Tuesday, January 23, 2007

Malaysia Gets Marginalised (III)

In the earlier 2 parts of this article with regards to Malaysia's foreign direct investment and economy, I provided damning statistics on Malaysia as an attractive investment destination as well as cited the various issues which caused the decline. This concluding part highlights the Government's response to date and the immediate actions which need to be taken to arrest the decline of our ecomy.

The Government's Response?

Despite the severity of the poor economic performance as depicted by the statistics provided by the World Investment Report, and the bleak outlook provided by economic experts from top financial institutions around the world, there has barely been any response from the Barisan Nasional Members of Parliament (MPs) as well as Government officials. No Minister nor MP seem interested in the fact that the trend, if left unchecked, will severely impact Malaysia's future growth potential.

The Prime Minister, Datuk Seri Abdullah Ahmad Badawi, had brushed aside the criticisms by claiming that Malaysia “can increase the FDI figures many times over at the stroke of a pen, but it will mean some loss of control.” Hence he believes “in selective mergers and acquisitions, and maintain control of strategic assets because of the national interest.”

The Government's incredibly meek response fails to take into account two major factors. Firstly, maintaining control of supposed uncompetitive and loss-making “strategic assets” are not only not in the “national interest”, it is actually detrimental to our national interest. Through unjustified and unmitigated protection provided to weak and uncompetitive industries and corporations, it has resulted in unproductive and inefficient utilisation of our hard-earned tax payers funds. In addition, such protection have resulted in the burdening the rakyat through substantially higher consumer prices and lower quality products and services.

Secondly, it is ignorant and irresponsible of the government to attribute the low FDI flowing into Malaysia purely to “selective mergers and acquisitions (M&A)”. Such M&A investments will bring limited value through merely a change of ownership.

The key in FDI has to be in bringing in foreign funds for new investments such as new factories, businesses and services into Malaysia. These type of investments will have a higher multiplier effect on the economy by generating new employment and higher value-added activities. The fact that many existing multinational corporations (MNCs) have not added substantial new investment, and the lack of new investments from other MNCs such as Solectron and Advanced Interconnect Technologies indicates that the problem is far bigger than “selective mergers and acquisitions”.

Instead, it demonstrated Malaysia's alarming lack of attractiveness as an investment destination.

What We Need To Do?

Asian Strategy Leadership Institute director Tan Sri Ramon Navaratnam said Malaysia cannot be too protective in the world of rapid globalisation. "The world does not owe us a living and we have to struggle to improve at a faster pace or be left behind."

Tan Sri Ramon's view is echoed by Citigroup's Mr Chua. He put forward that “it is not that Malaysia is moving backward, it is simply not moving forward quickly enough.”

The international panel of economic analysts and experts all agreed that among the measures required to arrest the slide, Malaysia's “New Economic Policy (NEP)” needs to be abandoned or radically revamped. Citigroup argued that a 'shelf-life' timetable should be introduced to ensure that the "outdated legacy policy" is eventually dismantled.

The Citigroup report also suggested direct government subsidies and preferential treatment in social services, such as education and healthcare as being more preferable compared to the NEP requirements which "distort the property, labour and stock markets... Protecting local champions such as autos and airlines has hurt consumers and raised business costs. It has also hurt relations with neighbouring countries and scaled back reciprocal gains.”

The NEP imposes limits on foreign ownership in business and dictates that ethnic Malays must be given stakes in new and established companies.

The NEP also requires all new stock market listings of Malaysian companies be required to dilute at least 30% of its equity to bumiputeras has also vastly reduced the attractiveness of Bursa Malaysia to local companies. With increased globalisation and the eradication of cross border financial barriers have resulted in more Malaysian companies aborting local listing plans. Instead, they seek to raise equity financing in foreign markets, which do not possess such demanding dilutive policies. Such capital flight not only result in diluted local ownership but also reduces the vibrancy of the local bourse.

While our neighbours are busy successfully attracting dozens of large Chinese and Indian companies to list in their markets annually, particularly in Singapore, Malaysia has no foreign firms listing on Bursa Malaysia in the past decade which clearly marks the dismal failure of the Government's ambition to turn Kuala Lumpur into a global financial destination.

What is of much greater concern, is not the distortionary impact of inefficient allocation of resources but the fact that the policy has mutated into a potent tool to dispense political patronage by Barisan Nasional politicians. Such abuse which contradicts the spirit of the NEP, whatever its shortcomings, greatly accentuates the weaknesses of the policy which in turn serves as a major detriment to both local and foreign investors.

The Government must no longer blatantly ignore the various warning signs staring directly at us, in the form of the ignominious decline of local and foreign investment in Malaysia. It does not help with the Minister of Trade and Industry, Datuk Seri Rafidah Aziz herself proudly pronounced that foreign investors unhappy with the terms of the NEP should go invest elsewhere.

Further delays in reforming and restructuing our economy to be more productive and efficient will only lead to further marginalisation of the Malaysian economy in the era of inevitable globalisation.


Anonymous said...

So the suggestion here is to announce a time for the end of the NEP and remove bumiputra listing requirement?

Its sheer political suicide and may not even work. UMNO would nevet let it happen anytime soon and some even ever.

Intellectually the thinking really is that while that even if NEP is removed, the educational and skill level of bumiputera of majority if not with the exception of a small group, are not enough to prevent them from marginalization again without the NEP. At least its a risk that is not acceptable to take.

This PM has chosen instead to reduce the subsidy given as a first step to remove the crutch while doubling effort on skills and education. While it clear that the smaller subsidy removal is pathetic, the danger really is his idea that doubling of effort on skills and education without substantial policy change will do that much.

Anyone who has been to the best scholls in the world know that while the best education invaluable, its really still a platform to success and that without the right experience, success is far from swift or sure. Also, those who have competed in the real world know how easy a mediocre education handicap them in the real world.

And that is the why the second half of the plan is going to be at the very least dissapointing - the doubling of bet on education without the most crucial of policy change will not work. The only way the plan will work is to first remove the NEP as it pertain to the education system itself begining with the administration particularly the ministry itself, then the teaching and lastly at the student level. Instead the new Blueprint admit nothing wrong with the ministry, does marginal change at the teaching level and certaintly not much at the student level sticking to its core protective policy of internal improvement and pouring much resources to internal elitism. It is still the same ideas and policy in reality but just doubling of the effort, given more time with a few more mechanism that is all..

Here is what is even more disturbing about the strategy of the current administration - that at the end of it, it does not resolve the debate whether to end the NEP and make the radical changes critics says is necessary. With a neither here or there strategy, it provides excuses for defenders and not enough ammnunition for critics - hence not ending a national debate critical to all of us.

UMNO can point to the limited removal of subsidy and says its a failure. It can point to the doubling of effort on education and point to some gains which could just be a normal course of time and overwhelming resource allocation. Its not measured comparatively.

This is why this administration mediocrity is dangerous, it not that we are not catching up with others now, its that, in the end, it will not lead to a final resolve of what to do.

No the danger is not that we are not attracting FDI today but rather we have no plan that will bring it back in the near future even.

Anonymous said...

Tony, your blog is very informative and unique. I have stopped reading newspapers (Star, NST, The Sun) since my University time. After reading your blog, I planned to save my RM 5/week on The Edge. The Edge is full of advertisement, craps, and propaganda. But local newspapers are worse.
I'm a civil engineer. So, i don't have much economics knowledge .But i do realized that, the Government has been creating an illusive economic condition for Malaysian. With the help from the media, propaganda can easily sipped into Malaysians' mind.
But luckily, we have Internet today. I like to read your blog because it gives me a different Point of View, which local newspaper can't provide.
One of my friends in the Imigresen told me that in 2006, the number of non-bumi migrating to other countries has increased significantly. Meanwhile, another friend who works for a local newspaper company told me, news can be altered or edited with one phone call from the Datuk! Another secret is, public listed companies can pay the local newspaper to promote their companies, which will boost share price.
I don't really remember about NEP.So, i refer back to my STPM subject (Pengajian Am). NEP is necessary because it protects the Bumiputera from competition in reaping a piece of economic cake.That's a good move in avoiding riots/Peristiwa Mei 1969 from repeating.The Bumiputera is the majority race in M'sia.They can easily eliminate non-bumi barehanded or with parang.Non-bumi should study hard and work hard for them.Non bumi cannot get richer than bumi.If this happen,(this will not going to happen)non-bumi should migrate.
Actually,i'm wondering whether man is getting more civilized.But after the war in Iraq,i believe in the possibiity of history repeating itself.
I have seen a lot of 'things' in construction industry...to be continued