Emerging Asia was the first region hit by the COVID-19 pandemic, which initially developed in the Chinese city of Wuhan in late 2019. While the region entered a recession in 2020, the decline in GDP was short-lived and not that deep as in the rest of the world: the region has proven to be relatively resilient to the pandemic thanks to strict lockdown measures, large-scale testing and probably also thanks to a relatively young population. Many Asian economies have already shown solid growth since the beginning of this year, including Malaysia, with an attractive business climate, quality infrastructure and skilled workforce.
The country is doing relatively well compared to the rest of the region in terms of COVID-19 infection and related death rates, and, as reported by atradius, is well positioned for fairly robust GDP growth over the next few years. Even if in recession during 2020, the economy is expected to rebound to 6,2% this year: the government has announced a strong fiscal stimulus package, with measures amounting to a total of 65 billion euros, including the increase for social spending and infrastructure. And given the country's membership of ASEAN, Kuala Lumpur benefits from strong trade ties with neighboring partners: in particular, the relatively skilled workforce is giving the country a strong position in electronics manufacturing, while its competitive position in manufacturing is supported by rising wages in China.
According to analysts, accelerating global growth makes 2021 an attractive year for export-oriented sectors, such as the aforementioned electronics sector, or the agricultural sector. Particular attention goes to the rubber-plastics segment related to healthcare, with a 212% year-on-year growth, as global demand for gloves and packaging has continued to increase during the pandemic. Infrastructure is another sector offering opportunities: while a number of infrastructure projects have been postponed or scaled back following the review of major infrastructure projects in 2018-19, planned mid-term development spending and inflows are expected of direct investments translate into higher long-term FDI.
In addition to acting as a logistics hub for companies wishing to access the interesting opportunities offered by the entire ASEAN area, the country has an advantageous system of incentives for investments, driven by the forthcoming Twelfth Malaysia Plan 2021-2025 and by the previous plans with a view to consolidating the competitive strength offered. To increase incoming investment, the local government has implemented a series of measures aimed at liberalizing the service sector, including financial services, the information and communication technology sector, and logistics.
These incentives consist of:
- in a tax exemption lasting 5 years and equal to 70% of the company's tax base;
- in a tax deduction always for the duration of 5 years and equal to 60% of the capital invested in plants and machinery.
Among the main factors that are normally taken into consideration in view of granting incentives, we find the size of the investment, the creation of employment opportunities and the possible transfer of technology. In addition, the government has created around 20 Free Industrial Zones (FIZs) to address the needs of export-oriented industries, in which companies are exempt from import duties on raw materials, components, parts, machinery and equipment needed in the production process.
The states in which the greatest investments are recorded are Johor, Sarawak and Penang located in the north of Malaysia. The oil sector attracted the greatest amount of foreign investment (4 billion euros), thanks to the creation of particularly favorable conditions for mergers and acquisitions activities. Followed by the electronics sector (2 billion euro) and pharmaceuticals (8 million).
