Remember we had previously articulated how the increasing dominance of state-owned enterprises (government-linked investment companies and government-linked companies) in Corporate Malaysia came to be over the past decades, which now encompass sectors where the private sector is well able to operate effectively and is competitive (“Sustained economic success comes only from harnessing local private enterprises”, The Edge, Aug 25, 2025)? This crowding-out has a cascading long-term impact. It disadvantages, disincentivises and stunts private sector growth, big or small (including micro, small and medium enterprises, or MSMEs).
Lack of opportunities is one of the key reasons behind the broad decline in domestic private investments — in capacity, research and development (R&D) and upskilling — that, in turn, stifles innovation and entrepreneurship, drives brain drain and ultimately erodes Malaysia’s competitiveness in the global market. Some large businesses started investing abroad in search of growth, to varying degrees of success, but many suffered stagnant domestic sales, rising costs and falling margins. This led to the chronic underperformance of the Bursa Malaysia equity market, affecting its effectiveness as a source of funding, particularly risk capital, for enterprises.
Against this backdrop, private healthcare and private education have outperformed, charting steady revenue expansion and improving profitability. Tellingly, these are the sectors where presence of the state is less pervasive. In fact, private sector involvement was supported by the government’s “passive privatisation” policy. Both sectors were born out of necessity to cater to demand that was growing faster than the public systems could cope due to budgetary and capacity constraints, as well as policy ineffectiveness in the case of education.
The government’s role is primarily one of facilitator and regulator. It approves and monitors the private hospitals and education institutions, ensuring high safety standards and quality control. Yes, the government should also step in, to address market failures such as the recent unchecked medical charges and steep premium hikes. But by and large, the private sector was allowed to invest, innovate and compete in a free market environment.
See also: The Experience Economy as Malaysia’s national policy: from factories to footprints
To be sure, this government outsourcing of two critical public services has exacted a toll on the incomes and savings of the middle- and middle-upper class households. But it has also created two sectors where Malaysia is regionally competitive — and that are now delivering returns for the nation.
Healthcare
Malaysia’s private healthcare sector has evolved from a clutch of small charity clinics to today’s multibillion-ringgit industry in the last few decades. Healthcare expenditure in the country was growing rapidly, both in absolute terms (total and per capita expenditure) and as percentage of gross domestic product (GDP) on the back of rising healthcare awareness, accessibility, technology improvements and medical cost inflation. Since the opening of the first major profit-driven private hospital, Penang Medical Centre (now Gleneagles Hospital Penang), in 1973, private healthcare has expanded steadily under the government’s two-tier system — private hospitals became the solution to alleviating the growing strain on public healthcare and the nation’s finances. The new Rakan KKM initiative — a bridge between the public and private systems — is the latest iteration, allocating public hospital resources into private wings to generate revenue for the underfunded public healthcare system. There is also increasing collaboration with private hospitals as the government outsources various services for public health patients to manage rising demand.
See also: Time for Malaysia to pivot from manufacturing to services
To encourage the demand shift from public to private healthcare, the insurance sector was gradually liberalised from the 1990s. This saw the entry of more players and the proliferation of medical health insurance products, initially standalone and, more recently, investment-linked. Medical insurance became a standard employment benefit. Private healthcare used to be a niche market reserved for the rich but no longer. Alongside rising incomes and the surge in medical insurance adoption, private healthcare became increasingly accessible to a growing number of middle- and upper-middle-income families. Many are choosing to turn to private hospitals for faster services amid worsening congestion, staff shortage and longer and longer wait times in public hospitals, choice of specialists, private rooms, more comfortable and personalised care and so on. All of which creates the ideal landscape for the long-term structural growth of private healthcare.
The number of private hospitals grew from about 50 in 1980 to 214 by 2024 — the number of beds up 53% to almost 20,000 and doctor numbers rising by 71% in 10 years (2014-2024). Demand for private healthcare is projected to expand at an even faster pace, driven by structural factors including an ageing population, longer life spans, rising prevalence of lifestyle-related diseases, and in the past decade, the robust growth in medical tourism (see Chart 1).
Medical tourism is a strategic economic sector with strong growth potential
There is rising global demand for affordable and high-quality healthcare. And medical tourism is a strategic sector that holds strong growth potential for Malaysia. Case in point: Medical tourism revenue has recovered strongly from the Covid-19 pandemic trough, up 60% from 2019. In 2024, the sector grew by nearly 21% year on year. Growth is expected to remain in the double digits, between the 15% to 20% range annually based on current market estimates, over the next decade. Importantly, this is a sector where Malaysia has regional competitive advantage.
With its internationally accredited hospitals, experienced specialists and high standard of care, the country offers healthcare services at very competitive prices (by global standards) for a world-class medical ecosystem (see Chart 2). Case in point: two Malaysian private hospitals made it to the Newsweek and Statista World’s Best Hospitals top 250 ranking in 2025. Together with five hospitals from Singapore and one from Thailand, these were the only hospitals from Southeast Asia on the top 250 list. Several other Malaysian private hospitals also scored highly.
Aside from affordability, Malaysia has many other advantages. As a multilingual country, English is widely spoken, which is a huge plus for international patients. And we can communicate effectively with medical tourists from Indonesia, China, Singapore and India, the homelands of the majority of these visitors, in their native languages. Malaysia is well connected regionally by land and air and has good infrastructure, including a wide range of affordable accommodation. Our multicultural environment, diverse food options (including halal-certified food) and tropical climate offer familiar similarities with our closest neighbours, during pre- and post-treatment recovery periods.
Education among Malaysia’s most sophisticated service exports
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As with healthcare, Malaysia’s private education sector grew to fill the widening gap in the public education system. In the early years, it addressed public university capacity constraints for the middle-class Chinese and Indian population because of the quota system. But in the last decade, growth was driven by increasing concern over policy flip-flops and the deteriorating quality of public education.
It seems ironical. We have mentioned many times that public education in Malaysia is poor and according to the World Bank, an average student spends 12½ years in public school but gains the knowledge and skills equivalent of just about nine years by actual learning outcomes as assessed by standardised tests, due to sub-standard quality. That’s more than three years “lost”. Yet here we are, articulating the quality of our private education as an export and growth sector. How is this possible? Exactly because public services are of poor quality, thus giving rise to the high standards offered by the private sector.
Private school enrolments expanded significantly, notably from middle-class parents seeking quality, global curricula and English-medium education for their children. The Private Higher Educational Institutions Act 1996 [Act 555] further liberalised tertiary education in the country, allowing the creation of private universities, university colleges, foreign branch campuses and 100% private ownership.
The education sector is a good showcase of private sector innovation. In the 1980s, private colleges pioneered the “2+1” twinning programmes with foreign universities — significantly expanding demand by making foreign degrees much more affordable. Malaysia was also one of the first countries in Asia to host foreign university branch campuses, with great success. Monash University was the first Australian university to set up a branch campus in the country. Other foreign universities include University of Nottingham, Heriot-Watt University (both from the UK) and Xiamen University (China). These campuses offer curricula and degrees identical to those in their home campuses — but at much lower cost. This evolution is the foundation for the growth in education tourism (keeping students, and their spending, in Malaysia).
Malaysia is gaining popularity among international self-paying students (as opposed to children of expatriates working here) — primarily from China, Indonesia and South Asian countries like Bangladesh, India, Pakistan and Sri Lanka — as one of the most affordable and accessible nations (visa openness) in the region for internationally accredited higher education (see Chart 3). Plus, as we have said, in terms of modern facilities, entertainment, food, freedom, safety and neutrality, Malaysia is an excellent place to live in.
According to the Department of Statistics Malaysia, private education services grew at an annual compounded rate of 6.5% between 2015 and 2022 — faster than GDP growth. There are currently 64 private higher education institutions (HEIs) with university status, of which 11 are branch campuses of foreign universities; 36 HEIs with university college status and 271 HEIs with college status. Monash recently announced plans to invest RM2.8 billion in the construction of a new campus in TRX City, which will house up to 22,500 students and 1,700 staff, and contribute an estimated RM19 billion to the local economy over the next decade. Courses are expected to include digitisation, AI and cybersecurity, climate change and sustainability, healthcare and digital health, semiconductor and advanced manufacturing, as well as banking and finance.
Healthcare and education: Invisible exports with high multipliers
Healthcare and education tourism are among Malaysia’s most sophisticated service exports that will contribute to our current account surplus. They form part of the travel receipts, which is the single biggest source driving the nation’s services account back into surplus territory (of RM0.7 billion) in 3Q2025, after 14 straight years of deficits.
Healthcare and education tourism are, arguably, more economically impactful than the manufacturing sector and are less cyclical. They are much stickier, more strategic than just tourists. Education tourism especially has very low leakage; that is, low import content (primarily foreign university royalty fees and learning materials) and high domestic value-added. Foreign students spend on domestic housing, food, transport and entertainment. Visits from family and friends add tourist dollars. The time spent in the country is long, three to four years on average, which means high multiplier effect and a stable foreign exchange earning sector. Medical tourism has slightly higher leakage (imported equipment, technology and pharmaceuticals), but still lower than manufacturing (see Chart 4).
Additionally, both sectors are labour-intensive, which means more jobs creation. And best of all, they are among the highest-paying jobs within the services sector wage spectrum (see Chart 5).
We have mentioned before that Malaysia loses out in terms of cost competitiveness, in part because of our relatively small domestic market. Growing the number of foreign medical and education tourists will expand total demand, improve scalability and improve cost efficiency that will ultimately benefit Malaysians. Furthermore, foreigners pay higher fees compared to locals, which should help keep cost inflation lower for Malaysians while also boosting profits for the private service providers.
Conclusion
After achieving independence, Malaysia has successfully transformed from an exporter of primary commodities into a diversified, export-oriented manufacturing economy through rapid industrialisation that had also lifted millions of Malaysians out of poverty. The nation transitioned into an upper-middle-income country in the 1990s. The Asian financial crisis (AFC) and our policy response to it (capital controls), however, turned out to be a huge speed bump for the nation. (Scan QR to read one of our articles explaining the long-lasting impact of Malaysia’s capital controls: “Part 4: Still paying the price for capital controls 23 years later”, The Edge, March 7, 2022).
Since then, we have been stuck in this middle-income trap — for 40 long years — failing to cross into the high-income status as countries such as Singapore, South Korea and Taiwan have done and in far shorter times. Even as GDP continues to expand at a fairly robust pace, more than half of Malaysian workers still make less than RM3,000 a month. Why?
Despite the headstart, Malaysia failed to move up the value chain. Post-AFC, investments fell sharply and the economy entered the phase of premature deindustrialisation. Although we continue to be an important part of the global semiconductor supply chain, our companies remained predominantly in the low value-added outsourced semiconductor assembly and test (OSAT) segment. Malaysia is one of the world’s largest electrical and electronics (E&E) exporters, but our biggest players are primarily electronics manufacturing services (EMS) providers for multinational corporations. High-volume, low-margin business. Domestic companies invest very little in R&D, and we have limited intellectual property and pricing power in the global markets. Three-quarters of the jobs being created are low to semi-skilled; and according to the World Bank, four in 10 Malaysians are currently underemployed (working in jobs beneath their skill levels). We have written extensively on what ails the Malaysian economy and what needs to be addressed, including in a three-part series of articles back in 2023 (in The Edge publications dated July 24, July 31 and Aug 7). The same issues are eloquently summarised by the lead economist for the World Bank in Malaysia, Apurva Sanghi, in his recent presentation. You can watch the video by scanning the QR code here.
In this three-part series, we explained why Malaysia’s laser-like focus on and the committing of ever more resources towards reindustrialisation (moving up the manufacturing value chain in E&E, semiconductor, aerospace, green tech and so on) is unlikely to yield the outcome we envision and desire — creating more and better jobs, raising the income levels and living standards of the people. Why? Because we have had very similar ideas and targets for the past three decades — and have fallen far short. Persisting with the same old playbook will only produce the same results. To expect otherwise is, as Albert Einstein put it, insanity.
If Malaysia cannot execute the real structural reforms needed — including a consistent and effective education policy, a meritocracy-based nation that emphasises equality of opportunity to reverse the brain drain, reduce state crowding out and reinvigorate private sector investments and innovation ecosystem, cut red tape, leakage and corruption, and end state capture — then we must pivot.
The services sector is already the single biggest contributor to GDP and employer in the nation. Service-sector growth is more inclusive, creating jobs across the skills spectrum with broad participation (large corporations, SMEs, family businesses, sole proprietors, formal and informal workers), both urban and rural. The sector is labour-intensive, and jobs are less likely to be automated or displaced by robots, at least not in the foreseeable future. Services are domestic-oriented and therefore, more structurally resilient.
We highlighted three service subsectors where Malaysia has regional competitive advantages. Tourism, medical tourism and education tourism are high-value service exports, earn foreign currency, have low leakage and a high multiplier effect on the economy. They have grown and thrived under private sector stewardship, filling the gaps left by public systems, and innovating, creating and scaling with domestic and regional demand. We must leverage our competitive advantages for these sectors to be the drivers of future economic growth, to raise Malaysian wages and living standards. But in order to do so, the government and its business entities need to stay out. Let the private sector continue to do what it has done best.
Portfolio commentary
The Malaysian Portfolio gained 0.5% for the week ended Feb 25, broadly in line with the benchmark FBM KLCI, which was up 0.4% over the same period. Malayan Banking (+3.5%), United Plantations (+1.1%) and Kim Loong Resources (+0.4%) were the biggest winners while the only loser was Hong Leong Industries (-1.1%). Last week’s gains lifted total portfolio returns to 215.3% since inception. This portfolio is outperforming the FBM KLCI, which is down 4.5% over the same period, by a long, long way.
The Absolute Returns Portfolio, on the other hand, fell 0.3% last week, paring total portfolio returns since inception to 44.1%. The top gainers were SPDR Gold MiniShares Trust (+3.3%), Ping An – H (+0.6%) and Ping An – A (+0.3%). Kanzhun (-5.6%), Alibaba (-4.2%) and Berkshire Hathaway (-1%) were the three biggest losers.
The AI Portfolio also ended in the red for the week, down 0.4%. Total portfolio returns since inception now stand at -3.8%. The biggest winners last week were RoboSense Technology (+6.8%), Sieyuan Electric (+6%) and Amazon.com (+2.9%). On the other hand, Datadog (-9.4%), Alibaba (-4.2%) and Minth (-3.7%) were the notable losing stocks.
Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.
