UK-Malaysia 2023 Trade and Investment Trends

ASEAN is expected to be a US$5.2 trillion economy by 2025.

overview

Henry Tillman

The UK has invested in Malaysia for the last 60 years, and in fact was the leading FDI investor in Malaysia in the first few years after independence. However, by the mid-1980s, for a variety of reasons, the UK was overtaken in FDI investment by Japan (with a focus on the electronics industry) and Singapore (with stronger trade ties). These FDI trends are accelerating in today’s rapidly evolving multi-polar green world driven by technology and digitization.

Over the past decade, not only has UK interest in FDI in Malaysia declined, but three of the UK’s largest companies have also made significant exits. Conversely, Malaysia has become an increasingly aggressive investor in the UK over the past decade and is now leading her two of the UK’s major infrastructure projects. Despite these developments, the two countries are home to large international companies that, coupled with financial markets, can support the future growth of both countries.

Inbound investment in Malaysia

In the November issue of Asia Investment Research, Malaysia’s Economic Transition: From Plantations and Palm Oil to Technology and Green Energy (Free Download) here) we

We examined inbound investment into Malaysia by component:

• Semiconductor – $10 billion US (Intel) and EU (Infineon, Nexperia, Austria Technologie)
• From algae to energy – 35 Japanese companies (including Honda, Mitsui Chemicals, ENEOS)
• NEV (Battery) – Samsung (South Korea), $1.3 billion
• 5G – Ericsson (Sweden)
• Data Center – USA (Microsoft, Google, AWS)
• Cloud Computing – US (Google)
• Methanol – EU (Air Liquide) and South Korea (Samsung)
• Biodiesel/Biofuel – China (Shaanxi Construction)
• Regional Logistics – China (Alibaba)
• Biodegradable Packaging – United Arab Emirates

Inbound M&A and investment in Malaysia

The Malaysian M&A market showed a decline in 2019-20, mainly focused on domestic consolidation. M&A volumes and value have rebounded sharply in 2021. Specific industries with inbound M&A and PE (by country).

• China – Hydrogen, Engineering, Green Energy
• Singapore – Technology, e-commerce, healthcare
• United States – Finance (2), Healthcare, Insurance
• Taiwan – Consumers, Technology
• South Korea – Technology (2), Fintech/eWallet
• Italy – Insurance
• India – Fintech
• United Arab Emirates – Infrastructure

It is clear from the data above that these lists do not include UK names. Although there were some British companies investing capital. AstraZeneca over $125 million in 2019, Smith & Nephew over $100 million in 2022, GKN also $35 million in 2022, Owen Mumford (ND in 2017), major asset swaps (Shell 2022) mostly Arup (300 employees), Ideagen (UK parent company sold in July), audit part Inc (fewer than 50 employees in Malaysia), Mitra Innovation (recently opened office in Singapore), and around 30 Sage opened in Malaysia a year ago. BAE Systems has made a number of capital investments in Malaysia, but these appear to have ended in 2015.

Instead, the UK’s trend towards investment over the past few years has actually been to exit Malaysia and withdraw capital. sold for dollars. Also in 2020, BP sold its petrochemical business for his $5 billion. The business had several manufacturing facilities in Asia, including China, South Korea, Taiwan and Malaysia. In 2021, Dyson ended its corporate partnership in Malaysia and moved manufacturing to Singapore (these terminations were also evident in his other ASEAN countries).

From Malaysia to UK

While the UK has reduced its overall capital exposure to Malaysia, Malaysia has significantly and consistently increased its investment in the UK, especially over the past decade, as shown in the table below.

Historically, the majority of Malaysian investment in the UK over the past two decades has been led by the property and construction sectors. These are followed by hotels, consumers and gaming. Over the past five years, Malaysia has increased its investment in UK renewable energy led by her YTL (owner of GENeco Waste to Energy) in Bristol.

Two major infrastructure investments account for most of the investment. YTL has been investing in the Bristol area for the last ten years. In 2020, Bristol City Council approved plans for the new he YTL Arena Bristol Complex. It will transform three former aircraft hangars (formerly home to the Concorde) into an entertainment venue with a 17,080-capacity arena (he’s the third largest in the UK). The biggest investment, however, is the renovation of the Battersea Power Station. Some 40 years ago, he supplied one-fifth of London’s electricity. After decades of neglect, it’s back as one of London’s top retail and leisure destinations. The King of Malaysia also attended the renewal opening in October.

Actual investment figures show that there has been a sizeable investment gap between the two countries over the past decade, but by the end of 2022, these two markets/countries linked over the past 60+ years will be complementary. I gave two examples to show that it continues. under:

• UK-based Shell has announced two deals involving some of several Malaysian energy assets. In December, Shell agreed to sell its stake in two of his offshore non-operational production sharing contracts (19 in Malaysia) to Petroleum Sarawak Exploration & Production for $475 million. Just two months ago, Petronas and Shell, owners of 80% of these assets, agreed to develop the Rosmali-Marjoram gas project, located 220 km off the coast of Bintulu, Sarawak, Malaysia. bottom.
• In November, Kuala Lumpur Kepong (KLK) was reportedly considering options to increase its stake in Synthomer plc, a listed UK-based company by about 25%. Already he is Synthomer’s largest shareholder, his KLK, doing so following Synthomer’s massive 2022 share price decline, high leverage ratios and a significant slump in its UK rubber glove business. This comes at a time when KLK itself is also considering strategic options, one of which is a separately listed downstream unit that is now vertically integrated under KLK’s corporate structure. There is a possibility. Both LSE and Bursa Malaysia would eventually welcome such a list.

Finally, it is important to note that the historical relationship the two countries have shared in health care remains intact today. While healthcare has not attracted significant capital investment in recent times, both countries have played key roles in her COVID pandemic, with the UK with vaccines and Malaysia with her PPE. rice field. There is a joint education program to continue this collaboration in the future.

Trade conclusion

Chris Devonshire Ellis

While the UK’s ability to attract Malaysian investment is welcome, there are warning signs that UK businesses are not being encouraged enough to invest in ASEAN member states. Malaysia is the Tiger of Asia. With a population of her 33 million, her GDP (PPP) in 2021 will reach her US$ 373 billion, with GDP growth projected at 4.2% in 2023. That said, GDP growth will reach 14.2% in Q3 2022, suggesting that the global slowdown will affect Malaysia. If the country’s 2023 economic plan is on track, growth could be significantly higher. This contrasts with the UK economy projected to contract by around 1.3% in her 2023.

The main lesson to be learned here is that the UK needs to be prepared to encourage companies to invest in growth markets. Malaysia is one of these, as is the entire ASEAN bloc, he one of ten members that includes Brunei, Cambodia, Indonesia, Laos, Myanmar, the Philippines, Singapore, Thailand and Vietnam. This should be in line with London’s current political stance on hedging against China, which means that political opposition is making many UK companies feel a headwind against investing in China.we opposite opinion China is recovering from Covid and introducing a number of incentives to attract investment to feed a middle-class population that will reach 900 million within a decade.

That said, demand is also growing significantly in ASEAN.ASEAN member countries such as Indonesia, Philippines, sea ​​breamWhen Vietnam, (click link for more information) all open their markets to foreign investment. All recorded growth in 2022 averaged 6.2%, and the overall ASEAN economy is expected to reach US$5.2 trillion by 2025.

By comparison, total trade in goods and services between the UK and ASEAN member countries was £36.2bn in the four quarters to the end of Q3 2021, demonstrating that the UK has fully focused its business and trade ethos on this market. It suggests that you don’t let it. The shrinking amount of UK investment in Malaysia suggests that this is the case. This is reflected in the position the UK holds within her ASEAN Secretariat. The UK only has dialogue partner status.

ASEAN’s major economies also have relatively low levels of trade ties, in contrast to specific trade agreements.When Indonesia, the UK, a trillion-dollar economy in itself, has a “Joint Economic and Trade Committee” (JETCO) to “discuss” trade.When Malaysiathe same for the UK. sea ​​bream. of Philippines It has a free trade agreement with the UK, but with the UK it has the Developing Countries Trade Scheme (DCTS). Singapore When Vietnam.

Aside from the two FTAs, the other agreements are ‘ministerial level’ discussion-driven groups, mostly held online. The content of these conferences is generally not expected to include the wider business and trade community. This puts the ASEAN countries on some of the fastest growing growth trajectories in the world, with significant growth rates in their consumer populations, and significantly lower in the rankings for the amount of UK trade partnerships. increase.

ASEAN Member States	UK trading partner status by volume
Indonesia	54th
Malaysia	41st
Philippines	65th
Singapore	20th
sea ​​bream	43rd
Vietnam	39th

On average, this equates to the current trade importance of major ASEAN countries and the UK’s ranking of around 43.6. This is comparable to countries such as Cyprus and Morocco. Obviously more needs to be done to get involved. Disappointing UK and Malaysian trade and investment figures seem to confirm this. By doing so, UK-based manufacturing entrepreneurs will benefit from:

• Companies based in ASEAN enjoy free trade with other ASEAN countries.
• ASEAN has additional free trade agreements with China and India. Assuming the rules of origin criteria are met, UK-owned ASEAN companies can take advantage of these agreements.
• ASEAN members are part of the RCEP Free Trade Agreement and also include Australia, Japan, New Zealand and South Korea.
• ASEAN members Brunei, Malaysia, Singapore and Vietnam are also members of the CPTPP trade agreement which includes Canada, Chile, Japan, Mexico and Peru.

UK companies interested in doing business in Malaysia and ASEAN should contact Dezan Shira & Associates asia@dezshira.com or visit www.dezshira.com. Download the Guide to Doing Business in ASEAN 2023 here.