Published June 15, 2009

MALAYSIA INSIGHT

Najib on the right track

He's taking Malaysia in the correct direction with his emphasis on liberalising the economy - at long last

By PAULINE NG
KL CORRESPONDENT

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INVESTORS can expect further initiatives to liberalise the local economy by the end of the month. Prime Minister Najib Razak has promised 'another significant announcement' in line with moves to liberalise the economy so that it is 'much more competitive', when he delivers his keynote address at the annual Invest Malaysia Conference 2009.

Although the conference for investors is normally held in March, the organisers are said to have postponed it so that Mr Najib - who also holds the finance portfolio but only assumed the leadership position in April - could attend the conference and present his vision for advancing the capital markets and the economy.

While the government would like to accelerate the pace of liberalisation, a lot of the impetus has been slowed by 'interest groups', the numerous consultations with them often delaying the decision-making process by months.

In today's competitive world, that amounts to potential investments lost to friendlier shores.

That Malaysia is beginning to lag peers in areas where it was once ahead of them is evident to investors familiar with Asean. Indeed, when Mr Najib announced the liberalisation of 27 service sub-sectors, he said it would increase the country's competitiveness, but would also bring it in line with its Asean commitments, in which it lagged some of its neighbours.

Piqued by those protesting the moves, which some perceive as possibly harming bumiputra or Malay interests since investors no longer need to co-op bumiputra partners in these areas, his deputy Muhyiddin Yassin observed: 'You mean to say we can't compete with the Thais and Indonesians?'

Because of its much smaller domestic market, Malaysia will need to quickly climb up the value chain since it is now uncompetitive in low- cost manufacturing and overly reliant on oil revenues, which fell sharply when global demand shrank.

The economy is now expected to contract by as much as 5 per cent. What is more crucial, however, is for a forward-looking administration to prep the economy so that it is poised to take advantage of the opportunities once the global economy picks up.

Cognisant that global foreign direct investment will drop sharply and that attracting the remainder will be tough, Mr Najib has made it a point to stress that Malaysia welcomes investments, especially to its planned economic corridors.

Last week, he promised there would be no reversal of policy decisions - a point likely directed at comments by Singapore's Minister Mentor Lee Kuan Yew, who during a visit to Malaysia last week remarked that investors would not invest in huge projects that take decades to recoup unless they were assured that policies would not be abruptly changed.

Malaysia's ad hoc approach to policy-making needs to be fixed in order to instil confidence. In the area of education, for example, a raging and exhausting debate has continued for months over the importance of English as a language. The policy flip-flops over the years have been confusing with the end result that standards have significantly declined. This has hurt graduate competitiveness and, in turn, the nation's.

Even so, some still perceive moves to liberalise the economy or to raise the standard of English as a threat to bumiputra interests despite repeated assurances that these interests would be upheld as per the Constitution.

Promotional notes for Invest Malaysia, which aims to profile the country as an investment destination, state that Mr Najib is expected to 'provide his inspiration to the market players and audience'.

Last November, he announced that companies seeking to list on the local bourse would no longer need to put their listings on hold if the 30 per cent equity ownership reserved for bumiputra investors was not fully subscribed but could instead open it for general subscription.

Given that his administration has stated that feedback in the past two months on liberalisation efforts has been positive, Mr Najib ought to be encouraged to maintain the momentum. Investors are awaiting his next policy announcement with great anticipation.