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Singapore-Malaysia a key trade corridor that is expected to grow

MALAYSIA, being one of Singapore’s closest neighbours, has always, in the words of Foreign Affairs Minister Vivian Balakrishnan, held “special importance” to the city-state.

Indeed, Singapore and Malaysia are each other’s second most important trading partners and Singapore is Malaysia’s largest source of foreign direct investment (FDI).

Going through the pandemic together has strengthened the two countries’ relationship said Dr Balakrishnan during the Minister of Foreign Affair’s Committee of Supply Debate on March 3.

In fact, the “very close relationship” has probably even been strengthened, he said.

He further noted that supply chains both ways “never failed, even in the depths of the crisis” and that both countries worked to facilitate the safe movement of goods, services and people.

“In fact, trade in goods and services increased in 2021,” he said.

Key trade corridor

The Singapore-Malaysia trade corridor is the Republic’s second-largest trade corridor after the Singapore-China trade corridor.

This trend, of Malaysia and Singapore being key trading partners, is unlikely to change according to Standard Chartered’s Future of Trade 2030. The report, which was published in November, uses a proprietary model for export projections and data analysis developed with Price Waterhouse Coopers, alongside a survey of more than 500 C-suite and senior leaders in global companies.

Its authors estimate that trade export value from Singapore to Malaysia will grow from US$40.4 billion in 2020 to US$92.3 billion in 2030.

Why Malaysia? Singapore’s exports to Malaysia are driven by Malaysia’s growing advanced manufacturing capabilities, e-commerce growth and robust economic ties.

Indeed, as Malaysia grows its advanced manufacturing capability, demand for intermediate goods from Singapore is expected to rise.

Of the 214 companies that currently or plan to source/manufacture in Singapore, 38 per cent said they plan to be in the Singapore to Malaysia corridor. Further, 37 per cent of the 81 respondents for this corridor said they anticipate between 5-10 per cent annual revenue growth of exports to Malaysia over the next 10 years.

For Malaysia meanwhile, Singapore is expected to be the second largest export corridor (after China), accounting for 17 per cent of total exports in 2030.

Singapore acts primarily as a distribution centre for exports of electronic goods, with Malaysia exporting about one-fifth of its integrated circuits (ICs) through Singapore. It also helps that the two governments are actively collaborating to attract manufacturing companies to the region with joint business operations in Malaysia and Singapore.

These efforts include the Southeast Asia Manufacturing Alliance which was launched in Feb last year. CapitaLand was its first private-sector strategic partner, providing companies access to Nusajaya Tech Park in Johor. Under the terms of the collaboration agreement signed, companies which invest in both Singapore and Nusajaya Tech Park were eligible for a range of benefits.

Separately, at the meeting of the Malaysia-Singapore Joint Ministerial Committee for Iskandar Malaysia which was held in Dec last year, the two countries reaffirmed the progress of Iskandar Malaysia and reiterated their commitment to its continued development amidst the Covid-19 pandemic.

The committee also updated that in Iskandar Malaysia alone, 52 projects from Singapore, amounting to US$371 million were approved in 2019. There were 52 projects amounting to S$476 million approved in 2020 in key sectors such as electrical and electronics, fabricated metal products and machinery and equipment. For the first half of 2021, 20 manufacturing projects with a total value of US$112 million were approved in Iskandar Malaysia.

Keen interest in Malaysia

For Freddy Ong, head, client coverage, corporate, commercial and institutional banking, Singapore, Standard Chartered, the keen interest Singapore companies have in Malaysia is not surprising.

“Malaysia and Singapore enjoy a strong and complementary economic relationship, being each other’s largest foreign direct investors and second largest trading partners. As the global supply chain continues to shift in favour of Asean markets and with more economies reopening, there lie significant opportunities for businesses to further grow the Malaysia-Singapore corridor,” he said.

According to the Singapore Business Federation’s (SBF) National Business Survey, Malaysia topped the list in terms of countries where businesses are engaged in overseas business activities.

Of the 779 businesses identified as being “currently engaged overseas”, 65 per cent are in Malaysia; this is a huge jump over China and Indonesia which were tied at 51 per cent. On the flipside, of the 440 companies keen to venture overseas, 30 per cent picked Malaysia. Malaysia tied third with Indonesia. Leading the list were China (34 per cent) and Vietnam (31 per cent).

For Standard Chartered, they are seeing “increased interest” from clients in the manufacturing, logistics, F&B, hospitality and real estate sectors.

“Specifically, they are looking to take advantage of Malaysia’s advanced production capabilities, growing e-commerce and consumer market, as well as the government’s robust investment to develop the country into a regional logistics hub,” said Ong.

Trade Rebalance

Looking beyond current turbulence, Asia is set to benefit in the coming decade as trade dynamics shift and high-growth economies and new corridors gain traction.

Significantly, global trade will continue to shift to Asia, Africa and the Middle East. In Asia alone, exports is expected to grow from US$5.8 trillion in 2020 to US$11.5 trillion in 2030, according to the Future of Trade report.

Supply chain dynamics are also changing.

Manufacturers first started looking at diversifying their supply chains due to escalating tensions between China and the US. This has since been compounded by Covid-19 related supply chain and manufacturing disruptions.

Then, there’s the fact that Asian consumers are expected to buy more products originating from the region.

By 2030, Asia is expected to account for over 40 per cent of global economic output, 54 per cent of the global population, and a staggering 65 per cent of the global middle class, said Cushman & Wakefield in a recent report on the role Asia Pacific can play in global supply chains.

“The rising ‘Asia for Asia’ approach sets the stage for the growth of supply chain networks in the region, particularly in South-east Asia and India,” said Tim Foster, Cushman & Wakefield’s head of supply chain & logistics advisory.

As a regional trade hub, Singapore will benefit. Dubbing the city-state a “rising star”, the Future of Trade report noted that growing consumption hubs in emerging markets such as India and Indonesia will create further growth across new and existing trade corridors.

“Singapore will continue to play a critical role in driving greater connectivity and boosting intra-regional and global trade,” it said.

Source: businesstimes

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