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Try a MAFTA with your Laksa: Malaysia’s exciting economic future

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Many Australians may view Malaysia as a tourist spot or source of some seriously hot curries, but there’s much more to the story. In fact, the relationship between the two nations goes back decades, says Tim Harcourt, and as the Malaysian economy accelerates, Australia will continue to play an important role in its development.

When I first visited Kuala Lumpur (KL) in the early 1980s, it was semi-rural and I slept on the floor of a furniture factory owned by Ow Chow, a well-known local Chinese-Malaysian businessman and the father of Ow Wai Cheng, one of my classmates in Adelaide.

Sacred cows walked the streets of the largely Indian neighbourhood of Sentul, where Ow Chow’s factory was built and the city was clearly in a developing phase like the rest of the country.

I took a train from Singapore to KL, and after some time in the city headed up to the east coast to Ipoh and then Butterworth, the air force base joining the island city of Penang (Adelaide’s sister city) before moving on to Bangkok, all by rail. On the train, I passed the rubber plantations and the kampongs (Malay rural villages) and got some glimpses of the burgeoning electronics factories that Malaysia was building in its aspirations to modernise its economy.

Then and Now

Recently, I returned to KL. It’s no longer a semi-rural place but a buzzing mega-city of over six million (in Greater KL), with the Petronas twin towers and other skyscrapers making it almost unrecognisable from the 1980s. Instead of railways, there are mega-freeways, a world-class international airport and a nation that’s proud of its recent success (Malaysian government officials estimate that the number of people living below the poverty line is now 3.8 per cent, compared to 49 per cent during my early visits) and aspiring to move up the value chain to be a high income economy.

While I was there, the Malaysian Prime Minister announced Malaysia’s Economic Transformation Programme (which is part of the New Economic Model) developed to help Malaysia move beyond its current place as a middle-income country, through a series of key strategic reforms by 2020.

The Malaysian government was responding to local and international economists’ views that Malaysia has the potential to forge ahead at a rate faster than the ‘Asian Tigers’, such as Taiwan and Korea, did ten years ago (to be later severely hampered by the twin effects of the Asian financial crisis of 1997-99 and the more recent global financial slowdown).

As part of the new economic model, the Government also announced the tenth Malaysian plan, which relies on principally market-orientated policies to drive Malaysia to becoming a highly skilled, service-based economy with strong regional linkages in ASEAN and the Asia Pacific region more generally.

And while I was in Kuala Lumpur, Australia was in the news amidst Julia Gillard’s visit to Malaysia, her first official visit as Prime Minister to the country. The news was warmly received when mentioned by Miles Kupa, Australia’s High Commissioner to Malaysia at the Malaysian Australian Business Council gala dinner of 600 strong Malaysian and Australian business people at the (partially Australian designed) Kuala Lumpur Convention Centre.

Connections that run deep

It is not surprising that news of Prime Minister Gillard’s visit was well received, as the links between Australia and Malaysia “are very deep and very broad.” Personal links through education (like my friend from Adelaide days, Ow Wai Cheng) are an important part of the relationship. There have been over 300,000 Malaysians studying in Australia over the years; we have now over 100,000 Malaysian permanent residents in Australia, and over one million tourists in both directions.

Likewise, many Malaysian CEOs have a connection to Australia. They have studied in Australia, or their children have. As a result,  Malaysia is a significant investor into Australia with some A$5 billion has been invested into Australia in the last couple of years alone, from Petronas investing into coal-seam gas, to property development by TA Group (owners of the Westin in Melbourne amongst others), to the purchase of CSR sugar and much more.

Australia also has a strong business presence in Malaysia.  According to Austrade/Australian Bureau of Statistics (ABS) research, over 3,600 companies in Australia alone export goods to Malaysia, a country itself consistently in the top ten in terms of exporting small and medium sized enterprises (SMESs). In addition, Austrade Kuala Lumpur estimates there are around 250 Australian companies with a presence in Malaysia, from the traditional powerhouses of BHP Billiton in oil/gas exploration and Rio Tinto Alcan in minerals, to Talent 2 in HR, iSoft in medical, and Blackmores in vitamins and well-being.

As I drove in a Holden along an expressway built by Leighton who have also constructed the expressway from KL to the administrative city of Putrajaya, I noticed the presence of Australian design everywhere by Cox architects along the way.  The Malaysian campuses of Monash, Curtin and Swinburne Universities also do their bit to strengthen our education and research ties and many Australian companies are also taking advantage of the Multi-media Super Corridor (MSC) that has attracted games businesses and other multimedia players.

Australia’s Malaysia strategy

Malaysia’s aspiration to become a developed nation by 2020 is ambitious but is a great opportunity for Australia as well.

Along with our traditional strengths in education, construction, architecture and design as well as oil and gas, areas like financial services and infrastructure are proving advantageous.

Sukuk fundraising was an area where Malaysia could share its expertise (Sukuk being financial certificates, essentially bonds, used in Muslim countries) and there are many avenues for Australian financial services players to participate in the infrastructure projects developed in the Tenth Malaysia plan (where close to A$100 billion has been allocated to human capital development and physical infrastructure programs).

And of course, economic relations will be further enhanced by the potential opportunities in the Malaysian-Australian Free Trade Agreement (MAFTA).

In conclusion, when it comes to Malaysian-Australian trade, a fast pace has been set. From the furniture factory in semi-rural Sentul in 1984 to the buzzing metropolis of KL today, the speed of Malaysia’s economic development is there for all to see. But Malaysia will need to keep up a cracking pace to meet its 2020 vision, and Australia will be doing its part to help them achieve their aspirations.

Malaysia Fast Facts

  • Population: 28.2 million, area: 330,000 sq km
  • Australian residents in Malaysia: 8,000 (approx. only, registered 2,900)
  • Malaysian born living in Australia: 92,337 (2006 census, 17 % increase on 2001)
  • Malaysian born Australian citizens: 46,440 (2006 census)
  • Australia’s total trade with Malaysia: $11,610 m
  • Australia is Malaysia 8th largest export destination and 11th largest import source.
  • Australian exports to Malaysia – Crude Petroleum, Copper, Aluminium, Wheat, Education, Professional Services.
  • Malaysian exports to Australia – Crude Petroleum, Monitors, projectors and TVs, Computers, Telecom equipment and parts.
  • Australian investment in Malaysia: $3,932 million (2009)
  • Malaysian investment in Australia: $8,592 million (2009)
  • Australian companies exporting goods to Malaysia: 3,619
  • Australian companies with a presence in Malaysia: 250 (estimated) including BHP Billiton, Rio Tinto Alcan, Talent 2, iSoft, Blackmores, Leightons, Cox Architects, Monash University, Swinburne University and Curtin University.

Tim Harcourt is Chief Economist of the Australian Trade Commission (Austrade) and the author of The Airport Economist.

Image by catsper

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