Malayasia Matters Podcast

A report by Bloomberg brings good news about the economy:

Malaysia’s exports rebounded in December, climbing the most in 17 months amid a global economic recovery that led the government to predict higher overseas sales this year.

Malaysia is dependent on a global recovery and a revival in exports to spur growth after contracting in the nine months through September. The government has said the economy may expand more than the current 2 percent-to-3 percent forecast this year and the central bank is forecast by economists to raise interest rates from a record low as early as March.

Demand from China and other regional partners led the way:

Shipments to China, Malaysia’s second-biggest market during the month, doubled in December from a year earlier, rising 99.3 percent, according to the trade report. Exports to Hong Kong surged 49.9 percent, while those to Singapore and Thailand also gained. Sales to the U.S. and Japan dropped.

“The acceleration in Chinese growth signals continued policy tightening,” Circosta said. “Any slowdown in Chinese demand would seriously harm the expansion of Malaysia’s exports.”

And trade continues to be a big part of the country’s economic growth strategy:

Malaysia aims to negotiate or conclude free trade agreements with India, Chile and Australia this year to spur export growth, Mustapa said today. The country is also targeting Turkey and Gulf nations for such pacts, he said.

Meanwhile, other forecasts offer similar analysis. Business Monitor International:

The Malaysian economy performed respectably in Q309, registering real GDP growth of -1.2% yo-y, as compared to the -3.9% decline in the preceding quarter. In view of the better-than-expectedgrowth, we now forecast a V-shaped economic recovery of 4.3% in 2010, from an estimated declineof 2.1% in 2009. Importantly, we foresee that the domestic economy will take on an increasinglyimportant role next year, compensating for weaker export growth due to sluggish global trade.

The summary of the BMI report offers this interesting take as well:

Malaysia scores 61.5 in our Business Environment Ratings, placing it at an above-average 36th(from 145 ranked markets) in the world and 8th in Asia. However, the country still lags when compared to regional standard bearers like Hong Kong and Singapore, which are ranked 2nd and 1stin the world respectively. This is largely due to Malaysia’s weaker scores in our Institutions and Market Orientation sub-index. Meanwhile, the newly launched East Coast Economic Region Special Economic Zone may provide more impetus for foreign players to invest in Malaysia.

Malaysia is obviously happy to be coming out of some very difficult times in a better position than man - and looking ahead to positive growth - but the question is whether they will then be able to take that next step into high technology and knowledge base economic growth that will in turn position them to really take advantage once the developed world fully recovers.

It is also clear that both structural and cultural reforms are needed to attract the necessary investment. And investments are needed in infrastructure and education to meet the demands this growth would create. But the question is how to get the mix right and in the right order to build the momentum that allows for such large scale change to take place. This is the difficult path Najib Razak is attempting to walk.

Surely there are growth and investment opportunities to found in Malaysia as they embark on this path but investors are certainly leery in this current environment particularly in countries like the US and Japan. In the meantime, countries like India and China are the focus. It should be interesting to see how this dynamic plays out if and when the climate improves in the US.

Put this in the “someting you don’t hear about everyday” category:

Skeleton of 8,000-year-old pre-historic human found in Malaysia

Eight thousand-year-old skeletal remains believed to be those of a pre-historic human have been discovered from the Gua Bewah Cave in the Kenyir Lake area here.

The Star Online quoted the deputy director of the Institute of the Malay World and Civilisation Prof Nik Hasan Shuhaimi Nik Abdul Rahman, as saying that the remains found at a depth of 65 to 70cm could be between 8,000 and 11,000 years old.

A white cobra was seen guarding the burial ground when the archaeologists were excavating the site in November last year. However the cobra was said to have disappeared since then.

Officials wisely avoided tangling with the cobra.

Interesting article in Forbes about the hotel business in Malaysia.  A lot of international firms are looking to expand:

What the foreign invaders see is the country’s growing travel business. Malaysia’s profile has risen considerably since the world’s tallest twins, the Petronas Towers, opened more than a decade ago. More and more, the country finds itself on itineraries, with low-fare airline Air Asia—perhaps Malaysia’s most recognized brand—making it easier and cheaper to get to and around the country. Arrivals of visitors who stayed at least one night hit 23.7 million last year, up from 7.9 million in 1999. Tourism is now the country’s second-highest revenue producer (behind manufacturing), accounting for 12.3% of the gross domestic product last year.

At the same time a more open regulatory environment for the industry—compared with other parts of the region except Singapore and Hong Kong—is attracting hotel investment from abroad. Foreigners find it easier to buy property and to move their money in and out of the country.

The article discusses why local companies are not as interested in expansion.  The economics are good for customers (low prices) but harder on business owners.  But the recipe is there for success:

Yet in many ways Malaysia is ideally suited for long-term growth in the hospitality industry that could nurture local operators. Operating costs are low, the infrastructure is solid, and the country’s always eager industrial-promotion authorities tout this as a strategic sector. Indeed, the eastern states of Sabah and Sarawak on the famed island of Borneo are becoming outdoor-travel destinations. And the country sits comfortably between the two extremes in the region, undeveloped Asia on the one hand and a seemingly Westernized version on the other, making it attractive for visitors who want a taste of the “real” Asia without the fuss.

It will be interesting to see if Malaysia develops more of a home grown hotel industry or if the country becomes more of a business destination and that changes the industry going forward.

Yes, or they are at least a threat to do so, says Neville Spykerman:

Datuk Seri Najib Razak is betting on his Government Transformation Programme (GTP) and the recovering economy to win his Barisan Nasional (BN) enough votes to win the next general elections.

But commentators and analysts say that such a strategy can work only if he is not sidetracked by race rows and other controversies.

And with yesterday’s racist comments by a senior aide severely embarrassing the prime minister and the ongoing “Allah” row not going away, it remains a “big if.”

As we have been arguing, the reforms will have the most impact when they begin to impact regular Malaysians:

Prof Dr Mohammad Agus Yusoff agreed that the GTP and economy were steps in the right direction to win over the public.

However he said transforming policies into real benefits would be key to the GTP’s success.

“The people must experience real impact,” he said.

And Najib is clearly seeking to get the country focused back on unity and tolerance:

Prime Minister Datuk Seri Najib Razak (picture) today called on Muslims in the country to respect people of other religions in accordance with the teachings of the Quran and the life of Prophet Muhammad.

He said Islamic teachings accorded great importance to good relationship among people, whether it was among Muslims or between Muslims and non-Muslims, and cited the example of Prophet Muhammad who had always respected people of other religions.

“The Quran contains text which specifically prohibits the spurning or sabotage of other religions, including their houses of worship.

“If we (Muslims) torch the places of worship of other religions, for example, those people (of other religions) will also do that to Muslim houses of worship,” he said when opening the Asy-Syuja’ah Mosque in Merlimau Utara in Jasin here.

Najib said that when individuals practised Islam in its fullness by respecting people of other religions, the people of other religions will also respect them.

Only time will tell whether these controversies continue to roil Malaysia and distract from the larger goals Najib has outlined or whether they will begin to fade and the PM can gain ground using these reforms and the economic growth that will result.

Another report echoing the challenge ahead for Malaysia:

Ratings agency Standard & Poor’s said today a number of Asian countries face fiscal challenges this year and their ratings may come under pressure unless measures were taken to rectify them.

The credit rating agency identified Japan, India, Sri Lanka, Taiwan and to some extent, Vietnam and Malaysia among the leading candidates with fiscal problems as they had relatively higher government debt to GDP ratios.

“Their ratings may come under pressure unless policymakers overcome structural fiscal issues and take tough measures in consolidating finances in the medium term while not stifling economic growth,” S&P said in a note.

That is a concise summation of what Najib Razak is seeking to do: “overcome structural fiscal issues and take tough measures in consolidating finances ... while not stifling economic growth.”  But obviously it is much easier said than done.

There continue to be positive news as well, however, and ivestment and growth is happening:

Dell bullish on small business segment this year

Dell Asia Pacific Sdn Bhd is bullish on the small and medium business (SMB) segment in Malaysia this year as overall information technology (IT) demand is improving.

Its general manager (small and medium business) for South Asia, Khoo Teng Guan, said that Dell was optimistic of growth in the SMB segment, driven by its commitment to provide simplified, reliable and affordable IT solutions.

Speaking at a media briefing here today, Khoo said Dell’s SMB segment was growing at a faster rate than the public and consumer sectors, adding that the company now has 2,500 medium-sized business customers in Malaysia.

“Dell’s SMB segment in Malaysia has grown from 12 per cent to 15 per cent over the past year,” he said, adding that it was important to cater to the SMB segment as it was the backbone of the nation’s economy.

Hitachi aims for 10% sales growth in Malaysia

Hitachi Asia (Malaysia) Sdn Bhd, a wholly-owned subsidiary of Japan’s Hitachi Ltd, expects to register a ten per cent sales growth for its fiscal year ending March 2011.

Managing Director, Seiji Yoshimura said the company is confident of achieving this target, due mainly to the large deals expected to be secured in the Malaysian power and petroleum sectors.

According to a report in the Star:

Malaysia’s economy is expected to experience gradual recovery this year, supported by commodities such as petroleum, gas and palm oil, and driven by Government spending on the economic corridors, according to Kenanga Investment Bank Bhd.

Its chief executive officer Lee Kok Khee said the country likely registered growth of close to 2% in the final quarter of 2009, which showed the domestic economy had begun to recover.

Malaysia seems well situated to making the next jump economically:

Meanwhile, Cheong Kee Cheok, an adjunct professor at Universiti Malaya, said he agreed with World Bank reports that Malaysia’s economy had reached a crossroads.

“It is at a crossroads because it has reached a middle-income level which is high enough to make a jump to the high-income level,” he said. “Malaysia has basically lost the low-cost labour advantages which have gone to countries like China, Vietnam, Indonesia.”

To overcome that, Cheong said Malaysia needed to add value to its products.

“We need technology to increase the value-add but the question is whether we can make the technological jump to high value-added output,” he said

The Star also reports on one such example of high tech endeavor:

One foreign and four local companies involved in the technology and electronics sector are investing a total of RM1.375bil to expand their operations in the northern region this year.

Among the multinationals, First Solar Inc, a US solar panel (known also as photovoltaic panels) manufacturing company based in Kulim Hi-Tech Park (KHTP), is investing RM1.24bil to add eight production lines for its RM2bil facility and hiring over 1,000 workers to support that expansion.

Local companies on an expansion drive include chip manufacturer Globetronics Technology Bhd, hard-disk drive (HDD) component manufacturer Eng Teknologi Holdings Bhd, electronics manufacturing services provider P.I.E. Industrial Bhd and Ire-Tex Corp Bhd, a packaging material specialist serving the solar power, automotive, and aerospace industries.

There are a lot of “moving parts” in the development of economic growth and Malaysia is trying to address as many as possible. More foreign investment is needed but so is greater skill development for local workers to meet the demands that these investments, and the resultant growth, demands. Investors are looking for political and economic reforms to make investing more attractive and stable. And at the same time Malaysians are looking for the increased freedom and dynamism that follows in the wake of these reforms.

Prime Minister Najib Razak is seeking to move forward on multiple fronts with plans that have benchmarks and clear goals. But his first goal was simply to ride out the storm of the global economic crisis. If that bump ride is truly behind him then the real test has just begun.

There is a lot to chew on in this article from the the Star: How foreign investors view Malaysia

ONE can’t help but shake off the notion that Malaysia, once a sweet spot for foreign direct investment (FDI), is gradually falling off the radar. Having said that, it ought to be noted that as far as FDI flows go, the country had actually fared quite well in the first decade of the 21st century.

It is the trend in recent years that appears to be triggering this concern. There has been persistent net outflows in FDI over the past years due to capital flight, which some say was reinforced by the sense of malaise arising from the country’s political as well as social sphere. Since 2006, there has been a net outflow that has likely persisted till 2009 which has halved FDI inflows, largely owing to the global economic recession.

But the main reason could be that increasingly, more domestic companies are investing abroad in ever larger amounts. In other words, capital outflows have been domestically driven.

The bottom line probably depends on whether you are a glass half-full or half-empty type person:

“It’s not all bad,” says World Bank senior economist Philip Schellekens. “Investors – domestic and foreign – pursue the highest return adjusted for risk. If returns are higher elsewhere, domestic investors can pursue opportunities abroad and repatriate the financial benefits, and their activities together with those of foreign investors in third countries can help stimulate trade with Malaysia,” he says.

Without being overly pessimistic, it is clear that much work remains to be done if Malaysia is to build on its progress and not slip backward.  Reforms are needed and restructuring will be required.  It does seem that the recently announced the Government Transformation Programme (GTP) is a strong step in the right direction and that, if successful, it would address many of the important issues but other structures also will need to be re-evaluated:

Although not part of an economic model, elements of the GTP addresses the concerns not only of the Malaysian public but also of foreign investors. These include street crime and corruption, education and civil infrastructure as well as public transportation and Internet connectivity.

Templeton Asset Management Ltd executive chairman Dr Mark Mobius, in an email reply, says it is also important for the Government to institute a tax regime favourable to foreign investors.

“You must look at competing countries in the region and globally to arrive at an attractive tax structure,” he says. Currently, resident and non-resident companies in Malaysia pay a 25% tax rate.

For example, Singapore and Indonesia have slashed their corporate tax rates to 17% from 18% and 25% from 28% respectively. Mobius says the other major issues that may impede growth in FDI are education and political risk. He says there must be an expansion of education in technical skills in order for the economy to move up the value chain.

American Malaysian Chamber of Commerce president Datuk Nicholas Zefferys says attracting FDI is a “multidimensional issue”.

As such, he says, the branding of Malaysia is critical to creating a positive awareness. “Some 10 years ago, I had asked a group of visiting international journalists what country they would compare Malaysia to before they came over. They said Iran or Iraq,” he says, adding that there is a general concern of extremism in the country.

[...]

He cites several areas that are important to attract investors – rule of law, infrastructure, reliable energy sources, reform of labour laws and market liberalisation

.

This is the challenge that PM Najib Razak is facing and the issues he is seeking to address. His leadership and his party’s success is likely strongly tied to how much progress is made. Not only is economic growth and foreign investment important to the reputation and prestige of Malaysia, and its leaders, but it is tied to quality of life issues that directly impact Malaysians and their future.

Reform not only makes investment more attractive to foreign investors but makes life better for citizens. Obviously there will be tensions and trade offs but I think there is a growing realization that the status-quo is untenable. Malaysia has the opportunity to be a regional - and even a global leader - but the competition is fierce and so important changes will have to be made. Changes of this nature are never easy but with risk comes reward.

Controversy and conflict often rule the headlines - and issues of race, religion and politics are important - but these larger structural and economic issues will in many ways trace the course of the future. It is hard to see how the ruling party can continue to hold power without bringing reform and tying that to economic growth and development that benefits the country as a whole.

World Business: Malaysian Prime Minister Najib Razak took office in April 2009 in the depths of the biggest global recession since the Second World War. Unfazed by the scale of the problems he faced, he embarked upon a series of liberalizing economic reforms with the ambitious aim of emerging from the global crisis with solid economic growth and an eye on transforming Malaysia into a developed economy by 2020. Eckart Sager sat down with the Malaysian leader in Kuala Lumpur to find out more about his plans for the future of the country.

Najib Razak has launched a ‘bold and unprecedented’ approach to reform the government of Malaysia:

IN the face of plunging private investments and stagnant economic growth, Prime Minister Najib Razak is banking on a new ‘target specific’ delivery approach to win over Malaysians and investors.

Called the Government Transformation Programme (GTP) Roadmap, the ‘bold and unprecedented’ approach to reform the government acknowledges that financial and human capital are increasingly mobile and crucial in pursuing growth. Hence, new strategies are necessary to attract and retain capital which has been moving out.

In launching the GTP yesterday, Mr Najib said the approach would ‘first and foremost focus on the priorities that matter most to the rakyat (people)’.

If targets set for the six key priority areas - crime, corruption, education, rural basic infrastructure, public transport, and low- income households - are achieved, it would help reduce rich-poor, urban-rural disparities.

This is the kind of move Razak and his ruling party know is neccesary both for their success and the good of the country but it won’t be easy:

The GTP made it clear that ‘we face a dilemma. There is an urgent need to reduce spending and yet deliver big economic and social outcomes fast’.

[...]

Mr Najib conceded transforming the government would not be easy and there would be setbacks along the way, including missed targets, resistance from some to change, and new challenges not foreseen. But he promised that the government would persevere, as ‘only progress that the people can see, feel and touch will matter’.

All of this honest and transparency means it is impossible to hide the nature of the challenge:

FOR once, Kuala Lumpur told it like it was and the reality that the Government Transformation Programme (GTP) Roadmap, launched yesterday by Prime Minister Najib Razak, laid out was sobering.

[...]

The no-punches-pulled roadmap illustrates the monumental challenges facing Mr Najib as he tries to steer Malaysia out of the so-called middle-income trap - where a country is not competitive enough for low-wage industry and yet lacks the skills needed to haul it up the next rung of the value chain.

The roadmap document outlines the problems facing the country and is a prelude to Mr Najib’s new economic model, a plan outlining the way forward for Malaysia to be released next month. The key will be execution, and here Mr Najib might have to use the big stick.

As is typical with discussion on Malaysia, there is good an bad involved:

Since Independence in 1957, Malaysia has performed extraordinarily well in a great many socio-economic indicators. Indeed, it is on par with the developed countries in things like infant mortality and adult literacy rates. Poverty has also been clawed back.

But new problems have emerged, which the roadmap document concedes: rising crime rates and an overdependence on cheap imported labour. Also, corruption has grown alarmingly. The report sets targets for its reduction, which again highlights the need for execution.

Obviously the proof will be in the execution but this is the sort of plan and vision that is needed if Malaysia is to become the regional leader and international power it seeks to become.  If investments are to be made then political and economic reforms have to be made. And if the country is to take advantage of those investments then the structure and effectiveness of government will have to be reformed and improved. This is more than just GDP.

By putting out targets and benchmarks Razak leaves himself open to criticism when they are not reached. But the status quo was untenable and with these sort of risks come greater rewards as well - and not just politically. The Prime Minister has a vision for where he wants the country to go and a path for getting there. Malaysians can now judge his leadership both on the vision he has laid out but also on the progress made as he seeks to achieve the goals.

Of course, a big question will be whether the ruling coalition will go along with such change and how patient the public will be in seeing these changes instituted. But in charting this course, Najib has clearly broken away from a status quo risk-averse strategy. Now it will be up to him to lead the government in these changes and for the people of Malaysia to respond to the challenge ahead.

I thought this was an interesting quote from the Wall Street Journal article on the passing of the Sultan of Johor:

Sultan Iskandar was the embodiment of the contradictions that make up modern-day Malaysia. He had a common touch rare among members of Malaysia’s nine royal houses, and he was loved by many of his subjects in the southern state, just across the narrow straits from Singapore. He often walked freely in the streets, paying for everyday goods in corner shops with cash from his own wallet, and delivering impromptu sermons at local mosques on Friday afternoons. Yet he also was the driving force behind a new, multibillion-dollar free-trade zone in the area, which carries his name.