Malaysia
Transforming the Landscape

An Interview with Dato’ Sri Mohd Najib Bin Tun Haji Abdul Razak, Prime Minister of Malaysia

 

Dato’ Sri Mohd Najib bin Tun Abdul Razak was appointed as Malaysia’s sixth Prime Minister on April 3, 2009. He is the eldest son of Malaysia’s second Prime Minister, Tun Abdul Razak Hussein. He entered politics in 1976 and was elected to Parliament at the age of 23, becoming its youngest member ever. Throughout his long political career, Dato’ Sri Najib has served in a number of prominent positions: notably as Deputy Minister of Energy, Telecommunications and Posts; Deputy Education Minister; Deputy Finance Minister; Minister of Culture, Youth and Sports; Minster of Defence (two terms); Minister of Education; Minister of Finance; and Deputy Prime Minister. He still holds the post of Minister of Finance and is a Member of Parliament for Pekan.

Dato’ Sri Najib spoke to Forbes Asia’s Cecilia Zecha recently about how Malaysia is rebounding from the global financial crisis and proactively engaging with foreign investors to help support Malaysia’s transition into a high-income nation.

 

How is the Malaysian economy performing?

Our recovery from the global financial crisis has been robust. Following the economic contraction in 2009, we achieved 7.2% growth in 2010. The strong recovery is continuing in 2011, and we expect to achieve 5% to 6% growth this year. Figures on fundamentals such as public and private investment as well as consumption are looking strong. One of the key factors for the turnaround is an increase of 530% in foreign direct investment (FDI). FDI touched $9.1 billion in 2010. Investors are becoming more confident in our economic transformation program and our new economic model. We are reaching out and engaging potential investors through MIDA and MITI and our Economic Council, which I chair. We are making decisions expeditiously on customizing incentives for FDI that contribute significantly to high-paying jobs, new technology and positive spin-offs for the local economy. At this time of global recovery, we are positioning Malaysia strategically as a hub for ASEAN and East Asia.

 

How is Malaysia liberalizing its economy?

We have been liberalizing the economy, but I have to assuage domestic concerns that opening up too fast would be threatening. Liberalization is good for our long-term sustainable competitiveness. It builds our intrinsic strengths— not through protection or subsidies. We should be competitive because of factors such as our productivity, technologies and processes. In the coming budget announcement in November, there will be further rounds of liberalization.

 

How is Malaysia developing economic ties with Asian countries and the Middle East?

We have good economic ties with China, and our total trade with China has reached the RM149 billion mark (US$50 billion). One area I’d like to enhance significantly is to encourage the Chinese to increase their long-term investments in Malaysia beyond short-term investments such as projects in construction. With Singapore, we have resolved a thorny 20-year problem on our points of agreement. We are in a constructive mode in terms of our bilateral ties. Even though we compete, we should develop a productive relationship wherever we can. That is the strong political signal given by both governments. I have also developed very strong personal ties with leaders in the Middle East, and as a result they are looking at Malaysia for economic involvement. Abu Dhabi has become our partner in the KL Financial Center and would like to build a downstream integrated aluminum facility in Sarawak.

 

How is Malaysia reforming its tax system to solidify its public finances and increase tax revenues?

The macroeconomic and fiscal management of this country must be based on a solid foundation. One challenge that we have is Malaysia’s relatively small tax base, through which only 1.2 million people pay income tax. We have to widen our tax base. We have decided in principle to go for a GST, which provides a strong revenue base when it is implemented. But again, I have to engage the public and tell the people that it is a good move.

 

“Our recovery from the global financial crisis has been robust.
Following the economic contraction in 2009, we achieved 7.2%
growth in 2010. The strong recovery is continuing in 2011,
and we expect to achieve 5% to 6% growth this year.”

Dato’ Sri Mohd Najib bin Tun Haji Abdul Razak, Prime Minister of Malaysia

 

How is Malaysia developing its banking sector to compete regionally?

We want our banks to be regional, and two of our biggest banks are regional champions: Malayan Banking and CIMB. We hope other banks will become stronger, and some of them are bringing foreign partners to help them improve governance. We have also learned from the Asian financial crisis in 1997 and restructured our banks. As a result, when the global economic crisis hit the world, we were not affected. There was enough liquidity in our banking system, which is robust, functional and resilient.

 

In what way is Malaysia advancing women’s leadership roles in society?

The position of women in Malaysia is the envy of many countries—not only Muslim countries, but non-Muslim ones as well. For example, in the public sector, the key positions in economic management and on the technocrat level are held by women, such as in the Central Bank, Securities Commission, Economic Planning Unit and the Treasury. Sixty-two percent of our undergraduates are women and in traditionally male domains such as engineering. In the private sector, I’ve made a call that 30% of top executives and board members of public companies should be women. While this not a quota, it is a target and a way for the companies to start looking for capable women to assume these positions and thrust women into playing more important roles in our economic transformation.

 

As a progressive, multiracial nation with a Muslim majority, how can Malaysia be a model of moderate Islam?

As far as I am concerned, there is only one Islam. The real Islam is a moderate religion. The only way to ensure universal peace and prosperity is to promote this as a value system and thought process. We should engage people of all faiths, no matter if they are Muslim, Christian, Jewish, Hindu or Buddhist, as long as they subscribe to the values of moderation and mutual respect and reject terrorism, extremism and militant thinking. It is incumbent upon us, the moderates, to speak up and speak out, so we are able to drown out the voices of hatred, violence and bigotry.

 

The next federal election is not until 2013, but there has been commentary that there could be earlier elections. Are you calling for a vote soon?

It’s always a guessing game in Malaysia. Contrary to what has been spoken by some, we do have clean and fair elections, and we are committed to democracy. And there is no way that I want to be Prime Minister unless the people truly support me.

 

The theme of this year’s Forbes Global CEO Conference in Kuala Lumpur is “At the Crossroads.” How is Malaysia and its economy at a crossroads, and what do you view as its choices?

It is a very exciting time. It is an appropriate theme because Malaysia is at a crossroads. But we are also a society in transition. It is at a crossroads because we have to make strategic choices for the country. But we are also a society in transition because we have the new X and Y generations that are emerging. Currently, people under age 40 comprise 55% of the electorate. People above 50 have a different sense of nationhood because they have gone through the trials and tribulations of the past. To them, peace, security and public order are uppermost on their minds. The younger generation that only reads history books looks at things differently. It is a challenge to manage this country because I have to make strategic choices as to which road to take; but as we are a society in transition, this means we have to deal with people with different values. What is perceived to be right for one segment of society may not be for another.

 

Malaysia
Defining Its Role on the Global Stage

by Jeremy Torr

 

Interviewing some of the most talented and dedicated government and industry figures in Malaysia was an amazing—and almost overwhelming—experience. One media advisor asked Forbes, “What was the most significant thing you learned when putting this supplement together?” It was a difficult question to answer, because there was so much to say.

After some deliberation, the answer became obvious: The overriding message was one of optimism—optimism about the country, its resources, people, government and legislative framework, capable capital markets and ability to do business. On a more basic level, there was additional confidence in how things work: The transport system works, the power supply works, the education system works and, above all, the society works.

Malaysia is a strong export-driven economy—its ratio of gross exports to GDP was 109.9% in 2010—but it is nonetheless looking ahead to a new Malaysia that deals less in commodities and more in strong global relations. It is moving rapidly from trader status to exporter status, with plenty of help from the government.

With a safe and stable base in the center of ASEAN, and with access to a broad economic region comprising more than 1.5 billion people—the majority of whom live in rapidly developing economies—Malaysia could be considered the gateway to Asia.

Malaysia is also inspiring confidence in both domestic and overseas markets. It has more than RM407 billion (US$134 billion) in reserves, a May 2011 trade surplus of RM8.49 billion (US$2.78 billion), a first-quarter 2011 current account surplus of RM25.89 billion (US$8.52 billion), exports worth RM55.09 billion (US$18.13 billion) as of May 2011, and its 2010 GDP growth was a solid 7.2%.

 

Property Place

“If you are looking for a well-kept secret, we are it,” says Malaysia Property Incorporated (MPI) CEO Kumar Tharmalingam, describing the real estate scene in Malaysia.

Kumar reveals that MPI, established in 2008 as a government/private joint venture, has a strategic plan to reveal Malaysia’s significant property potential to local and international investors. The initiative is working.

“We are seeing excellent expansion from investors and developers in Singapore and Indonesia, and increasingly from Korea, China and India, too,” he says. There is also keen institutional interest from pension fund investors in the U.K. and the U.S., attracted by the long-term stability and stress-free, predictable investment atmosphere.

Another significant draw for outside investors is Malaysia’s generous property legislation framework, asserts Kumar.

“Property here is predominantly freehold, as we use the Torrens property system, which allows foreigners to own outright. So there is no need for investors to enter into joint ventures (JVs) or partnerships. That’s a big advantage,” he says. The success of this system can be seen, for example, in the quantity of deal signed since MPI set up its showcase center in Singapore. Some RM90 million (US$29.84 million) worth of Malaysian property has been sold to investors since the center opened in 2010.

Burgeoning investor markets like India and China are attracted by Malaysia’s ethnic makeup. With its large Malay, Chinese and Indian ethnic groups, both residential and business investors can be assured that cultural sensitivities will be understood and accepted.

With an increasing number of wealthy Middle Easterners looking for quality education at a reasonable cost, Malaysia also offers a highly attractive destination for Muslim students. Adds Kumar, “The fact that we understand sukuks and Shari’ah law here in Malaysia gives us a huge advantage in this new market.”

Industry is also starting to take notice of Malaysia’s property market. Brazilian steel giant Vale has announced it is investing RM8.8 billion (US$3 billion) in a new maritime terminal, and Kumar points out that the Malaysian government has committed to ongoing private-public property investments to the tune of RM60 billion (US$19.9 billion).

 

Good Showing

In many ways, attracting property buyers is similar to asking conference delegates to come to Malaysia, as the conference market is full of high-level competition from countries worldwide, says Malaysia Convention & Exhibition Bureau (MyCEB) CEO Zulkefli Haji Sharif. This means that attracting major conventions to Malaysia is not always easy.

“We have some very attractive ultimate selling points,” he says. “Malaysia offers excellent value for money with exceptional service quality and professionalism in the heart of Asia—between the booming economies of China and India. Malaysia’s strength in engaging with new and emerging economic centers lies in its rich historical links with China, India and the Middle East while simultaneously maintaining ties with the West.”

Kuala Lumpur is now ranked as one of the top ten cities in Asia Pacific and is 23rd in the global rankings for destination conferences as rated by the International Congress and Convention Association.In addition, conference numbers saw a 24% jump in 2010 over 2009.

“We are consistently working on lifting our profile in the international community and letting them know what we have,” says Zulkefli. “Our key strategies include a new business event brand campaign, the appointment of business development specialists in key international markets, and the provision of strategic bid support for local host organizations.” In November 2010, MyCEB provided support to the World Congress of Accountants, which achieved a record attendance of over 6,000 delegates.

Zulkefli says another plus for Malaysia is that it is attractive and affordable for delegates from all over the world, including developing countries with a broad ethnic mix that can encompass Chinese, Indians and Malay. “With a multilingual population and English being widely spoken, meeting planners and delegates can communicate with ease. Malaysia has recently been ranked as the fourth most peaceful country in the Asia Pacific after New Zealand, Japan and Australia.”

Within the next five years, the conference industry will be further supported by new facilities. These will offer international and regional meeting planners more venue options to host their meetings and events in Malaysia, which could now rotate to other parts of the country such as Penang and Sarawak, as well as Kuala Lumpur. Key developments in the pipeline include the expansion of the Kuala Lumpur Convention Centre and the proposed developments of the Penang International Convention and Exhibition Center and MATRADE Centre.

MyCEB is putting effort into training to complement the local infrastructure, too. “We are working as an educator to bring international certification to our industry partners, and helping local host organizations develop their convention bidding expertise,” adds Zulkefli. “Business tourism is great for economic growth; delegates spend three times as much as the average tourist, so if we offer great value, we know they will want to come.”

 

Export Driven

Not all Malaysian organizations are looking to pull in talent, however. Some are busy exporting it. According to Gooi Soon Chai, President of Agilent Technologies, Malaysia and Singapore, Malaysia sends out world-class products to a global market.

“We have been in Malaysia 39 years this year,” he says. “We were a technology pioneer in Penang, and have been here ever since. When we first came, we focused on labor-intensive products, but definitely not now.”

Today, says Gooi, the Malaysian arm of the RM14.95 billion (US$5.5 billion) high-tech company runs a campus, not a mere factory. The 42-acre, 3,000-employee site develops and produces sophisticated electronic test and measurement equipment for a global market.

“At the moment, R&D makes up 30% of our work, with another 30% dedicated to worldwide business support, and the rest to manufacturing,” he says. “This is a testament to the high local skill levels we have here.”

Gooi cites excellent collaborations with universities, good government support and a sophisticated ecosystem of suppliers and researchers as reasons why Agilent has been so successful in Malaysia. “Agilent’s operation here is helmed by a Malaysian leadership team, with local talent,” he adds.

Agilent’s next big move is into life science technology and bioanalytical testing and chemical analysis. “Thirty-nine years here is a testimony to the Malaysian business climate. We are looking forward to growing more,” says Gooi.

Like Agilent, Motorola Solutions Malaysia Sdn. Bhd has a long and productive history in Malaysia—one that stretches back 37 years. In 1974, Motorola established a modest facility manufacturing two-way radios in Penang.

Today that small factory has grown to become the world’s largest two-way radio manufacturing complex, complete with best-in-class R&D capabilities. It designs and produces 90% of the company’s high-tech mission-critical Terrestrial Trunked Radio (TETRA) products for a worldwide market.

Motorola Country President Mohd. Rauf Nasir says that this remarkable transformation has come from several factors, including strong commitment to innovation, investment and a solid business climate.

In addition to investing in products— it invests close to RM3.04 billion (US$1 billion) every year in R&D—Motorola has consistently invested in people, one of the strongest assets the country offers to multinational corporations (MNCs).

“We believe that education remains a strong tenet in human capital development needed to position the country for future success,” says Rauf. “As an example, we sponsored the Multimedia University Engineering Society Overseas Research Programme (MESCORP) for undergraduate-based research work. We have also been collaborating with other local universities to help groom the right industry-ready talent.”

Rauf says that Malaysia’s vision-led development has positioned the country perfectly with skilled manpower, infrastructure, manufacturing expertise and R&D.

“This made Malaysia a natural choice for us,” he says. “The government of Malaysia has been supportive with policies to develop the nation into an emerging knowledge-based economy, making it ideal for global MNCs to explore and invest in.”

 

Unique Products

Motorola was not the only MNC to see Malaysia’s potential decades ago.

“One hundred years ago, Nestlé chose Malaysia because it had good access, was easy to do business in and had good market potential,” says Peter R. Vogt, Nestlé (Malaysia) Berhad Managing Director. In the century since, new positive attributes have been added to those original assets.

Almost a quarter of the products manufactured by Nestlé in Malaysia today are exported to markets across the globe. Its expertise in halal-certified food means it is a key player in product development for the Middle East and, increasingly, Europe, where there is a growing demand for halal products.

“As the Halal Centre of Excellence for Nestlé S.A. and the largest halal producer within the Group, we provide expertise, resources and technical support to other Nestlé markets producing halal products,” explains Vogt.

 

“The local workforce here, with its skill levels and cost effectiveness, has allowed us to create more shared value and bring significant benefits to the group.” Peter R. Vogt, Nestlé (Malaysia) Berhad Managing Director

This is not the only area in which Nestlé Malaysia benefits its parent company. Local staff works with R&D teams to produce specialist products such as Bliss and Milo Sejuk. “The local workforce here, with its skill levels and cost effectiveness, has allowed us to create more shared value and bring significant benefits to the group,” says Vogt.

It’s not a one-way benefit, however. Nestlé has acquired a major new site in Shah Alam, and it has plans for an RM115million (US$37.73 million) breakfast cereal line in Chembong, Negeri Sembilan, which is scheduled to commence by the second quarter of 2012 and will produce five bestsellers from the Nestlé Breakfast Cereal range.

 

Creating the Spark

Back when Nestlé Malaysia was looking to establish itself, it made its own plans. Today things are very different. There are a host of helpful departments and government-linked companies (GLCs) ready to lend assistance during those critical early-business stages. And one of the best ways to kick-start any new business is to give it room to grow.

In 1996, the Malaysian government set out the first elements of the multimedia super corridor (MSC) under the watchful eye of the newly minted Multimedia Development Corporation (MDeC). Even then, the 15-by-50-kilometer corridor was much more than a simple land plan with incentives.

“MDeC does more than just funding, providing grants and so on,” says MDeC CEO Datuk Badlisham Ghazali. Part of a much bolder plan to drive the National ICT Initiative, it spans five specific vertical sectors that can symbiotically benefit the economy as a whole—rather than existing in silos of expertise.

These include BFSI, oil and gas (O&G), logistics, transportation and ICT, explains Datuk Badlisham. “Our strategies in creative multimedia, global services and IT have also been realigned to put stronger emphasis on collective wealth creation and high-value investments.”

His job is made easier by the raw materials he has to work with. For example, he cites a Malaysian labor market that is skilled, yet competitively priced; the fact that the majority speak English; and the ability of Malaysia to offer world-class education institutes for ICT professionals. There are also supportive business policies in place and a well-developed commercial and telecommunications infrastructure.

 

 

MSC Malaysia: Exceeding Its Goals
MSC Malaysia is achieving well beyond its goals. The original six-year target of RM33.1billion (US$11.25 billion) export income was successfully exceeded by 65% as of 2010, according to figures from a United Nations Conference on Trade and Development (UNCTAD) report. In addition, more than 111,000 knowledge-based jobs were created. Malaysia is a preferred destination for shared services outsourcing for Nokia, Motorola, Shell, BMW, DHL and 125 others. In fact, Malaysia’s ICT industry ranked eighth among all global ICT exports in 2009, according to the Global Competitiveness Report (GCR) published by the World Economic Forum.In addition, A.T. Kearney has consistently ranked Malaysia as the third most preferred offshore services location, behind only India and China.

Specific homegrown projects like MyKad, Telehealth and Technopreneur Development have already made their mark on a national landscape, leveraging economies of scale to reap the benefits of an impressive RM1.64 billion (US$0.54 million) worth of R&D investment over the last six years.

“We still have areas that can be improved,” says Datuk Badlisham. He cites the continued shortage of enough skilled and knowledge workers to meet demand, and the need to attract more FDI to Malaysia. But if given an ambitious idea space, it will grow. MSC Malaysia is proof of that.

Building Biotech

Just as MDeC has boosted ICT, Malaysia's burgeoning biotech industry is getting a strong supportive hand from the Malaysian Biotechnology Corp Sdn Bhd (BiotechCorp). According to BiotechCorp CEO Datuk Dr. Mohd Nazlee Kamal, the parent body is concentrating on three key sectors: healthcare, industry and agriculture.

As head of the biotech industry development agency for Malaysia, Datuk Dr. Nazlee knows he has work to do, but he asserts his goal is realistic: He wants biotech to bring in around RM14.3 billion (US$4.8 billion) in investment and see a 5% GDP contribution by 2020.

Datuk Dr. Nazlee says an existing national emphasis on sci-tech and engineering will ensure a steady stream of qualified employees, pointing out a robust framework of scientific research and education in Malaysia's universities.

"We want to ensure we are producing good biotech patents and then cashing in on them," he says. "Take agri-biotech. We have abundant natural resources we could get good use from—recycling waste by-products into fuel, for example." And as he points out, biotech is a truly global industry, which Malaysia can capitalize on through cooperative initiatives with other less resource-rich countries.

"We are not interested in the local market only. At a minimum, we should be looking regionally," he says.

Malaysian biotech is actively searching for prospects. "We have a specialist scouting team looking for suitable IP, both here and overseas, that we could monetize in Malaysia," he asserts.

Taking the Long View

This ability to take the long internationally focused view is one that Minister of the Ministry of International Trade and Industry (MITI) Dato’ Sri Mustapa Mohamed fully supports. “The paramount resolve for MITI in the next 12 months is in pursuing Malaysia’s spot among the top ten most-competitive countries in the world by 2015,” he says.

Given last year’s rating of 16 in the IMD World Competitiveness Yearbook 2010, Malaysia’s ambition demands a major across-the-board improvement in productivity, says the Minister. Enhancing productivity growth through innovation is a key objective, and Malaysia is looking to learn from other nations how to improve product and service innovation, R&D commercialization and branding.

“Improving the nation’s international competitiveness remains MITI’s highest priority. Both the government and the private sector will continue to work together.” Dato’ Sri Mustapa Mohamed, Minister of MITI

“Business processes can be re-engineered, skills and knowledge can be enhanced, and resources can be harnessed to achieve maximum output,” says Minister Mustapa. He says that MITI will help create a favorable business environment for the private sector to support economic growth. This includes reviewing business regulations and burdensome rules to help save businesses an estimated RM4.25 billion (US$1.39 billion) over five years.

 

Human Capital

MITI is also supporting efforts to develop and retain human capital. This is the task of the government’s newly established Talent Corporation (TalentCorp), says the Minister. MITI has already helped introduce enhanced Residence and Employment Pass terms for foreign experts working in the country, including extended validity for up to ten years.

“In addition to people, the focus will be on attracting quality investments and encouraging industries to shift from lower-value-added products and services to higher-value -added and knowledge-intensive products and services,” he says. Productivity growth is also a key part of the equation, says the Minister, who notes that the Malaysia Productivity Corporation (MPC) projects 4% to 7% growth in productivity for Malaysia in 2011.

“For Malaysia to achieve its aspirations of becoming a developed nation by 2020, productivity must grow at an average rate of 4.6% per year until 2020,” says the Minister. “We need to work harder to improve our performance and meet our Economic Transformation Programme targets.”

Undoubtedly, Malaysia is challenged to meet its productivity improvement targets, but possesses the will and the drive to achieve its goals.

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