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Fwd: [sangkancil] FDI DRIES UP
By web aNtu
18/8/2000 7:05 am Fri
Malaysia bids to attract investors
Malaysia's economic growth rate is among the fastest in the region and is
projected to continue accelerating next year. But analysts are concerned
about its sustainability if foreign direct investment (FDI) does not
recover to pre-crisis levels. "For the medium-term growth, the concern is
on FDI," says Lai Tak Heong, research director at SG Securities in
It has been sluggish since the regional economic crisis began in 1997.
That year, the value of FDI applications was down 18.4 per cent over the
previous year. It was down 12.2 per cent in 1998 and 28.4 per cent last
year, says Kostas Panagiotou, senior economist at Kim Eng Securities.
Approvals also have been slow to recover: they were down 33 per cent in
1997, up 14 per cent in 1998, and down 6.1 per cent in 1999.
Though approvals were down 43.4 per cent from January to July, Mr
Panagiotou says applications rose 24.7 per cent in "a good sign that
things will be turning around".
But how quickly and a#suredly that happens, analysts say, depends on how
well the government responds to concerns about corporate reforms,
protectionism and the pegged currency. Last week, Daim Zainuddin, finance
minister, said next year's budget would focus on raising private
"Malaysia has in place some of the most potent raw materials for success
of any Asian nation: widespread use of English, cheap and available land
and offices, excellent tertiary infrastructure and communications, and,
for now, a cheap currency offering a competitive edge over neighbouring
countries," says Dominic Armstrong, ABN-Amro head of Malaysia research.
"However, these components of success will deteriorate into irrelevance
given the rapid pace of reform taking place in neighbouring markets if
reform is not brought forward urgently."
NTT of Japan's recent decision against buying into Telekom Malaysia,
apparently because it could not secure management control, underlines to
analysts the need for further corporate restructuring. The UK's National
Power's subsequent decision against a direct stake in Malaysia's biggest
power plant because of financing risks reinforces their view that some
investors feel uncomfortable committing themselves to the country.
C. Rajandram, chairman of the Corporate Debt Restructuring Committee,
insists corporate reform is taking place but perhaps not at the pace the
"The perceptions of Malaysia are still negative," says Megat Najmuddin
Khas, president of the Malaysian Institute of Corporate Governance,
established to lift standards. Mr Megat told investors 80 to 90 per cent
of boards of public listed companies are ineffective, dismissing most
annual general meetings as "10-minute affairs with a handful of people".
He said Malaysians cannot continue "whining and complaining" about lack of
investor confidence, noting: "We are seen as isolating ourselves from the
rest of the world."
After Malaysia's last crisis, in the 1980s, the authorities launched
pro-trade, pro-liberalisation policies that made the country a leading FDI
destination. But this time it responded with anti-foreign rhetoric and
capital controls. Malaysia's recent demand for more time before reducing
regional trade barriers and refusal to follow competitors such as
Singapore in liberalising strategic sectors are seen as confirmation that
policymakers are heading in the opposite direction.
"They're going backwards as the world is going forward," says Manu
Bhaskaran, SG Securities' managing director. Malaysian leaders believe it
more important to maintain social stability than attract FDI. That is
understandable, given how bankruptcies and layoffs led to bloody unrest in
neighbouring Indonesia - which has the same potent mix of a commercially
dominant ethnic Chinese minority amid a majority Malay population.
But analysts are concerned that the ruling party might be too willing to
sacrifice economic efficiencies for popular support after losing ground in
elections last November. "We are concerned about the high risk of
imbalances emerging as political necessities continue to dictate policy
formulation," Mr Bhaskaran says. "The unwillingness to embrace global
trends such as globalisation, corporate transparency, and disclosure mean
the economy may not grow in the optimal way."
This is particularly important given the restructuring that is under way
in competing nations. Analysts note Malaysian policies to keep strategic
sectors under its control mean FDI is by-pa#sing Malaysia for such
countries as South Korea, where there have been more inflows into
The need for Malaysia to be attracting more of this FDI was featured in a
recent column by A. Kadir Jasin of the government-controlled New Straits
Times newspaper: "Being a small economy, we need global partners and
collaborators to survive globalisation and liberalisation,"
Mohamed Ariff, head of the Malaysian Institute of Economic Research,
considers the fixing of the currency against the US dollar - introduced
during the crisis initially to stop the decline of the ringgit - a big
part of the problem. That the currency is now undervalued encourages
re-investment by existing investors, analysts say. However, some
labour-intensive multinationals have left because of Malaysia's policy to
promote higher-valued industries or to position themselves in China before
its entry to the World Trade Organisation.
In addition, analysts say, the peg deters new investment by making imports
needed to get started more expensive and creating uncertainty about what
the currency will be worth when operations begin.
If investment does not pick up, analysts suspect technology transfers will
not occur fast enough to sustain the 7 per cent long-term economic growth
sought by the government. "This problem is particularly acute in key
sectors, such as telecommunications and finance, where large capital
requirements may limit the ability of indigenous corporates to keep up
with the intense global competition," Mr Bhaskaran says.