Malaysia: A Safe Harbor in the Storm

Another major area of development is the east coast of Malaysia. The East Coast Economic Region (ECER) is defined as covering the states of Kelantan, Terengganu and Pahang, as well as the district of Mersing, in the northern part of the state of Johor. The ECER accounts for more than half of Peninsular Malaysia, with a population of roughly 4 million and encompassing an area of 66,000 square kilometers.

The region is home to many natural resources, ancient rainforests and is fortunate to have a strong cultural and heritage legacy. While much of Peninsular Malaysia’s growth has occurred on the west coast including major urban centers like Kuala Lumpur, it means that the ECER is relatively less developed and therefore tends to have lower incomes and investment.

To address the needs of the region, the East Coast Economic Region Development Council (ECERDC) was set up by the government in 2008 to administer and manage the initiatives identified in the ECER Master Plan. This Master Plan is the framework for the development of the region, which will take place over 11 years and is targeting the creation of 560,000 new jobs in the region by 2020.

The government has said that US$32 billion could be invested into the region. Thus, the focus of the development of the ECER will be to seek a balance between maintaining this region’s cultural distinctiveness with an underlying transformation of its economy to make it more competitive and attractive to investment.

Among the key sectors to be promoted in transforming the region will be to develop it into a major tourism destination, and an exporter of energy, resource-based products, agricultural and manufactured goods. The east coast faces the Pacific Ocean and therefore can develop its ties to greater Asian region through port facilities, logistics and trading activities.

To ensure strong governmental support at all levels, Prime Minister Dato' Sri Najib is Chairman of ECERDC, while its Chief Executive Officer is Dato’ Jebasingam Issace John. To further accelerate the development of the region, Prime Minister Dato' Sri Najib announced the formation of a Special Economic Zone in the ECER in August. While SEZs are a common concept elsewhere, this will be the first time that is relatively less developed and Malaysia has authorized a SEZ, underlying the deep commitment of the government to this region’s growth.

The SEZ will be backed by top-notch infrastructure and specialized institutions to enhance skills and competencies,” said Dato’ Issace in a recent interview.

The SEZ will be a zone of the East Coast stretching from Kertih in the north to Pekan in the south, with the city of Kuantan in its center, which will feature a major deep water port and related industries and services. While this area is only 6% of the ECER’s total area, it was carefully chosen, as it will be the location in which half of all the 560,000 jobs in the Master Plan and 80% of the economic output will be created.

An integrated development zone, ECER Special Economic Zone (SEZ) will be backed by top-notch infrastructure and specialised institutions to enhance skills and competencies

In addition, the area encompassed by SEZ already contains a fair amount of industrial activities such as oil, gas and petrochemical, and manufacturing, thus is an area that boasts economies of scale making it appropriate for development. The SEZ is targeted at garnering investments of US$25.7 billion by 2020 and will come complete with special fiscal and non fiscal incentive package for investors, such as customised incentive based on merit, fast-tracking of necessary approvals by ECER One Stop Centre and an array of other non fiscal incentives.

With an aim to preserve the environment of the area, the SEZ will also have world-class environmental standards, so that development does not come at the cost of eroding the area’s scenic beauty and natural assets.

One of the main focuses of the region’s investments will be directed towards encouraging knowledge-based, high-value businesses and services, such as biotech and biofuels. However, the SEZ will also include the creation of more traditional industries such as handicrafts, petrochemicals, poultry processing and even goat farming.

Finally, tourism will be a major focus as well, including coastal tourism areas, urban tourism areas and a Safari Park.

The rest of the ECER will not be neglected, with the aim that the whole region will enjoy synergistic benefits from the growth in the SEZ, spurring its own development. The geographic position of Kuantan is also significant, since it is almost directly across the Peninsular from Kuala Lumpur, so there will be a natural linking of these two urban centers to create a synergy connecting the west and east coasts of Peninsular Malaysia.

One of the attractions of Malaysia in general is its excellent road system. It’s a topic that is often taken for granted, even though it plays an integral part of Malaysia’s overall commitment to providing world class infrastructure throughout the country.

Ms. Noorizah Hj Abd Hamid, Managing Director of PLUS Expressways Berhad is responsible for ensuring that one part of that infrastructure, the national North-South Expressway (NSE) and other roadways under PLUS provides vital connectivity in the national roadway system. PLUS operates the NSE and three other expressways that add up to 973 kilometers in total length in Malaysia, one in India with two being planned in Indonesia.

“The North-South Expressway serves as the backbone of the road network system for the country,” says Ms. Noorizah.

It provides access to areas of the country where approximately 80% of the population reside, and it stretches literally from the bottom of the country connecting Malaysia to Singapore all the way up the western coast to connect with Thailand in the north.

PLUS, while a listed company, is similar to UEM Land in that it is also a division by Khazanah, which owns 64% of PLUS. It is one of the success stories of Malaysia.

“PLUS is the largest expressway operator in Southeast Asia,” says Ms. Noorizah, adding that it is also the sixth largest listed toll-road company in the world. “As a market leader and a pioneer in this business, we have to be the industry benchmark.”

For example, the current economic downturn was a chance for PLUS to take a number of proactive measures. One of which, PLUS offered rebates on the toll charges if people travelled and exit its highways during the hours of midnight to 7 am, when there is less traffic, an arrangement that would also reduce congestion on its expressways during peak travel times. They also introduced a loyalty card that offered rebates as well. Of course, one of the ironies of the downturn is that many people cut back on flying which meant if they did travel, they tended to go by car. This trend helped sustain traffic figures for PLUS. “The downturn was a blessing in disguise,” says Ms. Noorizah.

She has also looked at ways to boost income from other sources, such as revenues from roadside rest stops. Yet despite the economic situation, PLUS has not stopped investing in its own services and infrastructure.

For example, it has its own proprietary roadside assistance service known as Ronda (Roam) to help broken down vehicles. PLUS strives to ensure that a PLUS Ronda Assistance vehicle will reach a stranded motorist within 20 minutes of placing a call to its service center most of the time, through the astute use of GPS tracking devices in all Ronda vehicles.

In addition, the roadside rest areas are being continually upgraded, with some most recently being installed with broadband WiFi access. PLUS even has its own helicopters to help with maintenance and inspection as well as over 1,000 closed circuit cameras that monitor traffic conditions on the mainline and toll plazas.

Now that PLUS has established itself as the leader in Malaysia, it has started to export that expertise on a regional basis. “We have now started to look outward because of our experience and reputation,” says Ms. Noorizah. To its existing portfolio, it recently added one concession in India, the PLUS BKSP Toll Ltd (India), of which it owns 94%, and two in Indonesia, the PT Lintas Marga Sedaya (Indonesia) with a 55% stake, and PT Cimanggis Cibitung Tollways (Indonesia) with a 60% stake. The India roadway is located outside Mumbai, while the Indonesia projects are part of the trans-Java highway project and a Jakarta ring road, respectively.

With these projects, PLUS will be honing its ability to take on even bigger projects afield. “Our long-term vision is to be a premier global expressway group,” says Ms. Noorizah.

One area where progress can be dramatically seen is in Islamic finance. Malaysia has quickly become a world leader in this area, pioneering many advances in the field, and is driving thought leadership and innovation in this critical and growing financial sector. Leading this exciting and important area is the establishment of the Malaysia International Islamic Financial Centre (MIFC) initiative in 2006.

The MIFC initiative has as its goal the development of Malaysia as a global hub for Islamic finance. The MIFC initiative boasts a unique structure, as it is a collaborative effort and comprises a community network of financial and market regulatory bodies, Government ministries and agencies, financial institutions, human capital development institutions and professional services companies.

The MIFC initiative has five focus areas mainly in sukuk origination, Islamic fund and wealth management, international Islamic banking, international takaful and human capital development.

One of the most important aspects of Islamic finance’s growth in Malaysia is that it does not exist in a vacuum. Through the work of the MIFC initiative, Malaysia has ensured that there are the appropriate legal, regulatory and global shariah best practices framework to support the growth in both scope and depth of this industry. While most might think that mainstream Islamic finance is a relatively new concept, in fact, Malaysia has taken a lead in developing this field for more than four decades, going back to the early 1960s.

To push growth, the MIFC initiative welcomes global industry practitioners to use Malaysia to set up international businesses in Islamic finance through a various range of tax incentives in the Islamic finance area. Among these incentives are no stamp duty on Islamic banking or takaful activities in foreign currencies and a relaxation of foreign equity ownership rules.

On top of that, Malaysia has recently intensified its pace of liberalization to further strengthen its Islamic finance industry by creating Malaysia as a vibrant and a competitive marketplace and increase the potential for strategic partnerships with international financial centers that will bring with them mutually reinforcing benefits. In April this year, the government announced further liberalization measures that include two new licenses to be offered in Islamic banking with minimum paid up capital of US$1 billion and up to two new licences for family takaful to enhance global inter-linkages and to leverage on global developments in Islamic finance. Another further announcement was the liberalization of legal profession which allow up to five top international law firms with expertise in international Islamic finance to offer legal services in international Islamic finance in Malaysia.

“To push growth, the MIFC initiative welcomes global industry practitioners
to use Malaysia to set up international businesses in Islamic finance through
a various range of tax incentives in the Islamic finance area.”

What can be accomplished is clearly demonstrated by Malaysia’s comprehensive Islamic financial system comprising a diversified number of Islamic banking and takaful institutions as well as a well-developed Islamic money and capital market.

Today, Malaysia’s Islamic interbank money market is crucial as it is the most developed and vibrant in the world, with a daily average volume transacted of US$1.7 billion. In the area of the Islamic capital market, the sukuk (Islamic bond) market is another achievement area with an average annual growth of 22%. Started in 1990, the Malaysian sukuk or Islamic debt capital market has grown exponentially over the years to include innovative instruments such as exchangeable sukuk, which adheres to shariah principles. The market is very deep and broad comprising up to triple A-rated products with tenures ranging from less than 12 months to up to 50 years.

Despite the challenging economic times, Malaysia’s state oil company Petronas, for example, was able to successfully launch in August a landmark issuance of US$1.5 billion sukuk which was over-subscribed by 6 times.

“This is the largest U.S. dollar issuance by an Asian entity outside Japan this year. This issuance showcases Malaysia’s credentials as a center of origination not only for ringgit bonds and sukuk, but also for issuance of foreign currency denominated bonds and sukuk,” said Bank Negara Malaysia (Central Bank of Malaysia) in a press release.

The sukuk market in Malaysia is now the biggest and most developed in the world. It accounts for more than 60% of total outstanding sukuk globally which is valued at approximately US$66 billion.

Among the world’s firsts for Malaysia’s sukuk market are: first global sovereign sukuk, first global corporate sukuk, first ringgit-denominated sukuk for a foreign issuer, first global sukuk index (sponsored by Dow Jones and Citigroup) and the world’s largest sukuk issuance (for approximately US$4.4 billion).

Malaysia’s list of world’s firsts in Islamic finance now extends to other areas as well, such as the first Islamic REIT and the first Asian Islamic Exchange Traded Fund (ETF). In the Islamic REITs market, from that first Islamic REIT issued in 2005 there are now three listed Islamic REITs in Malaysia.

The rise in Islamic investments are driven by two main factors, the first being Islamic investors, who are increasingly affluent. The second is from non-Islamic investors who are looking for diversification. This rise can be seen with the increased demand for and growth in Islamic units trusts and shariah-compliant securities listed in the Malaysia market.

As of June 2009, the number of Islamic unit trusts in Malaysia has grown to 143 funds with a net asset value of US$5.6 billion, representing an 80% year-on-year growth when compared to 2007.

On the Bursa Malaysia (Malaysia’s stock exchange), some 88% of listed securities are deemed to be shariah-compliant (of some 960 listed securities). Ranked by market capitalization, these securities represent US$144 billion or about 64% of the total market capitalization of the exchange.

This tradition of innovation has continued with the establishment in August the world’s first shariah-based international multi-currency, multi-commodity trading platform, the Bursa Suq Al-Sila’ or Commodity Murabahah House (CMH).

“The sukuk market in Malaysia is now the biggest and most developed in the world. It accounts for
more than 60% of total outstanding sukuk globally which is valued at approximately US$66 billion.”

This platform will enable commodity-based Islamic financing and investment transactions under Shariah principles. The launch commodity was crude palm oil. While this is the first commodity, there are plans to expand the platform to other hard and soft commodities.

“CMH has immense potential to assist global liquidity management and flows. It will promote the full suite of CMH products covering deposit, financing, investment and hedging instruments. CMH will evolve to provide infrastructure for new product innovation,” says Azrulnizam Abdul Aziz, Chief Executive Officer of Standard Chartered Saadiq Berhad.

Apart from the CMH to facilitate cross border capital flows, the Interbank Murabahah Master Agreement (IMMA), Corporate Murabahah Master Agreement (CMMA) and Shariah Parameters were also launched as part of Malaysia’s efforts to foster greater international linkages with other financial centers. This is to develop a global liquidity initiative and to promote standardization of financial standards to enhance greater transparency, robustness, operational efficiencies and consistency in Islamic financial transactions across jurisdictions.

Finally all the above would not be possible without legions of highly trained Islamic financial experts to carry out and advance the cause of Islamic finance in Malaysia. That is why the last but not least initiative under the five priorities identified by the MIFC initiative is human capital development.

In Malaysia, there is now a network of various institutions dedicated to training, researching and expanding the talent pool for Islamic finance. Again, Malaysia is a world pioneer in many aspects, offering the world’s first professional certificate program in Islamic finance, the Chartered Islamic Finance Professional or CIFP, from Malaysia’s International Centre for Education in Islamic Finance (INCEIF) as well as the world’s first Islamic Financial Planner certification program from the Islamic Banking and Finance Institute Malaysia (IBFIM), which is a joint collaboration with the Financial Planning Association of Malaysia (FPAM) to produce qualified Islamic financial planning professionals.

The International Shariah Research Academy for Islamic Finance (ISRA), a part of INCEIF, was established in 2008 by Bank Negara Malaysia to promote greater engagement among shariah scholars from around the world and to undertake research activities, so as to contribute towards a greater understanding and international convergence in Islamic finance. This effort is another first in the world.

All in all, Malaysia has made enormous strides in creating a viable and growing Islamic finance ecosystem, unique in the world. It welcomes any industry players, talents, issuers and investors looking to take advantage of Malaysia’s Islamic finance infrastructure, thought leadership and product innovation.

Malaysia is also a leader in another Islamic-focused area.

Tun Musa Hitam wears two impressive hats, being chairman of both the World Islamic Economic Forum Foundation (WIEF Foundation) and of Sime Darby Berhad, Malaysia’s largest company by market capitalization.

A former deputy prime minister as well as having a long and distinguished career serving in a number of high-level government posts, Tun Musa is helping build a global organization, the World Islamic Economic Forum Foundation.

The Foundation was set up in March 2006 to primarily support the World Islamic Economic Forum (WIEF), an annual event that brings together some of the leading figures from the Islamic world in political, business and other fields, all with a pragmatic interest in doing business. “The most interesting thing about WIEF,” says Tun Musa, “is that it doesn’t have a spiritual aspect. It is an expression of the wish of people who want to do business and make money— with anyone even the non-Muslims.”

The event has clear guidelines that discussions will not include topics related to politics, religion or ideology. He notes that there are an increasing number of participants coming from such countries as Japan, Russia, and China who are not Muslim. Now in its sixth year, the WIEF is gaining a name for itself. Tun Musa emphasizes that the event is one that should be for some high-level speakers such as former British Prime Minister Tony Blair and it also has to be inclusive:

“In recognition of the state of the Muslim world, the WIEF event takes a bottoms up approach.” One of the recent sessions for example tackled the needs of growing small and midsized companies in the Muslim world. Other pressing topics tackled in WIEF have covered a wide range of issues. The titles of discussions from the latest event speak for themselves, “Entrepreneurship in Islam: Reviving a Lost Tradition,” “Tapping the Tourism Potential: Investing for the Future,” and “Connecting Minds: Leveraging Technology for Education.”

The fifth WIEF held in Jakarta this March was attended by approximately 1,700 delegates from 38 countries, and had among the 85 speakers the Indonesian President Susilo Bambang Yudhoyono and Indonesian Vice President Jusuf Kalla.

The history of the event is that it grew out of the OIC Business Forum held in conjunction with the 10th OIC Summit, a forum that promotes the business interest of the OIC countries. Participants and organizers saw the need to have a single high-end event with a dedicated focus on in-depth exploration of business issues as well as networking opportunities. Beyond the event, the WIEF Foundation has also spearheaded the development of several important initiatives, such as the WIEF Businesswomen Network, the WIEF Education Trust and the WIEF Young Leaders Network. The first helps to promote and recognize the contribution of women in business in the Muslim world, while the education trust supports the expansion and improvement of education and finally the Young Leaders Network is a place to promote the interests of young entrepreneurs and professionals.

Obviously the three initiatives complement and support each other, as well as the larger objectives of the WIEF itself. With typical modesty, Tun Musa says of the accomplishments of the event and foundation: “Things are ticking along nicely.”

Another area of accomplishment that may deserve greater recognition is Malaysia’s development of the Multimedia Super Corridor or MSC Malaysia.

Malaysia has long been an outsourcing center for global tech companies. Much of this work is assembly work or in the case of services, call centers, tech or legal support, or back office outsourced, generated by multinational tech companies. Here Malaysia has been quite successful, boasting such names as Dell, Shell, Ericsson, HP, IBM, HSBC, DHL and BMW as companies that have chosen Malaysia as the destination to base either regional or in some cases global centers, as well as local firms that have successfully provided such services to multinational clients.

Yet Malaysia is an ambitious country and it is looking to do much more, using this success in the outsourcing sector as a foundation to leverage itself up the value chain. Thus the country has set itself a goal to become a hub of homegrown innovation and new technologies, and is taking concrete steps to turn that vision into reality.

After 13 years of existence, MSC Malaysia can be said to be paying real dividends with some remarkable companies and much enhanced profile in the global tech industry.

“We have 1,100 active companies based in the region and about 2 to 3% of them, perhaps 20 to 30 can become world-class,” says Datuk Badlisham Ghazali, Chief Executive Officer for Multimedia Development Corporation (MDeC), the one-stop agency that oversees and develops all of MSC Malaysia, and is mandated to coordinate the national ICT development planning. It has taken up the task to work on the government’s campaign promise to integrate ICT firmly into the national development planning efforts including social economic development. Says Datuk Badlisham, “These are high performance tech companies and we want to help them go to the global market in a bigger way.”

Datuk Badlisham can cite a list of companies that MDeC feels are ready to go global. “Among them are Synamatix, a company that has created the world’s fastest genome sequencing software along with other promising technologies and Cworks, which provides facilities management software with wide applications for organizations such as hospitals, manufacturing plants and even a zoo,” says Datuk Badlisham.

Then there is Xybase, which creates software specifically tailored for use in airports, which recently landed a trophy deal in the US market with Boston’s Logan Airport as well as 11 other airports. Another good example is Pulse which provides online market research, call centers and other related services. Pulse has already taken steps to go global as it has been able to successfully list itself on the Plus Markets stock exchange based out of London.

For these and other companies, MDeC can bring much to the table in terms of assistance to boost these companies’ growth trajectories, with a gamut of development assistance that can be applied for use in developing their marketing, branding and public relations to help in finding financing.

The direction that Datuk Badlisham would like to see MSC Malaysia head to is broadly what is known as KPO, or Knowledge Process Outsourcing. “KPO is the next step up from Business Process Outsourcing (BPO),” says Datuk Badlisham.

“In other words, while BPO typically provide low-value services such as call centers and back office clerical work, KPO provides much higher-value services which are also potentially higher profit and higher profile. For example, doing stimulated stress testing on aircraft parts,” says Datuk Badlisham. Malaysia’s attractiveness in the KPO/BPO space has been recognized by consultants A.T. Kearney in an annual report called the Global Services Location Index, which looks at the best location for shared services and outsourcing activities on metrics such as people skills, costs and business environment. Malaysia ranks as number three behind only India and China in that report.

Another measure of the MSC Malaysia’s contribution can be measured economically, with MSC Malaysia companies contributing 1.7% of the country’s GDP (the entire tech sector, including MSC Malaysia, contributes 9%).

One more major branch that is starting to develop is the sector of creative industries, such as the creation and production of animated films. For example, the animated children’s film “Geng-The Adventure Begins” was produced entirely in Malaysia and became the highest grossing Malaysian animated film of all time, garnering about US$1.58 million in the country. Its success was so good that “Geng” may find its way soon into regional or global markets. “Geng illustrates that the whole film can be originated from Malaysia, not just outsourcing parts of it,” says Datuk Badlisham.

However, MDeC is also happy to do deals with Hollywood where the risks and rewards are shared. In this context, an MSC Malaysia company has also taken a stake in a co-production with a Hollywood company to do an animated film called “War of the Worlds: Goliath” which is positioned as a sequel to the original War of the Worlds book and films. Datuk Badlisham explains that MDeC’s mandate extends beyond tech companies.

Also for small and midsized companies, MSC Malaysia is looking at ways to help traditional companies become more internet savvy and expand their exports through an online presence. “By doing so, MDeC feels it can help these companies extend their market range and increase sales,” says Datuk Badlisham.

Recently, MDeC organized the MSC Malaysia Great ICT Sale targeted to small and medium-sized enterprises (SMEs). The one month campaign which was held in Kuala Lumpur, Penang and Johor Bahru, managed to attract US$2.05 million worth of high-potential opportunities. It has succeeded in creating a platform for smaller scale service providers and customers to acquire ICT products and services from numerous MSC Malaysia companies that provide solutions for SMEs. He notes that one reason for the success of MSC Malaysia is that it thinks and acts like a private company. “It is run by those who mostly came from the private sector so that explains why we are so highly oriented to helping the private sector,” says Datuk Badlisham.

Page  1  2  3  4