Country Risk: Malaysia

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Official Name: Federation of Malaysia
Internet Domain: .my

International Dialing Code: +60
Time Zone: MST = UTC+8 or GMT+8

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Location and Size

Malaysia is located in Southeastern Asia, and is a peninsula bordering Thailand and the northern one-third of the island of Borneo, bordering Indonesia, Brunei, and the South China Sea, south of Vietnam. The country is slightly larger than the U.S. state of New Mexico.

Government

Malaysia’s government is a federal parliamentary democracy with a constitutional monarch and a bicameral parliament, and is a member of the Commonwealth (formerly known as British Commonwealth). Malaysia is a federation of peninsular Malaysia, Sabah and Sarawak.

Branches:

• Executive: Chief of State: King Sultan ABDULLAH Sultan Ahmad Shah (Since 24 January 2019); Head of Government: Prime Minister MAHATHIR bin Mohamad (Since 10 May 2018); Cabinet Elections: Kings are elected for 5-year terms from among the nine sultans of the peninsular Malaysian states. The king is also the leader of the Islamic faith in Malaysia.
• Legislative: Bicameral Parliament consisting of appointed Dewan Negara (Senate) and elected Dewan Rakyat (House of Representatives)
• Judicial: Civil Courts include Federal Court, Court of Appeal, and High Courts of Malaya, Sabah and Sarawak. Sharia (Muslim) Law Courts deal with religious and family matters of Muslims only; decisions of Sharia courts cannot be appealed to civil courts.

Legal System

The legal system is based on English common law. Islamic law is applied to Muslims in matters of family law and religion. Malaysia has not accepted compulsory ICJ (International Court of Justice) jurisdiction. (What does this mean?)

According to the 2019 Investment Climate Statement ” Malaysia, “the domestic legal system is accessible but generally requires any non-Malaysian citizen to make a large deposit before pursuing a case in the Malaysian courts”. The courts can be slow and bureaucratic; so many firms choose to include mandatory arbitration clauses in their contracts. In addition, the judiciary is not truly independent as there are several known instances of selective prosecution, preferential treatment, and arbitrary or politically motivated verdicts.

People

Malaysia’s multi-ethnic, multi-religious society encompasses a majority Muslim population in most of its states and an economically-powerful Chinese community. Ethnic Malays benefit from positive discrimination in business, education and the civil service. The ethnic Malays dominate the political life, while the wealthiest group, the ethnic Chinese, hold the economic power. Political parties are largely based on ethnicity, locality or religion.

• Population: 31,809,660 (July 2018 est.)
• Population growth rate: 1.34% (2018 est.)
• Languages: Bahasa Malaysia (official), English, Chinese (Cantonese, Mandarin, Hokkien, Hakka, Hainan, Foochow), Tamil, Telugu, Malayalam, Panjabi, Thai and several indigenous languages
• Literacy: 94.6%
• Ethnic Makeup: Malay 50.4%, Chinese 23.7%, indigenous 11%, Indian 7.1%, others 7.8% (2004 est.)
• Religions: Muslim, Buddhist, Christian, Hindu, Confucianism, Taoism, other traditional Chinese religions

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Economy

Since its independence from Britain in 1957, Malaysia’s economic record has been one of Asia’s best. Despite the Asian financial crisis, Malaysia has successfully sustained strong economic growth together with a stable currency and low inflation for a substantial part of the past three decades.

Malaysia began its transformation in the 1970s from a producer of raw materials into an emerging multi-sector economy. Under the current Prime Minister, Malaysia is trying to “move the economy farther up the value-added production chain by attracting investments in Islamic finance, high technology industries, medical technology, and services”, CIA World Factbook. The Government of Malaysia is continuing efforts to boost domestic demand to wean the economy off of its dependence on exports. Foreign trade accounts for more than double of the country’s GDP.

Malaysia today is a middle-income country with a multi-sector economy based on services and manufacturing. Malaysia is one of the world’s largest exporters of semiconductor devices, electrical goods and appliances. While Malaysia has one of the highest standards of living in SE Asia, despite long-term efforts of the government to improve the economic status of native ‘Malays’ through preferences, the Chinese have generally continued their long-standing dominance of the economy.

Leading Markets (2017): Singapore 15.1%, China 12.6%, US 9.4%, Japan 8.2%, Thailand 5.7%, Hong Kong 4.5%

Leading Exports – Commodities: Semiconductors and electronic equipment, petroleum and liquefied natural gas, wood and wood products, palm oil, rubber, textiles, chemicals, solar panels

Leading Suppliers (2017): China 19.9%, Singapore 10.8%, US 8.4%, Japan 7.6%, Thailand 5.8%, South Korea 4.5%, Indonesia 4.4%

Leading Imports – Commodities: Electronics, machinery, petroleum products, plastics, vehicles, iron and steel products, chemicals

Top Industries: Rubber and oil palm processing and manufacturing, petroleum and natural gas, light manufacturing, pharmaceuticals, medical technology, electronics and semi-conductors, timber processing, logging, agriculture processing

Top Agricultural Products: Rubber, palm oil, cocoa, rice, timber, pepper

Comparative Economic Indicators – 2018

*2017 estimate
** PPP ” Purchasing Power Parity
*** 2018 Corruption Index: 80-100=Clean; 0-39=Corrupt
**** 2019 Index of Economic Freedom: 100-80 = Free; 49.9-0 = Repressed
Economic Data from CIA World Factbook

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Credit and Collections

Dispute Resolution: Malaysia is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. According to 2013 Investment Climate Statement ” Malaysia,”the domestic legal system is accessible but generally requires any non-Malaysian citizen to make a large deposit before pursuing a case in the Malaysian courts, and can be slow and bureaucratic”.

Risk Assessment

Coface Country Risk Rating: A2 — The overall risk is a combination of business-specific factors and factors relating to the country in which the business operates. The analyses use a seven-level ranking. In ascending order of risk, these are: A1, A2, A3, A4, B, C and D.

Coface Business Climate Rating: A3 — Evaluating the business environment involves measuring the quality of a country’s private sector governance ” in other words businesses’ financial transparency and the effectiveness of the courts in settling debts. Evaluations use a seven-level ranking. In ascending order of risk these are: A1, A2, A3, A4, B, C and D.

Credendo Political Risk Rating: 2 — Low
Credendo Commercial Risk Rating: B — Some risk

• Political Risk – Short Term <2 years: 1 — Low
• Political Risk – Medium-Long Term >2 years: 3 — Medium-Low
• Commercial Risk: B — Medium risk

Business Climate

Generally, the Government of Malaysia encourages foreign direct investment and openness to international trade. The country’s stable economy and good infrastructure has helped inflow of FDI to continue to recover from the effects of the 2008-2009 global financial crisis.

An impediment to economic growth is Malaysia’s complex network of racial preferences to promote the acquisition of economic assets by the native Malays. It should also be noted that a number of restrictions exist on the operation of foreign investors in Malaysia; however, the government continues to liberalize and remove investment restrictions.

Economic Freedom: According to the 2019 Index of Economic Freedom, Malaysia’s economy is 69.6% free, making it the world’s 37th freest economy. It ranks 9th freest out of 42 countries in the Asia”Pacific region, and its overall score is higher than the regional average.

Political Stability: Malaysia is a politically stable country.

Transparency of Regulatory System: U.S. firms’ access to the Malaysian market U.S. has been impeded by “the lack of transparency in government rule-making and procedures in Malaysia”. Also, “stakeholders have found it very difficult to access draft laws and regulations for the purpose of reviewing and offering comments” mainly due to Malaysia’s broad Official Secrets Act, 2019 Investment Climate Statement ” Malaysia.

Conversion and Transfer Policies: According to 2019 Investment Climate Statement ” Malaysia, “all payments to other countries must be made through authorized foreign exchange dealers. Banks must record the amount and purpose of each cross-border transfer over RM 200,000 (approximately US$58,000)”.

Corruption: The centralized Malaysian political system suffers from bureaucratic delays, which generate many opportunities for corruption. In Transparency International’s 2018 Corruption Perception Index, Malaysia received a score of 47/100, ranking at the 61st least corrupt nation out of 180 countries in the index.

In recent years, both business organizations and the government have introduced the Whistle-blower Protection Act (2010) and Corporate Integrity Pledge (2011), to combat corruption and promote anti-corrupt business environments. Together with the Malaysian Anti-Corruption Commission Act (2009), there seems to be enhanced awareness about the disadvantages of corruption.

Political Violence: Malaysia has experienced little political violence since ethnic rioting in 1969.  For more detailed information on these topics, visit the 2019 Investment Climate Statement ” Malaysia, of the U.S. Department of State and the Business Anti-Corruption Portal ” Malaysia Country Profile.

Business Customs and Protocol

• Shaking hands with a member of the opposite sex is not common in Malaysia.  Always wait for a Malaysian woman to extend her hand first.
• Most business-people should be addressed with a title and name. If a person does not have a professional title, like “Professor”, “Doctor”, “Engineer” etc., a Westerner may use courtesy titles such as “Mr.” or “Mrs.”
• Business cards should be printed in English. Since a high proportion of Malaysian business-people are Chinese, it will be an asset to have the reverse side of your card translated into Chinese. Gold ink is the most prestigious color for Chinese characters. Ensure that your business card outlines your education, professional qualifications, and business title. After the necessary introductions are made, offer your card to everyone present. Present your card with both hands. Do not write on another person’s business card.
• Standard formal office wear for men is dark trousers and a light-colored long-sleeved shirt and tie, without a jacket. Suits are worn during presentations and formal meetings. Standard business attire for women includes dresses and light-colored, long-sleeved blouses and skirts. Pantsuits or slacks may be inappropriate in some Malaysian offices. Women must be sensitive to Muslim and Hindu beliefs, and, consequently, wear blouses that cover at least their upper arms.
• When answering a question that requires a decision, Malaysians are often quick to answer “yes”, even if they don’t mean it. This is because they must find a way to deliver the “no” politely, without “loss of face.” Qualified answers are usually an indication of a “no.” For example, an answer of “Yes, but…” means “no”, as does “That might be difficult…”
• Establishing a productive business relationship requires a long-term commitment and you will have to be prepared to make several trips to Malaysia before the decision-making stage. Expect negotiations to be slow and protracted.

For more information on Business Protocol: Export.gov

Sources for further information on Malaysia

American Malaysian Chamber of Commerce

Doing Business in Malaysia: A Country Commercial Guide, U.S. Department of Commerce (PDF)

Embassy of Malaysia (Ministry of Foreign Affairs) in Washington, DC

Embassy of the United States in Kuala Lumpur

Malaysia Profile, Federation of International Trade Associations (FITA)

Doing Business, Malaysia – World Bank Group

Malaysian Industrial Development Authority

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 175 countries including Malaysia. For further information, contact [email protected].

This report represents a compilation of information from a wide variety of reputable sources.

Comparative Economic Indicators: CIA World Factbook

Risk Assessment information: Coface Country Rating,  Credimundi and Delcredere Ducroire 

Exchange Rates: OANDA.com The Currency Site.