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Worldbox Business Intelligence Risk Rating - July 2022

Malaysia

 

SUMMARY

 

Overall Score 22 - Stable

 

Political risk: Stable 7/10

 

Economic risk: Upgrade from 7 to 8/10

 

Commercial risk: Stable 7/10

 

The risk assessment of a country is made up of 3 components, being Political, Economic and Commercial. Each component is scored out of 10 with 1 being the lowest risk and 10 the highest.


Political Risk - Stable 7

 

Malaysia is experiencing an unprecedented period of political turmoil. In 2018, a multi-ethnic alliance ousted the Barisan Nasional, or National Front coalition, dominated by the Malay-nationalist UMNO party that had ruled the country since independence.

 

In March 2020, however, the Pakatan coalition collapsed and UMNO returned to power in a new coalition led by Prime Minister Muhyiddin Yassin of the Malay party. He battled political infighting and questions over his legitimacy before resigning in August 2021. Ismail Sabri Yaakob (UMNO) took over as the new prime minister.

 

Ismail is closely associated with the Muhyiddin government — which was widely criticised for mishandling the country’s response to the COVID-19 pandemic. Consequently, the political scene remains volatile and fresh elections are likely once the current state of emergency, triggered by the pandemic, comes to an end.

 

The political volatility has had little impact on institutions or policies to date, and Worldbox Intelligence believes that there are unlikely to be any significant changes after the next election either, hence our political risk rating remains relatively high.

 

Economic Risk – Upgraded from 7 to 8

 

The COVID-19 pandemic has had a significant impact on the Malaysian economy, especially on lower-income households, as a result of strict government-imposed lockdowns. However, the economy is now rebounding with most restrictions eased or dropped from the beginning of May 2022. The country allowed quarantine-free entry for fully vaccinated travellers from April 1, ending almost two years of stringent border controls introduced to contain the Covid-19 outbreak.

 

The economy expanded by 3.1% in 2021, according to the central bank, rebounding from the 5.6% decline seen in 2020, when the country endured its worst downturn since the 1998 Asian Financial Crisis. The central bank expects the recovery to continue fuelled by improved global and domestic demand. However, the bank warned that the emergence of severe and vaccine-resistant COVID-19 variants could trigger new containment curbs globally and domestically.

 

Prime Minister Ismail Sabri Yaakob has ruled out new lockdowns, and pledged that economic and industrial sectors would remain open even if Covid-19 cases were to increase significantly. Malaysia has ramped up its vaccination programme, with nearly 86% of the adult population fully vaccinated by May 2022.

 

Commercial Risk - Stable 7

 

Malaysia rates second, behind Singapore, among the ASEAN nations in the World Bank’s Ease of Doing Business rankings. Malaysia’s global ranking is also improving: the country rose by nine places to 12th position in the World Bank index Doing Business 2020. That places it above a number of advanced economies, such as Austria, Australia, France, Germany, Japan and Taiwan.

 

Malaysia benefits from good infrastructure, an English-speaking business and consumer environment, and a well-established legal framework. However, the implementation of national policies varies from state to state, with Kuala Lumpur regarded as the easiest place in which to conduct business. Corruption remains a challenge: Malaysia dropped five places to 62nd position among 180 countries in the Transparency International Corruption Perceptions Index (CPI) for 2021. Transparency International, the global anti-corruption coalition, cited factors such as the stalling of institutional reforms, the discharge of several high-profile cases, limited access to information on matters of public interest, and continuing cases of abuse of power and corruption by public officials.

 

July 2022 Bulletin

 

Political Risk – No Change

 

A general election is not due until 2023, but Prime Minister Ismail Sabri Yaakob’s coalition is unlikely to survive that long and an election is almost certain once the pandemic is under control. The vote is likely to take place towards the end of this year or early next year. Worldbox Intelligence believes the outcome of the election will not have a significant impact on policies and the business environment.

 

State elections held in Johor and Melaka in March 2022 proved encouraging for UMNO, and a setback for the opposition. The Barisan Nasional racked up near clean sweeps in the votes. That has fuelled divisions among the opposition - principally led by long-time prime ministerial hopeful Anwar Ibrahim - over his ability to steer them to victory at the national vote. Rafizi Ramli, vice president of the opposition People's Justice Party, currently led by Anwar, appears best placed to succeed the former deputy prime minister if he steps aside.

 

Economic Risk – Upgraded from 7 to 8

 

Data for the first quarter of 2022 indicates the economy continues to rebound from the pandemic-induced recession of 2020. Exports rose by 25.4% year on year in March, while imports increased by 29.9%, reflecting buoyant foreign and domestic demand. Meanwhile, unemployment fell to 4.1% in February from 4.6% in 2021.

 

The IMF, which published its 2022 Article IV Mission with Malaysia in April, forecasts growth of 5.7% in 2022 and 2023, “thanks to the authorities’ impressive vaccine rollout and swift implementation of economic policy support measures.” The IMF reported that the export-oriented manufacturing sector underpinned growth, while agriculture and contact-intensive sectors remained hard hit.

 

In April 2022, meanwhile, the World Bank projected an expansion of 5.5% in 2022, driven by a recovery in domestic demand and expansion in exports.

 

However, the bank cautioned that growth could slow to 4.8% if global conditions deteriorate amid the Russia-Ukraine war, monetary tightening in the US, and a structural slowdown in China. Other risks include a worsening in supply chain disruptions and the emergence of more severe COVID-19 variants.

 

The central bank raised interest rates by 25 basis points to 2.25% in July, the second rise seen in 2022, and a further hike to 2.50% is expected in September. The central bank maintained borrowing costs at the historically low level of 1.75% during the pandemic. The hikes are aimed at reining in inflation stemming in part from a weaker ringgit as the US Federal Reserve hikes aggressively. In July, the Ministry of Finance maintained its forecast that inflation will remain within the 2.2% to 3.2% level during 2022. It added, however, that headline inflation might be higher in some months mainly due to the base effect from electricity prices.

 

Commercial Risk – No Change

 

Although the COVID-19 pandemic and the associated lockdown measures badly affected certain sectors of the economy, the strong recovery is boosting cash flows, and profitability. In July 2022, for example, Standard Chartered Bank Malaysia forecast that corporate earnings are set to grow by 6% to 7% in 2023 from a year earlier, supported by the oil palm plantation and banking sectors. A shortage of workers poses one of the greatest challenges to companies, particularly in the manufacturing sector. Business associations have warned that some firms may relocate to the likes of Vietnam if the government does not loosen restrictions on the use of foreign labour. The outlook for the banking sector is improving as loan demand rebounds in tandem with the brightening economic outlook, and the ratio of non-performing loans falls.

 

Latest economic data


About Worldbox Business Intelligence

 

An independent service, Worldbox Business Intelligence provides online company credit reports, company profiles, company ownership and management reports, legal status and history details, as well as financial and other business information on more than 50 million companies worldwide, covering all emerging and major markets.

 

Worldbox was founded in the 1980s, with the vision to become a global business provider. Its ability to deliver data in multiple languages in a standard format has strengthened its brand.

 

Source: Worldbox

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