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Pivotal role of economic partnerships

Pivotal role of economic partnerships

07 May 2024

AS geopolitical tensions escalate in the Middle East, the significance of the Regional Comprehensive Economic Partnership (RCEP) for Malaysia has come under renewed scrutiny.

With global trade routes potentially threatened, especially those vital for oil and gas, RCEP can be a crucial stabiliser for Malaysia’s economy. This agreement may buffer the nation from the escalating economic uncertainty that typically accompanies geopolitical strife, thereby maintaining stability in trade and investment flows.

RCEP, the world’s largest free trade agreement, includes 15 Asia-Pacific nations covering about 30% of the world’s population (2.3 billion people) and 30% of global economic and trade volume.

Since its inception, RCEP has been touted as a milestone that would lead to an increase in economic integration and support member economies.

For Malaysia, which has been working towards enhancing its trade ties and reducing economic vulnerabilities, this partnership can significantly bolster economic resilience and growth, providing a strategic hedge against global economic turbulence.

With the Middle East embroiled in new conflicts, the security of maritime routes through the Strait of Hormuz and the Suez Canal, critical for oil shipments, is increasingly uncertain.

According to the International Energy Agency, in 2022, Malaysia imported US$12.2 billion (RM57.8 billion) in crude petroleum, mainly from Saudi Arabia (US$5.54 billion), United Arab Emirates (US$1.53 billion), Brazil (US$1.07 billion), Kuwait (US$513 million), and China (US$397 million).

Disruptions in these supply lines can have significant ramifications for the country’s energy security and economic stability. This makes it imperative for Malaysia to explore alternative markets and diversify its trade to ensure a steady supply of essential commodities.

The significance of RCEP is highlighted by its provision of varied trading opportunities for Malaysia, extending beyond the unpredictable markets of the Middle East.

From January to March, exports to RCEP countries comprised 29% of Malaysia’s total exports, reaching around RM203 million. This statistic emphasises the agreement’s ability to reduce the risks linked to reliance on a single region.

By enhancing trade ties within Asia Pacific, Malaysia not only shields itself from potential supply disruptions but also creates new possibilities for diversifying exports and enhancing industrial collaboration.

Furthermore, RCEP enhances access to expansive markets such as China, which has a population of 1.4092 billion, and Indonesia, with 275 million people. Therefore, this economic integration can significantly benefit Malaysia as it deals with the complexities of global trade in the context of instability in the Middle East.

The simplified trade rules and unified standards under RCEP are likely to improve operational efficiency and lower expenses for Malaysian companies, thereby strengthening their export potential.

As RCEP continues to develop, its strategic importance to Malaysia is likely to grow, especially if Middle Eastern tensions do not subside.

While the immediate benefits of RCEP are clear, the long-term impact on Malaysia’s economic landscape remains to be seen. As such, the country’s engagement with this monumental trade pact will be critical in shaping its economic future amid an ever-changing global context.

To truly benefit from RCEP, Malaysia can focus on four strategic approaches:

1. Enhancing product standards to meet international benchmarks

Malaysia can take advantage of RCEP by elevating the quality and standards of its products to align with international benchmarks. This involves adopting best practices in manufacturing, improving quality controls, and ensuring that products comply with the environmental and safety standards prevalent in other RCEP member countries.

By doing so, Malaysian products can become more competitive and appealing in these markets. For instance, Malaysian electronics and agricultural products could undergo rigorous testing and certification processes to ensure they meet stringent quality requirements. This will not only increase their marketability but also potentially command higher prices.

2. Investing in sectors likely to see increased demand from RCEP countries

Malaysia can identify and invest in key sectors that are likely to see a surge in demand from other RCEP countries. These include sectors like digital technology, renewable energy, and healthcare.

By focusing on these areas, Malaysia can position itself as a vital player within RCEP, attracting foreign investment and creating new job opportunities.

For example, the growth of e-commerce and digital services across Asia offers a lucrative opportunity for Malaysia’s burgeoning tech industry to expand its reach.

Similarly, as more RCEP countries commit to green energy initiatives, Malaysia’s investments in solar panel manufacturing and green technology services could see heightened demand.

3. Fostering technological collaborations

Engaging in technological collaborations with fellow RCEP members can facilitate the transfer of new technologies and innovations across borders.

Malaysia can establish partnerships with enterprises and research institutions in countries such as China and Singapore, which are leaders in fields such as artificial intelligence, biotechnology, and fintech.

Such collaborations can include joint research projects, technology-sharing agreements, and innovation hubs where businesses from multiple countries work together on new technologies. These efforts can help Malaysian companies integrate cutting-edge technologies into their operations and enhance their productivity and competitiveness.

4. Developing human capital to compete effectively in new markets

To fully capitalise on the opportunities presented by RCEP, Malaysia needs a workforce that is skilled and adaptable to the demands of a changing global market. This can be achieved through an emphasis on education and training in areas critical to the future economy, such as digital skills, language proficiency, and cross-cultural communication.

Additionally, creating vocational training programmes that align with industry needs can ensure that the workforce is equipped with relevant skills, such as in advanced manufacturing and logistics management, making them more competitive in local and international markets.

By strategically implementing these approaches, Malaysia can strengthen its economic position within the RCEP framework and ensure sustainable growth and resilience against global economic fluctuations.

Source: The Sun