Malaysia’s universities working to make the grade

Universities in Malaysia have been given a key role in government plans to raise the country to developed-nation status within the decade, but more investments may be necessary if higher education institutions are to meet the targets that have been set by the state.

According to government figures, 25% of all Malaysians between the ages of 18 and 24 are taking part in some form of higher education, a level of participation that Prime Minister Najib Razak says will help the country overcome income inequality and reach its goal of being a high-income nation by 2020.

“The odds of people succeeding in their socioeconomic upward mobility are significantly improved by raising access to education,” he said while attending a ceremony at the Unitar International University in Kelana Jaya on February 27. “Only with equity can we narrow the gap of income inequality and achieve a resilient national unity.”

Working to make the grade

However, it is not just greater access to higher education that is in the government’s sights – Malaysia is aiming to boost the quality of academics as well. The goal is to have at least one local institution ranked among the top 50 global universities by 2020, with a minimum of three in the top 100.

Meeting this target may prove difficult to achieve by the deadline set. In the latest edition of the QS World University Rankings, the preferred benchmark according to the Ministry of Education, the highest-placed Malaysian institution was Universiti Malaya, which came in at 167, followed by Universiti Kebangsaan Malaysia (269), Universiti Sains Malaysia (355) and Universiti Teknologi Malaysia (355).

Malaysia’s universities fared better in the QS World University Rankings by Subject, however, which was released at the end of February. Eight institutions are rated within the top 200 in at least one of the 30 disciplines reviewed, two more than made the grade last year.

Best-performing was Universiti Sains Malaysia, which ranked 28 for environmental sciences, while also joining the top 100 for computer science and information systems, chemical engineering, civil engineering and mechanical engineering. Universiti Malaya reached the top 100 in six categories, including computer science and information systems, chemical engineering, electrical engineering and mechanical engineering.

This year’s results show that Malaysian universities are operating at an increasingly high level within a range of academic disciplines, QS head of research, Ben Sowter, told the local media.

“Overall, the performance of Malaysian institutions has improved compared to last year,” he said. “Through taking a more targeted approach to ranking universities, we have been able to pick up on the particular strengths of Malaysian institutions much more effectively than is possible in overall institutional rankings.”

Academic credence, economic gain

Apart from gaining credibility in the academic world, success in various ratings surveys are of importance to individual universities and the country, and can bring clear financial benefits. Better rankings help universities attract more international students, staff, business investment and research partners.

Another advantage of a stronger higher education system could be a reduction in the flow of Malaysian students overseas, with up to 80,000 studying abroad annually, of whom roughly one third have some form of sponsorship. While a similar number of international students come to Malaysia, the balance of revenue from higher education could be swung more firmly in the country’s favour if it was able to keep more of its students at home while attracting additional fee-paying foreigners from other markets.

One encouraging fact is that many of the disciplines where Malaysian universities scored high in the QS rankings were in technical and scientific fields, indicating strength in areas that have practical applications for economic development. Though Malaysia may find it a challenge to reach the upper tiers of global university rankings, the country appears to be making the grade in terms of moving closer to its national economic targets.

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Malaysia’s universities working to make the grade

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Malaysia focusing on qualitative growth rather than quantitative easing

With the US Federal Reserve set to reduce its bond buying activities as of January 2014, there has been growing speculation as to how great an impact the tapering will have on emerging markets, including Malaysia. While some economies dependent on short-term capital inflows, such as Turkey or Brazil, are likely to face challenges, Malaysia is increasingly seen as more capable of coping with the reversal of the US bond policy.

In mid-December, Bank Negara Malaysia (BNM) governor, Zeti Akhtar Aziz, said that the central bank was well positioned to manage and intermediate any volatility resulting from the tapering of quantitative easing, and had been preparing for the gradual reduction in the US bond buying scheme.

“Progressive liberalisation has resulted in two-way flows that will help towards stabilising the markets, and BNM will be there to ensure orderly market conditions,” Zeti said.

While there will likely be some negative economic effects, there are also potential advantages to be had from the ending of US quantitative easing, the BNM head said.

“We have to take the tapering as an eventuality and it is a sign that the US economy has improved and this would be positive for the rest of the world,” she said. “However, as recipients of funds, we would see more volatility in our financial markets.”

Zeti noted she expects local institutional investors such as pension funds and insurance companies to step up and play an increasing role in the markets as overseas funds are withdrawn.

Another individual to remain confident in the economy’s outlook in the face of quantitative easing is Edward Iskandar Toh, chief investment officer of fixed income for Areca Capital, a Malaysia-based fund management company. In an interview with the local media January 13, Toh explained that the domestic market had been factoring in the advent of tapering for the past six months.

Growth set to outweigh tapering downside

Even with the Federal Reserve’s tapering as a cloud on the horizon, the Malaysian economy is expected to sustain momentum in 2014, with analysts predicting expansion of 5% or more. According to a report issued by Standard Chartered Bank on January 9, improved foreign trade and continued strong domestic demand will underpin growth, suggesting the economy would be able to ride out the impact of the Fed’s tapering.

Indications that Malaysia could likely experience a soft landing when the Fed eases its stimulus programme came in early January, with the release of the latest current account figures. November saw the highest trade surplus in almost two years, rising from October’s $2.51bn to $2.96bn.

Following the release of the trade data on January 8, Rahul Bajoria, an analyst with Barclays, said the ongoing growth in trade “boded well for overall economic performance”. Should the economy continue to expand, it could attract both longer-term foreign direct investment as well as more mobile overseas capital.

A further show of confidence came from ratings agency Moody’s, which in mid-November upgraded its outlook for Malaysia’s government bonds from stable to positive, while reaffirming both bond and issuer ratings at A3. One of the factors influencing Moody’s decision to revise its outlook was what the agency described as Malaysia’s “continued macroeconomic stability in the face of external headwinds”.

Some impact inevitable

Though Zeti and others are confident that the Malaysian economy can successfully weather the ending of quantitative easing, the tapering process is likely to cause ripples, as has already been seen in mid-2013, when speculation first began regarding the Fed’s plans to cut its stimulus programme. Over the course of 2013, the ringgit lost nearly 7% of its value, its worst performance since the Asian economic crisis of 1997, while the cost of government borrowing also edged up as the focus of investor interest shifted towards the US.

However, in comparative terms, Malaysia has fared quite well – the value of Indonesia’s rupiah, for example, fell by around 20% in 2013. The worst of the impact has probably occurred, and a rejuvenated US economy could boost demand for Malaysian exports, part of the upside referenced by BNM governor Zeti. With its own economy set to expand solidly, and some of its main external trading partners on the road to recovery, Malaysia will likely experience ripples, rather than waves, as the Federal Reserve shifts down its bond-buying programme.

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Malaysia braced for austerity challenge

While rising domestic demand in Malaysia helped reassure investors after last summer’s regional downturn, concerns remain that the country is displaying an over-reliance on high domestic consumption levels to prop up growth.

According to the World Bank’s latest projections, Malaysia is expected to achieve 4.3% GDP growth in 2013, despite substantial capital outflows and a nearly 10% depreciation in the ringgit during the second half of the year.

Domestic demand’s key role

The significant contribution that strong domestic demand has made to Malaysia’s economic resilience is widely acknowledged, with officials, including Zeti Akhtar Aziz, the governor of Bank Negara Malaysia, the central bank, highlighting its impact.

“The domestic sector has been solid and the anchor to drive our growth during this more challenging period,” Zeti told Bloomberg in November. “Global trade slowed down very significantly [in 2013], and of course, that affected us because of the openness of our economy. But had we not rebalanced our economy, we would have had 1-2% growth.”

In the same month, Bank Negara Malaysia announced domestic demand grew 8.3% year-on-year in the third quarter of 2013.

High household debt

In December ratings agency Standard & Poor’s, said increasing levels of household debt in Malaysia, which now exceed 80% of GDP, would be “problematic” if the country’s growth rate slowed. The agency had cut its credit outlook for four Malaysian lenders in the preceding weeks over concerns stemming from a rise in home prices and consumer leverage.

Just two weeks earlier, Nancy Shukri, the minister in the prime minister’s department, said that 16,306 people, or an average of 60 Malaysians daily, had been declared bankrupt in the first nine months of 2013.

Malaysia has one of the highest ratios of household debt to disposable income in the world, with its current level of 140% outstripping even that of the US (123%).

In a move to slow consumer credit growth, in July the central bank introduced certain restrictions on lending, including a ten-year ceiling on personal loans, a maximum tenure of 35 years on property mortgages and a ban on pre-approved personal finance products.

However, conditions may not be as dire as some have made them out to be. As Zeti pointed out in September, less than 2% of household loans were non-performing as of that time.

Effect of new budget

While national efforts to rein in spending are taking shape, they follow a wave of populist interventions, including wage hikes for civil servants introduced ahead of last May’s elections, which almost certainly boosted domestic consumption.

However, Malaysia has been more generally moving to tighten its fiscal position. Under the 2014 budget introduced in October, the government will reduce certain subsidies this year and introduce a new goods and services tax (GST) in 2015. Everyday goods and services will be subjected to a 6% levy, although basic food items and some methods of transport are to be exempt.

International critics have urged Malaysia to break the cyclical nature of spending patterns, suggesting that a new strategy would improve investor sentiment in the long term.

“The new government elected in May must consolidate its credibility by meeting its commitments to reduce the public debt without reneging on its electoral promises,” wrote BNP Paribas in an October analysis. “The prime minister also said the 2014 budget would be marked by austerity … [But] these measures … will only stabilise the public debt ratio at best, without reducing it.”

Public debt stands at around 54% of GDP. According to Douglas McWilliams, economic advisor to the Institute of Chartered Accountants in England and Wales, keeping this figure under 60% is important in terms of maintaining investor confidence and, with reforms in place, is an attainable goal.

“The fast growth is helping taxation revenues and government’s budgetary consolidation, particularly on subsidies but also GST, which means Malaysia’s debt ratio will be below 60%,” he told the local media in December.

The national drive to slow lending to consumers and keep government spending in check has been given a largely positive reception. However, accelerating initiatives and increasing their impact may well help the country in its efforts to attract investors and allay their concerns.

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Malaysia braced for austerity challenge

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Malaysia braced for austerity challenge

While rising domestic demand in Malaysia helped reassure investors after last summer’s regional downturn, concerns remain that the country is displaying an over-reliance on high domestic consumption levels to prop up growth.

According to the World Bank’s latest projections, Malaysia is expected to achieve 4.3% GDP growth in 2013, despite substantial capital outflows and a nearly 10% depreciation in the ringgit during the second half of the year.

Domestic demand’s key role

The significant contribution that strong domestic demand has made to Malaysia’s economic resilience is widely acknowledged, with officials, including Zeti Akhtar Aziz, the governor of Bank Negara Malaysia, the central bank, highlighting its impact.

“The domestic sector has been solid and the anchor to drive our growth during this more challenging period,” Zeti told Bloomberg in November. “Global trade slowed down very significantly [in 2013], and of course, that affected us because of the openness of our economy. But had we not rebalanced our economy, we would have had 1-2% growth.”

In the same month, Bank Negara Malaysia announced domestic demand grew 8.3% year-on-year in the third quarter of 2013.

High household debt

In December ratings agency Standard & Poor’s, said increasing levels of household debt in Malaysia, which now exceed 80% of GDP, would be “problematic” if the country’s growth rate slowed. The agency had cut its credit outlook for four Malaysian lenders in the preceding weeks over concerns stemming from a rise in home prices and consumer leverage.

Just two weeks earlier, Nancy Shukri, the minister in the prime minister’s department, said that 16,306 people, or an average of 60 Malaysians daily, had been declared bankrupt in the first nine months of 2013.

Malaysia has one of the highest ratios of household debt to disposable income in the world, with its current level of 140% outstripping even that of the US (123%).

In a move to slow consumer credit growth, in July the central bank introduced certain restrictions on lending, including a ten-year ceiling on personal loans, a maximum tenure of 35 years on property mortgages and a ban on pre-approved personal finance products.

However, conditions may not be as dire as some have made them out to be. As Zeti pointed out in September, less than 2% of household loans were non-performing as of that time.

Effect of new budget

While national efforts to rein in spending are taking shape, they follow a wave of populist interventions, including wage hikes for civil servants introduced ahead of last May’s elections, which almost certainly boosted domestic consumption.

However, Malaysia has been more generally moving to tighten its fiscal position. Under the 2014 budget introduced in October, the government will reduce certain subsidies this year and introduce a new goods and services tax (GST) in 2015. Everyday goods and services will be subjected to a 6% levy, although basic food items and some methods of transport are to be exempt.

International critics have urged Malaysia to break the cyclical nature of spending patterns, suggesting that a new strategy would improve investor sentiment in the long term.

“The new government elected in May must consolidate its credibility by meeting its commitments to reduce the public debt without reneging on its electoral promises,” wrote BNP Paribas in an October analysis. “The prime minister also said the 2014 budget would be marked by austerity … [But] these measures … will only stabilise the public debt ratio at best, without reducing it.”

Public debt stands at around 54% of GDP. According to Douglas McWilliams, economic advisor to the Institute of Chartered Accountants in England and Wales, keeping this figure under 60% is important in terms of maintaining investor confidence and, with reforms in place, is an attainable goal.

“The fast growth is helping taxation revenues and government’s budgetary consolidation, particularly on subsidies but also GST, which means Malaysia’s debt ratio will be below 60%,” he told the local media in December.

The national drive to slow lending to consumers and keep government spending in check has been given a largely positive reception. However, accelerating initiatives and increasing their impact may well help the country in its efforts to attract investors and allay their concerns.

Follow Oxford Business Group on Facebook, Google+ and Twitter for all the latest Economic News Updates. Or register to receive updates via email.

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Malaysia moves to target broadband speeds

A drive to bring Malaysia’s internet services up to speed is gathering pace, with ICT infrastructure earmarked for an investment boost next year and longer-term solutions, which could include a fibre optic network roll-out, under discussion.

Malaysia currently lags behind several of its peers when it comes to download speeds, while demand for faster broadband is set to rise significantly in the coming years.

Increasing ICT’s contribution to growth forms a key part of the government’s master plan for the economy. Under its Malaysia Digital Economy initiative, the administration expects the industry to contribute 17% to GDP by 2020. The leadership is also targeting a compound annual growth rate of 9.8% in five key sub-sectors – ICT services, e-commerce, ICT manufacturing, ICT trade, and content and media – over the next seven years.

Boosting broadband

Communications and Multimedia Minister Ahmad Shabery Cheek told reporters in late November that the government was looking at undertaking an in-depth study into ways of boosting broadband speeds to between 40 and 50 Mbps by the year 2020.

According to the minister, there is a rising demand for faster data transfer speeds, with one study showing that Malaysians will want a service operating at 49 mbps by 2018. To achieve this, Ahmad Shabery said, would require significant investment and a shift away from wireless technology. “It requires the installation of fibre optics which is not cheap and cannot be carried out within a short time,” he said.

At present, Malaysia offers a limited fibre optic internet service, with operations restricted to key urban areas, mainly in the capital.

Proposals to construct a fibre optic network, providing a backbone service across the country, have already been submitted by the private sector. However, the project would have limitations and require feeder-link connections to be put in place for wide-ranging access to be made available.

A fibre optic roll-out would produce extensive opportunities for ICT service providers, while the faster rates offered by a new grid should also open doors for firms to market more advanced technology suited to higher speeds. However, the cost of achieving near-total connectivity through fibre optics would make any project a long-term initiative.

Strengthening existing services

In the meantime, Malaysia is focusing on strengthening its existing information and communications backbone.

The recent national budget, handed down at the end of October, allocated funds for several projects aimed at widening the reach of the net and boosting operating speeds.

Among the new initiatives is a $566m joint public-private project, which will expand high-speed broadband coverage. The budget also set aside $571.6m to construct 1000 telecommunication transmission towers over the next three years, which will help increase internet coverage in rural areas, while access in Sabah and Sarawak is set to be improved through the laying of undersea cables.

Peer pressure

National broadband penetration currently stands at 70%, up from 30% in 2006, according to data from the Malaysian Communications and Multimedia Commission.

However, research shows that Malaysia lags behind several of its South-east Asian peers when it comes to broadband speeds.

Data compiled by web analytics firm Net Index put Malaysia’s average broadband download speed at 4.56 Mbps when tested over a 30-day period. While marginally higher than the Philippines (4.55 Mbps), Malaysia’s average broadband speed was lower than that of Brunei (4.69 Mbps), Vietnam (11.70 Mbps), Thailand (12.47 Mbps) and Singapore (39.90 Mbps).

Malaysia placed 112th globally for broadband speed on the index, which was compiled using data from the broadband connection analysis website Speedtest.net. The Philippines ranked 114th, while Thailand placed 54th.

The country gave a stronger performance, however, in the second edition of the World Wide Web Foundation’s comparative study of international web penetration, empowerment and socio-economic impact, which was released in late November.

In its first appearance on the index, Malaysia placed 37th out of the 81 countries assessed, leading the emerging nations, and clinching second position among ASEAN members, behind Singapore.

However, the survey also identified areas where Malaysia could improve, including freedom and openness. In addition, the index highlighted issues around safety, online privacy and information protection.

The foundation’s results confirm that Malaysia would benefit from faster, cheaper and easier access to the web. The government will be hoping that a combination of investment during the coming years, supported by longer-term solutions, will help the country meet demand through faster internet speeds, closing the gap on its peers.

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Oxford Business Group | Budget shake-up for Malaysian real estate

The Malaysian government has taken steps to cool speculation in the property market by imposing a capital gains levy on real estate sales, tightening up regulations governing developers and raising the price bar for foreign investors, moves that have won mixed reviews from analysts.

On October 25 Prime Minister Najib Tun Razak tabled the draft budget for 2014, which has a strong emphasis on raising state revenue and cutting spending. According to the plan, subsidies will be restructured in the coming years and public debt – currently at 53% of GDP – will be lowered.

Among the revenue-generating proposals are a number of new taxes, including a real property gains tax (RPGT), which is also intended to ease property speculation and reduce inflation in housing. Under the new provisions, set to come into effect on January 1, a tax of 30% is to be imposed on gains from real estate sales on properties owned for three years or less, with the rate sliding to 20% if the property is sold in the fourth year of ownership and 15% in the fifth. Any sales after the fifth year will not be charged a capital gains levy. Previously, the capital gains tax on property sales had been set at 10% when introduced in 2010 and later increased to 15%, and applied to sales within two years of purchase.

For foreign property buyers, a different tax scale will be applied, with non-citizens required to pay a tax of 30% on the capital gains for a property sold at any time over the first five years of ownership, after which the rate falls to 5%.

Another move, one seen as even more likely to cool speculation, was the banning of developer interest bearing schemes (DIBS). As their name suggests, developers that offer DIBS agree to pay any interest on home loans during the construction period, making the purchase more attractive to potential buyers. The new provisions also prevent commercial lenders from involving themselves in DIBS-related projects. This measure will probably result in a slowing of off-plan sales by developers, while also reducing the property lending component of some of Malaysia’s larger banks.

While many in the sector have said banning DIBS was a positive move, one that would directly target speculation, others believed it would make it more difficult for first-home buyers to enter the market. One critic of the reform was Michael KC Yam, the president of the Real Estate and Housing Developers Association. Yam told the local media on October 25 that DIBS had been of benefit to many.

“We think that innovative home financing packages such as the DIBS offered by developers of high premium properties should be encouraged to facilitate financing and promote home ownership,” he said.

The RPGT also had its supporters and opponents, with Foo Gee Jen, managing director at property consultancy CH Williams Talhar and Wong, describing the increased levy as a measure that would boost stability in the market.

“The increase in RPGT is a wake-up call for flippers,” he told the local media on November 6. “Investors will have to go back to investing in property fundamentals, such as location and yield.”

However, some analysts have queried whether speculation is as rife in the sector as has been suggested, saying that the higher tax rate on capital gains will do little to reduce price increases for residential properties, one of the stated aims of the bolstered levy.

Foreigners eased out of the low end of the market

The budget also lifts the minimum value of a property that foreign investors can buy from the current RM500,000 ($161,000) to RM1,000,000 ($322,000), a move that may cool some of the speculation by overseas players.

Given the still relatively low price and solid value of Malaysian property, even the increased threshold may not curb foreign interest, though Chang Kim Loong, the honorary secretary-general of the National House Buyers Association, believed the higher ceiling will ease pricing pressures for Malaysian buyers.

“Foreigners must be prevented from snapping up property meant for the lower- and middle-income and thus artificially inflating property prices and creating a domino effect which can result in higher property prices across the industry,” he said in a statement issued the day after the budget was handed down.

Boost for low-cost residential segment

The budget also lays out a plan to add 223,000 new residential units to the national accommodation stocks in 2014, with both the government and the private sector expected to play a role.

The state will directly provide funding for the construction of low-cost housing, while at the same time offering a subsidy of $6000 per unit to private developers that build homes directed at low- and middle-income buyers.

It will be well into the new year before the full impact of the 2014 budget articles dealing with real estate will become apparent. To some degree at least, the buoyancy of the property market will depend on the strength of the Malaysian economy. The government has predicted growth of 5-5.5% in 2014, though ratings agencies and analysts are predicting GDP expansion may fall somewhat short of this target, at 4-4.5%. It could be that a relatively sluggish economy, rather than any increased tax, could slow activity in the property market.

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Oxford Business Group | Budget shake-up for Malaysian real estate

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Malaysia’s EU trade negotiations in spotlight

With the end of an agreement granting Malaysia preferential access to the EU market looming, all eyes are on ongoing negotiations between Kuala Lumpur and Brussels aimed at securing a replacement free trade pact.

Malaysia currently benefits from the EU’s generalised system of preferences (GSP) scheme, which provides developing countries with generous tariff reductions on exports. However, the World Bank’s decision to award the South-east Asian state upper-middle-income-nation status will end its eligibility for the lower levies from January 2014.

While EU representatives are confident that a new free trade agreement (FTA) will deepen economic integration between its member states and Malaysia, local business representatives have questioned whether they can remain competitive once the lower tariffs are withdrawn.

Strong bilateral trade

The EU is a major importer of Malaysia’s goods. Figures show its members purchased 13%, or 2.22m tonnes, of the country’s palm oil exports in 2012, and spend more than $1.3bn each year on Malaysian timber. On October 22, the Malaysia External Trade Development Corporation (MATRADE) said it expected total bilateral trade to reach RM120bn ($38.2bn) in 2013. Results so far this year suggest this is an attainable goal, with exports to the EU for the first eight months amounting to RM41bn ($13bn), while imports stood at RM45bn ($14bn).

Susila Devi, the senior director of MATRADE’s Strategic Planning Division, told reporters that Europe offered Malaysia a broad range of business and investment opportunities across the industries. “It also includes information communication technology, chemicals, automotives, renewable energy, logistics, agro food processing, pharmaceuticals and financial services,” she commented.

FTA negotiations

Business leaders, however, have highlighted the significant impact that the end of GSP status is set to have on trade and investment.

The GSP scheme provides duty reductions of up to 66% on sales to the EU. Malaysia’s exports to Europe under the initiative were valued at RM13.5bn ($4.3bn) in 2011, or 17% of its overseas shipments, according to a report published by the EdgeMalaysia in April.

Tan Sri Lee Oi Hian, CEO of Kuala Lumpur Kepong, a Malaysia conglomerate with interests in the palm oil industry, warned in March that without the GSP, the tax rate on some Malaysian oleochemicals heading for the EU would be between 4% and 6%. “We will just not be competitive,” he said at a Global Malaysia Series workshop.

Lee, together with other business leaders, said the impending withdrawal of the GSP scheme heightened the need for the government to secure an FTA with Europe. The loss of the GSP could be “another nail in the coffin” for the local palm oil industry, he said.

The EU and Malaysia first entered into discussions on a FTA in late 2010, with the next round of negotiations scheduled for the fourth quarter of this year. The ambassador and head of the EU delegation to Malaysia, Luc Vandebon, told Bernama in June that if the next round of talks is held before the end of 2013, then “it should be possible to conclude negotiations in late 2014/early 2015”.

The EU delegation’s former ambassador to Malaysia, Vincent Piket, said last year that an FTA would boost the country’s GDP by 8% by 2020.

“The conclusion of the FTA would be a landmark step in the fostering of bilateral trade between the two partners and deepen economic integration,” he said.

Looking long term

FTA supporters say a deal will, over time, increase market access for goods and services, facilitate trade and investment flows, enable mutual recognition of standards and qualifications, and increase joint capacity-building programmes.

However, not all Malaysians feel that an EU trade pact, at least in its current proposed form, is the best path for securing long-term economic growth.

In a report published in late 2012 by the IFRI Centre for Asian Studies, part of a French think tank, author Tham Siew Yean noted that the proposed FTA was in conflict with key interests of Malaysia. Tham raised particular concerns about the impact of intellectual property rules on the pharmaceutical sector.

“A small trading economy such as Malaysia’s is keen to lock in its market access to other countries. … [But] Malaysia’s focus has always been in the ASEAN as well as the wider East Asian market. In this scenario, ASEAN agreements, including Malaysia’s commitments in extra-ASEAN-wide agreements, will hold more weight than an agreement with the EU,” he wrote.

Concerns have been raised that with regional competitors also vying for the EU market, Malaysia could be tempted to negotiate a deal with the union from a position of weakness or sign an agreement lacking transparency. Many Malaysians, it would seem, are keen to avoid landing an unbalanced deal that fails to dovetail with the country’s broader vision for growth.

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Malaysia 2020 targets elusive at current trajectory

Despite a low inflation rate and relatively stable sovereign and corporate balance sheets, Malaysia is set to miss the targets set out in its Vision 2020. As part of a long-term analysis of the South-east Asian country, Oxford Business Group recently contributed an article entitled ‘The Malaysian Quandary’ to local media website FMT, looking at the basis for this assessment and calling into question the private sector’s reliance on the government.

We invite you to read the full article and join a vibrant discussion about the Oxford Business Group view on Malaysia . We encourage you to share the link with others who might be interested.

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Malaysia: New entrant raises air travel competition

The budget airline market in Malaysia is continuing to evolve. A new entrant, Malindo Air, is challenging the dominant player, AirAsia, as the latter plans an initial public offering (IPO) for its long-haul division and is facing delays at Kuala Lumpur’s new low-cost airport.

A joint venture between Malaysia’s National Aerospace and Defence Industries (51%) and rising Indonesian budget carrier Lion Air (49%), Malindo Air launched operations in March 2013 with flights between Kuala Lumpur International Airport (KLIA) and Kota Kinabalu, the capital of the state of Sabah. The airline has since added flights between KLIA and Kuching, the capital of the state of Sarawak, and it hopes to cover 12 destinations by the end of 2013.

As of mid-June, the company was already offering ten routes, including to Kuala Lumpur, Kuching and Kota Kinabalu; Johor Bahru, in southern Peninsular Malaysia, to the north of Singapore; Kota Bharu, in the north-east of Peninsular Malaysia; Miri and Sibu in Sarawak; Subang, near Kuala Lumpur; Tawau in Sabah; and Penang, on the island of the same name, which is a centre for business and tourism in north-west Malaysia. The links to Sarawak are likely to be widely welcomed, as its tourism sector has high potential but relatively limited development due to poor connectivity.

Malindo Air’s first international link, New Delhi, is expected to be one of the next destinations from KLIA, and is set to be followed by one or more cities in southern China, with Guangzhou, Hong Kong, Shenzhen and Kunming all on the radar, according to Malindo Air’s CEO, Chandran Ramamurthy. Press reports suggest that Kochi and Trichy in India may also be targets – as they are already well-performing routes for AirAsia – as well as Singapore and even Jakarta, which are currently served by Lion Air itself.

Malindo Air has said that it will be able to attract customers from budget airlines, such as AirAsia, as well as from full-service carriers, such as Malaysia Airlines, by providing amenities like hot meals, but all at low fares. Indeed, Malindo Air bills itself as “Not Just Low Cost” and offers more perks than most budget airlines, including free luggage up to 15 kg, free snacks and in-flight entertainment, as well as business class, which may appeal to some travellers currently flying in economy-only cabins of its budget rivals.

The shot of competition that Malindo Air has brought to the market has already brought down prices; flights from KLIA to Kuching and Kota Kinabalu fell 18.6% and 12.6%, respectively, between March 2013 and May 2013, according to travel website Skyscanner, as reported by the local press.

Still, these are very early days for Malindo Air – which was barely a concept this time last year – so making hard and fast predictions about its effect on the airline market in Malaysia and the wider region is difficult. Certainly, the new airline’s swift emergence will be watched closely by AirAsia, which has recently seen stellar success in expanding across the region and already has a fleet of 124 planes. Despite its geographical reach, 80% of the carrier’s profits still come from Malaysia, driving group-operating profit margins to 19.5% – fairly fat by airline industry standards. The company’s profits fell 39% in the first quarter of 2013, partly due to higher financing costs.

AirAsia owner Tony Fernandes and the CEO of the company’s Malaysian operations, Aireen Omar, have both played down the competition that Malindo Air poses, and Omar told the Malaysian National News Agency that the airline is on target for network expansion. AirAsia X, the long-haul division of the carrier, launched an up-to-$370m IPO in early June, saying that it would use the funds to finance the purchase of new planes.

But the budget airline faces challenges besides Malindo Air, including delays in the construction of the new international terminal, KLIA2, which will replace the Low Cost Carrier Terminal (LCCT) at KLIA and is expected to handle about 45m passengers each year. In January 2013 the government had said the facility would open on June 28 of the same year, but in May, Malaysia Airports Holding, the operator of the airport, said that it would be indefinitely delayed and gave no new opening date. AirAsia has since called for the establishment of an independent entity to review progress on the project, as well as to determine a completion date and the estimated cost.

For now, AirAsia will continue operating out of LCCT, which is not used by Malindo Air. The latter flies from KLIA’s main terminal building, generally considered more convenient for making international connections, providing one reason for customers to choose the upstart over its more established rival.

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Malaysia: IPO tide rising

Return of confidence after Malaysia’s general election has seen a surge in companies declaring their intention to go public, with more than $2bn worth of initial public offerings (IPOs) launched or mooted for the weeks following the poll.

In the months leading up to the May 5 election, IPO activity had been sluggish, with Malaysia having dropped from fifth globally in terms of funds generated by floats last year, to fifth in its region, according to international media reports. Most firms looking to tap the markets chose to hold off until after the poll, with concerns over potential political and economic instability weighing down sentiment. Now, with Prime Minister Najib Razak’s coalition returned to power, though with a reduced majority, confidence has returned, with a swathe of new IPOs either launched or flagged in the weeks following the ballot.

According to a recent Reuters report, the latest entrant into the IPO race is port operator Westports Malaysia, with the news agency citing sources as saying the firm is planning to list on the Bursa Malaysia in October. Westports, which operates Port Klang – Malaysia’s busiest export hub – is aiming to raise some $500m through the float, which is being arranged by Goldman Sachs, Credit Suisse and Maybank.

The Westports offering is likely to be popular with investors, as its Klang facility is expected to see an increase in container traffic of 7% annually for the next five years as trade between fellow ASEAN member states gains momentum in the lead-up and beyond the launch of the ASEAN Economic Community (AEC) in 2015.

Maritime transporter Maybulk is also going to the markets, with the shipping line intended to float it partially owned subsidiary PACC Offshore Services Holdings (POSH) by the end of this year or early in 2014. However, Maybulk CEO Kuok Khoon Kuan said in mid-May the listing of POSH, which provides support vessel services to the offshore oil and gas industry, could be on the Singapore exchange, saying a final decision would depend on market conditions.

In mid-May, IOI Corporation – one of Malaysia’s leading palm oil producers, announced it would be spinning off the holding’s property arm through an IPO planned for September. The float, valued at around $635m, rolls back IOI’s move in 2009 to take its real estate business private. The corporation’s chairman, Lee Shin Cheng, said the relisting was aimed at unlocking IOI Property’s true value, though some of the funds raised through the float, and a subsequent offer of shares to existing stakeholders, would be used to buy down the firm’s debt ahead of further expansion.

While the subdued activity in the first third of the year may hold back the 12-month total for IPOs, meaning the year-end figure could fall short of the number completed in 2012, Zulkifli Hamzah, head of Kuala Lumpur-based MIDF Research, believes trading will be brisk for the forthcoming offerings.

“We expect the Malaysian IPO market to remain healthy, with strong underlying demand,” he told Reuters in an interview on May 30. “There is a tremendous amount of liquidity in the system to support any offering.”

Though there is more confidence after the election and high levels of liquidity, some observers remain wary, including M&A Securities dealer Ooi Chin Hock, who cautioned that the market may not be as welcoming as some have forecast.

“It really is not a great time,” he said in an interview with AFP on May 17. “Things will turn defensive. But things could improve late in the year, and next year should be good.”

This caution may have influenced construction and utilities firm MMC Corp, which on May 13 announced it was postponing the IPO of its power unit Malakoff until next year. Initially MMC had planned to return Malakoff to the exchange’s boards in the second half of 2013, having taken it private in 2006.

While the company cited the need to improve its assets through maintenance work at one of its power stations, MMC is also looking to build up value by adding to Malakoff’s holdings, with the firm bidding on the tender for a new coal fired-power station in its home market and other projects abroad. Should these bids be successful, these additions could push its IPO worth past the $1bn that was predicted for the now-delayed float.

Early indications in the post-election period are that the market has an appetite for IPOs, with the float of property developer Matrix Concepts, which closed in mid-May, being oversubscribed more than 11 times. On its Bursa Malaysia debut, the firm’s shares gained 24%, a healthy return for its investors and a result that could encourage other companies to list.

Though the market may stage a correction some time this year, those companies that have announced they are looking to list are strong performers that can be judged by their financial soundness rather than general market sentiments. Indeed, rather than coming in on the end of a extended period of growth, the new wave of IPOs could help sustain the market’s upward climb.

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Malaysia: IPO tide rising

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