Malaysia and ASEAN in 2024: Facing Challenges with Focus and Strength

The tribulations of the last two years — sometimes dubbed a state of global “perma-crisis” — portend a challenging year to come. But with judicious strategies and effective actions, Malaysia and ASEAN can approach 2024 with cautious optimism.

The world economy is being buffeted by supply chain disruptions, high inflation, two wars that see no signs of ending, superpower tensions, and continual climate crises to which global efforts to adapt and ensure a just transition are nascent at best. Combined with China’s continued economic doldrums and the uncertainties caused by a slew of elections worldwide, we can expect slower global economic growth of below 3 per cent, as projected by the IMF and many other global institutions.

Nevertheless, Malaysia goes into 2024 backed by steady macroeconomic performance in 2023, with estimated GDP growth of 4 per cent, lower inflation and strong momentum in tourism and our key semiconductor exports poised to be lifted by the global technology upcycle. By the third quarter of 2023, Malaysia’s Ministry of Investment, Trade and Industry had approved FDI commitments of RM225 billion (US$48.5 billion), exceeding our full-year target of RM220 billion.

Political stability has also enabled Malaysia to clarify economic direction through the Madani Economy agenda, underpinned by policies such as the New Industrial Master Plan (NIMP) 2030, National Energy Transition Roadmap (NETR), Chemical Industry Roadmap (CIR) and National Industry ESG Framework (i-ESG).

These frameworks are not mere buzzwords — they are key catalysts to Malaysia’s re-industrialisation. The NIMP is instrumental to Malaysia’s second industrial and economic take-off, and we must get it right. Indeed, re-industrialisation is a strategic imperative for our economic future.

This ensemble of policies has also given Malaysia a new ethos and a clear focus on inclusivity and sustainability. Under the Madani Economy banner, we are working to raise the floor by improving social safety nets while also raising the ceiling by activating growth enablers. We aspire to position Malaysia to be an economic force to be reckoned with.

Three challenges and opportunities are foremost on my mind.

First, countries need to be constantly on the ball regarding technology adaptation and transition, diligently developing both infrastructure and human capital. Malaysia is embracing tech in several ways. One of the NIMP’s key initiatives is transforming 3,000 smart factories to encourage the industry to “tech up” and create high-skilled jobs. To be known to global investors as the destination for high-end manufacturing, we must quickly ramp up our smart factory setup and maximise the number of mid-tier companies elevated into global supply chains.

Meanwhile, there needs to be some global consensus, with clear policy frameworks, on governing artificial intelligence (AI) and dealing with its implications. The longer the world waits, the more challenging it will be to implement proper governance, including ethical standards.

The second challenge and opportunity concern intra-ASEAN competition, and geopolitical instability more generally. ASEAN competition and centrality, often projected as strengths, will be hindered if the region’s partners adopt a zero-sum approach to business.

We ignore the risk of new conflict at our peril. The decades of peace Southeast Asia has enjoyed were built through hard work and compromises, but vulnerabilities remain. Without a proper restraint mechanism for conflict escalation, a war could start quickly in this region. The “opportunity” here is for ASEAN to emerge as an influential middle powerbroker, to ensure that cooler heads and maturity prevail in Asia. ASEAN is getting stronger, and our member nations can collectively contribute to securing regional peace and security so that trade and investment can continue to flourish.

This is a tall order, but there must be more serious efforts for the U.S. and China, alongside Russia, to co-exist in a workable and productive way because there’s too much at stake. China’s confident nationalism needs to be recognised. Currently, it seems defensive and its “wolf warrior” public diplomacy is unproductive in the long run. However, we must also be mindful that China is still dealing with the impact of the Century of Humiliation and concern over America’s presence in the South China Sea.

ASEAN must continue engaging with China and other key ASEAN trading partners based on the bloc’s established neutrality. Malaysia foresaw the benefits of engaging with China 50 years ago — we were the first ASEAN country to establish diplomatic relations with China. Today, all ASEAN countries have diplomatic ties with China. But to advance such relations, we should be promoting the concept of ASEAN+, where we continue to strongly engage other Asian countries, including Japan and South Korea.

Internally, ASEAN should be looking at coordinating and complementing our efforts. For example, when a member country of ASEAN receives an FDI inflow, other members of ASEAN should work out the spill-over effect — getting a slice of the supply chain to benefit their individual economies. There must be a shift in mindset: from a zero-sum game to complementarity, from racing to the bottom to racing to the top.

Disparities between ASEAN economies will expose more fault lines and leave the region weaker and vulnerable to external influences in the super-power chess play. Prosperity is the key to stability, and stability will secure our place at the high table of an ever-evolving world order.

The third challenge is the need to green our economies, addressing climate change which poses big risks and increasingly stirs existential anxiety. The shortcomings of COP-28 notwithstanding, industries will face pressure to “clean up” and must be equipped for imminent tighter regulations in key markets. Malaysia has begun implementing our National Industry ESG Framework (i-ESG) to get our industries up to speed on sustainability disclosures. Otherwise, Malaysian manufacturers and exporters risk being shut out of major ESG-sensitive markets. On the flip side, there are also US$12 trillion worth of opportunities in the global ESG-focused market for our industries to capture.

Malaysia is making a strong comeback. We are firmly back on global investors’ radar, and we will want to continue being there for the foreseeable future. We understand that all bilateral and multilateral relationships, including with ASEAN countries, require focus and effort — which are present and growing in Malaysia’s leadership.

Ultimately, a just transition is needed for climate action and renewable energy adoption. There will be winners and losers, and the ESG pursuit should not be at the expense of anyone’s standard of living or any country’s development. More needs to be done to give low- and middle-income countries more say in how the Loss and Damage Fund is governed. It should not be exclusively dictated by Western institutions; it should involve other global financial institutions, especially in regions such as Southeast Asia which are bearing the brunt of climate change. This must be urgently added to ASEAN’s high-priority to-do list moving forward.

The world may be in a perma-crisis, but this is not a time for inaction or gloom. This is a moment for leadership, based on a full understanding of what is really at stake.

Malaysia is making a strong comeback. We are firmly back on global investors’ radar, and we will want to continue being there for the foreseeable future. We understand that all bilateral and multilateral relationships, including with ASEAN countries, require focus and effort — which are present and growing in Malaysia’s leadership.

And while we will do all we can to support Laos’ 2024 chairmanship, Malaysia has started strategising for its own Chairmanship of ASEAN in 2025. Our agenda will be clear and purposeful, to also get the support from key Asian countries like China, Japan and South Korea for the region’s progress.

2024 will be a tough year, perhaps. But if we stay focused and strengthen cooperation, there’s no reason why it cannot be a good one on many fronts.

2024/9

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This article is condensed from Minister Tengku Zafrul’s speech at the S. Rajaratnam Endowment Dialogue, co-organised by ISEAS – Yusof Ishak Institute and Temasek Foundation, on 11 January 2024 at the Sands Expo and Convention Centre.