Investment opportunities in Malaysia

Malaysia’s strong and resilient economic foundation, business-ready environment, forward-looking focus and dynamic workforce have made the country an attractive, cost-competitive investment destination in the region. It is fast becoming a preferred hub for general services and leading technology industries.

Malaysia is located just north of the equator, in the heart of Southeast Asia. Strategically located between the Indian Ocean and the South China Sea, the country is well served by all major air and shipping lines.

The country has a well-diversified economy and export structure, a favorable labor market, a history of low and stable inflation, a robust and well-capitalized financial sector, and positive net cash flow.

Malaysia has already signed and implemented various free trade agreements (FTAs), including bilateral FTAs with Japan, Pakistan, India, New Zealand, Chile, Australia, and Turkey. At the ASEAN level, Malaysia has regional FTAs through the ASEAN Free Trade Agreement (AFTA) with China, Korea, Japan, Australia, New Zealand and India.

Malaysia is one of the twelve signatory countries to the Regional Comprehensive Economic Partnership (RCEP), the world’s largest free trade agreement representing 30% of the world’s population and 30% of the world’s GDP, and is expected to grow to 50% by 2030. The agreement aims to promote cooperation, spur economic recovery and create a liberal and competitive investment environment. With RCEP member countries among Malaysia’s top trading partners, the agreement promises to facilitate investment procedures and follow-up services for investors, enhancing growth opportunities.

Malaysia is also one of the 11 signatory countries to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). In this comprehensive free trade agreement (FTA), Malaysia partners with countries representing 13.4% of the world’s GDP. The CPTPP will position Malaysia strategically and enhance the country’s competitiveness on the global stage by expanding its access to new markets such as Canada, Mexico and Peru, which are not covered by any existing FTA.

Under the CPTPP, almost 100% of Malaysia’s exports to all CPTPP countries will enjoy duty-free treatment by 2033.

Top Sectors for Investment

Agricultural Sector

Agriculture, fisheries and forestry employ approximately 10% of Malaysia’s workforce and contribute about 8% of the country’s GDP. Palm oil, rubber, cocoa and wood products account for about half of the output, while other important components include tropical fruits and rice.

Malaysia is the second largest producer and exporter of palm oil in the world after Indonesia. Since additional land for palm oil production is not available, any increase in national production at this stage would have to come from increasing yields and productivity. Malaysian palm oil companies are present in Indonesia and have invested in palm oil processing plants in major markets such as Europe, India and China.

Poultry is the dominant meat product consumed in the country. The poultry and pig sectors are well developed. Rice is considered a staple in Malaysia, although the country relies on imports to meet about 30% of its needs. Recently, the government has prioritized the development of the dairy sector in Malaysia.

The country has relatively strong agricultural research capabilities, especially in the palm oil sector, and the extension system is efficient. The Malaysian government subsidizes rice production through price support, input subsidies, and consumer subsidies. Although the Ministry of Agriculture focuses on other sectors, almost all new significant investment in agriculture is for the palm oil plantation sector. There is no commercial production of genetically modified (GM) crops in the country, despite ongoing research in this area.

Malaysia’s global agricultural trade reached $61.3 billion in 2022, with exports worth $37.4 billion and imports worth $23.9 billion. Palm oil is the dominant export, with India, the European Union, China, Pakistan, and the United States being the leading export markets. Indonesia, China, and Thailand are Malaysia’s top agricultural suppliers. Despite a $13.5 billion agricultural trade surplus, Malaysia still relies heavily on imports for many key products, including wheat, rice, protein meal, dairy products, beef and most leafy and citrus fruits.

Machinery and machinery

Advanced Manufacturing: Demand for automation and digitalization exports continues to grow to modernize and standardize Malaysia’s manufacturing sector, including global supply chain suppliers. The Malaysian government is incentivizing tier-2 manufacturers, component manufacturers, and service providers in Malaysia to increase digital integration, including automation, to remain competitive in the region.

Over the decades, Malaysia has consolidated and improved its electrical and electronics (E&E) sector, but the country has failed to transform itself into a full-line manufacturer. Instead, industry players have carved out niches for themselves as either component manufacturers or original equipment manufacturers (OEMs).

Malaysia’s top ten exports accounted for nearly 81.2% of the total value of its global shipments. These data highlight the opportunities for the machinery and equipment (M&E) industry as an area for growth and development, with a focus on high value-added M&E.

Leading Sub-Sectors

• Specialized process machinery or equipment for a specific industry
• Metalworking machinery
• Power Machinery and Equipment
• General Industrial Machinery and Equipment, Components and Parts

The M&E industry currently comprises 1,418 companies of all sizes in a variety of areas, including power generation, metalworking, specialized M&E processes for specific industries, general industrial M&E, modules and industrial parts, and M&E remanufacturing. These areas include 197 semiconductor M&E companies and 143 robotics and factory automation systems companies. Malaysia is a leading manufacturer of specialized E&E industry equipment and automation equipment in the Southeast Asian region.

Malaysian M&E companies can provide a full range of services including design and development, test simulation, software programming, structure manufacturing, module assembly and integration, and automation solutions. They can manufacture advanced machines with full automation and robotic handling systems and can easily integrate into global supply chains. Notable companies in the industry include Advantest, SRM, Vitrox, Muehlbauer, Pentamaster, UMS, and Multitest.

Influenced by industry trends including Industry 4.0 and Industrial Internet of Things, M&E companies are currently improving their manufacturing processes. These companies are adopting vital Industry 4.0 technologies to enhance the automation, connectivity, and big data analytics (BDA) required in a smart factory environment. This trend includes connecting cyber and physical systems through an enterprise resource planning system, as well as using remote monitoring, machine-to-machine communications, and fully robotic, automated assembly lines at their manufacturing sites.

Opportunities

Malaysia has become a center of excellence for the semiconductor sector. It also aims to replicate this success in other sectors.

• Specialized M&E. Targeted industries include electrical and electronics, solar/photovoltaic (PV), semiconductors, oil and gas, automotive, packaging, plastic extrusion and molding, agriculture, etc. In the electrical and electronics sector, Malaysia is a manufacturing base for the world's leading electronics companies such as Intel, Freescale, Renesas, Agilent, Hitachi, Infineon, Texas Instruments, National Semiconductor and X-Fab. Leading global companies such as First Solar, Hanwha Q-Cell and Sunpower have located their facilities in Malaysia.
• Oil, Gas and Power. With the growth of deepwater activities in the South China Sea and off northwest Australia, the market for subsea oil and gas (O&G) equipment and technologies is expected to grow. The Malaysian government is trying to establish Malaysia as an O&G hub in the Southeast Asian region. To achieve this goal, it is encouraging Malaysian companies to participate in the manufacturing and supply chain of O&G machinery and equipment through PETRONAS. Few companies in Malaysia have the capabilities to invent new machinery or equipment for the oil and gas industry, and the lengthy, tedious and stringent O&G requirements are a barrier to entry. However, Malaysia is building itself as a centre of excellence for OEMs of such machinery and equipment. There are opportunities to supply precision machinery for the manufacturing of these OEM products.
• Aviation. Maintenance, repair and overhaul. Malaysia has a 5% share of the global maintenance, repair and overhaul (MRO) market and aims to become an MRO hub in the region. The country is already a supplier of aerospace components to Airbus SE, Boeing, Rolls-Royce, Safran, Honeywell and Thales. However, it only produces non-critical parts. The Malaysian government is trying to move local players up the supply chain and, in its 2nd Aerospace Development Plan 2016-2030, strengthens coordination between all relevant agencies to advance the country’s aerospace ecosystem.

Aerospace and Defence

The Malaysian government’s Industrial and Technology Development Programmes identify the aerospace and defence industries as strategic with huge growth potential. Malaysia has territorial disputes with China and neighbouring countries. Protecting its maritime security is critical for Malaysia as a country that relies heavily on maritime trade and has offshore economic assets.

Most procurement in these sectors will continue to rely on imported products as Malaysian manufacturers are not yet able to produce the required technologically advanced equipment. However, Malaysia’s defence development programmes remain constrained by budgetary constraints, limiting the ability to import more expensive solutions. The modernisation of the Malaysian Armed Forces (MAF) has progressed slowly as the government prioritises social and economic recovery over military development. The impact of the pandemic, the drain on funds and political uncertainty over the past two years have limited defence spending. These constraints have also prompted renewed efforts to maximise local content in procurement.

The Malaysian government hopes to strengthen domestic defence manufacturing capabilities through collaboration and technology transfer, thereby reducing reliance on imports. To enhance local industry participation, the Industrial Cooperation Programme (ICP) and the Protégé Programme have introduced tender compensation above a threshold. In almost all cases, foreign companies must find a local partner before their bids are considered. Procurement is often done through intermediaries rather than directly by the government.

With the ongoing defence modernisation programmes, opportunities exist across the security and defence industry. Procurement spending will increasingly focus on strengthening Malaysia’s ability to protect its coastlines, territorial waters, offshore economic interests and airspace, as well as developing its intelligence, surveillance and reconnaissance capabilities.

Capabilities

• Aviation. Malaysia has launched the Malaysian Aerospace Industry Blueprint 2030, an initiative that aims to — position Malaysia as the most significant aerospace market in Southeast Asia. There are currently over 200 aerospace companies registered in the country, including both international and local players. Demand for civil aerospace services and equipment is growing steadily.
• Defense Equipment The country’s defense capabilities are heavily dependent on foreign suppliers. Malaysia’s 2019 Defense White Paper highlights territorial disputes related to the US-China rivalry and non-traditional threats across its borders, including jihadist militants and cyber attacks. It emphasizes the need to build up Malaysia’s naval capabilities to prepare for a possible conflict in the South China Sea. It also focuses on developing a modernized “smart army” using cyberspace technologies and modern systems. The initiative will reduce reliance on traditional equipment such as battle tanks, ships and weapons, instead favoring unmanned aerial vehicles, drones and cybersecurity-related equipment.
• Space. The Malaysian Space Agency (MYSA) was established to lead the implementation of the National Space Policy, enhance national capabilities in the space sector, coordinate satellite data acquisition and strengthen international cooperation. Malaysia is an active member of the International Telecommunication Union (ITU) and advocates for equitable access to satellite orbit rights through public and private sector participation. The country's geographical location near the equator can provide cost advantages for horizontal satellite landing services compared to the traditional vertical rocket option. The National Space Policy 2030 is expected to contribute at least 0.3% to the GDP by 2030 and create 5,000 new jobs. The National Space Policy aims to stimulate the growth of the sector, particularly the remote sensing satellite industry, satellite components and data-enabled services. Application services of space technology are widespread and include internet connectivity, navigation tracking, disaster management, resource management, governance, meteorology, defense and security.

Green Technologies

More than half of Malaysia’s emission sources are directly related to urban settings, with emissions primarily coming from the energy, waste, and industrial processing sectors. At the national level, the power and transport subsectors are the most significant emitters. In 2021, the Malaysian government announced an ambitious target to achieve carbon neutrality by 2050. To achieve its goals, the country plans to introduce carbon pricing instruments in the form of a carbon tax and a domestic voluntary emissions trading scheme.

The green industry in Malaysia is largely driven by regulation. Green efforts in Malaysia often follow best practices set by the United States Environmental Protection Agency (USEPA). The Environmental Quality Act (EQA) 1974 is the fundamental document that underpins Malaysia’s national environmental policy. The Twelfth Malaysia Plan (12MP), an overarching blueprint prepared to provide strategic direction for the national budget allocation from 2021 to 2025, includes two environmental areas:

• Promoting green growth to ensure sustainability and resilience.
• Improving energy sustainability and transforming the water sector.

Opportunities

• Air Pollution Control. Air pollution in Malaysia is divided into three main categories: air pollution from vehicle exhaust, pollution caused by industrial activities, and haze caused by weather or forest fires. Malaysia uses the Air Pollutant Index (API), which is closely related to the USEPA Pollution Standards Index, to monitor air pollution. There are currently 65 air monitoring stations operating across Malaysia, while the Environment Department is considering options to expand coverage. Opportunities for foreign investors exist in regulated areas such as point sources of pollution and health impact analysis.
• Water and Wastewater. Despite receiving an average of over 1 trillion cubic metres of rainfall annually, some states in Malaysia still experience periodic water shortages. Seasonal rainfall patterns, rapid economic growth, urbanisation and migration in some regions have created an imbalance in water supply and demand. Current water supplies rely on freshwater reserves and water capture in rivers and dams. Unprecedented climate change has further increased pressure on water resources. Non-revenue water (NRW) lost due to leaks in aging pipes, poor infrastructure and rugged terrain in more remote parts of the country is another challenge for the government. Urbanisation and rapid economic development have made the provision of quality water supply and sanitation services more challenging for the Malaysian government. Water pollution in the country typically originates from sewage treatment plants, manufacturing and agricultural industries, and surface runoff. The main problems and challenges identified in the wastewater treatment industry are high operating costs, as well as environmental threats from unconnected systems such as septic tanks and flush systems, mostly found in semi-urban and rural areas, which discharge untreated effluent and sludge directly into water bodies. There are opportunities for foreign companies that sell hardware, software and analytics for smart water technologies to improve efficiency and save water.
• Waste Management and Recycling. Waste management in Malaysia is primarily carried out by the public sector, supported by a regulatory framework that governs the generation, storage, collection, transfer and transportation, treatment and disposal of waste. The management of municipal solid waste (the fastest growing type of waste by volume) is the responsibility of both the federal and state governments. There are 141 solid waste landfills in Malaysia. Of these, 116 are open dumpsites, 21 are sanitary landfills designed for safe composition and 4 residual waste landfills. Currently, landfill appears to be the preferred option for solid waste management in the country as waste infrastructure is poorly developed. Local governments responsible for solid waste management outsource solid waste collection and disposal to private companies. The national recycling rate reached 33.2% by the end of 2022, compared to the 2025 target of 40%. With an annual per capita plastic packaging use of 16.8 kg per person, Malaysia outperforms much larger countries including China, Indonesia, the Philippines, Thailand and Vietnam in terms of waste generation. Plastic waste management in Malaysia is based on mechanical recycling, landfilling and household incineration. The government has privatized MSW services, but high investment costs have required sharing a significant portion of the investment at the start. It is reported that waste collection or disposal fees in Malaysia are among the lowest in the world, which limits the growth of the sector. Incineration is often chosen as it is considered the fastest way to dispose of waste and a technology that can solve the problem of the huge amount of waste generated. Apart from consumer and household waste, another problem is commercial waste generated from industrial activities. To reduce this, the government encourages companies to implement environmental management activities such as collection, storage, composting, recycling, recycling of toxic and non-toxic waste, and conversion to energy. There are opportunities for foreign companies to offer technologies and solutions for municipal and industrial waste management, as well as recycling and management of hazardous waste.

Healthcare

Malaysia’s personal spending is expected to double to $2.8 billion by 2028. The Malaysian government will continue to strengthen the capacity of public health services, as evidenced by the inclusion of the Ministry of Health (MOH) among the recipients of the largest increase in allocations in the National Budget. With 10% of the population over 60 years of age, care options for the elderly are a key focus of the health system. In addition, given the high percentage of deaths caused by non-communicable diseases (NCDs), managing NCDs through monitoring and prevention is considered vital. Malaysians have the highest rate of diabetes in Southeast Asia, with approximately 1 in 5 adults suffering from it.

Malaysia offers both public and private healthcare systems. Private healthcare providers are driving the adoption of medical technologies and seeking partnerships with international providers to develop medical tourism. Public healthcare providers are expanding their preventive and screening capabilities while increasing access to healthcare in remote parts of the country. These ongoing efforts will support the need for appropriate technologies and products.

Over the next ten years, the public and private healthcare sectors will focus on expanding investment in medical technologies, medical devices and digital health to ensure the delivery of world-class quality healthcare services. These developments are part of a broader modernization effort focused on pandemic preparedness, elder care and non-communicable disease management. Key opportunities exist for the export and import of medical devices, medical technologies, healthcare partnerships, medical travel and clinical research. The main market access routes for foreign companies looking to enter the Malaysian markets are through the appointment of authorised distributors or setting up a subsidiary in Malaysia.

Opportunities

• Non-communicable diseases (NCDs). Given the rise in non-communicable diseases and the long-term impact of COVID-19, the Malaysian government has focused on launching a national agenda, Healthy Malaysia, to promote healthy living among its citizens. Market opportunities for foreign companies include consumer medical devices, aged care, and diagnostic devices.
• Medical devices. Despite being a leading exporter of low-tech medical devices and products, Malaysia imports about 88% of its medical devices from overseas, mainly focusing on high-tech products. The medical device manufacturing opportunities in Malaysia include ancillary equipment, diagnostic imaging products, dental surgical instruments, medical instruments and devices, orthopedic and prosthetic implants, and consumer medical devices for health monitoring.
• Healthcare Technology. The Malaysia Healthcare White Paper plans to transform healthcare delivery by implementing the Ministry of Health’s (MOH) ICT Master Plan. The use of technology to store, share, and analyze healthcare information will become increasingly important. Market opportunities for foreign companies exist in supporting virtual consultations with healthcare professionals, tracking electronic health record systems, and sharing healthcare information. Increased digitalization is also creating demand for technology to protect the privacy and security of this information.
• Medical Tourism. Malaysia aims to improve the current medical travel ecosystem and strengthen the Malaysia healthcare brand to build on its capabilities and reputation as the Fertility Hub of Asia, Cardiology Hub of Asia, and Cancer Care Centre of Excellence. Private healthcare providers are driving the adoption of medical technologies, partnering with international healthcare providers, and pioneering robotic surgery and other advanced medical technologies to enhance their medical tourism offerings.
• Clinical Research. Malaysia’s multi-ethnic population provides clinical researchers with access to genetic diversity in various medical fields, making it one of the leading players in the region. Some of the clinical research has included work in infectious diseases, oncology, cardiology, and hematology. There are market opportunities for foreign companies to partner with local hospitals or research institutes on clinical trials.

Information and Communication Technology

The information and communication technology (ICT) industry is one of the few sectors that has seen strong growth since the pandemic. In 2021, the latest available full annual data, ICT contributed 23.2% to Malaysia's GDP and is projected to grow to 25.5% by 2025. The government and private sector in Malaysia are in the process of adopting a nationwide digital transformation. Digitalization of operations across all major industrial sectors will be a critical factor in securing Malaysia's role in the future global economy.

To support this national vision, the Malaysian government launched the MyDIGITAL initiative as part of the Malaysia Economy Digital Economy Blueprint. The initiative is part of the government’s plans to transform Malaysia into a high-income digital economy and a regional leader in the digital economy by 2030. Through the government’s Cloud First strategy under the MyDIGITAL project, the country aims to enhance its capabilities as a regional data hub, welcoming investment in them.

Capabilities

• Cybersecurity. Cybersecurity is a top priority across all sectors in Malaysia. The government is committed to ensuring a safe and secure cyberspace by strengthening the country’s cyber capabilities across all fronts. To this end, it launched the Malaysia Cyber Security Strategy (MCSS) 2020-2024, with an allocation of $434 million equivalent to enhance and modernize the country’s cybersecurity measures. As the global pandemic has pushed more businesses to digitalize, the demand for cybersecurity protection has skyrocketed. Cybersecurity is essential in the transition to digital platforms, and organizations must adopt new security technologies to address risks. One unique opportunity is the adoption of new technologies such as artificial intelligence (AI) as the next platform in cybersecurity solutions.
• Data Systems Integration and Emerging Digital Technologies. Data systems integration is a critical enabler in achieving the Malaysian government’s plans. These initiatives aim to accelerate digitalization across all industrial sectors by adopting digital technologies such as AI, the Internet of Things (IOT), Big Data Analytics (BDA), and cloud computing. New technologies including robotic process automation, virtual reality, digital payments, 5G and blockchain technologies are rapidly developing in Malaysia to accelerate digital transformation across all sectors. The demand for these digital tools in the country is very high, creating opportunities for foreign investment. The government offers a wide range of incentives to encourage the adoption of digital technologies. These incentives include tax incentives for the E&E sector and related intellectual property, tax incentives for service automation equipment, incentives for digitalization and innovation efforts, and a US$4.6 billion Digital Industry Transformation Fund.
• Smart City Technologies. Another significant opportunity for investors lies in the development of smart cities. Smart and sustainable solutions, smart planning and smart infrastructure and technology are the three main pillars of smart cities. They are an important Malaysian government initiative that covers various leading industries such as ICT, healthcare, energy, environment, transportation and infrastructure. Smart city initiatives are addressing key policy issues such as 5G and cybersecurity in both the private and public sectors.

Renewable Energy

Malaysia has relied on conventional power generation, including natural gas, coal, and hydropower. As a signatory to the Conference of the Parties to the United Nations Framework Convention on Climate Change, it has committed to reducing its greenhouse gas emissions intensity as a share of GDP to 45% by 2030. The government has also committed to achieving net-zero greenhouse gas emissions by 2050 through the deployment of clean, sustainable, and renewable energy. The country has pledged to increase the share of renewable energy to 70% of its total generation capacity by 2050. As part of this process, Malaysia is expected to expand its renewable capacity from 6 GW to 14 GW.

The Malaysian Energy Commission estimated the historical trend of electricity demand growth in Malaysia at around 2.5% per annum. The Malaysia Generation Development Plan 2019 projected that electricity demand would grow at 1.8% per annum during 2020-2030. Over the same period, Malaysia needs around 10.0 GW of new capacity to meet its demand growth, which will require replacing retired plants and ensuring system reliability. The government has also announced that it will not approve any new coal-fired power plants.

Opportunities

• Battery Storage. The Malaysian government aims to expand battery energy storage systems (BESS) by 500 MW from 2030. These storage systems will store excess energy generated by solar panels for later use. Market investment opportunities exist for utility-scale battery energy storage systems and energy storage solutions for the power sector – mainly hydropower and solar power.
• Energy Efficiency and Digitalization. Many commercial and industrial buildings are adopting energy digitalization, with business owners looking to reduce energy costs, mainly through solar installations. Digitalization can enable “smart” industrial facilities by providing new sources of flexible loads for energy needs. Market opportunities for foreign companies exist in cloud-based technologies and artificial intelligence, which combine building energy and operational data into a single platform, transforming it into business intelligence.
• Smart Grids. The Malaysian government is looking for ways to transform its national grid into an intelligent, automated, digital grid. The country is seeking solutions that will provide greater cost efficiency, reliability, and customer satisfaction than can be achieved with centralized networks. Market opportunities for foreign companies exist in the manufacture or supply of smart meters, grid technology and systems, and transmission and distribution systems.
• Renewable Energy Equipment. Foreign companies have opportunities in the supply of equipment to support efforts to produce energy from renewable resources for on-site consumption. These resources can include biogas, hydropower, solar power, and wind power equipment that helps in power optimization and performance monitoring.