Malaysia

The defence budget of Malaysia in 2019 was US$3.87 Billion reduced by 46.7% compared to 2018, when it reached US$5.68 Billion. From the approved allocation of US$3.87 Billion in 2019, the Operating Expenditure for defence was around US$3 Billion, while the rest, US$0.87 Billion, was allocated for Development Expenditure. For 2020 the proposed defence budget was approximately US$3.9 Billion of which US$3.1 Billion allocated for Operational Expenditure and US$0.78 Billion for Development Expenditure, of which 30.4% allocated for procurement programs of the Navy, 24% of the Army, 12.35% of the Air Force, 15.6% for the tri-service or Joint Force Command and 6.5% for infrastructure.  

In general terms, the defence budget of Malaysia the last 10 years has been relatively lower than the expectations of the Ministry of Defence and it has been fluctuating between US$3.5 Billion the lowest and US$4.7 Billion the highest, with only one exception in 2018, when it reached the record US$5.68 Billion. The reduction of the defence budget in 2019 and 2020 compared the budget of 2018, is due to the national and global economic slowdown and the increased national budget deficit. For the time being Malaysian government is not planning to purchase new defence assets to replace the old military equipment but to identify military equipment that are still in good condition and can operate normally and last longer upon repair.  

Defence Industry 

The foundations of the defence industry of Malaysia were laid by the Armed Forces of the country just after Malaysia become independent. Soon after the local defence industry was established the then governments decided to privatize these industrial facilities in two waves in the 1970’s and in 1990’s. The first state owned defence industry that was privatized was the Armed Forces Depot in 1972, which is today known as AIROD. This was followed by privatization of the PSD Naval Dockyard in Navy Base Lumut in 1997, currently known as Boustead Naval Shipyard Sdn Bhd.

In general terms the defence industry of the country was largely neglected for many years and the nation was relying mainly on foreign sources for most of the weapons systems of the Armed Forces. This changed in the early 1980’s when local defence planners with the “National Defence Policy” paper of 1982 indicated that they had a long-term plan to work towards self-reliance. As of early 1984 Malaysia had a small domestic arms production capacity which was sufficient to meet much of the Armed Forces requirements for small arms, ordnance and ammunition.

Furthermore, the dry-dock facilities at Lumut and the dockyards near Singapore, provided at that time maintenance and repair services to vessels, while during early 1980’s Italian trainer jets M.B 339 were assembled locally and the Air Force was capable of performing major overhauls of up fourth echelon maintenance.

The turning point for the Malaysian defence industry was in 1990’s, when the then Prime Minister of the country, Mahathir Mohamad presented his strategic plan “Vision 2020” for the future of Malaysia, to make his country a fully industrialized and technologically advanced nation by 2020.  In line with this goal was the development of Malaysian industries especially the aerospace and defence industries, through the transfers of technology and the implementation of offset programs brought about by making such transfers and offsets as condition for defence purchases from foreign countries.

In addition to the “Vision 2020” strategic plan, Malaysia achieved high rates of economic development and the increasing education of the Malaysian population resulted in a workforce that could handle both management and technical issues.

Furthermore, up to the late 1980s, the Armed Forces of Malaysia had been focused on the counter-insurgency role, due to the need to suppress the remnants of the communist insurgency. The new decade in 1990’s found the Malaysian Armed Forces having to deal with conventional and external threats. This new situation, made the Armed Forces of the country, to transform from a largely infantry-based Army, supported by a brown water Navy and Air Force, to modern Armed Forces with both the Navy and Air Force obtaining greater roles.

At the end of 1990’s the depreciation of the national currency of Malaysia, made several local companies to decide to venture into the defence and aerospace industry, most often in serving as partners or subcontractors to foreign firms as the exchange rates and lower labor costs would lead to a higher profit margin.

Since the Government of Malaysia made an offset package in the form of local participation or transfer of technology as a basic condition in any significant military procurement program from abroad, any foreign defence industry wishing to sell its equipment in Malaysia had to seek the cooperation of the local defence industry. In order to coordinate the local defence industry, the Malaysian Government established in 1999 the “Malaysian Defence Industry Council (MDIC)”.

The new organization was formed to coordinate the orderly development of the Defence Industry sector and serves as a forum for the industry. MDIC is headed by the Defence Minister and comprised of 56 government officials and the heads of local defence companies. MDIC functions to not only support the local defence industry, but to market its products to overseas buyers, help companies get access to foreign markets and aims to build relationships with other defence industries.

Under this council, they are six working groups dealing with the six specified defence industry fields, each being headed by a representative from the companies in the defence industry, deemed strategic by the Malaysian Government:

  • Aerospace,
  • Maritime,
  • Weaponry,
  • Automotive,
  • Information Communications Technology (ICT) and
  • Common-user Equipment

Five years later in 2004 a “Defence Industry Blueprint” was published in order to provide guidance for the national defence industry.

The “2004 Defence Industry Blueprint” emphasis among other issues related to:

  • Capability development levels,
  • New approaches to the offset program and technology transfer,
  • New approaches to defence acquisition,
  • Industry incentive,
  • Role of Government agencies and the MDIC,
  • Universities,
  • Research and design institutions,
  • R&D activities,
  • Bilateral defence industry cooperation,
  • Establishment of strategic business alliances and smart partnership,
  • Marketing enhancement,
  • Human resource and competency development and the
  • Different levels of defence industry development.

Malaysian Defence Industries

There are several defence industries in Malaysia that can cover the needs of the Nation’s Armed Forces in the fields of land systems, aircraft, helicopters UAV, weapons and ammunition MRO, electronics, communications etc. The most prominent defence industry of Malaysia, is NADI (National Aerospace and Defence Industries Sdn. Bhd.) established in 1983 as Aero Industries Sdn Bhd. NADI, operates as a holding company with the Malaysian Ministry of Finance holding the Golden Share of the company. NADI is a significant player in the Aerospace & Defence industries.

The Company, through its subsidiaries, manufactures aerospace parts, avionics, technology systems, and engages in other related aerospace and defense activities in Malaysia.

The subsidiaries of NADI are:

  • AIROD Sdn Bhd (AIROD), established in 1976 as the first and only in-country military depot level maintenance facility to support the Royal Malaysian Air Force (RMAF) aircraft and its associated engines, aero components & avionics. In 1985, AIROD was privatized as a joint-venture company between Malaysia's National Aerospace & Defence Industries Bhd (NADI) and Lockheed Aircraft Systems International (LASI) of the USA. Today, AIROD is a fully Malaysian-owned company under the NADI group of companies and is a leading MRO facility providing services to regional and global customers in the Southeast Asian region.
  • AIROD Techno Power Sdn Bhd (ATP), is the Rolls Royce T56/501 Authorized Maintenance Center Branch to AIROD Sdn Bhd. The company provides complete capability to repair and overhaul C-130 Hercules aircraft engines.
  • SME Ordnance Sdn Bhd company (SMEO), formerly known as Syarikat Malaysia Explosive Sdn Bhd, established in 1969, is a defence industry that specializes in the manufacturing of firearms and bullets, hand grenade and pyrotechnics.
  • SME Aerospace Sdn Bhd, established in 1992 through the offset program from the United Kingdom after Malaysia agreed to purchase BAE Systems Hawk fighter aircraft, is a viable candidate to be a premier manufacturer of aircraft industries, with its comprehensive “one stop” center for metal fabrication, machining and assembly.
  • AIROD Aerospace Technology (AAe) Sdn Bhd, was established in order to enhance the Commercial Aviation MRO expertise and services coverage. AIROD Aerospace Technology operates 6 hangars with 13 aircraft bays capacity, including a dedicated environmentally control paint hangar.
  • Aerospace Technology Systems Corp. Sdn Bhd (ATSC), was formed as an offshoot of the MiG-29 Offset Program between the Government of Malaysia and Russia. The Company was incorporated in 1994 in Malaysia as a joint venture company.

The most important Malaysian defence industry in the field of the land systems is DRB-HICOM Defence Technologies Sdn Bhd, officially known as DefTech. The company was established in 1996 and since then has been involved in the development, manufacture and supply of armored and logistic vehicles for the military and homeland security.

The Composites Technology Research Malaysia Sdn Bhd company (CTRM), is involved in the aerospace and composites industries. The company main products include UAV, composites aerostructure, satcom antenna and radome. The company fully owned by DefTech Destini Berhad, consist of three divisions which is System Enhancement Resources & Technologies (SERT) for land systems, Destini Aviation for aerospace, Destini Armada for marine.

Weststar Defence Industries Sdn Bhd, also known as Weststar, is a company involved in the development, manufacture and distribution of military and law enforcement vehicles MMC Engineering Sdn Bhd, established in 1986, specialized in defence engineering, and refurbishment of armored vehicles. Sapura Secured Technologies Group of Companies was founded in 1995 and is the most important Malaysian defence industry in the fields of electronics and communication.

The group includes:  

  • Sapura-LTAT Communications Technologies Sdn Bhd
  • Sapura Research Sdn Bhd
  • Sapura Transmission Sdn Bhd
  • Sapura Defence Sdn Bhd
  • Sapura Thales Electronics Sdn Bhd
  • Sapura Advanced Systems Sdn Bhd

The key capabilities of the group of companies are:

  • Defence systems products and solutions
  • Radio communication systems
  • Radar, Battle tank and flight Simulators
  • Electronic warfare
  • Maritime electronics
  • Avionics
  • Cybersecurity
  • Voice and Data Communication
  • Tactical Networking Solutions
  • Intelligent Management System
  • Mission Management System
  • Border Surveillance System

Boustead Heavy Industries Corporation (BHIC) is the biggest shipbuilding and ship repair/maintenance industry of the country. The company has three shipbuilding and repair facilities: (a) Boustead Naval Shipyard, a naval shipyard located next to RMN's base in Lumut in the state of Perak, (b) Boustead Penang Shipyard located in Pulau Jerejak in the state of Penang and (c) Boustead Langkawi Shipyard located in the island of Langkawi in the state of Kedah.

BHIC is a public limited company and its largest shareholder is Lembaga Tabung Angkatan Tentera with a 58.69% stake, a government statutory body which provides retirement benefits and a savings scheme for officers of the Malaysian Armed Forces. The second largest shareholder of BHIC with a stake of 7.17%, is Kumpulan Wang Persaraan, a company established by the Malaysian Government as an investment company. BHIC has been building naval vessels for the RMN, such as the Littoral Combat Ships (an ongoing project), the new Generation Patrol Vessels, and undertaking MRO works for RMN's fleet.

Another major shipbuilding facility is the government owned Royal Malaysian Navy (RMN) yard (located in Teluk Sepangar, Kota Kinabalu) managed by Boustead DCNS Naval Corporation Sdn Bhd (BDNC), undertakes submarine MRO activities, provides In-Service Support (ISS) and carries out refit works for the two units of Scorpène-class submarines for RMN.