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Oil and gas represent an important but slowly declining source of Malaysia’s exports and government revenues. Projected to become a net importer of both fuels by 2017, Malaysia is seeking to boost both upstream and downstream capacity, develop expertise in oilfield services, and promote renewable energy. The government has offered tax incentives for projects that use enhanced oil recovery (EOR) technology, and is integrating EOR requirements into production contract extensions. Declining oil is also spurring greater investment in new fields like the North Malay Basin. On the gas side, meanwhile, Malaysia is investing in regasification plants, floating LNG terminals, and other infrastructure in order to establish itself as a gas transport and trading centre. This chapter includes an interview with Emir Mavani, CEO, Malaysia Petroleum Resources Corp.

Malaysia’s insurance sector, which saw premiums rise by nearly 15% in 2011, is growing in tandem with the country’s economic development. The sector saw a wave of mergers and acquisitions for conventional insurers in recent years as regulators imposed a risk-based capital (RBC) framework. Now, with the application of RBC to takaful firms, the Islamic insurance sector is expected to consolidate as well. Other regulatory changes – the rising cap on motor insurance tariffs, potential liberalisation in the health sector – could boost the sector as well. Overall, Malaysia’s middle-income status and relatively low levels of penetration bode well for insurance growth in the medium to long term. This chapter includes an interview with Hans de Cuyper, Etiqa Insurance & Takaful.

Malaysia’s pioneering role in the development of Islamic finance has made it a clear leader in this field, even as oil-rich Gulf countries show increasing interest in sharia-compliant finance. It is the world’s largest sukuk market – a fact underscored by the record $9.9bn offering by highway operator PLUS in January 2012 – and the second-largest takaful market. The industry has been helped by substantial government support, including low taxes on dividends and several sharia-compliant funds for SMEs and entrepreneurs that are financed by the state. The challenge for the sector moving forward is to standardise and internationalise its products, defining clearly the requirements for sharia products and harmonising its offerings with those of other nations like Qatar.

The local bourse has seen a bonanza of major offerings in 2012, from the $3.1bn IPO of plantations owner Felda Global, to the dual Singapore-Malaysia listing of hospital operator IHH Healthcare. The corporate bond market is also on a record-setting pace, thanks in large part to a string of sukuk sales that included a $9.9bn debt offering from tollway company PLUS. Meanwhile a wave of consolidation, which has already transformed Malaysia’s banking industry, is now hitting brokerages, with at least three major mergers or acquisitions occurring in 2012. Developments on the horizon include the 2016 opening of the Tun Razak Exchange, which the government hopes will become a hub for Malaysian and international financial institutions. This chapter includes an interview with Tajudin Atan, CEO, Bursa Malaysia.

Malaysia’s banking sector is well-capitalised and stable, with larger financial institutions now looking at overseas expansion to increase their clout. The regulators’ encouragement of consolidation under the Financial Sector Master Plan, which ended in 2010, reduced the number of banks from around 20 down to 8 major institutions. These have high capital-adequacy ratios and low ratios of non-performing loans, even as they extend a volume of credit equal to 132% of the Malaysia’s GDP. While future mergers could still occur, the larger trend is outward growth, as Malaysian institutions look to the under-banked populations of Indonesia, the Philippines, and Thailand. This chapter includes interviews with Zeti Akhtar Aziz, Governor of Bank Negara Malaysia; and Nazir Razak, CEO, CIMB Group Holdings.

Malaysia continued to post reasonably strong growth in 2012 despite its high exposure to trade amidst a soft global economic climate. The Economic Transformation Programme (ETP) championed by Prime Minister Najib Razak is taking hold, bringing increased expenditures on infrastructure and a growth in private sector investment. The ETP’s goal is to help Malaysia escape the “middle-income trap” and become an economy driven by advanced manufacturing, technology and financial services. Challenges to this project include a low level of talent and skills, rising cost of living and worrying increases in the national debt. This chapter includes interviews with Nor Mohamed Yakcop, Minister in the Prime Minister’s Department, Economic Planning Unit; Lord Powell, Chairman, Asia Task Force (ATF); and Jim O’Neill, Chairman, Goldman Sachs Asset Management.