Institute for Integrated Learning in Management Graduate School of Management

Country Report on Malaysia

Group no 13 Academic year 2012-2014

Submitted by: Submitted to: Prof .Rajkishan Nair Ankit Sharma Subhasinee Choudhury Saurav Roy Vikas Kumar Jyotsna Tripathi Puran Chandra Ghosh Kushagra Varshney

CONTENTS
Topic 1. Summary 2. Introduction 2.1. Geographical view of the country 2.2. Foreign Relations 2.3. Political System 2.4. History of the country 2.5. Demographics 3. Economic Situation 3.1. Economic Overview 3.2. GDP of the country 3.3. GDP and the growth rate & gross investments 3.4. Composition of GDP & key indicators 3.5. Inflation rate 3.6. Current Account Balance 3.7. Fiscal and Monetary Policies 3.8. Literacy Rate 3.9. Labor Force 3.10. Key points of trades and investments 3.11. Poverty Rate 4. Government Restrictions 5. Political and Social Environment 6. International Positions 6.1. Imports and exports of the country 6.2. FDI 7. Business Opportunities and threats 7.1. Industries 7.2. Public and Private Sectors 7.3. Major companies 8. Infrastructure 9. Transportation 10. Military 11. Conclusion

Executive Summary Malaysian economy, one of the leading economies of the world experienced a macroeconomic recovery and stabilization of ruling coalition from 2009 to 2011. Malaysias economic transformation from 2009 to 2011 shows more positive sign than development. The country was strongly affected by the global financial crisis, but soon the economy recovered and gained strong new momentum in 2010. The industrial sector based on manufacture and export of technology-based product of multinational enterprise has fueled Malaysian growth into a middleincome Country. Electronics, particularly semiconductors, accounts for 40% of exports followed by automobiles and parts. Its fast growing services sector features tourism as well as Islamic banking and finance. On March 30,2010 Prime Minister Najib unveiled a so-called New Economic Model ( NEM).The goal of NEM are to allow Malaysia to double its per capita income by 2020 and become more competitive ,more market driven and more investor friendly. As a road map towards these goals the Government introduce the Tenth Malaysian plan (2011-2015) which focuses on 12 key economic areas (NKEA), oil and gas , palm oil and related products and financial services, wholesale and retail , information and communication technology (ICT) education

services , electrical and electronic products and development of Kuala Lumpur has focused on investment

Introduction

Malaysia was formed in 1963 out of a number of former British colonies combining the territories of Malaya, Singapore, Sabah and Sarawak. However in the year 1965, Singapore was expelled from the federation. Malaysia situated in Southeast Asia , is a federation of 13 states and three federal territories. Malaysia mainly consists of two parts West Malaysia and East Malaysia. Each state has its own constitution, a head of state, an elected assembly which is led by a chief minister and a cabinet, and legislates on matter for outsider the federal parliament spheres. Some facts about Malaysia: Area Population Age structure 329,847 sq km (127,355 sq miles) 29,179,952 (July 2011 est.) 0-14 15-64 years: 29.6% years: 65.4% (male (male 4,374,495/female 9,539,972/female 4,132,009) 9,253,574)

65 years and over: 5% (male 672,581/female 755,976) (2011 est.) Capital Currency Language Religion Kuala Lumpur Ringgit Malaysia (RM) Bhasa Malaysia (official), English, Chinese dialects, Tamil, Malayalam Islam, Buddhism, Taoism, Hinduism, Christianity, Sikhism +60

International dialing code

Malaysia has constitutional monarchy where a monarch heads the state within the guidelines in the constitution. Malaysia has a mixed legal system of English common law, Islamic law and Customary law. The prime minister is the head of the government must be the member of Dewan Rakyat (House of representatives), the lower house of parliament. Dewan Negara, the upper house composed of senators appointed by government. Each of the 13 states of

Malaysia has its own State Assembly headed by a chief minister. Election held every five years. The next general election due to be held before May 2013. Foreign Relations: The Ministry of Foreign Affairs, Malaysia popularly known as Wisma Putra is responsible for maintaining foreign relation of the country. The country has been an active member of several organisations which includes the Common Wealth of nations, the United Nations, the organisation of Islamic Cooperation and the Non-Aligned Movement. This membership has been helpful in building co-operation between member states, in finding solutions to the global problems and has always been maintaining foreign relations. Malaysia has always been interested in regional cooperation and the result is that is has been an active member of ASEAN (Association of South East Asian Nations) since its inception. Malaysias foreign policy is structured upon a framework of bilateralism, regionalism and multilateralism. ASEAN forms the core priority of Malaysias current foreign policy, in consideration of their neighbours as their closest allies. Looking further a field, as a country with a strong Muslim majority, Malaysia also gives importance to the solidarity of the Ummah and the spirit of cooperation among the Organisation of Islamic Conference (OIC). Malaysias status as a developing nation makes it imperative for the country to engage actively in the Non-Aligned Movement (NAM), the Commonwealth, Group of Seventy Seven (G77), Developing Eight (D8), Asia Middle East Dialogue (AMED), Far East Asia Latin America Cooperation (FEALAC), Indian Ocean Rim Association for Regional Cooperation (IOR-ARC), Asia Europe Meeting (ASEM) and Asia Pacific Economic Cooperation (APEC). Through these

organisations, Malaysia has sought to promote the South-South Cooperation among the developing countries and the Muslim world. Malaysia also advocates the Prosper thy

neighbour policy to enhance economic relations and cooperation with its neighbouring countries through Brunei-Indonesia-Malaysia-the Philippines East ASEAN Growth Area (BIMPEAGA), Indonesia-Malaysia-Thailand Growth Triangle (IMTGT) and other entities. Malaysias relations with Singapore are complex. While the two countries share close economic and social linkages, the history of separation and some high profile disagreements have complicated the relationship. Relations with Malaysia's largest neighbour, Indonesia, have also been tense at various times in the past half-decade: points of irritation have been the status of Indonesian workers in Malaysia (Indonesian temporary migrants, legal and illegal, comprise a large proportion of Malaysia's lower-income workforce), and disputes over maritime boundaries. Malaysia continues to monitor the unrest in the southern Philippines and in southern Thailand close to its borders. Source : Ministry of foreign Affairs Malaysia http://www.kln.gov.my/web/guest/overview2 Political and social environment of Malaysia The nature of Malaysian politician leaders, followers and Malaysian people contributes to a stable politic in Malaysia . Malaysia is able to live together and work together. In the 1950s1960s Malaysia was seen as a developing country. Malaysia is successful because the people begun to see oneself as Malaysian and not based on races. Malaysia has been a very successful country in creating harmony, peace among races. The positive aspects of political system in Malaysia such as the leadership qualities, consolidation of political parties and behind closed door leaders discussed sensitive issues creates peace and harmony in the country. For this type of positive political system, people emulate this. Malaysia isnunique in many ways as a multicultural, multi-religious and multi-ethnic country. Malaysia managed to promote stability

despite the democracy model is unique. The uniqueness can be seen from the leadership of Malaysia. The social culture of Malaysia is learned, practiced and shared through cultural diffusion. Malaysia is separated by different culture and beliefs. The mode of celebration, the dates and the traditions vary, the spirit remains as one Malaysia. The most amazing thing with Malaysian people are accepting appreciation, they accept or promote the multiple cultures. Malaysia is actually experiencing multiculturalism which approximates to respect for diversity.

Economic overview Malaysia, a middle-income country, has reworked itself since the Seventies from a producer of raw materials into a rising multi-sector economy. Under current Prime Minister NAJIB, the Asian nation is making an attempt to attain high-income standing by 2020 and to maneuver further up the added production chain by attracting investments in monotheism finance, technology industries, biotechnology, and services. The NAJIB administration is also continued efforts to spice up domestic demand and cut back the economy's dependence on exports. even so, exports - notably of natural philosophy, oil and gas, vegetable oil and rubber - stay a major driver of the economy. As an oil and gas businessperson, Malaysia has profited from higher world energy costs, though the rising price of domestic fuel and diesel oil, combined with strained government finances, has forced Malaysian capital to start to cut back government subsidies. The govt. is additionally making an attempt to minimize its dependence on state oil producer PETRONAS. The oil and gas sector provides over four-hundredth of presidency revenue. The

financial organization maintains healthy interchange reserves, and a well-developed regulative regime has restricted Malaysia's exposure to riskier money instruments and also the international money crisis. Economic Indicators 2011- Malaysia GDP growth (% change per year) CPI (% change per year) Unemployment Rate (%) Fiscal Balance (% of GDP) Export growth (% change per year) Import growth(% change per year) 5.1 3.2 3.1 (5.3) 14.5 13.9

Current Account Balance(% of GDP) 11 http://www.adb.org/countries/malaysia/economy Malaysias GDP

GDP is commonly used as an indicator of the economic health of a country, as well as to gauge a country's standard of living.

GDP=C+G+I+NX where: "C" is equal to all private consumption, or consumer spending, in a nation's economy. "G" is the sum of government spending

"I" is the sum of all the country's businesses spending on capital "NX" is the nation's total net exports, calculated as total exports minus total imports. (NX = Exports - Imports)

The Gross Domestic Product (GDP) in Malaysia stands at 278.67 billion dollars in 2012,as per the report revealed by the world Bank. The GDP value of Malaysia is roughly around 0.45 percent of the world economy. Traditionally, from 1960 till 2011, Malaysia value averaged 59.9 US$ Billion and reached an all time high of 278.7 US$ Billion in December of 2012 and a record low of 2.4 US$ Billion in December of 1961.

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

GDP(billion U.S $) 93.79 92.784 100.846 110.202 124.749 137.954 156.523 186.642 221.828 193.092 237.803 278.671

GDP(billion U.S $)
300 250 200 150 100 50 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 GDP(billion U.S $)

www.trading.economics / The World Bank Group Malaysias GDP Growth Rate The GDP in Malaysia has expanded to 3.3 % in the 3rd quarter of 2012 over the previous quarters. The growth rate is according to the Department of Statistics Malaysia. If we see the growth rate of Malaysia say over a period of 10-12 years we can find that it always averaged around 1.3%. It reached its all time high of 5.9% in September 2009 and a record low of -7.6% in March 2009.Malaysia being a middle income economy has transformed itself and it is now a rapidly developing economy. It has also transformed itself from a producer of raw materials into a emerging multi sector economy since 1970s. Since the economy is highly depended on exports, the government is continuously making efforts to increase the domestic demand. Nevertheless, exports of electronic items are still the big driver of the economy.

Malaysia GDP per capita PPP

Purchasing power parity shows how much money is required to buy the same basket of goods and services in two countries and thus it is used to calculate an implicit foreign exchange rate.The GDP per capita PPP in Malaysia was last recorded at 15588.66 $US in 2011. It is equivalent to around 71% of the worlds average and is reported by the world bank. Traditionally it averaged around 7900.8 USD with a an all time high of 15588.7USD in December 2011 and a record low of 2323.7 USD in December 1980. It is obtained by dividing the countrys total GDP, adjusted by purchasing power parity by the entire population.

Year

GDP

Per

capita

PPP

in

thousands U.S $ 2003 10

2004 2005 2006 2007 2008 2009 2010 2011

11 12 13 14 15 14 15 15.5

20 15 10 5 0

GDP Per capita PPP in thousands U.S $

GDP Per capita PPP in thousands U.S $

200320042005200620072008200920102011

http://databank.worldbank.org/ddp/htmljsp/QuickViewReport.jsp?RowAxis=WDI_Ctry~&ColAxis=WDI_Time~&PageAxis=WDI_Seri es~&PageAxisCaption=Series~&RowAxisCaption=Country~&ColAxisCaption=Time~&NEW_ REPORT_SCALE=1000&NEW_REPORT_PRECISION=0&newReport=yes&IS_REPORT_IN _REFRESH_MODE=true&IS_CODE_REQUIRED=0&COMMA_SEP=true

Gross Investments Gross capital formation (formerly gross domestic investment) consists of outlays on additions to the fixed assets of the economy and net changes within the level of inventories. fixed assets include land enhancements (fences, ditches, drains, and then on); plant, machinery, and equipment purchases; and therefore the construction of roads, railways, and therefore the like, including colleges, offices, hospitals, non-public residential dwellings, and business and industrial buildings. Inventories ar stocks include control by companies to fulfill temporary or sudden fluctuations in production or sales, and "work in progress." per the 1993 SNA, net acquisitions of valuables are thought-about as capital formation. Year 1993-1997 1998-2002 2003-2007 2008-2012 Gross domestic investments 21 18 23 24

Gross Domestic Investments

1993-1997 1997-2002 2003-2007 2008-2012

http://data.worldbank.org/indicator/NE.GDI.TOTL.ZS

Inflation rate

The inflation rate in Malaysia was recorded at 1.30 percent in December 2012. Inflation rate in Malaysia is reported by the department of statistics Malaysia. In 2009 its being a very low of 2.40 percent in July of 2009. The most important categories in the consumer price index are food and non-alcoholic beverages. There is totally slum in the market . It also effect on the

purchasing power of the consumer like water, electricity ,gas and others fuel (23 percent of total weight) , transport (15 percent), communication (6 percent), Recreation and culture ( 5 percent) household equipment maintenance ( 4 percent ). These are the main factor that will effect on the whole economy . This page includes a chart with historical data for Malaysia inflation rate .

Current Account balance In the year 2012 , Malaysia recorded a current account surplus of 9505 million RM as reported by Department of Statistics,Malaysia .Malaysias current account balance is17798.74 million RM with a record of all time high in September,2008 and low of 5366 million RM in June,2002.A higher record of current account surplus indicates that the country is dependent on

its export for revenue.The chart represnts the historical data of current account balance of Malaysia.

Source:http://www.tradingeconomics.com/malaysia/inflation-cpi Fiscal and Monetary Policy The objective of the monetary policy is to influence the performance of the economy by influencing factors such as inflation, economic output and employment. The Central Bank, Bank Negara Malaysia is entrusted with maintaining the countrys monetary and financial stability . In the year 2011,the monetary policy mainly concentrated on sustaining the economic growth of the country ,checking on inflation and also preventing financial imbalances. The first half of the year 2011 witnessed sustained growth but the second half of the year saw downside risks to economic growth due to the detoriating global and economic condition, whereas the upside risks to inflation began to moderate. Given the balance of risk the Monetary Policy Committee (MPC) considered the prevalent Overnight Policy Rate (OPR) i.e. at 3% to be appropriate and kept the policy rate unchanged for the whole year. The Statutory Reserve Requirement was also

increased by 1% point each time in March, May and July to 4% to reduce the size of excess liquidity in the banking system. With the increase in OPR the banking system increased the base lending rate (BLR) to 6.54% . Fiscal policy in 2012 was geared towards stimulating domestic economic activity and providing support to the economic transformation plan. The Government has to face the challenge of providing support to the economic transformation plan. The Government has to face the challenge of providing continuous support to domestic demand and ensuring a sustainable fiscal position. Emphasis has also been laid on generating growth through private sector

investment and consumption . Timely implementation of Governments reforms initiative under National Key Result Area (NKRAs), National Key Economic Area ( NKEAs) and Strategic Reforms is also a major focus of the government. The Federal Government fiscal deficit was 5% in the year 2011 and is expected to narrow down further .Revenue collection was expected to be improved with better tax administration and high compliance in tax submission and collection. Total expenditure continues to remain supportive of growth with an allocation of RM181.6 billion for operating expenditure and RM 49.2 billion for development expenditure . The Government finances fiscal deficit mainly through insurances of Malaysian Government Securities(MGS) and Government Investment Issues (GIIs) given high domestic savings and ample liquidity in financial systems. Source : Bank Negara Malaysia www.bnm.gov.in

Poverty rate National poverty rate is the percentage of the population living below the national poverty line. National estimates are based on population-weighted subgroup estimates from household surveys. In 1990, 16.5 per cent of households were in poverty. Now it is only 3.8 per cent in year 2009, means out of 6.2 million households only 228400 can be classified as poor. So, these 228400 are households that can earn an average of RM800 a month and below. Therefore, if a household of four earns RM900, RM1000, or even RM1500 a month, they can be considered as non-poor. The poverty Income Level (PLI) is defined as: An income that is necessary to buy a group of foods that would meet the nutritional needs of the members of a household. The income is also to meet other basic necessities such as clothing, rent, fuel and utilities, transport and communications, medical expenses, education and recreation. But a social activist Jayanath has called for the current absolute measurement used by the government to be revamped as it doesnt take into account the rising cost of living. There is a need of new standard to measure poverty. Government calculates different PLIs for Malaysias three regions, the total average PLI is RM800. While RM763 is the benchmark for poverty line in peninsular Malaysia, it is RM912 in Sarawak and RM1048 in Sabah.

The government claims that it uses a World Bank standard to measure PLI. But they do not reveal the actual methodology of how they arrive at RM763, says Jayanath. He said that weakness in this measurement is that it does not address several factors, such as the difference in cost of living in urban and rural areas, and the annual increase in the consumer price index. Jayanath said that 50% of the monthly household median income should be used as benchmark to measure the poverty rate in the country as many developed countries use this system to measure their poverty level Literacy Rate

Adult Literacy Rate 2005-2010, Male , % (UNESCO)

92.5

Adult Literacy Rate 2005-2010, Female, % (UNESCO)

92.42

Adult Literacy Rate 2005-2010, Total, % (UNESCO)

92.46

Youth Literacy Rate 2005-2010, Male, % (UNESCO)

99

Youth Literacy Rate 2005-2010, Female, % (UNESCO)

98

Youth Literacy Rate 2005-2010, Total, % (UNESCO)

98.5

Adult Literacy Rate = The percent of people over the age of 15 who are literate. Data taken over a 5 year period. The definition of literacy varies by country

Youth Literacy Rate = The percent of people between the ages of 15 and 25 who are literate. Data taken over a 5 year period. The definition of literacy varies by country

Labor Force The total labor force in Malaysia was last reported at 11969964.33 in 2010, according to a World bank report publish in 2012. It is including both the employed and the unemployed. The national practices vary in such groups as the armed forces and seasonal or the part-time workers. Generally labor force includes the armed forces, the unemployed and the first-time job-seekers. This historical data chart, news and forecast for Labor force.

WORLD BANK INDICATORS - MALAYSIA - LABOR FORCE STRUCTURE Labor force; female (% of total labor force) in Malaysia Labor force; total in Malaysia Labor force with primary education; female (% of female labor 17.2 force) in Malaysia Labor force with primary education; male (% of male labor 20.5 force) in Malaysia 19.9 15.5 35.4 35.6

11350820.3 11548873.4

Labor force with primary education (% of total) in Malaysia Labor force with secondary education; female (% of female labor

19.3

18.3

51.5 force) in Malaysia Labor force with secondary education; male (% of male labor 59.1 force) in Malaysia Labor force with secondary education (% of total) in Malaysia Labor force with tertiary education; female (% of female labor 25.9 force) in Malaysia Labor force with tertiary education; male (% of male labor 17.1 force) in Malaysia Labor force with tertiary education (% of total) in Malaysia 20.3 56.3

51.8

58.4

56.0

27.2

17.9

21.2

Employed Persons in Malaysia Employed person in Malaysia increased to 12123 thousand persons in December of 2011 from 11776.80 thousand person in December of 2010. This chart with historical data for Malaysia employed person.

Malaysia Unemployed Person Unemployed person in Malaysia decreased to 382.90 thousand persons in December of 2011 from 395.80 thousand persons in December of 2010. This chart Malaysia unemployed persons. with historical data for

Malaysia Job Vacancies Malaysia increase to 453893 Jobs in the third quarter of 2012 from 419636 jobs in the second quarter of 2012. This chart with historical data for Malaysia job vacancies.

Trade and Investments Industries of Malaysia Malaysia is a newly industrialized country that experienced an economic boom and underwent rapid development during the late 20th century. Before this rapid industrialization, Malaysia was the worlds largest producer of tin, rubber and palm oil. When the tin market collapsed, the government was forced to diversify and modernize the economy. Since then, it played an active role in industrialization and economic development. Today, Malaysia has moved into the third stage of economic development.

Malaysias Industry Sectors Manufacturing Manufacturing continued to be an important sector in the economy contributing 27.5 % of GDP in 2011. Exports of manufactured products accounted for 67.7 % of Malaysias total exports in 2011. Employment in the manufacturing sector estimated at 28.7% of total employment in 2011. The improved performance of the manufacturing sector was also reflected in the expansion of the sectors industrial output. Some of the key industries include Rubber, oil palm processing, electronics, tin mining and smelting, light manufacturing etc. Oil and natural gas in Malaysia are managed by Petronas- a Fortune 500 company wholly owned by the Malaysian government. In order to boost its oil fields development Malaysia has done partnership with companies like Exxon-Mobil and Royal Dutch Shell. Agriculture The agriculture sector recorded a 7.3 % to the GDP. Employment in this is estimated at 11.5% of total employment in 2011. Rubber and palm oil are Malaysias key agricultural products. Malaysia is the second largest producer of palm oil in the world. Malaysia is also responsible for the supply of one-third worlds rubber exports. Rubber production has gradually decreased over the years as mostly producers are switching over to palm oil. However, Malaysia still retains a good reputation for its high quality and well-priced rubber products. It is been exported to US and Japan to become components for automobiles, belts and horses.

Services The services sector encompasses broad and diverse activities such as transport,

telecommunication, banking, insurance, real estate, tourism, education and health services. In 2011 it accounted for largest share of Malaysias GDP by contributing 58.6%. Employment in this sector is estimated at 53.3% of total employment in 2011. Presently, Malaysia has a thriving finance industry, particularly in Islamic banking. Malaysia is the largest Islamic service provider in Asia Pacific and competing with Bahrain to be the world leader in Islamic banking. In 2009, Malaysian government introduced new licenses for investment banking, Islamic banking and insurance banking. According to the 10th Malaysian plan , the goal for the service industry is to achieve 61% of GDP share by 2015. Sourceshttp://www.economywatch.com/world_economy/malaysia/industry-sector-industries. http://www.mida.gov.my/env3/uploads/PerformanceReport/2011/ Roles of Public and Private Companies in Malaysia Trade is the lifeline of the Malaysian economy. This is reflected in the high rates of external trade to Malaysias Gross Domestic Product (GDP). In 2009 tradeaccounted for about 180 % of the GDP. The importance of trade in the Malaysian economy has made it imperative for the Government to Provide for an environment that is conducive to doing business. Malaysia has taken concrete steps, over the last three decades, to evolve and implement various trade facilitation initiatives particularly in the area of customs policies, legislations, procedures and

practices. The fundamental basis of the Malaysia Incorporated Concept is that successful national development required the public and private sectors to adhere to the view that the nation is a corporate or business entity, jointly owned by both sectors and working in pursuit of shared goals. The public sector, entrusted with specific powers to safeguard public interest, has long emphasized its regulatory role over the conduct and activities of the private sector. Under the Malaysia Incorporated Concept, the public sector was required to redefine its role in relation to business activities and to embark on new approaches to facilitating the private sectors role in spearheading economic development. The public sectors response to the Malaysia Incorporated Concept was to promptly establish the structural mechanisms necessary for the public-private sector consultation process. The public-private sector collaborative mechanisms have contributed much to the ease of doing business in Malaysia. There have been continued improvements on many fronts, specifically in enhancing transparency and streamlining procedures and practices. Public-private sector consultations provided useful inputs during the review of the existing policies like the Distributive Trade Guidelines, Competition Policy, Government Procurement and Foreign Investment Committee Guidelines etc. The Privatization Policy was launched in 1983 to support the Malaysia Incorporated Policy towards increasing the private sector's role in the country's economic development. The main objective of this policy is to lessen the financial and administrative burden of the Government, improve skills and production, accelerate economic growth, reduce the size and involvement of the public sector in the economy, and to assist in reaching the country's economic policy's goal.

FDI in Malaysia

FDI in a country is established following the holding of at least 10 per cent of the total equity in a resident company by a non-resident direct investor. Any subsequent transactions in financial assets or liabilities that occur between nonresident direct investors and resident companies that are linked by a foreign direct investment relationship (FDIR) are also classified as FDI. The transactions could be between the companies in Malaysia with its immediate parent, ultimate parent or fellow companies as shown in the diagram below. Besides Malaysia, Canada also adopts FDIR to determine FDI transactions. In other words, direct investment can also be established by the existence of lasting interest between the direct investors and the enterprises and a significant degree of influence by the investors on the management of the enterprises. Guidelines provided by IMF (BPM5) describe FDI components as equity capital, reinvested earnings and other capital. The explanations are as follows: Equity Capital - comprises equity in branches, all shares in subsidiaries and associate companies (except non-participating preference shares), Reinvested Earnings (RE) - consists of direct investors shares of earnings not distributed as dividends by subsidiaries or associates and earnings of branches not remitted to direct investors, and Other Capital - consists of debt securities, trade credits, loans, deposits and the others.

FDI Position by Component Table 1: FDI Position by Component, Malaysia, 2001- 2007 (in RM Billion) 2001 2002 2003 2004 2005 2006 Component FDI in Malaysia Equity capital Reinvested earnings 129.1 142.7 63.2 49.9 67.6 59 16.1 156.5 77.6 64.1 14.7 163.6 81.5 69.5 12.5 168.1 81.9 74.4 11.8 190.1 101.7 79.8 8.6

2007 253.8 135.7 107.1 11

Other capital 16 FDI Movement

FDI movement is basically derived from financial transactions and non transaction factors such as price changes, foreign exchanges and other changes during the reference period. In other words, the movement is derived from the differences between the closing and opening positions of the year.

FDI Position by Economic Sector

For the period of 2003 2007, manufacturing, financial intermediation, mining and services were the main four sectors of FDI recipients .

Manufacturing sector remained dominant, accounted for more than half of the total FDI. This was followed by financial intermediation. However, as at December 2007 both manufacturing and financial intermediation shares declined: manufacturing, from 57.9 per cent to 52.6 per cent and financial intermediation, from 29.3 per cent to 15.6 per cent. On the contrary, the value and shares of services and mining sectors increased in 2007.

The FDI in the agriculture sector surged tremendously over the period of four years following M&A activities. The value of this sector increased sharply from RM0.4 billion in 2003 to RM9.3 billion in 2007 (+2,225.0%). The services (+1,306.3%) and real estate sectors (+311.1%) experienced similar upward trend, albeit relatively smaller FDIs. During the period, the value of FDI in trade/commerce increased more than two fold. This is mainly due to the influx of hypermarkets and International Procurement Centers (IPC) in the country.

FDI Position by Country

At the end of 2007, FDI originated from four regions; namely Europe (Netherlands, UK, Norway, Germany and Switzerland), Asia (Singapore and Japan), Caribbean Islands (British Virgin Island and Bermuda) and North America (USA). countries in those regions were observed contributing more than 85.0 per cent of the total FDI in Malaysia for the period of 2003 - 2007 Of these, three countries emerged as the leading direct investors namely, Japan (2003 & 2004), USA (2005 & 2006) and Singapore (2007). Thus, it is clearly seen that the FDI in Malaysia was not dominated by any single country. Singapore has shown the largest increase in FDI position (+RM30.1 billion), followed by USA (+RM21.3 billion) and Norway (+RM10.5 billion).

FDI Investment Income by Component

Investment Income of FDI constitutes of three components namely dividends, reinvested earnings and interests. Dividends are distributed earnings allocated to shares and other forms of participation in the equity of incorporated private enterprises, cooperatives and public corporations. Interests comprise income on loans and debt securities. The value of income in

2001 amounting to RM22.5 billion surged to RM33.7 billion in 2007, an increase of RM11.2 billion or 49.8 per cent and peaked in 2007.

At the end of the period, dividends and RE formed 98.9 per cent of the total FDI income amounting to RM196.6 billion. Of this amount, dividends accounted for 55.4 per cent whilst the remaining RE was 44.6 per cent. The total profit repatriated in the forms of dividends RM108.9 billion in the period of seven (7) years. While the RE which is meant for expansionary activities in Malaysia. Import And Export Of Malaysia Malaysias international trade experienced tremendous growth throughout the last three decades, which plays a vital role in Malaysian economy. In 2011, Malaysia post a trade balance of RM 120.32 billion. It was the second highest ever recorded. Malaysia has been a trade hub for centuries. Today, Malaysia shares healthy trade relations with a number of countries , specifically the US. The country is associated with trade organizations, such as APEC, ASEAN and WTO. The ASEAN free trade area that was established for trade promotion among ASEAN members also has Malaysia as its founding member. Malaysia has also signed Free Trade Agreements with countries including Japan, Pakistan, China and New Zealand. Total trade in October 2012 increased by RM 712.7 million or .6% to RM113 billion. The increase in total trade was contributed mainly by higher trade with ASEAN which increased by RM3.1 billion.

Export performance in October 2012 was still impacted by Euro Zone crisis and was valued at RM61.29 billion, a decrease of 3.2% compared with oct.2011 while imports was higher by 5.7% to RM51.71 billion. Total of the export composition for this time was: Export of manufactured goods in October 2012 was valued at 39.99 billion. It has decreased by 3% compared to oct.2011 due to lower exports of manufactures of metal, particularly aluminium alloys and electrical and electronic products. However there were higher exports for optical and scientific equipment (19.3%), rubber products (1.1%), machinery (0.9%) etc Malaysia was one of the worlds largest producer of rubber, palm oil and tin. Malaysias manufacturing industries has crucial roles in its economic growth. Malaysia exports commodities: Petroleum and liquefied natural gas Palm oil Rubber Wood and wood products Electronic equipment Chemical Textile

Malaysia imports commodities : Plastics Machinery

Vehicles Iron and steel products Chemicals

Malaysia Export Partners

Malaysia Imports Partner

Source- economicwatch.com

Malaysian customs and regulations for imports and exports of certain goods Import regulation Free import: Electrical equipment-only one unit if a particular appliance Personal goods 1l of alcohol gifts and souvenirs worth up to RM400 Commercially produced foodstuff worth up to RM75

Prohibited: Narcotics Pornography Explosive material

Restricted Live animals-health certificate required along complete and valid inoculations. Medication- in original packaging and with original labels accompanied by prescription Weapons and ammunition permissible only with authorization.

Exports regulation Prohibited Narcotics Pornography Counterfeit items Explosive material

Restricted Weaponry and ammunition need export permission. Animals and any parts or products thereof. This include endangered species and any products or parts thereof as outlined any CITES may be carried only with CITES permission. Indo-Malaysian Trade Relations Indian trade has been associated with Malaysia for around four decades. Godrej is the primary Indian company had commenced its operations there in seventies and early eighties. The present involvement of Indian corporations in Malaysia is in oil refining, power, biotechnology, information technology, civil construction, etc. The liberalization of the Indian economy and spectacular progress in the Malaysian economy in the late 80s have triggered new dimensions in the bilateral trade and relations.

Malaysian Associated Indian Chambers of Commerce and Industry (MAICCI) was also set up to look out for various opportunities in the areas of economic development and the Indian Community. Bilateral Trade VALUE IN US $ MILLION S. No. 1 2 3 4 Year EXPORT %Growth IMPORT %Growth TOTAL 5 6 TRADE %Growth 6,595.53 8,588.16 30.21 10,604.75 23.48 8,012.19 -24.45 10,480.56 30.81 13553.8 29.32324 5,290.31 20062007 1,305.22 20072008 2,575.26 97.31 6,012.90 13.66 20082009 3,419.97 32.8 7,184.78 19.49 20092010 2,835.41 -17.09 5,176.78 -27.95 2010-2011 3,956.98 39.56 6,523.58 26.02 2011-12 3986.5 0.74 9567.3 46.6572

16000 14000 12000 10000 8000 6000 4000 2000 0 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Exports($US Million) Imports(in $ US million) Total trade(in $ US million)

http://www.ficci.com/international/75142/Project_docs/Malaysia.pdf Source: Department of Commerce, Ministry of Commerce & Industry, GoI FDI Inflows from Malaysia to India

Cumulative FDI Equity Inflows from all countries received in India during April 2000-2012 (up to Aug 2012) were US$ 179.02 billion out of this, FDI inflows from ASEAN Countries are US$ 19.15 billion which represents 10.69% of the cumulative inflows received. Share of Malaysia in FDI Equity Inflows from April 2000 to Aug 2012: Total FDI Inflows from Malaysia: US$ 313.21 million Percentage share of total FDI inflows: 0.17% Rank: Malaysia ranks 28th

Source: DIPP, Ministry of Commerce & Industry, GoI

Investment between India and Malaysia

Potential Sectors for investments between India & Malaysia are Infrastructure Sector Tourism Healthcare, Drugs & Pharmacy Education Biotech Small and Medium Industries Services ( Consultancy etc) Banking and Finance Automobiles Textiles & Garments Agriculture & Food Processing Major Indian Companies in Malaysia Tata Steel International Ltd Reliance Asset Management PETRONAS Astro All Asia Networks Plc Major Malaysian Companies in India Maxis

(Malaysia) SDN BHD Ranbaxy laboratories Ltd Glenmark Ltd. GMR Group Pharmaceuticals

Ranhill Bhd. Mudajaya Group

IRCON International Ltd Ballarpur Industries Limited Larsen & Toubro WIPRO Veeda Clinical Research

Asian Gateways Construction Sdn Bhd Khazanah Nasional Berhad Sunway Group UMW Holdings Bhd

Organisation Aptech Ltd

UMW Corporation Sdn Bhd UEM Builders Bhd

Source: High Commission of India, Kuala Lumpur, Malaysia http://www.ficci.com/international/75142/Project_docs/Malaysia.pdf

Indian Exports to Malaysia (Major commodity groups

(Million US$)

Commodity Group 1 2 3 4 5 6 7 Food Items Beverage & Tobacco Crude Materials Mineral Fuels Animal & Veg. Oils Chemicals Manufactured Goods

2003 219.46 0.99 39.95 3.44 2.35 102.26 168.71

2004 436.39 1.38 50.07 54.95 7.05 163.35 255.0

2005

2006

2007

2008

2009 646.39 22.16 107.68 163.38 25.66 375.94 543.65

307.83 336.76 2.81 47.78 12.26 7.58 7.58 67.23 30.85 11.63

488.08 921.4 7.48 74.78 11.98 146.05

166.89 237.44 22.73 126.39

201.00 258.12 287.90 364.17

280.87 330.43 683.06 936.64

Machinery Equipment

&Trans. 89.61 253.35 165.57 205.72 290.98 400.19 291.01

9 10

Misc. Manufactures Other Misc.

25.6 19.91

42.56 24.67

46.81 24.92

46.12 28.51

60.36 33.30

66.11 17.82

56.43 68.60

India's exports to Malaysia have grown by almost five times from 2002 to

2009.

Manufactured items and food are the largest components of exports, while machinery and transport equipment and chemicals are also prominent exports. Indian Imports from Malaysia (Major commodity groups

(Million US$)

Commodity Group 1 2 3 4 5 6 7 8 Food Items Beverage & Tobacco Crude Materials Mineral Fuels Animal & Veg. Oils Chemicals Manufactured Goods Machinery Equipment 9 Misc. Manufactures & Trans.

2003 11.57 1.00 179.05 818.37 720.63 225.82 95.88

2004 18.98 1.23 183.10

2005 37.12 1.57

2006 27.38 3.24

2007 30.07 4.84

2008 29.36 4.61

2009 31.87 5.27

223.03 219.73

263.24 1094.38 360.74

1061.29 1800.55 2765.28 2698.24 3559.54 1478.95 460.43 286.88 160.21 288.03 261.35 380.52 460.07 229.72 298.04 372.07 754.19 840.21 545.98 635.61 551.46 466.50 483.9 354.27

394.30

750.58

885.60 1003.34 1436.23 1388.7 1048.66

50.63

58.97

94.10

142.48

170.03 192.96 139.33

10

Other Misc. Total:

13.68 2510.9

21.06 3002.8

31.07

36.65

36.86 6031

35.04

159.47

3971.3 5217.6

7412.61 4970.23

http://www.indianhighcommission.com.my/two_way_trade.php Mineral fuels, machinery and transport equipment and crude materials contribute to Indias half of imports. This shows that how much India is dependent on Malaysia for the vital crude materials like crude oil and petroleum. Also the high import of machinery and transport equipment shows the significance of Malaysia as a source of Manufactured items.

Bilateral Agreements between India & Malaysia

Some bilateral agreements are signed between India & Malaysia in & after 2010. They are: Agreement towards implementing Comprehensive Economic Cooperation Agreement (CECA) between India and Malaysia on 1st July 2010; MoU on Cooperation in the field of Traditional Systems of Indian Medicine MoU on Cooperation in the field of Tourism MoU on Cooperation in the field of IT & Services Cultural Exchange Programme (CEP) and Agreement between CSIR of India and UNIK of Malaysia

Source: Directorate General of Foreign Trade, GOI

Measures to strengthen Entrepreneurial activities

In order to strengthen entrepreneurial activities and to improve Investment and trade, Malaysia has taken up some unique strategies such as-

Tax incentives- They give a various types of incentives such as tax holidays or investment allowances in selected industry sectors.

Foreign Tax relief- They also allow bilateral and unilateral foreign tax relief Capital allowances- The entrepreneurs also get allowances on any of capital expenditure they make in their business like plant and machinery, office equipments, industrial buildings, agriculture and forestry, motor vehicles, employee housing, computer equipment, educational institutions, small value asset.

Source: The 2012 worldwide corporate tax guide

Infrastructure Malaysia is one of the most well developed infrastructure among the newly industrializing countries of Asia.

Network of Highways
Malaysia has very well maintained highways. These highways link major growth centers to seaport and airports. The Asean Rail Express has aim of expanding the Trans-Asia Rail link will

include Singapore, Vietnam, Cambodia, Laos and Myanmar before ending up in Kunming, China. The seaports play a very important role in Malaysia. Seaborne trades are the lifeblood of Malaysia. Today 95% 0f the countrys trade is by sea via Malaysias many international ports. Malaysia is well developed in the international airports. Malaysia has a biggest airport, the KLIA. It is located 50km south of Malaysia. It has a capacity of 25 million passengers and 650,00o tones of cargo per year. Cargo import and export procedures are fully automatic its cut down the delivery time. Developed Industrial Parks In Malaysia industries are mainly located in over 200 industrial estates or parks and 14 free industrial zones developed throughout the country. New sites are fully equipped with infrastructure facilities like road, electricity and water supplies and telecommunication, are always being developed by state governments. Hi-Tech Telecommunications The telecommunication network of Malaysia is very impressive. The latest digital and fiber optics technology is used to provide high quality telecommunication services. Telephone subscribers in Malaysia can choose from five network service providers for a full range of local, domestic and international services encompassing voice and data facilities. There are also six internet service providers.

Transportation
Malaysia provides air, road, sea, railway transportations services. Air Transport The Kuala Lumpur International Airport (KLIA) is well known as it is one of the modern airport throughout the world. There are some other international airports in Penang, Kuching and kota

Kinabalu in Malaysia. KLIA also has a low cost carrier terminal designed specifically for AirAsia carrier. Rail Transport Rail transport in Malaysia consists of heavy rail. Rail transit is used for urban public transport and some special use such as transporting passengers between airport buildings such as KLIA and bus stop. There is a system of light rail transit and monorail service in the capital city of Kuala Lumpur. KTM offers several special deals for tourists. Road Transport Malaysia will find that travelling in and around large cities such as Kuala Lumpur, petaling jaya very convenient and easy. Buses and taxis are most popular form of transport in Malaysia. Airconditioned express buses and non-air-conditioned regional buses are available from Kuala Lumpur to many other towns.

Military
There are three type of armed forces in Malaysia. The Malaysian Army(RMA) is responsible for the safeguarding of the national against land based threats. The Royal Malaysian Navy(RMN) protects Malaysias coastlines, territorial waters, and economic zone from potential trespass or illegal acitivity. The Royal Malaysian Air Force(RMAF) maintains and operates a capability that is ready and able to project aerospace power to secure Malaysias airspace and protect.

Government Restriction Openness to Foreign Investment :- Malaysia has one of the worlds most trade-dependent economies with trade reaching 200% of annual GDP. The government of Malaysia values foreign investment as a powerful force for the economic development of the country, but in some sectors is hampered by restriction. Malaysia removed its former Foreign Investment Committee investment guidelines, enabling transaction for acquisition of interests, mergers, and takeovers of local companies by domestic of foreign parties without FIC approval. Manufacturing :- The Malaysian Investment Development Authority (MIDA) screens all manufacturing and related projects in Malaysia, both foreign and domestic. They contribute to the governments goals and objectives. These goals are outlined in the Third Industrial Master Plan. Professional Services :- Malaysia restricts foreign participation in professional services like back office operations that support foreign business activities. Architectural services :- The government of Malaysia has announced that architectural services will be fully liberalized. It allow for 100% foreign ownership in architectural firms in Malaysia. In Malaysia foreign architectural firm may operate in Malaysia only as a joint venture participant in a specific project with the approval of the Board of Architects. Foreign architects may not be licensed in Malaysia, but are allowed to be managers, shareholders, or employees of Malaysian firms. Engineering Services :- The government of Malaysia has announced that engineering services will be liberalized once amendments to relevant Acts have been passed by the Malaysian Parliament. In Malaysia foreign engineers may be licensed by the Board of Engineers. The

project must be sponsored by the Malaysian company carrying out the project. The foreign engineer must be registered as a professional engineer in his home country, have a minimum of 10 years experience , and have a physical presence in Malaysia of at least 180 days in one year. Accounting and Taxation Services :- The government announced all accountants seeking to provide auditing and taxation services in Malaysia must register with the Malaysian Institute of Accountants before they apply for a license from the Ministry of Finance. Citizenship or permanent residency is required for registration with the MIA Broadcasting and Audio- visual :- the government of Malaysia maintain both radio and television programming. 80% of television programming is required to originate from local production companies. 60% of radio programming must be of local origin. Foreign investment in broadcast networks is prohibited and is limited to a 20% equity share in cable and satellite operations. For obtaining a license to operate video rental establishments are required to have 30% local content in their inventories. Banking :- In Malaysia The Bank Negara Malaysia (Central Bank) set controls on both foreign and local financial products. Interest rates on saving account and fixed deposits are mandated and significantly higher than in other Asian countries. Association of Banks determine the transaction fee, but they are not permitted to vary these fee without BNM approval. Credit card interest rates are capped at 18% per annum. Foreign bank can open 100% of individually licensed bank in Malaysia. BNM currently allows foreign banks to open four additional branches throughout Malaysia Land and Agriculture :- In Malaysia only Malaysian citizens may own agricultural land. The government also restricts foreign participation in agriculture and construction.

Land acquisitions by foreign interests that required approval from the Malaysian government are; Acquisition of agricultural land valued at approximately $163,000 and above Land of at least five acres in area for following purposes of agro-tourism projects or agro based industrial activities for production of export goods. Acquisition of industrial land value at approximately $163000 and above.

Conclusion Malaysia is a middle income Country. In spite of the global financial crisis of 2008-2009 it has been able to recover its economic situation. The presence of large multinational enterprise in the electronics and automotive sector, research capabilities in agricultural commodities, high competitiveness ranking and relatively young population are its core strength .The countrys also has a growing tourism industry and high technology exports and as such the country has serious opportunities of growth in these areas. However the poor quality and inadequate supply of skilled labor, stagnant R&D, innovative capacity and competition from other Asian economies are posing a threat to the success of the country so the Malaysian Government must take necessary steps to tackle this problem .