Malaysia’s green transition can fuel its economic growth

As the green transition takes on greater significance around the world, policymakers, industry players and other stakeholders are changing the way they look at economic priorities. Malaysia, under Prime Minister Anwar Ibrahim, has embarked on its own path to sustainable transformation.

Key developments towards this goal include the launch of the Ekonomi Madani Framework, the National Energy Transition Roadmap (NETR) and the New Industrial Master Plan 2030, along with subsidies, infrastructure and semiconductor development strategies.

Beyond Malaysia’s sustainability goals and the imperative of mitigating climate risks, another key factor for these policies is because the green transition could be a new engine for growth.

Malaysia must take advantage of these opportunities after undergoing de-industrialisation for the past two decades after the Asian Financial Crisis and especially since China joined the World Trade Organization (WTO) in 2001 and became the factory of the world.

The world is also different from what it used to be, after the outbreak of COVID-19 in 2020 and the Ukraine War in 2022. Supply chain resilience has taken over as a priority among corporations, instead of just efficiency. These corporations look to source from secure suppliers in friendly nations and redundancy is now a crucial consideration when it used to be seen as a waste of resources. Investors are actively relocating to Southeast Asia in an effort to cater to the market outside of China.

Together with these geopolitical shifts, increasing digitalisation and the global trend towards sustainability are driving the development of the renewable energy, electric vehicles (EV) and artificial intelligence industries, which all rely  on semiconductors.

Malaysia has a mature semiconductor industry that dates back 50 years and is today the sixth-largest exporter of semiconductors in the world. These chips go into everything from computers to electronic devices to automobiles.

The EV market is becoming increasingly robust. The International Energy Agency states that in 2023, more than one in three new car registrations in China, one in five in Europe and one in ten in the United States was electric. Demand will only go up, creating a big opportunity for Malaysia given that an EV  uses many more semiconductors than a conventional car.

The government therefore has huge incentive to encourage Malaysians to transition to EVs and move away from fossil fuel, especially as it faces a fiscal burden exacerbated by fuel subsidies that are expected to cost up to US$11 billion (RM 52 billion).

The NETR is aiming for EVs to form 80 per cent of total industry volume by 2050. As a result, Malaysia has rolled out several measures to boost EV adoption, including building more EV chargers along major highways and at destinations like hotels, shopping malls and public spaces. Exemptions from import duties and road tax for EV users are also included under the roadmap.

The Anwar government seeks to move the perception of EVs beyond just a means of reducing carbon emissions into an opportunity for growth, innovation and industrial development. There are full tax exemptions and extended duty exemptions for certain EVs in the country, and components used in locally-assembled EVs are exempted to the end of 2027. These efforts will encourage local production of Evs at affordable price points.

This presents a chance for Malaysia to expand its semiconductor industry and eventually move up the value chain to front-end activities. The government is deploying at least US$5.3 billion (RM 25 billion) of fiscal resources to move from the back-end to the front-end of semiconductor manufacturing, foster talent and grow local companies. The goal is also to establish at least 10 companies in design and advanced packaging with revenues up to US$1 billion and at least 100 semiconductor-related companies with revenues close to US$212 million (RM1 billion), creating higher wages for Malaysian workers.

Achieving these goals will be easier with Malaysia’s abundant renewable energy resources including solar, hydropower, hydrogen and bioenergy. Malaysia is a major hub for solar manufacturing and there is significant potential for growth and job creation in this field.

The green transition may lead to diminishing job opportunities in emission-intensive industries such as oil and gas, conventional vehicle manufacturers and fossil fuel power. It is therefore important that the government steps in with policy and programs to provide support, upskilling and training to bridge the gap between existing skilled workers and the future of the industry.

Malaysia is attempting to redefine the role of the state in its green transition, semiconductors and the overall economic agenda. Kuala Lumpur envisions a capable and assertive state to usher in this new era.

Malaysia’s skilled and educated workforce, mature industrial ecosystem and strategic geographical location make this goal all the more within reach. A non-aligned outlook in geopolitics will also help the country capitalise on the current global context and seek out the best opportunities for its economy.

With the right policies in place, Malaysia will be able to accelerate its economic growth and development as the world undergoes the green transition.

Ng Wei Ling is the Special Functions Officer to the Deputy Minister of Investment, Trade and Industry of Malaysia.