Malaysia
17 October 2012
Can the numerous growth initiatives in Malaysia paper over the cracks? AST finds out
Image: Shutterstock
A lone tree stands in a Malaysian plantation, but it is soon to be stripped down for palm oil, as many have before it. To some, the image is a celebration of the country’s large natural resources, which have held up its economy in wilting global markets. To others, it’s a bleak picture that illustrates the destruction of forests that house exotic wildlife such as pygmy elephants or the orangutan. Such is the paradox of the country; gains are possible, but not without losses, and it is not just oil exports that are illustrating this.
To a casual observer, it would seem that Malaysia is going from strength to strength. In Q2 2012, there was economic growth of 5.4 percent, the Asian Development Bank this month raised its Malaysian gross domestic product growth estimate for the full year to 4.6 percent, from 4 percent—and that’s despite cutting its overall forecast for developing Asia—and the stock market is at record highs, as bankers are lured to Kuala Lumpur in hopes of cashing in on a big-ticket initial public offering. Felda, a state-controlled palm oil producer, was the second-largest IPO after Facebook when it raised more than $2 billion in June.
Huge government spending on infrastructure has increased optimism. A $28 billion port, tourism and industrial complex, Iskandar, could reshape the regional economy (and further dismay ecologists) by cutting through swathes of forest to create a compound that is three times the size of Singapore.
Malaysia’s prime minister, Najib Razak, also cut the ribbon for a future financial centre site in Kuala Lumpur, which is a part of an economic transformational programme to boost citizen income.
But, behind the ribbon cutting ceremonies and growth initatives, is a structural fiscal deficit that promises to distract from the country’s success story so far. The price of palm oil has been volatile, dropping over concerns about oversupply, and at 52.6 percent of gross domestic product, the deficit is the highest in Asia after India and Pakistan.
The provisions of the 2012 Malaysia budget, which was announced in October 2011, came into effect, but not all the proposals were passed.
The much hoped-for reduction in either the individual or corporate tax rate did not materialise, and the goods and services tax that had its first parliamentary reading in December 2009 was also not addressed in the 2012 budget, leaving the date for its introduction uncertain.
Custody is a financial sector that is keen to flaunt progress, but has shown cracks in recent years.
In November 2011, two Bahrain-based financial institutions, Elaf Bank and Ohad Trust, formed a joint venture to administrate funds and provide custody in Malaysia in an effort to access opportunities in Southeast Asia and the Islamic investment funds market.
The joint venture, which was granted a trust licence by the Labuan Financial Services Authorities, brought together Elaf Bank and fund administration, custodian and trust services provider Ohad Trust, to form Ohad Labuan. Both parties hoped to work on trust, foundations, fund administration, registrar and custody assignments in the country.
At the time, Jamil El Jaroudi, chief executive of Elaf Bank, said that the bank was actively sourcing and developing business in Bahrain and Malaysia, stating that having a branch office in Malaysia “has opened more doors for the bank”.
Due to Ohad Trust’s claims as the first licensed trustee in the Middle East, chief executive Stefan Cnoops added that he believed that Ohad Labuan could gain significant trust-related work, particular in relation to sukuk, a type of Islamic bond.
In June 2011, Elaf Bank was granted a licence by Malaysia’s ministry of finance to open a branch office in the country. Since then, the project has stalled. “Our project has been delayed slightly, as our joint venture partner Elaf Bank is currently merging with two other Islamic banks in Bahrain,” said Knoops. “As a consequence, their efforts to develop their activity in Malaysia has suffered a bit, and is to start again from early 2013 onwards.”
“Our objectives remain identical, but the timeframe has been pushed back slightly. Ohad Trust (Labuan) Bhd, the JV company, is established, remains of course in good standing and we are very hopeful the delay encountered will not alter our plans.”
It appears that this was one Malaysian project that—despite the best intensions—failed to get off the ground. But with a thriving stock exchange, a flourishing business district, and dozens of domestic and foreign banks, including Maybank, CIMB, UOB Malaysia, HSBC, Standard Chartered, Deutsche Bank and UBS, providing sub-custody or custody, the country looks well placed to take care of assets.
To a casual observer, it would seem that Malaysia is going from strength to strength. In Q2 2012, there was economic growth of 5.4 percent, the Asian Development Bank this month raised its Malaysian gross domestic product growth estimate for the full year to 4.6 percent, from 4 percent—and that’s despite cutting its overall forecast for developing Asia—and the stock market is at record highs, as bankers are lured to Kuala Lumpur in hopes of cashing in on a big-ticket initial public offering. Felda, a state-controlled palm oil producer, was the second-largest IPO after Facebook when it raised more than $2 billion in June.
Huge government spending on infrastructure has increased optimism. A $28 billion port, tourism and industrial complex, Iskandar, could reshape the regional economy (and further dismay ecologists) by cutting through swathes of forest to create a compound that is three times the size of Singapore.
Malaysia’s prime minister, Najib Razak, also cut the ribbon for a future financial centre site in Kuala Lumpur, which is a part of an economic transformational programme to boost citizen income.
But, behind the ribbon cutting ceremonies and growth initatives, is a structural fiscal deficit that promises to distract from the country’s success story so far. The price of palm oil has been volatile, dropping over concerns about oversupply, and at 52.6 percent of gross domestic product, the deficit is the highest in Asia after India and Pakistan.
The provisions of the 2012 Malaysia budget, which was announced in October 2011, came into effect, but not all the proposals were passed.
The much hoped-for reduction in either the individual or corporate tax rate did not materialise, and the goods and services tax that had its first parliamentary reading in December 2009 was also not addressed in the 2012 budget, leaving the date for its introduction uncertain.
Custody is a financial sector that is keen to flaunt progress, but has shown cracks in recent years.
In November 2011, two Bahrain-based financial institutions, Elaf Bank and Ohad Trust, formed a joint venture to administrate funds and provide custody in Malaysia in an effort to access opportunities in Southeast Asia and the Islamic investment funds market.
The joint venture, which was granted a trust licence by the Labuan Financial Services Authorities, brought together Elaf Bank and fund administration, custodian and trust services provider Ohad Trust, to form Ohad Labuan. Both parties hoped to work on trust, foundations, fund administration, registrar and custody assignments in the country.
At the time, Jamil El Jaroudi, chief executive of Elaf Bank, said that the bank was actively sourcing and developing business in Bahrain and Malaysia, stating that having a branch office in Malaysia “has opened more doors for the bank”.
Due to Ohad Trust’s claims as the first licensed trustee in the Middle East, chief executive Stefan Cnoops added that he believed that Ohad Labuan could gain significant trust-related work, particular in relation to sukuk, a type of Islamic bond.
In June 2011, Elaf Bank was granted a licence by Malaysia’s ministry of finance to open a branch office in the country. Since then, the project has stalled. “Our project has been delayed slightly, as our joint venture partner Elaf Bank is currently merging with two other Islamic banks in Bahrain,” said Knoops. “As a consequence, their efforts to develop their activity in Malaysia has suffered a bit, and is to start again from early 2013 onwards.”
“Our objectives remain identical, but the timeframe has been pushed back slightly. Ohad Trust (Labuan) Bhd, the JV company, is established, remains of course in good standing and we are very hopeful the delay encountered will not alter our plans.”
It appears that this was one Malaysian project that—despite the best intensions—failed to get off the ground. But with a thriving stock exchange, a flourishing business district, and dozens of domestic and foreign banks, including Maybank, CIMB, UOB Malaysia, HSBC, Standard Chartered, Deutsche Bank and UBS, providing sub-custody or custody, the country looks well placed to take care of assets.
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