The Bard said,"To Thine Own Self, Be True". We in Malaysia have a lot of re-learning to do.So, let us re-introspect.
How much money can you really get from raising funds through sukuk and bonds? Remember you have to pay interest every three months to bond and sukuk holders. Floating sovereign bonds overseas? Expect limited success as the whole world is still reeling from the 2007-2008 sub-prime meltdown. Anyway, with the local current political problems flamed by religious fervour and institutional failures, you would not get a good sovereign rating and you may have to pay higher rates for the funds you can raise.Stock market is going 'crabway'. Khazanah can continue to sell,when does the sell-off stop?
Petronas dividends have shrunk with the gravitational price fall.Local taxes? Not easy to broaden the tax base. How much subsidies can you take off? The people are screaming their hearts out at the increased price of rice, bread,sugar and meat as well. The Amanah Saham 1 Malaysia was a dismal failure. As usual, concept fumbling as well as poor dividend expectation has rung the near-death knell for the fund. Expect smart money to evaporate out of this unit trust scheme when the 5% sukuk fund is launched anytime this year.
So what does a PM do in these situation? Call up top business tycoons for national service.So, on the quiet,Prime Minister Najib called Malaysia's top business tycoons for a little 'heart to heart' pep talk. That was in December 2009.
The message was simple. Jump-start domestic investment and help the government generate economic activity, said financial executives familiar with the meeting.
Najib is concerned because not only were foreign direct investment flows slowing, but key businessmen were also moving out of the economy.
Sadly, only months before the meeting, Asia’s richest businessman and Malaysia’s top corporate figure Robert Kuok sold off his long-established interests in the sugar importing and refining business. Save for his Shangri-La hotels nationwide, Kuok has little visible business interests left in Malaysia.
Meanwhile, casino operator Genting, engineering and property group YTL, and the telecommunications and multimedia holdings controlled by tycoon Ananda Krishnan have been restructuring their respective corporations in recent months.
They want to channel financial resources generated locally to finance overseas expansion plans. so, some more capital flight is in the offing.
Can Najib’s cajoling and nudging persuade these corporate 'profit inclined' chieftains to search inward for business opportunities work?
Certainly the current religious concerns are not helping in any way. As there is no end in sight towards the amiable resolution on this issue in the short term, expect the corporate giants to play a 'wait and see' game. So, the pep talk may not provoke any of these corporate leaders to jump into active mode anytime soon, Mr.PM.
As for foreign investors, the current political and religious problems bears the hallmarks of a self-created problem which will trouble them no end for their current investment in the country, much less talk of upping the ante. Manu Bhaskaran of Centennial Asia Advisors in Singapore opines that “They would have noticed that the majority ethnic group in Malaysia appears insecure and how and why this insecurity has been bred.”
Malaysia stands at a crossroads in its economic development.
The country’s export-led economic model is sputtering because of weak global demand, while higher labour costs are forcing companies to consider other investment locations like Vietnam. Meanwhile, state-led infrastructure development that has kept the construction sector humming has dried up.
The boom in commodities is fading and exposing the government’s overdependence on its revenue from petroleum to fund the country’s bloated civil service and development programmes.
Najib has declared that he will unveil an economic blueprint next month that will detail the government’s plans to create a new economic model, which can help chart Malaysia’s transformation to a high-income economy. Everyone is expectant to see what is this new Houdini model of economics.
But private economists said he faces several challenges and chief among them will be tackling structural gaps such as the shortage of skilled labour, the weakest education system yet and a state-dominated economy that leaves little room for private sector competition on a level ground.
Furthermore, the government’s reluctance to dismantle barriers that fuel a vast political patronage system has bred inefficiencies. These include the extension of the awards of APs for imported cars and awarding of contracts on a negotiated basis rather than competitive bidding.
“The (new economic) model needs to be holistic and should go beyond economics and trade. Malaysia needs more openness,” says the ever vocal and down-to-earth Dr Mohamed Ariff, head of the Malaysian Institute of Economic Research (Mier).
Official figures show that approved investment for the first nine months of last year totalled RM19.1 billion, of which RM12.2 billion was foreign direct investment.
That is a far cry from the RM62.8 billion of approved investments in the previous year, with just over RM46 billion in the form of foreign capital.
Mier estimates that the economy contracted by up to 3.3 per cent last year. The independent think-tank believes the economy will grow by as much as 3.7 per cent this year.
But private economists said the rebound will be clouded by several factors, such as a swelling fiscal deficit and abnormal capital outflow. According to government officials, close to RM117 billion flowed out in 2008 and a further RM54 billion in the first half of last year.
Najib’s immediate challenge is to recreate an environment that will encourage investment. As a percentage of the nation’s gross domestic product (GDP), private investment currently hovers at around 11 per cent, from about 36 per cent during the mid-1990s.
Private economists like Bhaskaran of Centennial believe that Malaysia needs to get private investment up to be around 20 per cent of GDP quickly. To meet that target, Najib will need to implement a “thoroughgoing reform to reverse the degradation of institutions” such as the civil service, judiciary, police and the country’s universities, said Bhaskaran.
I think the task for PM Najib is herculean. He may not even get past resolving the current religious issue splitting the major ethnic groups as well as West and East Malaysia!
At stake is both the potential loss of BN's hold of the Federal government in the next election as well as a struggling economy much in want of both local and foreign investments.
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