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Malaysia focuses on
services
KUALA LUMPUR -
Malaysia has increased its focus on the service
sector as it attempts to develop a second string
to its export bow. Malaysia's long-time Minister
for International Trade and Industry, Rafidah
Aziz, said that while the manufacturing sector
remains a main source of growth for Malaysia, it
is imperative that Malaysia broadens its economic
base. "Feedback from various sectors indicates
that Malaysian service providers are expanding the
export of their services overseas," she said.
Rafidah listed three key sectors -
construction, healthcare and educational services
- pointing out that international management firm
AT Kearney in a recent report described Malaysia
as a rising alternative to India and China for
offshore services. Malaysia particularly wants to
attract companies for shared services and business
process outsourcing.
Last year, based on
Construction Industry Board Development data,
Malaysian companies secured eight infrastructure
projects worth RM1.587 billion (US$417.7 million)
in India, Cambodia, the United Arab Emirates,
Singapore, Qatar and Sudan. These projects
included highways, airport upgrading, waterworks
and structural steel works.
Rafidah said
Malaysian hospitals treated almost 130,000 foreign
patients in the first nine months of last year,
generating an estimated RM65.5 million in revenue.
The figure was 103,000 in 2003. And Malaysia had
almost 26,000 foreign students. Export revenue
generated from the educational sector in 2004 was
about RM778 million.
Malaysia hopes to
target China for its services. Many Malaysian
companies are keen to undertake construction and
management of wastewater treatment plants, water
supply work and city gas distribution projects on
a Build-Operate-Transfer basis. She said that with
the 2010 Asian Games being held in the southern
Chinese province of Guangdong, Malaysian companies
can find opportunities to help finance and
construct facilities there. These projects could
be undertaken in joint venture with Chinese
companies. Other areas of possible business
collaboration with China include infrastructure,
especially projects related to the 2008 Beijing
Olympics.
On education, Rafidah said
twinning programs with foreign universities in the
United Kingdom, the United States and Australia
could enable Chinese students to obtain foreign
degrees in Malaysia at a lower cost. And while
Chinese may not be ready to travel overseas for
medical care today, she sees China's large
population as a strain on the healthcare budget.
With improvement in standards of living, many
Chinese will eventually demand better medical care
in modern hospitals as they will be able to afford
it.
China's rise as a global manufacturing
base has siphoned off much foreign investment that
in the last decade was originally destined for
countries like Malaysia. Said Rafidah: "As
Malaysia is no longer a cost-competitive location
for labor-intensive operations, the government is
encouraging labor-intensive manufacturing to
relocate to cost-competitive countries like China.
Malaysia sees China as a mutually beneficial
business partner."
China has become a
significant market for Malaysian products,
especially edible oils, rubber products and
electronic and electrical parts and components;
and China's high rate of growth continues to
create demand for consumer goods, industrial and
infrastructure goods. Malaysia's exports to China
rose 24.2%, reaching a new record of RM32 billion
in 2004 - up sixfold since 1997.
Malaysia's exports to China grew 30.7% in
the first nine months of 2004. Malaysia is seeking
to expand trade with China, Japan and Korea
through bilateral and regional initiatives. Trade
between Malaysia and these three countries totaled
$43 billion from January to September 2004.
The timetable for an ASEAN-China FTA is
2010. But China has concluded what is known as an
"early harvest program" with ASEAN. This was
implemented at the start of last year, and, in the
first 11 months of 2004, Malaysia's total exports
to China under the program amounted to RM2.1
billion.
Malaysian companies invested $3.1
billion for the period 1996-2003 in China, while
cumulative Chinese investment in Malaysia totaled
$1.2 billion. Rafidah said China is among the
countries from which Malaysia hopes to attract
more investment. She said Malaysia's investment
rules have been liberalized to allow foreign
companies to own 100% of a company, and that
manufacturing companies no longer have to comply
with equity or export conditions. Other
relaxations include expatriate employment policies
for manufacturing and related services sectors.
"The Malaysian government continues to provide a
conducive and cost-competitive environment for
foreign investors."
Between 1996 and 2004
(January to November), total investment in
Malaysia averaged around RM25.3 billion, of which
55% was foreign direct investment. Foreign
investment mostly went into electronic, petroleum
and base metal products. Rafidah said the
government is promoting new growth areas to
diversify its manufacturing base and to counter
competition from China in traditional
manufacturing activities. Growth areas include
information and communications technology,
biotechnology, optics, photonics, nanotechnology,
medical devices and advanced materials. She said
foreign investment remains crucial for Malaysia's
industrial development, since foreign investors
bring technology transfer, capital and access to
international markets.
Despite increased
competition, especially from China and India,
Rafidah said Malaysia remains competitive. In
2000-2003, the main foreign investors were the US
with $4.2 billion; Germany $2.5 billion; Japan
$2.2 billion; Singapore $1.7 billion and the UK
$1.3 billion. Together, they accounted for almost
70% of the total foreign investment in Malaysia.
Exports remain Malaysia's lifeblood.
Rafidah says merchandise trade has grown an
average by 8.8% annually since 1994. In the nine
months to September last year, exports to almost
all markets showed strong growth. West Asia was
the fastest-growing market - up 40% over the
previous period, but from a small base of RM9.6
billion. While key markets remain the US, Japan
and the EU, Malaysia has experienced its best
growth from intra-ASEAN trade, which grew 23% last
year compared with a growth of 21.5% with the EU,
17.8% with the US and 15.3% with Japan. Malaysia
has also started tapping new markets in Russia,
West Asia, India and Hungary.
As a member
of the ASEAN, Kuala Lumpur supports the trading
bloc's negotiation for individual free trade areas
(FTAs) with China, Japan, Korea, India, Australia
and New Zealand. On a bilateral level, Malaysia is
working on an economic partnership with Japan and
a US trade and investment framework agreement with
the US. As the minister sees it, Malaysia has a
role as a gateway to the ASEAN market and is
offering incentives, including pioneer status and
investment tax allowances, to foreign companies
that use Malaysia as a gateway to ASEAN. As a
market itself of 20 million, Malaysia also offers
economy of scale.
Rafidah expects trade
with ASEAN to expand further now that the ASEAN
Free Trade Agreement (AFTA) has been implemented.
ASEAN has identified 11 sectors for accelerated
tariff reduction - to be completed in 2007,
instead of 2010. She said ASEAN is strengthening
the dispute settlement mechanism and also
cooperation in trade facilitation measures. Under
the AFTA agreement, ASEAN will become a free trade
bloc with a population of 530 million.
Malaysia's ASEAN neighbors absorbed a
quarter of its total exports last year - a
percentage that is set to grow with further
liberalization of intra-ASEAN trade. Under what is
known as the Common Effective Preferential Tariffs
(CEPT) scheme, Malaysia's exports last year rose
58.2%. Thailand remained its major export
destination under this scheme. Rafidah expects
exports to Indonesia, the Philippines and
Singapore, which have also increased under the
CEPT scheme, to show further growth in future.
Growth in exports to ASEAN offset the
decline of Malaysia's share in its key markets -
the US, Singapore and Japan. The share of
Malaysia's exports to these markets declined from
46% in 2003 to 43.9% in 2004. But Rafidah said
this was due to significant expansion in exports
to other markets. Malaysia's good export
performance was buoyed by high global demand for
electrical and electric products. Higher prices
and volumes of commodities such as palm oil, crude
petroleum and LNG also played a role.
With
strong fundamentals, said Rafidah, the economy is
expected to grow 6% this year, but its performance
will be influenced by global events. The
unemployment rate is low at 3.4%, and Malaysia's
international reserves stood at $55.5 billion in
September 15, 2004 - sufficient to finance 7.2
months of retail imports.
(Asia Pulse/Asia
Today) |
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