well-developed financial and banking sector has enhanced Malaysia's position as a ynamic export base in Asia. Sophisticated financial facilities are available through eir nationwide network of branches. There
ompanies) into the country. These MNCs, especially those which pursued active vendor A
d
domestic and foreign commercial banks and th
are also representative offices of several foreign banks that wish to establish a presence in the region. Besides the commercial banks, merchant banks, finance companies and industrial finance institutions are major sources of credit to the industrial sector in Malaysia. Exporters in Malaysia can also take advantage of the credit facilities offered by the Export-Import Bank of Malaysia Berhad (Exim Bank), while another institution, Malaysia Export Credit Insurance Berhad (MECIB), offers export insurance cover and guarantees. To complement Malaysia's financial system, the government has established an international offshore financial centre (IOFC) on the island of Labuan located off the north-west coast of Borneo. Companies in Labuan enjoy minimal taxes as well as confidentiality. To-date, more than 3,500 offshore companies have started their operations in Labuan. These include offshore banks, trust companies, and insurance and insurance related companies. The Labuan Offshore Financial Services Authority (LOFSA) is the agency which promotes and develops Labuan as an IOFC (MIDA 2005).
Over the last three decades, Malaysia has developed a large pool of ancillary and supporting industries that was initiated with the entry of MNCs (Multinational c
development programmes, have contributed greatly towards the development of local small-and-medium scale industries (SMIs) that are highly competent and competitive
with some even penetrating export markets (MIDA, 2005). Most large Malaysian companies have been involved in trade and industry for generations, and many have excelled in international and regional markets. Thus, foreign investors seeking joint- venture partners in Malaysia will be able to select from a wide range of companies to find one that matches their needs. MIDA also assists foreign investors in business match- making to start joint-venture projects or to undertake contract manufacturing.
2.9 Vision 2020
Malaysia is a nation whose growth has been carefully shaped and guided by strategic five ear development master plans. Providing the ultimate backdrop to these plans is Vision a that sets out specific goals and objectives for long term y
2020, a national agend
developments (Abdul Hamid, 1993). Vision 2020 envisages that Malaysia shall become a fully developed and industrialized country by the year 2020 in all aspects. The Malaysian government announced Vision 2020 in 1991 following several years of slow growth relative to the 1970 to 1980 period. Vision 2020 outlined a broad plan for Malaysia to achieve developed economy status by the year 2020. Specific targets in the statement included increasing real GDP eightfold between 1990 and 2020 translating to average annual growth of seven per cent and increasing per capita income by a factor of four. In broader terms, attaining economic competitiveness involved sectoral diversification, productivity gains, technology usage, low inflation and entrepreneurship. The Government expected to support these goals through providing a supportive legal and regulatory environment, prudent fiscal and monetary policy management, supportive
physical infrastructure and economic deregulation. Vision 2020’s nine main objectives were to establish:
1. a united, peaceful, integrated and harmonious Malaysian nation;
2. a secure, confident, respected and robust society committed to excellence;
nd the
novative and forward looking society;
; sperous economy.
roduction nd business, but left open the option to intervene if authorities deemed it necessary in
3. a mature, consensual and exemplary democracy;
4. a fully moral society with citizens strongly imbued with spiritual values a highest ethical standards;
5. a culturally, ethically and religiously diverse, liberal, tolerant and unified society; 6. a scientific, progressive, in
7. a caring society with a family based welfare system;
8. an economically just society with inter ethnic economic parity and 9. a fully competitive, dynamic, robust, resilient and pro
The policy also stated that the Government would reduce its role in economic p a
order to achieve their goals. In addition, the policy also envisaged a more competitive, market disciplined, outward looking, dynamic, self reliant, resilient, diversified, adaptive, technologically proficient and entrepreneurial economy with strong industrial links, productive and knowledgeable human resources, exemplary work ethics and strong emphasis on quality and excellence. Up until 1997, real GDP growth was ahead of schedule in terms of attaining an eightfold increase in real GDP by 2020. However, the Asian financial crisis saw real GDP fall dramatically in 1998. In mid 1991 after the expiry of NEP, the government announced a new National Development Policy (NDP) in
conjunction with a ten year Second Outline Perspectives Plan (OPP2) for 1991 to 2000 as well as the Sixth Malaysia Plan (6MP) for 1991-1995. Hence while the OPP2 and 6MP were supposed to provide medium term economic policy perspectives, Vision 2020 provided the long term objectives. In fact Vision 2020 reiterated some of the major policy changes introduced by the government especially as the economic liberalization undertaken since the mid 1980s encouraged the private sector with privatization and some deregulation (Gomez and Jomo 1997). The Vision 2020 framework proclaimed that there can be no fully developed Malaysia until Malaysians can overcome all challenges that have confronted Malaysians since its independence (Mahathir, 1991). Understandably, there has been some enthusiasm, especially on the part of non bumiputeras, for Vision 2020’s explicit commitment to forging a Malaysian nation (bangsa Malaysia) transcending existing ethnic identities and loyalties. But whereas the NEP sought national unity in improved inter ethnic relations, ostensibly to be realized by achieving inter ethnic economic parity, Vision 2020’s goal stresses an equally narrow, materialistic and economistic emphasis on growth (Gomez and Jomo 1997).
However, while not representing new policy changes in a real sense, it nonetheless made conomic policies already in place more explicit, coherent and legitimate. Whereas the e
earlier policy changes were often justified as temporary responses to the recession and as concessions to revive the economy, the post 1990 policy announcements were legitimized as the imperatives of rapid modernization, the promise of a good life in the future and the rapid growth and industrialization that have occurred since the late 1980s. Whether Vision 2020 adequately addresses the main contemporary challenges faced by Malaysian
society is a different question. It has certainly shifted attention away from the previous narrow emphasis on inter-ethnic distributional concerns without abandoning them altogether. It has also given priority to the challenge of late industrialization without seeming oblivious of human welfare. The unique quality of Vision 2020 is that it aims to achieve the status of a developed country that is distinctive and molded according to its own features without following others. It has its own specification and identity, whereby Malaysia should not be developed only in the economic sense but be a nation that is fully developed along all dimensions; economically, politically, socially, spiritually, psychologically and culturally (Okposin et al. 1999)
2.10 Conclusion
Investment is important to Malaysia. It is sought as a source of capital and foreign eans of securing industrial technology, managerial expertise, exchange and as a m
marketing know-how and business networks to achieve higher levels of growth, employment, productivity and export performance. Investment has contributed significantly to Malaysia’s economic development and has made possible the transformation of the country from a producer of primary commodities to a modern industrializing economy. The Malaysian Government encourages growth in higher value activities and sees the economy moving to high technology and knowledge based industries. Although targeting certain industries remains entrenched in Malaysian policymaking there are encouraging signs that the focus is shifting towards creating an enabling environment for private sector business to drive investment and economic growth. In 2003, the Government unveiled new measures to improve further the
investment climate and lure back foreign investment but a number of constraints remain, in particular a shortage of skilled labor. Malaysia’s strategy towards high technology sectors also requires stricter enforcement of intellectual property rights. Although the legal foundation exists for these rights, court enforcement of laws has been inadequate. Malaysia’s progress in structural reforms has important implications for foreign investment. A privatization review recently initiated by the Government under which sales of controlling stakes in state enterprises are being postponed while independent consultants review the procedures and plans for future sales could be a positive step if it results in a more transparent, competitive process (Asian Development Bank, 2004).
Strengthening education is an important part of the Malaysian Government’s development goals. The generally high quality and depth of Malaysia’s educational system is one of the reasons for Malaysia’s economic success. However, education is also one of the biggest challenges as Malaysia develops from a production to a knowledge- based economy. The openness of Malaysia’s economy means education is a crucial part of the enabling economic environment, providing business with the skills they need to compete successfully on the world stage. For this reason, expanding research and development, improving teachers’ skill and encouraging Malaysians to embark on further study are important goals. Perhaps the biggest challenge facing Malaysia is implementing the various policies designed to promote growth and economic restructuring. The top levels of government have advanced several ideas that, if implemented, will take Malaysia to the next level of development. Thirteen years ago, the Vision 2020 statement identified the need for small and medium enterprises to be dynamic, self reliant and
prepared to think long term. However, a plethora of incentives and grants still are available for domestic investors. Incentives can be restrictive on business activity and can focus entrepreneurial effort on rent seeking behaviour. To this extent, incentives may be counterproductive and thwart the development of a vibrant and resilient business community. Domestic private investment remains low and some fear that the Government’s statements on how the challenges ahead will be addressed are expressions of intent that might not be realized.
However, there are encouraging signs that the Government is leaning towards a more nabling environment. The Government is changing its focus to infrastructure quality not e
quantity, with no new mega projects in the pipeline. In 2004, Prime Minister Abdullah Badawi pointed out that the Malaysian Government already had many incentives and did not believe that incentives had to be monetary. Rather the environment must be conducive to doing business at a low cost. The Prime Minister also announced that Proton could not depend on government protection forever (Far Eastern Economic Review, “Wish List”, June 3, 2004, p.20). Bank Negara’s governor also has stated the public sector’s role in the economy will be scaled back and will primarily focus on providing an enabling environment to strengthen the role of the private sector in the economy (The Edge Malaysia, “Economic Rebalancing to intensify, says Zeti”, 4 August 2004). On all measures, Malaysia’s business environment is attractive despite several issues that are considered to being restrictive on business activities. It is relatively easy to establish a business in Malaysia or with a Malaysian company. The legal and regulatory environment is similar to many commonwealth countries and few industries are
completely off limits to foreigners. The average Malaysian’s quality of life also has improved in line with the stronger economic growth. The challenge now for Malaysia is to maintain this momentum. Policy makers will do well to remember Krugman’s words in his open letter to former Prime Minister Mahathir on the day capital controls were announced: “Remember, above all, that the point of this policy departure should be purely and simply to buy space for economic growth. It should not be used in an attempt to prove points about the soundness of the pre-crisis economy or anything else. If Malaysia truly does succeed in achieving a recovery that will be lesson enough for the rest of us” (Krugman, 1998).