Published August 10, 2009

MALAYSIA INSIGHT

Does the left hand know what the right is doing?

By PAULINE NG
KL CORRESPONDENT

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MALAYSIA has been busy rolling out the red carpet to draw investors to its regional development corridors.

Another one was rolled out last week in the eastern side as part of the East Coast Economic Region (ECER) development when Prime Minister Najib Razak announced the establishment of four areas centred on regional ports and airports that would be given special economic zone (SEZ) status. The SEZ areas make up 6 per cent of the sprawling zone which stretches from Kertih in Terengganu to Pekan in Pahang.

Competition has never been more intense for shrinking investment dollars but with five ambitious development corridors to advance, Malaysia has its work cut out in attracting the tens of billions that it requires in investments over the next few years to get the corridors off the ground.

Customised incentives on top of other generous carrots such as pioneer status, tax-free holidays, no restriction on the recruitment of skilled labour and the like are being dangled before investors, with some measure of success.

Iskandar Malaysia, the first development corridor launched at the end of 2006, claims to have attracted RM43 billion (S$17.7 billion) in investments while the ECER, which came about half a year later, claims RM25 billion investments to date.

Of the RM43 billion in investments committed in the first phase of Iskandar Malaysia, senior executives said that 30 per cent or some RM13 billion has already been secured.

Whether the remaining commitments come through is hard to predict. But economists said that the implementation rate for approved investments is normally 85-90 per cent, often falling to about 70 per cent in difficult times.

Come November, it will be three years to Iskandar Malaysia's launch. According to the authorities, the progress of the Southern Johor corridor is very much on track. The private sector, on the other hand, believes progress to be plodding.

Senior executives said that about RM2 billion has been spent on infrastructure works this year, which would 'set the stage for future investment flows'.

This is important because prospective investors that had put the project on a KIV basis might check on its progress to see if the promised infrastructure is up and whether the overall masterplan is shaping up as planned.

With governments everywhere rolling out the red carpet for investors, setting the pace and getting it right is essential given that momentum is crucial for mega development projects, especially those that rely heavily on foreign investments. A lack of momentum could serve to weaken interest.

Another reason why it is important for Iskandar Malaysia as the country's pre-eminent development corridor to set the right tone is that prospective investors in the other development corridors such as the ECER will likely look to it for signs as to how mega masterplans are executed on the ground.

For that reason too, the brouhaha last week over a proposed Internet filter system - ostensibly to block pornography - would have done little to advance Malaysia's case as an investment destination, especially in information communications technology, where it aspires to be a bigger player.

Indeed when former prime minister Mahathir Mohamad established the Multimedia Super Corridor (MSC) in the late 1990s with generous incentives to draw technology firms to Malaysia in the hopes of leapfrogging the country into the tech age, he had promised that there would be no censorship of the Internet under the Bill of Guarantees.

The MSC hasn't been a runaway success but it has helped Malaysia establish itself as one of the top business process outsourcing and call centres in the world, and growing the IT sector continues to be high on the agenda.

The creative sector is one of five where Iskandar Malaysia offers investors special incentives and exemptions, the other four being health care, education, logistics and financial advisory. ICT is also a priority sector in the ECER.

Which is why investment advisers must have cringed on hearing Information and Communications Minister Rais Yatim confirm that his ministry was contemplating the feasibility of an Internet filter.

Although Mr Najib quickly quashed the notion of Internet censorship on the grounds that it would not be technically feasible or popular, the episode left many curious. Was it a case of the left hand not knowing what the right hand was doing?