Shifting landscape in Malaysia’s construction sector

  • Shifting landscape in Malaysia's construction sectorShifting landscape in Malaysia's construction sector
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June 2019

 

Malaysia’s construction and infrastructure sector has undergone significant changes since the May 2018 General Election (GE14). A tectonic shift in the sector is underway given the new government’s mandate to review all mega projects and address the country’s debt under the previous administration. Despite the new and uncertain landscape, there are selective pockets of opportunities as development expenditure remains resilient and certain segments such as renewable energy, rural infrastructure and affordable housing remain compelling.

Casualties from review of high profile mega projects
Since May 2018, several high profile infrastructure projects have been shelved or deferred. In addition, some projects such as LRT2 and ECRL have also seen a re-negotiation of terms as the new government tries to rein in expenditure to reduce its debt of RM1,065 billion (bn). This will have significant implications for the construction/infrastructure sector and its ecosystem, including sub-contractors and building material suppliers. We estimate that more than RM300 bn worth of projects have been impacted in the form of either cancellation, cost reductions or delays.

Infrastructure needs and spending still relatively robust in Malaysia
Despite the change in administration and plans to reduce government debt, Malaysia remains committed to developing its infrastructure. The 2019 Malaysia Budget’s development expenditure is estimated at RM54.7 bn, which is at the high end of Malaysia’s development expenditure range of RM46.0-RM54.9 bn over the past five years.

Opportunities in renewable energy, rural infrastructure and affordable housing
The 2019 Malaysia Budget offers opportunities in selected segments. One such segment is renewable energy where a target of 20% is to be derived from renewable sources by 2025 (from 4% currently). This will benefit subsegments such as solar power and biomass. Rural infrastructure projects allocated under Budget 2019, are also a high priority area and particular attention will be paid to Sabah and Sarawak. Last but not least, affordable housing is another avenue with selected opportunities.

UOB offers customised solutions that could help corporates in the Construction and Infrastructure sector capture opportunities in Malaysia. For more information on our banking solutions, please contact us here.

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