What new initiatives is IDEAS involved in?
SAIFUL: The Institute for Democracy and Economic Affairs or in short, IDEAS, is a classic liberal think tank. We are an ideological think tank, and we try to promote certain ideals in society. At the moment our biggest project is on education. We see education as one of the most important things Malaysia needs today. We are exploring the issues of choice and, especially, parental choice to access high quality education especially among the poorer section of society in the country. This is the biggest project we have now. We are also exploring into issues such as anti-corruption efforts and whether the current efforts are effective or not. No one has actually done a review of anti-corruption efforts in Malaysia. There are plenty of initiatives being done, and we are trying to list them all together to try to evaluate the effectiveness. We are also venturing into things like food security and healthcare, but the biggest ones at the moment are education and anti-corruption efforts.
What are the best opportunities for FDI in Malaysia today?
SAIFUL: At the moment the government is doing a lot of things to attract foreign investment. The focus is in fact in stimulating more FDI to come into the country. There are talks about liberalizing the economy, and in fact, the vision of the overall effort is to liberalize the economy further as we head towards the year 2020. When, by the first of January 2020, we are hoping that the Prime Minister at that time will stand up and say we are a higher income and developed nation. If you look at things on paper, there are many efforts and things that the government is saying they are doing, but I think there are challenges, especially in terms of implementation. There might be a slight difference between what is said to be the vision of the country and what the government wants to do with the actual implementation, especially around liberalization. One of the biggest areas at the moment, and one that the government is focusing on as well, is education. Malaysia is trying to be the regional, if not global, hub for education, especially around private education. There is a lot of investment opportunity there. They are opening many private schools and many private universities all across the country, especially in the Kuala Lumpur area and Klang Valley area, as well in the southern part of Malaysia in the Iskandar region. The government is inviting a lot of foreign private operators of education institutions to come in, and I think this is the biggest opportunity here. The second area I would say is healthcare. Malaysia is also trying to become a hub for medical tourism. At the moment Penang, which is a northern island state in Malaysia, is a major hub for medical tourism. Penang is taking in about 50% of the business for medical tourism for the whole country at the moment. The government is very keen to make the Klang Valley another center as well. There are two areas, education and healthcare, which are very wide areas. But if one is an investor, and is looking to come into Malaysia, these are the two areas where real opportunities exist.
What are the specialized economic corridors within Malaysia?
SAIFUL: Malaysia has five specialized economic corridors. The policy and the idea, as introduced by the previous Prime Minister, is where different parts of Malaysia have different corridors aiming at becoming specialists in different types of industries. For example, you have the Northern Economic Corridor aiming to become a specialist in agricultural activities. While the Southern part in the Iskandar region, becoming a specialist around trading and education. Borneo, for example, is looking to become the specialist center for sustainable and renewable energy. The policy of introducing the economic corridors was mooted by the previous Prime Minister, but I think, at the moment, the only region that can claim any level of success is the Iskandar region. The rest are more or less forgotten, unfortunately. Not many people are taking about the existence of the Northern economic region. Not many people even know there is something called the East Coast Economic Region. There are differences between what is put on paper by the previous Prime Minister and what is being implemented now. The focus, by far, is on the Iskandar region which has been very successful in attracting investors.
What are Malaysia’s most important National Key Economic Areas (NKEAs) at present?
SAIFUL: The NKEA (National Key Economic Area) is part of the Economic Transformation Programme. We have another area called NKRA (National Key Results Area) which is part of the Government Transformation Programme. I think the most important one at the moment, and also the one that is giving the most opportunity, is on education. The government is keen to attract investors in education, especially to set up new private institutions. By this I mean, they are not just inviting and saying Malaysia is open for business. The government is actively going out to solicit investors to invite them and to facilitate them coming into the country, and you see some big names. Organizations or companies such as Marlborough College is opening up very soon, Epsom College is also opening up very soon. These are the top end or the higher end of the private school market. In fact, there are some that are already established, such as Nottingham University, Monash University, and Curtin University in Sarawak. These are the more established ones that already exist now. At the moment, in terms of investment, education is a big NKEA. However, for the country itself, I think agriculture is quite important. We are talking about raising the income level of the bottom 40%, who are considered the poorer section in society and the vast majority of this percentage lives in rural areas. Similar to other countries, people in rural areas are usually involved in agriculture. This is one of the NKEA’s that has been identified by the government. They are focusing on turning agriculture into agribusiness. It will require a big leap in practice with how we deal with agriculture. It will require the introduction of new technologies, such as bio-tech. It will require the government to have strong political will to introduce that because there is resistance to new technologies being introduced into agriculture. In terms of investment, I think education is important. For the country to develop further and to help the bottom 40% the population, we are trying to turn agriculture into agribusiness.
What needs to be done to improve the specific areas where Malaysia ranks low on the World Bank’s Ease of Doing Business Report?
SAIFUL: The challenges that you talk about, the areas that we rank lower, are dealt with by different agencies and the government. This is one of our biggest challenge and one where we know what needs to be done. The level of commitment, especially at the implementation level, is not that high. Unfortunately, if you really want to streamline the processes, many of the agencies will have to be abolished. It would be easier to have one agency that deals with all the issues for registering a business and getting facilities set up for them. Now, unfortunately, you must deal with many different agencies. For example, if you are talking about applying for a permit to do something, such as start an education establishment, you need to apply for permits from the fire department, health department, and the local authority. You will also need to get your licenses from the Ministry of Education, and register your company with the registrar of companies. So it is many different agencies that you must deal with. Unless you are a big investor with all the resources and money to pay for the services you need, you will find it a real challenge. I think the issue here is the government needs to be clear about what we need to do to streamline processes, and, unfortunately, people will have to be let go in order to have one centralized agency. The thinking for this is clearly there. There is a government agency called PEMUDAH (Special Task Force to Facilitate Business) that is set up to help streamline all these processes. What you find is you send a request to them, and they will help you deal with all the other agencies. However, then you are still left to the mercy of these other agencies. They (PEMUDAH) provides a centralized contact person, but not necessarily a centralized point where decisions can be made. It is a step towards the right direction, but it is only a first step. We need a more streamlined process for setting up a business.
What is the current process of implementing initiatives included in the Economic Transformation Programme?
SAIFUL: Many, if not all, of the major initiatives being done in the country now are driven by the Prime Minister’s Office or the Prime Minister’s Department. The major agencies such as PEMANDU (Performance Management and Delivery Unit) and PEMUDAH and other major agencies pushing forward the transformation program on behalf of the government are based within the Prime Minister’s office. The major initiatives are not centralized within Putrajaya, our administrative capital, but they are centralized in the Prime Minister’s office which sits within Putrajaya. This is where main decisions are made. I think this is not a healthy situation. Things should be decentralized, so that we can make the processes more streamlined and easier to deal with. There are debates around this. Some people, like us at IDEAS, say we should decentralize. There are other people, who are currently winning the argument, who say if you really want to push big changes fast it needs to be centrally driven by the person with the authority to drive that change. I think that is the logic they are using in government now where everything rests on the Prime Minister’s shoulder. He will decide and he will instruct the others.
They are focusing on turning agriculture into agribusiness. It will require a big leap in practice with how we deal with agriculture. It will require the introduction of new technologies, such as bio-tech. It will require the government to have strong political will to introduce that because there is resistance to new technologies being introduced into agriculture. In terms of investment, I think education is important. For the country to develop further and to help the bottom 40% the population, we are trying to turn agriculture into agribusiness.
What compliance requirements should foreign investors be aware of before entering the Malaysian market?
SAIFUL: Investors must be aware that at the moment Malaysia doesn’t have a GST (Goods and Services Tax) but we are talking about introducing GST. This will impact prices at the consumer level. Malaysia is also thinking about lower taxation. Generally, when you talk about compliance, there is an issue about complying with the actual rules, but our rules are not that straight forward. There are ways to make rules flexible as long as there is a need for services in country. On the one hand, you need to be aware about the requirements you need to comply with. Even if you feel these are hurdles that challenge your investment decision, there are ways to resolve that. The government is looking towards encouraging investors to come in and encouraging domestic private sector growth, and I think there are always way to negotiate around these hurdles. There is also an issue for how the government is saying they want to liberalize the economy. Their vision is to have a private sector driven economy. This means liberalizing the economy further and government taking a step back. The Prime Minister announced that the era of the government knows best has ended with him taking over as Prime Minister. Now, as an independent think tank promoting free market ideals, of course we are happy when that kind of announcement is made. Then, as reality sets in, we realize that what the leaders at the highest level are saying is not necessarily translated at the implementation level. While two years ago it was announced that the government will take a step back in the economy and allow the private sector to grow, the government is still playing a huge role in the Malaysian economy. They say that government led companies or the state owned enterprises will take a step back, but they have set up two or three more government and state owned enterprises. These are new interventions in the economy while talking about liberalizing. In the education sector, there is a bigger drive to make sure the government continues to monopolize the government schools or the school sector, so there is a big difference between what is envisioned and what is implemented. This is something that we have to be aware of.
What is your general economic outlook for Malaysia? What indicators are showing the most positive trends and which are showing the most negative?
SAIFUL: I’m going to take economic indicators in its widest sense. When we talk about driving the economy forward one of the issues people keep complaining about is corruption. If you want to do business in Malaysia it is not necessarily about what you know or what you can offer, but it is more about who you know and what you can offer to that person that you know. The government is very serious about this, and society, as a whole, is achieving greater awareness on how corruption is damaging to the country. It is not just about the government doing something that is right, but it is also about society gradually moving towards an attitude where you have to prove your business ideal makes business sense. This is a good indicator of the growth of the economy. On a more challenging side is the issue of the government continuing to be involved and interfering in the economy. Issues such as subsidies and controlling the prices of certain items are still major challenges in our economy. The government has said that they want to reduce subsidies and remove price controls on as many items as possible. Unfortunately, that has not been translated into real policy on the ground. What has been happening is the government tried to reduce subsidies but then they realize there must be a general election within the next year. Therefore, the program of subsidy reduction has been more or less stopped at the moment. They say temporarily, but I think it is political reality setting in. The government continues to play a big role in the economy, and I think that is the biggest hurdle. The government really needs to take a step back. They need to have a proper and strong commitment and real political will to take a step back and say that is not their role. It is not the role of government to run businesses. They talk about liberalizing the economy by privatizing certain government owned companies, and typically, you incubate companies so they can compete in the open market. However, the government-linked companies (GLCs) that the government has announced to be privatized are the companies that you have never heard of. If you are simply spinning off the companies that are not making money then you are not really liberalizing. They are just letting go of assets they feel are not making enough money. If we really want to liberalize then Petronas and Khazanah should be privatized. These are bigger companies who are making real profit. We do not have a private pension industry. The EPF (Employee Provident Fund) is one of the biggest government-linked investment companies. There are six GLICs (Government Linked Investment Companies) that hold the other GLCs (Government Linked Companies). This is how complicated the level of government intervention is. EPF is one of the bigger GLICs, and they are not allowing the private pension industry to grow. The private pension industry should be able to grow. People should not be forced to pay a government owned pension provider, but this is just one example. I am trying to give an example for how the biggest hurdle in growing the economy is the reluctance at a government level, or a lack of political will, to say this is not our job; it is the role of the private sector and we should let go of things that are not part of our responsibilities.