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Fwd: Malaysian ambitions fade as investors turn away
By web aNtu
5/9/2000 10:28 am Tue
Malaysian ambitions fade as investors turn away
By Anil Netto
Concern is rising in Malaysia about a fall in foreign direct investment
and negative perceptions about the country as investors turn
increasingly to Northeast Asia, while other Southeast Asian nations
such as Thailand and Singapore provide stiff competition.
Analysts have expressed worry about the slow pace of corporate
reform in Malaysia and the penchant for mega-projects. Certain
connected individuals and favored firms have been bailed out, often
with public funds especially from the national petroleum corporation,
In surprisingly candid remarks earlier this week, Malaysian Deputy
Prime Minister Abdullah Badawi admitted to shortcomings in the
government's handling of the economy. Abdullah said he is aware that
Malaysians, and not just the foreign media and foreign analysts, have
criticized the government for continuing to protect those who blatantly
mismanage their corporate empires and repeatedly cry for help. "The
government may not be able to afford another round of rescues," said
During the boom era, in the heyday of privatization, Abdullah said
reckless investment decisions were made and managerial
incompetence was abundant. "It is a fact that both you and I know that
the government engaged in many rescue operations during the crisis.
More laissez-faire government would have allowed many of the
companies to sink."
Foreign funds have also continued to stay away from the Kuala
Lumpur Stock Exchange. Many analysts blame the lack of interest in
the local bourse on the 10 percent levy on the repatriation of profits
and the administrative hassle it entails.
But that does not explain the fall in foreign direct investment in the
manufacturing sector. Approved FDI for the seven months to July 2000
was only 4.1 billion ringgit, which means Malaysia will be
hard-pressed to match the 12.3 billion ringgit in FDI posted for the
whole of last year. Approved FDI from the United States alone for the
first seven months stood at 266 million ringgit, well off course from the
5.2 billion ringgit recorded for the whole of last year. Approved FDI in
the electrical and electronics sector has slumped to only 1 billion
ringgit compared to 5.9 billion ringgit for the whole of 1999.
So other factors besides capital controls are obviously deterring
foreign investors. Often unmentioned is the perception that the political
risk of investing in Malaysia has climbed a notch or two after the
15-year prison term imposed on ousted deputy premier Anwar Ibrahim,
which prompted widespread criticism. Elaborate security precautions
were in place during the Independence Day parade and festivities in
Kuala Lumpur Thursday.
Concerns about the credibility of Malaysia's system of administration
of justice could also be putting off investors. What's more, Prime
Minister Mahathir Mohamad's frequent attacks against the West may
have discouraged some investors who would rather take their money
"There still exist issues related to image, policy and enforcement which
have not encouraged that beeline [by investors] to this country," said
an item in couched language posted on the Malaysian International
Chamber of Commerce's website. "For example, there is still a lack of
consistency in projecting Malaysia's friendly image to foreign
investors. There is a major concern over increasing violations of
intellectual property rights which has to be seriously attended to if the
Multimedia Super Corridor is to develop satisfactorily. Foreign
investors have to feel comfortable with the legal environment.
After-care service is as important as initial service to a foreign
Endemic corruption, and a seeming inability to wipe it out, could also
be keeping away investors, some of whom see it as an additional cost
of doing business in the country. Last week, for instance, the
Anti-Corruption Agency (ACA) broke a syndicate and arrested 21
people, including road transport department officers, driving school
instructors and a doctor, for issuing driving licenses to 100,000
motorists without carrying out the necessary tests. The licenses were
obtained by bribing road transport department officers. But a lack of
independence appears to have hampered the ACA's efforts to nail
bigger culprits. The agency comes under the Prime Minister's
In June, the president of the Malaysian International Chamber of
Commerce, Philip Dingle, urged individual companies that are
members of the chamber to join and support Transparency
International's Malaysian chapter in its efforts to curb corruption in
both the public and private sectors. "This is an issue the chamber
keeps on raising, as it is the perception of both large- and
small-scale corruption that is hurting Malaysia's standing in the eyes
of foreign investors," said Dingle.
More selfish motives may explain the drop in foreign investment in the
electronics sector, the cornerstone of the Malaysian economy. Since
the 1970s, multinational corporations have enjoyed pioneer status with
huge tax breaks, low labor costs kept down by banning a national
union for electronic workers, and subsidized amenities. Not content,
the multinationals are asking for more, and a few have already
relocated to other countries in the region.
Although the electronics industry is poised to grow by 22 percent
annually over the next three years, new direct investment into the
sector from the United States has completely dried up. Blue-chip
foreign electronics giants already in Malaysia, however, have planned
7 billion ringgit worth of additional investment.
"Other countries have already matched the incentives provided by
Malaysia - the competition is very stiff now," Teh Chin Bin, chairman
of the Malaysia-American Electronics Industry, is quoted as saying.
Among the problems faced are pricing pressures, rising operating
costs, the fast erosion of the low-end labor-intensive niche and rising
negative perceptions. Nicholas Zefferys, president of the American
Malaysian Chamber of Commerce, said: "The worldwide investment
pool has shrunk somewhat in the past few years and it is getting more
competitive nowadays to attract capital."
Although higher local investment has compensated for much of the
drop in FDI, an official monitoring these investments says he is
concerned about the "lack of quality" of some of them. Investments in
the petroleum and gas sectors have also saved the day for Malaysia.
But despite gross capital investment for the first seven months to July
2000 of 12.1 billion ringgit being still on track to surpass last year's
total of 17 billion ringgit, the drop in FDI remains a serious concern.
Lower foreign interest in the country will jeopardize the transfer of
technology, without which Malaysia's ambitions of charging into the
Information Age and the ranks of developed nations will fade.
(Special to Asia Times Online)
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