Main Sectors of Industry

Since gaining its independence in 1957, Malaysia has successfully diversified its economy from agriculture and commodity-based to solid manufacturing and service sectors. It had a labor force of 16.1 million people out of a 32.97 million population in 2022. Agriculture employed around 10% of Malaysians in 2022 and contributed to 9.6% of GDP (World Bank, 2023). Malaysia is the second main producer of palm oil and tropical wood, and the fifth largest exporter of rubber. The country has successfully developed its economy based on raw materials and has significant reserves of oil, gas, copper and bauxite.

Industry contributed to around 37.8% of GDP and employed nearly 27% of the active population in 2022 (World Bank, 2023). Malaysia is one of the world's largest exporters of semi-conductor devices, electrical goods and appliances, and the government has ambitious plans to make the country a key producer and developer of high-tech products, including software. Malaysia is a major outsourcing destination for components manufacturing, after China and India. The country has attracted significant foreign investment, which has played a major role in the transformation of its economy.

The service sector employs the majority of the population (over 63% in 2022) and accounts for 52.6% of GDP (World Bank, 2023) which is due mainly to healthcare services, transport, distributive trade and tourism. Tourism was the third biggest contributor to Malaysia’s GDP, after manufacturing and commodities, with over 7% of GDP and 26.1 million foreign tourists in 2019, according to Tourism Malaysia. Over the years, Malaysia has become one of Southeast Asia's major tourist destinations, and since 2020 the country was waiting for the world's borders to open again to international travel. The borders are now open and tourists are slowly making their way to Malaysia in 2023.

Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook.  Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023, the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic. Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024 (International Monetary Fund - IMF, 2023). The impact of the 2022 world events appears to have affected both sides of most sectors and markets in this country for the third year in a row - demand disruptions having run up against supply problems - making the short-term outlook uncertain for agriculture, industry and service sectors.

Source: World Bank - Latest available data.

Political Outline

Current Political Leaders

King: King Sultan ABDULLAH Sultan Ahmad Shah (since 24 January 2019)
Prime Minister: Anwar bin Ibrahim (since November 2022)

Next Election Dates

King nomination: 2024
Parliament: September 2023

Current Political Context

Malaysian politics has been relatively stable over the last decades. The Barisan Nasional coalition ruled the country since its independency from Britain in 1957, but it lost its hold of the parliament for the first time in Malaysian history in the general election which was held on 9 May 2018. Former Prime Minister Mahatir Mohamad returned to the office as the leader of the Pakatan Harapan centre-left four-party coalition 15 years after his first tenure. Muhyiddin Yassin was appointed prime minister in February 2020 and was able to form the National Alliance coalition with Malay-majority parties dominating the government. Tested by one of the largest pandemics in recent history, and despite relatively sound management of the crisis, Muhyiddin position in the new government coalition (Perikatan Nasional) was complex vis-à-vis the weight and popularity of United Malays National Organisation (UMNO), the old ruling party he allied with. Amid a political crisis and after losing a majority of support in parliament, he resigned in August 2021 and was replaced by Ismail Sabri Yaakob.
The government reiterated its non-aligned status through the Foreign Policy Framework of New Malaysia, especially when dealing with China and the United States.

Prime Minister Ismail dissolved parliament in October 2022 setting the stage for the country’s 15th general elections to be held on November 19. The tightly contested elections led to a hung parliament and a week of tension before Malaysia’s king swore in Anwar Ibrahim as the country’s 10th prime minister on November 24. The new parliament opened on December 19, passing a confidence motion for Anwar, who had spent over two decades in the opposition and 10 years in prison on politically motivated charges. Manoeuvrings by Malaysia's King Abdullah have led to the formation of a unity government led by Anwar Ibrahim, the leader of the multicultural Pakatan Harapan (PH) coalition. His government will be supported by pro-Malay political parties, circumscribing his ability to contain Malaysia's tradition of ethnic preferences for the Malay majority. The outcome of the general election held on November 19th showed that the PH coalition won 82 seats (out of 222); the Perikatan Nasional coalition secured 73 seats and the Barisan Nasional coalition won 30 seats. The new government will initially prioritise economic issues amid an economic slowdown, with the 2023 budget to be adjusted and retabled in parliament before the year-end.

Main Political Parties

The Barisan Nasional coalition, in charge since 1957, was defeated in historical general elections in April 2018 and most of the parties left the coalition. The election was won by Pakatan Harapan, an opposition party led by Mahathir Mohamad, who had already been Prime Minister of Malaysia from 1981 to 2003. At the age of 92, Mahatir Mohamad became the oldest head of government in the world.

Barisan Nasional:
- United Malays National Organisation (UMNO): right-wing, known for being a major proponent of Malaysian nationalism
- Malaysian Chinese Association (MCA): right-wing, represents Malaysian Chinese contingency
- Malaysian Indian Congress (MIC): right-wing
Pakatan Harapan:
- Democratic Action Party (DAP): centre-left, social democracy
- People's Justice Party (PKR): centre-left
- Malasyan United Indigenous (BERSATU): centre-right, nationalism
- National Trust Party (AMANAH): centre-left, Islamic modernism
Other parties:
- Parti Gerakan Rakyat Malaysia (Gerakan): centre
- Parti Pesaka Bumiputera Bersatu (PBB): right-wing
- Parti Rakyat Sarawak (PRS): centre
- Parti Bersatu Sabah (PBS): centre, multi-racial
- Sarawak Progressive Democratic Party (SPDP)
- United Pasok Momogun Kadazandusum Organisation (UPKO): right-wing
- Sarawak United People's Party (SUPP): centre
- Parti Bersatu Rakyat Sabah (PBRS): nationalist-oriented

Executive Power

The head of state is the Paramount Ruler, commonly referred to as the King. The King is selected from nine hereditary rulers (called Sultans) of the Malay states to serve a five-year term; the other four states (which have titular Governors) do not participate in the selection. Following legislative elections, the leader of the party that wins most seats in the lower house of the parliament becomes the Prime Minister to serve a five-year term, subject to approval by the King. The Prime Minister is the head of Government and holds the executive powers which include implementation of the law and running the day-to-day affairs of the country. The Cabinet is appointed by the Prime Minister from among the members of parliament with the consent of the Paramount Ruler.

Legislative Power

The legislature in Malaysia is bicameral. The parliament consists of the Senate (the upper house) with 70 seats, out of which 40 are appointed by the Paramount Ruler and 26 are appointed by the 13 state assemblies, to serve six-year terms; and the House of Representatives (the lower house) with 222 seats, its members elected by popular vote to serve five-year terms. The King can dissolve parliament if he wishes, but usually only does so upon the advice of the Prime Minister. In general, more power is vested in the executive branch of government than in the legislative branch. Legislative power is divided between federal and state legislatures. Each state has its own Government, a cabinet with executive authority, and a legislature that deals with matters not reserved for the federal parliament.