Electoral outcome and credible post-election scenarios

Malaysia on 19 November held its 15th general election (GE) which involved 945 candidates vying for seats in the 222-member Dewan Rakyat (lower house of parliament). The election results were a major surprise for almost everyone involved. The opposition coalition Alliance of Hope (Pakatan Harapan, PH), led by Anwar Ibrahim, overestimated its popularity despite performing better than the other two coalitions, gaining 82 seats compared with 113 in the 2018 election and between 90 and 100 seats in pre-poll projections. The incumbent Barisan Nasional (BN) coalition’s move to push for snap polls spectacularly backfired, winning just 30 seats compared with 79 in 2018. BN’s former coalition partner Perikatan Nasional (PN), led by former prime minister Muhyiddin Yassin (2020-21), emerged as the dark horse by winning 73 seats compared with just 46 before.

In the past 48 hours, PH and PN have been engaged in a two-way race to reach the 112 seats needed to form the government, with BN being in a kingmaker position. The majority of BN candidates under the influence of UMNO president Ahmad Zahid Hamidi are leaning towards working with PH. BN and PH have rapidly sewn up co-operation pacts to form new state governments in Perak and Pahang as well, suggesting that the likelihood of a similar federal arrangement is far from remote. Anwar, who is likely to be made prime minister if the deal is struck, has framed a BN-PH alliance as a ‘unity government’.

However, the situation remains dynamic as Zahid could be forced to resign from his party’s presidency for BN’s shock defeat. If Zahid is forced out, this would clear the way for pro-PN leaders such as caretaker prime minister Ismail Sabri Yaakob and caretaker defence minister Hishammuddin Hussein to swing the coalition to work with PN. Muhyiddin is likely to be made prime minister in this configuration.

Businesses and investors: what to expect?

The 15th general election will not resolve Malaysia’s chronic problem of political instability, given the fragmented nature of the newly-elected parliament and the historical baggage between key political factions that will eventually form the new government. Nevertheless, the political drama should not distract foreign companies and investors from the fact that Malaysia’s pro-business, pro-foreign investment climate is here to stay. The demise of stable coalition politics which began in 2018 has not been accompanied by increasing economic protectionism, tighter foreign investment rules or heightened contract risks. The new government will continue to strengthen Bumiputera (ethnic Malays and indigenous groups) participation in the economy, but will not intentionally frustrate foreign investments and operations as long as these reserve a role for Bumiputeras to play, be it as employees, suppliers, vendors or partners. 

Foreign companies can also expect continued policy emphasis on the digital economy, energy transition and infrastructure projects. After years of delays, Malaysia’s 5G infrastructure plans appear to be finally moving in the right direction, with a target to provide coverage to 80% of the country by 2024. The public sector will continue to take the lead in adopting cloud solutions, which will complement the growth in demand for data centres in the private sector. Local regulators will continue to push for sustainable finance initiatives to drive companies towards greater environmental, social and corporate governance (ESG) awareness and compliance. Reducing greenhouse gas (GHG) emissions and low-carbon development pathways will remain key objectives for the government. Malaysia is hardly resting on its laurels despite boasting one of the region’s most well-integrated logistics and transport networks, with USD 88bn worth of expansion and new projects up till 2025 set to strengthen the country’s supply chain competitiveness.

Nevertheless, foreign investors will be hoping that the incoming government pays close attention to operational challenges that have vexed their operations: significant labour shortages, integrity issues, and forced labour concerns. Anti-corruption is likely to be a major agenda in theory even as implementation in practice will be selective and influenced by political drivers. 

In sum, Malaysia will remain among the more compelling foreign investment destinations in South-East Asia despite political flux, including for investors seeking opportunities in digital and energy transition growth and in supply chain diversification. Nevertheless, with political stability still an elusive prospect in Malaysia, investors are better off taking the initiative to mitigate these risks instead of waiting for concerted state actions to remedy these ills. Interested parties will need to soberly assess their operational risk exposure and devise practical mitigation strategies for labour and integrity challenges that lie ahead.