Malaysia: Strategic reforms

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During his first official visit to the UK this month, Prime Minister Najib Abdul Razak showcased his country as a profitable destination for foreign investment by companies – especially those in the UK, which already have strong historical and business ties with Malaysia.

During a roundtable meeting with industry leaders in London on July 13, Najib stressed that enormous potential exists for collaboration between Malaysian and UK companies for investment opportunities in new growth sectors. The prime minister cited examples such as education, health care and green technology as areas in which British companies could successfully invest in Malaysia.

According to Najib, in 2010, foreign direct investment (FDI) inflows into his country increased by more than 540% to RM27bn ($9bn), compared with RM4.2bn ($1.4bn) in 2009.

“Malaysia remains a favoured investment destination for foreign investors,” the prime minister said, adding that at the end of 2010, the UK was the 11th largest source of FDI in Malaysia, with RM5.1bn ($1.7bn) worth of investments in 394 manufacturing projects. The UK is Malaysia’s 18th-largest trading partner.

Malaysia’s trade with the UK totalled $4.1bn in 2010, with exports to the UK amounting to $2.3bn, an increase of 1.6% compared with 2009.

More than just a one-off state visit, this is one of many such roadshows that the prime minister is leading to promote foreign business investment in Malaysia. His success is one of the indicators of his own performance that will be judged under a new governmental undertaking known as the strategic reform initiatives (SRIs).

Launched on July 5, SRIs are the second element of the Economic Transformation Programme (ETP). They are aimed at boosting the economy’s competitiveness and are meant to complement the ETP’s 12 national key economic areas (NKEAs), each of which has a range of entry point projects that promote business investment opportunities.

The SRIs are meant to spur on the Government Transformation Programme (GTP) and its six national key results areas (NKRAs), which are intended to transform the country into a high-income society by 2020. To ensure accountability in progress towards this goal, a series of ministerial key results areas outline the key responsibilities of each government ministry in achieving the NKRA targets.

The government identified six SRIs: public finance; the government’s role in business; human capital development; public service delivery; international standards and liberalisation; and narrowing disparities (aimed at the bumiputera, or indigenous people’s, small and medium-sized enterprises).

Prime Minister Najib himself is spearheading the implementation of the government’s role in business SRI and the public finance SRI. The latter involves the creation of some RM13bn ($4.3bn) in “fiscal space” by moving government finances from their current annual deficits to a surplus. A general sales tax is being introduced to assist building revenue towards this end.

On the government’s role in business SRI, the state will move away from being a direct investor toward being a facilitator of private sector investment via gradual disinvestment from many government-linked companies and privatisations. This is meant to ensure greater liquidity in the capital markets and provide more opportunities for private involvement in business and wealth creation.

The agenda set out to develop the country’s human resources includes the modernisation of labour legislation, a strengthening of HR management, introduction of a minimum wage and increased participation by women in the economy, among other goals.

Public service delivery will involve streamlining the civil service and bringing services up to international standards by, for example, the creation of a new Competition Act and Competition Commission, along with the liberalisation of services. Restrictions on foreign equity and professional practice in Malaysia are also to be gradually removed.

The final SRI will tackle the often-thorny question of positive discrimination in favour of bumiputera businesses, moving towards a more merit-based and market-friendly system.

However, for the country to achieve high-income nation status by 2020 – the goal of Malaysia’s long-term development plan, Vision 2020 – the economy will have to average 6% GDP growth per annum, a figure that has not been consistently achieved since the high-growth years of the 1990s and early 2000s.

On this, Najib told the UK business leaders that in 2010, Malaysia achieved strong growth of 7.2%, after a contraction of 1.7% in 2009, and that he expects the Malaysian economy to grow by between 5% and 6% in 2011. Najib also pointed out that the ringgit had strengthened by about 12% since 2010 and that high commodity prices have been coupled with strong domestic demand.

The range of government initiatives related to the overarching development plans, the ETP and GTP, are all subject to scorecards and regular progress reports, measured by key performance indicators, with a specially created government agency set up to monitor progress.

As the leader of two of the SRIs, the prime minister will himself be scored on his performance. Judging from his initial London foray, he is looking to be on track to receive favourable reviews on reaching out to foreign investors.

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