Mal Report 2010

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Industr y Report: Consumer goods and retail June 2010 www.eiu.com/consumergoods The Economist Intelligence Unit Limited 201

MalaysiaConsumer goods and retail report(Forecast closing date: May 20th 2010)

Retail sales, international comparison(US$ bn)

2005a 2006a 2007a 2008a 2009a 2010c 2011c 2012c 2013c 2014c

Malaysia 33 37 45 51 49b 54 58 64 69 76

US 3,193 3,395 3,528 3,614 3,440b 3,571 3,659 3,786 3,988 4,211

Japan 1,216 1,163 1,147 1,316 1,425b 1,461 1,488 1,549 1,598 1,644

China 820 958 1,173 1,561 1,835 2,173 2,664 3,210 3,847 4,608

Germany 414 421 460 502 471b 459 474 494 514 536

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.

Source: Economist Intelligence Unit.

Malaysia is considered to be among the most developed of the world'semerging markets. The Economist Intelligence Unit estimates annual private

consumption per head to have increased by 43.4% between 2005 and 2009, to

US$3,395. Despite a contraction in real GDP growth, the unemployment rate

remained below 4% in 2009. However, substantial regional variations in

income and employment levels exist. Consumer lifestyles are evolving, owing

in part to rising affluence and improving education. Around 60% of the

population lives in urban areas.

Although Malaysia boasts relatively high private consumption, the level is low

compared with that of the country's closest neighbour, Singapore, where

consumption per head stood at an estimated US$14,711 in 2009. Moreover

market opportunities are constrained by the small size of Malaysia's populationAt just over 28m in 2009, Malaysias population is just one-third that o

Thailand and is dwarfed by the population of India, which exceeds 1bn.

Income and demographics2005a 2006b 2007b 2008b 2009b 2010c 2011c 2012c 2013c 2014c

Nominal GDP (US$ bn) 138.0 156.6a 186.1a 221.6a 191.3a 229.8 245.2 268.4 290.1 320.2

Population (m) 26.1 26.6a 27.2a 27.7a 28.3a 28.8 29.4 29.9 30.5 31.0

GDP per head (US$ at PPP) 11,531 12,362a 13,238a 13,862 13,503 14,358 14,826 15,410 16,260 17,377

Private consumption per head (US$) 2,367 2,643a 3,134a 3,615a 3,395 3,807 4,021 4,378 4,723 5,145

No. of households ('000) 5,570b 5,678 5,775 5,870 5,956 6,044 6,133 6,223 6,315 6,408

No. of households with annual earnings

above US$5,000 ('000) 3,967b 4,184 4,499 4,745 4,673 4,961 5,109 5,295 5,457 5,643


above US$10,000 ('000) 2,227b 2,452 2,839 3,151 2,977 3,367 3,540 3,781 3,986 4,237


above US$50,000 ('000) 124b 146 191 235 204 264 293 340 385 449

No. of households with net wealth over

US$1m ('000) 10 17 29 22 16 22 23 26 28 31



Overview

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The outlook for the consumer-goods market is positive. We forecast tha

Malaysia's economy will grow by 6.9% in 2010, following a contraction of 1.7%

in 2009. Average annual GDP growth in 2011-14 will also be faster than the that

recorded in 2005-09. Retail sales in US dollar terms are forecast to grow by an

average of 9.2% a year in 2010-14, slightly below the average rate of around

10.7% a year in the historical period. The modest slowdown partly reflects the

impact of a new goods and services (GST) that is expected to be implementedin 2011.

The profile of the retail sector has changed markedly in recent years. Driven by

consumer demand, a trend towards bigger stores has been evident, particularly

in peninsular Malaysia. The trend has been less apparent in the eastern states o

Sarawak and Sabah. The number of hypermarkets in Malaysia has grown from

fewer than 20 at the start of the decade to more than 80 by the end of 2008.

Shopping complexes have also increased in popularity, with more than 550

currently in existence. There has been a corresponding decline in the number of

smaller, locally owned shops.

Retail sales2005a 2006a 2007 a 2008a 2009 b 2010c 2011c 2012c 2013c 2014c

Retail sales (M$ bn) 125.4 136.3 153.1 171.2b 171.5 178.1 189.0 204.8 219.5 236.5

Retail sales (US$ bn) 33.1 37.2 44.5 51.3 48.7 54.2 57.7 64.0 68.9 75.7

Retail sales, volume growth (%) 7.8 4.9 10.1 6.0 -0.4 2.1 3.4 5.6 4.6 4.9

Retail sales, US$ value growth (%) 11.4 12.2 19.9 15.3 -5.2 11.4 6.4 10.9 7.6 9.9

Non-food retail sales (US$ bn) 15.2 17.2 20.8 24.2 22.3 24.7 26.2 29.0 30.9 33.6

Food retail sales (US$ bn) 18.0 20.0 23.7 27.1 26.3 29.5 31.5 35.1 38.0 42.1

Consumer price inflation (av; %) 3.0 3.6 2.0 5.4 0.6a 1.7 2.6 2.6 2.5 2.7



Demand. Owing to a number of stimulus measures adopted by the government in 2009 and a modest economic rebound in the global economy in the

second half of that year, Malaysia's economy did not perform as badly as was

originally feared. Real GDP contracted by 1.7% in 2009, a shallower contraction

that that of 4-5% that was estimated by the government. The total value of retail

sales is expected to increase to US$54.2bn in 2010, from US$48.7bn in 2009

boosted by a strong rebound in the domestic economy and rising tourist

arrivals. Improving consumer confidence and a sustained economic recovery is

expected to underpin growth in the remainder of the forecast period when

growth in retail sales is expected to average 8.7% a year.

There is no value-added tax (VAT) in Malaysia. Instead, a government sales tax

(GST) of 5% is levied on hotel, restaurant and professional bills. However, this islikely to change in 2011 when the government hopes to introduce a new GST

The new tax was originally scheduled for 2007, but was withdrawn owing to

objections from businesses. This time, the government is under pressure to

widen the tax base as it tries to reduce the budget deficit, which rose from 4.8%

of GDP to an estimated 7% in 2009.

Online retailing remains in its infancy, but the government hopes to see a rapid

increase in e-commerce. The government will continue to focus on promoting

Retailing

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e-commerce in the 10th Malaysia Plan (a medium-term spending plan covering

2006-10), which is expected to be unveiled later in June. The main obstacle to

faster growth in this area is the low rate of broadband subscriptions. Access to

the Internet is not a huge problem in the major cities where internet cafes are

widely available, but computer ownership remains low, particularly among

low-income groups and in rural areas. The government also hopes to enact

legislation in the forecast period to help to strengthen the legal framework andincrease public confidence in e-commerce transactions, as well as to reduce the

incidence of online fraud.

Supply. The food retail sector is fragmented in Malaysia. In rural areas the

sector is still dominated by traditional stores and markets, while in urban areas

supermarkets and hypermarkets have grown in popularity. In the grocery retai

sector the leading player is a domestic firm, Dairy Farm Giant Retail, which has

more than 440 stores across the country. A UK-based retailer, Tesco, with 33

stores, and AEON of Japan, which has 25, are also important players.

Parkson (the retailing arm of a Malaysian conglomerate, the Lion Group) has the

largest presence in the department-store sector, with 32 outlets across Malaysia

The second-largest chain is another local retailer, Metrojaya, which has seven

stores located on peninsular Malaysia and plans to develop two new stores in

Sabah and Sarawak. Two Japanese retailers, Sogo and Justco, also operate in

Malaysia.

Foreign companies need approval from the Committee on Wholesale and Retail

Trade to launch operations or relocate branches. The government has relaxed

various restrictions over the years, but a local equity rule that requires private

companies to offer 30% of their equity to bumiputera (ethnic Malays and other

indigenous peoples) is likely to remain in place in the forecast period. In 2004

the government raised the foreign-ownership limit on retailers to 70%, from 51%

previously, on condition that the remaining 30% stake is held by members othe bumiputera. Furthermore, if Malaysia is used as a regional distribution

centre, foreign firms can own 100% of local retail subsidiaries. In 2009 the

prime minister, Najib Razak, lifted the local equity rule in eight services sectors

but the distributive trades sector was not one of the sectors on the govern-

ment's list.

In recent years the government has passed legislation limiting the expansion of

hypermarkets, and the Economist Intelligence Unit does not expect these

restrictions to be lifted in the forecast period. Firms interested in opening new

hypermarkets must have paid-up capital of at least M$50m (US$15m) and mus

be able to show that each new outlet will serve at least 350,000 residents

Moreover, unlike in a number of Western countries, hypermarkets, supermarkets and department stores are prohibited from 24-hour trading. The

regulations applying to the construction of shopping malls are less restrictive

and more malls are likely to be built in 2010-14.

Malaysia has a small food-processing industry that serves both the domestic

and regional markets (the bulk of food exports from Malaysia are to Asia). Food

beverage and tobacco output accounted for around 12.6% of total manufacturing

Food, beverages and tobacco

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production in 2006. Household spending on food, beverages and tobacco as a

percentage of total consumer spending stood at an estimated 24% in 2009.

Food, beverages and tobacco consumption2005a 2006b 2007b 2008b 2009b 2010c 2011c 2012c 2013c 2014c

Food, beverages & tob acco (consumer

expenditure; US$ m) 14,997 16,733a 19,815a 22,996 23,044 26,216 27,973 30,793 33,739 37,518

Food, beverages & tob acco (% of householdspending) 24.2 23.8 23.3 22.9 24.0 23.9 23.7 23.5 23.4 23.5

Food, beverages & tob acco (market demand;

US$ m) 38,084b 40,848 46,184 52,842 49,371 55,202 58,199 63,205 67,982 73,781

Food, beverages & tob acco (market demand;

% real growth) 1.0b 0.6 3.2 5.4 -1.8 4.1 2.2 3.9 3.6 3.7

Meat consumption (kg per head) 47.1 48.2 49.4 50.2 49.0 50.5 51.1 51.9 52.9 54.3

Fish consumption (kg per head) 56.6 57.8 59.8 61.4 61.0 62.1 62.7 63.8 64.9 66.0

Fruit consumption (kg per head) 57.2 58.6 60.6 62.4 62.5 63.8 64.7 66.0 67.3 68.7

Vegetable consumption (kg per head) 48.6 49.1 49.7 50.1 49.5 50.3 50.6 50.9 51.4 52.0

Milk consumption (litres per head) 45.8b 46.9 48.5 49.7 49.9 50.9 51.6 52.7 53.7 54.8

Coffee consumption (kg per head) 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Tea consumption (kg per head) 0.7 0.7

0.7

0.7

0.7

0.7

0.7 0.7 0.7

0.7



The agricultural sector accounted for around 8% of GDP at factor cost in 2009

and employs about 15% of the labour force. Malaysia is one of the world's

largest producers and exporters of palm oil, producing more than 15m tonnes

every yeararound 50% of world production. Cocoa is another important

export product. Much of Malaysia's cocoa is exported in processed form: the

country is the sixth-largest cocoa-grinding centre in the world. Other significant

agricultural exports include pineapples and a number of spices. Malaysia also

has a substantial food-processing sector, specialising in fish, meat, fruit and

vegetables, and also in halal products, which must conform to strict Islamicdietary and slaughter rules.

Food demand. Expenditure on food, beverages and tobacco will account for a

relatively small proportion of total household income in 2010-14 as standards o

living continue to improve. There are likely to be large differences in the rates of

growth within the various spending categories.

The popularity of supermarkets, lower import tariffs and rising standards of

living will bolster consumption of fruit and vegetables in the forecast period

Consumption volumes of canned food and confectionery are likely to rise, in

line with increasing household income. However, growth in consumption o

basic foods, such as meat, milk and fruit, is likely to be slow. Malaysia's con-sumption of seafood is high compared with its meat consumption, and this is

expected to remain the case in 2010-14. However, there will be periodic con-

cerns about the health implications of eating large amounts of farmed fish or

shellfish.

Demand for meat and vegetable oil has increased in recent years. Malaysia

produces considerable amounts of beef, lamb and poultry, and has among the

world's highest consumption rates per head of chicken and eggs. Chicken is the

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cheapest source of meat protein in the country and is the most popular meat

among Malaysians, largely because there are no dietary prohibitions or

religious restrictions on its consumption.

Foods can be deemed to be halal only if they adhere to strict rules laid down in

Islamic law. Demand for meat and meat-based products is likely to remain firm

in the forecast period, in line with much faster growth in the Muslim

population than in the ethnic-Chinese population. Demand for processed hala

foods, such as snacks and confectionery, is also expected to rise in 2010-14.

Pricing

Item Price (US$)

% of monthly personal

disposable income

Affordability

rank

White bread, 1 kg (supermarket) 1.49 0.53 34 out of 58

White rice, 1 kg (supermarket) 1.25 0.44 34 out of 58

Potatoes, 2 kg (supermarket) 1.47 0.52 38 out of 57

Chicken, fresh, 1 kg (supermarket) 2.78 0.98 37 out of 57

Sugar, white, 1 kg (supermarket) 0.45 0.16 28 out of 58

Milk, pasteurised, 1 litre (supermarket) 1.33 0.47 43 out of 58

Coca-Cola, 1 litre (supermarket) 0.45 0.16 31 out of 57Wine, common table, 750 ml (supermarket) 11.76 4.16 43 out of 56

Beer, top quality, 330 ml (supermarket) 1.99 0.70 45 out of 56

Cigarettes, Marlboro, pack of 20

(supermarket) 2.55 0.90 43 out of 58

Two-course meal for two people (average) 135 47.58 41 out of 58

Note. Affordability rank: for each country the price of an item as a percentage of monthly persona

disposable income is calculated. Countries are ranked according to these percentages. The most

affordable country will have the lowest percentage and b e ranked first.

Growing concerns regarding the impact of fast food on the future health of the

nation are likely to dampen demand for such foods. As in other countries

suffering from high levels of obesity (a condition that is estimated to affect 40%

of the population in Malaysia), the authorities believe that one way of

addressing the problem is to tighten the regulations applying to fast-food chains

Accordingly, the government has imposed a ban on televised advertising of fast

food targeted at children. All of the leading companies in the sector, including

the local operations of two US fast-food giants, McDonald's and KFC, have

already agreed to nutritional labelling, which specifies the calorie content of al

products.

Food supply. Malaysia will continue to rely on imports to meet the bulk of its

food needs. Local production of rice, the main food crop, meets around 70% o

domestic demand. Despite government efforts to encourage greater cultivation

of the crop, Malaysia is unlikely to achieve self-sufficiency in rice by the end o

the forecast period. Malaysia imports over 90% of the milk products that it

consumes, and this is expected to remain the case, primarily because the

country's climate is not conducive to milk production. Imports of beef and

mutton are expected to increase in order to meet demand from the growing

Muslim population as well as the rising requirements of the food-processing

industry, which produces goods for both the domestic and export markets.

Malaysia is a major producer of tropical fruit and vegetables, but imports are

taking an increasing share of the consumer market, resulting in greater variety

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as well as the availability of out-of-season produce. This trend is expected to

continue in the forecast period. There is a growing shortfall in seafood supply

locally, which is being made good by imports and the expansion of deep-sea

fishing, coastal fishing and aquaculture.

The food-processing sector is large: processed food worth around M$6bn

(US$1.7bn) was exported in 2006. Domestic operators in the sector are facing

competition from imports, which are easily available from neighbouring

countries. The industry is dominated by small and medium-sized firms

specialising in fish, livestock, fruits, vegetables and cocoa. The fish-processing

industry engages in the canning of fish and the production ofsurimi (minced

processed fish) products. Some companies have moved into the production of

higher value added goods, including breaded and battered products and food

supplements. Malaysia is currently the largest cocoa-processing country in Asia

and is a major net exporter of cocoa products, including chocolates.

Nestl of Switzerland is the main foreign player in the Malaysian processed

food sector, while Friesland Coberco of Denmark and two local companies

Jasmine Food and Yeo Hiap Seng, are also important. Other players include a

Singapore-based palm oil processing company, Lam Soon, and a local firm, Ace

Canning. Cheap imports are available from neighbouring countries, including

China. The dominant food-processing company in Asia, San Miguel of the

Philippines, has packaging operations in Malaysia and is looking to build a

larger presence there.

Beverage demand. Although beverage demand will continue to rise, sales of

beer and spirits will be slow, owing to sluggish population growth among the

main consumers of alcoholic beverages in Malaysia, the ethnic-Chinese and

Indian communities. Demand for soft drinks will continue to be underpinned

by favourable demographics, as more than one-half of the population is

currently under 25 years old. Rising health awareness will result in a shift awayfrom soft drinks perceived to be less healthy (such as carbonates) towards

supposedly healthier ones (such as bottled water, and fruit and vegetable

drinks). Manufacturers have already adapted their packaging to try to increase

their share of the market by highlighting the vitamin content of their products.

Alcohol consumption is low, as the majority of the population adheres to

Islam, which prohibits the drinking of alcohol. Total sales of wine and spirits

(off-trade only) are estimated at around 50m litres in 2008, having increased

only slightly in the past five years, while more than 100m litres of beer are sold

each year. Alcohol consumption is most common among the Chinese section

of the population. Although it is a largely Islamic country, Malaysia has

traditionally had a liberal attitude towards alcohol consumption.Beer is consumed widely, and consumption is likely to rise modestly from 2010

as income levels increase. Brandy has traditionally been the most popular

alcoholic drink after beer, but it has declined in popularity relative to whisky

and wine in recent years. This shift is likely to continue in the forecast period

High import duties on wine and whisky constrain demand for these products

although consumption of red wine has increased sharply in recent years from a

low base, in part because of its perceived health benefits.

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Coffee and tea consumption is growing but is still minimal. Coffee demand has

been driven to a certain extent by aspirational factors and by the expansion of

foreign chains, such as Starbucks of the US, which now has more than 80

outlets across peninsular Malaysia.

Beverage supply. The soft-drinks market is highly fragmented, with numerous

brands and companies currently operating. Fraser & Neave of Singapore has

been the licensed bottler of Coca-Cola since 1936. However, the US-based Coca

Cola Company has recently decided to allow its decades-long contract with

Fraser & Neave to expire in 2011 and plans to build a new bottling plant, which

it hopes will be ready before the end of that year.

Drinks produced locally dominate the beer sector in both volume and value

terms, although the sector is essentially a duopoly of two foreign players, a

subsidiary of Carlsberg of Denmark, Carlsberg Malaysia, and Diageo of the UK

whose core brands in Malaysia are Guinness and Anchor. However, brands

from Association of South-East Asian Nations (ASEAN) countries, notably San

Miguel lager from the Philippines, are also important.

Malaysia imports all of its wine, which comes mainly from the US, France andAustralia. High import duties relative to product value protect the domestic

market and push up prices for imported alcoholic beverages; these duties will

continue to apply to alcohol imports from outside of the ASEAN Free-Trade

Area (AFTA). An import licence issued by the Customs and Excise Departmen

is required in order to import wine.

In the coffee market, Nestl is the leading player. An Anglo-Dutch conglomerate

Unilever, and a domestic firm, Boh, are the top companies in the tea market

Boh owns the Sungai Palas tea plantation, which is the largest in Malaysia. The

company's output is around 4m kg a year, accounting for 70% of local output

and 50% of local consumption.

Tobacco demand. Moderate growth in consumption of tobacco products is

expected in the forecast period. More than 20bn cigarettes were sold in 2009

Demand for cigarettes has grown rapidly in recent years, but increases in sales

taxes and growing health concerns are expected to slow the trend. Despite

concerns about the effects of smoking on health, the popularity of cigarettes

among young Malaysians, notably women, appears to be growing. As a resul

of changes in cultural restrictions and norms, developing nations such as

Malaysia are seeing an increase in smoking among females, which is offsetting

a decline in the proportion of males who smoke. In addition, tobacco con-

sumption levels in Malaysia are probably understated, given the wide pre

valence of contraband and counterfeit tobacco products.

In an effort to reduce smoking levels, the government is likely to maintain strict

controls on tobacco advertising and to broaden its ban on smoking in public

places. Excise taxes on cigarettes and tobacco products have increased in recent

years, and we expect this trend to continue in 2010-14. The introduction of a

minimum price of M$6 (US$1.70) for a packet of cigarettes has helped to narrow

the price differential between branded products and low-priced local cigarettes

and may prove effective in reducing tobacco consumption. However, it could

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also lead to an increase in demand for counterfeit cigarettes, which accounted

for around one-third of the total market in 2009.

Tobacco supply. Tobacco production is shrinking: the number of active tobacco

growers in Malaysia dropped to 4,000 in 2006, compared with around 12,000

in 2000. The US is the leading exporter of tobacco leaf to Malaysia, while Brazi

and Thailand are the main suppliers of low-priced tobacco leaf. The domestic

tobacco industry is heavily protected, but will face intense competition from

imports following the country's decision to cut tariffs to comply with a regional

agreement that created AFTA.

Contraband and counterfeit cigarettes are thought to account for around 25% o

the total cigarette market. Counterfeit cigarettes are expected to remain a feature

of the market in the forecast period, making it more difficult for leading

companies to maintain market share.

Leading players in the cigarette market include a UK-based firm, British

American Tobacco, and Japan Tobacco International. Local brands are also

gaining in popularity, and according to the Confederation of Malaysian

Tobacco Manufacturers their products account for 8% of total cigarette salesCigarette smuggling is on the rise. Indonesian clove cigarettes are the most

common type of illegally imported cigarette, owing to the large number o

Indonesian migrant workers in Malaysia.

Popular tobacco brands include Kent, Peter Stuyvesant, Dunhill and Benson &

Hedges, all of which are distributed by British American Tobacco. Marlboro

owned by a US firm, Altria, and Winston, owned by Japan Tobacco, are also

popular. Most tobacco consumers exhibit brand loyalty.

The electronic and electrical goods sector is considered to be the backbone of

Malaysian manufacturing, supplying goods to the domestic market as well as to

Singapore, China, US and the euro area. The personal computer (PC) manufacturing industry is well developed, and many multinational companies either

have their own local production facilities or have outsourced production to

Malaysian manufacturers. However, there is now considerable price pressure to

relocate many facilities to China. Rising rates of urbanisation, which has altered

consumers' tastes and lifestyles, have helped to drive demand for cosmetics and

toiletries in recent years, the bulk of which are imported.

Other consumer products

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Consumer products: market demand2005a 2006a 2007a 2008a 2009a 2010b 2011b 2012b 2013b 2014b

Clothing (US$ m) 1,861 2,181 2,209 2,640 2,553 2,947 3,205 3,590 3,987 4,468

Clothing (% real change) -2.9 9.9 -7.5 10.1 1.6 7.5 5.4 7.2 6.9 7.1

Footwear (US$ m) 214 213 238 276 261 295 314 345 374 410

Footwear (% real change) -9.9 -6.6 2.0 6.8 -0.4 5.2 3.2 4.9 4.6 4.7

Household furniture (US$ m) 2,040 2,487

2,968

3,573

3,514

4,098

4,491 5,061 5,645

6,356

Household furniture (% real change) 18.0 14.4 9.0 10.9 3.4 8.6 6.2 7.8 7.4 7.6

Household textile products (US$ m) 2,000 2,328 2,463 2,870 2,735 3,104 3,319 3,655 3,988 4,394

Household textile products (% real change) 0.6 9.2 -3.4 7.3 0.2 5.7 3.6 5.4 5.1 5.3

Soaps & cleaners (US$ m) 980 1,091 1,290 1,585 1,517 1,764 1,939 2,203 2,489 2,832

Soaps & cleaners(% real change) 6.9 4.4 8.0 13.2 0.6 8.3 6.5 8.7 8.8 8.7

Electrical appliances & houseware (US$ m) 909 1,046 1,179 1,424 1,405 1,643 1,807 2,044 2,291 2,594

Electrical appliances & houseware (% real

change) 14.8 8.0 2.9 11.3 3.7 8.9 6.6 8.2 7.9 8.2

Household audio & video equipment (US$ m) 1,567 1,708 2,097 2,565 2,529 2,972 3,287 3,746 4,233 4,829

Household audio & video equipment(% real

change) 14.6 2.3 12.1 12.7 3.7 9.4 7.2 9.0 8.8 9.0

Television sets (stock per 1,000 people) 276 295 315 334 353 373 394 416 438 460

PCs (units) 5,600c 6,397c 7,224c 8,077c 8,982 9,899 10,750 11,588 12,366 13,169

a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual.


Demand. Spending on non-food retail items is likely to have been hit by weak

consumer confidence in 2009, when the economy suffered a mild recession, the

first since the 1997-98 Asian financial crisis. However, economic prospects have

improved significantly in recent months amid a strong rebound in the domestic

economy and a gradual recovery in global demand. In the forecast period, sales

of consumer electronics are expected to be driven by demand for replacements

or new purchases as prices of these goods decline and incomes rise. Sales of

PCs are expected to grow steadily, partly as a result of government policiesdesigned to increase affordability, but sales will largely be limited to the major

urban areas. Sales of domestic appliances will be underpinned by an increase

in home ownership, particularly among low-income groups and a governmen

campaign to attract foreign investors to buy second homes in the country. The

stock of more affordable housing is set to rise after the government approved a

number of construction projects as part of a wider package of stimulus

measures in 2009.

Sales of cosmetics and toiletries are forecast to grow at a fairly brisk pace. In

recent years sales have been buoyed by direct sales, a feature that is expected to

continue in the forecast period. Amway Malaysia, a subsidiary of a US-based

firm, Amway will continue to dominate this particular market. Toiletries andsome beauty products, such as sun protection, skincare and colour cosmetics

are generally no longer perceived as being luxury goods, sales of which have

proved resilient in the past year or so.

Malaysia is one of the leading exporters of electronic and electrical goods in the

Association of South-East Asian Nations (ASEAN). Demand for exports of such

products picked up significantly in the first quarter of this year as Malaysia's

leading export markets began to recover from recession.

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Pricing

Item Price (US$)

% of monthly personal

disposable income

Affordability

rank

Soap, 100 g (supermarket) 0.62 0.22 38 out of 58

Light bulbs, two, 60 watts (supermarket) 1.36 0.48 41 out of 58

Electric toaster, for two s lices


Shampoo & conditioner in one, 400 ml


Lipstick, deluxe type (chain store) 17.00 6.01 31 out of 56

Business suit, two piece, medium weight

(chain store) 241 85.15 30 out of 57

Dress, ready to wear, daytime (chain store) 127 44.98 34 out of 57

Child's shoes, sportswear (chain store) 15.30 5.41 24 out of 56

Compact disc album (av) 11.44 4.05 32 out of 56

Television, flatscreen 66 cm (av) 810 286.3 37 out of 58

Note. Affordability rank: for each country the price of an item as a percentage of monthly persona

disposable income is calculated. Countries are ranked according to these percentages. The most

affordable country will have the lowest percentage and b e ranked first.

Supply. Manufacturing of electrical and electronic goods is well developed, and

is also export-oriented. Following a period of destocking in 2009, firms are

building inventories in response to the modest recovery that is already under

way in the global economy. In 2010-14 output is expected to grow at a steady

pace, underpinned by a sustained recovery in the global economy.

Export-orientated manufacturing is mainly located in Penang and the Klang

valley in the state of Selangor. Penangs customs-free industrial zones have been

the focus of investment by international electronics firms. The Klang valley has

the largest and longest-established concentration of general manufacturing

operations. Three Japanese electronics manufacturers, Panasonic, Sharp and

Sony, are the leading firms in the electronics sector. NEC of Japan and Dell othe US are among the leading players in the PC market.

Some multinational firms that were already present in Malaysia have since

invested in sophisticated manufacturing facilities. Sony, Sharp and Panasonic

have shifted core activities to Malaysia. US-based electronics manufacturers

such as IBM, Dell, Intel and Advanced Micro Devices have continued to inves

in the country, while hedging their bets by also launching operations in China.

The cosmetics and toiletries market is import-oriented, and local production is

largely limited to mixing and formulation processes using imported ingredients

Most imports come from the US, France, Japan and China. Este Lauder of the

US, Shiseido of Japan and Lancme and Chanel (both of France) are the leading

brands. Around 50 small and medium-sized companies produce cosmeticslocally, according to the Federation of Malaysian Manufacturers. Many of these

firms are contract manufacturers for haircare products, perfumes and cosmetics.

The country hopes to expand its halal industry to include non-food products

such as pharmaceuticals, cosmetics and leather goods, as well as hotel and

catering services. It also hopes to become the leading halal supplier to China

and North Africa, in addition to the Middle East and South-east Asia. The

government views the sector as a vital part of its plans to make Malaysia the

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19 Malays


largest halal hub in the region and is expected to unveil targets for the sector in

the 10th Malaysia Plan (a medium-term spending plan covering 2006-10).

Malaysia is an open economy. In 2009 exports of goods and services were

equivalent to 96% of nominal GDP, while imports were equal to 75%. In 2009

Malaysia recorded a merchandise trade surplus (on a customs basis) of

US$40.4bn, according to Bank Negara Malaysia (the central bank).

The value of merchandise exports (also on a customs basis) has risen at a fairly

brisk pace, with annual average growth of 6.6% between 2004 and 2008

However, exports plunged by 10.2% year on year in 2009 owing to a contraction

global trade. In the forecast period export growth will be underpinned by

strengthening global demand for Malaysias particular product mix of electrica

and electronic goods and basic commodities, such as oil and rubber.

Exports of manufactured goods made up 78% of total exports in 2009, while

commodities accounted for around 19%. However, many of the production lines

used in the manufacture of electronics, Malaysias largest export category, were

set up on the basis of low local content, with the result that the bill for

imported goods tends to rise in line with revenue from exports. The govern

ment is encouraging manufacturers and exporters to move up the value

chain and improve product quality in order to maintain internationa

competitiveness, especially in relation to China. With the exception of palm oil

Malaysias economy has moved away from plantation and forestry products

which make up the bulk of agricultural exports. Exports of minerals consis

almost entirely of crude oil and liquefied natural gas (LNG). Although the US

and the euro area remain the largest export destinations, the share of Malaysian

exports going to these markets has diminished in recent years.

Trade

2005a

2006a

2007a

2008a

2009a

2010b

2011b

2012b

2013b

2014b

Total exports of goods fob (US$ bn) 141.0c 160.7c 176.1c 199.5c 157.4 180.4 197.2 213.5 231.0 248.1

Export volume of goods (% change) 8.3 6.6 4.5 1.3 -10.1 8.3 5.7 7.2 7.2 7.0

Export prices (% change; US$) 4.0 5.7 7.9 10.2 -10.2 9.5 3.4 4.8 3.1 3.7

Total imports of goods cif (US$ bn) 114.6c 131.2c 146.9c 156.9c 123.8 145.2 157.1 170.6 185.9 200.5

Import volume of goods (% change) 8.9 8.1 6.0 1.9 -12.5 11.3 5.8 8.6 7.7 6.8

Import prices (% change; US$) 1.1 4.2 7.7 4.2 -7.6 9.0 4.1 4.6 4.0 3.8

Terms of trade (1990=100) 113.6 115.3 115.5 122.1 118.7 119.3 118.5 118.7 117.7 117.5

Exchange rate M$:US$ (end-period) 3.8c 3.5c 3.3c 3.5c 3.4c 3.2 3.2 3.2 3.2 3.1

a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual.


Malaysia expects to conclude bilateral trade agreements with the US, AustraliaChile and India in the forecast period. Malaysia is a member of the Association

of South-East Asian Nations (ASEAN). A Common Effective Preferential Tarif

scheme for ASEAN members has been established, with tariffs for most

products now standing at around 5% in the more developed ASEAN economie

of Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand (the so

called ASEAN-6). A single market, the ASEAN Economic Community (AEC), is

already in place for 11 priority sectors in ASEAN-6. Further steps towards a more

comprehensive AEC are likely to be taken in the forecast period.

Trade

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Mal Report 2010