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#59 Navigating the Another New Norms: A Guide for Foreign Investors in Malaysia 2023


The new government of Malaysia has made it clear that restoring investors' confidence and increasing foreign direct investments (FDI) are among their top priorities. With this in mind, companies with investments in Malaysia and those planning to invest in the country should be aware of the following trends for 2023.


ESG Shift


First and foremost, companies will need to become compliant with environmental, social, and governance (ESG) standards due to increasing legislation. According to a recent survey by the managing consulting firm McKinsey, 94% of CXOs reported that their responsibilities relating to ESG had expanded compared with three years ago. 47% of respondents indicated that the increase in responsibilities was significant. This trend is partly driven by legislation such as the German Supply Chain Responsibility Act which is in force as of January 1st 2023. In simple terms, this law requires companies to shift the responsibility of ESG-compliant procurement to themselves. They face fines if they do not apply the necessary due diligence in selecting their direct and indirect suppliers. Germany is just the beginning, the EU Council has adopted its position on due diligence rules for large companies and we will very likely see the corporate sustainability due diligence directive in 2023. This is on top of other environment-related legislation.


Tech Boom


Secondly, foreign investors should watch out for the "Tech Boom" in Malaysia as there will be growth in the technology sector, particularly in e-commerce, digital payments, and data analytics. With the ongoing pandemic, the shift towards online shopping has accelerated and Malaysia is positioning itself to be at the forefront of this trend. The government has also announced plans to increase the use of digital payments and to develop a national data analytics ecosystem.


Rights Up


Thirdly, companies should prepare for "Rights Up" as employees in Malaysia will have more rights and benefits due to changes in the Employment Act 1955. As of January 1st 2023, having employees in Malaysia has become more expensive. This is not only due to increasing reports of foreign investors finding it harder to attract local talent, but also due to the implementation of the Minimum Wages Order 2022 and the changes to the Employment Act. These changes give employees more rights, including 98 days of paid maternity leave, which is an increase of over 60% from the previous 60 days. Terminating pregnant employees is also much harder now and for the first time in its history, Malaysia has introduced paternity leave, albeit for a very short period of time. Employees are further entitled to longer sick/hospitalization leave and their weekly maximum working hours are reduced from the current 48 hours to 45 hours. They also receive much more protection in case of discrimination and in case of sexual harassment, with fines of MYR 50,000 likely being a significant deterrent.



Infrastructure Surge


Fourthly, there will be an "Infrastructure Surge" in Malaysia with the government investing in infrastructure projects such as transportation and renewable energy. These investments will not only improve the country's infrastructure but also create new business opportunities for foreign investors.


New Norms


Lastly, companies should anticipate changes in consumer behavior and an increased focus on health and safety due to the ongoing COVID-19 pandemic. The "New Norms" will affect industries such as tourism, hospitality, and retail as people adapt to the new normal. Companies should be prepared to address these changes and adapt their business models accordingly.


In conclusion, foreign investors in Malaysia should be aware of these five trends in 2023 to navigate the new business landscape. Companies should prepare for "Rights Up" as employees will have more rights and benefits, become ESG-compliant, capitalize on the "Tech Boom", take advantage of the "Infrastructure Surge" and adapt to the "New Norms"


TL;DR

  • ESG Shift - companies will need to become compliant with environmental, social, and governance standards due to increasing legislation.

  • Tech Boom - growth in the technology sector, particularly in e-commerce, digital payments, and data analytics.

  • Rights Up - workers have more rights and benefits due to changes in the Employment Act, increasing costs for employers.

  • Infrastructure Surge - government investments in infrastructure projects, such as transportation and renewable energy.

  • New Norms - changes in consumer behavior and increased focus on health and safety due to the ongoing COVID-19 pandemic.

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