Malaysia Infrastructure Report Q2 2008

Led by companies such as Gamuda, IJM Group and Sunway Construction, the Malaysian construction industry has experienced a period of rapid growth, which is reflected in revenue for H107. The value of the industry is estimated by BMI to be in the order of $US3.9bn in 2007, with a projected year-on-year growth rate of between 2.5% and 3% to 2012.

While the Malaysian government has no plans to increase spending on infrastructure projects, the funding outlined under the Ninth Malaysia Plan (2006-2010) - in which the state has set aside funds to the tune of MYR220bn (US$60bn) for the infrastructure sector - will contribute to growth in domestic construction demand. Major projects planned or currently under way include the US$14.5bn refinery projects at Yan and Bachok, the US$7bn Yan-Bachok oil pipeline, the US$5.74bn city centre in Penang, and the US$4.2bn Rawang-Ipoh rail project. Despite its position on not increasing funding for infrastructure projects, others remains under consideration, such as the US$2.4bn Kuala Lumpur-Singapore bullet train project.

Growth in regional demand has also helped the Malaysian construction industry. New projects, such as the Platinum Plaza project in Ho Chi Minh City, highlight the strong growth consumer demand across the region, with a commensurate increase in the need for residential and retail developments. Malaysian companies have also continued their venture west, with projects such as the $US197mn IT Tower Complex at Hassan Square in Karachi, Pakistan, and the construction of a viaduct and the Airport Metro Express Line's Dhaula Kuan Station in New Delhi, India at a value of $US47mn.

The Malaysian construction industry has to deal, however, with constant impediments that are endemic to the industry; these include frequent bureaucratic delays, fragmentation, low productivity levels and a lack of transparency in bidding. On this last point, it is likely that the Malaysian government's bias towards local players, in granting most contracts to local construction and engineering firms, is likely to continue, especially in the face of challenges from other sectors, such as decreased export demand for manufactured goods. Foreign participation is encouraged only in areas that cannot be catered to efficiently by local investment and expertise.

Problems such as the lack of skilled domestic labour and the ongoing threat of competition from lowwage giants including India and China have not prevented the country from continuing to attract significant foreign investment, a fact highlighted by BMI's forecast for the Malaysian construction industry, which puts its value at MYR17.41bn (US$6.6bn) in 2012. While this estimate represents a slight downgrading of previous estimates, the industry is forecast to continue growing strongly, making up nearly 2.4% of national gross domestic product in 2012.