A Strategic Proactive Economic Policy In Challenging Times - Malaysian Perspective

By Tan Thai Soon

Introduction

The implementation of New Economic Policy (NEP) in Malaysia in the 1970s and 1980s have brought many success stories and it has been a policy to be emulated by many developing countries . The policy have to certain extent help to re-distribute the low and middle income group.

However, with the rapid development of globalised economy. These self-restrictive policy have posed much constraint on our economic growth, hinded Malaysian effort to become a develop country and slow down our income per capital. The situation is even more critical in 2000s, with the emergent of new markets, likes China as a manufacturing power house, India as a ICT hub, and Vietnam as a new international investment destination. It is now more competitive, harder and more difficult in drawing FDI into Malaysia.

Malaysia needs a new "Strategic Proactive" Economic Policy (Datuk Nazir Tun Razak, 4 February 2009) and a "new route to economic sustainability".

Malaysian Prime Minister Datuk Seri Najib Razak has announced some major changes to the NEP as follows.

Foreign Investment Committee (FIC) Guidelines

1. FIC guidelines covering the acquisition of equity stakes, mergers and takeovers is repealed.

Comment
FIC guidelines have long been regarded as hinded effort to attract foreign investors. In this current globalise economic environment, a self-restrictive policies will reduce our competitiveness.Malaysian need a strategic proactive policies to move forward; to actively involve in strategic mergers and acquisition; to form a strategic partnership; and to joint a strategic business alliance.

The abolishment of FIC guideline will help to attact foreign investors to Malaysia. The foreign direct investment in Malaysia will bring in monetary resources, manufacturing skills, information technology, ICT outsourcing industry, bio-technology, human resource and better education systems.

2. FIC requirement, for companies going for IPO, for bumiputra equity requirement (30%) is removed.

Comment
FIC requirement of bumiputra (30%) in public companies did not help bumiputra to become more entrepreneur, rather they prefer to cash out for quick gains or become speculators in share trading. Some select to increase their shares financing during good time, however during financial crisis, they got into financial dificulty.

The mere ownership of sharehoding does not made a holders to be an entrepreneur, but the actual business skills do.

3. As for acquisition of properties, FIC will only process transactions involving dilution of bumiputra interests (i.e. by sale of property by bumiputra to non-bumiputra) and government interest in property. However, FIC approval is only required for properties above RM20 million whether bought directly or indirectly. All other transactions will no longer require the approval of FIC.

4. The treshold for purchase of properties by foreigners is increased in general to RM500,000. Above the treshold, foreigners will no longer need to refer to FIC for the purchase of properties.

Conclusion

Malaysian Prime Minister Datuk Seri Najib Razak has make a difficult policy decision. As he has puts it " policies not in line with international practice will constrain growth" (The Star, 1 July 2009). He emphasized further that Malaysian need to " escape from the middle-income trap" (New Straits Times, 1 July 2009).