WHAT A YEAR

Malaysia 2017 | DIPLOMACY | YEAR IN REVIEW

Malaysia has walked the talk in recent years, not only ensuring tangible diversification, but also altering international perceptions about what makes its economy tick. Free from oil and gas, the country is thriving and flexing its muscles internationally.

Developing economies worldwide are replete with enough grand visions, targets, and plans to give even the most dedicated spectator a headache. It is Malaysia, however, that can be credited with having set the first such grand vision, back in 1991, with Wawasan 2020, or “Vision 2020." The brainchild of former PM Mahathir bin Mohamad, the far-reaching ideal was introduced in 1991 and envisions the achievement of a self-sufficient industrial economy by the time the big year, now only a few years away, rolls around. It seems unlikely that, without Vision 2020, other similar long-term visions would be as prevalent as they are today, with notable recent examples including Saudi Arabia's Vision 2030 and Turkey's Target 2023.

So how is the country doing? Strategic diversification has enabled Malaysia to post a healthy current account balance of around 15% of GDP every year since 2020, helped along by the country's widening range of free trade agreements (FTAs), including the ASEAN Economic Community (AEC), the Regional Comprehensive Economic Partnership (RCEP), and ongoing talks with the EU. Having shifted its focus away from hydrocarbons—Malaysia may not be a major oil exporter, but is the third-largest exporter of LNG in the world—has helped it across a myriad of international rankings, including the World Bank's competitiveness classification, where it placed 18th in 2015, up from 20th in 2014. But it hasn't all been plain sailing. While annual growth has averaged 5% over the last decade, 2009 saw a, somewhat predictable, slowdown, while 2016 reflected shrinking demand for its exports of commodities and LNG. The government responded by cutting spending and rethinking its growth forecast for the year, knocking it down from 4-5% to 4-4.5%. Other challenges have included an underperforming currency, with the ringgit shedding around 7% in early November 2016. The central bank took quick action, warning citizens and institutions to desist from ringgit trading in the offshore non-deliverable forwards market. And in December, the bank stipulated that 75% of all export earnings be converted into ringgit. External factors added to the woe in 3Q2016, with the local currency losing a further 3% against the dollar.

Moving forward, the government is keen to continue shoring up the economy against external risks by further cutting dependence on the revenues generated by state-owned oil firm Petronas. In 2014, state revenues derived from oil and gas were just 30%, down from 40% in 2009. The introduction in 2015 of a goods and service tax further reduced dependency to around 19%.

The government is also looking to boost regional integration in a physical sense, with the largest project of note underway being the High-Speed Rail (HSR) between Singapore and Kuala Lumpur. When finished, the 330km connection will boost interconnectivity and render Kuala Lumpur a hub in which industry-specific sub-hubs will pool a skilled workforce. Other transportation projects of late have included the Pan-Borneo Highway in Sabah and Sarawak, as well as 4,500km of rural roads. Such grand projects have also helped push economic growth along, although it is noteworthy that for 3Q2016 public investment was down 3.8% over 2Q2016.
And while the path to economic diversity has been a long and winding one, on the diplomatic front Malaysia has run a proverbial obstacle course over the last year, reassuring Beijing of its good intentions in the face of controversy in the South China Sea, without making concessions in security, trade, or maritime travel, as well as subtly maintaining inwardly strong ties to the US, and holding ASEAN together as the premier trading bloc in the region. It now must continue to tread carefully as Malaysians grow concerned about a potential cozying up to China, especially as US president Donald Trump prepares to dismantle any potential TPP deal and neighboring Philippines solidifies its pivot away from its old ally across the Pacific.

In terms of the real economy, Malaysia has much to boast. Thriving electronics, rubber, palm oil, pharmaceuticals, and refining sectors are just a handful of the areas that the country is building its future aspirations on, and with hydrocarbons fast becoming just a nice bonus, observers will be in full analysis mode as they gear up to measure just how well Malaysia has done over the last two decades as 2020 draws closer.