Snapshot: Implications of Malaysia election result

The shock victory of Mahathir Mohamad’s Pakatan Harapan (PH) coalition in Malaysia’s general election on 9 May creates unprecedented challenges for foreign businesses operating in the country.

Mahathir Mohamad
Mahathir Mohamad speaking at a Pakatan Harapan event

KEY POINTS

  • Former prime minister Mahathir Mohamad’s Pakatan Harapan (PH) coalition defeated incumbent Najib Razak in a shock victory in Malaysia’s general election on 9 May, ousting the Barisan Nasional (BN) coalition that has been in power in some form since independence from Britain in 1957.
  • Pro-opposition parties held celebratory rallies after the result, despite a police ban on such potentially provocative events. A holiday was declared for Thursday and Friday (10-11 May), which may be used by groups to display their opposition to the result.
  • In the short term, a PH government will likely seek to assure companies, investors and markets of its economic competence and policies.
  • The medium term will likely be dominated by internal power struggles within the PH alliance.
  • Najib and his supporters can be expected to seek to undermine the new government and regain power. If this view is correct, Malaysia faces a sustained period of instability.

RESPONSE

  • Foreign companies are advised to revise their security and business contingency plans to reflect the potential for unrest.
  • Businesses should be aware of the heightened contract risk due to the expected change in government. Investments signed under the previous administration could come under scrutiny or face delays. Deals associated with mainland Chinese investments could also be targeted.
  • There is growing uncertainty regarding fiscal and monetary policies. For example, Mahathir has pledged to scrap a goods and service tax, which would disrupt business operations in Malaysia.

CONTEXT

  • Najib’s government was reliant on China for state and notionally private investment and loans. Mahathir campaigned against dependence on Beijing, which now raises questions about the future direction of the country’s economy.
  • Najib and political allies had faced allegations of corruption. Many allegations involved foreign companies, which may be subject to scrutiny if the new government decides to pursue its predecessor’s leaders.

 

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