ASEAN-BAC Malaysia Dialogues: Malaysian businesses relieved at RCEP’s entry into force but voiced concerns on rising freight costs, operating expenses, and labour shortages plague business recovery

Kuala Lumpur, 30 March 2022 — ASEAN Business Advisory Council (ASEAN-BAC) Malaysia hosted the second series of dialogues with trade and business associations showcasing a strong representation of over 100 senior business leaders of Malaysia’s private sector to exchange views and understand business concerns to inform its consultation and advocacy efforts with the Malaysian as well as ASEAN level ministerial meetings in 2022.

The “Malaysia and ASEAN in 2022: Outlook, Opportunities and Challenges” virtual consultative dialogues featured three consultation sessions with senior leaders of trade associations, chambers of commerce, professional bodies and business councils representing local and foreign businesses in Malaysia. These sessions were chaired by ASEAN-BAC Malaysia council members Tan Sri Dato’ Dr Munir Majid, Tan Sri Yong Poh Kon and Mr Raja Singham.

Puan Jamilah Haji Hassan, Senior Director of the ASEAN Economic Integration Division at the Ministry of Trade and Industry (MITI), addressed the matter of FTA ratifications in her special remarks and assured participants that the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) remains a top priority at the Ministry. “I would like to stress that Malaysia is undertaking the necessary steps to ratify the CPTPP, including commissioning a Cost-Benefit Analysis (CBA) that was completed recently. Amendments to the relevant legislation are also underway. Once everything is in place, MITI will seek the Cabinet’s mandate to ratify the CPTPP.”

ASEAN-BAC Malaysia Chair Tan Sri Dr Munir Majid commented that credit should be given to MITI for pushing ahead with CPTPP despite political resistance. “However, several issues from last year remain to be addressed, particularly greater and more regular consultation with the private sector, and new challenges have emerged in world politics and economy which require public-private sector collaboration. Whether for the domestic, ASEAN and ASEAN Plus economy Malaysia needs to compete and succeed in all conditions,’ he said.

As Malaysia stands on the cusp of a full reopening, the uncertainty of entering this phase was well reflected in the many anxieties and aspirations highlighted during the sessions as the participants raised a wide range of issues ranging from domestic and international challenges.

“This virtual dialogue comes at the right time with Malaysia’s transition to the endemic phase beginning April 1st. With the borders reopening, business sectors that took massive economic hits will now have the opportunity to bounce back and even leverage lessons learnt during the pandemic,” said ASEAN-BAC Malaysia Council Member Mr Raja Singham.

1. Continued government support is needed for businesses to weather “long COVID”

The participants view that while government support during the COVID-19 lockdowns was appreciated, economic headwinds continue to put pressure on businesses. Common concerns across industries were the high inflation costs, increased fuel prices, and additional expenses incurred to keep employees safe during the reopening phase. The industrial sector suffers a sharp increase in production costs due to high energy costs stemming from the rising prices of coal, electricity, and petroleum coke.

Some representatives opined that the government should focus on providing targeted tax relief and policy support to sectors critical to recovery, such as the tourism industry which has a multiplier effect on the rest of the economy. This could include further exemptions, discounts and incentives to help these businesses stay afloat.

The professional bodies expressed concerns that their fraternities have been excluded from many government stimulus packages disbursed by the government as they are not considered small and medium enterprises (SMEs) to qualify for the subsidies. They also face the challenges of expanding locally and abroad as mutual recognition agreements signed in ASEAN have not been practised in reality despite having set up various ASEAN mechanisms for years.

2. Labour shortage is the new normal for Malaysian businesses

Foreign and local labour shortages have also been significant impediments to business recovery, especially in labour-intensive industries such as agriculture, construction and hospitality. As the country reopens, they are finding it hard to fill these roles as local workers have turned to other employment options or self-employment by pursuing online businesses. The shortage has led to stalled or slowed projects in some sectors.

Certain industries represented at the dialogue have requested the government to consider either implementing the minimum wage hike in stages or delaying any upward revision until 2024 when the economy is in better shape. Another solution raised during the dialogue was the possibility of more tax incentives and subsidies to help businesses adopt new technologies and digitalise their operations, such as automation grants to reduce their dependence on foreign labour.

3. Soaring freight and packaging costs are impeding Malaysian exports

The spike in shipping rates, container shortages and fuel prices has made logistics a pain for Malaysian exporters. It has also affected businesses’ ability to compete in an increasingly competitive regional and global market. According to one association, the price of exporting a 40-foot high cube container from Pasir Gudang or Tanjung Pelepas to the United States has seen an almost 200% surge since the start of January 2021. This has led overseas importers to instead source their products from other countries closer to them which may have higher production costs but lower freight charges that offset the additional production cost.

Even for those willing to put up with the exorbitant sea freight charges, there are still issues like container shortages, high packaging prices, and port congestion. As such, Malaysian producers have turned to land transportation where possible, such as when exporting to neighbouring ASEAN countries like Thailand and Singapore, or air freight for urgent shipments.

Some exporters ask that the government explore the feasibility of a single land checkpoint to enable the seamless movement of trucks across borders, such as at the Malaysia-Thai border, without the need for trans-loading to allow exporters to save time and cost.

4. Malaysia needs to upskill and hone the unique advantages of its workforce and SMEs

A common thread raised across industries is the need to invest in training local talent to ensure that they are employable and can meet employers’ needs. Given Malaysia’s relatively smaller population size, the government will need to consider long term solutions to its talent gap problems. One suggestion given to fill the void is to allow foreign students to work part-time, while another is to increase the participation of women in the Malaysian workforce.

The issue of gender equality in workplace representation and leadership was raised. One view calls for a “sustainable feminist recovery” to allow more female talents to assume leadership roles and push for supportive policies to prohibit sexual harassment at work.

A bigger push is also needed to promote “Made in Malaysia” goods and services. Malaysia can no longer compete in terms of low labour costs and should instead double down on its core strengths, such as its expertise in the halal industry, the capabilities of its electrical and electronics (E&E) sector, and its multilingual workforce.

5. The government needs to explore new markets and resume existing FTA negotiations

The participants called on the government to ratify the CPTPP at the earliest possible date and conclude negotiations on the Malaysia–European Free Trade Agreement while also exploring new markets such as the Middle East, Eastern Europe and Africa to establish preferential trade agreements.

The participants also call on the government to ensure that SMEs can utilise trade deals that it has entered, such as the Regional Comprehensive Economic Partnership (RCEP). SMEs should be encouraged to adopt digital technologies to take advantage of the RCEP’s e-commerce provisions and ensure that SMEs can compete with bigger players from other RCEP member states.

ASEAN-BAC Malaysia Council Member Tan Sri Yong Poh Kon noted MITI’s progress on this front, “From the strong support shown by the business organisations at last year’s dialogue, MITI has progressed far in the ratification of our two signed free trade agreements which will provide a strong foundation for our economic recovery.”

“Whether for the domestic, ASEAN and ASEAN Plus’ economy, Malaysia needs to compete and succeed in all conditions. ASEAN-BAC Malaysia will pass on these recommendations to the Malaysian government and serve as an advocate for the Malaysian private sector at the national and regional level when we interact with ASEAN leaders and the ASEAN Secretariat.” Tan Sri Dr Munir Majid concluded.