Malaysia's transformation

Malaysia’s economic transformation: One year on

Invest Malaysia came to Hong Kong yesterday to give a one-year report on its plan to join the rich world by 2020.

Idris Jala, Malaysia’s moderniser-in-chief, was in Hong Kong yesterday to give investors an update on the country’s economic transformation programme, which carries the lofty goal of turning Malaysia into a high-income nation by the end of the decade.

According to the plan, Malaysia will need to add 3.3 million people to its workforce, grow its economy by 6% a year and attract $444 billion of investment (hence the trip to Hong Kong) during the coming decade to reach its targeted gross national income (GNI) of $523 billion by 2020 — or $15,000 per capita, up from $6,700 today.

“The plan is to make us all rich for a very long time,” said Jala, during a lunchtime speech.

It is a goal that many developing countries have strived for, but few have achieved. The rather sad truth for globalists is that the rich world today comprises almost exactly the same countries as it did after the industrial revolution. Countries like Malaysia have few good examples to follow on their path to prosperity.

Hong Kong and Singapore have made the jump, but their routes to success shed little light on the challenges facing a large country. Similarly, Japan was late to industrialise compared to western Europe, but not late enough to be much of a model for modern middle-income countries. Taiwan and South Korea, meanwhile, have been on the verge of joining the top table for the past 20 years but have struggled to modernise their economies. Middle-income status can be hard to shake.

That is why Malaysian prime minister Najib Razak has made national transformation a priority, appointing Jala in January last year as the chief executive of the newly created performance management and delivery unit (or Pemandu, which means “driver” in Malay).

Jala came to the job after a career in the private sector with Shell and a stint as chief executive of state-owned Malaysia Airlines, which he helped return to profitability after heavy losses. At Pemandu, he has brought in an army of international consultants, auditors and communications specialists.

He was in Hong Kong yesterday as part of Invest Malaysia, accompanied by senior executives from Bursa Malaysia and OSK Securities, to pitch the country as an investment opportunity to fund managers from Hong Kong and China. The main message was a simple one: Malaysia is making a wholesale drive to modernise, under the guidance of a professional management team that speaks your language.

After the first year of the transformation programme, Malaysia remains on target to hit its key economic goals — the full-year figures forecast that the economy will have created 11% of the jobs it needs to add by 2020, attracted 12% of the investment and moved 13% of the way to its GNI target.

It is making progress on structural reforms too. A new competition law will come into force in January 2012 and a further 17 industries will be opened to foreign competitors, including professional services such as law and accounting, as well as some healthcare sectors and telecommunications services.

The government is also divesting its assets with a plan to limit its role in business. Felda Global, the commercial arm of government-owned Federal Land Development Authority (Felda), raised $269 million from the IPO of sugar refiner MSM in June and is planning its own IPO for the first half of 2012. In all, the government has 24 divestments in the pipeline for this year and next.

The message is getting through to some people, it seems. This year’s World Economic Forum Global Competitiveness Report identifies broad improvements in Malaysia’s institutions, macroeconomic environment, education and training, and the development of its financial markets.

A big part of the challenge will be to keep the investment coming in. Jala conceded during his presentation that the country may not reach its goal for 2011. One of the problems the country faces is that investors have tended to find it a boring, defensive market, according to Chris Eng, head of research at OSK Securities. “Defensiveness is cold comfort in a bear market, when the value of most asset classes tends to shrink,” he said.

Building stronger ties within Asean, particularly between the various exchanges, is one avenue that is being explored as a way to stimulate further investment, but that is a slow process and Malaysia is in a hurry.

The path it has chosen is a good one, but it remains to be seen if investors will be convinced.

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