Macroeconomic Variables in Malaysia
Discuss about the General Government Final Consumption Expenditure.
This is the era of globalization where every company wants to expand its business overseas. This expansion of business requires a lot of business environment analysis of the country in which company is going to invest. Fronterra O-operative Group Limited is New Zealand bases multinational dairy co-operative. Fronterra is a farmer owned company established in 2001 when deregulation of government allowed the big merger of two giant dairy co-operatives of New Zealand, New Zealand Dairy Group and Kiwi Co-operative Dairies. Today company has successfully expanded its business over 100 countries around the world. Now company is looking to expand its business in Malaysia. Before investing in the expansion company wants to know the general business environment of the Malaysia in order to understand the market scenario and to measure different possible obstacles for the business. Company also wants to understand the policies and market structure along with its environment suitability for the expansion.
This report contains a thorough description of the major macroeconomic variables influencing the business expansion. Report also contains the impact of changes in macroeconomic variables and other monetary and fiscal policies of the target country Malaysia to measure the success of company. Different variables of macroeconomics and their influence on the business are discussed in this report. This whole discussion will help the company to make a right decision about the worthiness of the investment company is planning for.
Company wants to analysis different macro and micro economic variables of the target country in which it is going to invest. Macroeconomic variables include different factors influencing performance, behaviour, structure, and decision making for the investment, of an economy as a whole. Macroeconomic study of the economy of targeted country includes the influences of Gross Domestic Production (GDP), Unemployment, Average Wage Rate, National Income, Price indices and interrelation of different sectors of the economy. Macroeconomic study of an economy is consists of two different areas of the study that are, attempt to understand different causes and consequences for the short term investment and another one is attempt to understand determinants of the long term investment. Fronterra is planning for a long term investment in Malaysia therefore it needs to analyse and understand the impact of these macroeconomic variables on the success of investment for long term.
General business environment defines the impact of several factors on a new business in a different economy of country. Fronterra is looking to expand its business in Malaysia therefore before investing company needs to understand the impact of these factors defining the general business environment of Malaysia (MIDA, 2018). To analyse the complete scenario of general business environment of Malaysia different factors are considered to evaluate the doing of business in Malaysia. Analysis of these factors is described as below.
General Business Environment of Malaysia
In terms of starting a business in Malaysia, country stands at 111th rank in the world having a total score of 83.78 in the Year 2018 whereas in 2017 this score was 83.67, which shows a growth of 0.11. This score measures number of procedures, paid in minimum capital requirement, time and cost for the business. This hike in the score last is a positive aspect for the expansion of company in Malaysia (The World Bank, 2017).
In the past years due to the reform in doing business structure, Malaysia is performing very well with the aspect of dealing with construction permits, and also holds a global ranking of 11 on this particular indicator. As per the World Bank Report, it takes only 78 days to complete the requirements of documentation for obtaining construction permits. This time was of 285 days in the year 2006. Present time required for the procedure is nearly half of the global average of 158 days.
To maintain its strong performance on the world ranking for ease of doing business in other doing business areas. When it comes to getting a new commercial connection for business purpose in Malaysia, it is ranked 8th globally. This performance in achieved by transparency of tariff and reliability of supply, affordable coast of getting new connection, and an efficient streamline process for obtaining an electricity connection. In Malaysia it takes only 31 days to obtain a new electricity connection which is much less than the average of 78 days across OECD high economic countries (The World Bank, 2017).
In terms of registering a property in Malaysia has improved to make it less than half of the 37 days 15 years ago to 18 days as of now. This dramatic change in the scene is due to several reforms of the Malaysian economy for the better performance on global scale for the ease of doing business. This motivates the company to expand its business in Malaysia and also suggests that the investment company is looking to make in Malaysia will be easy.
As every company need to get credits to start new business in a new economy, Fronterra will also need the access the credits from the economy or country. In order to improve the access to credits, Malaysian economy adopted a new law which establishes an innovative and modern collateral registry. Further in improving its favourability for doing business country has made importing and exporting easier than that of the previous by improving the complete infrastructure in the past years.
Unemployment Rate and Human Capital of Malaysia
Reform of the Malaysian economy in succeed getting 4th rank globally for protecting minority investors which is good enough to expand the business in terms of this particular aspect. Company will feel save for its future in the country. Since company is completely in the ownership of farmers which will not make any issue for the business expansion in the country.
In this sector of taxation country can improve its existing structure of paying taxes. In this area company stands at 73rd rank globally. Although the number of require payments in order to comply with the present tax requirements has been reduced significantly from 35 to 8 but the average time required to prepare, file, and pay the taxes is still 188 hours that needs to be cut down at significant extend (The World Bank, 2017).
In this area the reform of the economy has made it to get 61st rank globally. This rank can be improved to provide a better environment for attracting the foreign investments.
Unemployment rate of Malaysia is quite stable and relatively low around 3% in the past decade. From 2007 to present the lowest rate of unemployment was 2.85% in 2014. This shows that the country is experiencing near to full employment (Statista, 2017).
The above graph showing unemployment rate of Malaysia in the last 10 years from 2007 to 2017 reflects the country is experiencing a stable and low unemployment rate which strengthen the economy of company. This will impact the business expansion of Fronterra positively as the low unemployment rate will strengthen the consumer buying. This will strengthen the company business as the low unemployment rate indicates a strong GDP of the country which makes people eat out frequently. Fronterra being dairy co-operative company would be able to make a good business (Trading Economics, 2018).
Malaysia is ranked 2nd in southeast Asia, 33rd globally with a score of 68.29 out of 100 in its global human capital report of 2017 showing a progress from 42nd rank in 2016 (NST Business, 2017). Although Malaysia perform very well and ahead of other Asian countries other than Singapore having a good score of Development, across capacity and know-how but in terms of sub index performance of development country held back as the country has a considerable gender gap in employment. Also shows that country has an educated and skilled population which will help the company in recruiting a skilled and efficient labour for greater business productivity (Pillay, 2018).
Inflation Rate and Government Expenditure Pattern of Malaysia
Generally countries sought for a low inflation rate as it impacts the GDP and economy of the county. Malaysia succeeds in getting a lower inflation rate of 3017% in 2018 from 3.8% in 2017. Before this, county had a lowest inflation rate of 1.66% in the year of 2012, best till now. After this inflation rate of the country has increased to 308% in 2017 but reformation of the economic structure made it to reduce the inflation rate. Reports suggest that the inflation rate of the country will remain below 3% till 2022. This lower inflation rate will make the investment of company worthy and will help in making a good business (Statista, 2018).
World Bank Data shows the following pattern for the expenditures of Malaysian government made to increase the development growth rate of the country (The World Bank, 2018).
|
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
|
12.58117 |
13.27066 |
13.84213 |
13.7154 |
13.32875 |
13.13941 |
12.57633 |
This annual growth rate graph shows that the GDP growth is relatively constant over the last 10 years and at the same time decrease in percentage of GDP for the expenditures of government shows that government will not be so helpful in terms of subsidies and other financial helps (Hansul, 2015).
Taxation policy of Malaysia is same for both the resident and non-resident business, and subsidiaries of international companies in terms of the method as well as the rate. Malaysian economy does not collect tax from capital gains of the sale of investment and capital assets excepting those of relating to the land and buildings (Deloitte, 2016). This is a positive point for the company as the company is dealing with the business of investment and products other than land and buildings. These policies allow a deduction for revenue expenditures wholly or exclusively including interest, certain taxes, and royalty payments in the production of income.
Central bank of Malaysia, Negara’s monetary policy reflects a bias nature towards the stability instead of pure accommodation of the present economic situation. Main focus of the bank is on the fundamentals of the economy, i.e. maintaining and preserving the economic growth instead of triggering. Interest rates and foreign exchange rates are the two examples of monetary policies. Impact of these two major elements of the monetary policies is described as follow.
Interest rates of Malaysia were always low in the past but in this year the central bank of the country Negara has raised its interest rates in the last four years. Bank has raised the interest rate, used by banks to calculate the interest rate to 3.5% from 3.0% that cites a strong global and domestic economy. This increment in the interest rate is defined as the necessity to prevent any domestic risk by the lower interest rates for a long time. Central bank also states that last year increase in the inflation rate will be reduced to maintain a lower inflation rate of the county and this increase in interest rates will help to achieve this goal (The Seattle Times, 2018).
Taxation Policy and Monetary Policy of Malaysia
Foreign exchange rates of Malaysia are highest of the history but on case of Australian dollar and New Zealand dollar, Malaysia currency is same for both the countries which will make no impact on the country business in Malaysia (Negara Bank Malaysia, 2016).
The Global Economic Crisis started in summer of 2007 but Malaysian economy remained unaffected till first half of 2008. In the second half of 2008 and first quarter of 2009, country affected most by the global economic crisis. During this period GDP grew only 0.1% in the fourth quarter of 2008 compared to 4.7% in the third quarter of 2008 (Abidin & Rasiah, 2009). For the first three quarters of 2008 average GDP growth was 5.6% but in the first quarter of 2009 this GDP fell by 6.2%.
This data shows a drastic decline in the GDP growth of Malaysia during the global economic crisis. During this crisis two major economic indicators showing the impact were exports and industrial production index. In the starting of 2008, exports of the country increased by 10.4% and in April this figure doubled and economy of the county increased by 20.9% year on year. Then after this from October 2008 a negative figure was started reporting which ended up at -27.8% worst ever in January 2009. Imports also followed similar pattern. Imports started showing a growth rate from February 2008 and continued to increase till October, but then after similar to exports started declining and ended up at -32.0% in January 2009.
After all this drastic decline in the economy of Malaysia country succeed in recovery and in the past recent years growing economy of Malaysia continuously showing an increment in the annual GDP growth rate. Below graph shows the increasing growth rate of annual GDP (Trading Economics, 2018).
Conclusion
After analysing the above discussed macroeconomic variables of the country it can be concluded that company’s investment planning for the targeted country Malaysia will be favourable for the business purpose. Macroeconomic variable analysis shows that country has the potential to respond for any dramatic change in the economy and can recover or mitigate such situations. As the economy has shown a good recovery from the global economic crisis indicates the potential of economy. Other macroeconomic variables show that the general business environment of the country is favourable to make expansion move in the country. Fronterra is an end product manufacturing company which will make a great saving in tax as per the taxation policies of the country. Lower inflation rate of the economy reflects that the investment made by the company will have the same future value of the money which states that company can invest in the country with no risk of future declined value of money. This makes a sense of better investment keeping the time value of money almost same. Human capital of the country is strong which reflects that company will get a good business in the country as the higher human capital of the economy will allow people to spend more money on basic needs and company is making dairy products which will be liked by the population and make a good business. On the basis of all this analysis it is strongly recommended to invest a good amount in the country.
References
Abidin, D. M. Z. & Rasiah, D., 2009. The Global Financial Crisis and the Malaysia Economy: Impact and Responses, s.l.: Institute of Strategic and International Studies.
Deloitte, 2016. Taxation and Investment in Malaysia 2016, s.l.: Deolitte.
Hansul, A. G., 2015. The Effect of Government Expenditureon Economic Growth: The CAse of Malaysia, s.l.: Munich Personal RePEc Archive.
MIDA, 2018. Vibrant Business Environment. [Online]
Available at: https://www.mida.gov.my/home/vibrant-business-environment/posts/
Negara Bank Malaysia, 2016. Riggit Foreign Exchange Rates. [Online]
Available at: https://www.bnm.gov.my/index.php?tpl=2016_exchangerates&lang=
NST Business, 2017. Malaysia is 2nd Best in Southeast Asia in Developing Human Capital, 33rd in the World, s.l.: New Straits Times.
Pillay, S., 2018. Human Capital to Play Important Role as Malaysia Moves to be among Top 20 Nations in the World [NSTTV], s.l.: The Straits Times.
Statista, 2017. Malaysia: Unemployment Rate from 2007 to 2017, s.l.: Statissta.
Statista, 2018. Malaysia; Inflation Rate from 2012 to 2022, s.l.: Statista.
The Seattle Times, 2018. Malaysia Rises Interest Rates for First Time in 4 Years, s.l.: The Seattle Times.
The World Bank, 2017. Doing Business: Measuring Business Regulations, s.l.: The World Bank Group.
The World Bank, 2017. Malaysia Takes Further Steps to Improve Business Climate, Says Latest Doing Business Report. [Online]
Available at: https://www.worldbank.org/en/news/press-release/2017/10/31/malaysia-takes-further-steps-to-improve-business-climate
The World Bank, 2018. General Government Final Consumption Expenditure (% of GDP), s.l.: The World Bank.
Trading Economics, 2018. Malaysia GDP Annual Growth Rate, s.l.: Trading Economics.
Trading Economics, 2018. Malaysia Unemployment Rate, s.l.: Trading Economics.
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