This article first appeared in The Edge Malaysia Weekly on October 16, 2023 - October 22, 2023

THE UK’s Minister of State in the Department for Business and Trade Dominic Johnson sees trade and investment ties between his country and Malaysia as a “partnership”, with British science and technology contributing to the latter’s transition to net zero by 2050.

“I’m very keen to continue to encourage the classic UK property investments, but for me, more excitingly, are the investments in future tech, life sciences and renewable energy,” he tells The Edge in an interview during his visit to Malaysia last week.

“This relationship isn’t simply about trying to get investment into the UK. This is now a partnership. If Malaysia is to deliver on its own ambitions to become a clean energy powerhouse, and really be the power source for this area of Asia, it needs technology,” says the 49-year old former fund manager, stressing that the renewable energy revolution is at the core of the activities in the UK, offering opportunities for the sharing of technology and development of strategies in the transition from carbon fuels to clean energy in this region.

“It’s very exciting for us in terms of what we can access and partner in Malaysia,” he says.

Johnson’s visit to Malaysia is part of his week-long trip, which included Japan and South Korea, to bolster trade and investment following the UK becoming a signatory to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and just weeks before UK Prime Minister Rishi Sunak’s Global Investment Summit next month.

The UK’s accession to the CPTPP, to be ratified by end-2024, is set to benefit trade with Malaysia as both countries now have a free trade agreement (FTA) for the first time. British and Malaysian companies will enjoy benefits such as the removal of 99% of tariffs, enhanced access to services, additional protections for investors and efficient customs procedures, among other privileges.

Johnson tells The Edge that among his priorities during his visit here has been to engage with Malaysian businesses and venture capital companies investing in the UK as well as British firms — including education institutions — operating in Malaysia.

According to the UK Department of Business and Trade, total trade in goods and services between the UK and Malaysia amounted to £5.6 billion (RM32.5 billion) in the four quarters to the end of the first quarter of 2023 (1Q2023), increasing 5.9% or £311 million in current prices year on year.

In 2021, foreign direct investment (FDI) stock between the UK and Malaysia was £6.2 billion.

Currently, Malaysia, Japan and South Korea collectively have over £3 billion of venture capital deployed in the UK, notably in the technology sectors, with nearly £100 billion worth of FDI stock in the UK in 2021.

Johnson notes that the trade relations between the UK and Malaysia will be reflected in the efforts by the ministerial-led Joint Economic Trade Committee (Jetco), which will meet in November to look into ways to further boost trade, investment and economic cooperation between the nations.

“It’s very important [in] that we don’t have a Jetco with every country in the world. It’s a relatively specific number of countries with which we want to have stronger trade relations. And that’s an important part of the economic process,” Johnson says.

Johnson’s familiarity with the Malaysian economy dates back to the 1990s, when he was based in Hong Kong with Jardine Fleming, an investment bank that was eventually acquired by JP Morgan Chase in 2000. He co-founded Somerset Capital Management LLP as an employee-owned democratic partnership, focusing on pension fund management in developing countries in 2007. The firm was put up for sale in 2022 and in October that year, he was appointed by then PM Liz Truss as a minister of state in the Cabinet Office and the Department for International Trade.

Sunak sacked Johnson shortly after becoming PM in October 2022 but reappointed him as Minister of State for International Trade in November 2022. He was appointed to his current portfolio on Feb 7 this year.

Emphasising the need for countries to capitalise on their specific strengths in the current challenging global political and economic environment, Johnson points to two trends that have changed his life: globalisation and low interest rates.

“For the majority of my working life, we have had continued globalisation of markets and declining of interest rates. In the last few years, that trend has reversed, and the UK government is very much aware of it. [It is] one of the few governments that have pushed back against the end of globalisation and are pushing forward the creation of new free trade relationships post-Brexit. CPTPP is a very good example of that, where we’re on an open, free, liberal market. Having free trade is the cornerstone of our opportunity to create wealth for our citizens,” he says.

While many Malaysian investors have long invested in the UK market by way of traditional property investing, Johnson is emphatic about growing investments in offshore wind.

He points to Tenaga Nasional Bhd’s investment in the UK’s offshore wind market, which came through the acquisition of a 49% stake in Blyth Offshore Demonstrator Ltd (41.5mw) in 2021 from EDF Renewables, a wholly-owned unit of the French utility EDF Group, specialising in renewable energy production.

Last year, Tenaga via its unit Vantage RE Ltd added a 97.3mw onshore wind portfolio to its stable of assets. It also expanded into asset development via a 102mw solar portfolio through sites in Warwickshire in the West Midlands and Hampshire in Southeast England.

Other recent investments by Malaysian companies in the UK include Sunway Group support for Cambridge’s venture capitalist firm Deeptech Labs as well as Amcorp Properties Bhd, which via an international real estate consortium with Hotel Properties Ltd and Native Land Ltd, will be developing a luxury hotel and serviced residences in London. They are slated for completion in 2028.

On the flipside, a recent investment by the UK in Malaysia is global medical technology company Smith+Nephew’s opening of a 250,000 sq ft high-technology manufacturing facility in Batu Kawan Industrial Park in Penang, Malaysia to grow its orthopaedics arm. It is worth more than US$100 million (RM471 million) in investment.

Johnson says his recent conversations with Khazanah Nasional Bhd and the Employees Provident Fund have been about transmission opportunities in battery storage and offshore wind, which represent “the UK’s needs and future opportunities”.

What then are the Malaysian community’s concerns when it comes to investing in the UK? Are the high interest rates there a concern for investors?

“The perception of the UK is very important, and this is one of the tasks of my role — going around and trying to recorrect people’s expectations of where the UK is going. [The UK government] is working very hard to bring inflation down.

“The UK, I believe, is one of the few governments around the world that actually is operating a sensible fiscal sense of restraint, where you have to run very controlled budgets. And that’s not populist because it means not spending money and not cutting taxes, which are two things people want. But by holding the line and running a responsible budget, you actually bring down inflation, which has far more harmful benefits and [only] short-term fixes,” he says.

Inflation in the UK eased to 6.7% in August, decreasing from 6.8% in July and the peak of 11.1% last October. To manage rising prices, the Bank of England raised interest rates 14 consecutive times since December 2021 but took a pause last month at 5.25%.

Johnson says the UK is on track to meet the government’s goal of halving inflation by end-2023. When Sunak made the pledge on Jan 4, the latest published reading was the November 2022 inflation figure of 10.7%. The December and January figures later turned out to be 10.5% and 10.1% respectively.

While Johnson speaks openly about his hopes for a strong partnership with Malaysia in the clean energy revolution, it is noteworthy that UK PM Sunak had in September dialled down key targets in the UK’s drive to become net-zero carbon in response to the climate crisis.

The U-turn, such as Sunak’s delaying by five years a ban on new gas and diesel cars that was initially slated to take effect in 2030, drew flak from environmental experts. His rationale was that the climate goals imposed “unacceptable costs” on ordinary people.

Johnson allays concerns by clarifying that Sunak’s announcement was about finding the fairest credible path to reach net zero against rising costs, and that the UK’s commitment to net zero remains unchanged.

He says the UK’s over-delivery on every target to cut emissions — far faster than any other major economy — has given it the space to take a more measured and pragmatic approach to reaching net zero while still meeting its international commitments.

“We will be adjusting our plans to reduce the pressures on families, without changing our current targets. This includes moving back the ban on the sale of petrol and diesel cars, delaying the ban on new fossil fuel boilers for certain households, as well as scrapping new policies to force homeowners to upgrade the energy efficiency of their properties.

“The policy changes announced will in fact help businesses adapt to net zero, giving them more time to build up supply chains. We are also expanding the government grant for boiler upgrades to £7,500, giving the supply chain certainty of demand. And to be clear, we continue to support investments across industry and power decarbonisation. This autumn, we will set out more details about our next renewables auction, building on 3.9gw of power capacity contracted for this summer.” 

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