Investments in Malaysia
Malaysia is an open economy and is trying to ease rules to attract foreign investments. In a recent survey, conducted by ASEAN – BAC survey on ASEAN Competitiveness, Singapore ranked as the most attractive for investment in 45% of survey respondents planning to invest in the country, followed by Malaysia (42%). (Competitiveness, 2013). Malaysia is also considered as the gateway to expand into not only the ASEAN region, but Asia in general. The government is striving towards achieving a developed nation status by 2020 and in order to give impetus, the government has laid out policies like Government Transformation Plan (GTP), New Economic Model (NEM), 1Malaysia and 10th Malaysia Plan (RMK10). Malaysia is also politically stable, and has good relations with all countries worldwide.
Risks
1. Malaysia has an affirmative-action programme in aimed at reducing poverty among the locals. A key requirement of this programme is that atleast 30% (Euromonitor, 2014) of the ownership of service sector companies should be with Malays or indigenous groups. Malaysian government has taken steps to liberalize the economy and relax the controversial rule that required businesses to be owned partly by ethnic Malays. The ownership has gradually been decreasing from 50.0% to 30.0%. The Prime Minister of the country recently announced that the listed companies will no longer be required to have Malays to hold a stake. The Country realised that the policy was not benefiting the Malays.
2. Most businesses in Malaysia are on a personal basis and the deal can take time to kick in. There are cultural and social barriers, and most companies are family run. Malaysia is moving away from traditional funding and is warming up for PE investments. However, the country has to ensure that regulations and guidelines are effective. The Securities Commission has recently revised its equity investor’s guidelines
PE investment in Malaysia
The government is giving a boost to the private equity investment in Malaysia. Local companies have been dependent on state-owned companies for financing. The government now aims to reduce this dependence by encouraging funding from private equity investors, to help small businesses expand. Malaysia’s state-run pension fund is also allocating more funds to private equity investment. Most companies in Malaysia prefer to take debt since the cost of debt is as low as 3.0% maintained by the Bank Negara Malaysia (BNM), for the last 10 years, and thus have overlooked funding from private equity and IPOs.
When starting a business an important question arises, how to finance the company. The steady economic growth combined with low interest rates has produced a lot of liquidity in debt and equity markets. For example, in 2005, non-financial corporate business borrowing increased dramatically to $289 billion, compared to the mere $174 billion it was in 2004 and the $85 billion it was in 2003 (Chung). The outcome of using only debt financing or only equity financing is mostly direct. Businesses run ino the issue when a company’s finance requires both debt and equity characteristics, changing the tax effects greatly (Hanke).
Political and legal considerations were given first priority in this analysis with primary emphasis given to whether a country's legal or political system prohibits or impedes foreign investment. If a country's political or legal system discouraged or prevented foreign investment, that country was disqualified from further consideration. Factors considered when assessing the political and legal environment:
The Bumiputra is the official collective term that groups together Malay, as well as the aboriginals of Sabah and Sarawak after the two regions formed Malaysia. It was established as an administrative category after the racial riots of 1969. That year, the frustration felt by the Malays for the harsh economic background, which saw the ethnic-Chinese occupying positions of power in the country’s economy, sparked violence in the “13th of May incident”. As a result, the government adopted the New Economic Policy (NEP), a series of affirmative action strategies meant to put “Malay first”. (Kheng, 2002) The Alliance was replaced by the National Front and the Constitution was amended to include citizenship, Malay as national language and Islam as official religion, as well as Bumiputra special rights. Interethnic class collaboration took the form of an informal economic collaboration that does not extend to social and political relationships. All Malays are legally defined as Muslims, and are part of the Bumiputra. Religious boundaries have played an important role in perpetuating practices of endogamy, which ensures maintaining ...
The first step in doing international business, this involves manufacturing and/or purchasing of components in different regions of the world and then putting them together to make the final product. The benefit of producing a product in a different part of the world is it can be done at a lower cost. For example Indonesia boasts among the lowest costs in the world, a big domestic market, and proximity to the rest of Asia. As a result, some companies are not merely sticking around they are expanding. Coca-Cola plans to open a new bottling plant next year. All told, over the past three years, the government has approved $26.2 billion in new foreign investment. Officials say foreign investors, apart from petroleum and financial-services companies, employ 3.5 million Indonesians, or 3.5% of the workforce.
Malaysia is located in the south-eastern Asia, bordering Thailand and northern one-third of the island of Borneo, bordering Indonesia, Brunei, and the South China Sea, south of Vietnam. Due to its locations, it has been colonised since the late 18th centuries by many countries. Since 1965, Malaysia has had one of the best economic records in Asia, with GDP average of 6.5% growth for almost 50 years. The economical development especially boosted during 1981 and 2003 under the governance of Prime Minister Mahathir bin Mohamad. Malaysia succeeded in diversifying its economy from dependence on exports of raw materials to expansion in manufacturing, services, and tourism. Also, the current Prime Minister continues to pursue pro-business policies .
In the country’s early post-independence era, foreign enterprises were seen by some as a form of “neo-colonialism” and deterred (Gaur 2006. No pagination). That has now changed and the investment climate is more positive, although still challenging.
In addition, Malaysia is having a fiscal deficit and is already tracking above 5% of GDP. This means that Malaysia is having a reflationary fiscal stance and the government may implement a higher interests rates and higher taxes to decrease the budget deficit. This means that our company needs to pay more taxes and this will decrease the profits of our company.
It represents a new approach in national development policies and it complements other national policies, such as privatization of basic Malaysia, developed to emphasize the increasing role of the private sector in economic development Malaysia. Approaches is to facilitate the development of nation economy, reduce the financial and administrative burden of government, reduce government intervention in the economy, lowering the level and scope of public expenditure and allow market forces to determine economic activity and improved efficiency and productivity in line with the National Development Policy, with regard to the ownership of wealth, the privatization policy forms part of the Government's strategy to realize the active participation of Bumiputera in corporate sector to correct the imbalances in the participation of the corporate sector. The privatized entity should allocate 30% of its equity to Bumiputera. Participation of foreign nationals in privatized entities are limited to a maximum of 25% of share
Since Singapore gained sovereignty in 1965 from Malaysia, its politics has been dominated by the People Action Party. Under the leadership of People Action Party, Singapore has a “distinct political culture: authoritarian, pragmatic, rational and legalistic.” Economic growth and political stability were maintained by the People Action Party’s guidance. Thus, Singapore is corruption- free government where power is gained through skill and performance that attracted investments from other countries (“Introduction to Singapore’s political system”, 2011). Singapore scored the point of 1.33 in the 2009 World Bank’s governance indicators for the factor political stability. The government also opens a number of sectors such as financial services o, telecommunications, power generation, and retail to increase competition and foreign firms (eStandardsForum, February 2010).
International Conference HHL Leipzig Graduate School of Management, 2012. Key Corporate Governance Issues in Emerging Markets: theory and practical execution. Leipzig, Center for Corporate Governance, HHL Leipzig Graduate School of Management, p. 181.
Majority of the Singaporean populace are of Chinese ethnicity, while those of the Malay and Indian ethnicities are pushed towards the minority corner. While the government vehemently denied such claims, the Malay plight showcased the “reality that Malays are progressing slower than other ethnic Singaporeans” (Mutalib, 2011). One of the pillars of Singapore is the concept of multiculturalism, which, in this context, is not exercised to its fullest. Due to the growing issue on the minority dilemma, Malays, who themselves below to the minority, have started to “persistently call for reforms” (ibid, pp. 1158-1159). The government led by the PAP was forced to give in to the public pressure, most especially to the fact that while the Malay – and by extension, the Indian – populace may be the minority, it still is part of Singapore’s national interests (ibid, p. 1171).
As one of the countries in Mature Asia, Malaysia has one of the smallest HNWI populations of 10 countries (Menon, 2012). Yet the number of HNWIs in Malaysia is expected to nearly double from 32,000 in 2010 to 68,000 in 2015. According to Asia-Pacific Wealth Report 2015, about 23.4% of the sources of HNWI wealth assets are derived from business ownership that includes the sale of businesses. The trending of wealth management has transformed basic savings to more combinations of various investment products. As affluence grows, wealth portfolio is not only limited to fixed deposit but it has diversified into various types of investments such as real-estate, unit trust and structured products like equity-linked notes. Based on the Asia Pacific Wealth Report 2015, allocation of financial assets is divided into cash and cash equivalent (24%), equity (18.7%), real estate (22.8%), fixed income (16.7%) and alternative investment (13.1%). Due to liberalization of financial market in Malaysia, many consumers mainly the young generations are better equipped with financial literacy, are focused on structured products, insurance and bonds. Besides, the Malaysian government had made it compulsory that all employees must contribute to Employee Provident Fund (EPF) to accumulate wealth for retirement. Yet, due to rising cost of living in Malaysia, EPF is inadequate for people especially low income group people to retire.
The Moroccan economy has known prosperity and knew developments as well in term of business infrastructures since early 2000’s. Under the wise leadership of the beloved king Mohamed sixth, many plans have been established to push forward the Moroccan business environment encouraging major companies as well as new born SME’s to invest in the kingdom either by totally reallocating their business or partially.
Hill, C., Wee, C. and Udayasankar, K. 2012.International Business:An Asian Perspective. 8th ed. Singapore: McGraw-Hill.
The primary importance of the stock market is to increase the country’s economy as well as the global economy. When investors invest their money in stocks, they are contributing to the growth and development of the economy. Most companies choose to get listed in order to be able to issue shares to the public to generate funds for their growth and expansion. Besides that, issuing shares to the public is less risky compared to taking loans from financial institutions where there are higher charges for interest. If the company is developing well with these inv...