[COLUMNIST] Strategies moving forward for Malaysia - The Strengths

Sustainability and renewability will be a central theme across all sectors, driven by resource scarcity and resilience against climate change. There are tectonic and dynamic geopolitical shifts and the ever-looming threat of conflicts and wars. The burden of non-communicable diseases and the risk of future outbreaks outlines a real health crisis.

These issues drive the self-sufficiency agenda and the protection of natural resources not only from the economic and socioeconomic perspective but also from national security.

Various parts of society and business shall migrate or duplicate their presence in the digital space, with inevitable industrial revolutions (fourth and more) shaping society into an unprecedented form in an increasingly volatile world.

Taking stock of the global outlook with respect to Malaysia’s increasing debt and revenue streams, the need for Malaysia is to balance the need to boost revenue generation, improve socioeconomic stability and the urgent need to address national security needs.

This requires serious innovation and enhancement of existing strengths and economic diversifications i.e., the creation of new areas of strengths. Malaysia will need to bridge gaps and inherent weaknesses through regional and global partnerships.

In addition to socioeconomic and financial needs, national security issues encompassing food, water and water resources, energy, health and military security must be among the government’s top priorities. It is no longer sufficient for Malaysia to be reactive in the face of global headwinds. The nation must be proactive in navigating the uncharted waters.

Malaysia is a multi-racial, multi-religious and multi-cultural society. Diversity is both a strength and a risk factor. As outlined in EMIR Research’s Innovation Agenda, the delicate balance means unity, social cohesion and stability are of utmost importance. Major structural reforms will need to be undertaken to ensure justice, equity, talent availability and good governance—without which no policies and strategies can hope to be successfully and sustainably implemented. Policies must move to needs-based policies, instead of discriminatory, arbitrary and knee-jerk policies.

In part 1 of this article, EMIR Research shall elaborate on strategies relating to the nation’s existing strengths and potential expansion thereof.

To get a glimpse of Malaysia’s strength, we look at Malaysia's main exports in electrical and electronics products (E&E), chemicals, petroleum products, liquefied natural gas, and palm oil.

Key services and other industries include Islamic finance, the halal industry, and the various subsets of tourism, such as medical tourism, eco-tourism, cultural and arts tourism, etc.

Natural (God-given) strengths include Malaysia’s biodiversity and its diverse flora and fauna, advantageous geographical positioning and lower rate and risk of natural disasters (historically and relative to neighbouring countries). Also free from armed conflicts and turmoil, Malaysia has the advantage to present a place of peace and stability to attract trade and investments in an increasingly troubled world.

1. Strengthen the oil and gas (O&G) sector by enhancing the attractiveness of existing energy and petrochemical hubs, increasing and intensifying exploration in the South China Sea and offshore deepwater elsewhere in the world. The objective is to maximise output and to include a robust stockpiling policy and infrastructure for rainy days.

Malaysia’s petroleum reserves for oil and gas resources are projected to last for only 15 years, according to the Reserves Life Index calculation. However, this may be stretched to over 40 years through high capital investment, new technologies, as well as a more stable and competitive investment landscape, according to Minister in the Prime Minister’s Department Datuk Seri Azalina Othman.

2. Diversify and expand the O&G sector by transforming Petronas and its subsidiaries from an O&G or oil and energy company into a global industrial conglomerate, not limited to expansion and investments into energy and renewable energy business and assets, but into renewable chemicals, petrochemicals, materials and other businesses. The term “core” business must be wider and more flexible to quickly adapt to market forces and disruptions.

3. Strengthen the oil palm sector as palm oil will likely remain a major food oil for the world and as a base oil for various products. As the local land expansion is limited, overseas land expansion should be intensified. As land expansion reaches a limit, the only frontier left for increased yields would be the intensification of R&D and the use of technology spanning biotechnology, automation and artificial intelligence, regenerative agronomic practices and more.

4. Diversify and expand the oil palm sector into energy and renewables. The oil palm industry has great potential to help the Energy Transition agenda of the nation. Oil palm mills generate methane biogas or renewable natural gas, while palm plantations and mills generate biomass (palm residues) all year long which can be used for power generation and other renewables such as renewable fuels, chemicals and materials.

Malaysia has over 5 million hectares of palm plantation which can be integrated with other businesses such as the co-planting of herbs and other valuable plants as well as providing ample land area for integration with other forms of renewable energy such as solar farms.

5. Move up the value chain. Key economic sectors need to move from lower-value high-volume commodities/simpler products to higher-value end-user products to reap the biggest value from the value chain.

For example, Malaysia’s E&E and manufacturing sectors are the country’s biggest export contributors, yet Malaysian companies are mostly in the upstream. Most of Malaysia’s downstream oil palm companies produce various types of edible oils, but end-consumer products in the processed and packaged foods and personal care industry are dominated by large foreign brands. This is also similar to the production of high-end downstream chemicals and end products from fossil fuel or petroleum products.

6. Overhaul and re-strategise the Islamic and Halal Industries by ensuring a stronger push for strategic placement of Malaysia’s Islamic and Halal offerings in the global market.

According to Islamic Tourism Centre, Malaysia’s annual export value for halal products is RM35.4 billion for halal products, contributing to roughly 5.1% of the nation’s total exports. This puts Malaysia as a global halal hub leader and the country’s performance is acknowledged by the Organisation of Islamic Cooperation (OIC).

There is an opportunity to create new global standards for certification, user verification and tracking of halal products using 4IR technologies, which opens up Malaysia’s halal portfolio beyond food and beverage. According to ITC, Malaysia’s portfolio included cosmetics, logistics, pharmaceuticals and even tourism—recognised by many renowned global multinational companies.

These can be expanded into the supply chain of consumer products, especially with the advent of wearable gadgets, biologically-embedded electronic devices and sensors, virtual-reality equipment, entertainment content, social media and many more.

According to Statista, Muslims globally spent a total of two trillion US dollars across the food, pharmaceutical, cosmetics, fashion, travel, and media/recreation sectors in 2021. It also forecasted the global Muslim market to grow to 2.8 trillion dollars by 2025.

Of course, Malaysia is also known globally as a leader in Islamic Finance. Malaysia must continue to pursue a leading role through the creation and nurturing of Islamic Finance Hubs, positioning Malaysia as the centre for Islamic banking and investments as well as the Centre-of-Excellence for global standards and research in Islamic Finance.

7. Overhaul and re-strategise the tourism industry, by reaping full value from the intersection of tourism and Islamic/Halal industry to form boost Halal and Islamic Tourism, such as the provision of halal in-flight catering and Islamic elements such as reminders on prayer times and subject to airline size, even prayer rooms on all Malaysia-based airline carriers.

This must be supported with nationwide designated halal destinations and the creation of halal travel accreditation according to amenities and infrastructure for Muslims (prayer rooms, Halal food, activities etc.).

Malaysia ranks number one in the Mastercard-CrescentRating Global Muslim Travel Index (GMTI) 2022, proving Malaysia as the top destination for Muslim travellers. Malaysia has been in the top position since the launch of the index in 2015.

According to GMTI 2022, it is predicted that Muslim traveller spending will amount to USD 225 billion by 2028.

In addition to Islam and the halal industry, Malaysia must capitalise on the unique intersection of diverse cultures, eco-tourism and arts. The importance and magnitude of the combination of Malaysia’s unique amalgamation of various cultures, the creative industry and natural biodiversity are potent—a potential waiting to be tapped to its fullest potential. It is a unique travel and tourism experience that only Malaysia can provide.

The industry also extends well into medical tourism. However, maximising the value here will require reforms to ensure Malaysia can retain top medical and nursing talents. According to the Association of Private Hospitals (APHM) president Datuk Dr Kuljit Singh, Malaysia is one of the best in South-East Asia in terms of cost and high standard of healthcare.

Consequently, Malaysia has been widely reported as being ranked among the top medical tourism destinations in Asia, alongside other top medical tourism destinations such as India, Thailand, Singapore and South Korea.

It is important to boost public-private partnerships in medical tourism beyond the healthcare sector players and into other mutually-benefitting sectors such as the airline, hospitality, entertainment and halal industries.

8. Maximise Malaysia’s Geographical Advantage by pushing the brand of a “Safe, Secure, Stable” trading nation. Malaysia should capitalise on the Southeast Asia Nuclear Weapon-Free Zone (SEANWFZ), where recently, it was reported that China may become the first nuclear-armed country to sign the treaty, committing to keep nuclear weapons out of SEA.

Malaysia’s financial markets to capitalise on the non-nuclear non-conflict zone as financial safe havens in times of great global conflict and shifts in the global financial landscape.

The aim is to position Malaysia in the SEANWFZ as a neutral location from the financial and business perspective from the tug of war between global superpowers and establishing a centre to host an “Asean Financial Hub” with member nations as the safe havens for investors. Recent moves such as the formation/revival of an “Asian Monetary Fund” with China may fit nicely into the overall strategy.

In addition to financial hubs, Malaysia’s strategic geographical position should be optimised through the development of cross-border infrastructure, boosting land, sea and air transport projects. However, EMIR Research raises extreme caution with mega-projects, as it requires reforms to address potential mismanagement and corruption and the systemwide use of the Input-Output-Outcome-Impact (IOOI) model as part of the project feasibility assessment and tracking of key performance indicators.

The aim is to ensure Malaysia can position itself as a competitive regional logistics and trade hub, through strategic integrations and the regional and international levels.

Key weaknesses include (but not limited to) institutional framework and governance, public and private sector digital transformation, education sector, natural resource resilience and protection of biodiversity, relatively unfair and unattractive business landscape, improper management of wealth/investment funds, and food security.

Addressing these gaps usually means an overlap with the creation of unrealised or under-realised opportunities.

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* Dr Rais Hussin and Ameen Kamal are part of the research team of EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.