You are on page 1of 23

1.

0 Introduction
Malaysia is a federal constitutional monarchy in Southeast Asia. It consists of thirteen states and three federal territories and has a total landmass of 329,847 square kilometers (127,350 sq mi) separated by the South China Sea into two regions, Peninsular Malaysia and Malaysian Borneo. Land borders are shared with Thailand, Indonesia, and Brunei, and maritime borders exist with Singapore, Vietnam, and the Philippines. The capital city is Kuala Lumpur, while Putrajaya is the seat of the federal government. In 2010 the population exceeded 27.5 million. Now according to the Department of Statistics the population is 28.3 million. Malaysia has its origins in the Malay Kingdoms present in the area which, from the 18th century, became subject to the British Empire. The first British territories were known as the Straits Settlements, with the other states forming protectorates. The states on Peninsular Malaysia, then known as Malaya, were first unified as the Malayan Union in 1946. Malaya was restructured as the Federation of Malaya in 1948, and achieved independence on 31 August 1957. Malaya united with Sabah, Sarawak, and Singapore on 16 September 1963, with si being added to give the new country the name Malaysia. However, less than two years later in 1965, Singapore was expelled from the federation. Since independence, Malaysia has had one of the best economic records in Asia, with GDP growing an average 6.5% for almost 50 years. The economy has traditionally been fuelled by its natural resources, but is expanding in the sectors of science, tourism, commerce and medical tourism . The head of state is the Yang di-Pertuan Agong, an elected monarch chosen from the hereditary rulers of the nine Malay states every five years. The head of government is the Prime Minister. The government system is closely modeled on the Westminster parliamentary system and the legal system is based on English Common Law. The country is multi-ethnic and multi-cultural, factors that influence its culture and play a large role in politics. Islam is the state religion, although freedom of religion is protected by a secular constitution.

2.0 Demographics of Malaysia


2.1 Location:
Malaysia, in the south east part of Asia, has a geographic coordinate that reads 2 30' North latitude and 112 30' East longitude. Kuala Lampur which is the capital of Malaysia is located in between 3 10' North latitude and 101 42' East longitude. As a result of its latitude and longitude, Malaysia stays ahead by eight hours from the Greenwich Mean Time. Malaysia has several types of landscapes for its certain latitude and longitude measurements.

2.2 Population:
Census 2010 revealed that the total population of Malaysia was 28.3 million, compared with 23.3 million in 2000 (Chart 1). This gives an average annual population growth rate of 2.0 per cent for the period 2000-2010. The rate was lower compared to that of 2.6 per cent during 1991-2000 (Chart 2). The state with the highest growth rate for the period 2000-2010 was W. P. Putrajaya (17.8%), followed by Selangor (2.7%), Melaka (2.6%) and Sabah (2.1%). Among the states which experienced lower growth rate were Terengganu (1.4%), Perak (1.4%), W. P.

2.2.1 Population Distribution Population distribution by state indicated that Selangor was the most populous state (5.46 million), followed by Johor (3.35 million) and Sabah (3.21 million). The population share of these states to the total population of Malaysia was 42.4 per cent. The least populated states were W. P. Putrajaya (72,413) and W .P. Labuan (86,908).

2.2.2 Population Density Population density of Malaysia stood at 86 persons per square kilometre in 2010 compared with 71 persons in 2000. Unlike the population distribution, the population density revealed a different picture. Selangor being the most populous state was only ranked fifth in terms of population density with 674 persons per square kilometre. Among the most densely populated states were W. P. Kuala Lumpur (6,891 persons), Pulau Pinang (1,490 persons) and W. P. Putrajaya (1,478 persons). 2.2.3 Ethnicity The total population was 28.3 million of which 91.8 per cent were Malaysian citizens and 8.2 per cent were non-citizens. Malaysian citizens consist of the ethnic groups Bumiputera (67.4%), Chinese (24.6%), Indians (7.3%) and Others (0.7%). Among the Malaysian citizens, the Malays was the predominant ethnic group in Peninsular Malaysia which constituted 63.1 per cent. The Ibans constituted 30.3 per cent of the total citizens in Sarawak while Kadazan/Dusun made up 24.5 per cent in Sabah.
3

2.2.4 Religion Islam was the most widely professed religion in Malaysia with the proportion of 61.3 per cent. As a multi-racial nation, other religions embraced were Buddhism (19.8%), Christianity (9.2%) and Hinduism(6.3%).

2.3 Labor Force

In economics, a labor force or labour force is a region's combined civilian workforce, including both the employed and unemployed. Normally, the labor force of a country (or other geographic entity)
4

consists of everyone of working age (typically above a certain age (around 14 to 16) and below retirement (around 65) who are participating workers, that is people actively employed or seeking employment. People not counted include students, retired people, stay-at-home parents, people in prisons or similar institutions, people employed in jobs or professions with unreported income, as well as discouraged workers who cannot find work. As Malaysia is a developing country their utilization of labor force increasing in every year. The following data represent in million.
Count ry 1999 2000 2001 2003 2004 2005 2006 2007 2008 2009 2010

Malays 9,300,0 9,600,0 9,900,0 10,260,0 10,490,0 10,670,0 10,730,0 10,940,0 11,090,0 11,380,0 12,200,0 ia 00 00 00 00 00 00 00 00 00 00 00

3.0 Geography of Malaysia


Malaysia is the 66th largest country by total land area, with a land area of 329,847 square kilometres (127,355 sq mi). It has land borders with Thailand in West Malaysia, and Indonesia and Brunei in East Malaysia. It is linked to Singapore by a narrow causeway, and also has maritime boundaries with Vietnam and the Philippines. 3.1 Climate

Malaysia's climate is categorized as equatorial being hot and humid throughout the year. The average rainfall is 250 centimeters (98 in) a year and the average temperature is 27 C (80.6 F) Climate change is likely to have a significant effect on Malaysia, increasing Sea levels and rainfall, increasing flooding risks and leading to large droughts. Malaysia faces two monsoon winds seasons: The Southwest Monsoon from late May to September, The southwest monsoon originates from the deserts of Australia
5

The Northeast Monsoon from November to March. The Northeast Monsoon brings in more rainfall compared to the Southwest Monsoon, originating in China and the North Pacific. March and October form transitions between the two monsoons.

3.1.1Geology

Malaysia is located on the Sunda Shelf and is tectonically inactive. The oldest rocks in the country date from 540million years ago, and are mostly Sedimentary the most common form of rock is limestone formed during the paleozoic Era.
3.2 Land

The total land area of Malaysia is 329,847 square kilometers (127,350 sq mi), the 67th largest country in the world in terms of area. It is the only country to contain land on both mainland Asia and the Malay Archipelago Peninsular Malaysia makes up 132,090 square kilometers (51,000 sq mi), or 39.7%, while East Malaysia covers 198,847 square kilometers (76,780 sq mi), or 60.3% of the total land of the country. From the total land area, 1,200 square kilometers (460 sq mi) or 0.37% is made up of water such as lakes, rivers.
3.3 Forest

Malaysian forests can be categorized as tropical rainforest. Approximately 58.2% of Malaysian land is covered by forest. A large amount of lowland forest present below an altitude of 760 meters (2,493 ft). East Malaysia, like most of Borneo, was formerly covered with Borneo lowland rain forests with over 2000 tree species. Over 80% of Sarawak's forests have been felled, and the logging throughout East Malaysia has polluted waterways, increased erosion, and damaged agriculture. Some state governments have now taken measures to halt the degradation of the rain forest. There are over 1,425 square kilometers (550 sq mi) of mangroves in Malaysia.
3.4 Islands

Malaysia contains numerous islands, the largest of which is Labuan, which has an area of 92 square kilometers (40 sq mi). It is followed by Banggi Island in Sabah, followed by Betruit Island in Sarawak, Langkawi in Kedah, and Penang Island in Penang.
3.5 Bodies of water

Between Peninsular Malaysia and East Malaysia is the South China Sea, the largest body of water around Malaysia. Facing the western coast of Peninsular Malaysia there is the Straits of Malacca towards the south, and the Andaman Sea towards the north. The Straits of Malacca lying between Sumatra and Peninsular Malaysia is arguably the most important shipping lane in the world. These seas are marginal seas of the Indian Ocean. The Bera Lake in Pahang is one of the largest lakes in Malaysia, and one of the only two natural lakes in Malaysia with Tasik Chini. There are many systems of rivers found around Malaysia. The longest is the Rajang River in Sarawak with a length of 760 kilometers (472 mi).

4.0 Natural resources


4.1 Minerals and petroleum

Malaysia produces petroleum and is a net exporter. Malaysia also produces liquefied natural gas as well as various other related products, most of which are found off the coasts of Terengganu, Sabah, and Sarawak. Natural resources: tin, petroleum, timber, copper, iron, ore, natural gas, bauxite Coal is mostly concerted in Sarawak town of Kapit, Mukah and Silantek.
4.2 Forestry

Timber can be found in the vast jungles in Malaysia, especially in East Malaysia.
4.3 Land use

Large areas of land are used as palm oil plantations, rubber plantations, and paddy fields. Malaysia is the largest exporter of palm oil in the world producing 15.8 million tonnes of crude palm oil in 2007. Malaysia is also one of the largest producers and exporters of rubber and other rubber products.

5.0 Human geography


Peninsular Malaysia is more populated than East Malaysia.59% of Malaysian population lived in urban areas, while the rest live in rural areas. The largest city is Kuala Lampur with a population of 1.89 million people in the city, and about 7 million in the metropolitan area known asKlang Valley. Other major cities include George town, Johar Bahadur, Ipoh,Kuching and Kinabalu

6.0 Political geography


Malaysia is divided into thirteen states and three Federal Territories. Eleven states and two Federal Territories are found in Peninsular Malaysia. While two states and one Federal Territory is found in East Malaysia. The states are further divided into administrative districts. In Sabah and Sarawak, they are first divided into divisions and then further divided into districts. There are separate subdivisions for electoral districts for polling purposes.
6.1 Political situation in Malaysia for international business:

The politics of Malaysia takes place in the framework of a federal constitutional monarchy, in which the Yang di-Pertuan Agong is head of state and the Prime Minister of Malaysia is the head of government. Executive power is exercised by the federal government and the 13 state governments. Federal legislative power is vested in the federal parliament and the 13 state assemblies. The judiciary is independent of the executive and the legislature, though the executive maintains a certain level of influence in the appointment of judges to the courts. The Constitution of Malaysia is codified and the system of government is based on the system. Malaysia has a multi-party system. Malaysias predominant political party, the United Malays National Organization (UMNO), has held power in coalition known as the in 1973. The Barisan Nasional composed of fourteen parties. Today the Barisan Nasional coalition has three prominent members the UMNO, MCA (Malaysian Chinese Association) and MIC (Malaysian Indian Congress). The Prime Minister of Malaysia has always been from UMNO. The hierarchy of authority in Malaysia, in accordance to the Federal Constitution, has stipulated the three branches (administrative components) of the Malaysian government as consisting of the, Executive, Judiciary and Legislative branch

6.1.1 Monarchy The monarch of Malaysia is the Yang di-Pertuan Agong (YDPA), commonly referred to as the King of Malaysia. Malaysia is a constitutional elective monarchy, the Yang di-Pertuan Agong is selected for a five-year terms from among the nine Sultans of the Malay states. The other four states that do not have monarch kings, are rule by governors. System of government 6.1.2 Legislative Legislative power is divided between federal and state legislatures. The bicameral parliament consists of the lower house, the House of Representatives or literally the "Chamber of the People") and the upper house, the Senate or literally the "Chamber of the Nation"). All seventy Senate members sit for three-year terms (to a maximum of two terms); twenty-six are elected by the thirteen state assemblies, and forty-four are appointed by the king based on the advice of the Prime Minister 6.1.3 Executive Executive power is vested in the cabinet led by the prime minister. The Executive branch of the government consists of the Prime Minister as the head of the government, followed by the various ministers of the Cabinet 6.1.3 Judicial The judiciary is theoretically independent of the executive and the legislature, although supporters of the government hold many judicial positions. The highest court in the judicial system is the Federal Court, followed by the Court of Appeal, and two High Courts, one for Peninsular Malaysia, and one for East Malaysia

7.0 Doing Business with the Government


You must register your enterprise with the Malaysian Ministry of Finance (MOF) if you wish to conduct business, whether as a supplier or a consultant, with the government of Malaysia. Businesses interested in registering with the Ministry can do so online withePerolehan , or eP, an electronic procurement system established by the Government. eP-enabled Government agencies will only conduct business with MOF-registered suppliers who are also eP-enabled. Malaysia is known for political stability. In 1997, the Asian financial crisis came; yet, many investors kept money invested within Malaysian markets because of their confidence within the stability of their political system.

7.1 Political Risk: The government has been slowly implementing initiatives that allow for somewhat more transparency in public contracts, fewer government subsidies and price controls, less government involvement in various economic sectors, and increased foreign participation. Though its role is declining, the government maintains significant ownership in major sectors, such as oil and banking. The government has made it a priority to cultivate growth and advancement in high-end economic sectors, with the overall goal of becoming a developed country by 2020. 8

The government encourages foreign investment, but maintains approval rights for individual investments, often opting to restrict foreign equity or encouraging the transfer of technology from foreign firms.

7.2 Legal system Malaysia's legal system is based on English Common Law, alongside a Sharia court system for Malaysian Muslims. The Federal Court reviews decisions referred from the Court of Appeals; it has original jurisdiction in constitutional matters and in disputes between states or between the federal government and a state. Peninsular Malaysia and the East Malaysian states of Sabah and Sarawak each has a high court. The federal government has authority over external affairs, defense, internal security, justice (except civil law cases among Malays or other Muslims and other indigenous peoples, adjudicated under Islamic and traditional law), federal citizenship, finance, commerce, industry, communications, transportation, and other matters. 7.3 State powers and law enforcement

Due to the Internal Security Act, the Interior Minister is able to arrest any Malaysian without trial. The government has effective control of all media, with media outlets only able to operate if licensed by the government. Convictions cannot be challenged.
9

7.4 State governments

Each state has a unicameral state legislative chamber (Malay: Dewan Undangan Negeri) whose members are elected from single-member constituencies. State governments are led by Chief Ministers who are state assembly members from the majority party in the Dewan Undangan Negeri. They advise their respective sultans or governors. In each of the states with a hereditary ruler, the Chief Minister is required to be Malay, appointed by the Sultan upon the recommendation of the Prime Minister. Parliamentary elections are held at least once every five years, with the last general election being in March 2008. Registered voters of age 21 and above may vote for the members of the House of Representatives and, in most of the states, for the state legislative chamber. Voting is not mandatory. Although Malaysia is a federal state, political scientists have suggested that its "federalism is highly centralized": 8.0 Economy of Malaysia Economy of Malaysia Fixed exchange 1 Ringgit = 100 sen rates Fiscal year Calendar year Trade APEC, ASEAN, IOR-ARC, WTO organisations Statistics $414.4 billion (2010) GDP Rank: 30 GDP growth 7.2% GDP per capita $14,700 (2010) Agriculture: 10.5%; industry: 41.4% services: GDP by sector 48.2% (2010) Inflation (CPI) 1.7% (2010) Population below poverty 3.6% (2010) line Labor force Agriculture: (13%), industry: (36%), services: by occupation (51%) (2010) Unemployment 3.4% (2010) Peninsular Malaysia - rubber and palm oil processing and manufacturing, light manufacturing industry, electronics, tin Main industries mining and smelting, logging and processing timber, tourism, petroleum production and refining, logging External Exports $210.3 billion (2010) electronic equipment, petroleum and liquefied Export goods natural gas, wood and wood products, palm oil, rubber, textiles, chemicals Main export Singapore 13.4%, China 12.6%, Japan 10.4%,
10

partners Imports Import goods Main import partners

FDI stock Gross external $72.6 billion (31 December 2010) debt Public finances Revenues $49.56 billion (2010) Expenses $63 billion (2010) Economic aid $31.6 million (2009) Foreign reserves US$130.128 billion (March 2011) Main data source: CIA World Fact All values, unless otherwise stated, are in US dollars

United States 9.5%, Thailand 5.3%, Hong Kong 5.1% (2010) $ 156.6billion (2010) electronics, machinery, petroleum products, plastics, vehicles, iron and steel products, chemicals China 12.6%, Japan 12.6%, Singapore 11.4%, United States 10.7%, Thailand 6.2%, Indonesia 5.6% (2010) $77.4 billion (31 December 2010)

Book

The Economy of Malaysia is a growing and relatively open state-oriented and newly industrialized market economy. The state plays a significant but declining role in guiding economic activity through macroeconomic plans. In 2007, the economy of Malaysia was the 3rd largest economy in South East Asia and 28th largest economy in the world by purchasing power parity with gross domestic product for 2008 of $222 billion with a growth rate of 5% to 7% since 2007. In 2010, GDP per capita (PPP) of Malaysia stands at US$14,700. In 2009, the nominal GDP was US$383.6 billion, and the nominal per capital GDP was US$8,100. As Malaysia is one of three countries that control the Strait of Malacca, international trade plays a large role in its economy. At one time, it was the largest producer of tin, rubber and palm oil in the world. Manufacturing has a large influence in the country's economy. Malaysia is the world's largest Islamic banking and financial centre. Since it became independent in 1957, Malaysia's economic record has been one of Asia's best. Real gross domestic product (GDP) grew by an average of 6.5% per year from 1957 to 2005. Performance peaked in the early 1980s through the mid-1990s, as the economy experienced sustained rapid growth averaging almost 8% annually. High levels of foreign and domestic private investment played a significant role as the economy diversified and modernized. Once heavily dependent on primary products such as rubber and tin, Malaysia today is a middle-income country with a multi-sector economy based on services and manufacturing. Malaysia is one of the world's largest exporters of semiconductor components and devices, electrical goods, solar panels, and information and communication technology (ICT) products. Malaysia's capital market crossed the RM 2 trillion thresholds for the first time ever as at end2010. The capital market had achieved an annual compounded growth rate of 11% from RM 717 billion in 2000 due to rapid industry expansion and strong regulatory oversight that underpinned investor confidence in the Malaysian capital market. 8.1 Macro-economic trend
11

This is a chart of trend of gross domestic product of Malaysia at market prices estimated by the International Monetary Fund with figures in millions of Malaysian Ringgit. GDP Year (in millions) 1980 54,285 1985 78,890 1990 119,082 1995 222,473 2000 343,216 2005 494,544 2010 765,966 Exchange (1 USD MYR) 2.17 2.48 2.70 2.50 3.80 3.78 3.04 Inflation to Index (2005=100) 47 60 65 79 92 100 113 Nominal Per Capita PPP Per Capita GDP GDP (as % of USA) (as % of USA) 14.78 11.44 10.47 15.69 11.47 12.67 17.81 19.19 19.33 20.87 27.02 26.01 26.67 31.03

For purchasing power parity comparisons, the US Dollar is exchanged at 1.70 Ringgit only. Mean wages were $6.95 per man hour in 2009. From 1988 to 1997, the economy experienced a period of broad diversification and sustained rapid growth averaging 9% annually. By 1999, nominal per capita GDP had reached $3,238. New foreign and domestic investment played a significant role in the transformation of Malaysia's economy. Manufacturing grew from 13.9% of GDP in 1970 to 30% in 1999, while agriculture and mining which together had accounted for 42.7% of GDP in 1970, dropped to 9.3% and 7.3%, respectively, in 1999. Manufacturing accounted for 30% of GDP (1999). Major products include electronic components Malaysia is one of the world's largest exporters of semiconductor devices electrical goods and appliances. Rapid growth was achieved partly through privatization of inefficient state owned enterprises, thus subjecting them to commercial pressures and forcing them to better utilize their resources. Foreign funds were attracted to invest making the local money market and bourse liquid. This created opportunity for local businesses to raise capital on the KLSE, and carry out infrastructure development in areas like telecommunications, highways and power generation to meet bottlenecks caused by rapid industrialization. An intense labor shortage created employment for millions of foreign workers. Subsequent events show that more than 50% were illegal. The influx of foreign investment led to the KLSE Composite index trading above 1,300 in 1994 and the Ringgit trading above 2.5 in 1997. At various times the KLSE was the most active exchange in the world, with trading volume exceeding even the NYSE. The stock market capitalization of listed companies in Malaysia was valued at $181,236 million in 2005 by the World Bank. Some of the more visible projects from that period are Putrajaya, a new international airport (Kuala Lumpur International Airport), a hydroelectric dam (Bakun dam), the Petronas Towers and the Multimedia Super Corridor. Proposals that were eventually canceled include the 95 km Sumatra Malaysia bridge (would have been world's longest), the Mega International Sea and Air port on reclaimed
12

land in Kedah (would have been world's biggest) and the KL Linear City (would have been the world's longest mall and the world's first city built over a river).

8.2 Economic policies Like many other independent nations, Malaysia's economic policies were shaped by various events in the nation's history since independence. 8.2.1 Monetary policy Prior to the 1997 Asian Financial Crisis, the Malaysian ringgit was an internationalized currency, which was freely traded around the world. Just before the crisis, the Ringgit was traded RM2.50 at the dollar. Due to speculative activities, the Ringgit fell as much as RM4.10 to the dollar in matter of weeks. Bank Negara Malaysia, the nation's central banks decided to impose capital controls to prevent the outflow of the Ringgit in the open market. Bank Negara Malaysia for the time being, uses interest rate targeting. The OPR (Overnight Policy Rate) is their policy instrument, and is used to guide the short term interbank rates which will hopefully influence inflation and economic growth. 8.2.2 Affirmative action Tun Abdul Razak, who was then the Prime Minister, implemented the affirmative action policy named as New Economic Policy soon after May 13 Incident in 1969. Prior to the incident, the poverty rates among Malays were extremely high (at 65%) as was discontent between races, particularly towards the Chinese, who controlled 34% of the economy at the time. The Chinese minority still accounts for 70 percent of the country's market capitalization. Through NEP, Bumiputera quotas are placed in housing developments, scholarship admission and also for ownership of publicly listed companies. The quota system has been relaxed recently since the March 8, 2008 General election. Bumiputera equity requirement for publicly listed companies has been relaxed since 12 November 2008 by allowing those companies to remove the quota once after IPO has been done. Further liberalization in the retail sector is expected to remove the present 30% Bumiputera listing requirements. According to the Secretary-General of Ministry of Domestic Trade and Consumer Affairs Datuk Mohd Zain Mohd Dom said, the amendments is reflective of Malaysia "moving towards progressive liberalisation" On April 21, 2009, the prime minister Najib Tun Razak has announced liberalization of 27 services sub-sector by abolishing the 30% bumiputera requirement. The move is seen as the government efforts to increase investment the service sector of the economy. According to the premier, many more sectors of the economy will be liberalized. On June 30, 2009, the premier announces further liberation moves including the dismantling of the Bumiputera equity quotas and repealing the guidelines of the Foreign Investment Committee, which was responsible to monitor foreign shareholding in Malaysian companies. However, any Malaysian companies that wish to list in Malaysia would still need to offer 50 percent of public shareholding spread to Bumiputera investors.

13

8.2.3 Subsidies and price controls The Malaysian government subsidizes and controls prices on a lot of essential items to keep the prices low. Prices of items such as palm oil cooking oil, petrol, flour, bread, rice and other essentials have been kept under market prices to keep cost of living low. In 2008, the government announced that it has spent RM40.1 billion in 2007 in subsidies to keep prices leveled. As of 2009, 22 per cent of government expenditures were subsidies, with petrol subsidies alone taking up 12 per cent. Smuggling and hoarding, which leads to shortages, is a prominent problem in Malaysia due to the subsidies. For example, cooking oil is subsidized for domestic use only. This situation creates an environment where industrial players hoard domestic cooking oil for industrial use. During shortage time, such as the January 2008 cooking oil crisis, the government imposed a 5 kg limit for each purchase to relief domestic demand. However, the limited purchase has created more panic buying, which prompts the Government to negotiate with cooking oil manufacturers to increase their production capacity, and the situation reverted to normal within one week. Another example is when vehicles in Thailand come to Malaysia to smuggle cheap petrol and diesel out of the country. The government also looking into restructuring the fuel subsidy so that the selected needy group will get the subsidy. The government is considering removing subsidies on diesel for general consumers while maintaining subsidies for suitable groups, such as those involved in public transport. On January 2010, the government announce dual price structure for fuel, based on citizenship. Foreigners are expected to pay market price for fuel while citizens will have subsidy allocations based to engine capacity. The dual pricing structure is expected to begin on May 1, 2010. The government has considered removing the subsidies but a formal plan had yet to materialize as of 2007. In 2008, the government is considering to remove price controls on construction materials such as cement and steel bars while banning exports to ensure steady supply. Another strategic item which is heavily subsidized but moving towards a market based approach is Natural Gas which is used in the industrial sector. Beginning July 1, 2008, the government is expected to reduce the gas subsidy 5% to 10% per annum over 11 years, in which the gas price will reflect market price. 8.2.4 Sovereign wealth funds The government owns and operates several sovereign wealth funds (A sovereign wealth fund (SWF) is a state-owned investment fund composed of financial assets such as stocks, bonds, property, precious metals or other financial instruments) that invests in local companies and also foreign companies. One such fund is Khazanah National Berhad which was established in 1993. Its objective is to help shape selected strategic industries in Malaysia and develop those investments for the benefit of Malaysia. The fund invest in major companies in Malaysia such as Proton Holdings in the automotive sector, CIMB in the banking sector, Pharmaniaga in the medical sector, UEM Group in the construction sector, Telekom Malaysia in the communications industry and many other companies in many other industries. It is estimated that the fund size of Khazanah National stands at around US$19 billion. Another fund that is owned by the Malaysian government is the Employees Provident Fund which is claimed to be the fourth largest state run pension fund in Asia. Like Khazanah National, the EPF invests and sometimes owns several major companies in Malaysia such as RHB Bank. EPF investment is diversified over a number of sectors but almost 40% of their investments are in the services sector. Fund size in 2007 is estimated at US$100 billion.
14

8.3 Currency The only legal tender in Malaysia is the Malaysian Ringgit. As of 20 March 2008, the Ringgit is traded at MYR 3.18 at the US dollar. The Ringgit has not been internationalized since September 1998, an effect due to the 1997 Asian Financial Crisis in which the central bank impose capital controls on the currency. As a part of series of capital controls, the currency was pegged between September 1998 to 21 July 2005 at MYR 3.80 to the dollar. In recent years, Bank Negara (BNM; literally National Bank of Malaysia, officially Central Bank of Malaysia) Malaysia beginning to relax certain rules to the capital controls although the currency itself is still not traded internationally yet. According to the Bank Governor, the Ringgit will be internationalized when it's ready. On September 2010, in an interview with CNBC (Consumer News & Business Chanel), the Prime Minister of Malaysia and also the Finance Minister said that the government is open to open up the Ringgit to off shore trading if the move will help the economy. He further added that before such a move to be made, it will ensure that rules and regulation will be in place so the currency will not be abused. 8.4 Natural resources Malaysia is well-endowed with natural resources in areas such as agriculture, forestry and minerals. It is an exporter of natural and agricultural resources, the most valuable exported resource being petroleum. At one time, it was the largest producer of tin, rubber and palm oil in the world. In terms of agriculture, Malaysia is one of the top exporters of natural rubber and palm oil, which together with sawn logs and sawn timber, cocoa, pepper, pineapple and tobacco dominate the growth of the sector. Palm oil is also a major generator of foreign exchange. Regarding forestry resources, it is noted that logging only began to make a substantial contribution to the economy during the nineteenth century. Today, an estimated 59% of Malaysia remains forested. The rapid expansion of the timber industry, particularly after the 1960s, has brought about a serious erosion problem in the country's forest resources. However, in line with the Government's commitment to protect the environment and the ecological system, forestry resources are being managed on a sustainable basis and accordingly the rate of tree felling has been on the decline. Tin and petroleum are the two main mineral resources that are of major significance in the Malaysian economy. Malaysia was once the world's largest producer of tin until the collapse of the tin market in the early 1980s. In the 19th and 20th century, tin played a predominant role in the Malaysian economy. It was only in 1972 that petroleum and natural gas took over from tin as the mainstay of the mineral extraction sector. Meanwhile, the contribution by tin has declined. Petroleum and natural gas discoveries in oil fields off Sabah, Sarawak and Terengganu have contributed much to the Malaysian economy. Oil and gas resources are managed by Petronas, the state controlled oil company which forms production sharing contracts with other players like Exxon-Mobil and Royal Dutch Shell to explore oil fields in Malaysia. Other minerals of some importance or significance include copper, bauxite, iron-ore and coal together with industrial minerals like clay, kaolin, silica, limestone, barite, phosphates and dimension stones such as granite as well as marble blocks and slabs. Small quantities of gold are produced. Malaysia's broad and shallow continental shelf consists of several deep water prospective areas. Malaysia has 500,000 km2 available for oil and gas exploration. 51 of the 70 producing fields in Malaysia are oil fields. The country produces about 0.00075 billion barrels (119,000 m 3) barrels of crude oil every
15

day and 2.20 trillion standard cubic feet (60 km3) of natural gas condensates per year. As of January 2009, Malaysia has proven oil reserves of up to 4 billion barrels (640106 m3). The government estimates that at current production rates Malaysia will be able to produce oil up to 18 years and gas for 35 years. In 2004, Malaysia is ranked 24th in terms of world oil reserves and 13th for gas. 56% of the oil reserves exist in the Peninsula while 19% exist in East Malaysia. The government collects oil royalties of which 5% are passed to the states and the rest retained by the federal government. Other minerals of some importance or significance include copper, bauxite, iron-ore and coal together with industrial minerals like clay, kaolin, silica, limestone, barite, phosphates and dimension stones such as granite as well as marble blocks and slabs. Small quantities of gold are produced. 8.5 Business environment According to World Bank, Malaysia ranks 24th in Ease of doing business. Malaysia's strengths in the rank include getting credit (rank 3rd), protecting investor (ranked 4th) and doing trade across borders (ranked 21st). Weaknesses include dealing with licenses (ranked 105th). The study ranks 178 countries in all aspect of doing business. In the investor protection category of the survey, Malaysia had scored a perfect 10 for the extent of disclosure, nine for director liability and seven for shareholder suits. Malaysia is behind Singapore, Hong Kong and New Zealand in investor protection category of the survey. The government is moving towards a more business friendly environment by setting up a special task force to facilitate business called PEMUDAH, which means "simplifier" in Malay. Highlights includes easing restrictions and requirement to hire expatriates, shorten time to do land transfers and increasing the limit of sugar storage (a controlled item in Malaysia) for companies. The Government aims to be in the top 10 in the Ease of doing business survey before 2012 in order to attract even more foreign investors. The efforts of PEMUDAH is beginning to show fruits as their ranking improved to number 20 in 2009, with marked improvement in four areas: getting credit; dealing with construction permits; paying taxes; and enforcing contracts. 8.6 External trade Malaysia is an important trading partner for the United States. In 1999, two-way bilateral trade between the U.S. and Malaysia totaled U.S. $30.5 billion, with U.S. exports to Malaysia totaling U.S.$9.1 billion and U.S. imports from Malaysia increasing to U.S.$21.4 billion. Malaysia was the United States' 10th-largest trading partner and its 12th-largest export market. During the first half of 2000, U.S. exports totaled U.S.$5 billion, while U.S. imports from Malaysia reached U.S.$11.6 billion. The Malaysian Government encourages Foreign Direct Investment (FDI). Principal U.S. investment approved by the Malaysian Investment Development Authority (MIDA) was concentrated in the chemicals, electronics, and electrical sectors. The cumulative value of U.S. private investment in Malaysia exceeded $10 billion, 60% of which is in the oil and gas and petrochemical sectors with the rest in manufacturing, especially semiconductors and other electronic products. In the first six months of 2007, Malaysia's total trade increased by 2.2% to RM522.38 billion, compared with RM511.11 billion in the same period of 2006. 8.7 Free trade efforts
16

Malaysia is a member of the ASEAN Free Trade Area (AFTA) which was established in 1992 to promote trade among ASEAN members. Most tariffs among the first generation member states were scrapped in 2007. ASEAN itself is increasingly playing a large role in free trade negotiation on behalf of its members. The Malaysian Government is negotiating free trade deals with Australia, Chile and India, but has suspended negotiation of free trade deal with United States indefinitely after eight rounds of negotiation. Malaysia is seeking membership into the Trans Pacific Partnership, a regional trade pact between the United States and countries in the Pacific Rim. As of October 2010, TPP (Trans Pacific Partnership) members have agreed to allow Malaysia to join as a full negotiation member of the group. Malaysia will join the third round of negotiations in Brunei. Officials have expressed desire for free trade agreements their ASEAN members Singapore and Thailand. The Malaysian Trade Ministry released a statement in Vietnam saying that the FTA "has the potential to increase trade, investment cross flows and economic cooperation between the two countries. The agreement would also serve to make Chile a gateway for Malaysia's exports to the Latin American market." Malaysia signed a Japan-Malaysia Economic Partnership Agreement with Japan on 13 December 2005. This leads to a Free trade agreement which was in effect from 13 July 2006 and expected to be fully realized in 2016. The agreement itself is an extension of an FTA between ASEAN and Japan, which is called Asean-Japan Comprehensive Economic Partnership. On 8 November 2007, Malaysian and Pakistan signed a bilateral Free Trade Agreement which came in force on 1 January 2008. Malaysia will cut tariffs on 140 lines while Pakistan will cut 124 lines. Most tariffs and duty is expected to be eliminated by 2012. On 26 October 2009, Malaysia and New Zealand signed a bilateral Free Trade Agreement. New Zealand will cut tariffs on 99.5 percent of goods sent to Malaysia beginning 2010. This agreement itself is an extension of the ASEAN-Australia-New Zealand Free Trade Agreement. 8.8 Foreign direct investment Malaysia received RM46.1 billion foreign direct investment (FDI), which was all time high, for the whole of 2008. The foreign investments accounted for 73.4 percent of the total investments of RM62.8 billion approved for 2008. The Minister of International Trade and Industry, Datuk Mustapa Mohamed announced that there was a sharp reduction in FDI and Malaysia only received RM4.2 billion FDI, about 78% reduction, for the first five months of 2009. On the other hand, FDI in other Asean countries has grown rapidly. Malaysia was very much ahead of Vietnam on attracting FDI. Now it has to compete with the latter for the FDI. 8.8.1 Sectors of FDI 8.8.1.1 Industry
17

Malaysia industrial sector accounts for 48.1 percent of total GDP or 63.4 billion US dollars. The industrial output is ranked 32nd in the world. The industrial sector is regulated and promoted by Malaysia Industrial Development Authority. International trade, facilitated by the adjacent Strait of Malacca shipping route and manufacturing are both key sectors of the country's economy. Manufacturing has a large influence in the country's economy, although Malaysias economic structure is moving away from it. Malaysia has 18 companies that rank in the Forbes Global 2000 (The Forbes Global 2000 is an annual ranking of the top 2000 public companies in the world by Forbes magazine) ranking for 2009. Revenue Profits Market World Assets Company Industry (billion (billion Value Rank (billion$) $) $) (billion $) CIMB Group 493 Banking 4.24 0.82 70.14 14.05 Holdings 599 Sime Darby Conglomerates 8.82 0.65 9.92 15.27 642 Public Bank Banking 2.75 0.74 63.27 11.52 706 Maybank Banking 4.63 0.20 87.98 14.70 709 Tenaga Nasional Utilities 8.17 0.26 20.26 10.21 Telecommunications 904 Axiata Group 3.83 0.48 10.80 9.71 Services 907 MISC Transportation 4.33 0.39 10.08 10.66 Hotels, Restaurants & 1179 Genting 2.60 0.31 12.68 6.81 Leisure 1192 RHB Capital Banking 1.57 0.35 33.49 3.49 Telecommunications 1205 Maxis 2.22 0.46 5.17 12.08 Services 1224 IOI Group Food, Drink & Tobacco 4.15 0.28 4.53 10.78 1292 AMMB Holdings Banking 1.45 0.24 24.56 4.42 1485 PPB Group Food, Drink & Tobacco 0.57 0.46 3.82 5.60 1501 YTL Utilities 2.53 0.24 12.92 4.16 Hong Leong 1613 Banking 1.08 0.18 24.54 2.39 Financial Group 1643 PLUS Expressways Transportation 0.93 0.35 5.36 5.11 1755 Petronas Gas Oil & Gas Operations 0.94 0.25 2.76 5.70 1987 Petronas Dagangan Oil & Gas Operations 60.69 11 1.81 2.63 8.8.1.2 Finance and banking Finance and Banking sector in Malaysia is regulated by Bank Negara Malaysia. The central bank limits foreign participation through licensing limits. The central bank launched a Financial Sector Master plan in 2001 to revamp the finance sector following the Asian Financial Crisis. The master plan calls for emphasis on Islamic Banking, of which Malaysia has become a centre of. Malaysia has the highest number of female workers in Islamic banking. A quarterly report prepared by the Economist Intelligence Unit on behalf of Barclays Wealth in 2007 estimated that there were 48,000 dollar millionaires in Malaysia (over twice that of China).
18

In April 2009, the government announces new licenses will be issued for investment banking Islamic banking, takaful and insurance business between 2009 to 2011. It also announced that the threshold foreign equity ownership has been raised from 49% to 70% and allowed foreign banks to open up new branches and micro-credit facilities. This move was done as an attempt to put Malaysia in as center for Islamic banking and also to liberalize the financial sector. 8.8.1.3 Oil and gas Malaysia has a vibrant oil and gas industry. The national oil company, Petronas, provides 32% of the federal budget in taxes, dividends and royalties. The oil company ranked 121 in Fortune Global 500 list of companies in 2007. It also ranked 18 in the industry of the same list. The company has over up to the rank by being 95th in 2008 in terms of revenue and 8th most profitable company in the world and the most profitable in Asia. Since inception in 1974, Petronas have paid the government RM 403.3 billion, with RM 67.6 billion in 2008. The payment represents a 44% of the 2008 federal government revenue. Malaysia encourages foreign oil company participation through production sharing contracts, in which significant amount of oil will be given away to the foreign oil company until it reaches a production milestone. Currently, many major oil companies such as ExxonMobil, Royal Dutch Shell, Nippon Oil, and Murphy Oil are involved in such contracts. As a result, 40% of oil fields in Malaysia are developed. Malaysia and Thailand has a wedge shaped area 150 km from Kota Bharu, Kelantan and 260 km from the shores of Songkhla, Thailand which is jointly developed by Petronas and its Thailand counterpart. The area, which is called Malaysia-Thailand Joint Development Area, has 4.5 trillion cubic feet (130 km3) of proven reserves. 8.8.1.4 Tourism In an effort to diversify the economy and make Malaysias economy less dependent on exported goods, the government has pushed to increase tourism in Malaysia. As a result tourism has become Malaysias third largest source of income from foreign exchange, although it is threatened by the negative effects of the growing industrial economy, with large amounts of air and water pollution along with deforestation affecting tourism. The majority of Malaysia's tourists come from its bordering country, Singapore. In 1999, Malaysia launched a worldwide marketing campaign called Malaysia, Truly Asia which was largely successful in bringing in over 7.4 million tourists. The Ministry of Culture, Arts and Tourism (MOCAT) was established in 1987 under which the TDC was incorporated. TDC existed from 1972 to 1992, when it became the Malaysia Tourism Promotion Board (MTPB), through the Malaysia Tourism Promotion Board Act, 1992. 8.8.1.5 Science and technology Science Policy in Malaysia is regulated by the Ministry of Science, Technology, and Environment. Other ministries, such as the Ministry of Agriculture and the Ministry of Health also have science departments. Training in scientific areas was promoted during the 1970s and 1980s. From 1987-1997 research and development used 0.24% of GNP, and in 1998 high-tech exports made up 54% of Malaysia's manufactured exports. The country is one of the world's largest exporters of semiconductor devices, electrical goods, and information and communication technology products.
19

8.9 Bangladesh-Malaysia Ties Like Malaysia, Bangladesh, a predominantly Muslim country with around 87 per cent of its 140 million population being Muslim, has also earned international recognition for its moderate religious and cultural ethos, social tolerance and ethnic cohesion, which characterizes Bangladesh as a liberal, tolerant Muslim country. Being co-members of OIC, NAM Commonwealth, D-8 and ARF and as strong proponents of the multilateralism, the two countries share common perception on major Regional and International issues and have been working closely in the International arena to promote peace, stability, and development. About 200,000 Bangladeshis work in Malaysia and people to people contacts between these two nations have been excellently maintained. Bangladesh and Malaysia enjoy good bilateral relations based on the foundation of common religion, history, and culture. Over the years, thus, the relations between the two friendly countries have grown in depth and diversity and reached a matured stage. The state of good relations is reflected in the fast-growing bilateral cooperation spanning across a broad range of sectors, including economic and technical assistance, trade and investment, employment of Bangladeshi work force in Malaysia, defensecooperation, education exchange, tourism, culture and sports, technology transfer and HR development. The relationship developed in a steady momentum. Today, Malaysia is the largest Asean investment partner of Bangladesh and Malaysian companies invested about RM4.1 billion (US$1.3 billion) last year in 59 projects, mainly in telecommunication, power, textiles and financial sector. However, with regard to bilateral trade between both countries, the figures had been lopsided with Bangladesh suffering a chronic trade deficit with Malaysia , exporting only RM53.5 million (US$16.9 million) in the 2006-2007 period while imports were RM1.2 billion (US$384.16million). Malaysian Prime Minister Mahathir bin Mohammeds visit to Bangladesh in 1999 and Prime Minister Sheikh Hasinas return visit to Malaysia in 2000 infused new dynamism in the bilateral relations between the two countries. The visits opened up new vistas of cooperation and ensured the continuing export of skilled manpower from Bangladesh to Malaysia. Malaysia, South-East Asias third largest economy, has an estimated 2.6 million legal and illegal foreign workers. They are critical to the nations key manufacturing and agriculture sectors, and many household rely on foreign domestic workers, mainly from Indonesia, Philippines and India. 8.9.1Strain Issue of labor force administration in Malaysia has somewhat strained the bilateral ties temporarily. In 2007 Malaysia banned imports of Bangladeshi workers into the country after hundreds of them were stranded at an airport because their employers failed to collect them promptly. There were demonstrations in Kuala Lampur by Bangladeshi workers demanding payments and better conditions. This created a crisis in the bilateral ties but issue has been resolved with the interference of the governments. The government had placed a similar restriction in 1999 but lifted the ban last year by approving an initial intake of 300,000 workers. 8.9.2 Dhaka and Islamic World Dhakas relations with Malaysia are a part of its entering into close ties with Islamic world. The road of Bangladesh to endear itself to Islamic world has been long and strenuous, though. The country
20

began a constructive course in international affairs soon after Bangladesh was admitted to the United Nations in 1974 and it was elected to a Security Council term in 1978 and again for another term 20002002. In 1983, Bangladesh hosted the foreign ministers meeting of the OIC. Bangladeshs geographical location at the crossroads between South and South East Asia and East Asia beyond, makes it naturally advantageous for Bangladesh to pursue a well rounded and balanced policy of cooperation and friendship with all the Asian countries as much as with India , Pakistan and the other South Asian nations as with Myanmar , Thailand and other South-east Asian nations. 8.9.3 Free Trade Agreement As the ties with Malaysia grew in volumes, the Bangladesh business community seeks now a free trade agreement (FTA) put on track quickly to help enhance the two-way trade with Malaysia and help slash the widening trade deficit affecting the South Asian nation. Though the proposed FTA was mooted in 2004, it failed to materialize but now with Bangladesh-Malaysia trade relations on the surge, a comprehensive trade pact could help encourage trade and cross-border investment flow. This FTA proposal merits serious consideration and examination. The first Showcase Malaysia 2008 event in Dhaka in April, jointly organized by BMCCI and Malaysia South Association, where nearly 75 Malaysian companies, government agencies and industry captains are participating in the three-day event, largely to expose Malaysian businesses to Bangladesh . On a similar note, Malaysian High Commissioner to Bangladesh , Datuk Abdul Malek Abdul Aziz, who is also the patron of the Bangladesh-Malaysia Commerce and Industry (BMCCI), said a FTA would certainly add momentum to the current trade relations. Bangladesh is the only nation among the worlds 49 least-developed countries (LDCs) to be almost self-sufficient in the production of pharmaceuticals - largely branded generic drugs. Moreover, its drug exports - to 68 nations - grew 47% to $28.12 million in 2006-7 and, at $23.63 million, they have beaten first-half 2007-8s target of $15.63 million by over 51%, the nations Export Promotion Bureau (EPB) reports. With proper government support to help Dhaka enters the worlds highly-regulated markets, Bangladeshi industrial conglomerates pharmaceuticals arm, BPL, could create an export market worth over 10,000 crore taka ($1.5 billion) by 2009. Recently, Malaysia's leading education institutions, port operator, healthcare provider and pharmaceutical company visited Dhaka to explore the new market with nearly 140 million people and possibly use Bangladesh to penetrate the huge South Asian market, home to nearly 1.3 billion people. 8.9.4Future Trade and cooperation are increasing year by year between Malaysia and Bangladesh and both are forecasting sharp increases in their pharmaceutical exports, business groups are calling for the establishment of a Free Trade Agreement (FTA) between the two nations. One reason is that Bangladesh s total exports to Malaysia - its largest investment partner among the Association of Southeast Asian Nations (ASEAN) - were worth just US$16.9 million in 2006-7, while its imports from there totaled US$384.16 million. Many Malaysian companies have shown keen interest to participate in infrastructure projects here such as power generation, sea port development, waste disposal system, construction of roads and
21

highways as well as in the service sector such as education and healthcare. Malaysia said will continue to contribute positive efforts to promote and expand bilateral relations with Bangladesh , particularly in trade and investment. Pending projects like the Dhaka-Chittagong highway, worth $1.2 billion, power generation, port development etc would be completed. Malaysia would take initiative to get entry of Bangladeshi products at 'zero tariff' in Malaysia, and sufficient number of visas will be provided for the participants of the fair. Malaysia is keen to see Bangladesh promotes market in that country so as to reduce the trade gap, which is currently in favor of Kuala Lumpur . Referring to the demand of Bangladeshi garments, home textile, handicrafts, halal food, spices, ceramic, melamine and medicines in Malaysia , Abdul Aziz said Dhaka could take the opportunity by participating in the trade fairs in his country. With close contacts emerging at various levels including governments and companies, peoples and services, the Bangladesh-Malaysian ties are slated to be on an ever-steady increase. With more and more agreements being reached, deepening and widening the areas cooperation, the relationship between these friendly Muslim nations would grow stronger.

22

Reference: 1. http://en.wikipedia.org/wiki/Malaysia 2. www.statistics.gov.my 3. CIA World Fact Book

23