Datuk Abdul Rahim Nik gives his insight into the timber industry and what challenges it will face going into 2016 and beyond
The timber industry is set to experience growth in 2016 but the volatility of the business environment in 2016 is set to affect it as well as for most sectors in the Malaysian business environment. Datuk Dr Abdul Rahim Nik, CEO of the Malaysian Timber Council (MTC) gives us an insight into the timber industry of Malaysia.
“Before we talk about the outlook for the timber industry, we should trace the performance of timber products last year. In 2014, the export market was worth RM20.5 billion. Up to the first 10 months of 2015, we had RM18.3 billion of total exports. This is an increase of 6.6 percent as compared to the previous year, which was RM 17.1 billion. If the trend continues, we will see much improvement in terms of exports,” said Abdul Rahim.“Looking at the strengthening of the US dollar and the weakening ringgit, we could see some improvement as most of our timber products are exported to the United States, Japan and emerging markets. It has been quite positive up till now.”
The Malaysian timber industry is among the top 5 export earners of the nation, just behind crude petroleum, electrical and electronic products, palm oil, and palm oil based products, and rubber and rubber-based products. The Malaysian timber industry had contributed 2 percent of the Malaysian GDP and 2.7 percent of the nation’s total merchandise exports in 2014, with the top exported timber-based product being wooden furniture.
The AEC and TPPA and the timber industry
The ASEAN Economic Community and the Trans-Pacific Partnership Agreement is set to shake the foundations of business in Malaysia, no less the timber industry.
“The AEC is a major milestone in the regional economic integration agenda, which provide opportunities for a huge market, a USD 2.6 trillion market, with 600 million people. The AEC is the 3rd largest market in Asia, and 7th in the world. So in that context, Malaysia has a good opportunity to provide exports. Currently, the biggest ASEAN markets for timber include Singapore, Thailand, and Philippines for the year 2014,” said Abdul Rahim.
“At the same time, with the TPPA coming in subject to approval from the parliament, there was a recent study by PricewaterhouseCoopers (PWC) stating that if Malaysia were to sign the TPPA, there will be economic gains in terms of GDP for the year 2018 to the year 2027, ranging from USD 107 billion to USD 211 billion with new investments coming in. Under that context, for the timber industry, there will be some opportunities for our industry to participate in this, because of lower tariffs and lower trade barriers, as such our products can enter these markets,” added Abdul Rahim.
Abdul Rahim had also emphasized that among the 12 nations that are participating in the TPPA, Malaysia does not have a Free Trade Agreement (FTA) with 4 of these nations, namely the United States, Canada, Mexico and Peru. With the TPPA, Malaysian businesses have an opportunity to do business with these nations.
“The United States is already one of the biggest markets for us. For the United States, our exports of wooden furniture rose by 13.6 percent for the first 10 months, amounting to RM6 billion overall. The United States alone amounts to RM2 billion. This is because constructing new homes will see a rise in timber demand. India is also another emerging market for timber exports,” said Abdul Rahim.
The technological imperative
The importance of technology to an industry such as the timber industry cannot be understated. Keeping up with the latest innovations in timber production, as well as technological integration in the business value chain such as automation is vital for industry players wanting to keep up to demand.
“Most of the timber industry comprises of SMEs; 80 percent of the industry is SMEs, but they are not integrated. There aren’t much economies of scale going on. Industry players will see the issue of maintaining competitiveness in the industry. Maintenance is costly. Solutions include finding options for retrofitting for woodworking machines, as well as looking at the possibility of fitting them into new layouts. Service in order to make it more productive can also be carried out,” added Abdul Rahim.
A study had shown that mechanization and automation, after recommendations can improve income, increase the expectancy in the machines of factories. At the same time, industry players can keep updating what are the new technologies, and how they market their products. If industry players are capable of sourcing this, might as well,” said Abdul Rahim.
Abdul Rahim also highlights the challenge of maintaining natural forests in Malaysia. “The government had embarked on 3 programmes to reduce pressure on the natural forest. Among these is the forest plantation programme. Under this programme, the government can give soft loans, and by 2020 a certain number of land can be sustained.”
“Malaysia is committed to managing our forests. Established by former Prime Minister TunDr Mahathir Mohamad, we want to keep our forest. After 20 years since our commitment to maintain our forests, we still have 54 percent of forests in Malaysia. Established in 1998, the Malaysian Timber Certification Council (MTCC) maintains the Malaysian Timber Certification Scheme (MTCS), which provides independent certification for forest management practices,” said Abdul Rahim.
It is important MTCC exists, as the MTCS provides a scheme that maintains standards of practice for the timber industry. With the TPPA and AEC coming in, the maintenance of good practices ensures that there will be no issue exporting to other markets under the TPPA and AEC. The MTCS is endorsed by various notable bodies around the world.
“In order to achieve this (maintenance of standards), we have regional offices in London, Dubai and China, and are setting up in India currently. Particularly in London, we want to link our stakeholders in all these countries so that our product standards are upheld. The harmonization of standards in the TPPA and AEC will benefit Malaysia overall,” said Abdul Rahim
SMEs, brace yourself
“Some challenges that SMEs are facing in the industry is the labor force. The timber industry requires a lot of skilled and hard labor and we are facing the problem of sourcing labor requirements to meet the demand. The government is looking into this to provide more labor. We need more skilled workers that are trained to do the job. Some of our products have been known for its quality, and we have to maintain this quality to meet the expectations of our clients.Among the nations in the TPPA, Vietnam could be a nation that can be competitive in terms of timber. The labor market there is cheap, and some companies in China are going to operate in Vietnam. In order to meet this competition, Malaysia has to be resilient to meet the competition brought by the TPPA and AEC,” concluded Abdul Rahim.