the implementation of the so-called Malaysian Aerospace Industry Blueprint 2015-2030. The National Aerospace Industry Coordinating Office under the Ministry of International Trade and Industry states that the aerospace industry has long-term stable growth both in terms of income and export value. The aviation industry generates approximately MYR 13 billion (US$ billion) annually in Malaysia and investment inflows amount to MYR 1 billion (US$240 million). By 2030, this number is expected to increase to MYR 3billion (8.9 billion USD) and by 2037 another 19 thousand should be added. jobs. The focus of activity in the aviation sector in Malaysia is MRO (Maintenance, Repair, Renovation) with more than 230 companies. A permanent trend is a shift in the production-logistics chain towards products with higher added value. Engineering and design activities have been growing by an average of 5% over the last ten years. Before the pandemic in 2019, the Malaysian government approved investments worth 1billion. MYR (USD billion), of which foreign investments accounted for 71.1% or 10.7 billion MYR., the remaining 28.9% were domestic sources. These approved investments create highly skilled jobs and develop the supplier ecosystem in the country.

ICT

Malaysia strives to rank among advanced economies and ICT are directly defined as one of the key priority areas of the 12th Economic Transformation Program of Malaysia for 2021-2025. In Malaysia, with the direct support of the government, digital transformation and electronicization of individual sectors of the economy are underway, with the aim of achieving a share of 25.5% of GDP within 3 years. Opportunities will thus arise not only from the demand of ministries and public institutions, but also from private entities that need to respond to changes as a result of the coronavirus pandemic. Development, data, cloud, analytics and cybersecurity IT companies will thus find numerous opportunities.

Malaysia fully recognizes that if it wants to keep pace in the global value chain, it must focus on resilience, adaptation and innovation to sustain its economic growth. Therefore, it aims to combine its economic development with digitization. Similar to other Asian countries, the development of the ICT sector has high prospects in Malaysia, which continues to develop. MyDigital, a program adopted by the government in accordance with the plans of the current five-year plan, is aimed precisely at supporting the development of this sector, through inclusion and also digital transformation. Information and Communication Technology (ICT) services are taking a central role in boosting these digital economy goals, which include 100% internet coverage, support for e-learning, digital literacy, cashless payments and attractiveness to unicorns (startups valued at more than $1 billion). USD). Leading ICT sub-sectors in Malaysia include cyber security and data integration, which include the Internet of Things (IoT), data analytics, cloud computing and artificial intelligence. Malaysia is also focusing on implementing 5G to improve the country’s connectivity.

Opportunities can thus be seen especially in the development of smart city mobile applications (e.g. fare payment for public transport, food delivery, games), e-commerce or the development of infrastructure control systems (intersections). Chances are they have user-friendly innovative products. In addition to applications, services in the field of ICT are also potentially interesting, e.g. graphic design or ICT training and certification. Several places in the MaGIC startup incubator/accelerator are also allocated once or twice a year for start-ups from all over the world. This option is also open to Czech start-ups.

Defense industry

Malaysia has long sought to modernize its army, air force and navy, but this is a gradual process. It is a field where the government and the security forces of the state have a decisive position as end users. Czech products have potential on the Malaysian market, especially where their high quality and added value can be demonstrated. Offers from both large companies and SMEs whose products are unique and innovative are promising.

Malaysia has long sought to modernize its army, air force and navy (as evidenced by the purchase of four Airbus A400M transport aircraft, the construction of modern military combat vessels, etc.), but this is a gradual process. Malaysia’s first-ever White Paper was released in late 2019 and sets out the country’s defense and security policies for the next 10 years (2020-2030). The material is characterized by a new view and approach to defense and security issues: a comprehensive concept and a joint effort of all assumed actors. The role of the citizen is emphasized, which becomes a key element of the defense strategy. In order to fulfill the defense strategy, the reform or modernization of the armed forces and the management structure of security and defense is also expected. The White Paper is based on six pillars i) improving preparedness and defence; ii) strengthening defense capacity and competence; iii) improving the welfare of personnel and veterans (allocation of approximately USD 35 million); iv) strengthening civil-military cooperation; v) development of science, technology and industry; and vi) strengthening international cooperation. Building capacities to fight cyber attacks is also an integral part. The main tasks in this area are the protection of the communication and information infrastructure of Malaysia. Malaysia has established the National Cyber ​​Authority (NACSA) for this purpose.

Czech-Malaysian cooperation in the field of defense is a long-standing matter. Possibilities can also be seen in material used in natural disaster management (shelters, rescue equipment, portable generators or water purification solutions) or for field medicine (innovative first aid products, drugs for field use). The potential also exists especially in the field of advanced electronics, ground and air technology and small arms. A company that wants to succeed in the Malaysian market has a significantly higher chance if it cultivates personal contacts, in addition, soon supported by the establishment of a local representative office.

Water management and waste industry

Despite some progress in the water and waste management sector, Malaysia still lags behind. Therefore, one of the priorities is to concentrate the construction and modernization of the water supply network, sewerage and cleaning systems, especially in the island part of Malaysia (Sarawak, Sabah), where the state will have to invest considerable resources in their construction in the coming years. A major player in the field of wastewater treatment, the state-owned Indah Water is currently planning to standardize and modernize the sewage network in order to limit its negative effects on the environment (odor, pollution) and at the same time to enable the treatment of a larger amount of wastewater. The government plans to build over 50 wastewater treatment plants by 2035 with a total investment of MYR 2 billion (USD 500 million).

Malaysia is a country rich in water resources, with approximately 95% of its water resources coming from inland river systems. Roughly 97% of water supplies for domestic, industrial and agricultural needs come from these surface water sources – rivers. Malaysia has 189 river basins – 89 in Peninsular Malaysia, 78 in the state of Sabah and 22 in Sarawak. Another important source of water is precipitation, where the average annual amount of precipitation is approximately 3,000 mm and, according to estimates, it is an annual source of water approximately in the amount of reserves reaching 900 billion m³.

Malaysia continues to lag behind in the collection of used water. Sewerage and purification systems have also lagged behind the development of the water supply network in their development, and especially the island part of Malaysia (Sarawak, Sabah) will have to invest considerable resources in their construction in the coming years. The main player in the field of wastewater treatment is currently planning the standardization and modernization of the sewage network in order to limit its environmental effects (odor, pollution) and at the same time to enable the processing of a larger amount of water. The government plans to build over 50 wastewater treatment plants by 2035 with a total investment of MYR 2 billion (USD 500 million).

Other products in demand are above-ground water tanks, services related to recultivation and sanitation, decontamination during the palm oil processing process, water treatment or cleaning water from oil stains. A separate chapter would be the potential for cooperation in research and development in the field of water and waste management. Malaysia is not left behind in the area of ​​secondary use of raw materials and the circular economy. More and more local residents are aware of social responsibility and adjust their consumer behavior and pressure on producers accordingly. We can also meet the concept of packaging-free trading and the “zero-waste concept.” IT technologies designed for the mentioned products can then be applied across all areas for cooperation.

Agriculture and food industry

Food constitutes the ninth highest item of Malaysian imports. However, potential also exists in the segment of mechanization of care for palm plantations and their harvesting, growing potential can also be seen in the sector of precision agriculture (smart farming).

Agriculture remains an important component of Malaysia’s economy. In 2020, this sector recorded a decrease of 2.2% (2019: 2.2%) and contributed 7.4% to the formation of the total GDP. The decline was mainly caused by the key commodity – oil palm, which recorded negative growth of percent (2019: 1.5%).

The most important agricultural commodity is palm oil (it makes up 30% of agricultural production), the production of which in 2020 reached a volume of 19.4 million tons, i.e. 0.72 million tons less or 3.6% less than in 2019 (19.86 million tons). This is due to labor shortages and disruptions to harvesting processes caused by government restrictions on movement during the culminating pandemic. Another important crop in Malaysia is the rubber tree, which is an important source of livelihood in rural areas and its production is linked to other industries such as the production of rubber gloves.

Whey is a traditional Czech export item to Malaysia. The entry of Czech foods into the Malaysian market is complicated by high non-tariff barriers to food imports (mandatory halal certification for meat and dairy products, administrative delays in the case of importing alcoholic beverages). The highest potential can thus be seen in less conflicting items, such as confectionery or non-alcoholic beer. Even here, however, the halal certification plays a significant role, which greatly influences the consumer behavior of the majority of the population.

The full country map – Malaysia – can be downloaded from this link.

Malaysia Trade