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Policies Need Tightening To Attract Huge Funds
Malaysia Perspective | 11 October 2010

By Yang Ming Wan

The Performance Management And Delivery Unit (PEMANDU) of the Prime Minister’s Department has identified 131 flagship projects worth a total of US$444 billion (RM1.38 trillion) to help realise the 12 National Key Economic Areas (NKEA) of the Economic Transformation Programme (ETP).

What is most significant about this astronomical amount of funds needed for these NKEAs is that 92% will be sourced from the private sector, while the Government is responsible for only 8% or US$ 34 billion (about RM105.5 billion).

To be honest, the Government will eventually be directly or indirectly providing a total of 40% of the funds or US$178 billion (about RM552.3 billion), because government-linked companies will shoulder the other 32% or US$144 billion (about RM446.8 billion).

Monumental Challenge To Raise Phenomenal Amount Of Foreign Funds
The fact that government-linked companies are subsidiaries of government agencies that serve our country and are helmed by senior government officials do not pose any issues in this case. Rather, the key concern lies in the US$266 billion (RM825.4 billion) which will be borne by non-government linked private companies, of which domestic direct investments will account for 73% or US$194.18 billion (RM602.5 billion), while foreign direct investments will account for the remaining 27% or about US$71.82 billion (RM222.9 billion).

Looking at the FDI flowing into Malaysia in recent years, it will be a monumental challenge to attract over the RM 200 billion of offshore funds in order to realise the ETP.

Our international balance of payments accounts data released by the Statistics Bureau showed that in 2008, Malaysia received RM24.1 billion of FDI. If we can maintain this level every year, we can achieve this goal within 10 years. However, if our situation becomes as tragic as last year, when the whole year’s FDI was only RM5.04 billion, we will need more than 44 years to reach the target.

As the total inflow of FDI over the first half of this year just narrowly missed hitting RM11 billion, the government may have used this figure as a basis to predict that the FDI for the whole year is estimated to hit RM22 billion. At this rate, we will take exactly 10 years to reach the RM220 billion target. This is, of course, an optimistic estimation, and since it is based on the latest data, one can hardly pick fault with this logic.

Ambiguous Policies Giving Foreign Funds The Jitters
Our Government has never been able to get its targets set realistically in its 5-yearly Malaysia Plans thus far, so it will be more difficult now to set realistic targets for a 10-year plan. Most of the domestic media have been quoting the views of various economists, and they all agree that the success of the 10-year plan hinges on the capability of the Government to implement it.

It is perhaps still too early to talk about implementation at this stage, because both domestic and foreign investors are still waiting to see the policies the Government will introduce under its restructuring plan. So far, be it the new ETP of the New Economic Model, investors in general are still grappling with their actual differences, apart from technical information such as the target of a high-income nation and the 12 NKEAs.

Most importantly, Prime Minister Najib had already stated that the 30% bumiputera shareholding target will stay; only the means to achieve this objective has changed.

This kind of vague policy statement will not inspire confidence in investors; capriciousness and ambiguity are taboo to investment. The hard-lined stance of the bumiputera rights group and senior government officials’ display of reverence and ambivalence towards these extremist groups would definitely unnerve direct investors, particularly those from abroad.

Imperative To Banish Negative News
This ambivalence towards ethnic extremist groups is undoubtedly going to have a negative impact on our economy and business environment. With the international economy and market constantly in a flux, no one will care who the ruling party is; if it is going to affect national policy, that already spells bad news to its economy.

The financial reports released in succession recently all paint a Malaysia that is regressing in its rankings. I mentioned in this column last week that the World Economic Forum (WEF) 2010-2011 annual Global Competitiveness Report showed Malaysia retreating from its previous 24th ranking to 26th this time round. Now into its 5th year of ranking the world’s most business-friendly environments, international financial magazine Forbes recently ranked Malaysia in the 31st place, as compared to last year’s 25th ranking. Investment agency BoA-Merrill Lynch’s latest report also gave Malaysia the dubious honour of Asia-Pacific’s least attractive market.

Goldman Sachs’ global economy, goods and strategy research report was not optimistic about the Malaysian economy, which it tipped to grow only 5% next year. The think-tank at The Economist (EIU) predicted that Malaysia will grow by only 4.2% in 2011, falling wide of the Government’s 6% annual growth target.

Faced with this slew of bad press, the government must act decisively to tighten up its policies and make a clean break from ethnic economy before we can successfully attract the trillions of ringgit we need to our shores.

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