February 25, 2016    5 minute read

Will TPP Benefit the Malaysian Economy?

   February 25, 2016    5 minute read

Will TPP Benefit the Malaysian Economy?

2015 was the year that most Malaysians referred as ‘The Year of Price Hike’. This is because the price of most goods and services surged because of the implementation of the 6% Goods and Services Tax (GST), in addition to the increment of toll fares and public transport fares late last year. To most Malaysians, ‘Vision 2020’ and the status of a developed nation, are still far from reach.

Earlier this year, the Trans-Pacific Partnership (TPP) was tabled and approved by the Malaysian Parliament. On the 4th of February 2016, the Minister of International Trade and Industry (MITI), Mustapa Mohamed, led the Malaysian delegation and signed the TPP in Auckland, New Zealand. There were protests, not only from the people in New Zealand, where the agreement was signed but also in Malaysia and around the globe. In Malaysia, thousands gathered for the anti-TPP rally at Dataran Merdeka, Kuala Lumpur, where many other historical demonstrations took place. Most of the concerns were involving the Bumiputera rights, public access to affordable drugs, state-owned enterprises, and the increase in the cost of living.

In spite of such, the Malaysian government took proactive measures to educate the public by releasing e-books regarding the TPP, in addition to a summary of reports made by PricewaterhouseCoopers and the Institute of Strategic and International Studies (ISIS) on the content of the agreement. The Malaysian government took the stance of signing the TPP because of the potential it has to propel the nation towards a brighter future.

An attractive country for foreign investments

Currently, Malaysia’s direct investments overseas totalled to RM522 billion (approx. US$124 billion) worldwide while foreign direct investment (FDI) in Malaysia totalled up to RM477 billion (approx. US$113.27 billion). Sixty percent of the FDI came from the TPP member countries. Furthermore, the ‘Doing Business Index’ states that Malaysia is in 18th place out of 189 countries. This clearly shows that the Malaysian economy has the advantage of attracting new investors to the country. On top of that, more FDI in the local economy means that there would be further job creation, higher pay for the local workers (which most of them are skilled workers) and this will result in positive multiplier effects, thus catalysing growth within the economy.

However, the questions remain as to whether local firms are good enough or well protected enough to fight potential entry of MNCs, which have greater economic advantages in production and technology. Has the government done everything they can to insulate the impact of these giant MNCs penetrating into the Malaysian economy? Are the local firms prepared to pay a higher wage to prevent top talents from being stolen by these MNCs? If all the answers are no, then, the result would be damaging to the local economy will be subdued by the MNCs and becoming dependent on foreign firms, without having their own globally competitive local companies.

Opening up to a sizeable market

On paper, Malaysia will gain access to 800 million people with a combined GDP of US$27.5 trillion. According to a report from the Peterson Institute of Economics, Malaysia stands to gain US$41.7 billion increase in exports and US$26.3 billion in income gains by 2025 if it stays on the TPPA track. This shows great promise for the Malaysian economy as local firms are now able to export their goods to a bigger market. Moreover, the removal of import tariffs among the member countries will greatly benefit the local industries such as Electrical & Electronics (E&E) industry. For example, in the E&E industry, the current export value of the TPP market is RM103.29 billion (approx. US$24.53 billion) and with the removal of import tariffs up to 100% from the present import tariffs of 0.4% – 20%, depending on nations, the impact would be significant for the economy, with the E&E industry contributing 24.5% to the manufacturing sector in the Malaysia’s Gross Domestic Product (GDP).

However, it is worth thinking that the import tariffs on foreign goods outside of Malaysia will be removed too and now those foreign goods can be accessed and bought for cheaper than before. For example, in the automobile industry, the 200% import tariff imposed on foreign cars would have to be abolished and local car producer like Proton would have to compete with foreign car manufacturers on the same playing field. Nevertheless, there are still positive outcomes, as the consumers would be able to purchase foreign cars cheaper and, therefore, increasing consumer welfare. For Proton, they might have to change their management style, or they will have to be more efficient in their production methods, for them to compete equally.

In a nutshell, the Trans-Pacific Partnership will significantly help the Malaysian economy to develop into a larger and stronger economy as well as the stepping stone for the local economy to prepare itself for future FTAs such as ASEAN Economic Community (AEC) and Regional Comprehensive Economic Partnership (RCEP). These agreements will play important roles in shaping the Malaysian economy for future challenges, domestically and globally.

The time has come for Malaysia to realise its potential. The path had been chosen, and now, we shall all see what the future holds for this young and promising country.

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