Thursday, April 23, 2009

Services Sector Liberalisation - An Improvement?

We would like to welcome the new Prime Minister's announcement on the selective liberalisation of 27 sub-services sector in Computer & Related, Health & Social, Tourism, Transport, Sport & Recreational and Business Services.

It is a commendable baby step forward to demonstrate Datuk Seri Najib Abdul Razak's commitment to unwind some of the suffocating policies and regulations imposed and expanded under the pretext of the New Economic Policy (NEP). These policies have certainly resulted in a slower pace of foreign and local investment growth compared to our regional peers since the 1980s as they reduced the attractiveness of Malaysia as an investment destination.

However, we would like to emphasize the fact that this is only a baby step forward and will achieve little impact if they are not followed by further concrete actions.
  1. Firstly, the list comprises only of very selected sub-service sectors, even those selected such as “Beverage Serving Services” comes with conditions such as “for services provided in 4 and 5 star hotels” only. They also cover the Computer & Related services industry (6 sub-services sector) where many of the multinationals have already circumvented equity conditions by acquiring the Multimedia Super Corridor status.

    There are hundreds of sub-service sectors classified and we certainly look forward to further liberalisation of ownership constraints, especially those imposed on Malaysians themselves.

  2. Secondly, will the liberalisation of ownership mean that these companies will be exempted from bumiputera equity requirements imposed by Bursa Malaysia as a condition for listing on the local stock exchange? By liberalising ownership but not their ability to raise funds locally will only serve as a handicap for these companies.

    Furthermore, the liberalisation of bumiputera ownership conditions on the local stock exchange will certainly go a long way towards reviving our financial services sector from its current doldrums, making ourselves relevant in the region again.

  3. Thirdly and more importantly, the above “liberalisation” only deals with the ownership or supply aspect of the relevant sectors. It does not however deal with the more critical demand aspect of the industry which are still very protected directly and indirectly.

    Government agencies and government-linked companies (GLCs) are severely constrained by the Finance Ministry guidelines on procurement. They are only allowed to procure goods and services from companies which are registered with and possess approved classifications from the Finance Ministry based on strictly bumiputera ownership controls.

    In GLCs such as the banking sectors, there is even the written and unwritten rule that legal firms engaged by these banks must have at least 50% bumiputera partnership, despite the professional nature of such services. Hence the so called liberalisation of legal services to foreign firms in the Islamic banking industry will not make major headways to the sector.

    These persisting barriers to entry will continue to discourage investments in these sectors. Why would these investors consider setting up operations when they have no opportunity to offer the services to the Government and the GLCs, which combined, is the single largest consumer of services in Malaysia.
Hence, the liberalisation of supply-side constraints without the corresponding reforms on the demand-side is akin to clapping with a single hand. We look forward to the Prime Minister announcing further measures in the shortest possible time to ensure substantial success of the above liberalisation exercise.

14 comments:

Richard Cranium said...

You are absolutely right in questioning whether this will extend to listing requirements as well. I would think not, if the track record of this BN govt is anything to go by.

Anonymous said...

I wouldn't want to put too much hope on it yet until it really becomes reality & that there are NO HIDDEN CONDITIONS to the so called liberation. Just like 1-malaysia...what happened??? It was only used for the by-election.

Unknown said...

These are just 'wayang kulit' that they used to play!
Change the bottle but the ingredients remain the same!
Don't put too much hope la.

Anonymous said...

" . . . liberalisation of ownership constraints, especially those imposed on Malaysians themselves."

reflecting what I also had in mind when I read of the liberalisation news

~ ais

NEO said...

Hi YB,

For your info (if you're going to join the Pakatan shadow cabinet and hold the portfolioas minister of health)

Pharmaniaga Berhad monopoly the distribution of drugs and other medical supplies list under a "Blue Book" (approx 3,000 items) for years. (maybe expiry 2015)

Some of these items are produced locally or aboard. However, no matter where these items is produced, the manufacturer need to "delegate" the distribution task to Pharmaniaga.

Then, another group of enterprenuer is un-happy on this and pursuit the Bn government to build a 2nd Pharmaniaga. Now they have chosen CCM.

CCM have acquired Duapharma (a 2nd board company) and now its called CCM-Duapharma to continue the life of "Monopoly" in supply of drugs and other medical supplies.

Puspakom

Puspakom also monopoly the biz of inspection of commercial vehicles. Then, another Johor based Umno enterprenuer is un-happy. They have submitted a proposal to Bn government....and they wish to build 2nd Puspakom.

So, do YB believe what Najib said?

Penangites said...

Tony,
I'm no BN fans but pls give Govt a chance to prove something before pouring cold water on them. Though this is no big step towards liberisation but certainly a commendable move by Najib-led govt. A well-deserved praise to the them certainly.

In contrast, the critics should aimed at certain PKR youth leaders for politicize the govt's wise move, said UMNO start neglected Malays, try to abandon Malays in this countries and etc.

Anonymous said...

This is bullshit...the shackles that hold down buisnesses in this country are "licences" and Malaysia's corrupted, bloated and lazy civil service......

Abolish 90% of licences in this country and growth will increase by at least 4%.....

Simon H said...

Although frustrated, I hope he is sincerely trying and not selling us a gimmick ...

Fatimah Zuhri said...

Tony,

1. You should not be another KJ pls

2. Be fair minded man...give the fella a chance.

3. He just made 2 BIG steps that required great political will...the liberalization of the sectors and the conversion issue.

4. Our former sleepy PM only knows how to talk but did not walk the talk.

5. At least Najib is proving he can walk the talk...dare to take risk!

6. Maybe you are still new in politics but perhaps you should watch how americans politician behave and how they act with each other.

7. My message is simple bro, give credit where credit is due.

cheers

Anonymous said...

Najib is a pretender and the intelligent minds in this country knows it. But pretender does not mean he is stupid.

Yes, his moves are more publicity than real but it does have milleage especially given they have control of the MSM. If he can put together a series of these, he got something going, not a lot but something going and that is all BN need to stay in power and THAT can enough to keep him in power for another term.

The Achilles heel of his plan is small success don't fix the big problems and the biggest one will be graduate unemployment. This country produces something like 200,000 new graduates a year, most of them unemployable in the current and near term environment. Its why he has to crank up employment in the govt and GLCs to cover this up. The problem with cranking up the govt/glc machinery is that you can do it for a year but you can't employ 600,000 graduates over the next 3 years. As much as half of that will still be unemployed/underemployed at the end. That is the achilles heel of what he is doing with taking 'one-hit-at-a-time' game plan..

Nehemiah said...

Removing the NEP policy and the political agenda behind it is essential. But what is more essential for bloggers/the media and the public to understand is that distibution of human and financial resources based on race is economically most wasteful and greatest disincentive for economic wealth.

When one person based on race/class/religion is allocated a reserved advantage over the next person who is different, then economic resources are not going to the most efficient. There are huge opportunity costs that Malaysia's bumiputra policies (as distinct from but not unrelated to cronysm).

So Najib's commendable move should spark a fresh wave of analysis why Malaysian policymakers need recognise the stupidity of economic disincentives and to allocate its resources in the market efficient way. Everyone benefits from a bigger pie.

Eric said...

@Fatimah Zuhri

where is the credit due. So far, PM Najib has been "No Action Talk Only", so much for "Performance First", right?
- Freedom of Press
- ISA
- Bumiputera participation in service sector
all these have been mentioned as "under review". Come on, the man has known he was going to be PM over 6 months ago and he is still "reviewing"? In exactly how many executive jobs are you "reviewing" things without a glimpse of a platform for months on end?
Najib, just like Abdullah, has been talking a lot and delivering little.
Meanwhile, ValueCap got 5 to 10 billions of our hard-earned money against a non-existing track record. No credit is due where nothing has been done.

Lucas said...

What Tony said is definitely true in a way. Liberalization means to remove or loosen restriction typically an economic or political system, therefore, more should be done if the term liberalization were to be implied.
Though Najib just sworn in as the new PM, but he isn't doing enough. Look at President Obama's political will, that is what we called Liberalization and Democracy.
The other thing I disagree with are the race based policy. Anyone took anthropology before? If you did, probably you'll understand that all humans share the same ancestral. In other word, we're all the same as we do share the same traits. So why do we need NEP?
Keeping the NEP shows that we're no way near democracy and there is no liberalization at all.

Jeremiah said...

Lucas,

We need not take any anthropology or genetics course. Just read any good Economics text or better John Hazlitt's Economics in One Lesson, and u will see the glaring opportunity costs of allocating resources, jobs, capital based on race.

Msia could have been richer and far ahead of Singapore if not for the NEP and the shameless love for corruption among politicians.