Malaysia

Challenges and opportunities for Malaysian Top Glove in the year of Covid-19

The world’s largest manufacturer of latex gloves has racked up record profits this year, but has also closed 28 factories 

Top Glove è un’azienda malese produttrice di guanti in gomma, specializzata anche in mascherine per il viso e altri prodotti. L’azienda possiede e gestisce 41 fabbriche in Malesia, Cina, Thailandia e Vietnam, e produce 220 milioni di guanti di gomma usa e getta al giorno, esportando in 195 Paesi con oltre 2.000 clienti in tutto il mondo. Due terzi dei guanti in lattice del pianeta sono realizzati in Malesia, con Top Glove che ne produce uno su cinque. I mercati più grandi dell’azienda sono il Nord America e l’Europa. 

“Urgent demand for medical supplies appears to have become the norm for Top Glove”, Executive Director Lim Cheong Guan told reporters, adding that demand should continue to grow. “We expect there will still be a shortage of gloves in the next three years”, he added. “The potential increase in demand is mainly due to the fact that current glove stocks are at extremely low levels in our customers’ warehouses”. The company estimates that demand for gloves will grow by 20% this year, 25% next year and 15% after the pandemic.

Due to the sharp increase in demand during the pandemic, the company’s value has multiplied at least six times this year, altering the composition of the Malaysian stock market and becoming one of the highest-rated companies in the country. In the financial year ending August 31, 2020, the demand for rubber gloves was so strong that the company increased full-year earnings to more than a billion, a record figure that has significantly increased the value of the company's shares. Building on these results, in November 2020, the company also donated a total of $45 million to the Covid-19 government fund set up to fight the pandemic.

However, in the same month, an outbreak emerged in the Meru plant, a town in the Klang district of Selangor, the most developed state of Malaysia, forcing the management to opt for the temporary closure of 28 plants in the country, causing a decease by 10% of the company’s stock value. The company's shares fell another 3.5% last week, but still rose 337% since the beginning of the year. Out of 5,767 employees subjected to controls, 2,453 tested positive for the virus, highlighting the need for drastic actions to contain the damage on an epidemiological level. Most of the positive cases in the cluster are workers, mostly foreign immigrants from Nepal, who often live in unsanitary conditions in large and crowded housing complexes.

In fact, this year Top Glove was in the global spotlight not only for its record profits, but also for allegations of labor exploitation practices. In July, the United States banned the importation of gloves from two of the company's subsidiaries due to concerns about forced labor. Glorene Das, Executive Director of Tenaganita, an NGO based in Kuala Lumpur, told the BBC that “these workers are vulnerable because they live in crowded shared apartments and do jobs that do not allow them to practice rigorous social distancing”.

Faced with the controversy, Malaysian Defense Minister Ismail Sabri Yaakob announced that authorities will immediately begin enforcing new workers’ housing rules and imposing fines of approximately $ 12,300 for each employee living in unregulated housing, they have also been allocated 25 million dollars for the renovation of housing complexes. In addition, the country’s authorities tested all Top Glove workers in the factories and dormitories concerned with the aim of limiting the outbreak and limiting the damage. According to the Minister of International Trade and Industry Mohamed Azmin Ali, in fact, it is necessary to enable the company to continue production as soon as possible, since Top Glove is one of the few companies in Malaysia focused on the production of plastic sanitary materials and one of the most important in the global market.

Despite this unexpected obstacle, Top Glove’s presence and business continues to be of great significance to Malaysia and the rest of the world using its quality products. During this year, the company was able to set aside enough resources to expand manufacturing capacity to 100 billion pieces in the next five years. This year’s global crisis has put a strain on the dozens of rubber glove manufacturing factories scattered across Southeast Asia, but has also put them in the conditions to expand production and play a crucial role in the fight against the pandemic. 

  By Diego Mastromatteo           

The Road Ahead for Malaysia

Income gap and sustainability issues remain a challenge as the country works to achieve its 2030 goals

Over the years, the economic development of Malaysia has been nothing but impressive. Since its independence from the UK in 1957, the country has been focusing all of its effort on strengthening the economy and improving the welfare of its citizens. For almost 5 decades until 2018, Malaysia recorded a stable GDP growth at an average rate of 6.1% per year, according to a report from OECD. The country also has a relatively high human development index at 0.804 – the third-highest in ASEAN after Singapore and Brunei Darussalam.

On top of these notable achievements, Malaysia set a high bar also for its medium and long term objectives. Not only does the country aim to achieve high-income status by 2024, but it is also working towards achieving sustainable growth and equality across all income groups, ethnicities, and regions – as outlined in the Shared Prosperity Vision 2030 document. Nevertheless, in working towards these goals, the country still needs to tackle several challenges both at home and abroad.

One of the most pressing issues in Malaysia is structural differences. Officially, Malaysia’s social fabric is divided into two segments: the majority Bumiputera or the Malay population, and the minority ¬non-Bumiputera, which mainly consists of Chinese and Indian populations. Historically speaking, economic disparity has always been an issue between the two groups, as national wealth used to be largely concentrated in the hands of the market-dominant Chinese population. However, although progresses are being made with regards to equal opportunities between groups, today the divide is still evident. The income gap between Bumiputera, Indians and Chinese has increased four times in the past 27 years. For this reason, the government is trying hard to create a balance between all ethnic groups, in particular by adopting the Bumiputera empowerment agenda, which aims to boost the population’s socio-economic standing. Moreover, the government is also committed to putting more attention on the development of other non-Bumiputera populations, to ensure everyone receives equal access to education, work, and opportunities.

Another issue that might hinder economic development is palm oil, and its effects on Malaysia-EU trade relations. Palm oil is one of Malaysia’s primary industries , accounting for 2.8% of the country’s GDP, and Malaysia is the world’s second-largest producer of palm oil after Indonesia. Since 2010, the Malaysian government and the EU have been working towards establishing a Free Trade Agreement. However, negotiations are on hold due to diverging views on the environmental impact and the sustainability issues associated with the production of palm oil. The initial reaction of the European Parliament on the issue was to ban the use of palm oil for biofuels by 2030. However, looking at the economic consequences of this decision, the EU decided instead to limit the amount of high-risk Indirect Land Use Change (ILUC) biofuels in entering its market. By definition, ILUC occurs when agricultural lands previously used for growing food are converted for biofuel production, resulting in the release of carbon emissions into the air. Biofuels categorized under the high-ILUC risk categories are those that are produced from areas that have a higher concentration of carbon such as forests, wetlands and peatlands.

Although this decision created a degree of leniency, it is still difficult for Malaysian palm oil to qualify under the low-ILUC risk category. The government is now working towards expanding the production of sustainable palm oil. This is done by restricting the development of peatlands, banning the conversion of forest reserves for palm oil, and certifying local plantations with the Malaysian Sustainable Palm Oil (MSPO) certification. Doubts remain on whether or not this certification system can be recognized by the EU, and a win-win solution is yet to be agreed. Experts are advising both parties to reassess their terms of engagement in order to create a more favorable outcome for both the palm oil industry and the global environment. 

Considering the above-mentioned elements, Malaysia faces a challenging situation. The income gap and sustainability issues remain detrimental, as they can significantly affect the country both internally and externally. However, the government is highly committed in addressing these problems, and the country appears to be on the right track to recover from the Covid-19 pandemic and continue the path to achieve its 2030 goals.

By Rizka Diandra and Alessio Piazza 

Behind the origins of the EU-Malaysia tensions

Diverging views on palm oil fuel could prevent further collaboration.

Based on the European External Action Service’s data, the EU is Malaysia's third largest trading partner and accounted in 2014 for 9.9% of Malaysia's total external trade in goods. At the same time, Malaysia ranked as the EU's 23rd largest trading partner, the second largest trade partner in the South East Asia region. 2010 marked the start of the negotiations of the EU-Malaysia Free Trade Agreement; however, negotiations came to a halt, due to differing views on palm oil, and on how to reconcile economic interests with environmental imperatives.

The crux of the conflict between the EU and Indonesia lies in the EU's decision to phase out palm oil-based biofuel as an energy source. The Renewable Energy Directive (RED) I of 2009 encouraged and facilitated Southeast Asian countries like Malaysia and Indonesia to export palm oil to the EU. However, in recent years Europe has operated a radical change in discourse concerning palm oil, which is today widely considered dangerous for environmental protection.

Indeed, the main reproach made to the palm oil industry is the fact that it is a land-intensive production. The main consequences of this model are massive deforestation, soil degradation and a worrying increase of air pollution, namely through greenhouse gas emissions.

Pressure from European consumers finally convinced the EU Parliament to progressively ban the use of palm oil by 2030, and to revise the Directive (RED II) in 2018 to define benchmarks for biofuels. This change complicated relations between the EU and Malaysia. In fact, Malaysia and Indonesia (the two countries together produce more than 85% of the world’s palm oil) considered this move as a protectionist measure and asked support to other ASEAN countries to bring the case in front of the World Trade Organisation. After month of negotiations with the Energy Commissioner Kadri Simson, Malaysia stepped back from its initial intentions, but until the case has been resolved, it will keep penalising EU products in retaliation, and slow down any discussion regarding the FTA.

Not only does palm oil contribute around 5 per cent of Malaysia’s annual GDP, but also provides millions of people with stable job and wages. For this reason, it is also a matter of political and social concern.

The Malaysian government wants to persuade the EU that Malaysian palm oil was much greener than its critics claim, and to push the Union to revise its decisions by 2021. Until then, controversy between economic priorities and environmental commitments will keep hindering progress toward negotiations for an FTA.

 

Article edited by Valentina Beomonte Zobel.

Malaysia during the Covid-19 emergency

The crisis has hit the country mainly from an economic point of view, but there are also opportunities

With the aim of better understanding how Malaysia coped with the health crisis and its economic and social impact, on May 19th the Italy-ASEAN Association organized a webinar with Zuraida Kamaruddin, Malaysian Minister for Housing and Local Government, and Giovanni Andrea Toselli, CEO of PwC Italy.

Today, like most countries, Malaysia is suffering the consequences of the Covid-19 pandemic. However, the Malaysian government was able to promptly put in place significant measures aimed at tackling the medical, economic and social impact of the crisis.

With regards to the containment of the health crisis, as soon as the numbers started to grow in mid-March, the government immediately imposed lockdown and social distancing measures in the country, leaving only essential medical and grocery services open and active. No large gathering or private visits to friends and relatives were allowed, not even to celebrate Ramadan. Moreover, all people coming from abroad have to undergo two weeks of quarantine in special medical facilities, and only when checked will they be allowed to return to their homes. The government also dealt with the case of the many local workers operating in Singapore, developing a common protocol to protect the safety of all the citizens. To complete its approach with a regional dimension, Malaysia is engaging with ASEAN partners to develop a single coordination protocol aimed at effectively dealing with the consequences of the health crisis throughout South-East Asia. To date, the Malaysian authorities' intention is to phase out the containment measures gradually until 9 June, with a cautious and proportionate approach.

As for the economic impact of the pandemic, the government promptly intervened with strong measures to stimulate the economy and support businesses and workers. Among the main actions taken by the Malaysian government that are worth mentioning: the suspension of payment for rents, the extension of tax deadlines for SMEs, measures to support the unemployed and infrastructure investments. The stimulus packages for the economy have been among the most substantial in the Asia-Pacific area and for the moment Malaysia leads the ranking of ASEAN countries with an intervention of about 65 billion dollars. Despite the considerable effort however, the Malaysian Central Bank estimates the country's GDP growth in 2020 to be between -2% and 0.5%. The sector that is suffering the most for the moment is tourism, a fundamental asset of the Malaysian economy. The government is planning major support plans with the aim of boosting local tourism and relaunching international arrivals, when the conditions will allow it.

It is however interesting to highlight, that during this emergency, some sectors have had the opportunity to expand and develop. E-commerce platforms are growing in the country and demand for digital services is increasing. Smart-working is contributing to transform the scenario, generating new trends and creating opportunities. In addition, after the impact of this crisis, people seem to be more sensitive towards environmental and health issues in the country.

It is therefore important to underline that despite the economic and social consequences that the Covid-19 crisis is causing in Malaysia, the government’s prompt response and the dynamism of the Malaysian economy still allows the country to offer interesting opportunities for investors, especially with regards to the digital and tech sectors.

 

Article edited by Tullio Ambrosone.

27° Summit Asean

Ha avuto luogo a Kuala Lumpur – dal 18 al 22 Novembre 2015 – il 27^ Asean Summit al quale hanno partecipato i 10 paesi dell’Associazione.