Malaysia's journey in building stronger trade ties

[MALAYSIA] In an increasingly interconnected global economy, countries are constantly seeking ways to strengthen their trade ties and expand their economic reach. Malaysia, a key player in Southeast Asia, is no exception to this trend. With its strategic location and diverse economy, Malaysia is poised to take significant steps towards building stronger trade relationships and diversifying its economic partnerships. One such opportunity on the horizon is the potential membership in BRICS, a group of major emerging economies that could offer Malaysia new avenues for growth and collaboration.

The BRICS Opportunity

BRICS, originally comprising Brazil, Russia, India, China, and South Africa, has recently expanded to include Egypt, Ethiopia, Iran, and the United Arab Emirates. This expansion has caught the attention of many nations, including Malaysia, which sees the potential for enhanced economic cooperation and market access.

OCBC Senior Asean Economist Lavanya Venkateswaran highlights the benefits of joining BRICS for Malaysia: "Joining BRICS opens doors to conversation on deeper trade, investment and financial ties. The scope to explore countries within the alliance as potential markets for products, investments can yield longer term economic benefits of market and even product diversification."

Diversifying Trade Partnerships

One of the primary advantages of joining BRICS for Malaysia would be the opportunity to diversify its trade relationships. While China has been Malaysia's top trading partner for 15 consecutive years, there is room for growth with other BRICS members.

Venkateswaran notes, "While Malaysia already has strong ties with China, there is room to deepen trade ties with other countries to lower concentration risk, highlighting that India and Brazil accounted for only 3.2% and 0.4% of Malaysia's exports in 2023, respectively."

This diversification could help Malaysia reduce its dependence on any single market and create a more resilient economic structure.

Expanding Market Access

Joining BRICS could provide Malaysia with expanded access to large and diverse markets, particularly in countries like India and Brazil, which are currently underdeveloped trade partners for Malaysia.

SPI Asset Management managing director Stephen Innes emphasizes this point: "BRICS membership could boost export markets for electronics and palm oil, enhance access to technology transfers for digital and green sectors, and position Malaysia as a supply chain hub within BRICS, thereby reducing its reliance on Western markets."

This expanded market access could lead to increased export opportunities and potentially attract more foreign investment to Malaysia.

Economic Benefits and Challenges

The potential economic benefits of joining BRICS are significant. Malaysian Economic Association (MEA) president Yeah Kim Leng points out that "the BRICS' market is far larger than the combined Group of Seven economies and the Regional Comprehensive Economic Partnership (RCEP)."

Yeah adds, "By participating in both economic blocs (RCEP and BRICS), Malaysia stands to benefit from being a member in both groupings in terms of trade and investment flows."

However, it's important to note that joining BRICS also comes with challenges. Innes warns, "BRICS membership could strain Malaysia's balanced foreign policy and risking trade and investments with the United States and EU."

Navigating Geopolitical Complexities

One of the key challenges Malaysia would face in joining BRICS is navigating the complex geopolitical landscape. As the global economy becomes increasingly multipolar, countries like Malaysia must carefully balance their relationships with different economic blocs.

Yeah Kim Leng suggests that Malaysia could leverage this situation to "build bridges or de-escalate tensions between the two alliances." This diplomatic role could potentially enhance Malaysia's global standing and influence.

Enhancing Economic Resilience

Joining BRICS could also provide Malaysia with additional tools to enhance its economic resilience. Taylor's University lecturers Paul Anthony Mariadas and Uma Murthy highlight that "the BRICS membership could provide Malaysia access to initiatives like the contingent reserve arrangement (CRA), which aims to provide liquidity support during financial crises."

This access to additional financial safety nets could be crucial in an increasingly volatile global economic environment.

Technology Transfer and Innovation

Another potential benefit of BRICS membership is the opportunity for technology transfer and innovation. Mariadas and Murthy note that "Malaysia could benefit from technology transfers, research collaborations and shared expertise in sectors such as artificial intelligence and renewable energy, potentially fostering a knowledge-based economy."

This access to cutting-edge technologies and research could help Malaysia stay competitive in the global market and drive innovation in key sectors.

Balancing Existing Relationships

While the potential benefits of joining BRICS are significant, Malaysia must also consider how this move would affect its existing relationships, particularly with Western nations. Taylor's Mariadas and Murthy caution that "close association with BRICS could inadvertently subject Malaysia to criticism or complicate its international relations."

Balancing these relationships will require skillful diplomacy and a clear understanding of Malaysia's long-term economic goals.

The Path Forward

As Malaysia considers the prospect of joining BRICS, it's clear that the decision will have far-reaching implications for the country's economic future. The potential for expanded market access, economic diversification, and enhanced resilience must be weighed against the geopolitical challenges and potential strain on existing relationships.

AmBank Group chief economist Firdaos Rosli offers a balanced perspective: "Whether it will benefit us economically or otherwise depends on how the bloc intends to pursue its economic agenda, which is still a work-in-progress."

Ultimately, Malaysia's decision on BRICS membership will need to align with its broader economic strategy and national interests. As the global economic landscape continues to evolve, Malaysia's ability to navigate these complex trade relationships will be crucial in shaping its economic future.

Building stronger trade ties through initiatives like BRICS membership presents both opportunities and challenges for Malaysia. By carefully considering these factors and developing a strategic approach to international trade, Malaysia can position itself for sustainable economic growth and increased global influence in the years to come.