Market Access Plan 2015-2017
|Kuala Lumpur||30.3 million||328,550 km²||Ringgit|
Why Malaysia Matters
- a priority emerging market under Canada’s Global Markets Action Plan;
- Canada's third-largest bilateral merchandise trading partner in the Association of Southeast Asian Nations (ASEAN) with bilateral trade reaching $3.2 billion in 2014; and
- One of the most trade-dependent economies in the world with external trade levels at an estimated 150 percent of GDP (World Bank, 2014).
Malaysia is a rapidly developing country that aspires to reach developed-country status by 2020, a goal that it is expected to achieve. The visit by Prime Minister Stephen Harper in October 2013 raised Canada’s profile in Malaysia.
Malaysia is a major oil and gas producer, and that sector has taken centre stage in the country’s bilateral commercial relationship with Canada. For example, Malaysia’s state-owned energy company Petronas acquired Canada’s Progress Energy for $5.5 billion in 2012; this is one of Malaysia's largest foreign investments. In 2014, Malaysia was Canada's third-largest bilateral merchandise trading partner amongst ASEAN countries with bilateral trade reaching $3.2 billion.
Domestic Economic Environment
Malaysia has entered a period of long-expected fiscal tightening following the national election of 2013. Government policy themes include deficit reduction and implementation of a goods and services tax. Malaysia’s federal fiscal burden is approaching a self-imposed debt-ceiling level of 55 percent of GDP, due to an annual structural deficit of approximately 3.5 percent.
In response to predictions of above-average inflation in the future, Malaysia’s national bank (Bank Negara) increased interest rates to 3.25 percent in July 2014.
|GDP per capita||$11,940|
|Canada’s merchandise exports||$793.7 million|
|Canada’s merchandise imports||$2,420.4 million|
|Canada’s service exports (2013)||$415 million|
|Canada’s service imports (2013)||$274 million|
|Foreign direct investment from Malaysia into Canada||confidential|
|Canadian direct investment in Malaysia||$573 million|
|Potential long-term annual export growth||4.9%|
Canadian Commercial Interests in Malaysia
With a GDP nearing $322 billion, Malaysia is one of Canada’s most important trade and investment partners in Southeast Asia, as well as the larger regional market. According to OECD projections, Malaysia’s GDP growth over the next three years will average 5.1 percent. Foreign direct investment (FDI) has continued to be strong, with Malaysia receiving $12.7 billion in new FDI in 2013. Government agencies led by the Malaysian Investment Development Authority endeavour to attract investment in an annually updated list of preferred sectors.
Malaysia’s growing economy continues to provide opportunities for Canadian exporters. Although the value of Canada-Malaysia two-way merchandise trade is decreasing, that decrease is directly attributable to fluctuations in exchange rates and commodity prices. Canada's major exports are fertilizers, electronic and electrical machinery and equipment, oilseeds, machinery, technical and precision instruments and mineral fuels and oils. Canadian imports from Malaysia include electronic and electrical machinery and equipment, machinery, technical and precision instruments, rubber, fats and oils, and furniture. In 2014, Canadian merchandise exports to Malaysia reached $793.7 million, while Canadian imports from Malaysia reached $2.4 billion.
In 2012, Petronas acquired Canada’s Progress Energy and its assets for $5.5 billion. This acquisition could play a key role in helping Canada meet its objective of increasing energy investment and diversifying energy exports to Asia.
Opportunities exist for Canadian suppliers in a variety of sectors in Malaysia, such as agricultural and processed foods, information and communication technologies, aerospace and defence, engineering and architectural services, oil and gas services, environmental products and services, and infrastructure-related goods and services.
As the government endeavours to turn Malaysia into a high-income economy by 2020, there will be more opportunities for Canadian companies seeking to partner with local Malaysian firms in the infrastructure sector. There are also opportunities in the field of education and skills training that can be built on existing linkages. In addition, sustainable technologies have the potential to become a priority given the increased Malaysian focus on environmental issues.
Key Elements for Exporters to Consider
As a party to the ASEAN Free Trade Agreement, Malaysia has free trade access through agreements ASEAN has signed. In addition, Malaysia has signed separate bilateral agreements. These agreements provide signatories with a competitive edge in their commercial relations with Malaysia when compared to other countries.
Official visits by Canada’s Governor General David Johnston in 2011, International Trade Minister Ed Fast in 2012, and Prime Minister Stephen Harper and former Minister of Foreign Affairs John Baird in 2013 have clearly signaled that Canada is interested in deepening ties and doing business in Malaysia.
Sector-specific Opportunities and Challenges
The Malaysian aerospace industry is expected to grow 11 percent in 2015. The government is committed to facilitating the growth of the industry through strategic projects such as the Asia Aerospace City. Malaysia aims to capture 5 percent of the global maintenance, repair and overhaul (MRO) market by the end of 2015.
CAE continues to be an active market player through its collaboration with AirAsia and is making significant inroads in the defence and security sectors. Malaysia’s central position in the region makes it a natural aerospace hub for short regional flights. In addition to its geographic advantage, Malaysia can profit from the growing chartered flights required by the continuous growth in offshore operations; this growth has created needs for suitable rotary wing aircraft and MRO services.
Agriculture and processed foods
With their growing affluence, Malaysian consumers have slowly begun to shift towards higher value food items. Wheat, soybeans and canola are important Canadian commodity exports to Malaysia. Within the context of Malaysia’s Economic Transformation Program (ETP), the government aims to develop the agribusiness, biotech and economic sectors. To that end, Malaysia is looking into the highly regarded Canadian livestock genetics industry, and there is increasing interest in the potential contribution the industry could make to livestock quality in Malaysia.
The Government of Malaysia’s ETP offers numerous business prospects for Canadian companies. While opportunities may exist in the context of the ETP, restrictions in the government’s procurement and public-private partnership processes frequently make it more difficult for foreign companies to participate in Malaysia’s market.
In addition, there are further challenges in the form of strong competition from established competitors, high shipping costs, a very cost-conscious consumer base and a general lack of awareness of Canada's outstanding agri-food offerings. Efforts to bring more Canadian food and beverage products to Malaysian store shelves have achieved some successes, albeit with difficulty. Although agricultural commodities such as wheat, soybeans and canola constitute a significant portion of Canada's exports to Malaysia, volumes have been flat in recent years.
Defence and Security
Malaysia wants to secure its borders against external threats, particularly along the eastern coast of Sabah. There has, therefore, been an interest in developing modern and comprehensive command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR), electronic warfare systems, and upgrading radar coverage. Canadian companies have succeeded in supplying integrated communications products, sophisticated vision camera systems and aircraft cockpit avionics upgrades to the Malaysian armed forces.
Representatives of Canadian universities frequently visit the Malaysian market. While the numbers of Malaysian students coming to Canada grew steadily between 2002 and 2011, reaching 1,578 in 2011, there was a slight drop in 2012 to 1,555 and again in 2013 to 1,476. This drop in attendance is attributed in part to the end of a major Malaysian government program that sent many students to Canada.
There are over 30 different agreements between Canadian and Malaysian institutions (with varying levels of activity); however, given the recent growth in the number of universities and colleges in Malaysia, there exists an appetite for even more cooperation. Efforts will continue to be devoted to promoting the comparative advantage of Canadian education through outreach to key contacts, mini-fairs and seminars. A recent significant increase in the cost of study in Australia, Canada’s largest competitor in this market, may further increase opportunities for Canadian schools.
Information and Communications Technologies (ICT)
Malaysian ICT spending is expected to grow significantly during the coming years. Areas of strong growth will include security software and services, outsourcing and cloud computing. At the end of 2013, Malaysia’s mobile penetration rate exceeded 1.4 units for each of the country’s estimated 29 million people. 3G mobile technology usage at the end of 2013 was strong at 18.4 million subscribers, and all the major operators have deployed wireless broadband.
The increasing demand for high-speed broadband internet services and, consequently, the Internet-of-Things, will be the main growth driver for the Malaysian mobile market as revenues decline from Short Message Service and voice services. High-speed broadband expansion presents the opportunity to drive mobile, broadband and internet protocol television penetration across Malaysia. This will in turn drive the e-commerce industry and local content development. Improved infrastructure will also lay the foundation for Machine to Machine technologies and cloud services adoption.
Challenges for Canadian companies entering the market include, first, identifying the most appropriate channel partners with access to key target markets and, second, committing to prompt and regular follow-up outcalls and market development visits. Success requires a persistent commitment to the market.
Opportunities may exist in the area of reducing the vulnerability of mobile devices to hacking, including embedded anti-malware software in devices and enhanced authentication features, since these will be a key priority for the wireless carriers.
The Malaysian Government spends the equivalent of approximately 3.3 percent of the country’s GDP in healthcare every year. Further, this expenditure is expected to grow at an annual rate of 6.5 percent, to reach $3.9 billion in value by 2018. Areas the government is planning to focus on over the next five years include improving primary care to combat non-communicable diseases, unlocking undiscovered potential in pharmaceuticals and nutraceuticals, and tapping into the potential of medical care for the aged.
Malaysia has a two-tier health care system — a government-run universal healthcare system and a private healthcare system. While facilities are generally quite modern and efficient, there is still business potential, particularly in pharmaceutical manufacturing and healthcare biotechnology, as both these sub-sectors are still in their infancy. Malaysia is also attracting investment in the healthcare sector as the aging population is fueling the demand for healthcare services; the elder care industry is expected to be worth US$1.2 billion by 2020.
Oil and Gas
Although the Malaysian oil and gas industry has seen a steady increase in activities in the last decade, the recent drop in crude oil prices has led Petronas to announce a review of capital expenditures. Despite this, Petronas is likely to continue to focus on its own domestic production (even though this has recently declined) by developing marginal fields through enhanced oil recovery (EOR). In addition, Petronas’ projects in western Canada will remain an important part of Canada’s LNG (liquefied natural gas) strategy and will retain the attention of the Government of Malaysia.
A number of EOR projects will be coming on stream in the near future in Malaysia and many more are expected to follow, though at a slower pace than would have been predicted earlier. For upstream projects, opportunities are available for technology (harmful gas reduction, recovery and extraction), equipment (seismic equipment, metering system, valves, pumps, leak detection, testing equipment), and training and certification. The Petronas investment in Canada also offers opportunities across the project’s supply chain.
Petronas is the exclusive owner of all oil and gas exploration and production projects in Malaysia. All activities of the sector are also licensed by Petronas. Canadian companies wishing to sell oil and gas-related products or technologies in Malaysia are required to partner with a local company registered as a supplier to Petronas.
There are opportunities in the wastewater treatment and sanitation sub-sectors in Malaysia. There is strong growth potential and funding available for water treatment facilities; however, there are associated political risks with these projects. In Peninsular Malaysia, there are opportunities in increasing water supply and in projects to rehabilitate river systems to make them more attractive to development. One such example is the River of Life project, estimated to cost approximately $1.5 billion. The entire project will require 14 water treatment plants, 361 gross pollutant traps, and riverbank stabilization.
Solar energy generation is another potential growth area. In 2012, Malaysia’s Prime Minister reaffirmed the country's renewable energy capacity targets of 5.5 percent by 2015 and 11 percent by 2020. A 50 megawatt (MW) solar farm in the state of Kedah is the largest solar power project under development in Malaysia.
Hydropower is another sub-sector that offers potential opportunities for the Canadian private sector. The Malaysian government has initiated construction of several hydropower and coal power plants to support economic development in the Borneo island states of Sarawak and Sabah. In Sarawak alone, there are plans to develop 20,000 MW of hydropower by 2020.
Major Negotiations and Agreements
Trans-Pacific Partnership (TPP)
The TPP Agreement is the most comprehensive and ambitious regional trade agreement in the Asia Pacific and will deepen Canada’s trade ties in this dynamic and fast growing region. The TPP currently comprises 12 countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam), representing a combined market of nearly 800 million people and a GDP of $28.5 trillion.
Air Transport Agreement (ATA)
The ATA between Canada and Malaysia has been in force since 1996. Amendments to the agreement were made in 2013, which are being applied on an administrative basis. ATAs serve to facilitate passenger and all-cargo traffic, with benefits for trade, investment, tourism, and people-to-people links.
WTO Information Technology Agreement
Malaysia signed the WTO Information Technology Agreement (ITA) in 1997. The ITA is a plurilateral trade agreement that requires participants to eliminate all tariffs on information technology and telecommunications products. The number of signatories is now 80, representing about 97 percent of world trade in information technology products.
Double Taxation Agreement (DTA)
The DTA between Canada and Malaysia is expected to be concluded in the near future. This agreement deals with the issue of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital.
Development Perspectives in Malaysia
Malaysia is a development success story and ceased receiving Canadian bilateral development assistance over ten years ago. Malaysia is expected to achieve its aspiration of reaching developed nation status by 2020, however, Malaysia continues to be eligible for Overseas Development Assistance from Canada including through regional programming. For example, Malaysia participates in the Southeast Asia Regional Program (a development assistance program focused on reducing poverty by supporting the ASEAN agenda on economic growth and improving human rights). Malaysia is also eligible to benefit from support for infrastructure projects through the ASEAN Infrastructure Centre of Excellence (co-funded by Canada and Singapore); however, at this stage, it is not known which projects in the region will be prioritized. Through the Canada Fund for Local Initiatives (CFLI), Canada supports grass-roots civil society organizations in their advocacy and capacity-building efforts.
Selected Trade Initiatives – Seize the Opportunity!
- Oil and Gas
- The Asian Oil, Gas and Petrochemical Engineering Exhibition Kuala Lumpur, biannual July 11-13, 2017
- Offshore Oil and Gas Conference, Kuala Lumpur, March 2016
- Aerospace and Defence
- Defence Services Asia Exhibition and Conference, biannual, April 18-21, 2016
- Langkawi International Maritime and Aerospace Exhibition 2017, March 2017
- Canada’s Education Tour of the ASEAN Region (annual event)
- Star Education Fair, annual, January 9-10, 2016
- Agriculture and Processed Foods
- Food and Hotel Asia
- STEP Buyers Conference (annual event in summer)
- CIGI Grains Seminar (annual fall event)
- Malaysia International Food and Beverage Fair, annual, summer event
- Trade Commissioner Service in Malaysia: The Trade Commissioner Service offers foreign market intelligence, introductions in key networks, cost- and risk-reduction advice, business problem troubleshooting and on-the-ground support.
- High Commission of Canada in Malaysia: Canadian government offices abroad provide a variety of services, including consular services.
- Export Development Canada (EDC): With representatives located in the region, the EDC services can include market knowledge, credit insurance, bank guarantees, foreign buyer financing, political risk insurance, foreign investments and foreign affiliate support.
- Agriculture and Agri-Food Canada (AAFC): AAFC has a representative in Singapore covering the Malaysian market.
Where not otherwise indicated, the information is provided by the High Commission of Canada in Malaysia. This document is not intended to provide specific advice and should not be relied on as such. It is intended as an overview only. No action or decision should be taken without detailed independent research and professional advice concerning the specific subject matter of such action or decision. While Foreign Affairs, Trade and Development Canada (DFATD) has made reasonable efforts to ensure that the information contained in this document is accurate, DFATD does not represent or warrant the accurateness, timeliness or completeness of the information contained herein. This document or any part of it may become obsolete at any time. It is the user’s responsibility to verify any information contained herein before relying on such information. DFATD is not liable in any manner whatsoever for any loss or damage caused by or resulting from any inaccuracies, errors or omissions in the information contained in this document. This document is not intended to and does not constitute investment, legal or tax advice. For investment, legal or tax advice, please consult a qualified professional.
- Date Modified: