The Cabinet has given the go ahead for Malaysia to pursue a free trade agreement (FTA) with Iran as part of efforts to diversify trade.
International Trade and Industry Minister Mustapa Mohamed said the potential for trade with Iran was enormous in areas such as oil and gas, as well, as palm oil since international sanctions against Tehran were lifted in January.
"Palm oil attracts a very high tariff of 40 percent in Iran. With a FTA, we hope the import duty can be reduced which would boost our exports of palm oil.
"So it is important for us to seize the opportunities arising from the Iranian economy as numerous foreign investors are making a beeline to invest in the oil-rich Middle East country," he said at a media luncheon in Kuala Lumpur.
Iran is one of the biggest oil players in the world, producing about 3.8 million barrels of oil daily with the potential to increase output by a million barrels in the next few years.
Given its big population compared with other countries in the Middle East, Iran has huge potential for economic growth.
In 2015, Malaysia-Iran bilateral trade dropped to US$700 million compared with the previous year due to the imposition of sanctions.
After the sanctions were lifted, bilateral trade jumped 22.7 percent to RM1.32 billion in the first seven months of this year from RM1.07 billion registered in the same period last year.
Besides Iran, Mustapa said Malaysia would likely conclude a FTA with Sri Lanka next year.
Modest performance so far
On overall trade performance, he said 2016 was a tough year for Malaysia with growth likely to be modest and maybe below the 2-3 per cent target set for the year.
"Looking at the numbers for the first 10 months, we have yet to reach the target 2-3 percent. It is (growth) very marginal.
"In the beginning of the year, we thought this was a very modest target, but after having come this far, we think we are not going to achieve our target," he said.
As for investments, Mustapa said there would be a significant gap this year compared with 2015 when high-based investments were derived from the Petronas project in Pengerang.
Moving forward, Mustapa said there would be a slight economic recovery, worldwide, in 2017 despite some challenges and Malaysia would not be spared.
He expected a slight improvement in Malaysia's trade next year, with promotion and activities focused on Asean which would celebrate its 50 years of establishment.
"We have to engage with the world and increase productivity amid intense competition," he added.