BMCC - Manufacturing Sector Report 2018/2019

BRITISH MALAYSIAN CHAMBER OF COMMERCE Malaysian Industry Report 2018 / 2019

MANUFACTURING

ABOUT THE BRITISH MALAYSIAN CHAMBER OF COMMERCE

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stablished in 1963, the British Malaysian Chamber of Commerce (BMCC) has been driven by the sole ordinance of advancing bilateral trade relations between the United Kingdom and Malaysia. Over the past five decades, the BMCC has been a catalyst in providing Malaysian-based businesses with networking and exposure, knowledge exchange and bilateral trading support services. Today, the BMCC has firmly rooted itself as one of Southeast Asia’s most prolific Chambers.

The BMCC is appointed by the UK’s Department for International Trade (DIT) to become their service delivery partner for British SME’s seeking to export or establish a presence in Malaysia. Embodied by dedicated sector specialists, the BMCC TRADE TEAM provide a range of customised services from market intelligence, business matching and event management to sourcing assistance of UK goods and services.

The BMCC TRADE TEAM works with UK exporters focusing primarily on SMEs in offering bilateral trade assistance, serving principally as a one-stop platform providing a soft landing for UK firms in Malaysia through market research and knowledge exchange, legal and regulatory systems guidance, connecting clients or distributors, and risk management.

In Partnership With

This report serves as a preliminary introduction that highlights key features and factors relevant to the Professional Services sector in Malaysia.

Information included in this report is the original work and property of the British Malaysian Chamber of Commerce (BMCC) and its department the Trade Team and is subject to copyright. No illustrations, photographs, graphics or text included in this report should be copied, reproduced or shared without prior written consent of its owner.

Whereas every effort has been made to ensure that the information given in this document is accurate, the British Malaysian Chamber of Commerce nor its Departments (Trade Team) accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned. © British Malaysian Chamber of Commerce Berhad 2018

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UNDERSTANDING MALAYSIA’S MANUFACTURING SECTOR

Located in Southeast Asia, Malaysia is a federal constitutional monarchy consisting of two regions, Peninsular and East (Borneo) Malaysia, seperated by the South China Sea. Malaysia is known to be one of the most diversely congenial polyethnic and mutlti-cultural countries in the world.

Population: 32 Million Ethnicities: Malay, Chinese, Indian Currency: Malaysian Ringgit (MYR) Ease of Doing Business: Rank 24 Average GDP Growth: 5 - 5.5%

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anufacturing in Malaysia began during the late 70’s as the economy transitioned from agricultural sectors. Ever since, the sector has been an integral part of the Malaysian economy which accounts for over 20% of total GDP. Malaysia’s GDP reached 5.6 per cent year-on-year in the first quarter of 2017 representing a growth rate of 1.8 per cent; the highest result in two years. This growth is attributed to a combination of factors including the expected sales value of the strong manufacturing sector.

Malaysia Manufacturing Export Worth (2016): MYR 5.6 billion

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SECTOR SEGMENTS Complex manufacturing segments in Malaysia are categorised into different industries but these are the major ones that thrive and become one of the biggest contributors to the nation’s economy.

1. Non-Metallic Mineral Industry Contributed RM5.6 billion of the country’s total manufactured exports, 0.7% of Malaysia’s total export of manufactured goods between the period of January to December 2016, it is the 15th largest exporter during that period of time. Under this industry spectrum, it comprises of non-metallic products such as ceramics, clay, cement & concrete products, glass products, quicklime, barite, marble, granite and Industrialised Building System (IBS) components.

Key exports from this industry include mineral products (RM2.3b), glass and glassware (RM1.9b) as well as clay construction materials and refractory construction materials (RM 772.3 million).

2. Aerospace Malaysia is a leader of several markets, including the design and manufacturing of composites, aircraft componets and avionic systems. Currently, there are 8 companies involved in aircraft assembly, 28 companies in the manufacture of aircraft parts and components including ground support equipment, while more than 50 companies are involved in MRO activities.

Due to the country’s conducive business environment, international players such as GE Engine Services Malaysia, Airbus, Spirit AeroSystems, Safran, Aerospace Composite Malaysia and Honeywell Aerospace Services have made Malaysia their ground for business operations. The local companies have also made great strides in the aerospace arena. Among the prominent local companies are SME Aerospace, CTRM Aero Composite, Sepang Aircraft Engineering, Airod and Malaysian Aerospace Engineering.

3. Textiles & Textile Products This industry consists of 4 sub-sectors: spinning, weaving, knitting and wet processing and finally primary textiles which cover activities such as polymerisation. The textile and textile products industry was the 10th largest export earner for the country in 2016 with RM13.9 billion, contributing 1.8% to Malaysia’s total exports of manufactured goods. Besides Pioneer Status and Investment Tax Allowance, the government has introduced a new tax incentive known as Automation Capital Allowance under the Malaysian 2015 Budget as a way to promote and accelerate the shift of manufacturing and services sectors from labour-intensive into high value added, knowledge-intensive and innovation-based industries.

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Sector Segments

4. Iron & Steel Products The iron and steel industry is a crucial sector supplying basic inputs and raw materials to several major sectors, including the industries of construction, machinery and engineering, electrical appliances and transportation equipment. Currently, the industry is centred on the country’s construction and infrastructural needs. Bars and wire-rods are proving to be the dominant product manufactured. Following the setting up of a medium-heavy section plant and a hot-rolled coil plant in Malaysia, local sourcing of such steel product by various downstream consumer industries has gained momentum. There are currently 2,611 projects producing these materials with a total potential employment of 196,311 workers. To further enhance the development of the iron & steel industry, the current policy considers manufacturing licence for upstream products involving the factors of high technology, high value-adds, energy efficiency and environmental friendliness.

5. Electrical & Electronic It is the top manufacturing sector in the country contributing significantly to the nation’s exports 36.6% and employment is about 25% recorded in 2016. 3 major focus areas that Malaysia continues to strengthen are semiconductors, solar and LED technologies. Semiconductors continue to lead in terms of E&E growth in Malaysia and the global demand in the usage of mobile devices, storage devices, optoelectronics and embedded tech have been a major contributing factor.

6. Engineering Support The Engineering Supporting Industries (ESI) are the building blocks which serve as the fundamental base for the growth of other industries. ESI covers moulds and dies, casting, machining, metal stamping, heat treatment and forging activities.

These sub-sectors contribute significantly to the manufacturing and services sectors and would require continuous technological changes and upgrading impacted by consumer demand, cost of production and competition within the industry. The industry continuously evolves to grow in tandem with Malaysia’s growth towards becoming an industrialised nation.

To date, Malaysia is recognised globally for its capabilities, consistent quality of production, and fast and reliable deliveries in a diverse range of engineering activities, particularly in precision machining and fabrication.

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Sector Segments

7. Food & Sustainable Resources The Malaysian food industry is as diverse as the cultures in Malaysia with wide ranges of processed food manufactured for the Asian palate. This industry is predominantly Malaysian-owned, dominated by small and medium scale companies (SMEs). There are also notable foreign MNC’s producing processed food products in Malaysia. It encompasses sectors such as cocoa and chocolate products, fishery, cereals, processed fruits and vegetables, confectionery, food ingredients, herbs and spices, beverages, animal feed, and others.

8. Machinery & Equipment The future direction of the M&E industry will be focused on high technology and high value-added M&E combining key future technologies including electronics, robotics, advanced materials and software integration. The industry must strengthen its core activities such as R&D, D&D, prototyping, software development, system integration, assembly, testing and calibration. With the availability of high skilled human resources and strong prevailing IP protection laws, coupled with a dynamic engineering supporting industry, providing total solutions, Malaysia remains competitive as a preferred location for manufacturing solutions and production technology.

Identified as one of the catalytic sub-sectors under the 11th Malaysia Plan to spur the country’s economic transformation to greater prosperity, the M&E sector is categorised into 5 groups: Specialised machinery and equipment for specific industries Power generating machinery and equipment Metalworking machinery General machinery, equipment, modules and components Upgrading or reconditioning of M&E

9. Medical Devices A highly diversified industry, it spans across a wide range of industries from rubber and latex, textiles, plastics, machinery to engineering support and electronics. Therefore it produces an extensive range of products and equipment ranging from medical gloves, implantable devices, orthopaedic devices and dialyses to diagnostic imaging equipment and minimal invasive surgery equipment and other devices which can be used for medical, surgical, dental, optical and general health purposes. To date, the medical devices industry in Malaysia is made up of more than 190 companies dominated by small and medium companies (SMIs) of which mostly are manufacturers of medical gloves.

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Sector Segments

10. Pharmaceuticals The Malaysia pharmaceutical industry currently has the capacity to produce medicines in all dosage forms e.g. tablets (coated & non-coated), capsules (hard and soft gelatine), liquids, creams, ointments, sterile eye drops, small volume injectable (ampoules and vials), large volume infusions, dry powders for reconstitution and active pharmaceutical ingredients (API). Local manufacturers have also developed and launched off-patent generics and herbal products using their own brands. Currently, the local industry is producing about 30% of the domestic demand while the other 70% are imported pharmaceutical products that are not available locally. Some of the local-made products are also exported to the Asia-Pacific Rim countries, the Middle East, Africa, Latin America and Europe. Leading Malaysian companies are also moving into the production of biologics drugs, oncology and high value-added generic compounds in-line with the growing demands in this region.

11. Petrochemicals One of the most important sectors in Malaysia with approved investments totalling RM 207 billion between 1980 to 2016.

The rapid growth of this industry is mainly attributed to the availability of oil and gas as feedstock, well-developed infrastructure, a strong base of supporting services, the country’s cost competitiveness, as well as Malaysia’s strategic location within ASEAN and its close proximity to major markets in the Asia Pacific region. According to the CIA World Factbook, Malaysia has the world’s 24th largest natural gas reserves (1,183 billion cubic meter) and 30th largest crude oil reserves (3.6 billion barrels). The country also hosts one of the world’s largest production facilities at a single location for liquefied natural gas. With the implementation of AFTA, petrochemical manufacturers in Malaysia stand to benefit from a single market. Manufacturers based in Malaysia will also benefit from the access to a much larger Asia Pacific market. With China being a net importer of petrochemicals, Malaysia’s Free Trade Agreement with China opens up new business opportunities for petrochemicals manufacturers in Malaysia.

12. Wood Industry In 2016, the revenue collected from the wood industry was RM22.11 billion. It accounted for 2.8% of total country’s export for the year. The industry created employment opportunities for 240,000 people. The total investment for the 2016 was RM 678.2 million. Investment from domestic sources amounted to RM526.3 million (77.6%) while foreign investment was RM151.9 million (22.4%). Currently, Malaysia is one of the world’s largest exporters of tropical timber and also a major producer and exporter for: Sawn timber Panel products: plywood, medium density fibreboard (MDF) and particleboard Builders’ joinery & carpentry (BJC) Mouldings

Furniture & furniture parts

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REGULATORY ENVIRONMENT MIDA, Regional Corridors and other Government Agencies The Malaysian Investment Development Authority (MIDA) is the leading agency that is tasked to facilitate both FDIs and DDIs in the manufacturing sectors.

MIDA works very closely with other regional corridors and other agencies to promote manufacturing investment into the country. It is essential for any company who would like to set up a manufacturing facility in Malaysia to engage with MIDA for their advice on many important areas including Manufacturing Licences, incentives other important matters.

Main policies prior to setting up a manufacturing facility in Malaysia:

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Local company incorporated Manufacturing Licence application No restriction on foreign equity ownership Liberal expatriates employment policy Free movement of funds for foreign investments in Malaysia Protection of Intellectual Property rights Company tax rate 25% Individual tax rate from 0% - 26%

Main incentives available for qualified companies:

• Pioneer Status

• Full income tax exemption

• Investment Tax Allowance

• Accelerated capital allowance

• Incentive for relocation manufacturing activities

• Industrial Building Allowance

• Reinvestment Allowance

• Export Incentives

• Import Duty exemption on raw materials, components

machinery and equipment

Adequate facilities to support manufacturing industries in Malaysia:

• Fully developed industrial parks

• High Tech parks

• Free Zones for export industries

• MSC Malaysia

• Well-equipped seaports and airports connected to the world

• Network of well-maintained highways and railways

• High quality telco networks and services

• Ample electricity, water supply at reasonable costs

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REGULATORY BODIES Organisation

Overview

Contact

Ministry of International Trade and Industry (MITI) Responsible in planning, formulating and implementing policies on industrial development, international trade and investment

+603 8000 8000 www.miti.gov.my

Malaysian Investment Development Authority (MIDA) The government’s principal agency for the promotion of the manufacturing and services sectors in Malaysia

+603 2267 3633 www.mida.gov.my

Inland Revenue Board / Lembaga Hasil Dalam Negeri (LHDN) The Inland Revenue Board of Malaysia (IRBM) is the main agency under the Ministry of Finance who is responsible for collecting and administering the state’s direct taxes

1-800 88 5436 www.hasil.gov.my

Royal Malaysian Customs Department Responsible for collecting revenue and provide trade facilitation through enforcement of and compliance with applicable law to spur economic growth, maintain national security and public welfare

+603 8882 2888 www.customs.gov.my

Iskandar Malaysia in Southern Johor (IRDA) A Malaysian Federal Government statutory body tasked with the objective of regulating and driving various stakeholders in both public and private sector towards realising the vision of developing Iskandar Malaysia into a strong and sustainable metropolis of international standing

+607 233 3000 www.irda.com.my

Northern Corridor Economic Region (NCER) Responsible for providing direction, devising policies and strategies in relation to socioeconomic development in Koridor Utara (i.e. in the states of Kedah,Perlis, Perak, and Pulau Pinang)

+604 238 2888 www.koridorutara.com.my

East Coast Economic Region (ECER) Established to spearhead the socio-economic development of the East Coast Economic Region (ECER) includes the state of Kelantan, Terengganu, Pahang and north east of Johor.

+603 2035 0021 www.ecerdc.com.my

Sabah Development Corridor (SDC) Responsible in promoting and accelerating the development of the SEDIA area into a leading economic region a choice investment destination for investment, work and living; and to ensure that social development and sustainable development are kept as priorities whilst driving economic growth in the SDC Sarawak Corridor of Renewable Energy (SCORE) One of the 5 economic development corridors created by the Federal Government to spur investment growth in traditional rural areas of Sarawak Federation of Malaysian Manufacturers (FFM) Since its establishment in 1968, the FMM has consistently led Malaysian manufacturers in spearheading the nation’s growth and modernisation

+6088 450650 www.sedia.com.my

+608 255 1199 www.recoda.com.my

+603-6286 7200 www.fmm.org.my

CONTACT US For any inquiries please contact the BMCC Trade Team: Tel: +60(0)3 2163 1784 / 1786 Email: info@bmcc.org.my Web: www.bmcc.org.my

E04C0, 4th Floor East Block Wisma Selangor Dredging 142-B Jalan Ampang 50450 Kuala Lumpur

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