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Wednesday, August 10, 2011

when you do not have a clue, blame it on the NEP by Muhammed Abdul Khalid - Business Times

By Muhammed Abdul Khalid

ONCE in a while, the debate on the New Economic Policy (NEP) resurfaces, and majority would argue that the policy is the source of all problems facing this nation. The latest came from Tan Sri Ramon Navaratnam's "Time not on our side as we stride forward to Vision 2020" (The Star, May 31), in which he argued that the NEP is one of the main reasons for the decline in foreign direct investments (FDIs) into Malaysia.

Sad to say that Tan Sri Ramon's argument is empirically incorrect as most of the foreign companies that have set up operations in Malaysia are no longer constrained by the NEP's equity shareholding requirement since the past several years.

For instance, since 1998, Malaysia has completely liberalised its manufacturing sector by allowing 100 per cent equity ownership without any conditions imposed. In fact, export-oriented companies have been allowed to be fully owned since 1986. Similarly, the services sector which accounts for nearly 60 per cent of Malaysia's gross domestic product (GDP) is partially liberalised following the liberalisation of 27 service sub-sectors in 2009, with no equity conditions imposed. High tech industries, in particular companies that are established in the Multimedia Super Corridor (MSC) are also allowed to be fully owned by foreign investors.

All these points imply two things. First, contrary to his argument, Malaysia has loosened its Bumi requirements several years ago and second, despite not having such requirements, FDI inflows remained subdued in the past several years, suggesting that other factors than the NEP could in fact be the real reasons behind such a dismal FDI performance.

Arguably, what matters most for foreign investors are not NEP related requirements but rather the political stability, policy consistency, excellent infrastructure, generous tax and non-tax incentives, prospects of commendable returns on investment as well as, cheap and educated labour force that a country can provide.

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1 comment:

kittykat46 said...

I work in the manufacturing industry in a senior position.
Let me correct some errors in fact, unfortunately published in a national business paper like the Business Times.
"For instance, since 1998, Malaysia has completely liberalised its manufacturing sector by allowing 100 per cent equity ownership without any conditions imposed."
That is untrue. Anyone who sets out trying to get a manufacturing licence for other than 100% export will know that is not true.

" In fact, export-oriented companies have been allowed to be fully owned since 1986."
Lets be clear - Only 100% Export-market companies, or selling to another local company which is 100% export oriented.
That actually reduces our target market for potential investors straight away.

Its a very, very competitive market for FDI out there. Those days when we could put up all sorts of conditions and barriers, and investors would still come and set up shop here are well and truly over.

The government is well aware of the issues, but there is a lack of political will to remove the barriers.