Sick man of Southeast Asia?

Malaysia’s attractiveness as a business hub in question as entrepreneurs chide the lack of political leadership

A demon wayang kulit puppet by an unknown artist from Java, Indonesia. Credit: Indigo Arts Gallery

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Over the past week I was chatting with a few business owners, both local and foreign, and the one thing they all had in common is a sense of exasperation with the government’s uncoordinated efforts in reining in the Covid-19 crisis while failing to keep lives and livelihoods afloat.

This in turn has led them to consider leaving the country to look elsewhere for opportunities. Two major problems they flagged were political instability and the lack of governance under Muhyiddin Yassin, who became prime minister through a coup in February.

A few local entrepreneurs told me they had a difficult time deciphering the power struggles in Putrajaya, leading to either deals being hijacked or improperly planned.

A thirtysomething said despite bidding for a project and scoring well on both technical and financial valuations, his company was set aside while another with stronger political ties won a renewable energy job. But said firm could not execute the contract, leading to the entire project being re-tendered.

Other bumiputera entrepreneurs allege that procurement for large-scale projects had been “such a mess”, saying so-called brokers, comprising senior civil servants, were trying to squeeze kickbacks or “commission fees” in return for contracts.

Some added that even financial and technical valuations for projects “are whacked as not even being a bumiputera company, where you are conferred extra points against your non-bumiputera peers, mattered these days.”

A sighted valuation document for a large-scale project had a string of companies but it was the firm which registered among the lowest scores for technical and financial categories that bagged the project, edging out even qualified government-linked corporations and their subsidiaries.

Political ties are also coming to the fore, according to people familiar with the matter. One said that some businesses working on government contracts but deemed to have links with Umno had been complaining that a number of process were “purposely slowed down” in a move to “make them look bad”, leading to speculation that contracts would not be renewed this year.

Blurred lines

On the foreign business front, an American entrepreneur, who claimed to have been around since “the Rafidah days” (referring to Rafidah Aziz who was international trade and industry minister from 1987 to 2008) told me his social circle had since shrunk with many returning home over the past year due to political instability amid the pandemic.

“The typical problem that some of us usually have is with the Immigration Department. Dealing with them is a hassle, especially over documents.

“But that’s the ‘devil’ we know. Now, the situation is made worse. It’s increasingly frustrating dealing with the International Trade and Industry Ministry (Miti), especially Mida, which was one of the better agencies, or at least used to be one of the better ones, in the country.” He is looking to Vietnam, as are others.

A French businesswoman said while Malaysia had decent infrastructure and a multilingual workforce, especially with a decent command of the English language, she is considering the Vietnam move, too.

“In each country there is always a line you do not cross. In places like Vietnam, what makes doing business easier is that you know that line or if you are a clueless foreigner, you can connect with local experts and they’ll be able to tell you exactly what the limits are.

“Here, especially with this current government, it’s impossible to find that line. And this is made worse especially when the country, just like its peers elsewhere, is dealing with the pandemic. Political instability is a huge issue in Malaysia.”

Two Hong Kong-based venture capitalists decided to exit Malaysia in December last year citing deal flows being dried up due to a lack of proper policymaking by the government since the day Covid-19 “went full swing in the country.”

No panacea

Foreign direct investments (FDIs) have been all the rage the past few weeks, stemming from a January 24 report by the United Nations Conference on Trade and Development that said:

FDI in Southeast Asia contracted by 31% to $107 billion due to a decline in investment to the largest recipients in the subregion: inflows in Singapore fell by 37% to US$58 billion, Indonesia by 24% to US$18 billion, Vietnam by 10% to US$14 billion and Malaysia by 68% to US$2.5 billion.

Malaysia’s dismal performance becomes more apparent when benchmarked against the rest in developing Asia where the average decline was 4%.

As the report gained traction among local and foreign press, the Malaysian Investment Development Authority (Mida) immediately issued a press statement to stamp out the negative press, lauding approved investments of RM109.8 billion for the first nine months of last year with FDIs accounting for RM42.6 billion, a 25% drop than in 2019.

But approved investment figures, despite being a common metric used by most countries, were no panacea as realising investments could take a long time, from anywhere between two to 15 years, and “many things can happen along the way,” said a ministry source.

Mida went on to cite a few approved FDIs including UK’s Schmidt and Nephew that produces high-tech medical devices including knee and hip implants and US-based wafer fabrication equipment and services provider LAM Research’s expansion to Penang.

But some players in the foreign business community remain unimpressed hence the brickbats received by Finance Minister Tengku Zafrul Abdul Aziz after he bragged on LinkedIn about the exact same Mida numbers.

The most vocal being European Union-Malaysia Chamber of Commerce and Industry (Eurocham) chief executive Sven Schneider who said then that the trade body received “a lot of concerns” about the country as a viable investment destination.

“Until today, the honourable minister was not even able to meet with us and listen to the concerns of our corporations. Without these inputs, your ministry certainly cannot address the problems on the ground. Besides, it really needs more than a few nice words and window dressing.”

A few big names have already decided to pack up and relocate most or parts of its businesses to Indonesia, such as South Korean automaker Hyundai and Japanese electronics giant Panasonic.

Hyundai decided to move its Asia-Pacific headquarters out of Malaysia after it reached a decision in 2019 to invest in an RM6.4 billion factory in Indonesia while Panasonic has shut its solar panel plants in the country.

Other tech giants are exploring opportunities in Indonesia and Vietnam as well. Electric vehicle maker Tesla is in talks with the Indonesian government to build electric vehicles and a SpaceX launchpad while Apple’s manufacturing partner Foxconn has moved some of its iPad and MacBook assembly lines to Vietnam as part of its “parallel supply chain” strategy.

Following the UN report, Bangi MP Ong Kian Ming invoked the phrase “sick man of Asia” which was widely used in reference to the Philippines when it was under the dictatorship of Ferdinand Marcos between the 1970s and 1980s. The country is now the best performer in Southeast Asia as of last year.

The opposition politician said in a Feb 1 statement that the UN report published actual FDI inflows to respective countries unlike the figures announced by Tengku Zafrul, “which are only approved investments and not realised investments”.

He added that such reports built a “larger narrative” that Malaysia has become a laggard in the FDI race in Southeast Asia due to “not being able to manage the Covid-19 crisis, plagued by political instability, having an incompetent cabinet and flip-flopping on government policies in ways which damage the business environment.”

Descend into opacity

The two usual problems, insiders said, that frustrated FDI efforts were civil service competency and bureaucratic red tape, twin factors also apparent “during then Pakatan Harapan government”.

This time, one added, “it is different as the entire Miti is like a rudderless ship with some questioning the leadership of the minister (Mohamed Azmin Ali) and his team and whether they are competent to steer the country during a pandemic.”

But political stability and economic growth go hand in hand, Fitch Ratings said in a January 27 country report. “Political volatility weakens prospects for improvements in governance and may have a dampening effect on private investment growth, which has declined since mid-2018 relative to previous years.”

Earlier the ratings agency cited political uncertainty as among the key drivers used to downgrade Malaysia’s sovereign ratings last December.

What will Muhyiddin’s next move be? I reckon it’s very clear by now that so-called good governance buzzwords eg transparency, accountability and integrity are put on the back burner.

Just take the Malaysian Anti-Corruption Commission’s asset declaration portal as an example. Checks show that some categories such as net worth and annual income have been removed, further obscuring a minister’s participation in the economy.

The last time Muhyiddin broached the topic on compelling his ministers to declare their assets was in July last year, where in a parliamentary reply, he told Kuantan MP Fuziah Salleh that the government was working to refine the declaration process and to decide on “a new way” to present such disclosures.

What exactly that is remains to be seen.

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