Will Malaysia’s Recent Revamp of the Government Undo Alibaba’s Investments into its eCommerce Industry?

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The recent elections in Malaysia will go down in its history books as among the most significant moments in the country.

One of them was the end of the 63-year reign by the political party Barisan Nasional (BN) since the country’s independence. Second is the swearing in of the oldest prime minister in the world at 92 years old, and finally, the uncovering of various controversial issues such as the misappropriation of billions of dollars intended for the development of the country through the 1 Malaysia Development Berhad (1MDB).

While many Malaysians welcome the change of its government, the revamp has affected certain industries. This was evident as Malaysia’s stock market responded to the swing of the government ruling power by dumping stocks with perceived links to the country’s former prime minister and BN.

In addition to this, online stores in Malaysia experienced a dip in online traffic since shoppers diverted their attention to the local political situation. A study by iPrice noted the following during the elections period from 8-10 May 2018:

A day before the elections (8th May):
– 34.8 percent decline in online traffic at 10:00PM (8th May) when compared to the same time in the last period (10 April 2018). This is significant because online traffic would reach its highest point around 10:00PM on regular days.

On elections day (9th May):
– On usual weekdays, online traffic in Malaysia would reach its highest points at about 11:00AM, 3:00PM, and 10:00PM. On elections day, online traffic reached its peak at 5:00PM and steadily declined for the rest of the day.
– On usual weekdays, Malaysians are actively shopping online in the evening until 12 midnight. On election night, online traffic was 50.6% lower than usual since most Malaysians remain awake for the results.

After elections day (10 May):
– On a regular Thursday, eCommerce platforms usually experience a steady increase in online traffic in the morning. However, online traffic was 56.5% lower than usual as Malaysians awake to the announcement of the elections results and public holidays.
– As mentioned earlier, online shopping would reach its highest point at about 10:00PM on regular weekdays. However, this was not the case as Malaysia witnesses the swearing-in of its seventh prime minister close to 10:00PM. Online traffic was 39.7% lesser than usual at 10:00PM.
During the elections period (8-10May):
– Overall, there was a substantial decline in the number of online shoppers on both desktops and mobile devices.

However, the change of government officials might affect the eCommerce industry beyond this. Prior being elected as prime minister, Dr Mahathir pledged to scrutinize Malaysia’s current ventures with China as he believes it does not benefit the country. This is concerning since Chinese investment has skyrocketed in Malaysia in recent years.

An estimation by DBS Bank states that about US$2.36 billion went from China to Malaysia, an increase of almost 350 per cent from 2013. South China Morning Post reported that a total of US$134 billion worth of Chinese investment could face tougher government scrutiny.

Are Chinese Investments into Malaysia’s eCommerce Sector in Jeopardy?
Among the key investments into Malaysia includes the set-up of Alibaba’s first Digital Free Trade Zone (DFTZ) outside of China in the country. The DFTZ was part of Beijing’s ambitious infrastructure project (Belt and Road initiative) and is expected to help small businesses and boost eCommerce transactions between Southeast Asia and China but some fear it would hurt Malaysian firms.

CNBC reported that a core element of the scheme is an electronic world trade platform (eWTP) which is designed to ease trade between Malaysian and Chinese firms. The online platform, slated to take effect in 2019, will connect online businesses, manage cargo authorizations and assist on customs. Brick-and-mortar facilities in the Malaysian capital will also help with logistics.

The concern? Critics said the Chinese eCommerce giant holds too much control over the process. In fact, the concern mirrors international worries around the Belt and Road initiative, which is widely seen as an attempt by China to construct a massive, multi-national zone of economic and political influence witB eijing at its center.

The news site concludes stating the DFTZ is just one example of Malaysia’s participation in Belt and Road. Former Prime Minister Najib Razak has agreed to several rail projects and a deep-sea port as well. Now that China has lost its ‘friend at the top’ in Malaysia, will we see the rollback of Chinese investments?

Fung Siu, an Asian specialist with London-based consultancy Economist Intelligence Unit does not think that China-Malaysia investments will go back to the drawing board. “Any review of Chinese investment deals are likely to be small-scale,” Siu said on SCMP “Mahathir’s rhetoric is tough, but he and his cabinet will need to do a thorough assessment of the economy before making this decision.” she continues.

In fact, investments that are at risk will probably be deals that the elected government deemed disadvantageous to Malaysians. The soon-to-be Finance Minister of Malaysia stated he will only “review all contracts that do not favour or do not benefit Malaysia.”

According to the Malaysia Digital Economy Corporation (MDEC), DFTZ was erected solely to double the nation’s eCommerce growth and increase the GDP contribution to RM211 billion (approximately US$47.68 billion) by year 2020. If the DFTZ has stayed on its course and remained true to its purpose it is likely the efforts by Jack Ma and Alibaba will remain undisturbed.

The numerous investigations on the former government on allegations of misappropriation of funds and the uncovering of various controversies has definitely left a bad taste to many. But, this is unlikely to affect the eCommerce sector in Malaysia and its investments from China if it has shown proof that it has benefitted Malaysians. Or has it? Time will tell.

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