Analysis: Will political shifts impact companies looking to invest in Malaysia?

In the past few years, Malaysia has seen a fair amount of changes in its political leadership. Most recently, news surfaced that UMNO had informed Prime Minister Muhyiddin Yassin last week that it would not ally with his party, Parti Pribumi Bersatu Malaysia, during the 15th General Election. It was reported that UMNO president Ahmad Zahid Hamidi wrote to Muhyiddin on 26 February saying that their pact "will end as soon as parliament is dissolved". According to The Straits Times, this was in response to a reported ultimatum made by the PM who said in a meeting on 15 February that UMNO needs to take a clear stand on its cooperation with Bersatu before any further seat negotiations for GE15.

This latest development follows a series of other political maneuvers Malaysian citizens have been witness to over the last three years beginning in 2018 with Pakatan Harapan's landslide win against Barisan Nasional, to the shocking resignation of former Prime Minister Mahathir Mohamad in 2020 after a falling out between him and former coalition partner Anwar Ibraham. According to multiple media reports, Anwar accused his own People's Justice Party and Mahathir's party for collaborating to form a new government with UMNO that would exclude him. Shortly after, Muyhiddin Yassin was made Prime Minister and the new ruling coalition, Perikatan Nasional, was formed which includes UMNO, Bersatu, and Parti Islam Se-Malaysia.

Despite its political rearrangements, Malaysia has been lauded as the country with all the suitable ingredients to allow businesses and foreign investors to succeed. EY's 2020 investor guide titled "KL calling: dynamic, digital, diverse" said Kuala Lumpur, in particular, is pivoting towards next-generation digital industries, from digital eplatforms, IoT, robotics, advanced medical technologies through to high-value global business services. Additionally, its suite of attractive tax incentives for high-tech sector investments and balanced growth attributes such as integrated transport facilities, multilingual talent and world-class connectivity is gaining global investors' attention.

That said, one cannot ignore the reputational impact that these political shifts could have on the country. When asked if the ongoing political shuffle will make businesses looking to invest in the market think twice, Brand Finance's Asia Pacific managing director Samir Dixit, who commented in his personal capacity, said "Businesses get impacted due to political shifts only when such political shifts lead to large policy changes which is very rare. And even if such policy changes do take place, they are for the better of the country. Malaysia has had stable policies for business growth and provides a conducive business environment irrespective of the government."

He added that the fundamental focus and effort from any government is to drive the economic growth for the country and Malaysia is no exception. Malaysia, he added, has done a fantastic job for driving its growth since independence and according to him, business and marketing cannot and should not be linked to politics. Moreover, companies invest in countries for the long haul and generally their decisions will be more business-driven and more vested in the growth opportunities that will be available in the long term and based on the larger macroeconomic policies.

Agreeing with him was Jonathan Sanchez, Diageo's director of corporate relations, Southeast Asia, who said in terms of reputation for businesses or investors, in the short-term this tends not to have any material impact on expansion or investments even if the challenges deserve attention and may be troubling to witness. Sanchez explained that usually there is an endless amount of analysis undertaken which will take into account any geopolitical issues pre-investment or trade. Businesses that are looking to invest in countries undergoing unrest, interruption or controversy are most often taken a very long lens view.

"Once again, mid to long term assessments are generally made on the premise of the business offer and route to market - 'How secure is the consumer?’; ‘Is consumption growing?’; ‘Can the economy maintain?’; 'How is this affecting the supply or value chain?’," Sanchez added.

Meanwhile, former group CMO of CIMB and Maybank Group, Mohamed Adam Wee Abdullah, said politics will inevitably impact business, marketing and many other areas. It is after all the first letter in the PESTEL analysis, which also includes economic, social, technological, environmental and legal. 

According to him, the natural notion is to think that political uncertainty will have a negative impact on consumer and investor confidence and consequently the onward effect in the marketplace and the economic cycle. However, citing a paper written in 2018 titled "“How politics affect economic sentiment? The effects of uncertainty and policy preferences” by Steffen Osterloh, senior economist at the European Central Bank, Adam said political uncertainty can have a positive impact on the economy. He added:

The interesting thing is that consumer confidence tends to increase in the forefront of an election as hope for a better change would typically feature. In these instances, the positive expectations outweigh the negative uncertainties.

"The affluent consumers will see an opportunity in picking up great value investments in an economic downturn as they would understand the cyclical effect of the economy," Adam said. In the paper, Osterloh also said that consumer confidence increases when governments focus on the strengthening of institutions, whereas business sentiment reacts positively to governments highlighting technology and infrastructure. Overall, the paper concluded that businesses sentiment is less affected by political factors than consumer sentiment.

That said, Adam acknowledge that there would "most certainly be an indirect effect" for businesses which will tend to delay hiring, investments and expansions as they veer to the side of caution. It is also typical to see foreign investors exit their investments as uncertainty unfolds and they would probably come back again when the dust settles, hence delaying any setup of new ventures in the country. According to Adam, their return would be dependent on the narratives of the politics that will follow.

According to a YouGov study which polled 1,162 Malaysians from 25 to 27 February 2020, 73% are worried about the nation's future while 21% are confident. Men were found to be more confident than women (26% versus 16%) when it came to the country's future. At the same time, 32% of Malaysians think the economy will get better while 37% think it will get worse. Meanwhile, 71% of those in the high income group prefer an alliance between PKR, DAP and Amanah, while 59% of those in the low income group prefer to be governed by an alliance between UMNO, PAS and Bersatu.

How can companies navigate Southeast Asia?

ASEAN has seen its fair share of leadership change over the past decade. Aung San Suu Kyi, president Win Myint and other senior individuals from Myanmar's National League for Democracy were ousted in a military coup last month as a result of alleged election fraud. Army chief Min Aung Hlaing has since taken over and Khin Maung Latt, an official from NLD, died in police custody sometime between 6 to 7 March, Reuters reported. Cities including Yangon, Mandalay and the capital of Naypyitaw have also been engulfed in protests.

Meanwhile in 2014, Thailand's military declared martial law shortly after former Prime Minister Yingluck Shinawatra was ousted by the nation's Constitutional Court. Prayuth Chan-ocha took over as Prime Minister and later lifted martial law 10 months after the coup on 1 April 2015.

Given how diverse the region is, businesses eyeing ASEAN need to be nimble and understand the risk or reward benefit in operating here. This includes meeting consumer, cultural and social challenges often without warning and as they happen.

According to Diageo's Sanchez, should businesses want to succeed in this region:

They need to be acutely mindful of the pace of change, unpredictability and ambiguity. Southeast Asia is really the home of the volatile, uncertain, complex and ambiguous mindset.

In return, however, there are endless opportunities, a bias for growth and optimism and the ability to move at pace, Sanchez said. In return, companies can contribute economically to domestic economies whilst being mindful of the fact that they are always a guest of the countries in which you choose to sell and operate.

"The need for flex is important, and as a rule most companies would naturally - and rightly - resist from taking a view on domestic matters, outside of where they are able to contribute positively to society. But if you can navigate sometimes bumpy social and economic environments, you can truly succeed. There has never been a better time to become an entrepreneur, start a business or follow your ambition, be in in Malaysia or any other part of this phenomenal region," Sanchez explained.

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Photo courtesy: 123RF

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