TMI: Investment won’t return without reforms, says economist... By Yow Hong Chieh

Investment won’t return without reforms, says economist

By Yow Hong Chieh

The Malaysian Insider, October 04, 2010

KUALA LUMPUR, Oct 4 — The Najib administration needs to show the business community it has enough political will to carry out reforms under the New Economic Model (NEM) before investors will consider putting their money here again, a top regional economist said.
Citing capital outflow numbers, DSG Asia chief executive Dr Simon Ogus said foreign and local investors remain unconvinced the government has what it takes to turn Malaysia around, despite the NEM and an ample supply of “smart people” in the country who know what has to be done.

“Do you think Umno recognises that it has to change? It’s not an economic question, it’s a political question,” he told The Malaysian Insider at the Megatrends Forum 2010 organised by Khazanah Nasional here today.

“The business community’s not buying into it yet. If we see those numbers starting to turn around, then you will basically know that there’s follow-through... The numbers show that there’s massive capital outflow,” he said, adding that there has also been a net outflow of foreign direct investment (FDI) in the past three years.

Ogus also downplayed foreign direct investment (FDI), saying it was more important for Malaysia to chase long-term investment from domestic players rather than short-term capital from foreign ones to help raise growth rates.

His views echoed those of former prime minister Tun Dr Mahathir Mohamad, who recently said Malaysia should concentrate on domestic investment if it wanted to achieve Vision 2020, Malaysia’s
blueprint for achieving developed nation status by 2020.

At a CEO forum organised by the Perdana Leadership Foundation last week, Dr Mahathir had urged the Najib administration to abandon its policy of chasing FDI as Malaysia now faced too much competition from “much more attractive” regional rivals, and to instead give a leg up to local companies with the potential to be world-beaters.

“Forget foreigners. The foreigners are the cream on the top of the coffee.

“You’ve got to pursue your own domestic investors to commit to the country — that means live in the country, work in the country, invest in the country, educate their children in the country — and then you import best-of-practice techniques and people from overseas to bring up the human capital,” Ogus said.

The Hong Kong-based economist cautioned that potential growth would be limited if capital was not fully employed, and pointed out that Malaysia’s current account surplus was strong only because there was no investment in the domestic economy.

Ogus explained that increased investment, together with changes in population, was the basis for economic expansion, and said insufficient domestic investment had been responsible for pulling down Malaysia’s growth rates over the past 10 years.

Local companies have increasingly put their money overseas in recent years, while foregoing domestic investments. Malaysian companies invested a net total of US$8.2 billion (RM25.4 billion) abroad in 2009, according to the Unctad World Investment Report (WIR) 2010.

Government officials have downplayed this, arguing that capital outflow only meant Malaysian companies were now more integrated into the regional economy.

The Najib administration is depending on private sector investments to drive the 10th Malaysia Plan (10MP) and has set for it a growth target of 12.8 per cent a year, or RM115 billion annually, for the next five years.

The government has redoubled efforts to attract FDI back into the country, while trying to entice domestic companies to invest in Economic Transformation Plan (ETP) projects worth US$523 billion.