1. The Main Industries
2. Currency & Investments
3. Contract Law
4. Foreign Employees
5. Statistics
6. Background & Outlook

Below is an overview of the Malaysian economy, her industries, commerce and the background before and  after the Asian 'meltdown'.
Additional details and contacts can be found in our [Directory].

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The Main Industries

Other than most South East Asian nations, Malaysia's economy has never been completely based on agriculture. Sure, in the early stages and on a village level with survival being the main goal there was some basic growing of vegetables, etc. However, apart from Malaysia's 'Rice Basket' in the North and at a smaller scale in the East as well as small scale fishing, Malaysia's economy was based on three main pillars: the exploitation of raw materials, basic and later-on advanced manufacturing and most importantly, trading.

This unusual development does make sense once we understand the background of it. Firstly, Malaysia's geographic location and the fact that she is about half-way between China and India makes her ideal for stopovers and subsequently for trading ports. Next, the natural structure of the country with it's dense and forbidding forests makes any large scale horticulture next to impossible. As trade was the main income earner it is only natural that local craftsmen would rather spend their time on value adding than on farming, simply because it paid better and food stuffs other than rice and fish could always be 'imported'.
In addition to that, the emerging plantations could make far larger profits on growing pepper, other spices and herbs instead of food stuffs - which is the reason that the introduction of better tools and subsequent 'clearing' of some forest areas resulted in more and more pepper  and, later-on rubber plantations, not to mention that timber itself emerged as a major trading commodity.
Finally, the forest itself did provide a large variety of edible plants, fruits and vegetables further reducing the need for horticulture and actually enhancing the focus on manufacturing as Malaysia became a major supplier of palm oil. Animal husbandry, other than backyard keeping of chicken was and is impractical simply because there is neither the space nor the feed that would warrant a larger operation.

This situation was further enhanced with the discovery of raw materials, such as the World's largest tin deposits the introduction and the introduction of rubber plantations. During the colonial period all manpower was needed to exploit the mines, enlarge the plantations and increase manufacturing output - so there was no-one left for food related horticulture, other than rice and what the forests supplied.

This situation is more or less unchanged, Malaysia is still trading the exploits from the World's largest tin deposits,  is a main supplier of rubber, palm oil and spices, and enjoys the income from very large crude oil and gas deposits on and off-shore of Northwest Borneo. However, smart investment decisions also ensured a high standard of training of her workforce which, in turn, resulted into ever increasing quality levels in the manufacturing sector. Proton is a fully Malaysian-developed and assembled line of cars and the highest level of engineering skills resulted in the World's tallest building and similar amazing structures.

In addition, true to it's tradition and in a bid to at least become partly independent from 'importing' food stuffs, Malaysia has acquired huge tracts of land in Australia where she runs her very own large scale cattle operations and other agricultural ventures.

The more recent emergence of Malaysia as a location for high-tech assembly, hard and software development, etc. was crowned with a typical, Malaysian enterprise: Outside the capital Kuala Lumpur and in close vicinity of the brand new International airport Malaysia has built what is believed to be the World's largest and technologically most advanced 'Cyber City' - a whole town with all facilities to enhance and further promote Malaysia's emergence as a major Asian power in Information Technology.

Finally, Malaysia has always been a holiday destination and the tourism market is expected to grow well into the next century.

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The Malaysian Ringgit (1 Ringgit  is divided into 100 Sen), was until recently traded freely and exchange rates are noted at all regional and most major International exchanges.
However, following the Asian crisis and unreasonable daily fluctuations in the Malaysian currency - mainly due to heavy speculation of some larger investors - the government introduced certain restrictions in the fourth quarter of 1998. This restrictions mainly consist of the setting of benchmarks and daily trading ranges.
In any case, foreign currencies are still readily available and the actual movement of foreign banknotes into Malaysia is not restricted. However permits are required to remove large amounts in cash, Ringgit of foreign notes, from Malaysia
Now, in 2000 most of the foreign critics had to accept that Malaysian monetary precautions played a major role in her speedy recovery from the Asian crisis.

   Foreign Investment
The FIC, a committee of the Economic Planning Unit of the Prime Minister’s Departmen, is not a statutory body nor is it even a governmental authority. Therefore it's guidelines are not enforced by law.
However, same guidelines are generally applied when investments and/or investment applications are assessed. This is the case for foreign as well as for investments from and by Malaysian nationals.

"The FIC Guidelines thus do not have the force of law but in a recent case (in connection with a real property transaction) the Malaysian court held that a transaction designed to mislead the FIC as to the real owners of a piece of property was contrary to Malaysian public policy. Non-compliance with the FIC Guidelines may have adverse practical consequences on the company concerned when it deals with governmental authorities such as the Immigration Department (in relation to application for employment passes) and the Stamp Duty Branch of the Inland Revenue (stamping of transfers of shares)."

The FIC’s policy for shareholding spread between foreigners, Bumiputras (ie. ethnic Malays) and other Malaysians is 30:30:40. This is only a general guide for the economy as a whole and the FIC will determine the shareholding spread required on a case by case basis. The FIC may in some cases allow a foreigner to acquire more than 30% in a company but require the foreign company to sell down its stake to Malaysians after a certain number of years.
The FIC policy on shareholding spread is overridden by specific shareholding limits on certain industries such as banking, stockbroking and companies having Multimedia Super Corridor status.
Export oriented companies are subject to higher foreign shareholding limit with no requirement to divest locally (see below).

(a) an acquisition of a substantial fixed asset in Malaysia by a foreign interest and a foreign interest includes non-Malaysian individuals, companies incorporated outside Malaysia, and Malaysian incorporated companies in which foreign interests hold more than 50% of the voting shares or has management control;
(b) an acquisition of an asset or any interest in a Malaysian company or business which will result in ownership or control passing to foreign interests;
(c) an acquisition of at least 15% of the voting power by any one foreign interest or group (or at least 30% in aggregate by foreign interests);
(d) control of Malaysian company or business through a joint venture agreement, management agreement, technical assistance agreement or other agreement;
(e) a merger or takeover of a Malaysian company or business;
(f) an acquisition of assets or interest exceeding in value RM5 million.

All manufacturing companies (except those with shareholders' funds of less than RM2.5 million and engaging less than 75 fulltime employees) are required to apply for a manufacturing licence from the Ministry of International Trade and Industry.
These licences usually contain specific conditions and requirements relating to equity and employment structure, export, utilisation of local raw materials, transfer of technology, etc. .

The guidelines for foreign shareholding in domestic manufacturing companies are as follows:

- for projects exporting 80% or more of total production, up to 100% will be allowed;
- for other export oriented projects exporting between 51% to 79% of production, up to 79% may be allowed;
- for projects exporting between 20% to 50% of production, between 30% to 51% may be allowed;
- for projects exporting less than 20%, up to a maximum of 30%.

FIC approval is not required if the company is incorporated for the purposes of name protection or if the company is dormant. where a dormant company has commenced trading or operation the company is required to apply for FIC approval within a year of commencement. The FIC guidelines also do not apply to shares acquired on the stock exchange for short term portfolio investment purposes.

Recently the Malaysian government has annoounced a few relaxations on the foreign shareholding limits on Malaysian companies in several sectors (e.g.: foreign shareholders can now hold up to 61% of the total share capital in telecommunication and some high-tech projects).
Much more relaxed rules are usually applied for projects and investments that involve information technology, the internet, etc.

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Contract Law

Malaysian contract law, embodied in the Contracts Act, 1950 is based on British law and comprises of the following parts:

• Preliminary
• Communication, Acceptance and Revocation of Proposals
• Contracts, Voidable Contracts and Void Agreement
• Contingent Contracts
• Performance of Contracts
• Certain Relations Resembling those Created by Contract
• Consequences of Breach of Contract
• Indemnity and Guarantee
• Bailment
• Agency

   Formation of a Contract
A contract is formed when there has been (a) a communication of a proposal to enter into a contract (offer) and (b) an acceptance of that offer. The offer, and the acceptance, may be communicated by any method such as oral communication, telephone, post, fax, email telegram etc. Subject to certain rules, an offer may be revoked by the person who made the offer (offeror) if the revocation is made before the offer has been accepted by the other party. For example, if a person makes an offer to sell his house to another, he may withdraw the offer any time before the offer has been accepted by the other. An acceptance may be revoked by the party who accepted the offer if the revocation is made before the acceptance came to the knowledge of the offeror.

   Terms of contract
The terms of a contract may be either express (i.e., actually spoke or written) or implied. A contract to buy a can of rambutan may for example contain an implied term that the contant must be fit for consumption even though this is not expressly stated.
In Malaysia, the Latin phrase caveat emptor (let the buyer beware) is sometimes used to convey the proposition that a buyer must alway be vigilant and use his or her own diligence to investigate the condition of the article purchased as, so the thinking goes, the buyer will have no recourse once the article is sold. As stated, this is not always true as terms as to the quality of the article may be either stated expressly or impliedly.

   Consideration
Consideration is the compensation given for the promise by the offeror. For example, the consideration for the sale of a can of fruits is the price paid by the purchaser. A contract made without consideration is void unless it is (a) in writing and registered (where required by law) and on account of love and affection between parties standing (in near relation to each other, (b) a promise (made in writing) for something already voluntarily done or (c) a promise to pay a debt that is barred by limitation law.

   Void contracts
A contract may not be enforceable (i.e. the contract is void) if certain rules are not followed when the contract was made, such as:

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Background & Outlook

Malaysia is a main supplier of rubber, pepper and spices, palm oils as well as tin and crude oil. Malaysia further produces large quantities of value added products using the above raw materials.
In addition, Malaysia has long been a location for manufacture and assembly of electronics and consumer goods, ranging from calculators to computers, telephones to satellite equipment and from white goods to cars.

The services sector, which similar to the other young tiger nations did grow out of proportions in comparison to the other sectors of the economy, is in the region second only to Singapore and although Malaysia is currently experiencing some unemployment (for the time ever), the local labour market follows different rules than her neighbour's. This is simply because Malaysia's own population could not grow fast enough to satisfy the growing need for manpower. In addition to that Malaysia has a highly skilled workforce which lead to the need to offer certain types of employment to untrained labourers and household staff from neighbouring countries. Specifically Indonesians and Thai labour was and still is used in rubber plantations, cleaning and maid services, etc. while urban Malaysians mainly worked in assembly plants, as clerical staff as well as engineering, research and development, banking, etc.

Malysia was caught in the Asian crisis mainly because of Worldwide drops in most commodity prices, paired with reductions in orders for consumer goods from some of her Asian trading partners, as well as a free-fall of the Malaysian Ringgit, mainly caused by panic sales and speculation.
Malaysia and Singapore might well be the only Southeast Asian countries in which no major banking crisis followed the initial downturn in the property and services sectors.
While there is obviously reduced demand for consumer goods in most Asian countries the strong ethnic Chinese community helps the economy to further increase market share for durable goods in China.

Given that most major Western companies do maintain production and manufacturing facilities in Malaysia (with some using the drop in property prices to increase the size of their facilities) and given the fact that the Malaysian administration is strongly promoting high tech and information technologies an end to the crisis seems to be mainly dependent on public and International trust into Malaysia and her legal tender to be gained again.

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