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 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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Malaysia plans for new taxes

Preparations in Malaysia are well under way for the rolling out of a new goods and services tax (GST) in April 2015, but opinions differ on how effective the levy will be in boosting revenue and critics have voiced concern that the tax could feed inflation.

Under the new plans, which were mapped out by Prime Minister Najib Razak on October 25 in his 2014 budget speech, a 6% tax will be levied on most purchases or transactions.

The GST forms a key part of a national drive to boost state income and reduce the fiscal deficit, which stands at 4% of GDP this year.

The government hopes that the new, broad-based consumption tax, which is set to replace a number of other tariffs, including the sales and services tax (SST), will streamline revenue gathering.

The state currently earns between $5bn and $5.3bn from the SST, which is applied to only some transactions. The Malaysian Customs Department said on November 21 that it expected to garner an additional $1.5bn in revenue each year as a minimum, once the GST replaces other tariffs, bringing the new tax’s expected total earnings annually to around $6.5bn.

Targets and exemptions

With GST exemptions not yet finalised, questions remain unanswered about which items and services will be taxed.

In mid-November, Deputy Finance Minister Ahmad Maslan told local media that exports would remain outside of the GST umbrella, in a move seen as offering support to Malaysia’s manufacturing industries. The Customs Department later issued a clarification, saying exporters would be able to recover GST paid on raw materials and components used in final export products.

The government has also said that health services will be exempt from the GST, although it remains unclear whether this will include all associated costs. In early November, the Ministry of Health said talks with the Ministry of Finance were ongoing to “minimise the effects of GST in increasing healthcare cost”, suggesting there could be ripple effects from the tax.

The final drafting of GST legislation will be completed by early 2014 at the latest, according to officials, while the infrastructure required for implementation, such as computer networks, is almost complete.

Persuading the public

This is not the first time that the government has tried to introduce a broad-based consumption tax. An initial plan, floated back in 2005, had targeted a 2007 GST roll-out, which failed to materialise. While the tax was put back on the agenda in 2009, strong opposition in parliament, which was mirrored across a significant part of the population, led to the government eventually shelving the draft legislation in 2010, a year before its planned launch.

Winning broad public support remains a challenge today, with widespread scepticism. Opponents are concerned the new tax could trigger price hikes, although the senior assistant director for GST at the Malaysian Customs Department, Mohd Sabri Saad, moved to allay such concerns at a media briefing on the tax.

“The implementation should not burden the people as it is not a new tax but a replacement of SST,” he said. “Only those goods and services which were not taxed before will have a one-off impact in terms of prices.”

Some analysts have suggested that the GST could spark a rise of up to 10% in real estate costs. The government has proposed an exemption for residential properties, but Jerry Chan, the chairman of the Penang Real Estate and Housing Developers Association, warned contractors will likely fail to set up systems to recover taxes paid on inputs, and instead pass the cost on to developers and customers.

Keen to soften the implementation of the tax, the government said the GST would be offset by a reduction in income tax of 1-3%, which will run alongside other support measures planned for low-income families. However, critics counter that only 1.34m of Malaysia’s 14m-strong workforce earn enough to be liable for income tax.

The government has given itself almost 18 months to work out the fine details of the GST and to sell its plan to the public. While the new levy could streamline tax procedures, too many exemptions and concessions risk limiting the GST’s effectiveness. The final drafting of the legislation for the GST will indicate the depth of the new tax regime and how committed the government is to standing firm against opposition to its policy and reducing the fiscal deficit.

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Malaysia: Auto sector looks to pick up speed

Automotive sales in Malaysia slipped down a gear in the second quarter, with both April and May showing a deceleration in the figures, though experts believe activity in the industry will pick up in the latter half of the year after the government unveils a new policy aimed at reducing vehicle price tags.

On June 18 the Malaysian Automotive Association (MAA) report on May vehicle sales showed a 5.4% drop in roll-outs from dealers’ lots compared to the previous month, which had also seen a decline in sales. The report said there had been a 15% dip in trade year-on-year for May, though 2012 had set the bar high, with record sales of 627,753 units for the full year.

While the April and May figures were down on the corresponding months in 2012, overall sales are up 6.2% for the first five months of the year, with just under 260,000 units sold compared to 244,000 over the same period in 2012. This was thanks to a strong performance in the first quarter, the MAA report said. The association noted that, despite uncertainties in the market, it expected year-end sales to top 640,000 units.

One of the key reasons given by analysts for the easing sales figures is a wait-and-see approach adopted by potential car buyers stemming from a promise made by the government in the lead-up to the recent national elections to reduce vehicle prices by 20-30% over the coming five years. This commitment was repeated by Prime Minister Najib Razak at the end of May, three weeks after the polls closed.

While the government has reiterated its promise to lower vehicle costs, it has not made clear how it will do so. The government has said the price cuts will stem from a revision of the National Automotive Policy (NAP), the blueprint for the direction of the industry first drafted in 2009 and amended last year. The NAP aims to boost competitiveness and liberalise the sector in the lead-up to the ASEAN Economic Community launch in 2015, when most of the region’s tariff borders will be removed.

The revised version of the NAP is due to be released some time in the third quarter, after it is reviewed by the Cabinet, by which time producers and dealers hope there will be more clarity over how the cuts will be achieved. The government is reluctant to reduce its automotive taxes at a time when it is trying to narrow the state deficit to 4% in 2013 from last year’s 4.5%, and down to 3% in 2015.

Trade Minister Mustapa Mohamed said on June 24 it was impossible for the government to cut the automotive excise tax, which brings in RM7bn ($2.18bn) to the Treasury annually.

“Our budget is in deficit,” Mustapa said. “If we sacrifice RM7bn, where are we going to find it? At this point of time, it is not something the government is considering.”

If this position is maintained, it would appear to limit options on how to reduce costs for the consumer, though the NAP may open up new avenues and help stimulate sales when released.

Another reason given for the slowdown has been weaker consumer sentiment, a reflection of concerns the Malaysian economy may be cooling. On June 24 OCBC Bank lowered its forecast for economic growth to 5% for this year, a reduction from its earlier estimate of 5.4%. The bank’s projection was in line with that of other analysts, who have tipped GDP expansion of between 4.5% and 5.5%, down from last year’s 5.6%. If the economy does move towards the lower end of market expectations, this may curb Malaysians’ appetite for new vehicles, at least until the position on new tariffs is made clear.

While there may be some uncertainty hovering over the immediate situation of the sector, a number of foreign manufacturers appear to be taking a positive position on its longer-term prospects. Chinese manufacturer Chery has announced it intends to set up a production plant in Malaysia, targeting both the domestic market and using it as a stepping stone into the region. Japanese rival Mazda has also unveiled plans to spend some $30m to expand its production capacity through acquiring an existing facility and constructing a new factory.

Another seeing improved potential in the Malaysian market is German carmaker BMW, which is targeting a 10% increase in sales in 2013 over last year’s 7000 units. The manufacturer reported in early June that sales for the first four months of the year were up by 5%, with hopes a new release of the Mini Cooper would push them even higher.

Some producers, including local manufacturer Proton, moved to lower the prices on some vehicles, though this can be linked to marketing pressures to increase sales and promotional activity leading into Ramadan, the end of which is traditionally linked with higher consumer spending, Malaysia’s carmakers may overall also adopt a wait and see attitude to pricing until after the NAP is rolled out.

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Malaysia: New year looks bright for construction industry

While 2013 will produce a number of challenges for Malaysia’s construction sector, including a degree of uncertainty surrounding the approaching election and a shortage of workers, the industry is still expected to post a decent performance this year.

Malaysia goes to the polls in June at the latest, with most pundits predicting a win for Prime Minister Najib Razik’s ruling Barisan Nasional and his coalition allies, although there have been suggestions that the race could be close.

Analysts remain divided, however, about whether nerves among investors prompted by the forthcoming election will produce knock-on effects of any significance across the construction industry.

In an advisory note to investors issued in mid-December, market analyst Nomura International said it remained bullish on construction, energy and banking. The firm’s confidence was shared by Alliance Research, which on December 17 gave a buy recommendation to construction shares.

JP Morgan Securities, however, was more cautious, placing a neutral buy advisory on Malaysia, due to what the firm’s executive director of equity research, Mak Hoy Kit, called election overhang. “Investors will be worried if the opposition wins. When there is uncertainty, investors typically act negatively,” Mak said on December 12. An opposition victory could leave question marks hanging over the current government’s infrastructure programmes, he said, which would likely go ahead as planned if the Barisan Nasional is returned to power.

A similar muted warning was also sounded by the government, when, at the end of November, Deputy Finance Minister Datuk Donald Lim said that although the construction sector’s contribution to the economy would remain significant, the new year would bring a slight reduction in activity.

Construction’s contribution to GDP is expected to fall to 13.5% in 2013 from 15% in 2012, with tourism and the services industry earmarked for a bigger role. “In 2013, we believe domestic demand will still be there but we expect the construction sector to slow down a little. Other industries would contribute to our growth,” Lim said.

The minister said that the slight drop in construction activity could be attributed to the completion of key, large-scale projects, which the government drove through to help the economy recover from a flat patch caused by the global financial crisis.

The industry is set to receive a further boost from a wave of new developments earmarked for 2013, including rail projects worth an estimated $52bn that should be launched in the coming year, prompting some analysts to suggest that while growth in other sectors will largely drive Malaysia’s economy, the construction sector’s contribution to GDP could still remain stable. Malaysia’s GDP is forecast to grow by at least 4.5% this year.

However, while the construction sector is expected to have a solid 2013, it remains hampered by a shortage of skilled labourers, with rapid growth in recent years triggering a drain on its workforce. In late November, the Master Builders Association Malaysia (MBAM) called on the government to do more to facilitate the training of building workers or run the risk of supply-side bottlenecks delaying new projects.

MBAM’s president, Matthew Tee, said that with over a third of the industry’s existing workforce approaching the age of 50, measures needed to be taken to replenish the ranks of the sector. Suggestions include the association’s proposal that the government set up vocational schools that would train construction workers. However, a programme will take time to produce results, and cooperation with the private sector would also be essential for providing work experience and training to students.

In the short term, the government is acting on a proposal floated by MBAM and other industry groups to bring in foreign workers to bolster the ranks of Malaysia’s construction sector workforce. At the beginning of December, the government announced the signing a memorandum of understanding (MOU) with Dhaka that set out the terms for Bangladeshi workers to be employed in Malaysia. The first wave of foreign labourers is due to arrive in February.

If, as is widely expected, Malaysia’s current government wins the forthcoming election, the country’s construction firms should benefit from a wave of new, state-backed infrastructure projects which, combined with rising demand for residential properties, suggests that predictions of a bright 2013 for the sector appear to be well founded.

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Malaysia: Push for liquefied natural gas

As gas consumption levels reach record highs in Malaysia and across the continent, the country is positioning itself as a regional trade centre for liquefied natural gas (LNG). With a series of capital-intensive LNG investments, Malaysia will likely see a strong increase in LNG import-export volumes for some time to come. However, muted economic growth in China and India, and with it slowing demand, could limit the country’s ability to export its new LNG production.

Heavy gas subsidies and increasing LNG demand, which has increased from 315bn cu feet in 1990 to more than 1260 cu feet in 2010, a compounded annual growth rate of 7.2% — is expected to result in Malaysia’s consumption rate outstripping production between 2011 and 2016. This trend may lead to a potential gas shortage beginning in 2014, signalling the need for Malaysia to expand its LNG import infrastructure.

To this end, Malaysia has invested in a number of infrastructure projects, including an LNG re-gasification terminal (RGT), located offshore near the Sungai Udang port in Malacca. The RGT was developed by the gas-processing subsidiary of Petroliam Nasional (Petronas), Petronas Gas, and work was completed in mid-2012.

The RGT includes an island jetty with a re-gasification unit, two floating storage units and a new 3-km, sub-sea pipeline that connects to the onshore gas pipeline network. According to the Prime Minister’s office, the facility is expected to commence operations this month. Once it is operational, the RGT will have the capacity to process and store up to 3.8m tonnes per annum (tpa) of LNG, Petronas Gas said in a statement.

Current supply contracts with the new facility include a deal with Norway-based Statoil to supply 1bn cu metres of LNG over three and a half years, a deal with France-based GDF Suez to supply 2.5m tpa also over three and a half years, and a 20-year deal with Qatargas for 1.5m tpa. Petronas is also looking to import gas from the Santos-Petronas Gladstone LNG project in Australia, with the first shipments of LNG to arrive in 2014, once the deal is completed.

To further enhance LNG import capacity, a second re-gasification plant and import terminal is being planned at the Pengerang Integrated Petroleum Complex (PIPC) in Johor. The $56bn project will include oil refineries, petrochemical plants and a $1.3bn investment allocated specifically for the LNG terminal and the re-gasification plant.

The investment will be a joint venture among local engineering firm Dialog Group, Netherlands-based oil and gas storage company Royal Vopak, and the Johor state government, with the first phase of construction expected to be complete by 2014. Storage capacity at the terminal is expected to be around 5m cu metres and will enable international users to store and trade LNG.

According to Mohd Yazid Jaafar, the CEO of the Johor Petroleum Development Corporation, studies by oil companies and the Performance Management Delivery Unit (the state body responsible for overseeing the implementation of the country’s economic transformation programme, PEMANDU) show that the PIPC will contribute RM17.7bn ($5.73bn) to gross national income by 2020, with the PEMANDU study also showing it will provide 8500 high-skilled job opportunities by 2020.

In addition to the onshore LNG developments, Petronas has recently awarded the Technip-Daewoo Consortium with a contract to develop Malaysia’s first floating LNG (FLNG) facility, which is expected to be operational by 2015. The FLNG facility is expected to produce 1.2m tpa and increase Malaysia’s overall production capacity from 25.7m tpa to 26.9m tpa.

The Sabah-Sarawak Gas Pipeline (SSGP) in Borneo, meanwhile, has reached 85% completion and is now entering the final phase of development. According to Shaiful Bahrin Hashim, the senior project manager at SSGP, “We estimate the gas to start flowing by April 2013, if everything goes as planned.” The pipeline is approximately 521 km in length and will deliver natural gas from a terminal in Kimanis to an LNG facility in Bintulu.

With high population growth rates across Asia and increasing demand for power, Malaysia’s ongoing natural gas investments may be a highly strategic asset entering the second half of the decade, particularly if it can secure its position as a major supplier now. If, however, demand slows considerably in China, for which the IMF recently downgraded its 2012 GDP growth prediction of 8% to 7.8%, and India, which also just saw the IMF’s GDP growth estimate for the year fall from 6.9% to 6%, Malaysia could be faced with more capacity than it can use.

Still, the new projects should provide Malaysia with substantial manoeuvrability in the LNG market, both in terms of expanding export capacity, as well as developing a more sustainable import mechanism to meet domestic consumption trends.

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Malaysia: Islamic finance pensions

Moves to liberalise Malaysia’s pensions market are expected to galvanise the Islamic finance market, already a key segment of the country’s economy, though greater regulatory oversight will be needed to bolster investor confidence in the sector.

On July 23, the international press reported that Malaysia was introducing “sweeping reforms” to its pension system. The changes introduce a new, voluntary Private Retirement Scheme (PRS) to run alongside the existing Employees Provident Fund (EPF). The PRS will allow Malaysians to purchase a wide variety of products from private fund management firms, making it easier for them to focus on Islamic investment. Currently, the EPF collects pension contributions and invests the cash; contributors can place up to 20% in a single mutual fund.

By facilitating investment in private products by individuals, the reforms are expected to kick-start the growth of Malaysia’s small private pensions sector, which the government now expects to be worth RM73bn ($22.92bn) by 2020. Though some think the prediction is rather optimistic, most agree that there is a lot of potential for growth given the regulatory changes, growing disposable incomes and a rising culture of saving for the future.

Officials – and the structure of the new regulations – make it clear that increasing investment in Islamic products is one of the aims of the changes. “The PRS will contribute to the growth of Islamic fund products,” Zakie Ahmad Shariff, a board member of the Private Pension Administrator (newly founded to oversee the PRS funds) and CEO of the Federation of Investment Managers Malaysia, told international press. Analysts agreed that those investing in the new system would gain from sharia-compliant offerings in particular.

Of the first 30 products offered through the PRS, only six will be Islamic, with the expectation that there will be more to come. The eight existing PRS providers ¬– all of which have sharia-compliant arms – can offer between three and seven conventional products through the system, but can provide up to 10 products if they offer Islamic schemes as well.

As the domestic market grows in new segments, Malaysia continues to cement its position as one of the world’s leading sharia-compliant sectors. It is particularly strong in sukuk (Islamic bonds), which accounted for 68.7% of the $84.4bn issued globally last year and 71% of the $43.5bn launched in the first quarter of 2012 (a 55% increase on 2011’s first quarter).

In July, Axiata, Malaysia’s leading mobile telephone operator, announced it was looking to raise up to $1.5bn in sukuk issues to tap low-cost long-term funds and increase its capital efficiency. It will be the first Asian telecoms firm to issue multiple currency sukuk, according to the company. The launch was “strategic” and targeted at investors in the region, as well as the Middle East and Europe, and officials said the move would help strengthen Malaysia’s position as a global sukuk leader.

The private sector and government bodies are likely to provide further issuances in the near future as Malaysia rolls out its ambitious Economic Transformation Programme, which envisages large investments in infrastructure and services and aims to develop the economy to boost value added and strengthen value chains.

While Malaysia’s Islamic finance sector continues to be a world leader, the industry’s rise to global prominence is relatively new. As elsewhere in the world, growth has brought on regulatory challenges, and some parts of the industry lag behind others.

“Sharia-compliant trustee management needs to move forward,” Abdul Jalil Rasheed, the CEO of Aberdeen Asset Management, which moved into Islamic finance in Malaysia in 2009 and counts the EPF as its biggest customer, told OBG. “Asset management is still a very locally driven business in Malaysia. There are currently 16 licences in the market for Islamic asset management, not all of which are doing well.”

Rasheed suggests that “innovation needs to slow” so that Islamic finance can put down deeper regulatory roots and to prevent firms from over-extending themselves, adding that the market may still not be mature enough for sharia-compliant hedge funds to flourish.

As Deputy Finance Minister Datuk Awang Adek Hussin noted last year, greater cooperation among Islamic finance experts, religious scholars, government bodies and the private sector is needed to support and consolidate the industry. “Although Malaysia’s Islamic financial performance has shown encouraging development, we should not be complacent with our achievements thus far,” he said.

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Malaysia: Confronting the energy dilemma

Committed to reducing its carbon intensity by 40% by 2020, Malaysia is currently facing some tough decisions on whether natural gas or coal will be the best energy source to meet its rapidly growing consumption needs and looming environmental targets.

While some officials say coal will dominate the future energy mix due to its cost benefits, others believe gas will lead the way, largely based on international trends and the overall environmental benefits. At present, some 60% of the country’s power is generated by gas, 30% by coal and 10% by hydropower plants. As of January 2011, the country is estimated to have 85trn cu feet of gas reserves and proven oil reserves of 4bn barrels.

In May of this year, Peter Chin Fah Kui, the minister of energy, green technology and water (KeTTHA), said the government was moving towards more coal-driven power plants in order to ensure the cost of electricity will not burden the public.

“We are planning to make the shift to 44% coal and 46% gas. We do not want to be too dependent on coal either. The price of gas has gone up and we do not want to burden the public,” Chin said, while speaking with The Malay Mail in June, adding that coal prices are less prone to market variations.

In the same month, the government confirmed it plans to invest $3bn through state-owned energy provider Tenaga Nasional Berhad (TNB) for the construction of four new power plants over the next five years, including two hydropower plants and two coal-fired facilities.

Construction of the Hulu Terengganu (250 MW) and Ulu Jelai (378 MW) hydropower plants, and a 1000-MW coal-fired plant in Manjung, is expected to be complete by 2015. Meanwhile, the fourth, a 1000-MW coal-fired plant in Tanjung Bin, is scheduled to be operational by July 2016.

Discussing the plans, Che Khalib Mohamad Noh, the outgoing president and CEO of TNB, said that when the four plants are operational, national capacity will increase to 2630 MW from the current 2050 MW.

However, Khalid told local media that gas-fired plants will be the focus of future projects, as they have a more minimal impact on the environment. “Gas accounts for 40% of the world’s power generation and this is expected to grow to 60% by 2030,” he said.

On the other side of the debate, KeTTHA’s desire to shift to coal is likely explained in part by a gas supply shock in 2011 that saw daily supply fall from the normal 1050m standard cu feet per day (cfd) to as low as 850m cfd.

To prevent this from happening again, a new liquefied natural gas (LNG) regasification terminal in Melaka, which will be operated by Petronas is due for completion in August. In June, plans were also approved for the firm to build an offshore, floating LNG plant by 2015.

While the Melaka terminal has the capacity to produce 530m cfd of gas, the offshore plant ? set to be the world’s first ? will allow Petronas to drill and ship gas from fields that were either too small or too remote to be profitable previously.

As both LNG and coal will require almost 100% imports in the future due to the depletion of national reserves, another option being considered is nuclear power. Chin confirmed in March that Malaysia was looking to build two 1000-MW nuclear power plants by 2022 to counter an “imbalance” in its energy supplies, despite ongoing environmental concern regarding the safety of nuclear power.

Renewable energy is seen as a greener and safer alternative to the nuclear, gas and coal options, and Kuala Lumpur is committed to a 5.5% contribution from renewables by 2015. However, renewable energy has yet to take off in the country, with investors often seeing it as a risk, due to unproven technologies and potentially high tariffs.

While in late 2011 the country adopted a sophisticated quota system on feed-in tariffs ? a policy mechanism designed to accelerate investment in renewable energy ? critics say its solar segment has been oversubscribed and that the country should focus more on biomass, given the huge amount of municipal waste and biomass generated by palm oil plantations.

Malaysia is also planning to adopt a number of energy efficiency measures. In June Chin said a draft law to mandate energy efficiency would be tabled in 2013, with provisions to include the banning of incandescent light bulbs and the mandatory import of energy-efficient refrigerators. In June, Tan Sri Shamsul Azhar Abbas, the CEO of Petronas, the state-owned oil and gas company, said at the World Gas Conference that heavy subsidies on natural gas may promote economic growth but also lead to energy inefficiency. Indeed, Malaysia began reviewing gas prices last year and aims to achieve market parity by December 2015.

The government insists coal-fired energy will reduce electricity costs and help meet rising demand, however, even with the introduction of new technologies, the burning of fossil fuels will impact environmental goals. Global signs that the coal market is more susceptible to “resource nationalism” than gas suggest the latter will dominate future world energy trends.

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Malaysia: Confronting the energy dilemma

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Malaysia: A farmer’s market

Recent efforts to upgrade Malaysia’s agricultural sector that include increased incentives for farmers to learn new techniques and adopt advanced technology are expected to lead to greater harvest yields and help meet rising domestic demand for food products.

While the sector contributes around 12% of GDP and provides employment to some 16% of the national workforce, most of this is concentrated in two key segments, palm oil and rubber production. The contribution of the rest of the agricultural sector is estimated at 4%, though its share of employment is higher, as much of Malaysia’s farming is still labour-intensive. At present, the input of the non-oil and rubber farming sectors is approximately $6.5bn a year, but the government wants to see this more than double by 2020 to $16bn.

To achieve this, Malaysia is trying to adopt smarter farming techniques. Agriculture was one of 12 separate National Key Economic Areas (NKEAs) identified under the Economic Transformation Programme (ETP), launched in late 2010 as part of the government’s efforts to increase national income to more than $500bn by 2020 and achieve developed nation status. The ETP made a clear distinction between agriculture and the palm oil and rubber industries, which fall under a separate NKEA.

The ETP set out a number of initiatives to boost the sector, including a growing focus on export cash crops (tropical fruits), tapping into the global herbal products market and increasing the usage of advanced technology to improve yields.

Though the government’s master plan for agriculture foresees a doubling of revenue, it only projects a modest increase in employment, with technology replacing labour-intensive practices and a shift in rural employment structures. While it is unlikely that agriculture employment levels will lift substantially over the coming decade, the growing pool of rural labour is expected to be taken up by a rise in food-processing operations, with the value-added component of agriculture seen as one of the segments to record the highest level of expansion.

On April 5, Muhyiddin Yassin, the deputy Prime Minister, said it was important for farmers to explore value-added agriculture activities, rather than just limiting themselves to cash-crop production. Farmers should look at venturing into food processing or producing material from by-products to earn extra money, he said during the opening of a fertiliser plant.

“To move forward, farmers must find new opportunities to enable them to earn long-term income,” Muhyiddin said.

In early April, Noh Omar, the minister of agriculture and agro-based industry, stated that the government was trying to create an environment in which farmers become businessmen and view agriculture as an industry, rather than merely growing produce.

“Our role is to facilitate the process and invest in capacity building in order to grow the agri-industry to become a key contributor to the nation’s economic wealth,” he said when speaking with the New Straits Times. “This has created opportunities for farmers to practice high-value agriculture and reach markets at all levels.”

Another opportunity recently unveiled by the government aims to protect local fruit and vegetable growers. In late March, the state announced that as of 2015, farmers’ markets and National Agribusiness Terminal (Teman) outlets will no longer be allowed to sell imported fresh produce.

According to data issued in late March by the Ministry of Agriculture and Agro-based Industry, some 40% of vegetables sold at the Teman outlets – centres set up by the state to market agricultural products – are imported from neighbouring countries.

As most of these vegetables are grown in Malaysia, the move by the government may not encourage the development of new product ranges, but it should help growers by reducing competition and giving them a stable market. A possible downside of the new policy, however, especially if it was extended to restrict fresh food imports beyond the limited scope of the farmers markets and Teman outlets, is that retail prices could be pushed up, as some of Malaysia’s neighbours have lower production and labour costs.

This could be offset to a large degree by improvements in economies of scale and efficiency, with higher production and turnover, as well as technological advances, helping to push down costs. These savings could then be passed on to the consumer.

Over the past 50 years, the Malaysian economy has become far more diverse, moving away from a time when agriculture accounted for 30% of GDP and provided employment for half the workforce.

While the government wants to see agricultural output increase, it is likely that other sectors of the economy will continue to outstrip rural production. By promoting smarter farming, and seeking to supply niche markets, Malaysia will come closer to achieving food security and increasing earnings.

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Malaysia: A farmer’s market

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