Russia and Malaysia: The 2023/24 Trade and Investment Dynamics
19/10/2023(Russia Briefing) - Russia and Malaysia, two diverse and dynamically growing nations, have traditionally maintained a robust trading relationship. As the shifts in global economy and connectivity take place, these two nations have continued to foster closer economic ties. This has been particularly evident during 2022 and 2023 when numerous negotiations, agreements, and joint ventures, were planned to expand the partnership. The two countries see that both geographically and potentially economically, they can serve as a window to greater cooperation between the Eurasian Economic Union (EAEU) and ASEAN.
However, as at the moment, the Russia’s trade re-focus from the West to Asia has not yet impacted its trade and investment relations with Malaysia.
Russia – Malaysia Bilateral Trade
In 2021, the bilateral trade turnover between the countries increased by 23.8% and reached US$2.66 billion – a figure which grew by another 12.1% in 2022. A deep dive into the products traded reveals a diverse portfolio. Malaysia remains a key importer of Russian agricultural products, bringing in grains, oilseeds, meat, and dairy products. In return, Russia receives palm oil, rice, and fruits from Malaysia. Energy resources, primarily oil and gas, along with metals and chemical products, form the crux of exports from Russia to Malaysia. Malaysia reciprocates with exports of cars, electronics, rubber, and palm oil.
Trade in agricultural products and food between Russia and Malaysia saw an 18% uptick in 2022. Russia’s agricultural product exports to Malaysia totalled US$620 million.
Russia is also interested in exporting Malaysian high-tech equipment. Malaysia is one of Asia’s largest semiconductor exporters with an annual volume of US$8.7 billion. The electronics sector contributes almost 6% of Malaysia’s GDP. Russian market is also interested of medical products, medical equipment, in particular in the field of dentistry. Around 31-32% of Malaysian exports to Russia are electronic goods.
Malaysia has a developed auto industry, in particular the Proton and Perodua brands. In 2022, the country produced more than 700,000 cars – more than Russia. Given the flight of Western companies from the Russian market the latter is now more open to the influx of Malaysian cars. This fits into the overall shift which is taking place in Russia since early 2022 – Asian car brands are becoming increasingly attractive to Russian customers.
Russian and Malaysian companies have now increasingly been switching to payments in Chinese yuan, dirhams and other currencies. Yet for this mechanism to work, there must be common elements between participating states. Among the most important elements is the issue of determining the volume of trade and investment, which should be significant in order for payments in non-dollar currencies to be effective.
Another strategic move by the two countries to boost trade and investment is the finalization of a new Double Tax Agreement (DTA) between the two nations. This treaty aims to streamline and simplify the tax regime for businesses operating in both countries, fostering a more conducive environment for mutual investments. This treaty will set a standard 15% withholding tax rate on dividends. A 10% concessional rate will apply to recipients who hold a minimum of 25% of the capital in the dividend-distributing company. This follows an agreement signed in 2019 which covers mutual cooperation and the development of relations between Russia and Malaysia.
In a noteworthy event in May 2023, the “Russia – Islamic World: Kazan Forum” provided an avenue for detailed discussions on trade. Within this forum, the “Russia-Malaysia” segment facilitated by the Trade Mission of the Russian Federation in Malaysia and the Ministry of Economic Development of the Russian Federation explored ways to further amplify the trading relationship.
Bilateral Investments
Russia and Malaysia are progressively fostering collaboration in high technology, innovation, and even the space industry, indicating the multifaceted nature of their relationship.
In March 2023 a delegation of the Malaysian holding Maharani visited Tatarstan in search of partners for the implementation of Maharani Energy Gateway infrastructure projects.
In July 2023 the Malaysian Space Agency and the Russian space agency Roscosmos agreed to form working groups on collaborative space projects. The two parties decided to form working groups to go over each potential area of collaboration in depth.
Both countries hope that the flow of Russian tourists will resume to the pre-pandemic levels. when about 80,000 tourists from Russia visited Malaysia. The expectation is that throughout 2023 the numbers of Russian tourists will reach similar levels. Malaysia issues entry visas to Russian citizens for a period of 30 days upon arrival in the country, free of charge.
Yet there are significant challenges to bilateral tourism. Both countries use transit flights given the fact that there have been no direct flights since 2000. Direct flights are planned to be launched by 2025. With more than 1,500 Malaysian students annually studying in Russia direct air contact is important.
Looking ahead Russia and Malaysia will remain cooperative. Yet Russia still is not central to Malaysia. Indeed, currently about 71% of Malaysian exports go to Asian countries, 13% to North America, and only about 9% to Europe. The Russian market is peripheral.
During the Q1 2023, Malaysia’s top 30 export partners did not include Russia. In terms of imports to Malaysia, Russia came in at 21 with a 10% decrease in value from the first quarter of 2022.
The tempo of cooperation remains limited. For Russia the bilateral ties are mostly trade-focused, while Russian investments into Malaysia are negligible. Geographic constraints and international geopolitical conditions hamper any closer alignment as Malaysia strives to avoid incurring secondary Western sanctions.
Yet both countries recognize the need of deeper bilateral and EAEU-ASEAN cooperation. In this regard, there are still notable challenges to address, particularly relating to standards and adherence. ASEAN remains predominantly driven by trade motivations not geopolitics. While there are administrative hurdles to overcome and trade discussions to finalize, the potential trade alliance between ASEAN and EAEU is a development that is emerging and will benefit both sides. Initiatives are being set in motion for the creation of fresh supply chains.