The re-export dilemma

HEADLINE numbers do not often tell the whole story, and that can be said of Malaysia’s manufactured goods, which contributed an average of 90% to the total value of exports – or RM1.3 trillion – in the first eight months of the year.

Where this gets interesting – and bears questioning – is how much of these goods are actually produced in the country versus how much are re-exports.

Government data helps to dissect the export story to some extent, as total exports are split between domestic exports – which involve production processes undertaken within the country – and re-exports, which involve importing goods and then exporting them with some value added.

Phillip Capital Research, a research house, publishes monthly updates on domestic exports that offer a clearer view of local production capacity.

A different picture emerges from this perspective. While total exports continue to rise on a year-on-year (y-o-y) basis, what does this really mean?

For example, August exports jumped 45.5% y-o-y to RM191bil, supported by shipments of manufactured and mining goods.

Electrical and electronic (E&E) products made up almost half of this total, of which three-quarters came from the crucial semiconductor segments at the forefront of the technology race.

Here is where it gets more interesting.

According to Phillip Capital Research – whose figures run up to July – despite domestic exports surging 42% y-o-y in May, the fastest pace since the post-Covid-19 recovery, followed by average growth of 41.4% in June and July, re-exports have outpaced domestic exports since April 2025.

The rise in re-exports reflects Malaysia’s role in regional trade and supply-chain intermediation – a trend likely accelerated by supply-chain shifts stemming from the US-China trade war.

A report by Phillip Capital Research notes that the share of domestic exports has declined when viewed against historical data going back to 2017.

From 2017 to 2019, domestic exports accounted for 82.5% of total exports.

However, this share fell below 80% following the Covid-19 pandemic and has yet to recover.

From 2020 to 2025, domestic exports accounted for an average of 79.5% of total exports. For the January to July 2026 period, the share declined further to 73.7%.

Drilling down further, nearly 60% of semiconductor exports were locally produced.

This is notably lower than in most other E&E subsectors, where domestic exports accounted for 88% of total E&E exports from January to July this year.

What this means is that re-exports of key semiconductor components are rising – a trend with implications for Malaysia’s industrial policy under the New Industrial Master Plan 2030 (NIMP 2030).

Key NIMP 2030 targets include raising value-added output to RM587.5bil, creating 3.3 million high-quality jobs, increasing median monthly income to RM4,510, and mobilising an estimated RM95bil in investments to support these goals.

One of the four core missions is to push economic complexity, with E&E among the target industries.

If re-exports – which Phillip Capital Research says mostly benefit trade-related segments of the services sector – are rising as a share of total exports, how will the government push for more value-added activities along the manufacturing value chain to meet the NIMP 2030 targets?

How can the E&E subsectors compete globally if their share of domestic production is shrinking?

Signs of a decline in manufacturing activity – including within E&E – can also be extrapolated from government data on retained imports of intermediate and capital goods, which are critical for domestic production.

One can connect the dots, as the share of these retained imports has also declined over the years, in tandem with the declining share of domestic exports in total exports.

Conversely, the recent rise in domestic exports from May to July has also seen a rise in tandem of retained imports.

Phillip Capital Research says retained imports accounted for more than 80% of total imports prior to 2019, but this fell to around 76% from 2020 to 2025.

Overall, from January to July, the share of retained imports, despite the recent rebound, has declined further to 69.2% of total imports.

How can the government balance the rise of re-exports without jeopardising its longer-term strategy of becoming both a manufacturing and trading hub?

Re-exports are a necessity, especially given Malaysia’s deepening trade links within Asean and with China. Their rise speaks to how closely linked Malaysia’s manufacturing sector – particularly its E&E subsectors – is to the global value chains, as multinational companies increasingly prioritise diversification to safeguard their operations.

The obvious answer is greater investment in areas such as research and development, infrastructure and capacity to lead to higher value-added activities.

More importantly, however, there must be transparency and accountability in how these funds are spent.

How much of the RM8.2bil allocated under the NIMP 2030 has been spent, and what are the outcomes? If the initiatives are not working, can they be improved?

Or for that matter, what of the NIMP Strategic Co-Investment Fund, which has deployed RM185mil through public-private initiatives?

Surely, the public deserves to know how taxpayer funds are being used.

The apparent decline in manufacturing activity does not engender much confidence in the economy’s future, nor its ability to generate quality, well-paying jobs.