SINGAPORE, April 28 (UPI) -- With the country's strong economic fundamentals and the government's apparent determination to fight corruption and improve the business environment further, foreign investors are slowly warming to Malaysia.
However, more remains to be done to raise the level of much needed private sector involvement.
Private sector investment in the last 10 years has fallen as a share of overall investment, especially since 1998, while public sector investment has significantly increased and overtaken private investment in value.
According to Zainal Azman Yusof, senior economist at the National Economic Action Council, private investment contracted by 10 percent per annum in 2003, but is expected to pick up by 11.8 percent per year in 2004-2005, while public investment through fiscal stimuli rose 9.6 percent per annum in 2001-2003 but is expected to contract 4.2 percent per annum in 2004-2005.
"Even if we're starting from a low base in 2003, to get this type of rebound, they better get their act together," Zainal told a seminar on investment opportunities in Malaysia.
Munir Majid, chairman of the KL Business Club and chairman of mobile phone operator Celcom, told reporters at the conference that the new administration realizes that the government spending and debt level are high and wants the private sector to lead growth.
"I think the government doing away with mega-projects signaled its commitment to greater financial discipline," he noted. "That said, the private sector is now waiting for more follow through on Abdullah's commitment to fight corruption," he added.
Since he took over from Prime Minister Mahathir Mohamad in October, Abdullah Badawi has announced the cancellation or postponement of several large projects that had been approved by the previous government like the controversial $3.8 billion North-South project, which involved building an electrified double-track rail line stretching the whole length of peninsular Malaysia.
Abdullah's administration also won a resounding parliamentary election victory in March having strongly campaigned on fight against corruption.
Though observers believe the government could be facing a backlash within its own rank from its fight against corruption, as some members of UMNO would prefer the issue to be swept under the carpet, the signal for investors is a very positive one.
But anti-graft and corruption policies are not the only moves the private sector is demanding. "I believe the government also needs to look closely at the civil service and reform it," said Munir. "The pay levels are very low and need to go up. This is essential not only in term of cleaning up the civil service, but although to attract the right people to the jobs," he added.
Economists and businessmen alike are optimistic about the near-term prospects of the country. The new administration is benefiting from a strong economic picture. While GDP growth was 5.3 percent last year with the economy demonstrating great resilience in the face of uncertainties (like SARS, terrorism and the war in Iraq), real GDP growth is expected at 6-6.5 percent this year.
There is a potential for strong cyclical investment growth on the back of external demand, noted Nizam Idris, deputy head of research at IDEAglobal.
"I think there is a shift in investors' sentiment mainly because Abdullah is seen as more diplomatic. Mahathir was very abrasive and people were concerned about some of his statements against the West," said Azim Mohd Zabidi, Chairman of Bank Simpanan Nasional.
But Azim noted that Abdullah's economic policies were similar to the previous administration, though there seemed to be a shift toward supporting agriculture more as the third engine of growth in the economy.
"This sector was sidelined for more than 20 years. I think people misinterpret Abdullah's interest in this sector as merely to reduce Malaysia's food import bill ($1.8 billion), but I believe he is also trying to achieve a more balanced development," Azim said. Azim is also a former member of the supreme council of Abdullah's party, the United National Malays Organization.
Through agriculture, the new government is hoping to raise the level of farmer income and observers expect the new budget in September to give a big boost to this sector.
That said, it does not mean that manufacturing will be ignored. But Malaysia is no longer a low cost production center and need to renew its positing on the global value chain, economists said.
