KUALA LUMPUR, April 23 - Changes to the Malaysian economic landscape will come fast and furious. Next week, the Najib administration will consider lifting the ceiling for foreign ownership of banks, allowing international investors to own more than 30 per cent of a financial institution.
Following that, a working team of Council of Economic Advisors will be formed. Comprising a streamlined group of global experts with interest in emerging economies, the council will meet at least once a month and will work closely with Bank Negara and the Economic Planning Unit to transform the economy and reduce Malaysia’s dependence on natural resources.
The Malaysian Insider understands that the administration may also tap sovereign wealth funds and strategic partners in Abu Dhabi and China to modernise the country’s agriculture sector, enter into long-term supply agreements with countries and boost its food security programme amongst others.
Also, instead of focusing on greenfield developments and trying to make a mark in areas where Malaysia does not have a competitive advantage, the Najib administration has stated that it will be practical and effective in zooming in on moving up the value chain natural resource sectors, such as agriculture and oil and gas.
It comes as no surprise that Prime Minister Datuk Seri Najib Razak is moving with haste to relax the country’s long-standing affirmative-action policies and intensify the pace for the development of a long-term sustainable economic model.
Without foreign investors and global talent, the economy is going to be in a slump for between two to three years, something which the new prime minister cannot afford given the more fractured political scenario and restlessness of the electorate.
In addition, it has been evident for some time that with oil resources dwindling and the country losing out to cheaper manufacturing competitors like China and Vietnam, Malaysia’s reliance on cheap labour and current expertise in developing natural resources to drive growth is no longer feasible.
While the headlines everyday in Malaysia is about politics and by-elections, Najib’s aides and officials have been urging him to keep his focus on the economy.
Their argument is anchored on this principle - the state of the economy will decide how receptive Malaysians are to his 1 Malaysia vision and ultimately, how they vote at the next general elections.
They note that while there was general unhappiness among voters on Tun Abdullah Ahmad Badawi’s inability to keep his election promises, it was the higher price of fuel and rising cost of living which turned many against the Barisan Nasional (BN).
Conversely, Tun Dr Mahathir Mohamad was able to stanch the tide of anger against the administration after the Asian Financial Crisis and sacking of Datuk Seri Anwar Ibrahim by launching mega projects to flow money into the pocket of Malaysians.
A senior government official told The Malaysian Insider: “Najib is staking his administration on the economy. He knows that he has a short window to work with and get it back to recovery. It will not matter if BN win the next few by-elections but the drift of the economy continues.”
With the budget deficit creeping up and less funds available for development projects than in previous administrations, Najib will have to open up the country more and make more efficient use of available resources.
He cannot afford grandiose projects, but must focus on practical and cost-effective solutions.
Government officials familiar with discussions on policy initiatives believe that the team in Putrajaya would continue to execute some projects and initiatives from previous administrations. The ground work laid would contribute as the catalyst in developing a sustainable economic model for Malaysia.
These include Abdullah and Mahathir initiatives in the agriculture and ICT sectors.
But what was lacking during Abdullah’s time was the infrastructure and execution in the Northern Corridor and Sarawak to support the plan to turn both areas into food producing hubs.
The consensus among foreign banks and analysts is that the economy will contract 3.5 per cent this year, leaving the country’s leaders scrambling for ways to give it a short-term boost and aim for a sustained recovery when the global economic climate improves.
Government officials say that the economy will contract by 1 per cent and are confident that recovery will be evident by the fourth quarter.
Government officials also said that based on stress tests and other analyses, the Malaysian economy seems to have hit a plateau.
Even when there is a full recovery of the global economy, it is unlikely that annual growth in Malaysia will go beyond 5.5 per cent.
Given this backdrop, it is not surprising that Najib yesterday said that foreigners investing in parts of the services sector would no longer be required to take Malay partners, who under existing regulations must own 30 per cent of any joint venture.
The newly opened sectors include health, tourism, and business and technology services, but have yet to include areas in which there is heavy state involvement or which are politically sensitive, such as air travel, utilities and retail which The Malaysian Insider understands will be liberalised in due course.
Liberalisation of this sector will provide the impetus to enhance its contribution to economic growth,” Najib said yesterday.
“It will boost investment and make the services sector more competitive.”
The prime minister said he wants to boost the contribution of services to 60 per cent of gross domestic product from the current 55 per cent.
The policy change indicates how the main plank of Malaysia’s system is coming under pressure as the country struggles to cope with the global economic crisis.
It is still uncertain how far Najib can move in further dismantling the affirmative action framework given the tense relations between the races and opposition from political parties.