Thirdly, on international competitiveness.

The Royal Address quoted the World Competitiveness Yearbook 2006 where Malaysia’s position has improved from 28th place in 2005 to 23rd place in 2006.

Since last month, the government has tried to generate a “feel good” atmosphere among the people with the message that good economic times are back.

Parliament was told that since 3rd January 2007, the Bursa Malaysia Composite Index has been recording an encouraging performance and exceeded 1,200 points, a level which has not been reached since the Asian currency crisis in July 1997. There was the record 2006 trade volume breaching RM1 trillion. We are told that in 2006, “total investments in the country remained strong, reaching its highest level in the history of our nation”.

On February 13, International Trade and Industry Minister, Datuk Seri Rafidah Aziz announced that Malaysia is back on the global investment map, with a record RM46 billion investments in 1,077 approved manufacturing projects last year by local and foreign investors — a 48 per cent jump from the RM31 billion invested in 2005. This was made up of RM20.2 billion of foreign investments and RM25.8 billion in local investments.

Is the government right that Malaysia is “out of the woods”, dispelling the gloomy news in the past few months that Malaysia is in danger of dropping out from the radar of foreign investors because of increasing lack of international competitiveness, whether in efficiency of public service, quality of education, good governance, transparency and integrity?

The United Nations Conference Trade and Development (Unctad) World Investment Report 2006 last October revealed unflattering figures about Malaysia for the year 2005, viz:

• Foreign direct investment (FDI) in Malaysia dipped to US$3.97 billion in 2005 from US$4.62 billion in 2004;
• For the first time since 1990, Indonesia managed to overtake Malaysia in drawing FDIs. Inflows to Indonesia surged by 177% to US$5.26 billion in 2005. Indonesia registered a 177 per cent hike in FDI from US$1.89 billion in 2004 to US$5.26 billion in 2005, while Malaysia suffered a 14.3 per cent shrinkage of FDI.
• As a whole, FDIs to South, East and South-East Asia reached a new high of US$165 billion in 2005, a 19% increase over 2004, with China (US$72 billion), Hong Kong (US$36 billion) and Singapore (US$20 billion) as the biggest receipients of FDIs in 2005.

Rafidah’s FDI figures to justify her claim that Malaysia is back on the FDI radar do not tally with the latest Unctad figures released in its “Number 1, 2007 Unctad Investment Brief” which has given an even lower estimate for FDI for Malaysia for 2006 as compared to 2005.

In its preliminary estimates of FDI inflows in 2006, Unctad figures for Malaysia sees a shrinkage of 1.6 per cent to US$3.9 billion from US$4.0 the previous year, while FDIs for the whole region of “South, East and South-east Asia” registers an increase of 13.1 per cent from US$165.1 billion in 2005 to US$186.7 billion, with Thailand recording a 114.7 per cent increase from US$3.7 billion in 2005 to US$7.9 billion and Singapore a 58% increase from US$20.1 billion in 2005 to US$31.9 billion.

Parliament is entitled to an explanation for the RM6.4 billion difference in MITI’s FDI figure of RM20.2 billion (or US$5.7 billion) for 2006 and UNCTAD’s preliminary estimates of US$3.9 billion (RM13.8 billion) for the same year.

This difference would increase to RM9.85 billion if we take into consideration two qualifications to the MITI figures released by Rafidah:

Firstly, the figures are for approved FDI figures for the year which are very different from actual FDI inflows for the year. For instance, for 2005, approved FDIs in manufacturing was RM17.9 billion (US$4.71), but actual FDI inflow into the country was US$3.97 (RM15.1 billion) — a shortfall of RM2.8 billion.

Secondly, the FDIs in manufacturing represents only 75% of total FDIs, which will bring the difference between FDIs for manufacturing as approved and actual inflows for 2005 to RM6.6 billion.

On the same basis that some 75 per cent of FDI inflows in 2006 was for manufacturing, then the difference between MITI and Unctad figures for FDI inflows for manufacturing would increase further to RM 9.85 billion — which is no small figure.
A full and proper explanation for these different set of FDI figures should be given to the people in keeping with the government’s pledge of accountability, transparency and good governance.

Bloombert has reported that former deputy prime minister Tun Musa Hitam has proposed that the government should exempt the Iskandar Development Region (IDR) in South Johor from policies that favour the bumiputras to help attract foreign investors to the huge growth area.

Musa, who sits in an advisory panel for the project, said policies that gave the bumiputras privileged access to government contracts and guarantee a minimum presence in the workplace may deter foreign companies interested in investing in the IDR.
Musa said contract awards “will have to be on merit” – “The Malays will have to face competition.”

I fully endorse Musa’s call. In fact, it should be extended to the whole of Malaysia and not just to IDR, as it is not just IDR that must maintain the best-possible posture in international competitiveness to attract FDIs, the same considerations apply for the whole country as well.

During the debate on the Mid-Term of the Fifth Malaysia Plan in Parliament on 28th June 1989, I had specifically called for the end of the New Economic Policy and its policy of quotas and ethnic percentages in 1990 and the adoption of the principle of social equity and merit in the interest of national unity and international competitiveness.

[Speech (14) on Royal Address debate in Parliament 22.3.07]