Published July 6, 2009

MALAYSIA INSIGHT
Najib to be commended for his policies, not scorned

Only by dismantling any impediment to portfolio and FDI will M'sia have a fighting chance

By S JAYASANKARAN
KL CORRESPONDENT
Email this article
Print article
Feedback

PRIME Minister Najib Razak has shown more mettle than any of his two predecessors where liberalisation of the economy is concerned.

In less than a hundred days in office, Mr Najib has liberalised 27 sub-sectors of the services industry and thrown open the banking and finance industry.

Last week, the premier went further still, emasculating the powers of the Foreign Investment Committee - which has overseen foreign investment in the country for almost four decades - and removing the need for the 30 per cent equity requirement for ethnic Malays in every initial public offering.

This is brave stuff. When Mr Najib liberalised the service sub-sectors he was already risking the wrath of the Malays, the ethnic majority in Malaysia and the core constituency of the United Malays National Organisation (Umno), the political party over which Mr Najib presides.

But the FIC and the 30 per cent Bumiputra requirement have, over the years, assumed sacrosanct significance and evolved into the litmus test of the New Economic Policy, the decades-long affirmative action policy that seeks to catapult the Malays into economic parity with their richer Malaysian countrymen. If the services' liberalisations irritated the Malays, this policy shift could enrage them.

The Prime Minister realises that Malaysia needs to change its economic model as it can no longer rely on its tried and tested method of growing through exports as every developing country is already doing that.

So far so good. Most Umno leaders have dutifully cheered the proposals, albeit in lukewarm fashion. Only Hadi Awang, the leader of the opposition Islamic Party of Malaysia, has rubbished the idea. Meanwhile, the combative former premier Mahathir Mohamad has debunked it, claiming it to be a populist notion that will not work.

Mr Hadi objected on the grounds that the Malays weren't competitive enough. He is clearly playing to the gallery as he would know that when it was given out to individuals, the 30 per cent IPO allocations always went to an elite core of Umno-supporting Malays. The only PAS member who might have benefited would have been those who crossed over from Umno.

Dr Mahathir is simply being disingenuous. When he was premier, he dismantled NEP restrictions twice, during periods when Malaysia faced deep recessions, in 1986 and, then, in 1998. Both liberalisations worked although the 1986 relaxation resulted in a spectacular flood of foreign investment leading to a 10-year economic boom.

That alone says a lot about the nature of this changing world. In 1986, China, India and Vietnam were still nascent economies and Indonesia, Thailand and the Philippines were not as welcoming to foreign investment. But by 1998, the first three were flourishing and the whole of South-east Asia, not to mention the rest of the world, were all competing for the same investment dollars.

In any case, what would Dr Mahathir have Mr Najib do?

The Prime Minister realises that Malaysia needs to change its economic model as it can no longer rely on its tried and tested method of growing through exports as every developing country is already doing that and Malaysia is rapidly losing its cost-competitiveness.

So Mr Najib wants to change the country's growth structure by making the services sector its key driver, accounting for 70 per cent of gross domestic product from its current 54 per cent.

To do that, he has to dismantle any impediment to portfolio and foreign direct investment in the country. Only then can he reasonably hope for Malaysia to have a fighting chance.

In time to come, Malaysia will lose its competitive edge in manufacturing to China, India and Vietnam completely so the country might as well start now in sectors such as services.

Mr Najib is to be commended, not scorned.