Article by Puan Zabedah Giw, Advisory & Research, EXIM Bank

Malaysia has recorded a fair economic growth of 4.3% in 2019 (2018: 4.7%) as compared to the ASEAN peers with Vietnam and Indonesia taking a lead with growth recorded at 7% and 5% respectively. The region economic environment was affected by the on-going trade war and protectionism and geopolitical issues causing economic growth for the ASEAN 5 to record a lower growth of 4.8% (2018: 5.2%) then what’s achieved in the previous year. The year 2019 marked the extent of impact an economy faced with trade protectionism whilst globalization mooted as a way forward to prosper better growth leveraging on the economic capacity and phases of growth development. On the back of the challenging environment world trade has recorded a contraction of 3.14% for 2019 while on the regional performance ASEAN trade recorded a lower contraction at 1.97%.

In the current development, Malaysia economic performance for 2020 is expected to contract by 3.5% to 5.5%. Improvement in the business activity will be a gradual process as consumers are still reeling from the impact of COVID19 pandemic. On the contrary, the economy is projected to record a sturdy growth of 6.5 to 7.5% as highlighted in the recently announced National budget for 2021. This growth could be achieved with adequate capacity in production to support manufacturing activities and intensity in domestic spending.

Consequently, trade has been recognised as the formal means for exchange of goods and services on the back of monetary and economic consideration. Progress of the world trade will likely to create a deep economic integration among the major economies such as the US, China, India, Indonesia, Europe. Advancement in the trade activity will catalyst growth of a country’s manufacturing sector. The subsequent evolvement of the industry’s value add that forming part of the supply chain has provided diversity in country’s economic production. Advancement of the trade growth is likely to be achieved by having access to export market and appropriate financing in order to place the goods for international consumption. The progress of the global trade over GDP has been on the upward trend since.

Source: Worldbank, A&R MEXIM

Trade to Catalyst Growth

Malaysia economy is highly catalyst by export. As of 2018 the country’s export represents about 70% over GDP while the challenging environment due to the trade war has seen a lower ratio of 65.34 over the GDP in 2019. Key items that continue to lead Malaysia export to global market include electrical & electronics, mineral fuels, machinery & appliances, animal & vegetable fat and oils and medical equipment.

Source: DOSM, A&R MEXIM

Source: Trademap, A&R MEXIM

Trade activity has been an important element in driving a better economic growth for Malaysia. Contribution towards the GDP growth has been significant as Malaysia is ranked at 25th as global exporter while import at 26th place. Malaysia has been practicing an open economy and recorded an average export growth of 6.7% while import growth of 7.3% in the last 15 years. Trade balance has continued to remain in surplus much to the advantage of the country’s current account. Malaysia’s export grew by 13.6% yoy in September thanks to the robust growth recorded in electrical and electronics (E&E) products, rubber products, iron and steel products, as well as medical equipment. Additionally, agriculture goods also has registered a double-digit growth. Due to improvement in external demand, Malaysia’s export to major trading partner such as USA, China and Europe has recorded double digit growth of 22.1% yoy, 41.9% and 28.6% yoy respectively. Upside for a healthier growth is likely to be supported by effectiveness of the COVID19 vaccine and stability in the international market relations.

Source: DOSM, A&REXIM
To support greater trade performance especially on the part of export, investment and moving up the value chain of the Small Medium Enterprises (SMEs) to proceed rather significantly in order to meet global demand. Innovation largely need to take place among the SMEs in pursuit of efficiency and quality in production. Access to financing for working capital or requirement to purchase machineries and equipment in being part of the industry forward (4wd) could be widely facilitated.

Source: Trademap, A&R MEXIM

Moving forward, the government’s welcoming attitude towards foreign direct investment (FDI) in the production of high-value manufactured products, adequately available of skilled labour and highly diversified economy has popped numerous investment opportunities in Malaysia across wide range of sectors, including biotechnology, electronics, renewable and green energy, ICT, transportation and financial services.

The share of Malaysia top export products in the global trade indicates the strength of demand and size of the market these products are serving. It also spelt out the level of value chain these products present in the world key economies. Hence, this gives EXIM Bank the pointer in terms of requirement of trade financing for Malaysia industry sectors.

Strengthening of a Regional Cooperation in Asia

Regional integration and the strengthening of existing trade agreements with key partners will bolster trade flows in the long term. The disruption in the supply chain caused by the COVID19 pandemic has prompted manufacturers to diversify the supply chain connectivity throughout the world in an effort to stabilize continuity in production. On that note, the Regional Comprehensive Economic Partnership (RCEP) is expected to offer ample opportunity for Malaysia to expand exports in high value added goods. The materiality in signing of RCEP agreement will allow Malaysia, ASEAN member countries plus other Asian countries such as Japan, Korea, China, Australia, and New Zealand to form a sizeable trading market equivalent to one third of the world population. Establishment of this cooperation will bode well with Malaysia as a trading nation as probable advantage of this cooperation includes entry to a competitive route for local companies and manufacturers as highlighted by the official representatives.

Existence of Export Credit Agencies (ECAs) and trade credit insurance will complement this cooperation initiatives through appropriate access to financing for the exporters. Malaysia EXIM Bank could forge strategic partnership in trade financing, support for working capital, project and contract financing with other ECAs as well local financiers. Greater role in providing access to financing will mark and boost the role of ECAs in trade and economic mobility. Subsequently, mechanism in managing risk for international financing will adopt technology capability and the Internet of Things (IoT) as way forward in transforming the financial market.

Disclaimer:

The information and materials contained in this document are prepared for information purposes only and general in nature.  The research and information contained in this document are based on material compiled from data considered to be reliable at the time of writing.  However information and opinions expressed in the document should not be construed as a final consideration for any business and investment decision making.  EXIM Bank cannot be held responsible for any losses, whether direct or indirect as a result of using the information.  Unauthorized use of EXIM Bank logo, name and copyrights are strictly prohibited.

Contact details:

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