When Abdullah Ahmad Badawi took over the premiership from his predecessor, Dr Mahathir Mohamad, in November 2003, he promised to usher in a new era of development for Malaysia . His inaugural speech as a prime minister at the Oxbridge dinner the same year was hailed as visionary and pragmatic.
In his speech, Abdullah clearly identified the problems faced by the nation and had proposed an important step forward which gave hope to many Malaysians. He lamented at the fact that Malaysia is a nation which can boast of having first world infrastructures but a third world mentality. He opined that for Malaysians to move forward, we must focus on building capacity and the knowledge repository of the country. His emphasis on capacity and knowledge building silenced even the loudest critics of the government.
His next move was to reduce budget deficit by canceling big, expensive and inappropriate projects. The new prudence was welcomed by some but fiercely criticized by others who saw their lucrative contracts terminated. However, these contractors were well compensated by the government, thanks to the overly generous contractual terms agreed by the previous administration.
However, in the recent months some his prudent measures were conveniently forgotten. On the other hand, Abdullah has announced the implementation of three regional economic corridors which are estimated to cost more than RM620 billions to build. These developments are unprecedented and unmatched in terms of value and size in the entire history of Malaysia . The total amount committed to these corridors – which are mostly going into real estate and infrastructure building – has raised an alarm of a potential side effect to the local economy if the world’s economy is not growing as projected in the coming years.
In fact, one of the triggering factors of the 1997 Asian financial crisis in some of the regional economies was an excessive investment in real estate development. Although companies, mostly government-linked corporations, involved in the projects are expected to structure their project financing more carefully, there is still an impending risk from an overdependence on cheap borrowings from abroad especially Japan. Japan ’s interest rate was kept at an artificial level of zero percent for the past many years and it is inevitable for the government to raise interest rate in the future to bring their domestic financial market back to normalcy.
Despite the government laying high hopes on the success of these regional corridors, we have not seen a surge in foreign direct investment entering the country on a similar pattern to what we have experienced in the early 1990s. This article intends to study some of the reasons for the lukewarm response from foreign and local investors. It intends to point out some inept policy responses which are detrimental to new economic initiatives.
Before we start leaping with joy over some RM4 billion of Middle East investment which came into the Iskandar Development Region (IDR), it is important to note that the investment will not bring in the much needed technology transfer and technical know-how which are sorely needed by our economy in order to move up the industrial value chain. Unlike the mid-eighties to mid-nineties, Malaysia had successfully attracted high quality investments from multinational companies especially in the high-technology sector. However, similar investments are difficult to come by these days. The manufacturing sector is expected to register a moderate growth of 3.1 percent in 2007. More will have to be done to ensure that this important sector is rejuvenated.
For the regional corridors to be deemed successful, the country must be able to attract both foreign and local companies to commit their productive resources to build real value added processes into our key sectors e.g. manufacturing and services. Unfortunately due to a lack of strategic vision in our economic development policy, funds given to spur the development of entrepreneurship, technopreneurship and specific skills through special purpose institutions like Mimos, Mara, Smidec and public tertiary institutions did not justify our investment. From the ship building project to various e-government initiatives, it was obvious that we did not create global champions but national nightmares.
On the global front, competition for the limited FDI stock will continue to intensify as many more regional economies are liberalizing their market to ensure less entry restrictions, improving ease of doing business, implementing stricter and professional corporate ethical code, training and producing more skilled labour and enhancing public governance. Hence, several key factors must be in place before these investors can be convinced to commit their resources in an economy.
First, investors will inevitably evaluate the quality of public policies in a particular country. On this aspect, the government did not do too badly in offering an array of incentives to the export-focused manufacturing sector in the country. As a result, a number of foreign companies have enjoyed preferential treatment and generous tax exemptions especially for those operating in the free trade zones.
However, companies which are interested to move up the value chain, sell to the local market and participate in the public procurement process will face difficult challenges. These companies are subjected to the several New Economic Policy (NEP) related restrictions and terms of doing business. As related by Tunku Abdul Aziz in one of his articles, some of these companies are asked to find a local partner and are often introduced to potential Bumiputera partners who are related to some of the government officers.
If Malaysia wants to attract foreign investors, it cannot continue with such a practice. The insistence of the government to hold on to the NEP reflected their lack of vision and strategic purpose to truly help to raise the capacity of the Bumiputera community so that members of the community are well prepared to stand on their own feet to face the onslaught of globalization.
Any socio-economic transformational strategy if is not focused on building capacity and enhancing the productivity level of the community is bound to fail. Unfortunately, NEP has deviated from its original twin socio-economic purpose and became a socio-political tool to protect and project the hegemony of the Malays through the Bumiputera and non-Bumiputera dichotomy.
Due to the lack of a transparent political culture and free access to information, abuses of the NEP are difficult to trace, deter and prosecute. As a result, the disclosures of the Auditor General’s report are often left off the hook. The controversial Port Klang Free Zone project is a fine example of how foreign companies, especially the reputable ones, will react to malpractices enabled by the policy.
In the end, whom the NEP had actually benefited or will continue to benefit? Not the targeted audience – lower strata of the society regardless of race – but those who had/have the power to abuse the policy. For fear of the continuation of NEP, Singaporean investors are adopting a cautious approach when invited to invest in the IDR.
As a way forward, steps must be taken to encourage sustainable Malay entrepreneurship and to transform the Malay psyche. Political patronage practiced by UMNO is going to hurt the community in the long run. Malays are made to believe that they could depend on UMNO entirely to fulfill their socio-economic needs by lending their full support to the party. The results are dismay and disappointing. As claimed by UMNO, Malay share of equity is still far below the targeted 30 percent after nearly 37 years of affirmative action. Income per capita of the community is the lowest amongst the three biggest communities. Wealth disparity is the widest amongst the rich and poor Malays.
In business, apart from Malay trust organizations, government linked companies and several large corporations directly controlled by Malay businessmen the community’s participation in SMEs is negligible. Almost 99.2 percent of more than 600,000 registered businesses in Malaysia are SMEs. Hence, some Malay chambers of commerce have voiced their displeasure over the lack of participation of Malay businessmen in some of the busiest and most expensive business districts in Klang Valley . They claimed that the community was marginalized and pushed out of these districts due to expensive rentals and cost of doing business. They had expected the Malay businesses be given special rates and treatment in these privately run business districts.
While their claim of high rentals in these areas is legitimate, the main contributing factor to the inability of the Malay businessmen to sustain their businesses in these areas is the lack of business acumen. Most of these businesses have failed to nationalize their businesses to cater for all communities. Malay businessmen should be encouraged to set up joint ventures with businessmen from other communities in order to nationalize their businesses. Malay controlled companies which have nationalized their businesses have prospered and grown into successful and profitable regional corporations. Many of these companies stuck to a merit based employment system and have benefited immensely from a wider pool of talents.
Prime Minister Abdullah has promised to open up the government procurement process to genuine Malay-Sino joint ventures but this has remained a mere lip service. No announcement was made in his 2008 budget speech to encourage such joint ventures.
It is evident that a communal centric socio-economic policy will not allow the Malays to optimize their potential and capability. As part of the process to nationalize their businesses, they must be willing to look at other options and possibilities beyond the current NEP which has created distrust and dissent between the bumiputera and non-bumiputera communities. Real partnerships cannot be forged under such environment.
Hence, with the track record it is difficult to imagine how a political party can claim to have represented well the interests of the community.
Second, the government’s human resource policy appeared to be both problematic and directionless. As pointed out by Tan Siok Choo in her guest column in a local newspaper, the current HR policy is not sustainable and compatible with the government’s economic policy to create higher value added jobs at these corridors. There is no proper management of our HR needs to fill up positions created by the industries. This is due to our inability to create enough supply bases through the tertiary institutions, vocational training institutes and private colleges.
Majority of graduates from the public tertiary institutions did not have the required technical and communication skills to enter directly into the job market. To make employable, the Ministry of Human Resource had spent billions of ringgit over the last few years on retraining programmes. The lack of skilled human resource is one of the biggest deterrents to high technology companies to set up operations here.
Tan warned about our over dependence on low cost foreign workers which made up of almost 26 percent of the entire labour force. Economies which are late starters have shifted their focus from low cost to high skilled labour except for Malaysia . The number of companies we wanted to attract in the biotechnology and ICT sectors looked good on paper but without a ready pool of skilled workers they will find it difficult to relocate their R&D facilities to our country.
According to Rajah Rasiah, a lecturer at a local university, a ready pool of skilled workers is a prerequisite for R&D activities. Foreign companies do not have an incentive to help their host nation to build up proper R&D facilities if a backbone is not already available. Our small domestic market does not provide us with a leverage to negotiate with foreign investors to transfer critical technology components and knowledge to our locals. Our attempts in extracting technology from foreign partners through Unisem, Proton, Mimos and others have achieved very limited success.
Finally, what is the prime cause of these inept policies which are incompatible with what the government wanted to achieve via the planned regional economic corridors? One of the chief reasons is the political culture which does not encourage constructive criticism, meaningful participation in decision making, proper consultation with stakeholders and the adoption of a merit based system.
When politicians choose to dominate rather than to govern, there is no political will and incentive to strengthen democratic institutions such as the parliament, judiciary, police, media, public sector and local authorities to play an effective role in the system. These institutions must be empowered to ensure proper check-and-balance in the system.
On one hand, UMNO being the most dominant party in the ruling coalition did not display its willingness to transform the race-based coalition into a single multiracial party and wanted to play a perpetual role in championing the Malay dominance. On the other hand, other component parties are not willing to risk their position in UMNO’s good book to pursue the internal rumblings and dissatisfactions over the implementation of some policies especially the NEP.
Recently, a leader of a senior coalition member cajoled his community to render their full support to his party so that its leaders can have a better leverage in the coalition. It makes one wonder how a few additional seats can help his party if the big wins in the last three general elections did not seem to help his party to take a stronger stand against the continuation and abuses of the NEP, the Islamic state pronouncement and other equally important issues confronting the society.
Is there still a hope for Malaysia ? With the emergence of a multiracial civil society, there is yet a glimmer of hope but the light at the other end of the tunnel is dimming. We have to act fast.