Malaysia looks to EEVs for car manufacturing boost

Efforts to position Malaysia as a regional centre for energy efficient vehicle (EEV) production took a key step forward in January, with news that the government intends to hand out its first green car manufacturing licence in the coming weeks.

Malaysia’s plans to develop the EEV industry feature strongly in its newly introduced National Automotive Policy 2014 (NAP 2014), the latest iteration of the government’s strategic roadmap for the sector. However, competition from other South-east Asian countries, which are also targeting vehicle assembly growth, could hinder Kuala Lumpur’s ambitions.

International Trade and Industry Minister Mustapa Mohamed told reporters on February 6 the government expected to issue its first EEV manufacturing licence in April. There has already been strong interest from overseas car makers, with production likely to start on EEV lines within three years, he said. According to the minister, Malaysia is looking to license 3-4 manufacturers of EEVs by 2018.

Launched on January 20, the NAP 2014 is the government’s blueprint for the automotive industry for the next decade and beyond. At its core is a vision that Malaysia will be one of the world’s leading manufacturers of EEVs, with up to 85% of vehicles rolling off the production lines by 2020 to be energy efficient. Goals include annual exports of 200,000 EEVs by the end of the decade, as well as car component sales of $3bn each year.

Incentives and exemptions

Under the NAP 2014, manufacturers will be encouraged to bring out a range of EEVs, powered by various energy sources, such as compressed natural gas, liquefied petroleum gas, biodiesel, ethanol, hydrogen and fuel cells.

The policy offers a number of new incentives aimed at attracting EEV manufacturers to Malaysia, including an easing of rules governing production for international players, which will now be able to manufacture smaller-sized-engine vehicles without having to partner with local companies. Foreign firms operating alone were previously restricted to producing cars with 1.8-litre engines or above.

Grants and soft loans of $600m are also being made available. Other incentives include pioneer status, investment tax allowance, grants for research and development infrastructure facilitation and reduced tax rates.

The immediate beneficiaries of the policy are expected to be foreign automakers already active in the country, including Honda, which has a hybrid car production facility in Malaysia, as well as Nissan, which manufactures conventional cars there.

Other brands have indicated interest, including Toyota, which assembles and distributes conventional vehicles in Malaysia. In January, the president of the Japanese automaker’s local unit said the company had submitted to the government a plan for building a hybrid production facility.

However, some industry leaders have expressed doubts about the NAP 2014. While praising the government’s efforts to broaden its definition of EEV, Gerhard Pils, CEO of BMW Group Malaysia, said additional details on incentives would be required.

Further discussions between industry representatives and the government are necessary to “clarify what the actual exemptions to EEVs assembled in Malaysia will be, as only from there will firm business decisions regarding the market be made,” the CEO said.

Regional competition

As it looks to expand its EEV production, Malaysia will face challenges from established South-east Asian car manufacturing centres such as Thailand and Indonesia, which have more liberal policies when it comes to foreign investment in the auto industry, as well as better-developed networks of local components suppliers.

Malaysia’s small domestic market may also deter some investors. In January, the head of Toyota’s Thai unit told Reuters that Thailand was “still in a better position given the size of the market”. The Japanese automaker sold 445,000 units in Thailand in 2013, compared to 100,000 in Malaysia. Around 650,000 cars were sold last year in Malaysia, more than half of which were manufactured by domestic producers Proton and Perodua.

This suggests that Malaysia may have a tough row to hoe as it looks to build up its local automobile manufacturing sector, but a good first step would be offering additional guidance on the types of incentives that it will provide, as well as encouraging locals to buy energy efficient cars.

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Malaysia looks to EEVs for car manufacturing boost

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Malaysia: Easing business practices

Malaysia has been one of the big movers in the latest World Bank survey on the ease of doing business, moving up six rungs on the international ladder to be ranked 12th overall. However, making it easier to obtain construction permits and start a business, two areas signalled out for improvement, will help the country achieve its goal of breaking into the top 10.

The annual study aims to provide an objective measure of business regulations for local firms and give an indication of the progress in facilitating private sector development. In the 2013 edition, released on October 23, Malaysia further consolidated its reputation for economic reform, building on its performance in 2011 when it moved from 23rd to 18th place. The improvement in the rankings puts Malaysia behind only Singapore, Hong Kong and South Korea in Asia, and ahead of regional heavyweights Japan and China.

The survey, titled “Doing Business 2013”, saw Malaysia improve its competitiveness in a number of areas, including registering property and trading across borders. The country continues to be ranked first globally in terms of gaining access to credit, and it also won accolades for the judicial network protecting investors, where it came in fourth among the 185 countries surveyed.

Recognition of the strong performance will help to further promote development and investment, said Annette Dixon, the country director for Malaysia at the World Bank. “This will help the private sector drive growth, particularly if Malaysia can build on its success by continuing to tackle long-term challenges, such as improving the quality of education,” Dixon said in a statement accompanying the release of the report.

According to Yeah Kim Leng, the group chief economist at RAM Holdings, a financial research firm, the improved business environment will help maintain Malaysia’s high profile as a prime investment destination. “It enhances business sentiment and confidence,” he said on October 24. “If the improvement is sustained, what we will likely see is an increase in business dynamism and a higher level of business activity.”

Mustapa Mohamed, the minister of international trade and industry, said that the findings of the study confirmed Malaysia’s competitiveness as an economy, and reflected the successful implementation by the government to improve the business environment, making it conducive for sustained economic growth. The next step, according to the minister, is putting in place further reforms that should move Malaysia even higher up the rankings. He did acknowledge, however, that the task would be a difficult one, given the competitive nature of the global economy.

“Our objective is to achieve a top-10 position in the World Bank’s rankings. Getting there will strengthen our position as a destination of choice for local and foreign investors,” Mustapa said. “This is with new competitors constantly emerging and economic uncertainties globally. It is apparent that more needs to be done in the shortest time possible if we are to stay ahead.”

While the study very much stressed the positives, it also detailed a few areas of improvement that will have to be dealt with before Malaysia can break into the higher rankings. Despite the government making it easier to obtain construction permits, it still placed only 96th overall in this category. There is also room for improvement in the ease of starting a business, in which was Malaysia ranked 54th this year.

Two state agencies, the Special Taskforce to Facilitate Business (Pemudah) and the Performance Management Delivery Unit (Pemandu), have been tasked with addressing these issues, as well as developing strategies to promote best bureaucratic and administrative practices, with Pemudah in particular working closely with the private sector to cut red tape.

In an opinion piece carried by The Malay Mail on October 26, Ramon Navaratnam, the chairman of the Centre of Public Policy Studies, an independent think tank within the Asian Strategy and Leadership Institute, said the World Bank study did not cover issues such as public services or the non-business sectors of society. Improvements in the provision of services in areas such as health, education and social welfare also need to be addressed when considering the state of the economy.

“The best way forward is for the public sector to adopt further best practices, forced by global competition to perform more competitively all the time or face the prospects of losing its profits and business opportunities for growth,” he said.

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Malaysia: Easing business practices

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