Malaysia Defence and Security Report Q1 2007

Business Monitor International's newly released Malaysia Defence & Security Report Q1 2007 provides an assessment of Malaysia's internal and external security situation. A dispute between Malaysia and Singapore arose due to comments by Singapore's former prime minister and present minister mentor, Lee Kuan Yew. The former prime minister accused Malaysia of marginalising its ethnic Chinese and stated that Malaysia's affirmative-action programme may need to be reconsidered. Malaysia responded by denying the accusations, with Prime Minister Abdullah Badawi rejecting the premise of the statement and stating that such remarks cannot contribute to diplomatic relations.

Malaysia's well-educated workforce, access to defence technology and relatively low labour costs are the strong points of the Malaysian defence industry. The Malaysian government also has a strict transfer of technology requirement for foreign firms wishing to invest or entering joint ventures with Malaysian defence firms. This framework should enable the Malaysia defence industry to flourish. In the first quarter of 2007, the Malaysian government again increased the ceiling value of the contract with Satang Jaya. Previously Satang Jaya's contract had been raised from MYR88mn to MYR190mn in Q305 and was due to end in 2008.

Politically, Malaysia's security situation remains secure in the immediate term. Prime Minister Abdullah Ahmad Badawi - who is also finance minister - opted for an expansionary 2007 budget that will counteract an expected moderation in external demand. Heavy increases in spending have triggered speculation that Abdullah is preparing to call an election in 2007 in order to reaffirm his leadership following a period of criticism. BMI believes that Abdullah's position is secure and we do not think that this is an election budget.