ALTHOUGH not spared from the brunt of the economic impact as a result of Covid-19, Malaysia has remained resilient in its underlying economic fundamentals supported by the various measures introduced by the government to cushion the economic fallout.
The country's medium-term prospects also remain intact. But to ensure sustainable growth, Malaysia needs to boost its trade and investment connections.
Ongoing government trade and investment reform will be critical to paving the way to facilitate further tariff removals or simplifying non-tariff barriers, and removing investment thresholds.
Ratifying the Regional Comprehensive Economic Partnership (RCEP) agreement is a step in the right direction as it can help to reduce trade costs for businesses by seeking to eliminate many of the barriers within the region, whilst simultaneously opening Malaysia up to more trade activity across some of its major trade partners.
RCEP itself with its 15-member country composition, accounts for about 30 per cent of the world's population and 30 per cent of global GDP, and is the first free trade agreement among the largest economies in Asia, comprising Australia, New Zealand, the Asean bloc, China, Japan and South Korea.
As a strategic hub in Asean with strong economic fundamentals, Malaysia is ideally positioned to bolster its cross-border trade and economic ties with RCEP partners.
The country's access to a wider RCEP market presents businesses here with opportunities to grow their presence across the region and will also facilitate enhanced access for RCEP members who are looking to invest in Malaysia.
Ramping up Malaysia's efforts to magnetise foreign direct investment (FDI) will also be critical, particularly against a backdrop of shrinking global FDI supply and an increasingly competitive landscape.
Significant progress has been made with Bank Negara Malaysia further liberalising foreign exchange policy support, facilitating a more conducive environment for domestic and cross-border economic activities.
But more needs to be done to Malaysia's investment frameworks to make it easier for MNCs to invest in the country. Examples of how this can be carried out include making revisions to negative investment lists, providing tax incentives for certain sectors, streamlining processes to hasten investment approvals and bureaucratic roadblocks and accelerating the development of the country's talent and workforce.
While these issues have been raised in the past and are being considered by the relevant departments, there is a very strong impetus for the proposed reforms to be converted into reality.
At the same time, companies that are looking to invest in Malaysia are finding themselves in an environment very different from the one prior to the outbreak.
How to adapt and what to prioritise in these new conditions are pressing strategic questions that will affect how these organisations position themselves for the future.
From a banking perspective, some of the most critical areas that are seen to affect companies include access to financing, enhancing the integration of technology into business and adopting sustainable financial solutions.
Access to financing
The Malaysian capital market is one of the most liquid and developed in the region. The heightened demand for good quality bond and sukuk issuances, and increasingly green and sustainable financing options, reinforces the accessibility and efficiency of the country's capital market along with the strong interest of the investment community even against challenging market conditions.
The Securities Commission's Capital Market Masterplan (CMP3) will play a critical role in leveraging the strengths and potential of the Malaysian capital market to accelerate economic growth that is sustainable and inclusive. This will be critical to supporting banks as they look to raise the funds required by corporates to finance their business growth and investments.
Enhancing the integration of technology into business
Over the last two years, we have seen how Covid-19 has turbo-charged the integration of technology into business, enabling organisations to build resilience as well as presenting new opportunities for growth – particularly in areas such as capitalising on a growing e-commerce consumer population and taking advantage of supply chains which have been revolutionised by technology.
The accelerated digitisation of financial services has been a crucial factor in enabling corporates to expand their business both into and beyond Malaysia's borders. This has fuelled an increased demand for digital banking solutions, and platform-enabled seamless cross border solutions.
Intensified investor appetite for sustainable financial products
The awareness of environmental threats has permeated the financial sector with capital market decisions now being based on risk, return and impact. Simultaneously, the rise of social and sustainability-linked instruments has expanded the scope of funding to a broader range of environmental and social benefits.
Additionally, investors are demanding for more information about company performance, risks, opportunities, and long-term prospects than before. Raising capital will be more difficult for companies who do not have a clear sustainable transition plan. All this has resulted in intensified investor appetite for green and sustainable financial products.
The fundamental building blocks of Malaysia's economic success are not only still intact; in many ways they have been strengthened by the pandemic. But if the country is to reap the full benefits and opportunities for recovery and development, it will have to regain its traditional growth drivers of trade and investment. This will include focusing on strategic growth areas to attract overseas investment.
* The writer is HSBC Malaysia head of global banking