REFERENCE POINT

Malaysia 2017 | ECONOMY | VIP INTERVIEW

TBY talks to Dato' Azman Mahmud, CEO of the Malaysian Investment Development Authority (MIDA), on economic diversity, opportunity in the aerospace sector, and expectations for the year ahead.

To what extent do you highlight the investment potential in Malaysia's agricultural sector?

When we started in 1969, the economy was more oriented toward agriculture and less toward manufacturing. Currently, the manufacturing sector has a much larger contribution to the economy. Nonetheless, we have consolidated our strengths, which include the plantation and commodity-based industries. We want to be an enabler for investments in the downstream area, and are creating a number of facilities to foster investment in this area. We cooperate with universities and R&D centres to develop biomass and biofuel, for example. All in all, the net worth of private investments after 2011 was MYR802.5 billion, in current value. On average, it was MYR160.5 billion per annum, surpassing our MYR148 billion target.

How will MIDA participate in enacting the plans proposed by the Eleventh Malaysia Plan, and “re-engineering growth for greater prosperity" in particular?

We are very much involved in the Eleventh Malaysia Plan and have identified our so-called “3+2 formula." The first three are the catalytic sub-sectors—chemical, electrical and electronics, and machinery and equipment industry. The other two areas with high-growth potential are aerospace and medical devices. These sub-sectors were selected due to their strong inter-linkages to other sub-sectors and will support the overall growth of the manufacturing sector in the country. We also look at the services sector—ICT, oil and gas, healthcare, higher education, tourism, halal, as well as construction and professional services. Another focus is on smart manufacturing. Industries must adopt smart manufacturing as quickly as possible because we believe the future is all about connectivity. This will require using software, devices, and smart machines. Our manufacturing sector is transforming to embark on this path. We work with relevant agencies and form strategic thrusts to advance them. We cannot continue the old patterns. Every country has its own strengths and weaknesses, and we study the competitive advantages of Malaysia in every sector. The three sectors i.e. electrical and electronics, machinery and equipment, and chemicals have helped us as the products from these areas cut across sectors. Integrated Circuit Design crosses sectors from electronics to aviation, and such multi-purpose segments are crucial for us. Machinery cuts across all sectors, but the machines that are built today must be smart and must be usable through the Internet of Things. In terms of chemicals, Malaysia is still a net oil and gas exporter. We pump more than 600,000 barrels of oil a day, and this will last us another 25 years or so. For gas, we have around 80 tcf for another 35 years. In terms of downstream, there are tremendous opportunities for many industries using raw materials, for example the packaging and plastics industries. These three are the core, and we want to focus on them. We do not just visit companies and encourage them to get involved but we come up with the right and attractive incentives to entice them further.

What is MIDA's perspective and goals for aerospace?

We have the Malaysian Aerospace Industry Blueprint, and it is also further reinforced in the 11th Malaysia Plan. This hinges on the demand for future aeroplanes in Asia and the Pacific. We expect to see a great deal of manufacturing and service providers; therefore, we have to be closer to the market. Malaysia is well positioned in terms of new infrastructure and facilities that we have developed over the years. We see aerospace as a growth sector in Malaysia and have been successful at attracting MRO, for example. Malaysia is presently a home to global aerospace players such as Spirit AeroSystems, GE Engine, Aerospace Composite, Honeywell, Hamilton Sundstrand, Airbus Helicopters, and Messier-Bugatti-Dowty. Not lagging behind are Malaysian companies like SME Aerospace, CTRM Aero Composite, Sepang Aircraft Engineering, Airod, and Asia Aero-Technic, which have demonstrated their capabilities in meeting the stringent demands of OEMs.

Is the medical equipment industry becoming more technical?

Traditionally, it focuses on the manufacturing of medical gloves. However, today the industry has evolved with latest technologies whereby we see development in new products such as cardiovascular devices, orthopaedic devices, and imaging equipment with a growing number of facilities in Penang and Selangor. We have big names like B. Braun, St. Jude, Boston Scientific, and Abbott in Malaysia and have been receiving interest from local and foreign companies. Some will invest in greenfield projects, others look for Malaysian companies to outsource their production or to undertake joint-venture projects.

How do you assess the impact of the recently signed TPP Agreement on the Malaysian manufacturing industry? Do you adapt your strategy accordingly?

We have been building these ecosystems not only through Malaysia's supply chain and infrastructure but our trading network expands to many other countries. Our manufacturers need to upgrade themselves and prepare for a potential increase in trade volume and investments. As such, we are already intensifying efforts to improve our facilitation, our rules and regulations, as well as the infrastructure and talent pool. Malaysia has 30 million people, a relatively small figure. Most foreign investors that come here look at bigger perspectives; ASEAN has 620 million people. Malaysia is a good start for further growth into Southeast Asia, or the larger Asia Pacific region. In terms of agreements between countries, we have the ASEAN Economic Community (AEC) and the TPP; therefore, the business environment is only getting better. It is the right moment to put your cards on Malaysia.

Malaysia is taking the driver's seat in the halal industry, especially in terms of Islamic finance. What is MIDA's strategy?

Malaysia is a reference point for the halal industry. It started with our Islamic finance many years ago, and we have been promoting the World Halal platforms for many years. At the World Halal Summit in 2016, Malaysia attracted quite a bit of attention for its halal investments and we even discussed some investment proposals. In 2017, we will mark 50 years of Malaysia providing infrastructure development such as industrial estate services. Malaysia can be a growth catalyst for the halal industry in the region. The halal supply chain can be extended to other countries, to source for raw materials, for example.

Do the fluctuations of the ringgit affect your strategy?

Predicting currency volatility is beyond anyone's control. Either way someone stands to gain from these fluctuations. Malaysia's gross national income has seen a 50% increase between 2009 and 2015. We created 1.8 million jobs in the country. FDI grew by 22% per annum. The exports sector is also doing well at 6.7%. The trade surplus widened to MYR7.5 billion in January, making it the 220th consecutive month of trade surplus since November 1997. These are good factors, reflecting the vibrant capital markets of the country.

What are your expectations for the coming year?

Malaysia is in a good position; our economy is resilient. Last year was a tough year. China still shows no signs of recovery, and Japan basically has a 0% growth rate. Singapore is somewhere between 1 and 2%, and plans to approach 3% in its new budget. Malaysia is at 4-4.5%, the US at 2.3%, and Europe less than 1%—globally there are challenges. Commodity prices are volatile but fortunately they play a relatively small part in the Malaysian economy, representing just 11-12% of total exports. Manufacturing is a larger component and it depends on how much companies can withstand the drop in oil prices. I am more optimistic about the manufacturing sector particularly aerospace and medical devices. The Malaysian ringgit has strengthened, which is a positive sign. We have taken the necessary steps to put the country on the right footing. We implemented the necessary policies in times of challenging economic volatilities. We achieved 5% growth in 2015 and this year, we expect it to be between 4 and 4.5%. So far, investment interest in Malaysia's economy has not diminished, so we will have another good year. Taking into account the global economic environment, we have a good chance of achieving our growth target.