Malaysia will unveil this week a “new economic model” aimed at luring foreign investors who analysts say have been alienated by corruption, political brawling and uncompetitive policies.
Malaysian Prime Minister Najib Razak, who will announce the reforms tomorrow, must strike a balance between the demands of investors and those of voters who handed the coalition its worst ever results in 2008 elections.
Economists said the plan, aimed at attracting much-needed foreign funds to boost economic growth and create employment, would include the privatization of government assets and the rolling back of an affirmative action program.
The policy, introduced in the 1970s to close the wealth gap between the minority Chinese community and majority Muslim Malays and indigenous groups, known as bumiputras, is criticized as outdated and uncompetitive.
Foreign investment plummeted last year as a result of the global financial crisis, while its economy contracted by 1.7 percent as the crucial exports sector dried up.
Malaysia, Southeast Asia’s third-largest economy, recorded 32.6 billion ringgit (US$9.9 billion) worth of investments last year, down from RM62 billion in 2008.
Economists said that as the region emerges from recession, competition for investment has become fierce.
Manokaran Mottain, a senior economist with AmResearch, said Malaysia urgently needs to transform itself into a high-value economy and not remain stuck as a middle-income nation. Najib is likely to introduce strategies to promote a quality workforce, to develop more competitive markets, and introduce incentives to encourage private investment in Malaysia, he told reporters.
Yeah Kim Leng, group chief economist with RAM Holdings, said Malaysia only had to look south to Singapore to see how billion-dollar investments are won thanks to efficient government and a big pool of talented labor.
“In Malaysia, corruption, lack of skilled human resources, the affirmative policy and red tape are among the impediments to woo investors,” he said.
Yeah said Malaysia’s image abroad has been hammered by recent incidents, including the first caning of three Muslim women for having sex out of wedlock as well as conflict within the ruling coalition and an unprecedented challenge from the opposition.
“It has created a negative perception among international investors who are concerned about the future political stability of the country,” he said.
Najib’s new model, however, has excited Yeah who said the prime minister is “pressing hard on the accelerator of a locomotive.”
Yeah said he expected state-linked firms to divest their holdings in the utility, banking and services sector to boost liquidity in the stock market.
Najib will also identify ways to cut red tape and boost poorly rated public sector services, he said.
Yeah said he also expected the new model to include a rethink of the affirmative action plan introduced by Najib’s father Abdul Razak, the country’s second prime minister, after deadly race riots.
“We will not see a 100 percent roll back in the affirmative action plan but we will see some market-based policies to woo investments,” he said.
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