Malaysia to Hold General Elections to Solve Political Turmoil: What it Means for Foreign Investors
Malaysia will hold snap elections on November 19 after Prime Minister Ismail Sabri Yakob requested the King dissolve Parliament. The country has been rocked with political instability since 2020 after two Prime Ministers and their respective coalitions resigned.
Foreign investors are expected to resort to a wait-and-see approach, eager to see how the new government tackles some general issues that hinder businesses, such as the shortage of foreign labor.
On October 10, 2022, Malaysian Prime Minister Ismail Sabri Yakob dissolved Malaysia’s Parliament, paving the way for a general election, scheduled for November 19, 2022, about a year ahead of schedule. The announcement was made two hours after the Prime Minister met with the country’s King, Sultan Abdullah Ahmad Shah, who has absolute discretion on whether to consent to a request to dissolve Parliament.
Malaysia’s political crisis began in 2020, which was caused by members of Parliament either switching parties or coalitions, combined with the economic fallout caused by COVID-19. Since then, the country has seen the resignation of two Prime Ministers and the collapse of each of their respective coalition governments.
Approximately 21 million Malaysians are eligible to vote. Ismail Sabri Yakob’s coalition has promised to keep him on as Prime Minister if they win the elections.
What does this mean for foreign investors?
Foreign investors are expected to resort to a wait-and-see approach while further political instability could increase the flow of foreign funds into new destinations in the region.
A 2023 report by the Ministry of Finance expects growth in private consumption to be moderate at 6.3 percent from 8.7 percent in 2022 whereas public consumption is expected to expand by two percent for 2023, up by one percent from 2022.
Although the economy is expected to grow between 6.5 and seven percent this year, it is expected to expand only by four to five percent next year.
Nevertheless, the pace of economic recovery is dependent on other factors such as geopolitical uncertainties, global inflation, support for the cost of living, and the successful containment of the pandemic.
Foreign investors will also be eager to see the new government’s plans to tackle the shortage of workers in the country. Export-reliant Malaysia, a key player in the global supply chain relies on millions of foreign workers for its manufacturing, plantation, and service jobs which are often shunned by locals as being ‘dirty, difficult, or dangerous’.return of migrant workers.
Palm oil output in the country is forecast to decline from last year’s 18.1 million tons, according to planters, due to a lack of skilled harvesters. Malaysia is the world’s second-largest producer of palm oil, behind Indonesia.
Uncertainty surrounding the state budget
Sabri’s government did pass an US$80 billion budget for 2023 before calling for elections. The budget aims to lower taxes for those earning between 50,000 ringgit (US$10,500) to 70,000 ringgit (US$14,700) per year from 13 percent to 11 percent, and those earning 70,000 ringgit (US$14,700) to 100,000 ringgit (US$21,100) from 21 percent to 19 percent.
There is also an income tax reduction for MSMEs for their first 100,000 ringgit (US$21,100) in earnings from 17 percent to 15 percent, among a slew of other grants and loans for businesses. There are also tax handouts for low-income earners.
However, the budget will have to be tabled again by the new government when they come into power, meaning that many of the incentives could change. Ismail Sabri has promised to implement the initiatives in his budget if given the mandate as Prime Minister.
How did Malaysia get here? A timeline
The 2018 general election and the dethroning of Barisan Nasional
In 2018, Pakatan Harapan (PH), a coalition of four political parties – Parti Keadilan Rakyat (PKR), Parti Pribumi Bersatu Malaysia (BERSATU), Parti Amanah Negara (AMANAH), and Democratic Action Party (DAP) – had won the Malaysian general election, against the then incumbent Barisan Nasional (BN), another political coalition that had held power for 60 years. Mahathir Mohamad, the chairman of BERSATU and the president of PH, was elected as the country’s seventh prime minister, a position he held once before between 1981 to 2003. He was also Malaysia’s oldest serving PM at 92.
During his tenure as PM, Mahathir was a member of the United Malays National Organization (UMNO), a component party of the Barisan Nasional coalition. He left the party in 2016 to form BERSATU to oppose the then PM, Najib Razak, who was embroiled in the 1MDB scandal. Mahathir had joined forces with Anwar Ibrahim, the leader of the PKR and who was also Mahathir’s deputy prime minister from 1993 to 1998 before he was dismissed and imprisoned from 1998 until 2004. Further, Mahathir had promised Anwar would succeed him as PM within two years.
The Sheraton move and the fall of the Pakatan Harapan government
Malaysia’s political crisis began in February 2020 and was caused by members of parliament switching party support and thus contributing to the loss of a parliamentary majority and the collapse of now two successive coalition governments.
On February 21, 2020, the presidential council of PH held a meeting to discuss the transfer of power from Mahathir Mohamad to Anwar Ibrahim. However, on February 23, 2020, several other political parties also held extraordinary meetings.
The PKR (a member of PH) and its deputy president Azmin Ali, who was also the Minister of Economic Affairs, held a meeting with party members at the Sheraton Hotel. That evening, Azmin Ali and his faction went to the Royal Palace to seek an audience with the King. Also in attendance were the leaders of several parties; UMNO’s Ahmad Zahid Hamidi, Bersatu’s Muhyiddin Yassin, Parti Islam Se-Malaysia’s (PAS) Hadi Awang, Gabungan Parti Sarawak’s (GPS) Abang Johari Openg, and Parti Warisan Sabah (Warisan)’s Shafie Apdal.
It was speculated that the meeting was to declare to the King the formation of a new coalition government and declare support for a new prime minister, effectively blocking Anwar Ibrahim from becoming PM.
The short-lived tenure of Muhyiddin Yassin
The next day, February 24, 2020, Muhyiddin Yassin announced the withdrawal of the BERSATU from the Pakatan Harapan coalition. In protest at the move, Mahathir Mohamad resigned as PM and was then appointed as interim PM until a new PM was chosen. Moreover, Anwar Ibrahim as PKR chairman announced he had dismissed Azmin Ali for his actions on February 23, 2020. Azmin Ali and his PKR faction of 11 MPs officially withdrew from the PH coalition and joined BERSATU.
On February 29, 2020, BERSATU President Muhyiddin Yassin and his allies, including party leaders from UMNO, PAS, GPS, Parti Bersatu Rakyat Sabah (PBRS), and the Homeland Solidarity Party (STAR), had an audience with the King to discuss the formation of a new government and to announce the new coalition to be called Perikatan Nasional. On March 1, 2020, Muhyiddin Yassin was sworn in as the eighth prime minister.
What are the main issues for Malaysian voters in this election?
A weakening ringgit and rising living costs are front and center for Malaysian voters. Many of the country’s low-income households have complained that they are unable to meet their basic monthly needs. The ringgit has weakened by around 11 percent against the dollar and Malaysia’s central bank has raised its policy rate by a total of 75 basis points so far this year.
The rising cost of living
As reflected by global trends, Malaysia is seeing a rise in the cost of living, especially as inflation reached 4.7 percent in August compared to 2.3 percent earlier this year. Moreover, the country is facing huge food import bills being a net importer of food.
Who are the main players in the elections?
Barisan Nasional has promised to keep Ismail Sabri Yakob as Prime Minister and end the political squabbling that has plagued Malaysia since 2020.
At the height of its power, the coalition consisted of 14 parties. However, the 1MDB scandal tainted the coalition which turned voters against it in 2018. BN now consists of Sabri’s UMNO, the Malaysian Indian Congress, the United Sabah People’s Party, and the Malaysian Chinese Association.
The coalition that brought an end to BN’s reign in 2018, Anwar Ibrahim has been named PH’s candidate for Prime Minister. This is the second time Anwar has helmed the opposition campaign, and possibly his last chance to lead Malaysia.
This coalition brings together two parties, BERSATU, and the Pan Malaysian Islamic Party. The coalition is led by former Prime Minister Muhyiddin Yassin.
Mahathir Muhammad at 97, has said he would contest his seat for the northern constituency of Langkawi at the general election. He currently heads a Malay-centric party called Pejuang, which has formed a coalition with other pro-Malay parties under the Gerakan Tanah Air coalition. However, in a press conference, he mentioned that he would not contest the role of Prime Minister.
The importance of ethnic Malay votes
The battle for Malay Muslim votes will determine which coalition will rule the country. The Malays comprise approximately 69 percent of the total population. The core issues of race, religion and royalty affect the rural Malay votes, and this has not changed for decades. As such, rural Malays are more likely to vote for UMNO or the Pan Malaysian Islamic Party (PAS). PAS has allied with BERSATU under the Perikatan Nasional coalition. Further, Pakatan Harapan is led by Anwar Ibrahim, an ethnic Malay, and has several strong Malay leaders in its coalition.
These three major Malay coalitions could split the Malay vote.
Wildcard factor: Young voters
There are 5.8 million new voters after the government decided to lower the voting age from 21 to 18 and made voter registration automatic. Their political leanings currently remain unknown, and their votes could determine the outcome of the elections.
It remains to be seen if disenchantment with the old guard, who has been tainted with several corruption scandals, will motivate the youth to swing the election to the opposition or force them to stay home due to apathy.
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