9 Malaysia

Malaysia

Consumer goods and retail report

(Forecast closing date: May 20th 2010)

Retail sales, international comparison

(US$ bn)
2005 a 2006 a 2007 a 2008 a 2009 a 2010 c 2011 c 2012 c 2013 c 2014 c
Malaysia 33 37 45 51 49 b 54 58 64 69 76
US 3,193 3,395 3,528 3,614 3,440 b 3,571 3,659 3,786 3,988 4,211
Japan 1,216 1,163 1,147 1,316 1,425 b 1,461 1,488 1,549 1,598 1,644
China 820 958 1,173 1,561 1,835 2,173 2,664 3,210 3,847 4,608
Germany 414 421 460 502 471 b 459 474 494 514 536
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.
Source: Economist Intelligence Unit.

Overview Malaysia is considered to be among the most developed of the world's

emerging markets. The Economist Intelligence Unit estimates annual private
consumption per head to have increased by 43.4% between 2005 and 2009, to
US$3,395. Despite a contraction in real GDP growth, the unemployment rate
remained below 4% in 2009. However, substantial regional variations in
income and employment levels exist. Consumer lifestyles are evolving, owing
in part to rising affluence and improving education. Around 60% of the
population lives in urban areas.
Although Malaysia boasts relatively high private consumption, the level is low
compared with that of the country's closest neighbour, Singapore, where
consumption per head stood at an estimated US$14,711 in 2009. Moreover,
market opportunities are constrained by the small size of Malaysia's population.
At just over 28m in 2009, Malaysia’s population is just one-third that of
Thailand and is dwarfed by the population of India, which exceeds 1bn.

Income and demographics

2005 a 2006 b 2007 b 2008 b 2009 b 2010 c 2011 c 2012 c 2013 c 2014 c
Nominal GDP (US$ bn) 138.0 156.6 a 186.1 a 221.6 a 191.3 a 229.8 245.2 268.4 290.1 320.2
Population (m) 26.1 26.6 a 27.2 a 27.7 a 28.3 a 28.8 29.4 29.9 30.5 31.0
GDP per head (US$ at PPP) 11,531 12,362 a 13,238 a 13,862 13,503 14,358 14,826 15,410 16,260 17,377
Private consumption per head (US$) 2,367 2,643 a 3,134 a 3,615 a 3,395 3,807 4,021 4,378 4,723 5,145
No. of households ('000) 5,570 b 5,678 5,775 5,870 5,956 6,044 6,133 6,223 6,315 6,408
No. of households with annual earnings
above US$5,000 ('000) 3,967 b 4,184 4,499 4,745 4,673 4,961 5,109 5,295 5,457 5,643
No. of households with annual earnings
above US$10,000 ('000) 2,227 b 2,452 2,839 3,151 2,977 3,367 3,540 3,781 3,986 4,237
No. of households with annual earnings
above US$50,000 ('000) 124 b 146 191 235 204 264 293 340 385 449
No. of households with net wealth over
US$1m ('000) 10 17 29 22 16 22 23 26 28 31
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.
Source: Economist Intelligence Unit.

Industry Report: Consumer goods and retail June 2010 www.eiu.com/consumergoods © The Economist Intelligence Unit Limited 2010
Malaysia 10

The outlook for the consumer-goods market is positive. We forecast that

Malaysia's economy will grow by 6.9% in 2010, following a contraction of 1.7%
in 2009. Average annual GDP growth in 2011-14 will also be faster than the that
recorded in 2005-09. Retail sales in US dollar terms are forecast to grow by an
average of 9.2% a year in 2010-14, slightly below the average rate of around
10.7% a year in the historical period. The modest slowdown partly reflects the
impact of a new goods and services (GST) that is expected to be implemented
in 2011.

Retailing The profile of the retail sector has changed markedly in recent years. Driven by
consumer demand, a trend towards bigger stores has been evident, particularly
in peninsular Malaysia. The trend has been less apparent in the eastern states of
Sarawak and Sabah. The number of hypermarkets in Malaysia has grown from
fewer than 20 at the start of the decade to more than 80 by the end of 2008.
Shopping complexes have also increased in popularity, with more than 550
currently in existence. There has been a corresponding decline in the number of
smaller, locally owned shops.

Retail sales
2005 a 2006 a 2007 a 2008 a 2009 b 2010 c 2011 c 2012 c 2013 c 2014 c
Retail sales (M$ bn) 125.4 136.3 153.1 171.2 b 171.5 178.1 189.0 204.8 219.5 236.5
Retail sales (US$ bn) 33.1 37.2 44.5 51.3 48.7 54.2 57.7 64.0 68.9 75.7
Retail sales, volume growth (%) 7.8 4.9 10.1 6.0 -0.4 2.1 3.4 5.6 4.6 4.9
Retail sales, US$ value growth (%) 11.4 12.2 19.9 15.3 -5.2 11.4 6.4 10.9 7.6 9.9
Non-food retail sales (US$ bn) 15.2 17.2 20.8 24.2 22.3 24.7 26.2 29.0 30.9 33.6
Food retail sales (US$ bn) 18.0 20.0 23.7 27.1 26.3 29.5 31.5 35.1 38.0 42.1
Consumer price inflation (av; %) 3.0 3.6 2.0 5.4 0.6 a 1.7 2.6 2.6 2.5 2.7
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.
Source: Economist Intelligence Unit.

Demand. Owing to a number of stimulus measures adopted by the govern-

ment in 2009 and a modest economic rebound in the global economy in the
second half of that year, Malaysia's economy did not perform as badly as was
originally feared. Real GDP contracted by 1.7% in 2009, a shallower contraction
that that of 4-5% that was estimated by the government. The total value of retail
sales is expected to increase to US$54.2bn in 2010, from US$48.7bn in 2009,
boosted by a strong rebound in the domestic economy and rising tourist
arrivals. Improving consumer confidence and a sustained economic recovery is
expected to underpin growth in the remainder of the forecast period when
growth in retail sales is expected to average 8.7% a year.
There is no value-added tax (VAT) in Malaysia. Instead, a government sales tax
(GST) of 5% is levied on hotel, restaurant and professional bills. However, this is
likely to change in 2011 when the government hopes to introduce a new GST.
The new tax was originally scheduled for 2007, but was withdrawn owing to
objections from businesses. This time, the government is under pressure to
widen the tax base as it tries to reduce the budget deficit, which rose from 4.8%
of GDP to an estimated 7% in 2009.
Online retailing remains in its infancy, but the government hopes to see a rapid
increase in e-commerce. The government will continue to focus on promoting

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11 Malaysia

e-commerce in the 10th Malaysia Plan (a medium-term spending plan covering

2006-10), which is expected to be unveiled later in June. The main obstacle to
faster growth in this area is the low rate of broadband subscriptions. Access to
the Internet is not a huge problem in the major cities where internet cafes are
widely available, but computer ownership remains low, particularly among
low-income groups and in rural areas. The government also hopes to enact
legislation in the forecast period to help to strengthen the legal framework and
increase public confidence in e-commerce transactions, as well as to reduce the
incidence of online fraud.
Supply. The food retail sector is fragmented in Malaysia. In rural areas the
sector is still dominated by traditional stores and markets, while in urban areas
supermarkets and hypermarkets have grown in popularity. In the grocery retail
sector the leading player is a domestic firm, Dairy Farm Giant Retail, which has
more than 440 stores across the country. A UK-based retailer, Tesco, with 33
stores, and AEON of Japan, which has 25, are also important players.
Parkson (the retailing arm of a Malaysian conglomerate, the Lion Group) has the
largest presence in the department-store sector, with 32 outlets across Malaysia.
The second-largest chain is another local retailer, Metrojaya, which has seven
stores located on peninsular Malaysia and plans to develop two new stores in
Sabah and Sarawak. Two Japanese retailers, Sogo and Justco, also operate in
Malaysia.
Foreign companies need approval from the Committee on Wholesale and Retail
Trade to launch operations or relocate branches. The government has relaxed
various restrictions over the years, but a local equity rule that requires private
companies to offer 30% of their equity to bumiputera (ethnic Malays and other
indigenous peoples) is likely to remain in place in the forecast period. In 2004
the government raised the foreign-ownership limit on retailers to 70%, from 51%
previously, on condition that the remaining 30% stake is held by members of
the bumiputera. Furthermore, if Malaysia is used as a regional distribution
centre, foreign firms can own 100% of local retail subsidiaries. In 2009 the
prime minister, Najib Razak, lifted the local equity rule in eight services sectors,
but the distributive trades sector was not one of the sectors on the govern-
ment's list.
In recent years the government has passed legislation limiting the expansion of
hypermarkets, and the Economist Intelligence Unit does not expect these
restrictions to be lifted in the forecast period. Firms interested in opening new
hypermarkets must have paid-up capital of at least M$50m (US$15m) and must
be able to show that each new outlet will serve at least 350,000 residents.
Moreover, unlike in a number of Western countries, hypermarkets, super-
markets and department stores are prohibited from 24-hour trading. The
regulations applying to the construction of shopping malls are less restrictive,
and more malls are likely to be built in 2010-14.

Food, beverages and tobacco Malaysia has a small food-processing industry that serves both the domestic
and regional markets (the bulk of food exports from Malaysia are to Asia). Food,
beverage and tobacco output accounted for around 12.6% of total manufacturing

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Malaysia 12

production in 2006. Household spending on food, beverages and tobacco as a

percentage of total consumer spending stood at an estimated 24% in 2009.

Food, beverages and tobacco consumption

2005 a 2006 b 2007 b 2008 b 2009 b 2010 c 2011 c 2012 c 2013 c 2014 c
Food, beverages & tobacco (consumer
expenditure; US$ m) 14,997 16,733 a 19,815 a 22,996 23,044 26,216 27,973 30,793 33,739 37,518
Food, beverages & tobacco (% of household
spending) 24.2 23.8 23.3 22.9 24.0 23.9 23.7 23.5 23.4 23.5
Food, beverages & tobacco (market demand;
US$ m) 38,084 b 40,848 46,184 52,842 49,371 55,202 58,199 63,205 67,982 73,781
Food, beverages & tobacco (market demand;
% real growth) 1.0 b 0.6 3.2 5.4 -1.8 4.1 2.2 3.9 3.6 3.7
Meat consumption (kg per head) 47.1 48.2 49.4 50.2 49.0 50.5 51.1 51.9 52.9 54.3
Fish consumption (kg per head) 56.6 57.8 59.8 61.4 61.0 62.1 62.7 63.8 64.9 66.0
Fruit consumption (kg per head) 57.2 58.6 60.6 62.4 62.5 63.8 64.7 66.0 67.3 68.7
Vegetable consumption (kg per head) 48.6 49.1 49.7 50.1 49.5 50.3 50.6 50.9 51.4 52.0
Milk consumption (litres per head) 45.8 b 46.9 48.5 49.7 49.9 50.9 51.6 52.7 53.7 54.8
Coffee consumption (kg per head) 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Tea consumption (kg per head) 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.
Source: Economist Intelligence Unit.

The agricultural sector accounted for around 8% of GDP at factor cost in 2009
and employs about 15% of the labour force. Malaysia is one of the world's
largest producers and exporters of palm oil, producing more than 15m tonnes
every year—around 50% of world production. Cocoa is another important
export product. Much of Malaysia's cocoa is exported in processed form: the
country is the sixth-largest cocoa-grinding centre in the world. Other significant
agricultural exports include pineapples and a number of spices. Malaysia also
has a substantial food-processing sector, specialising in fish, meat, fruit and
vegetables, and also in halal products, which must conform to strict Islamic
dietary and slaughter rules.

Food demand. Expenditure on food, beverages and tobacco will account for a
relatively small proportion of total household income in 2010-14 as standards of
living continue to improve. There are likely to be large differences in the rates of
growth within the various spending categories.
The popularity of supermarkets, lower import tariffs and rising standards of
living will bolster consumption of fruit and vegetables in the forecast period.
Consumption volumes of canned food and confectionery are likely to rise, in
line with increasing household income. However, growth in consumption of
basic foods, such as meat, milk and fruit, is likely to be slow. Malaysia's con-
sumption of seafood is high compared with its meat consumption, and this is
expected to remain the case in 2010-14. However, there will be periodic con-
cerns about the health implications of eating large amounts of farmed fish or
shellfish.
Demand for meat and vegetable oil has increased in recent years. Malaysia
produces considerable amounts of beef, lamb and poultry, and has among the
world's highest consumption rates per head of chicken and eggs. Chicken is the

Industry Report: Consumer goods and retail June 2010 www.eiu.com/consumergoods © The Economist Intelligence Unit Limited 2010
13 Malaysia

cheapest source of meat protein in the country and is the most popular meat
among Malaysians, largely because there are no dietary prohibitions or
religious restrictions on its consumption.
Foods can be deemed to be halal only if they adhere to strict rules laid down in
Islamic law. Demand for meat and meat-based products is likely to remain firm
in the forecast period, in line with much faster growth in the Muslim
population than in the ethnic-Chinese population. Demand for processed halal
foods, such as snacks and confectionery, is also expected to rise in 2010-14.

Pricing
% of monthly personal Affordability
Item Price (US$) disposable income rank
White bread, 1 kg (supermarket) 1.49 0.53 34 out of 58
White rice, 1 kg (supermarket) 1.25 0.44 34 out of 58
Potatoes, 2 kg (supermarket) 1.47 0.52 38 out of 57
Chicken, fresh, 1 kg (supermarket) 2.78 0.98 37 out of 57
Sugar, white, 1 kg (supermarket) 0.45 0.16 28 out of 58
Milk, pasteurised, 1 litre (supermarket) 1.33 0.47 43 out of 58
Coca-Cola, 1 litre (supermarket) 0.45 0.16 31 out of 57
Wine, common table, 750 ml (supermarket) 11.76 4.16 43 out of 56
Beer, top quality, 330 ml (supermarket) 1.99 0.70 45 out of 56
Cigarettes, Marlboro, pack of 20
(supermarket) 2.55 0.90 43 out of 58
Two-course meal for two people (average) 135 47.58 41 out of 58
Note. Affordability rank: for each country the price of an item as a percentage of monthly personal
disposable income is calculated. Countries are ranked according to these percentages. The most
affordable country will have the lowest percentage and be ranked first.

Growing concerns regarding the impact of fast food on the future health of the
nation are likely to dampen demand for such foods. As in other countries
suffering from high levels of obesity (a condition that is estimated to affect 40%
of the population in Malaysia), the authorities believe that one way of
addressing the problem is to tighten the regulations applying to fast-food chains.
Accordingly, the government has imposed a ban on televised advertising of fast
food targeted at children. All of the leading companies in the sector, including
the local operations of two US fast-food giants, McDonald's and KFC, have
already agreed to nutritional labelling, which specifies the calorie content of all
products.
Food supply. Malaysia will continue to rely on imports to meet the bulk of its
food needs. Local production of rice, the main food crop, meets around 70% of
domestic demand. Despite government efforts to encourage greater cultivation
of the crop, Malaysia is unlikely to achieve self-sufficiency in rice by the end of
the forecast period. Malaysia imports over 90% of the milk products that it
consumes, and this is expected to remain the case, primarily because the
country's climate is not conducive to milk production. Imports of beef and
mutton are expected to increase in order to meet demand from the growing
Muslim population as well as the rising requirements of the food-processing
industry, which produces goods for both the domestic and export markets.
Malaysia is a major producer of tropical fruit and vegetables, but imports are
taking an increasing share of the consumer market, resulting in greater variety

Industry Report: Consumer goods and retail June 2010 www.eiu.com/consumergoods © The Economist Intelligence Unit Limited 2010
Malaysia 14

as well as the availability of out-of-season produce. This trend is expected to

continue in the forecast period. There is a growing shortfall in seafood supply
locally, which is being made good by imports and the expansion of deep-sea
fishing, coastal fishing and aquaculture.
The food-processing sector is large: processed food worth around M$6bn
(US$1.7bn) was exported in 2006. Domestic operators in the sector are facing
competition from imports, which are easily available from neighbouring
countries. The industry is dominated by small and medium-sized firms,
specialising in fish, livestock, fruits, vegetables and cocoa. The fish-processing
industry engages in the canning of fish and the production of surimi (minced
processed fish) products. Some companies have moved into the production of
higher value added goods, including breaded and battered products and food
supplements. Malaysia is currently the largest cocoa-processing country in Asia
and is a major net exporter of cocoa products, including chocolates.
Nestlé of Switzerland is the main foreign player in the Malaysian processed-
food sector, while Friesland Coberco of Denmark and two local companies,
Jasmine Food and Yeo Hiap Seng, are also important. Other players include a
Singapore-based palm oil processing company, Lam Soon, and a local firm, Ace
Canning. Cheap imports are available from neighbouring countries, including
China. The dominant food-processing company in Asia, San Miguel of the
Philippines, has packaging operations in Malaysia and is looking to build a
larger presence there.
Beverage demand. Although beverage demand will continue to rise, sales of
beer and spirits will be slow, owing to sluggish population growth among the
main consumers of alcoholic beverages in Malaysia, the ethnic-Chinese and
Indian communities. Demand for soft drinks will continue to be underpinned
by favourable demographics, as more than one-half of the population is
currently under 25 years old. Rising health awareness will result in a shift away
from soft drinks perceived to be less healthy (such as carbonates) towards
supposedly healthier ones (such as bottled water, and fruit and vegetable
drinks). Manufacturers have already adapted their packaging to try to increase
their share of the market by highlighting the vitamin content of their products.
Alcohol consumption is low, as the majority of the population adheres to
Islam, which prohibits the drinking of alcohol. Total sales of wine and spirits
(off-trade only) are estimated at around 50m litres in 2008, having increased
only slightly in the past five years, while more than 100m litres of beer are sold
each year. Alcohol consumption is most common among the Chinese section
of the population. Although it is a largely Islamic country, Malaysia has
traditionally had a liberal attitude towards alcohol consumption.
Beer is consumed widely, and consumption is likely to rise modestly from 2010
as income levels increase. Brandy has traditionally been the most popular
alcoholic drink after beer, but it has declined in popularity relative to whisky
and wine in recent years. This shift is likely to continue in the forecast period.
High import duties on wine and whisky constrain demand for these products,
although consumption of red wine has increased sharply in recent years from a
low base, in part because of its perceived health benefits.

Industry Report: Consumer goods and retail June 2010 www.eiu.com/consumergoods © The Economist Intelligence Unit Limited 2010
15 Malaysia

Coffee and tea consumption is growing but is still minimal. Coffee demand has
been driven to a certain extent by aspirational factors and by the expansion of
foreign chains, such as Starbucks of the US, which now has more than 80
outlets across peninsular Malaysia.
Beverage supply. The soft-drinks market is highly fragmented, with numerous
brands and companies currently operating. Fraser & Neave of Singapore has
been the licensed bottler of Coca-Cola since 1936. However, the US-based Coca
Cola Company has recently decided to allow its decades-long contract with
Fraser & Neave to expire in 2011 and plans to build a new bottling plant, which
it hopes will be ready before the end of that year.
Drinks produced locally dominate the beer sector in both volume and value
terms, although the sector is essentially a duopoly of two foreign players, a
subsidiary of Carlsberg of Denmark, Carlsberg Malaysia, and Diageo of the UK,
whose core brands in Malaysia are Guinness and Anchor. However, brands
from Association of South-East Asian Nations (ASEAN) countries, notably San
Miguel lager from the Philippines, are also important.
Malaysia imports all of its wine, which comes mainly from the US, France and
Australia. High import duties relative to product value protect the domestic
market and push up prices for imported alcoholic beverages; these duties will
continue to apply to alcohol imports from outside of the ASEAN Free-Trade
Area (AFTA). An import licence issued by the Customs and Excise Department
is required in order to import wine.
In the coffee market, Nestlé is the leading player. An Anglo-Dutch conglomerate,
Unilever, and a domestic firm, Boh, are the top companies in the tea market.
Boh owns the Sungai Palas tea plantation, which is the largest in Malaysia. The
company's output is around 4m kg a year, accounting for 70% of local output
and 50% of local consumption.
Tobacco demand. Moderate growth in consumption of tobacco products is
expected in the forecast period. More than 20bn cigarettes were sold in 2009.
Demand for cigarettes has grown rapidly in recent years, but increases in sales
taxes and growing health concerns are expected to slow the trend. Despite
concerns about the effects of smoking on health, the popularity of cigarettes
among young Malaysians, notably women, appears to be growing. As a result
of changes in cultural restrictions and norms, developing nations such as
Malaysia are seeing an increase in smoking among females, which is offsetting
a decline in the proportion of males who smoke. In addition, tobacco con-
sumption levels in Malaysia are probably understated, given the wide pre-
valence of contraband and counterfeit tobacco products.
In an effort to reduce smoking levels, the government is likely to maintain strict
controls on tobacco advertising and to broaden its ban on smoking in public
places. Excise taxes on cigarettes and tobacco products have increased in recent
years, and we expect this trend to continue in 2010-14. The introduction of a
minimum price of M$6 (US$1.70) for a packet of cigarettes has helped to narrow
the price differential between branded products and low-priced local cigarettes,
and may prove effective in reducing tobacco consumption. However, it could

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Malaysia 16

also lead to an increase in demand for counterfeit cigarettes, which accounted

for around one-third of the total market in 2009.
Tobacco supply. Tobacco production is shrinking: the number of active tobacco
growers in Malaysia dropped to 4,000 in 2006, compared with around 12,000
in 2000. The US is the leading exporter of tobacco leaf to Malaysia, while Brazil
and Thailand are the main suppliers of low-priced tobacco leaf. The domestic
tobacco industry is heavily protected, but will face intense competition from
imports following the country's decision to cut tariffs to comply with a regional
agreement that created AFTA.
Contraband and counterfeit cigarettes are thought to account for around 25% of
the total cigarette market. Counterfeit cigarettes are expected to remain a feature
of the market in the forecast period, making it more difficult for leading
companies to maintain market share.
Leading players in the cigarette market include a UK-based firm, British
American Tobacco, and Japan Tobacco International. Local brands are also
gaining in popularity, and according to the Confederation of Malaysian
Tobacco Manufacturers their products account for 8% of total cigarette sales.
Cigarette smuggling is on the rise. Indonesian clove cigarettes are the most
common type of illegally imported cigarette, owing to the large number of
Indonesian migrant workers in Malaysia.
Popular tobacco brands include Kent, Peter Stuyvesant, Dunhill and Benson &
Hedges, all of which are distributed by British American Tobacco. Marlboro,
owned by a US firm, Altria, and Winston, owned by Japan Tobacco, are also
popular. Most tobacco consumers exhibit brand loyalty.

Other consumer products
The electronic and electrical goods sector is considered to be the backbone of
Malaysian manufacturing, supplying goods to the domestic market as well as to
Singapore, China, US and the euro area. The personal computer (PC) manu-
facturing industry is well developed, and many multinational companies either
have their own local production facilities or have outsourced production to
Malaysian manufacturers. However, there is now considerable price pressure to
relocate many facilities to China. Rising rates of urbanisation, which has altered
consumers' tastes and lifestyles, have helped to drive demand for cosmetics and
toiletries in recent years, the bulk of which are imported.

Industry Report: Consumer goods and retail June 2010 www.eiu.com/consumergoods © The Economist Intelligence Unit Limited 2010
17 Malaysia

Consumer products: market demand

2005 a 2006 a 2007 a 2008 a 2009 a 2010 b 2011 b 2012 b 2013 b 2014 b
Clothing (US$ m) 1,861 2,181 2,209 2,640 2,553 2,947 3,205 3,590 3,987 4,468
Clothing (% real change) -2.9 9.9 -7.5 10.1 1.6 7.5 5.4 7.2 6.9 7.1
Footwear (US$ m) 214 213 238 276 261 295 314 345 374 410
Footwear (% real change) -9.9 -6.6 2.0 6.8 -0.4 5.2 3.2 4.9 4.6 4.7
Household furniture (US$ m) 2,040 2,487 2,968 3,573 3,514 4,098 4,491 5,061 5,645 6,356
Household furniture (% real change) 18.0 14.4 9.0 10.9 3.4 8.6 6.2 7.8 7.4 7.6
Household textile products (US$ m) 2,000 2,328 2,463 2,870 2,735 3,104 3,319 3,655 3,988 4,394
Household textile products (% real change) 0.6 9.2 -3.4 7.3 0.2 5.7 3.6 5.4 5.1 5.3
Soaps & cleaners (US$ m) 980 1,091 1,290 1,585 1,517 1,764 1,939 2,203 2,489 2,832
Soaps & cleaners(% real change) 6.9 4.4 8.0 13.2 0.6 8.3 6.5 8.7 8.8 8.7
Electrical appliances & houseware (US$ m) 909 1,046 1,179 1,424 1,405 1,643 1,807 2,044 2,291 2,594
Electrical appliances & houseware (% real
change) 14.8 8.0 2.9 11.3 3.7 8.9 6.6 8.2 7.9 8.2
Household audio & video equipment (US$ m) 1,567 1,708 2,097 2,565 2,529 2,972 3,287 3,746 4,233 4,829
Household audio & video equipment(% real
change) 14.6 2.3 12.1 12.7 3.7 9.4 7.2 9.0 8.8 9.0
Television sets (stock per 1,000 people) 276 295 315 334 353 373 394 416 438 460
PCs (units) 5,600 c 6,397 c 7,224 c 8,077 c 8,982 9,899 10,750 11,588 12,366 13,169
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual.
Source: Economist Intelligence Unit.

Demand. Spending on non-food retail items is likely to have been hit by weak
consumer confidence in 2009, when the economy suffered a mild recession, the
first since the 1997-98 Asian financial crisis. However, economic prospects have
improved significantly in recent months amid a strong rebound in the domestic
economy and a gradual recovery in global demand. In the forecast period, sales
of consumer electronics are expected to be driven by demand for replacements
or new purchases as prices of these goods decline and incomes rise. Sales of
PCs are expected to grow steadily, partly as a result of government policies
designed to increase affordability, but sales will largely be limited to the major
urban areas. Sales of domestic appliances will be underpinned by an increase
in home ownership, particularly among low-income groups and a government
campaign to attract foreign investors to buy second homes in the country. The
stock of more affordable housing is set to rise after the government approved a
number of construction projects as part of a wider package of stimulus
measures in 2009.
Sales of cosmetics and toiletries are forecast to grow at a fairly brisk pace. In
recent years sales have been buoyed by direct sales, a feature that is expected to
continue in the forecast period. Amway Malaysia, a subsidiary of a US-based
firm, Amway will continue to dominate this particular market. Toiletries and
some beauty products, such as sun protection, skincare and colour cosmetics,
are generally no longer perceived as being luxury goods, sales of which have
proved resilient in the past year or so.
Malaysia is one of the leading exporters of electronic and electrical goods in the
Association of South-East Asian Nations (ASEAN). Demand for exports of such
products picked up significantly in the first quarter of this year as Malaysia's
leading export markets began to recover from recession.

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Malaysia 18

Pricing
% of monthly personal Affordability
Item Price (US$) disposable income rank
Soap, 100 g (supermarket) 0.62 0.22 38 out of 58
Light bulbs, two, 60 watts (supermarket) 1.36 0.48 41 out of 58
Electric toaster, for two slices
(supermarket) 24.08 8.52 37 out of 58
Shampoo & conditioner in one, 400 ml
(supermarket) 2.63 0.93 32 out of 58
Lipstick, deluxe type (chain store) 17.00 6.01 31 out of 56
Business suit, two piece, medium weight
(chain store) 241 85.15 30 out of 57
Dress, ready to wear, daytime (chain store) 127 44.98 34 out of 57
Child's shoes, sportswear (chain store) 15.30 5.41 24 out of 56
Compact disc album (av) 11.44 4.05 32 out of 56
Television, flatscreen 66 cm (av) 810 286.3 37 out of 58
Note. Affordability rank: for each country the price of an item as a percentage of monthly personal
disposable income is calculated. Countries are ranked according to these percentages. The most
affordable country will have the lowest percentage and be ranked first.

Supply. Manufacturing of electrical and electronic goods is well developed, and

is also export-oriented. Following a period of destocking in 2009, firms are
building inventories in response to the modest recovery that is already under
way in the global economy. In 2010-14 output is expected to grow at a steady
pace, underpinned by a sustained recovery in the global economy.
Export-orientated manufacturing is mainly located in Penang and the Klang
valley in the state of Selangor. Penang’s customs-free industrial zones have been
the focus of investment by international electronics firms. The Klang valley has
the largest and longest-established concentration of general manufacturing
operations. Three Japanese electronics manufacturers, Panasonic, Sharp and
Sony, are the leading firms in the electronics sector. NEC of Japan and Dell of
the US are among the leading players in the PC market.
Some multinational firms that were already present in Malaysia have since
invested in sophisticated manufacturing facilities. Sony, Sharp and Panasonic
have shifted core activities to Malaysia. US-based electronics manufacturers
such as IBM, Dell, Intel and Advanced Micro Devices have continued to invest
in the country, while hedging their bets by also launching operations in China.
The cosmetics and toiletries market is import-oriented, and local production is
largely limited to mixing and formulation processes using imported ingredients.
Most imports come from the US, France, Japan and China. Estée Lauder of the
US, Shiseido of Japan and Lancôme and Chanel (both of France) are the leading
brands. Around 50 small and medium-sized companies produce cosmetics
locally, according to the Federation of Malaysian Manufacturers. Many of these
firms are contract manufacturers for haircare products, perfumes and cosmetics.
The country hopes to expand its halal industry to include non-food products
such as pharmaceuticals, cosmetics and leather goods, as well as hotel and
catering services. It also hopes to become the leading halal supplier to China
and North Africa, in addition to the Middle East and South-east Asia. The
government views the sector as a vital part of its plans to make Malaysia the

Industry Report: Consumer goods and retail June 2010 www.eiu.com/consumergoods © The Economist Intelligence Unit Limited 2010
19 Malaysia

largest halal hub in the region and is expected to unveil targets for the sector in
the 10th Malaysia Plan (a medium-term spending plan covering 2006-10).

Trade Malaysia is an open economy. In 2009 exports of goods and services were
equivalent to 96% of nominal GDP, while imports were equal to 75%. In 2009
Malaysia recorded a merchandise trade surplus (on a customs basis) of
US$40.4bn, according to Bank Negara Malaysia (the central bank).
The value of merchandise exports (also on a customs basis) has risen at a fairly
brisk pace, with annual average growth of 6.6% between 2004 and 2008.
However, exports plunged by 10.2% year on year in 2009 owing to a contraction
global trade. In the forecast period export growth will be underpinned by
strengthening global demand for Malaysia’s particular product mix of electrical
and electronic goods and basic commodities, such as oil and rubber.
Exports of manufactured goods made up 78% of total exports in 2009, while
commodities accounted for around 19%. However, many of the production lines
used in the manufacture of electronics, Malaysia’s largest export category, were
set up on the basis of low local content, with the result that the bill for
imported goods tends to rise in line with revenue from exports. The govern-
ment is encouraging manufacturers and exporters to move up the value
chain and improve product quality in order to maintain international
competitiveness, especially in relation to China. With the exception of palm oil,
Malaysia’s economy has moved away from plantation and forestry products,
which make up the bulk of agricultural exports. Exports of minerals consist
almost entirely of crude oil and liquefied natural gas (LNG). Although the US
and the euro area remain the largest export destinations, the share of Malaysian
exports going to these markets has diminished in recent years.

Trade
2005 a 2006 a 2007 a 2008 a 2009 a 2010 b 2011 b 2012 b 2013 b 2014 b
Total exports of goods fob (US$ bn) 141.0 c 160.7 c 176.1 c 199.5 c 157.4 180.4 197.2 213.5 231.0 248.1
Export volume of goods (% change) 8.3 6.6 4.5 1.3 -10.1 8.3 5.7 7.2 7.2 7.0
Export prices (% change; US$) 4.0 5.7 7.9 10.2 -10.2 9.5 3.4 4.8 3.1 3.7
Total imports of goods cif (US$ bn) 114.6 c 131.2 c 146.9 c 156.9 c 123.8 145.2 157.1 170.6 185.9 200.5
Import volume of goods (% change) 8.9 8.1 6.0 1.9 -12.5 11.3 5.8 8.6 7.7 6.8
Import prices (% change; US$) 1.1 4.2 7.7 4.2 -7.6 9.0 4.1 4.6 4.0 3.8
Terms of trade (1990=100) 113.6 115.3 115.5 122.1 118.7 119.3 118.5 118.7 117.7 117.5
Exchange rate M$:US$ (end-period) 3.8 c 3.5 c 3.3 c 3.5 c 3.4 c 3.2 3.2 3.2 3.2 3.1
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual.
Source: Economist Intelligence Unit.

Malaysia expects to conclude bilateral trade agreements with the US, Australia,
Chile and India in the forecast period. Malaysia is a member of the Association
of South-East Asian Nations (ASEAN). A Common Effective Preferential Tariff
scheme for ASEAN members has been established, with tariffs for most
products now standing at around 5% in the more developed ASEAN economies
of Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand (the so-
called ASEAN-6). A single market, the ASEAN Economic Community (AEC), is
already in place for 11 priority sectors in ASEAN-6. Further steps towards a more
comprehensive AEC are likely to be taken in the forecast period.

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