KEY POINTs

1. Copyright - Provides protection and enforcement of copyrights and related rights, building upon the World Intellectual Property Organization Internet Treaties.
2. Geographical Indications - Includes rules to promote transparent and fair administrative systems for the protection of geographical indications.
3. Industrial Designs - Protects industrial designs against unauthorized use, consistent with the Hague Agreement.
4. Patents - Ensures patent protection for inventions in all fields of technology; and promotes transparent and efficient patent administration systems.
5. Pharmaceuticals – Progression of existing regimes, systems and laws on Patent linkage; Data protection; and availability of early working exceptions.
6. Trademarks - Provides protection against infringement; and fosters transparent and efficient rules and procedures across the TPP region.

Summary for Intellectual Property (IP) Obligations

• In general, the TPP’s chapter on intellectual property (IP) sets the new norm not only for member countries, but for future bilateral and regional trade agreements.
• Malaysia seems to be in compliance with most requirements, but there are issues which have generated much concern, e.g. patent term extensions and data exclusivity for biologics, that need to be addressed in order to accede to the TPPA formally.
• Malaysia has been granted transition periods to apply most of these TPP’s obligations.
  • Ratify or accede to international conventions and protocols (4 years)
  • Trademarks - Types of Signs Registrable as trademarks (3 years)
  • Patent Term Adjustment (PTA) (4.5 years)
  • Protection for Biologics (5 years)
  • Patent Linkage (4.5 years)
  • Copyright Term extension (2 years)
  • Special Requirements Related to Border Measures – provide for applications to suspend the release of, or to detain, suspected counterfeit or confusingly similar trademark or pirated copyright goods that are imported (4 years)

CONCLUSION

The cost-benefit analysis conducted by two independent organisations concluded that under TPPA, Malaysia’s national interest is taken care of and Malaysia is projected to achieve a gross domestic product (GDP) cumulative gain of USD107 billion to USD211 billion (RM890.07 billion) over a 10-year period from 2018 to 2027. This translates to an additional increase of GDP growth by 0.60 ~ 1.15 percentage points in 2027. Investment is projected to escalate by USD136-239 billion, while the accumulated savings from elimination of tariffs alone is estimated at USD12 billion over the same period. On the other hand, Malaysia’s nonparticipation in the TPPA would not only foregone the potential GDP gains but will also cost the country a cumulative GDP loss of USD9 billion to USD16 billion over the same 10-year period. TPPA is a boost to Malaysian businesses for duty free export to TPP countries after our graduation from GSP in 2014.

Way Forward for Malaysia

Based on the above, the TPPA is expected to bring more positive than negative impacts to Malaysian businesses. To realize the maximum benefits and avert the potential costs, capacity building measures, shortterm adjustments and structural reforms have to be undertaken by the industries, especially SMEs and the Government so that all are not left out in this new normal era. Some of these measures may include upskilling of workers, business process reengineering, upgrading of infrastructures or facilities, industry consolidation, productivity improvements, review of frameworks or guidelines and certifications, innovation, etc.

CONCLUSION

While there are no overwhelming positives or negatives in the recalibrated budget, the above measures will ensure that the earlier forecasted GDP growth of 4-4.5% can be attained, and the fiscal deficit and national debt level is within the target of 3.1% and 55% of GDP, respectively. On monetary policy, the recent announcement by Bank Negara Malaysia (BNM) on a reduction in statutory reserve requirement (SRR) from 4% to 3.5% also ensure that there is sufficient liquidity in the financial system. While Rakyat-centric actions to address the cost of living issue and to boost domestic consumption were commended, economic measures to shield against challenging macroeconomic conditions and driving private sector performance are equally important under such circumstances. The government must also be more committed to being prudent in its operating expenditures without compromising the quality in its service delivery.

Although the Government has reiterated that the Malaysian economy is not in recession, the recalibrated budget did not touch on the long term strategy should there be a prolonged decline in oil prices and tougher external headwinds. Earlier Goldman Sachs and Morgan Stanley have cut their oil price outlook to as low as USD10 a barrel, although noted that USD30-USD35 range would be prevailing. As a conclusion, senior officials from the Ministry of Finance has not ruled out the possibility of another round of budget revision should oil prices fall below USD25 per barrel.

Agenda

• 2018 Budget orientation
• Budget 2018: Revenue and spending priorities
• Budget 2018 highlights
• Analysis of key tax, incentives and initiatives
• Commentary and conclusion

2018 Budget: Overall commentary and conclusion

Overall Budget stance

• It is a pro-growth Budget for sustaining economic growth and building for future. The Budget laid the groundworks for a much needed boost to Malaysia’s productivity and innovation by investing in the pillars and drivers of quality growth such as digitalization, e-commerce, skills, entrepreneurship and infrastructure.
• Clearly, the Budget has to find a fine balance between short-term priorities and longer-term needs. Targeted interventions in the form of cash handouts, financial assistance, and tax cuts were needed to ease cost of living pressures, address housing affordability, accessibility of public transport.
• Medium-to longer term, it was welcome to see proposed investments to build accessibility and connectivity (rails, ports, airports and broadband networks), incentives to draw domestic investment in new areas of growth (medical tourism, digital economy, logistic, Halal industry, ecommerce), as well as incentivize SMEs to adopt Industrial Revolution 4.0.
• The Government has clearly signaled that it aims to re-position Malaysia for the future by building an innovative and connected economy. Our companies must develop and build deep digital capabilities, embrace innovation and scale up to compete in global marketplace.
• Investment in human capital formation and skills enhancement with the proposals of providing cross-skilling, upskilling and reskilling programs is a welcome emphasis, to prepare and equip our young people for the future world of work with the relevant skills and knowledge put our workforce and academic pathways on more equal terms.

Economic growth and budgetary operations

• The Ministry of Finance’s economic growth estimates of 5.2-5.7% this year and 5.0-5.5% for 2018 are in line with our estimates (2017E: 5.5%, 2018F:5.1%). What could cause these estimates off tangent are: i) unsustainable global growth inflicted by the impact of the Fed’s interest rate hikes and shrinking of balance sheet; and ii) consumer spending succumbs to rising cost of living while private investment lost growth traction due to increased cost of doing business and ahead of the GE14.
• Going by the pace of fiscal consolidation, it is unlikely to meet a near-balanced fiscal target (- 0.6% of GDP) by 2020. Hence, the fiscal stability program must be continued when the economy is a position of strength.
• While maintaining pro-growth fiscal consolidation, making impact where it matters in terms of sectoral allocation has never been more relevant. As such, the Government should resolve to curtail leakages and wastage spending as well as curb excessive growth in non-core and recurrent areas. Prioritizing of expenditure is a must. A system of financial control on budgetary allocations to ensure expenditure is not incurred in excess of the budget allocation.
• Federal Government’s contingent liabilities (RM219.4bn or 16.3% of GDP at end-June 2017 (RM187.3bn or 15.2% of GDP at end-2016) and Malaysia’s external debt (RM877.5bn or 65.2% of GDP at end-June 2017; end-2016: RM916.1bn; 74.5%) must be closely monitored.
• For operating expenditure, the elephant in the public spending war room was what to do about the two big areas of spending – emoluments and retirement charges. How long will it be before they become unsustainable?
• While the Budget gives recognition to 1.6 million public servants or 11.1% of total employment, it is rightfully to deliver an efficient public delivery service while keeping a lean size, supported by the E-Government services. Expedite the full-fledge E-government services mean better productivity and processes efficiency as well as an optimal size of civil service. Public sector’s agility to cope with future changes alongside a focus on delivering better.
• Between 2011-17, emoluments grew by 7.8% pa, pushing its share of total revenue to 35.8% of total operating expenditure in 2017 from 27.5% in 2011. In 2018, the budgeted emolument is RM79.1 billion, excluding the special payment of RM1,500 to public servants and RM750 to pensioners, which may cost about RM3 billion.
• Other expenditure restraint measures are the phased implementation from a defined-benefit to a defined-contribution of public sector pension (retirement charges increased by 10.8% pa to reach 10.8% of total operating expenses in 2017 from 7.4% in 2011. The retirement charges are budgeted to rise by 3.8% to RM24.6 billion in 2018); continued stringent enforcement of competitive tendering of public supplies and services; reprioritizing of expenditure in non-core areas and a review of grants to statutory bodies.

Budget initiatives and measures

• Overall, the proposed measures and initiatives are expected to support the growing economy, elevate the cost competitiveness via better accessibility and connectivity as well as draw investment into high impact industries, namely petroleum, logistics, aerospace, rail, robotics and automation, and export-oriented industries.
• The services sector, which contributed 54.5% of GDP; 17.6% of total exports of goods and services, and 8.8 million employment is given a wide range of incentives and non tax initiatives to accelerate the expansion of sub-sectors, namely tourism, medical and healthcare tourism.
• A substantial allocation of the Budget is given to the SMEs to scale up their technological advancement, embrace Industry Revolution 4.0, automate production processes as well as to strengthen exports capability, including expanding export markets.
• Affordable houses remain in focus. With the households’ income growth not catching up in pace with house prices, making median home prices unaffordable to the low-and medium-income home buyers, both the public and private sectors must increase more supply of affordable homes. The Government should consider measures to lower the cost of construction, including a review of charges, namely high capital contribution and compliance costs that developers have to bear when developing a project; and a wider adoption of IBS.
• Higher budget allocation for the healthcare sector is deemed necessary to provide better and affordable healthcare services. Besides encouraging more involvement of private healthcare services, a feasible study on a National Healthcare Scheme could be considered.

What's missing from the Budget 2018

• The 2018 Budget is short of announcing a roadmap to lower the corporate income tax rate so as to align Malaysia’s tax structure with its regional peers. The worldwide trend is to move towards a simpler and more competitive tax rate. Even the advanced countries are jumping on the bandwagon to lower their corporate tax rates. This shows a growing consensus against the disruptive and detrimental impact of excessive direct taxation.
• In Budget 2017, the company income tax rate was reduced by 1% to 4%, based on percentage increases in chargeable income (between 5% and 29%, or more) compared with the immediate previous year of assessment. This new tax rate structure applies for the years of assessment 2017 and 2018. However, the incremental impact is less effective.

Executive summary

In recent years, China being the world’s third largest recipient of foreign direct investment (FDI), has increased its outward direct investment (ODI) in tandem with its opening up policy and “Going out” strategy to spur China’s economic and investment integration with the world. The wave of Chinese outward investment flourishing further to the next level, spurred by President Xi Jinping’s Belt and Road Initiative (BRI) launched in September – October 2013

China’s outward investment, including those destined for countries along the Belt and Road was concentrated in Asia, Africa and Latin America. In 2013-16, China’s ODI grew by an average annual growth of 14.2%, expanding from US$107.3 billion in 2013 to US$183.1 billion in 2016.

Malaysia, too, is a recipient of China’s outward investment, which saw its investment flows coming onto our shore, rising steadily from RM920 million or 0.9% of Malaysia’s FDI flows in 2010 to RM6.2 billion or 9.0% in 1H2017. Correspondingly, China’s share of Malaysia’s FDI stocks also risen from 0.3% in 2010 to 2.6% at end-June 2017, translating into accumulated FDI outstanding of RM14.5 billion as at end-June 2017 as against RM1.09 billion at end-2010. China’s investment covered a broad spectrum of sectors, including public transportation, port, manufacturing (steel, solar power, textile, electronics and electrical products), industrial park, real estate, construction and energy.

While China’s increasing investment flows into Malaysia is a welcome development, there is little known about how the Malaysian businesses view the present of Chinese investments as well as their continued interests to commit more new investments in Malaysia. To some extent, China’s investment in Malaysia may lead to threat perceptions among the host country’s stakeholders and fuel debates on whether and how to “synergise” and strike a “win-win” cooperation and partnership with Chinese investors

This survey attempts to fill the gap by gauging Malaysian companies’ opinions and inspirations as well as challenges faced when dealing with Chinese investors, focusing on the following dimensions: i) the aspirations (future prospects) of Malaysian companies when dealing with China investors; ii) the perceived benefits for domestic players; iii) the level of competition and threats faced; and iv) the level of facilitation and support services rendered by the Government and chambers to engage with Chinese investors.

A combination of quantitative (survey) and qualitative methods (face-to-face interviews) on random sampling were used to gauge respondents’ opinions and feelings. A total of 1,000 questionnaires were distributed to constituent members of The National Chamber of Commerce and Industry Malaysia (NCCIM) and The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM). We garnered a response rate of 15.3% or 153 copies.

Agenda

• Global economy is gaining momentum
• A broadening base for domestic growth
• But, there are risks to our macro story
• Conclusion

Key messages

Global economy on upswing, but risk remain

• Global outlook remains favourable (Trumponomics)
• Confidence rising, sustained recovery in manufacturing and trade
• Policy reforms to raise the growth potential; declining productivity growth

Policy risks and financial vulnerabilities could temper the momentum

• Hopes fading if outcomes fall short of market expectations
• Potential disruptions: inward-looking policies, Brexit’s negotiation & geo-politics
• Volatility induced by the withdrawal of monetary easing
• Unsustainable asset prices, credit growth and debt implosion

Malaysia faces challenges in a position of strength

• The Malaysian economy is gaining ground but growth remains vulnerable
• Step-up structural policy actions to boost growth potential and productivity
• Address as well as contain vulnerabilities to build economic resilience

Conclusion

1. The global economy is in a synchronized expansion of economic activities. It is a mutual reinforced economic upswing in both advanced and emerging economies.
2. Policy uncertainty will remain in 2018, and the risks include unexpected changes in monetary policies and the shrinking of the Fed’s balance sheet, the financial-sector uncertainty in major economies, as well as geopolitical tensions. Pressures for protectionism are building up.
3. The Malaysian economy remains on track for expansion, firing on twin engines (2017E: 5.5%; 2018F:5.1%).
4. Strengthening policy space, addressing vulnerabilities, and enhancing international competitiveness by promoting investment, services, high-end manufacturing and FDI would also boost economic resilience and improve growth prospects.
5. Reaping digital technologies dividend requires the right policy mix and investments such as software and hardware investment, soft skills and the right ecosystem to harness information, communications and technology (ICT) and e-commerce to deliver increased productivity and growth.

Agenda

• Malaysia's economic management in perspective
• Malaysia's economy: Now and prospects
• But, there are risks to the macro story
• Conclusion

Key messages

Malaysia remains resilient to external challenges

• Domestic demand remains the dominant driver of growth
• Unrelentingly consumer spending
• Private investment growth supported by public and private initiated projects

Macroeconomic fundamentals remain supportive of growth

• Diversified sources of growth
• Diversified export and product markets
• Stable labor market conditions and young demographic dividends
• Conducive investment destination for FDI
• Strong and stable financial system

Malaysia faces challenges in a position of strength

• The Malaysian economy is gaining ground but growth remains vulnerable
• Step-up structural policy actions to boost growth potential and productivity
• Address as well as contain vulnerabilities to build economic resilience

Conclusion

1. The global economy is in a synchronized expansion of economic activities. It is a mutual reinforced economic upswing in both advanced and emerging economies.
2. Policy uncertainty will remain in 2018, and the risks include unexpected changes in monetary policies and the shrinking of the Fed’s balance sheet, the financial-sector uncertainty in major economies, as well as geopolitical tensions. Pressures for protectionism are building up.
3. The Malaysian economy remains on track for expansion, firing on twin engines (2017E: 5.5%; 2018F:5.1%).
4. Strengthening policy space, addressing vulnerabilities, and enhancing international competitiveness by promoting investment, services, high-end manufacturing and FDI would also boost economic resilience and improve growth prospects.
5. Reaping digital technologies dividend requires the right policy mix and investments such as software and hardware investment, soft skills and the right ecosystem to harness information, communications and technology (ICT) and e-commerce to deliver increased productivity and growth.

Statement of objectives

• The Strait of Malacca is strategically located in Asia as the world’s most important sea lanes, linking the shipping from the Indian Ocean to the South China Sea, and also facilitates cross-straits trade and labour movements between the East and West.
• With rising global trade and maritime demand, along with the big economic rise of China, the Strait of Malacca has gained more prominence not only as the vital waterway but also for geo-strategic and security assurance.
• The question arises whether the Strait of Malacca has been fully realized, whereas there are alternatives sea routes that could complement Straits of Malacca.
• The objectives of this study are to review the current landscape of maritime and examine whether or not new initiatives to open up other sea lanes across Southeast Asia are an alternative or viable supplement to the Strait of Malacca as strategic sea lanes and straits to the world and Southeast Asia in particular.

Summary of evaluation: Straits of Malacca vs Alternative Routes

• While the crafting of alternative routes are intended to ease growing traffic congestion in Straits of Malacca, general consensus views seem to suggest otherwise (more of balance of economic and security powers in the Strait of Malacca), pointing towards the lack of strong economic justification to bypass the Strait of Malacca.
• Even on grounds of providing safer and more secure energy transportation, there are no compelling reasons to have alternative routes.
  • The Trans-Siberian Railroad and Northern Sea Route (NSR) are poised to shorten travelling time compared to the Strait of Malacca. Both routes still have a long way in enhancing connectivity and improving services, hence East Asia countries are barely considering using it.
  • For Dawei-Laem Chabang, the imbalanced infrastructure development is very obvious in both connecting countries. Even if Thailand is ready for the linkages, Myanmar may need another 10 years to achieve a full phase of development. Moreover, if this route is ever being adopted, shippers will have to worry about different custom processes and the efficiency of transferring goods involving different countries and between modes, i.e. sea and land routes.
• For Kra Canal project , while it poses a threat to the Strait of Malacca and Singapore, this project will burden Thailand’s fiscal budget. The cost of Kra Canal is substantially more than what Thai cabinet had approved for all its infrastructure projects (US $25 . 2 billion) in 2017 . Building Kra Canal involves loss of opportunity costs whereby many other development projects will have to be forgone to accommodate this mega -sized project .
• On the contrary, China has high interest on the Kra Canal . Firstly , Chinese oil companies have initiated key oil and gas pipeline connections between Myanmar and Yunnan (first RHS picture), and secondly , Kra Canal complements part of the Belt and Road Initiative (second RHS picture) . Kra Canal is a penny investment for China when compared to the cost of Nicaragua Canal between US $40 billion and US $50 billion (refer to Appendix ) . Kra Canal will certainly provide a strategic location for China to ease perceived geo -politics influences of the US in South China Sea.
• Furthermore, with seven Chinese ports listing in the world’s top 10 container ports, Kra Canal will help to strengthen China’s position as the world’s leading trading nation .
• From a maritime perspective, these alternative routes would bring some impacts and may trigger new dynamics to the conventional shipping traffic and trade.
• Questions have been raised on the economics of shipping and industry, financing, environment and geo-political while assessing the viabilities of these alternatives. For example, if the prospects of Kra Canal is so phenomenal, the question is why the plan hasn’t come to fruition after decades long discussions in Thailand. These mega projects are ambitiously expensive and too difficult to ascertain the full impact, unless more details are made known.
• Other alternative shipping routes through the Indonesian archipelagic waters, i.e. Sunda Strait, Lombok and Makassar Straits, may have their advantages, but the viability as alternative routes remain doubtful. Conceivably, it is more rational to conclude that these routes undoubtedly can complement the present Straits of Malacca.
• It may be more tactical for the stakeholders to invest in capacity building of existing ports and enhancing security in the Strait of Malacca as opposed to spending astronomical costs on the unknown frontier.
• While the Kra Canal will alter the conventional maritime landscape along the Strait of Malacca, and re-shape the Southeast Asia’s accessibility to the global trade, the maritime businesses should remain dynamic with investments in strategic locations whilst waiting for the fruition of this new plan.
• For Malaysia, the government and ports operators have to remain vigilant and be prepared to deal with any possible outcomes should the alternative solutions become reality. Developmental and expansion works at existing terminals are already on-going to ensure that these ports remain highly competitive to meet the growing demand.
• The developments of ASEAN Ports will be addressed in Part II of this research paper.

Executive Summary

This survey gauges the extent of information and communications technology (ICT) and digital technologies adoption by small and medium-sized enterprises (SMEs). The adoption of technologies entail the level of IT usage; adequacy of know-how; availability of technicalsavvy workforce; and financial resources.

The survey was conducted on a random sampling. A total of 1,225 questionnaires were sent out and only 159 responded, generating a response rate of about 13%.

Key findings of the survey are as follows:

1. The overall level of ICT adoption is marginally above moderate, and primarily in a handful of designated operations or purposes.
2. The size and activity of the business influences the adoption of ICT. As expected, medium-sized SMEs generally have high usage of ICT.
3. The usage of ICTs are mostly in administrative and e-mail communication along the value chain. The most widely used technology applications by SMEs are accounting packages, word processing, and spreadsheets. On a less encouraging note, there is limited utilization of advanced ICT applications (ERP, CRM, AI, and Big Data).
4. Only 16% respondents said that they are currently using e-commerce while 11% disclosed that their businesses can function without the deployment of e-business.
5. Most SMEs acknowledged the tangible benefits of integrating digital technology into their core business operations. These include unlimited avenue to sell in domestic and overseas markets, time and cost savings as well as enhanced customer service delivery.
6. Data privacy and user protection against fraud should be accorded top priority to provide a strong sense of personal security and trust to encourage the adoption of digital technology.
7. E-government services should also be expedited to speed up decision making processes, reduce bureaucracy, save cost as well as increasing work processes transparency.
8. About 62% of respondents have either heard or aware of the Digital Free Trade Zone (DFTZ). 19% have not even heard or aware about it. Though the respondents were aware of DFTZ, many are still oblivious to the functions of DFTZ. Nevertheless, they believe that DFTZ will likely be a regional e-commerce hub to tap into regional markets.
9. The factors that hindered the slow adoption of ICT are financial constraints; lack of know-how; lack of in-house expertise and technical skills as well as security uncertainty.
10. Only 29% of respondents placed digital technology as top business planning priority. While more than half of SMEs viewed innovation and digital technology as important but not an urgent priority.

Despite the challenges and barriers inhibiting the use and adoption of digital technology by SMEs, there is no doubt that new wave of innovation will drive the higher level usage of digital technology with the Internet of Things. In a nutshell, SMEs, irrespective of size must be ready and leverage on the deployment of digital technologies and tools to capture the returns of fast growing e-commerce.

The Government have put in place the supporting initiatives and laid digital infrastructure to drive the e-commerce growth. These together with the establishment of Digital Free Trade Zone (DFTZ) can be enhanced further to create a favourable conducive ecosystem to accelerate the adoption and integration of digital technologies with e-commerce as the new business model, a departure from “business as usual” to fully harness business propositions and expand market frontiers.