Malaysia Defence and Security Industry Update Quarter 2 2012

  • February 2014
  • -
  • Business Monitor International
  • -
  • 89 pages

The acquittal of Anwar Ibrahim, the leader of opposition coalition Pakatan Rakyat (PR), on politically
inspired sodomy charges in January 2012 has set the scene for an electoral clash between Anwar Ibrahim
and Prime Minister Mohammed Najib Tun Razak, the leader of the United Malays National Organisation
(UMNO) and the ruling Barisan Nasional (BN) coalition.

The election, which is due by early 2013 but is likely to be called this year, is critical for the future
direction of Malaysian politics, which have been dominated by UMNO and BN since independence in
1957. But they will also have a huge bearing on the country’s defence and security policies. The
embattled Najib briefly reclaimed the political high ground in late 2011 when he pledged to repeal the
notorious Internal Security Act (ISA), which gives the government sweeping powers to detain political
opponents under the guise of protecting national security. However, he has been slow to follow this up
with firm action, making the ISA’s possible repeal a key electoral battleground.

Though a BN victory remains the most likely outcome of the elections in BMI’s view, an opposition win
at the polls could bring about institutional changes within Malaysia’s defence establishment, whose
procurement process have often been mired in scandal in recent years.
However, undeterred by the tense political environment the Ministry of Defence (MoD) has reportedly
pressed on with one of its most important procurement programmes, opting in December 2011 to select
French shipbuilder DCNS and local partner Boustead Naval Shipyard to fulfil its requirement for a
second generation patrol vessel (SGPV – also variously described by the MoD as a frigate or littoral
combat ship). The US Dollar 2.8bn deal for six Gowind ships – which DCNS itself describes as offshore patrol
vessels/corvettes – is the vessel’s first export order; it stipulates delivery by 2017.

In terms of naval procurement, the next major decision for the Royal Malaysian Navy is whether to
BAE Systems’ UK-led Global Combat Ship (GSC) programme. The UK has identified Malaysia as a
prime candidate in its search for international partners for its GCS project, though Kuala Lumpur has not
publicly revealed whether it plans to take part. BAE Systems is also pressing hard to sell Eurofighter
Typhoons to Malaysia; it joined the other contenders for the Royal Malaysian Air Force’s (RMAF’s)
multirole combat aircraft (MRCA) competition – Boeing, Dassault and Saab – in showcasing its aircraft
at December’s Langkawi International Maritime and Aerospace (LIMA) exhibition in the hope of
impressing Malaysia’s defence chiefs. The RMAF is expected to buy 18 aircraft, though a decision may
now not be made until 2013.

Saab also announced in December that it was teaming with local firm DRB-Hicom to bid for the
RMAF’s airborne early warning and control system contract with its Erieye radar solution. Thailand
already operates the Erieye system, and it is a strong contender for the Malaysian requirement.

Table Of Contents

Executive Summary .. 7
Industry SWOT Analysis . 9
Malaysia Security SWOT 9
Malaysia Defence Industry Environment and Risk Analysis . 9
Malaysia Political Environment and Risk Analysis 10
Malaysia Economic Environment and Risk Analysis . 11
Malaysia Business Environment SWOT 11
World Political Outlook 13
Landmark Political Events Looming In 2012 . 13
World Flashpoints: Eurozone, Syria, Iran, Afghanistan, Korean Peninsula . 14
Data : Election Timetable, 2012 .. 18
United States .. 23
Russia 23
China . 25
Wild Cards To Watch . 26
South East Asia Security Overview .. 29
South East Asia In A World Context . 29
Challenges And Threats To Stability And Security.. 30
Sino-US Power Struggle .. 42
Chinese Influence In Asia: A Industry SWOT Analysis 43
US Influence In Asia: A Industry SWOT Analysis .. 44
Does China Seek To 'Dominate' Asia? .. 45
Do Asian States Have To Choose Between China And The US? .. 46
Data : Asian States And Their Relationships With China 47
Emerging Geopolitical Patterns .. 49
Security Risk Analysis .. 53
Data : Asia Pacific Regional Security Ratings .. 53
Data : Asia Pacific State Vulnerability To Terrorism Index .. 54
Malaysia's Risk Ratings 54
Political Overview . 56
Domestic Politics . 56
Long-Term Political Outlook . 58
Security Overview 64
Internal Security Situation . 64
Data : Insurgent Groups .. 64
External Security Situation 65
Territorial Disputes 65
Insurgent And Terrorist Activity .. 65
Piracy 66
Data : Piracy Attacks And Attempted Attacks, 1996-2006 .. 67
Bilateral And Multilateral Relations .. 67
Armed Forces And Government Spending . 70
Armed Forces 70
Defence Budget . 70
International Deployment 72
Weapons Of Mass Destruction .. 72

Industry Analysis 73
Industry Trends And Developments 74
Arms Trade Overview 75
Procurement Trends And Developments .. 76

Market Projection Scenario 78
Armed Forces 78
Data : Malaysia’s Armed Forces, from 2000 to 2008 (’000 personnel, unless otherwise stated) 78
Data : Malaysia’s Available Manpower For Military Services, from 2009 to 2016 (aged 16-49, unless otherwise stated) 78
Defence Expenditure .. 79
Data : Malaysia's Defence Expenditure, from 2009 to 2016 .. 79
Data : Malaysia’s Defence Expenditure Scenario - Changing % Of Gross Domestic Product, from 2009 to 2016 (US$mn) 80
Defence Trade 80
Data : Malaysia's Defence Exports, from 2009 to 2016 (US$mn) .. 80
Data : Malaysia's Defence Imports, from 2009 to 2016 (US$mn) .. 81
Data : Malaysia's Defence Trade Balance, from 2009 to 2016 (US$mn). 81

Key Risks To BMI’s Projection Scenario . 82

Macroeconomic Data .. 82
Data : Malaysia - Economic Activity, from 2011 to 2016 .. 85
Company Profiles . 86
AIROD .. 86
Composite Technology Research Malaysia (CTRM) . 87
Deftech .. 88
EADS . 89
Malaysia Marine and Heavy Engineering (MMHE) .. 90
SME Ordnance . 92
Country Snapshot: Malaysia Demographic Data . 93

Section I : Population . 93
Data : Demographic Indicators, 2005-2030 .. 93
Data : Rural/Urban Breakdown, 2005-2030 . 94

Section II : Education And Healthcare 94
Data : Education, 2000-2003 94
Data : Vital Statistics, 2005-2030 94

Section III : Labour Industry And Spending Power .. 95
Data : Employment Indicators, from 2001 to 2006 . 95
Data : Consumer Expenditure, from 2000 to 2012 (US$) 95
Data : Average Annual Manufacturing Wages, from 2000 to 2012 96
BMI Methodology . 97
How We Generate Our Market Projections . 97
Defence Market .. 97
Sources . 99

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