Malaysia: How an economic challenge could become a political liability

When Malaysia’s top palm oil export markets decide to curb imports, one expects the usual government level posturing followed by due-diligence in replacing the lost export revenue.

Indeed, when India and the European Union both declared that they were reducing the amount of palm oil they were willing to import, Malaysia did both: announcing that it would respond with “might and tact” to the EUs declaration and working with fellow ASEAN members to develop replacement markets.

Source: 2016 trade statistics, United Nations Statistics Division, Trade Statistics Branch
Source: 2016 trade statistics, United Nations Statistics Division, Trade Statistics Branch

Reduced trade with a commodity’s largest export markets is never a good thing. It should be noted, however, that the World Bank expects Malaysia to grow 5.2% in 2018- a number that has yet to be revised despite the potential palm oil crisis. Moreover, palm oil accounts for 4.5% of Malaysia’s total exports- meaning that Malaysia’s economy is robust enough to take a slight hit in one commodity export.

Where it is likely to have an impact is in the rural economy. Felda Global Ventures, the world’s largest palm plantation, is a major income source for Malaysia’s rural poor (and the country’s largest palm oil producer). Should these import curbs lead to a reduction in income, the potential for political pressure – particularly at the local level- exists. This condition could have an impact on Malaysia’s general elections, which will likely be announced sometime before June 24.

Ultimately, what begins as an economic event could sway the results of a general election, and significantly impact Malaysia’s future.