How Malaysia’s tech hub in Penang will help economy rebound from coronavirus pandemic

The government has announced nearly US$70 billion in stimulus to cushion the effects of the pandemic but unemployment has surged to 5.3 per cent

The government has been actively courting such investment and Penang is already is reaping gains from the expected recovery

3-MIN READ3-MIN

A view of George Town from Penang Hill in Malaysia. Photo: Handout

Published: 12:19pm, 6 Aug 2020Updated: 12:24pm, 6 Aug 2020

Malaysia’s technology cluster in Penang is helping drive an economic recovery that could see the country bounce back faster from the coronavirus pandemic than its peers in Southeast Asia.

The northern state drew 6.8 billion ringgit (US$1.6 billion) of foreign direct investment in the first quarter – almost two-thirds of the country’s total – attracting new projects even as the pandemic disrupted global supply chains and dampened demand worldwide. Approved investments in Penang nearly doubled from the previous three months, according to the InvestPenang investment promotion agency.

“Malaysia plays a key role in the global semiconductor supply chain, and has benefited from the tentative recovery in the electronics cycle,” said Wellian Wiranto, an economist at Oversea-Chinese Banking in Singapore. “That should put it in good stead for any global recovery next year.”

Gross domestic product data due next week is expected to show a contraction after the economy grew just 0.7 per cent in the first quarter, its worst showing since 2009. The government has announced nearly US$70 billion in stimulus – equal to about 20 per cent of GDP – to cushion the effects of the pandemic, but unemployment has surged to 5.3 per cent, the highest since at least 1990.

Analysts expect Malaysia to ride out the pandemic better than most peers. The World Bank sees Malaysia’s economy contracting 3.1 per cent this year before rebounding 6.9 per cent in 2021, besting neighbours like Vietnam and the Philippines next year. Fitch Ratings expects the country’s middle class, which includes 77 per cent of households, to buffer the slump in external demand, while CGS-CIMB points to aggressive fiscal and monetary stimulus as reasons Malaysia should outperform others in Southeast Asia.

Early signs of a rebound are evident in Malaysia’s exports: the trade surplus rose to a record in June as shipments climbed 8.8 per cent from a year ago, driven by a 20-month high in electronics sales.

Penang already is reaping gains from the recovery. Medical device company DexCom will start building its first facility outside the US on a 28-acre site in the second half of the year, while LEM Holding SA, which makes electrical components, has selected a site for a production facility. LEM is set to invest as much as 10 million Swiss francs (US$11 million) in the project, making Switzerland the top foreign source of investment in Malaysia in the first quarter.

The government has been actively courting such investment: Malaysia’s stimulus package includes a 15-year tax exemption for manufacturers who invest more than 500 million ringgit, an investment tax allowance for companies relocating operations to the country and expedited approval process for manufacturing licences.