New Delhi Times (22/04/2019) - Palm Oil production is vital for the Malaysian economy. Malaysia currently accounts for 39 % of world palm oil production and 44% of world exports. If taken into account of other oils & fats produced in the country, Malaysia accounts for 12% and 27% of the world’s total production and exports of oils and fats. Now, Malaysia is looking to extract benefits of palm oil beyond business needs and seeks to leverage its expansive palm oil resources for supporting military procurement.

Teresa Kok, Malaysia’s Minister for Primary Industries, said the countertrade of palm oil in exchange for material would save local jobs, preserve state budget, as well as bolster military capabilities. “We most welcome such trade offset deals, which will also save us foreign exchange while boosting the sale of our palm oil,” Kok said in comments reported by local media on 17 April.

Palm oil is one of Malaysia’s most important commodities, contributing nearly 5% to the country’s GDP with exports in 2018 reportedly worth MYR62.7 billion (USD15 billion). Kok made the comment in reference to planned defence talks between Malaysia and Russia during Defence Minister Mohamad Sabu’s four-day visit to Moscow from 20 April.

Russia is one of Malaysia’s biggest palm oil export customers and has recently stated a willingness to accept palm oil in return for military equipment . Kok said that other countries to be similarly open to palm oil-based countertrade deals with Malaysia include China, India, Iran, Pakistan, Turkey, African and Middle East nations.

Malaysian palm oil exports to European countries have been complicated by a decision in 2017 by the European Parliament to ban the use of palm oil in European biofuels by 2020, citing environmental concerns.
In terms of defence trade, the ramifications for Malaysia were highlighted by comments in March by Malaysian Prime Minister Mahathir Mohamad, who indicated that the European ban could influence procurement decisions. “If they keep on taking action against us, we will think of buying airplanes from China or any other country,” he was quoted as saying by the official Bernama news agency.

Countertrade is one of several options under Malaysian defence procurement and related industrial collaboration rules. The method of payment is listed as one of several activities through which defence exporters can fulfil industrial co-operation obligations. This strategy – supported by the Malaysian government’s Industrial Collaboration Programme (ICP) – also includes activities such as technology transfers, local production, and the export of defence equipment.

Analysis

Viktor Kladov, the director for international co-operation and regional policy at Russia’s Rostec defence industrial holding company, said, “Palm oil has many uses. We have met with Malaysian ministers and we have made it very clear that Russia is ready to drastically increase its imports of Malaysian palm oil if it helps Malaysia’s efforts to modernise the armed forces. We are very willing to co-operate.”

This openness to co-operate with Malaysia on palm oil reflects Russia’s traditional position. In the early 2000s, for instance, the Royal Malaysian Air Force (RMAF) acquired 18 Su-30MKM fighter aircraft in a deal worth MYR3.42 billion (USD840 million). In part payment for the aircraft Russia acquired Malaysian palm oil worth MYR1.06 billion.

Malaysia is also interested in leveraging palm oil exports to support its programme to procure light combat aircraft. Russia has positioned its Irkut Yak-130 advanced jet trainer/light fighter to meet the requirement.
There are several factors prompting Malaysia to seek to leverage palm oil in exchange for military equipment. These include flagging sales of palm oil (partly impacted by the European ban), the thousands of Malaysian jobs that depend on palm oil, the need to bolster Malaysia’s military modernisation efforts, and Malaysia’s declining defence budget.

The country’s defence budget for 2019 was initially set at MYR13.91 billion, a year-on-year decrease of 10%, representing its lowest level as a share of the government budget since the 1980s. The defence budget has since been increased to MYR15.5 billion, but this too is still behind levels of spending a few years ago.

The defence cuts have been a response from successive governments pursuing a process of fiscal consolidation aimed at eliminating the country’s budget deficit – which will stand at 3.4% of GDP in 2019 – and reducing sovereign debts.

Read more at https://www.newdelhitimes.com/using-palm-oil-for-boosting-defence-capability-malaysias-new-strategy/