In a stormy global outlook, Malaysia’s muscular economy offers a glimpse of sunshine


Condoms, like food and medicine, are largely impervious to the deflation of economic bubbles. So Malaysia’s largest condom manufacturer, Karex, will blithely ignore depressing global financial trends and launch an initial public offering sometime in the near future. Beyond confirming the impending float, Karex this week shyly declined to reveal any further details, but chief economist at Malaysian ratings agency RAM Holdings, Dr Yeah Kim Long, said he expected the listing to raise hundreds of millions of dollars. “It’s a very established company,” he said. “It should be the next big one on the market.”

Karex’s confidence is yet another indication of Malaysia’s robust economic health. The float will attempt to repeat the success of two earlier Malaysian company listings: two of the world’s three biggest initial public offerings this year, beaten only by Facebook.

Malaysia has come a long way since 1993 when Paul Keating wrote off the then Malaysian prime minister Mahathir Mohamad as “recalcitrant”- a word that echoed through years of the Australia-Malaysia relationship. It may have been recalcitrance that prompted Malaysia under Mahathir to spurn the IMF’s offer of a massive conditional loan to bail out the Malaysian economy after the Asian financial crisis in the late 90s. But the loan, with its humiliating requirement for Malaysia to follow IMF advice, wasn’t needed for a reasonably robust economic recovery.

These days, shrewd fund managers are banking on Malaysia’s economic health, amongst them the influential emerging markets investor Mark Mobius who talked up Malaysia in his blog last month. “In times of economic turbulence like we have seen in the past few months, Malaysia has stood out to many investors as an attractive investment destination,” he wrote. “In contrast to many developed nations in the throes of debt crises, Malaysia is running current account surpluses, with reserves reaching over US $130 billion.”

The Malaysian stockmarket, up 9.1 per cent since the beginning of the year, has certainly provided a little sunshine in a generally stormy global outlook. The enormous Malaysian state-controlled palm oil producer Felda was the world’s second largest listing when it raised more than $3.1 billion earlier this year, followed recently by the Malaysian hospital operator IHH Healthcare’s dual Singapore and Malaysia listing which raised $1.9 billion. Other companies, including cable-TV operator Astro All Asia Networks and power company Malakoff are expected to list in the coming months.

Meanwhile, Malaysia’s national oil company Petronas – known more widely for the soaring Petronas twin towers which have dominated the Kuala Lumpur skyline for nearly two decades – has made an offer of about C$5.17 billion (almost $5 billion) for Canada’s Progress Energy Resources Corp, last month boosting its bid when another contender emerged.
Then, diversified Malaysian multinational Sime Darby joined hands with Malaysian property developer SP Setia to buy Battersea Power Station, one of London’s most striking landmarks. A monumental construction on the banks of the Thames, which featured on the cover of Pink Floyd’s “Animals” album, the decommissioned power station was sold by liquidators for about £400 million ($600 million) last month, and Sime Darby and Setia reportedly plan to develop residential properties, offices and shops on the site.
Despite this buzz of economic activity, some economic analysts are concerned about the steady flow of educated Indian and Chinese Malaysians drifting offshore to work, driven at least partly by Malaysia’s racially-skewed employment and education policies. They are worried, too, about a government that has weathered a series of corruption scandals and seems mostly focused on winning the forthcoming general election, orchestrating a series of handouts that have helped buoy the economy. Corruption is also a serious problem in Malaysia – it ranks 60 of 183 on Transparency International’s latest corruption perceptions index; ahead of notoriously graft-ridden Indonesia at 100 and Thailand at 80, but lagging far behind Singapore at 5 and Hong Kong at 12.

Liew Chin Tong, an opposition MP from the Democratic Action Party, said Malaysia had morphed from a rural-based economy a highly-urbanised nation in recent decades but this transformation had done nothing to address a wide and ever-increasing gap between rich and poor. Certainly there is a lot of envy on the streets of Kuala Lumpur: rumours of a US$24 million (nearly $23 million) diamond ring allegedly bought by the wife of prime minister Najib Razak did the rounds for some months. “Every Malay talks about it,” Liew said with a shrug.

Malaysia needed clear economic policies to lift it out of the “middle income trap” (in which nations get to a certain point on the wealth arc and then stall – unable to compete with lower-cost producers elsewhere), he said, as well as a determination to address the gulf between the haves and the have-nots. “It’s one of the more unequal countries in the region.”

But Malaysia is young and energetic: 70 per cent of the country is under 40 years of age, Liew said, and just under half the population is under 25. And consumption is strong: the governor of the central bank, Dr Zeti Akhtar Aziz, recently attributed Malaysia’s steady growth to strong local demand and economic links in the region. On Wednesday the bank said second-quarter GDP growth figures had risen to 5.4 per cent, comfortably beating expectations.

Dr Yeah from RAM Holdings said Malaysia’s economic resilience was built on strong domestic demand and the support of export commodities like oil and gas. Malaysia had close to full employment, and a per capita annual income of about $8,600 – “but to achieve high-income status we need to double that”, he said, something the government aimed to do by 2020. “But it might take a bit longer than the official target,” he added. Dr Yeah warned that the Malaysian government, which is facing an election some time before mid-2013, had to reduce its role for optimum economic efficiency. “Currently one-quarter of the economy is contributed by the public sector,” he said.

On the bright side, Malaysian banks were very liquid because the nation has a high savings rate, he added, and though affected by the global financial crisis, Malaysia would weather the storm.

In fact the crisis had one point in its favour for Malaysia – fewer educated Malaysians were slipping offshore to work and live, Dr Yeah said, adding that educated Malaysians had been lured overseas by the higher incomes offered in Singapore, the US, Canada and Australia. “But now the opportunities in the industrialised economies have dried up. We might even see a reverse ‘brain drain’.”

KL Skyline courtesy of Erwin Karim at Wikimedia