Malaysia braces for impact of solar energy expansion

The future of solar energy in Malaysia received a powerful boost on June 16 with the commissioning of the country’s largest solar power plant to date. The project’s operator, Malaysia-based Amcorp Group, awarded the production of the power plant’s solar panels to Chinese manufacturer Yingli Green Energy Holding Company. The project spans an area of almost 14 ha and will require some 40,000 photovoltaic (PV) units, which are estimated to produce 13.6m KWh of electricity annually.

While Amcorp Group’s decision to commission Yingli Energy is a testament to China’s dominance in the field of solar panel production, Malaysia is quickly gaining a reputation as one of the region’s leaders in renewable energy production.

In January, plans were unveiled for the installation 19 MW of solar energy units at Kuala Lumpur International Airport. Malaysia Airports’ managing director Bashir Ahmad told Renewable Energy News, “Rooftops, parking lots and ‘buffer’ areas at airports are traditionally not multi-purpose facilities, but we’ve turned them into a clean energy generation facility. This initiative also demonstrates our support towards the government’s initiative in introducing renewable energy and also to further reduce our carbon footprint.”

Pro-solar policy

Malaysia’s increasing momentum in the renewables arena is also attributed to a generous feed-in tariff (FIT) policy which requires energy providers such as Tenaga Nasional and Sabah Electricity to purchase power from Feed-In Approval Holders (FIAHs) at a rate that ranges from RM0.85 ($0.02) to RM1.23 ($0.38) per kilowatt produced. The FIT system is part of a larger development initiative set forth by the Malaysian government in June 2010, the 10th Malaysia Plan, which targets 5.5% of energy production to be derived from renewable sources by 2015 and 11% by 2020.

A tariff war currently taking place between solar panel producers in China and the US has further strengthened Malaysia’s growing status in the solar power arena. Chinese producers face US import duties of between 18% and 35% on solar panels, a response to US allegations that Chinese solar panel manufacturers have dumped their products into the US market.

To bypass the tariff, Chinese PV cell producer Comtec Solar Systems has opted to move its manufacturing operations to Malaysia. “We have been considering producing in Malaysia for over a year because we have a major customer there, but now our main consideration for moving there is to avoid trade barriers in our main markets,” John Zhang Yi, CEO of Comtec Solar, told the South China Morning Post.

The question of efficiency

As a nation historically known for an abundance of natural resources including oil, gas, hydropower and coal, the decline in hydrocarbons reserves in recent years has reinforced a national desire to secure renewable energy sources. Solar energy has proven to be chief among the renewables with a market share of 43%, followed by small hydropower (26%), biomass (26%) and biogas (5%).

As with any industry in relative infancy, technological efficiency remains a topic of debate among those for and against solar power production. The amount of energy produced per solar panel, a maximum of about 33.5% efficiency, is still a concern for many looking to invest in the technology. In comparison to conventional energy sources, the cost of solar power is relatively high.

While Malaysia’s FIT system claims to take the high cost of solar panel installations into account when considering what it takes to see a return on investment, the rates received by the FIAHs are dependent on the date of installation. Those that installed PV equipment at earlier times will receive higher rates than those which do so later on. This is based on the assumption that the price of solar technology will decrease as it becomes more efficient and widely available.

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Malaysia’s tourism sector aims to blow past headwinds

A strong showing by Malaysia’s tourism industry in the first three months of the year may be offset by an expected drop-off in arrivals from China. But officials and travel bodies remain confident that any cooling in sentiment from the mainland will ease by the latter part of the year, giving the sector a lift in the final quarter.

The tourism industry posted arrivals up 10% year-on-year for the first quarter of the year, with just over 7m visitors, up from 6.5m for the same period in 2013, according to data issued by the Immigration Department of Malaysia in mid-June.

Fellow ASEAN members continued to provide the bulk of Malaysia’s inbound visitors, contributing 72% of the total – 5.1m arrivals – with Vietnam, Thailand, Cambodia, the Philippines and Singapore all showing double-digit increases for the quarter. Indonesia, the second-largest source of tourists, delivered 676,000 passengers that represented a 7.3% increase.

Malaysia will need to maintain this rate of growth if it is to reach the aim of 36m annual arrivals set by the government for 2020, more than 10m up on the 25.7m arrivals recorded last year. The government is also looking to greatly expand tourism revenue, targeting earnings of $52bn annually by the end of the decade, more than two and a half times the 2013 total of $20.3bn.

Headwinds cooling Chinese interest

Despite the good performance, the real proof of the resilience of the tourism sector will come with the release of the second quarter figures, with a number of factors set to have a negative impact on performance.

The disappearance of Malaysia Airlines Flight 370 on a flight from Kuala Lumpur to Beijing in March, with 239 passengers and crew – many of the former being Chinese nationals – combined with the kidnapping of a number of Chinese nationals in Sabah recently, has hurt Malaysia’s standing as a tourism destination in the eyes of many potential travellers from China. Some estimates put the drop in arrivals from mainland China at around 40% since the incidents, putting at risk the industry’s target of hosting 2m Chinese tourists this year compared with 1.4m arrivals in 2013.

Tourism and Culture Minister Datuk Seri Nazri Aziz told Parliament in June that a total of 76 flights to Kota Kinabalu, the capital of Sabah, from China were cancelled recently in response to three kidnapping cases on the east coast of the Malaysian state in three months.

Another factor that could impact Chinese visitor numbers is the simmering tension between Beijing and a number of countries in the region, including Malaysia, relating to territorial disputes in the South China Sea and elsewhere. These tensions have seen at times violent anti-Chinese protests in Vietnam and while sentiment in Malaysia is not as heated, some Chinese tourists may look further when planning their holidays, away from any states in which their government is at odds.

Promotional push

Malaysia is now moving to shore up its Chinese market, having curtailed promotional activity in the wake of the Flight 370 disaster. Tourism authorities are again starting to increase advertising activities and attend trade fairs.

Speaking in Hong Kong in early June, Azizan Noordin, the deputy director-general of promotions for Tourism Malaysia, said he remained confident Chinese arrivals would hit 2m this year, representing a 15% increase year-on-year. Echoing these comments, the Malaysia-Chinese Tourism Association, a group representing Malaysian Chinese travel agents, predicts that arrivals from China are likely to rebound in the third quarter and into the last three months of the year while officials are confident year-end targets will be met.

But it remains unclear how deeply the loss of Flight 370 and the kidnappings in Sabah impact Chinese sentiment in the second quarter and beyond.

In for the long haul

Visitor numbers from China may well fall short of expectations for 2014, but this gap may be bridged by holidaymakers from other countries seeking an alternative to troubled Thailand.

Malaysia’s tourism appeal is spreading further with visitors from countries such as Australia a target. Though only representing a fraction of the overall total, long-haul visitors from countries in Europe or North America added significantly to Malaysia’s arrival numbers, with 500,000 landing in the first three months of the year, according to the Immigration Department. While only 8% of all arrivals, these long-haul markets represent an area of strong growth potential, one that has been given increased support by improved flight connections to Europe in particular.

Another more distant market that both the government and operators are working to expand is in the Middle East and other predominantly Muslim markets. Muslim visitors to Malaysia were estimated to account for a fifth of the total last year. This amounted to 5.2m according to the Islamic Tourism Center, an almost four-fold increase on the 2000 figure. By building on its credentials as a Muslim-friendly destination, Malaysia should be able to further broaden its tourism base.

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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: Keeping the economy running

The central bank in Malaysia is keeping an eye on macroeconomic stability at a time when a cooling external environment is putting pressure on growth. While international factors are starting to affect overall economic performance, domestic demand remains relatively robust, supported by consumer spending and public investments.

On July 11, the Bank Negara Malaysia (BNM), the central bank, announced it would be maintaining its key policy rate on hold for the 13th consecutive month. The bank kept its benchmark overnight rate at 3%, as analysts surveyed by Bloomberg had expected.

The BNM decision balanced concerns of both a slowdown in the economy and rising personal debt. Malaysia’s year-on-year GDP growth has dropped below 5% for the first time in seven quarters, while household borrowing has been increasing at an annual average 12% for five years.

In a statement, the bank noted that slow global growth had begun to act as a drag on the Malaysian economy, as in other emerging markets, despite healthy domestic demand. Domestic consumption has helped Malaysia and many of its neighbours weather the economic turbulence of recent years, with the rebalancing of the economy helping reduce dependence on exports, which have proved susceptible to slowdowns in Europe and the US.

“For the Malaysian economy, domestic demand has continued to support growth amid the continued moderation in external demand,” the bank said. “The sustained weakness in the external sector may, however, affect the overall growth momentum.”

Even so, the bank retains a positive outlook. It expects private consumption to stay steady, led by income growth and a stable labour market, and capital investment both from domestic-oriented industries and government infrastructure projects to help maintain economic momentum. Malaysia is in the process of rolling out the government’s Economic Transformation Programme (ETP), a wide-ranging package of projects, including infrastructure schemes, designed to boost productivity and increase the private sector’s ability to drive growth.

The BNM is also comfortable with Malaysia’s inflation outlook. Inflation averaged 1.6% in the first five months of the year –low given the rate of economic growth. And while the central bank expects the rate to pick up in the second half of the year, it does not foresee inflation becoming a serious risk factor.

Despite low inflation and slowing growth, the BNM avoided cutting rates, keeping a wary eye on rising debt in an economic climate that has become more volatile in recent months. Malaysia’s experience in the 1997 Asian financial crisis makes policy-makers particularly aware of the need for financial and macroeconomic stability.

In early July, the BNM tightened regulations on lending, cutting the maximum repayment terms on personal loans to 10 years and property loans to 35 years, down from 25 year and 45 years, respectively. Some analysts quoted in the international press suggest that the bank may become more hawkish on interest rates as well towards the end of the year, if growth remains resilient.

Following a period of strong capital flows to emerging markets, there has been a cooling off recently in the wake of signs from the US Federal Reserve that it would not push forward its quantitative easing (QE) policy. QE, a strategy of stimulating the economy through expansion of the monetary base, had boosted inflows to emerging markets as investors sought higher returns than those available in developed economies. Malaysia, with its macroeconomic and political stability and stable growth rate, proved particularly attractive: by February, foreigners held almost half the country’s outstanding sovereign debt.

With QE now likely to be phased out and signs of a slowdown in major emerging markets such as China (a key export market for Malaysia), investor appetite for Malaysian assets are expected to abate. However compared to advanced economies Malaysia along with the rest of South East Asia will continue to enjoy a higher rate of growth thanks to relatively stable domestic demand and investment.

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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: Targeting tourism growth

The hospitality sector, one of the region’s largest, is continuing to see visitor numbers grow this year, boosted by better transport connectivity with large emerging markets. This development is increasingly being linked with Malaysia’s overarching strategy of raising revenues and value in key economic sectors, a theme that is set to dominate the next few years.

According to Ng Yen Yen, the minister of tourism, Malaysia registered 11.63m arrivals in the first half of 2012, up 2.4% over the same period in 2011. Receipts grew more rapidly, increasing 4% over the same period to RM26.8bn ($8.81bn). Ng attributed the continuing rise in visitor numbers in part to improved connectivity (particularly with China) and events such as the F1 Malaysian Grand Prix and the Citrawarna cultural festival.

Other members of ASEAN accounted for around 73.8% of arrivals. Singapore, which has close cultural, economic and social ties to its northern neighbour, remained by far the biggest source of visitors, with 5.83m arrivals in the first half of this year. This number is likely to have been somewhat boosted by shuttle traders, who pass over the border on a regular basis, and day-trippers.

The other largest contributing countries were: Indonesia, with 1.11m arrivals; China (758,000); Thailand (639,000); Brunei Darussalam (588,000); India (365,000); Australia (243,000); the Philippines (238,000); Japan (216,000); and the UK (197,000). Arrivals from China were up 34.2% on the first half of 2011, India (6.9%) and Russia (28.2%). There was also impressive growth from established markets, including France (20.6%); the US (18.9%); South Korea (18%); Japan (32.5%); and the UK (5.9%).

Analysis of the figures by Tourism Malaysia, the official promotion and development agency under the Ministry of Tourism, indicates the importance of enhancing air connectivity in stimulating this growth. The organisation partly attributes the rise in arrivals from China to an increasing number of flights between Beijing and Kuala Lumpur, and Hong Kong and Penang and Kota Kinabalu, two major regional tourism centres.

Similarly, the increase in Japanese and Korean visitors is partly due to more flights between provincial cities in those countries and Kuala Lumpur and Kota Kinabalu. By the same token, Tourism Malaysia attributes declining visitor numbers from New Zealand, Australia and South Africa to fewer flights being operated. Meanwhile, Vijay K Gokhale, India’s high commissioner to Malaysia, said that if AirAsia restored flights to Delhi and Mumbai, which were suspended in March, Indian visitors to the South-east Asian market could rise to 1m annually by 2015 from around 693,000 in 2011.

With the importance of connectivity and tapping expanding markets in mind, the tourism authorities are continuing to work with Malaysian Airlines and AirAsia, the country’s two main carriers, to develop links internationally, and will continue to seek bilateral agreements with countries such as Russia to increase visitor traffic.

However, increasing visitor volumes is not the only priority. Indeed, over the coming years, this strategy seems likely to become less important than efforts to boost value and diversification. Malaysia’s Economic Transformation Programme (ETP), the government’s overarching strategy to push Malaysia towards developed-country status by 2020, notes that the country is a “high arrivals, low yield” tourism market.

The aim is to keep visitor numbers rising while building considerably greater value in the sector to increase earnings per tourist arrival. Tourism has been identified as a National Key Economic Area (NKEA) under the ETP, with the goal of attracting 36m visitors and generating RM168bn ($55.26bn) in tourism receipts by 2020.

In practical terms, this means focusing on high-value niche segments. The ETP has identified five such segments: luxury; nature adventure; family; events, entertainment, spa and sports; and business tourism. To develop these niche areas, a number of existing segments will need to be promoted, such as ecotourism and meetings, incentives, conventions and exhibitions (MICE). Malaysia will also need to be rebranded to well-heeled visitors as a “luxury” destination, leveraging the increasing number of top-end hotels, resorts and shopping malls.

Malaysia is in the fortunate position that it already has existing business in these high-value areas, as well as a strong international brand as a destination. But to meet the ETP’s targets, considerable investment will be needed, particularly from the private sector, in keeping with the plan’s priorities.

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