A Bold New Vision
An Interview with Malaysia’s Trade Minister Mustapa bin Mohamed
After the stormy economic crisis of 2009, Malaysia is emerging stronger than before, thanks to help from the government’s economic stimulus package. The country is forecasting growth of 6% in 2010 after a contraction in 2009. For growth to continue, International Trade and Industry Minister, Mustapa bin Mohamed tells Forbes Asia that vital economic reforms and structural changes are being implemented to further enhance Malaysia as an investment destination in an increasingly competitive global environment.
Forbes Asia: As the world economy recovers from the global economic crisis, how is Malaysia’s economy faring so far in 2010?
Minister Mustapa: The Malaysian economy is an open economy, and we are vulnerable to uncertainties in the external markets and international capital flows. As a result of the global financial crisis in 2009, our exports fell by 16.5% last year. The economy began to recover in the fourth quarter of last year, growing at a faster pace than expected, thanks to government spending, a lower inflation rate and an accommodative monetary policy, which helped boost domestic demand. GDP expanded by 4.5% in the fourth quarter of last year, which was an improvement over an economic contraction of 1.7% for the whole of 2009.
Growth continued in the first and second quarter of 2010, with the economy growing by 10.1% and 8.9% respectively. Exports grew by 30.7% in the first quarter and 21.7% in the second quarter. Total investments reached US$1.6 billion in the first three months of the year compared with US$1.8 billion for the whole of last year.
Forbes Asia: What measures are being implemented to further enhance growth and encourage foreign investment?
Minister Mustapa: We have started a process of reform to improve the overall climate for investment and boost investor confidence. The reforms include the 1Malaysia concept, the Government Transformation Programme, the New Economic Model and the Tenth Malaysia Plan. They represent the key initiatives to drive Malaysia forward as a modern, inclusive and high-income society by 2020. The Government Transformation Programme aims to reduce crime and corruption as well as to raise the standard of living for low-income households, improve rural infrastructure and urban public transport. We are seeing results: The overall crime index has dropped by 15% in the first quarter of this year. Parliament also approved the Whistleblower Act last April.
Besides implementing such reforms, we have identified key economic areas for growth and investment in sectors such as oil and gas, palm oil, financial services, wholesale and retail, tourism, information and communication technology, education, electrical and electronics, business services, private healthcare and agriculture.
Such efforts represent Malaysia’s goal of raising the gross national income per capita to US$12,140 by 2015. This requires achieving real GDP growth of 6% per annum. We expect such growth to be led by advances in the services and manufacturing sectors and in a revitalized agricultural sector.
Forbes Asia: Why is it important to undertake these reforms now?
Minister Mustapa: Malaysia is in transition. We are at a junction between our past and future where we are dealing with a number of weaknesses and making the effort to build a stronger foundation so we can bring about greater prosperity. We believe that economic transformation has to do with the government being more efficient, which enables us to attract quality investment in areas such as design, research and development, and advanced electronics so we can create jobs that generate higher incomes for Malaysians. This is a tough challenge, but we have to really think outside the box and make some changes. Otherwise it is not going to be easy to survive in this highly competitive environment. We have to create an ecosystem for investors that offer an educated workforce, connectivity and broadband, skillful application of software, and solutions for transportation, logistics and supply chain management. We must strengthen our institutions across government, the judiciary and the private sector. We have to deliver on being more competitive in areas such as high technology and knowledge-intensive sectors.
Forbes Asia: How is Malaysia developing its human capital, which is vital to drawing quality investment?
Minister Mustapa: We must improve the quality of our talent and the education levels of our workforce. To encourage the world’s best companies to invest in Malaysia, we must have first-class human capital. There is no lack of government spending: 26% of our budget goes into education, which is higher than many other countries. We have been debating in Malaysia that given this high spending, are we producing the best results? Malaysians receive an excellent education, but sometimes they still choose greener pastures elsewhere. We believe that Malaysia provides a world-class living environment and quality of life, but the main issue is to provide jobs with competitive wages that are comparable to global salaries. Key measures to improve the quality of talent and education in Malaysia include the Talent Corporation, which is tasked to source top talent at home and abroad. The government is taking steps to establish teaching as a higher-value profession of choice and expand a national dual-training program where individuals receive 30% theoretical class training and 70% hands-on workplace experience. The government is also offering incentives for the private sector to provide vocational and skills training.
Forbes Asia: How is Malaysia liberalizing its economy?
Minister Mustapa: We have been quite open and liberal. A lot has been done to relax equity conditions, which used to be an issue in sectors such as manufacturing. We have allowed 100% foreign equity participation in manufacturing. We have made other efforts to liberalize the economy and embrace competition such as the progressive liberalization of our services sector. Thus far, our efforts have improved investor sentiment. Even with the economic crisis last year, we brought down barriers, and that was impressive. We also address the issue of liberalization by participating in regional free trade agreements. We have had a great deal of discussion with our trading partners involved in the new initiative, Trans-Pacific Partnership (TPP), which includes Australia, New Zealand, Brunei, Vietnam, Singapore, Peru, Chile and America. The fact that we are prepared to come on board indicates that we are all for free trade. Malaysia has identified the services sector as an important economic driver and expects this industry, excluding government services, to grow 7.2% annually until 2015, raising its contribution to GDP to 61%. In order to achieve this, investments in the services sector will have to increase to US$14.1 billion, which means the government will focus on further liberalizing the services sector.
Forbes Asia: What are the best opportunities right now for foreign investors interested in Malaysia?
Minister Mustapa: Malaysia continues to be a cost-competitive location in attracting foreign direct investments due to its political and economic stability and well-developed infrastructure. We are also promoting new growth areas such as precision machinery and equipment, advance electronics, biotechnology, nanotechnology, optics, pharmaceuticals, photonics and medical devices. The Iskandar development region is an iconic and successful investment destination with opportunities in manufacturing and services, wholesale and retail trade, tourism and hospitality, professional and business services, transportation, medical, education and financial services. And there is great potential in finance where Malaysia is a leader in Islamic banking and wealth management. Malaysia has developed a comprehensive Islamic financial system that is diversified in terms of its markets, product offerings and industry players. The Islamic financial industry is supported by a robust financial infrastructure that comprises a comprehensive regulatory and supervisory framework, and a sound legal and Shariah governing structure. Today, the Islamic banking industry in Malaysia continues to grow at a rapid pace, recording double-digit growth over the last eight years with an average annual growth rate of 20% in terms of assets. There are now 36 financial institutions offering Islamic banking services in Malaysia, including 17 full-fledged Islamic banks. With these and other growth and investment opportunities, the future looks bright.
Courtesy of Malaysia Airports Holdings Berhad
Achieving the Vision
The New Economic Model
Malaysia is at a defining moment in its history. To achieve the promise of developed nation status by 2020, the country is determined to implement a New Economic Model (NEM), which will see Malaysia’s economy, society and government transformed.
While Malaysia’s old growth model provided three decades of incredible economic performance, the country’s leadership acknowledges that the old ways of doing things will not work as well in a changing world.
The NEM has four pillars: 1Malaysia, the Government Transformation Programme, the Economic Transformation Programme, and the Tenth Malaysia Plan. Its goals are high income, inclusiveness and sustainability.
1Malaysia, based on the principle “People First, Performance Now,” will unite all Malaysians irrespective of race or religion, empowering them to face the challenges posed by an increasingly competitive world. The Government Transformation Programme will strengthen public services in a number of key areas, creating a true service culture in Malaysia’s civil service.
A business-friendly government is a crucial element in the country’s continued growth. The Economic Transformation Programme will propel Malaysia to advanced nation status, with an emphasis on inclusiveness and sustainability. The Tenth Malaysia Plan sets the stage for a major structural transformation that a high-income economy requires.
This special section will explore how various elements of the government are working to transform Malaysia’s economy and create the right ecosystem to attract foreign investment, which is integral to ensuring that Malaysia is a high-income nation by 2020.
The section includes an in-depth, exclusive interview with Malaysia’s Minister of International Trade and Industry, Dato’ Sri Mustapa bin Mohamed. Given that the role of Malaysia’s private sector will be greatly enhanced in the coming years, this section additionally reviews some of Malaysia’s most dynamic companies.
Malaysia, of course, is not all business. It has some of the world’s most beautiful tourist destinations, and it is also a great place to live. Within this section, two of the country’s leading developers will discuss their businesses and opportunities in Malaysia’s property market.
Malaysia has enjoyed astonishing economic growth in the five decades since it achieved independence. It now has a bold new vision, and it is determined to succeed, creating a new reality for the 21st century.
Malaysia is committed to achieving developed nation status. Across the Malaysian government, dedicated officials are working hard to create a knowledge economy that is in line with the nation’s New Economic Model, with a focus on three key players: foreign direct investment, the Tenth Malaysia Plan and National Key Economic Areas.
2009 FDI in Malaysia
Despite a tough economic climate, in 2009 Malaysia’s manufacturing sector attracted US$10.2 billion in investments, exceeding its average annual investment target of US$8.7 billion. Foreign investments accounted for 68.4% from the total investments approved. Investors showed continued interest in capital-intensive industries, as well as knowledge-based and high-tech industries.
Datuk Jalilah Baba’s office in the Malaysian Investment Development Authority (MIDA) is a short walk from KL Sentral, an ultra-modern transportation hub for commuter trains, buses and cars. KL Sentral is an apt symbol of what Malaysia will be in 2020: a high-tech, modern global nexus. Datuk Jalilah and her team are tasked with bringing in the high-value investors that will help form the cornerstone of Malaysia’s future.
“Malaysia is very serious about achieving results,” she says. “The Prime Minister and his leadership team fully support all efforts to bring Malaysia to the next level: a developed nation by 2020 with a substantially higher per capita income.”
To move the economy up the value chain, MIDA has intensified its efforts to identify and attract quality investments in emerging technologies, knowledge-intensive industries, and R&D. Competitive fiscal and non-fiscal incentives are provided, and MIDA – as the principal agency responsible for promoting the country’s manufacturing and services sector – regularly conducts investment missions abroad. These missions have the capability to negotiate customized incentives with potential investors. During a recent visit to South Korea, a total of US$698 million in investments was generated for Malaysia’s solar, automotive, and iron and steel sectors.
Over the last twelve months, Malaysia has attracted a number of high-quality projects in key knowledge industries such as chemicals, solar energy and advanced electronics. These include a project to produce polycrystalline silicon, which will strengthen Malaysia’s solar industry cluster.
“Malaysia is on the verge of becoming the solar capital of the world,” says
Dato’ Nicholas Zefferys, President of the American Malaysian Chamber of Commerce.
“Malaysia is on the verge of becoming the solar capital of the world,” says Dato’ Nicholas Zefferys, President of the American Malaysian Chamber of Commerce. “The electrical and electronics industry in Malaysia is already well established, for example, Intel has its largest facility outside the United States here – and this creates great synergy with the solar industry. Malaysia also has top-quality sand to produce the glass needed for the industry. Malaysia’s solar industry has explosive potential.”
FDI: The Real Story
Despite successes on a number of fronts, a recent United Nations report stated that foreign direct investment (FDI) in Malaysia fell sharply in 2009. Nevertheless, Datuk Jalilah and her team are unruffled.
“FDI in all ASEAN countries dropped last year, but there are a number of reasons for the fall. One, the United Nations gave a net figure. The figure did not show only FDI inflows, but rather a combination of FDI inflows minus outflows. The number included repayment of intercompany loans and repatriation of retained earnings by resident foreign companies.”
Datuk Jalilah’s confidence in Malaysia’s potential is borne out by the numbers: In the first five months of 2010, 14 capital-intensive projects worth a total of US$1.5 billion were approved by MIDA, of which US$978 million were foreign investments. Major sectors included electrical and electronics, metal fabrication and food manufacturing.
What’s more, MIDA’s status as a champion of foreign investors was recently bolstered. MIDA has been designed as the central investment promotion agency for the manufacturing and services sectors, excluding utilities and financial services, to enhance coordination among Malaysia’s various investment promotion bodies. MIDA also will be corporatized, giving it the necessary organizational flexibility to attract and retain the best possible manpower.
“The changes at MIDA will help us engage investors more effectively,” says Datuk Jalilah. “The changes also reflect the government’s determination to bring in high-quality FDI, a key element in the country’s march toward developed status by 2020.”
In the first five months of 2010, 14 capital-intensive projects worth a total of US$1.5 billion
were approved by MIDA, of which US$978 million were foreign investments. Major sectors
included electrical and electronics, metal fabrication and food manufacturing.
While Datuk Jalilah and MIDA have a crucial role in creating a knowledge-based economy, the country’s Economic Planning Unit (EPU) was the force behind creating the Tenth Malaysia Plan. The Tenth Malaysia Plan is a blueprint for Malaysia’s economic development from 2011 to 2015. It houses the aspirations of both the Government Transformation Programme and the New Economic Model, which is premised on high income, inclusiveness and sustainability.
“The Tenth Malaysia Plan sets the stage for the major structural transformation that a high-income economy requires,” writes Prime Minister Najib Razak in the report’s foreword. “The plan contains new policy directions, strategies and programs that will enable the country to emerge as a high-income nation.”
The plan builds on Malaysia’s strengths, which include an excellent infrastructure, a deep resource base and a diligent, well-educated workforce. It will focus on several areas, such as creating an environment for economic growth; moving toward inclusive socioeconomic development that reduces societal inequalities; developing a world-class talent base with an emphasis on productivity and innovation; building an environment that embraces quality of life; and making the government more service oriented.
Dato’ Noriyah Ahmad is the Director-General of the Economic Planning Unit (EPU) in the Prime Minister’s Department. In the lobby outside her office, the economic plans of years past are on display. Since Malaysia’s independence in 1957, these plans have played a profound role in transforming Malaysia from an agrarian economy to a high-tech, wealthy nation. They are a testament to the government’s commitment to improving the lives of Malaysia’s people.
Dato’ Noriyah and her team spent countless hours drafting the Tenth Malaysia Plan, which is set out in impeccable detail in a 400-page book.
“Creating the plan is really the easy part,” she says. “What is important is implementing it.”
To this end, the EPU is working with all government ministries to roll out the plan, which will go into effect on January 1, 2011. “By 2015, we want an economy led by the private sector, with the government increasingly taking a backseat role, becoming more of a facilitator. In short, the private sector will play a much bigger role in the economy.”
The plan outlines the ways in which private sector participation in the economy will be improved. These include modernizing business regulation, removing market distortions, introducing competition legislation, and improving the interface between the government and business. In addition, measures will be taken to develop the country’s small- and medium-size enterprises, which already play an indispensable role in the country’s economy.
Premises of The Tenth Malaysia Plan
National Key Economic Areas
In order to focus the government’s resources for the best possible outcome, the Tenth Malaysia Plan outlines several National Key Economic Areas (NKEAs). NKEAs comprise 11 focus sectors and one focus geography to deliver economic growth. Initiatives to improve performance in NKEAs include creating a private-sector-led economy, supporting innovation-led growth, rationalizing the role of government in business, competing globally, and creating world-class infrastructure.
Dato’ Noriyah points out that the Ministers in the Malaysian government have key performance indicators (KPIs) tied directly to the Tenth Malaysia Plan. The Prime Minister himself regularly reviews their performance against these KPIs.
“We are very, very determined for the Tenth Malaysia Plan to succeed,” says Dato’ Noriyah.
PEMUDAH: Cutting the Red Tape
Technocrats such as Datuk Jalilah and Dato’ Noriyah personify Malaysia’s determination to grow and develop, achieving Vision 2020. PEMUDAH, a group of 23 senior officials and business leaders, is also determined to improve the country’s economy, reduce red tape and make Malaysia even more business friendly.
PEMUDAH is a special task force comprising of the most senior public sector officials and private sector participation. Established by former Prime Minister Abdullah Badawi in 2007, its goal is to facilitate business. The group is co-chaired by Tan Sri Sidek Hassan, Chief Secretary to the Government, and Tan Sri Yong Poh Kon, Immediate Past President of the Federation of Malaysian Manufacturers. Half of its members are government officials, and the other half are members of the private sector ranging from corporate leaders to heads of business chambers.
In its regular meetings over the last three years, the group has discussed – sometimes heatedly – the topic of doing business in Malaysia. It focuses particularly on improving and enhancing how the public service delivery system directly or indirectly impacts the cost of doing business in Malaysia.
“The whole idea of PEMUDAH is to cut red tape,” says Tan Sri Sidek. “We want government officials to treat people as if they are customers. PEMUDAH is all about finding out what bothers businesspeople. Through PEMUDAH, senior civil servants put themselves into the shoes of businesspeople and try to resolve problems with a firm understanding of the other side’s perspective. We’ve had some very creative discussions and arguments. ”
The discussions and arguments have resulted in some tangible improvements in how Malaysia is governed. In 2009, PEMUDAH initiatives resulted in a raft of efficiency improvements in areas ranging from business licensing and registering property to the upgrading of Kuala Lumpur City Hall. Policy improvements influenced by PEMUDAH have included the creation of a task force on foreign worker issues, improved taxi services at the KL International Airport (KLIA), and modifications to the Malaysia My Second Home (MM2H) program.
“The whole idea of PEMUDAH is to cut red tape,” says Tan Sri Sidek.
PEMUDAH has accomplished a great deal in its three years of existence, but in the task force’s 2009 annual report, Tan Sri Sidek acknowledges that there is still work to be done. The key will be the engagement of all constituents in the value chain, so that Malaysia remains not only the preferred destination for business and investment, but a great place to live as well.
PEMUDAH’s Vision and Values
PEMUDAH’s goal is to transform Malaysia’s government into a benchmarked, customer-centric, innovative and proactive public service in support of a vibrant, resilient and competitive economy and society, driven by the following values:
Says Dato’ Nicholas Zefferys of the American Malaysian Chamber, who is also a member of PEMUDAH: “The beauty of Malaysia is that it addresses the issues. Its leaders are willing to confront the issues, and this is probably the Malaysian success story. They will do what they have to do to succeed, and fundamentally this has made Malaysia successful.”
The words on the final page of PEMUDAH’s 2009 annual report are telling: If Malaysia is to be a high-income country by 2020, the country needs “radical and drastic” improvements in the public service delivery and business environment.
PEMUDAH is determined to continue bringing about improvements that directly impact Malaysia’s competitiveness and that make a difference for both the people of Malaysia and the business community.
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