OBG talks to Wong Lai Sum, CEO, Malaysia External Trade Development Corporation (Matrade)

Interview: Wong Lai Sum

How are new trade agreements expected to affect expansionary possibilities for Malaysia?

WONG LAI SUM: Malaysia is seeking to sign free trade agreements (FTAs) with the GCC, Turkey, the EU and members of the Trans-Pacific Partnership (TPP) in 2012. A common sentiment among Malaysian exporters and manufacturers is that the opportunity for capitalising upon each new FTA is a narrow window, whereas FTAs are often portrayed as opening doors. Businesses must jump on the FTA immediately in order to utilise it; if not, the value of participation diminishes considerably.

Over the years, the Malaysian business community has become quite conversant on the utilisation of opportunities presented by new FTAs. We now see major corporations and small and medium-sized enterprises alike incorporating upcoming FTAs into their business plans and making substantial capital investments which will permit realisation of the FTA as an instrument for growth. Currently, 61% of Malaysia’s total trade is with FTA partners. Local business are now beginning to understand that FTAs go far beyond reduction of tariffs and gaining access to new markets. The focus is moving towards exploring new potential for investments, as well as research and development. However, with small and medium-sized businesses currently accounting for less than 20% of the nation’s total exports, we need to find ways to increase their involvement in such trade pacts and agreements.

How do you see the change in roles between Asian and Western economies with regard to Malaysian exporters in the coming years?

WONG: In the past Malaysia exporters and manufacturers indeed targeted Western markets because they were perceived as a higher-margin market. As supply routes in the West evolve coupled with changing dynamics of economies in the East, Malaysia’s market base has shifted back to Asia. Nearly 70% of Malaysia’s export market is now in Asia with many of the semi-finished goods that Malaysia produces being consumed by manufacturers within the region. Intra-regional trade now represents more than 50% of total trade in Asia, having increased from 32% in 1995. MATRADE expects Malaysian exports to grow 6% in 2012, with much of this focused on ASEAN and East Asia.

What key conditions are necessary to sustain the recent boom in intra-regional trade?

WONG: The manufacturing capacity and capability of East Asian countries continues to rise substantially; however, the greatest challenge is Asia itself. Many countries have industries in common, which results in steep competition in a narrow range of sectors.

Technology also remains a challenge for the foreseeable future. There are segments in which technology is still lagging. The integration between East and West is growing apace, but collaboration among manufacturers and industrialists has much room to grow.

What are the most pressing improvements required to enhance transport routes and the overall flow of goods outside of Malaysia?

WONG: In terms of Malaysia, our ambitions are far-reaching, and the country has certainly been at the forefront of many regional infrastructure initiatives. The ASEAN Framework Agreement on Services covers a considerable portion of the logistics component.

Malaysian companies diligently weigh transport options, looking at shipping routes, rail transport and road infrastructure on a continuous basis. They are not alone in having the desire to improve their options as our counterparts in Singapore and Thailand have aligned interests, not to mention India and China.

Projects like the Trans-Asian Railway have obviously been ongoing for quite some time. Each country has a vested interest in the matter, and the biggest issue is working collectively to achieve a common goal. There are high hopes for other projects, such as the Asian Highway, which is conceptualised as a 142,000-km road network connecting 32 Asian countries with Europe.