By MATTHEW SALTMARSH
The New York Times
August 16, 2011
LONDON — With Europe’s economy mired in a debt crisis, governments in the region have been looking east for a helping hand, tapping the likes of China and Japan to buy their bonds and step up investments.
But at least one Asian country — Malaysia — still sees value in turning the opposite way, to enhance opportunities for its more assertive multinationals as well as bolstering investments from the West.
The Malaysian prime minister, Najib Razak, led a large official delegation last month to Britain via Turkmenistan, to capitalize on his country’s strong economy and investment inflows and assuage concerns about political agitation in the multicultural Southeast Asian country.
In past years, “it was just ‘please come to Malaysia,’ ” the trade minister, Mustapa Mohamed, said during an interview on the trip. “Now we are going to foreign countries to help provide access to Malaysian companies.”
Part of the sales pitch is selling the economic recovery story. The economy grew by 7.2 percent last year after shrinking 1.7 percent in 2009, and the government anticipates expansion of about 5 percent this year and next. The Malaysian inflation rate has been creeping up, though it remains moderate by global standards, at an annual rate of 3.5 percent in June.
But officials were also eager to ease potential concerns about the Malaysian political challenges.
“I think many investors have been to Malaysia, they understand the complications in Malaysia — multiracial, multireligious,” Mr. Mohamed said. “We need to have laws in place to ensure that things don’t get out of hand.”
The Coalition for Clean and Fair Elections, or Bersih, an amalgam of nongovernmental and activist groups, has pushed for changes in electoral law from the coalition government led by the United Malays National Organization, which has dominated politics since independence from Britain in 1957.
Bersih was declared illegal July 1, after which hundreds of activists were rounded up. Most of them were quickly released, but some were held longer. On July 9, thousands of protesters defied a government ban and held a large street protest, during which the police fired tear gas and water cannons and arrested about 1,700.
“We have to engage,” Mr. Mohamed said, “we have to continue changing, reform.”
Underneath the political tension is an economy that has proved increasingly attractive to overseas capital.
Nonequity foreign direct investment inflows in 2010 were $9.1 billion, according to the United Nations Conference on Trade and Development, up from $1.4 billion a year earlier. The government is confident that it can retain that momentum.
“It’s not having an impact on investor confidence,” Mr. Mohamed said of the recent disturbances.
Ian Bryson, an analyst in Singapore at Control Risks, a consulting firm, said that there was less political risk in Malaysia than most of its regional peers and that the country benefited from relatively low corruption and a fairly dependable judiciary.
“I don’t think the current political agitation is pivotal or that the country is at a tipping point,” he said. “Malaysians are not interested in a full-scale upheaval.”
“The opposition is factious but vociferous,” he said, adding that splinter, conservative groups from the United Malays group still had the potential to destabilize the governing coalition in the next election, which is expected to be called in 2013.
On the economic front, Mr. Bryson cited concerns about limits on equity ownership in certain sectors — favoring ethnic Malays known as Bumiputera — and the employment of foreigners. He also noted broader skills shortages and restrictive local hiring and firing rules. “It’s generally very open to business, but with some cultural and sociopolitical limitations,” he said.
A report from the World Bank’s private sector arm, the International Finance Corporation, ranked Malaysia 21st out of 183 economies globally for the ease of doing business. The country scored lower for starting businesses and enforcing contracts.
Among Malaysian companies seeking global opportunities is the energy group Petronas, which announced last month that it had drawn its first natural gas from a field in Turkmenistan, where it has invested $5 billion. Others include the automaker Proton, which controls Lotus, a maker of sports cars; and the utilities conglomerate YTL, which owns Wessex Water in Britain.
At home, the government has used its $25 billion sovereign wealth fund, Khazanah Nasional, to take strategic stakes in businesses, including the energy group Tenaga Nasional, Malaysia Airlines System and Bank Lippo. More recently, the fund has been making tentative forays into Singapore and Indonesia. It opened its first overseas office in Beijing in 2008.
Speaking in London, Mr. Najib, the prime minister, sought to address potential concerns like those highlighted by Mr. Bryson. The government, he said, is “committed toward divesting government holdings,” citing the sale of post office assets, two Petronas subsidies and a sugar business. “There will be quite a few more holdings that we will divest,” he added.
He said there had been a “policy of gradual liberalization” of Bumiputera quotas, and “in the forthcoming budget we are expected to make further announcements.”
European companies that have invested in the country include BP and Royal Dutch Shell in energy, HSBC and Standard Chartered in banking, the vacuum cleaner maker Dyson and the retailer Tesco.
Tesco has invested more than $1.5 billion in Malaysia and employs about 14,000 people in the country. In a report in April, marking 10 years in the country, the chief executive of Tesco Malaysia, Tjeerd Jegen, said that he was “as bullish as ever on the prospects of the Malaysian retail sector.”
He cited “continued economic growth and prosperity, buoyed by sound economic reforms, robust consumer confidence and political stability.”
Perhaps mindful of recent unrest in the Middle East and rising inflation in Asian economies like India and China, Malaysia has been quick to express its desire to stay on a steady course.
Mr. Najib said there was a “huge commitment by the government to keep prices as low as possible,” and there would be only a “gradual” easing of subsidies on food and fuel.
Appointed in 2009, Mr. Najib has initiated several economic plans to draw investment and address the lack of skilled workers in Malaysia, focusing on bolstering productivity and research, easing red tape for investors and improving inclusiveness.
The government is also seeking to fill its labor shortage by biometrically registering all workers and offering permits of a maximum 10 years for illegal workers.
“We’ll legalize them as workers, not as citizens; that would be a disaster,” Mr. Najib said. “If all those things are executed, God willing, we will be a fully developed nation. It will give us 6 percent growth that we need for the next 10 years.”
According to the government, one million Malaysians live abroad, a sizable proportion of the country’s population of 28.7 million. Some estimates peg the number of Malaysian nationals based overseas much higher. Singapore has been the biggest beneficiary of the outflow, attracting more than half of those who have emigrated.
Mr. Najib also said rising wages in China could present an opportunity for Malaysia.
“More and more people are beginning to realize they need a ‘China plus one’ policy,” he said, “They don’t want to put all their eggs in one basket.”
As a result, he said, “we’re seeing companies seriously looking at Malaysia.”