Published on 01 Mar 2019.
Re-export activities took centre stage in Malaysia’s external trade figures for 2018. Of the 6.7% export growth last year, 6.1 percentage points can be attributed to re-exports. This bucks the trend of recent years, during which growth had been mainly led by domestic export activities. The proportion of re-exports to gross exports jumped to 20.0% in 2018 (2017: 15.3%), largely fuelled by machinery and transport equipment (MTE) re-exports, which swelled 86.1% y-o-y. This stemmed from added transhipment and redistribution activities based in Penang.
Re-exports, defined as goods taken out of the country in the same form as they were imported in without any transformation, have exhibited transitory spikes in the past. The last episode took place in 2012-2013, when mineral fuels received a boost after the introduction of the Global Incentive Trading Programme in 2011. The programme had been aimed at positioning Malaysia as a regional oil storage and trading hub. Given the nature of earlier re-export activities, the current uptrend may not carry through this year.
Despite the lack of value-added work on the goods themselves, re-exports mostly lead to multiplier effects on other sectors, particularly related support services such as transport and storage. “The transport, storage and ICT sector shows an output multiplier of 1.85 times, suggesting that a RM1.00 increase in final demand from this sector will eventually generate RM1.85 of output in the economy. Moreover, the positive spillovers for the labour market are quite significant, with the ratio of workers’ compensation to gross value-added for warehousing and support activities in transportation standing at 46% - at the high end for any industry,” highlights RAM’s head of research, Kristina Fong.
RAM Ratings expects trade growth to remain muted at the start of 2019. This is premised on slower industrial activities and weaker outlook on key regional markets. President Trump’s recent decision to postpone the deadline for the trade truce with China is also anticipated to quell firms’ rush to front-load supplies in the months ahead. January’s export and import growth is estimated to come in at 3.1% and 4.9%, respectively, which will contribute to an overall trade surplus of RM8.6 bil.
Woon Khai Jhek, CFA
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