Malaysia Losses From Racial Law Exposed

By Chong Pooi Koon | Oct 20, 2011

Lim Guan Eng turned Malaysia’s second-smallest state into the nation’s biggest economic success after he bumped into two National Instruments Corp. (NATI) executives at the local airport in 2008.

Elected in March that year as Penang’s first chief minister from an opposition party in 36 years, Lim was struggling with the prospect of federal funding cuts. He convinced the managers to set up a research and production center in the state, and within two years the former British trading post was Malaysia’s top destination for foreign manufacturing investment.

“The deal was struck very quickly,” said Eugene Cheong, a director at the local unit of the Austin, Texas-based maker of industrial testing and automation equipment.

Lim’s speed in closing deals with companies from National Instruments to Robert Bosch GmbH is helping Penang achieve what every Malaysian prime minister sought since Mahathir Mohamad started his Multimedia Super Corridor technology zone in the 1990s near Kuala Lumpur: a transition from low-cost assembly to a research and development base for industries such as solar cells and life sciences.

With a general election due by early 2013, Penang’s progress highlights the challenges facing the rest of Malaysia and the National Front government as China, Indonesia and Vietnam offer investors bigger workforces while Singapore lures talent with lower taxes and easier immigration. Lim, 50, the country’s only ethnic-Chinese state leader, embodies the contrast between Penang’s business transparency and the four- decade old policies of the ruling party that favor Malays, which the World Bank says undermine competitiveness.

‘Been Sleeping’

“We’ve been sleeping,” said Ooi Kee Beng, Penang-born author of “Era of Transition: Malaysia after Mahathir” and a senior fellow at the Institute of Southeast Asian Studies in Singapore. “Penang now has a chance to show that if you have good governance, and if you put fairness and justice as your main qualities, free of race considerations, that is actually the way to go for Malaysia.”

In the first seven months of 2011, Penang won 3.6 billion ringgit ($1.2 billion) of approved foreign manufacturing investment, ahead of the 3.4 billion ringgit that went to Selangor, the state that surrounds the capital Kuala Lumpur, a government report showed last month.

It’s not the first time the state has set the pace for technology investment in Malaysia. Penang, a base for the spread of British influence in the 18th century, was the center of a manufacturing push in Malaysia’s shift from rubber and tin production in the 1970s, attracting companies including Intel Corp. (INTC) and Robert Bosch to assemble chips and build car radios.

Political Alternative

Penang’s economic resurgence may bolster the opposition alliance’s claim it can be an alternative to the National Front, which has run the country since independence from British rule in 1957. A national election may be called with 60 days’ notice at the discretion of Prime Minister Najib Razak.

“A lot of this has to do with the dynamism of the chief minister,” said Ong Kian Ming, a political analyst at UCSI University in Kuala Lumpur and columnist for the Edge newspaper.

Lim has managed to keep Penang attractive for international companies even as Najib focuses federal support on regions such as Johor and Sarawak, where his ruling coalition has among its biggest parliamentary-seat majorities.

Under Najib’s Economic Transformation Program, his government is promoting about 65.8 billion ringgit of private- sector-led projects for southern Johor state, compared with at least 375 million ringgit for Penang, according to data compiled by Bloomberg. The comparison excludes projects covering multiple states or those without a clear single location, which amounted to 34.3 billion ringgit nationwide.

Federal Support

“Investment decisions are made on the basis of need not politics,” said Tengku Sariffuddin Tengku Ahmad, a spokesman for the prime minister. “Over the last year we have invested more than 1 billion ringgit of federal funding in Penang and will continue to support their economic progress in whatever way we can,” he said in an e-mail.

Malaysia’s efforts to woo investments in recent years may have been hampered by its policy of giving preferential treatment to ethnic Malays and some indigenous groups, collectively known as Bumiputera, in government jobs, contracts, education and cheaper housing, said Ooi.

When the economy was booming along with its neighbors before the 1997-98 Asian financial crisis, the effects of the policy were less apparent, he said. When growth slowed, the race-based program became a greater damper, according to Ooi. While the nation outperformed rivals in the early and mid 1990s, it has struggled to maintain that edge since the regional crisis.

Malay Contracts

Under federal rules, government construction contracts valued below 200,000 ringgit must be given to indigenous or Malay contractors. In addition, a main goal of the affirmative action programs was to raise the Bumiputera share of corporate stock ownership to at least 30 percent.

Najib said Sept. 27 that the programs, introduced in the early 1970s to reduce poverty and narrow income disparities between different ethnic groups, are becoming more merit-based.

In an interview in his 28th floor office, where the walls are lined with paintings and sketches of Penang, some from the 19th century, Lim said the relationship between state and central government wouldn’t hold Penang back.

“We may have political differences but we are cordial and professional,” he said as he sipped ginseng tea made by his wife. “If Penang fails, Malaysia fails.”

Ambiguous Practices

To prevent corruption, Penang requires open bidding on contracts of more than 200,000 ringgit and has awarded about 125 million ringgit of jobs through competitive tenders, according to Lim. Transparency International said in a 2009 report that Penang, an island and coastal enclave linked by a 13.5-kilometer (8.4-mile) bridge, was Malaysia’s first state to implement open tenders for government contracts.

While Lim said his government awards contracts based on merit within the national guidelines, the federal government states that it has no obligation to accept the lowest offer or to give any reason for rejecting a bid. Under Malaysian federal rules, agencies are only required to invite quotations from at least five bidders for works contracts.

“In domestic tenders, preferences are provided for Bumiputera suppliers and other domestic suppliers,” the U.S. Department of State said in a March report on Malaysia’s investment climate. Implementations of the affirmative action policy “vary greatly; some practices are explicit and contained in law or regulation while others are informal, leaving much ambiguity for potential investors,” it said.

Trained Accountant

The Malaysian government says it is also pushing for greater transparency, including introducing a whistleblower protection act to fight corruption and a planned competition law next year.

“Open tender is a virtue, it’s a policy that is being pushed through federally too,” Idris Jala, a minister in the Prime Minister’s Department and chief executive officer of the government’s Performance Management and Delivery Unit, said in Singapore yesterday. “For a country to grow, to become high income, we must have competitiveness.”

Lim, who holds a Bachelor of Economics from Australia’s Monash University, says his training as an accountant helps him spot any discrepancies in state finances.

Property developers such as Ivory Properties Group Bhd. (IVORY) will benefit from the inflow of workers and expatriates to support Penang’s industries, while local electronics companies Eng Teknologi Holdings Bhd. and Globetronics Technology Bhd. (GTB) may gain from orders to supply foreign manufacturers, said Choo Swee Kee, who manages about 700 million ringgit as chief investment officer of TA Investment Management Bhd. in Kuala Lumpur.

Property Shares

Eastern & Oriental Bhd. (EAST), which is reclaiming up to 980 acres of land to build luxury homes in what it says is the island’s largest seafront development, has seen its shares soar 25 percent this year. The main FTSE Bursa Malaysia KLCI Index slid 4.5 percent during the same period.

“We have been a believer of Penang’s potential for a long time,” said Eric Chan, deputy managing director of E&O, which also owns the 126-year-old Eastern & Oriental Hotel in the island’s historic Georgetown. “China is no longer cheap and some global companies are looking to move their operations to alternative locations like Penang.”

Lim says ethnic Malays also benefit from the state’s economic growth. In the Malaysian state with the highest proportion of ethnic Chinese, at 42 percent, Malay contractors have won most of the jobs awarded by his government through the open tenders, Lim said. The Malay community doesn’t need racial quotas to succeed, he said.

Brain Drain

“We have proven that this is the way forward,” Lim said in an interview in July on Penang Hill, at an event promoting the state’s efforts to woo talent. “Malaysia has a historical opportunity for change.”

Malaysia’s racial policies spurred a brain drain of largely Chinese and Indian minorities, and limited foreign investment, Philip Schellekens, a senior economist at the World Bank, said in April. In its latest Malaysia Economic Monitor report that month, the Washington-based lender said the migration of talent out of Malaysia undermines the country’s aspiration to become a high-income nation.

“Discontent with Malaysia’s inclusiveness policies is a key factor,” the World Bank said. “Productivity and inclusiveness lie at the heart of Malaysia’s transformation programs. Implementing these forcefully will go a long way towards turning the brain drain into a gain.”

Growth Impediment

The U.S. Department of State said that Malaysia’s “complex network of preferences” to promote the acquisition of economic assets by ethnic Malays and other indigenous groups is a “significant impediment” to economic growth. The country’s affirmative-action policy is unique among Southeast Asian neighbors including Thailand, Singapore, Indonesia and the Philippines.

“It clearly slows things as many competent people leave Malaysia because of it,” said Jim Rogers, the chairman of Rogers Holdings who moved to neighboring Singapore from New York in 2007. Malaysia should “abolish the policy and open the economy and society to all” to boost its competitiveness among international investors, he said in an e-mail. Proposed changes to the policy are making the country more attractive, he said.

Malaysia’s economy expanded at an average pace of 9.2 percent from 1990 through 1997, compared with the 7.1 percent for newly industrialized Asian nations as a group, International Monetary Fund data show. By contrast, Malaysia’s 5.1 percent average growth since 1999 is little more than the group’s 4.8 percent overall mean performance, according to the IMF.

Beating Singapore

Mahathir’s Multimedia Super Corridor, centered around an area in Selangor state that was carved out of oil palm plantations, offered tax breaks and relaxed rules on hiring foreigners to entice software engineers.

While Penang lured research, development and production, the MSC’s more notable successes were getting information- technology support and service centers for companies including Royal Dutch Shell Plc (RDSA) and Deutsche Post AG’s DHL division. The government later broadened the incentives to include companies that weren’t physically located in the main MSC area.

To win the investment in Penang from National Instruments, Lim had to overcome rivals from Singapore and the Philippines to Vietnam and China.

Tax Breaks

Stuttgart, Germany-based Robert Bosch will spend 520 million euros ($720 million) on a factory in Penang that will be one of its largest, employing 2,000 workers to make photovoltaic solar modules. Agilent Technologies Inc. told local media in March it was adding a life-sciences facility that undertakes research and development. Both companies have operated in Penang for about four decades, starting in the 1970s, when foreign investors used the state’s cheap labor to make low-end electronics parts.

The state can’t offer tax breaks for investors or sell bonds, both controlled by the federal government, so it plans to use revenue from local land levies to build more roads and a third bridge linking the island to its mainland territories, according to Lim, who is also secretary-general of the opposition Democratic Action Party.

Penang, bigger only than Perlis of Malaysia’s 13 states, is used to an underdog status. Founded by Captain Francis Light in 1786 after the East India Co. took over the island from the Kedah Sultanate, Britain set it up as a trading post to break Dutch Malacca’s monopoly of the spice trade.

Paddy Fields

Intel spent $1.6 million in 1972 to set up the company’s first offshore chip assembly plant in the state amid paddy fields, employing 100 batik-clad workers. Now, it also designs semiconductor devices in the state.

Penang had 16 percent of the country’s approved foreign manufacturing investment from 2006 to March this year, government data show. The state, a tourist destination with beach resorts and a colonial-era town designated as a United Nations World Heritage site, made up 8.1 percent of Malaysia’s gross domestic product in 2009, based on constant prices.

“The change in government meant that you have reenergized this place,” said Chris Ong, who owns boutique hotels converted from heritage buildings in Penang. “The old state government was here for far too long.”

  1. #1 by monsterball on Thursday, 20 October 2011 - 1:49 pm

    If Penang can do it …go imagine what PR can do …elected to govern the whole country.
    CORRUPTIONS is the disease of the past in Penang…no work…just keep planning how to earn millions without working.
    Koh Tsu Koon feel not one bit of shame at all.
    He is the biggest UMNO b shoe shine boy for 18 years.

  2. #2 by Jeffrey on Thursday, 20 October 2011 - 2:50 pm

    It is precisely because of what LGE could achieve for Penang that those he described as “pro- Umno ferocious beasts” launched an attack on his son in the absence of anything they could find on LGE personally to tarnish.

    The reason is because that whilst Penang’s thriving well in economic and invstment terms is a harbinger of good for Malaysia it is no good for the political culture of UMNO/BN that is being used to control and preserve power for the rest of the states/country controlled by it.

    If Penang under PR’s policies thrives and suceeds, it is a constant and salutary reminder and proof of how BN’s policies fail in the rest!

    This state of affairs of Penang’s progress, allowing comparison, cannot be allowed to continue from perspectives of “pro- Umno ferocious beasts”. It will undermine credibility of BN’s ethnic centric/patronage policies which are used to preserve political power and cover for self aggandizement of the ruling elites and those they extend patronage. So they will watch over him and his family members like a hawk, waiting for an opportunity to discredit him & his administration that has turned Penang into a sore thumb to rub at their policies/faces threatening their vested interests.

  3. #3 by cintanegara on Thursday, 20 October 2011 - 2:51 pm

    “Lift Own Basket” literally means “Masuk Bakul Angkat Sendiri” in Malay…self promote himself in daddy’s blog…..Everyone knows DAP is a family oriented party….Where else can we find dad, son and daughter in law contested in 3 different states? Tak ada orang lain ke???

    • #4 by assamlaksa on Friday, 21 October 2011 - 3:30 am

      What about Onn Jaafar, Tun Hussein Onn, Hisamuddin and cousins Tun Razak and Najib. Abdullah Badawi and KJ. And all these people are holding important posts. Tak ada orang lain ke???

  4. #5 by HJ Angus on Thursday, 20 October 2011 - 2:58 pm

    I like the part about beating Singapore…..
    let’s face it….if Malaysia had followed the path of meritocracy and allowed English-medium schools, we would have been able to match or even beat Singapore’s growth as we have so much more resources.
    Alas, ALLAH is just and hampered us with national leaders who cannot look beyond self-interest.

  5. #6 by Fatty Doc on Thursday, 20 October 2011 - 3:04 pm

    @Cintanegara: What’s wrong with family oriented party (or is it anyway?) If Najib & co. or the 22-year Mamakuthy & Mukhriz can deliver fairly and by meritocracy, we definitely will be no.1 in whole Asia, if not the world by today. But what we are left with today is billions of debt to be shouldered by every rakyat. And yet you dare to call yourself “cinta negara”?? Are you sure you really love this country? Or is it you are just another person from that crony gang, who just want to make fast buck, at the expense of other ordinary rakyat’s sweat and blood?

  6. #7 by Loh on Thursday, 20 October 2011 - 3:11 pm

    ///KUALA LUMPUR, Oct 20 — Universiti Islam Antarabangsa (UIA) has suspended Prof Dr Abdul Aziz Bari pending investigations into his remarks on the Selangor Sultan’s recent decree.///–MalaysianInsider

    The university decides that it should act as if there was a les majesty law in the country, and that the statement by the professor amounted to being guilty to that non-existent law.

    If Malaysia practices true democracy, then comments on any statement made by humans are fair game. It is also fair for persons to make counter comments. There is of course laws on libel and slander, and the court would decide whether a party is right or wrong based on the arguments and not on the position of the persons holding the views in question.

    Najib said that Malaysia would become the best democracy. It would certainly be the best when that democracy is known for doing what a democratic nations would not, and not doing what a ordinary democracy would do. Malaysia is the only one in its special class of so-called UMNO-democracy, and being the only one, it is certainly the best in that class.

  7. #8 by HJ Angus on Thursday, 20 October 2011 - 3:12 pm

    Just watch the TV on what is happening in Greece…major riots as the government is forced to make drastic cuts in the budget.
    That is what can happen in Malaysia if the government always keeps spending beyond our means in order to avoid tough economic decisions.
    No one owes you a free lunch and we all need to work hard and spend within our means – we cannot allow any government to spend our children’s future with unjustifiable overspending.

  8. #9 by Loh on Thursday, 20 October 2011 - 3:15 pm

    I came across a open letter written by a Senior citizen from Penang. I reproduce it for information.


    Subject: Re: Senior Citizen’s Outrage: Open Letter To Sharizat.

    A super letter written by a man at his golden age. Especially special
    for penangites.
    Hi there,
    This letter is very well written and worth a read. It is full of fire
    and emotion. He or she maybe old (senior citizen) but the words
    expressed are excellent. BRAVO friend.

    Sent: Tue, 3 August, 2010 12:55:42
    Subject: Senior Citizen’s Outrage: Open Letter To Sharizat. Senior
    Citizen’s Outrage: Open Letter To Sharizat.

    Open letter to Sharizat.
    Many senior citizens are outraged by your uncalled for comments about
    the RM100 given to them by the Penang state government in appreciation
    of their contributions to the development of Penang .

    Your comments indicate how uncultured you are, totally unbefitting of
    a cabinet minister. You said you are ashamed and offered your
    sympathies to Penang ‘s senior citizens because they are worth –
    according to your absurd calculation – less than RM10 a month in the
    eyes of the state government.

    Can I ask you how much a senior citizen was worth when the BN ruled
    Penang ? Absolutely nothing, Yes Nothing at all.
    You went on to say that you thank God that there is a federal
    government and a Barisan Nasional government to take care of the
    people’s welfare without which the poor in Penang will be starving.
    Yes, the BN government looked after the people of Penang so well that
    on 8 March 2008, they kicked the BN out of Penang !

    As a senior citizen, let me tell you this. It is not the money that
    matters. It is the thought, the appreciation and the caring attitude
    of the state government that senior citizens value most.

    Did you say that the BN government looks after the people’s welfare?
    Let us examine the BN’s track record. The NEP has been in existence
    for almost 40 years and during this period about 1 trillion ringgit
    was allocated supposedly to help Malays through ASN, ASB and numerous
    other government programmes involving many government agencies.

    Umnoputras hijacked the NEP and by masquerading as champions of the
    Malays siphoned off a sizeable amount of the funds to enrich
    themselves, their families and their cronies. These Umnoputras live in
    palatial houses and live opulent lifestyles. Look at the posh cars
    they and their cronies drive and the designer clothes they wear while
    the poor Malays continue to languish in poverty, even after 52 years
    of Umno’s total dominance in Malaysian politics. How much have these
    Umnoputras, their families and cronies invested in high-end properties
    overseas? How much of the loot is stashed away in overseas banks?
    A Morgan Stanley analyst estimated that between 1984 and 2003, RM360
    billion was siphoned off by Umnoputras and their cronies. The
    Auditor-General’s Report bears ample testimony to the plunder of the
    nation’s wealth.

    After more than 52 years of Merdeka, many kampungs do not have basic
    amenities like piped water and electricity while Umnoputras are
    wallowing in wealth and luxury. No wonder the income differential in
    the Malay community is the highest among all ethnic groups in Asia .

    You were defeated in the last elections and came into the cabinet
    through the backdoor. We are ashamed of you No wonder Rafidah poured
    scorn on you. As minister of Women, Family and Community Development,
    you did little to genuinely empower Malaysian women, especially Muslim
    women whose problems – marriage, divorce, custody of children,
    alimony, property rights etc,etc have remained unresolved. Your
    failures in this regard are well documented by women NGOs and Sisters
    in Islam.

    You had the audacity to offer your sympathies to the senior citizens
    of Penang . Let me tell you this:
    Shut your face, honey. Guan Eng is making money (for Penang , of
    course), unlike you and the rest of umno gang.
    My advice to you is this:

    Don’t open your mouth to make a bloody fool of yourself. Do us a
    favour; disappear from the political scene.
    Stop monkeying around.

    Orang Lama Malaysia


  9. #10 by dagen on Thursday, 20 October 2011 - 4:48 pm

    I advise cintanegara to go and lift his batang to check whether he is missing his bola. Seriously. He speaks with typical umno mentality. Precisely the sort of mentality that got jib’s and taib’s reputation bashed and burnt badly, internationally. Lifting (wot?) own basket it seems. Look phhaarker. The report above is by bloomberg. Not by some publicity people in dap. And look here. Unlike jib and taib who paid for fabrication of whitewashing news about themselves, guan eng did not. The bloomberg is an independent news coverage on the development of penang. And the development must be significant and sufficiently news worthy before bloomberg actually publishes it!

  10. #11 by Jeffrey on Thursday, 20 October 2011 - 4:49 pm

    It’s the same typical modus operandi of political elites of many a 3rd world failed or bankrupted states, that is, to obtain, preserve and perpetutate their political power to enable self enrichment, whether individually or as a class from the nation’s bountiful resources -never mind the country goes to the dumps as long as they & their families are personally financially secure with money stashed in safe havens- by:

    · Monopoly over media for propaganda and state institutions and all apparatus of power to enforce their will and law according to their interpretation against opposition rivals and political detractors and dissidents ;

    · Seeking democratic legitimacy from ballot box through manipulation of constituency boundaries and weaknesses of electoral procedures/mechanism of the very same ballot box

    · And using emotional appeal based on race religion tribe or imaginary threats from outside to fighten, galvanise and rally the voters or majority segment thereof to support them as “protector” in every election again and again and also distract voters from and pull wool over their eyes of the existing and deepening class schism and the abuse of power for enrichment that goes on behind the scenes at the upper echelons under various pretexts couched in terms of public good and community’s benefit.

  11. #12 by sudokuku on Thursday, 20 October 2011 - 5:55 pm

    cintanegara is an orangutan that is lead to his cage with cheap banana from UMNO, while his grandfather land is being razed and plunder by rich UMNO crony, on his way to being transfer to zoo, cintanegara is lead to believe that UMNO is providing a better home and education, once he is on display at Zoo, cintanegara will sing the UMNO slogan saying his is the proud product of UMNO and a example for all orangutan to follow, at this point should we cry in pity?. Everyone try to help and demo in protest against UMNO crude treatment to the cintanegara orangutan, but cintanegara himself say he like it in zoo with free banana and everything, if he leave UMNO he will need to look for food himself again, he have forgotten how to look for food after been lock up in the zoo for such a long time, as for the stolen grandfather LAND he say can not do anything with it as he do not have the knowledge or capacity to develop housing and agriculture, so better leave it to UMNO as the they promised more banana for him, he just love those banana. The problem come when eventually hundreds of orangutan join the UMNO program and the is no enough banana to go around, some good looking orangutan that sing better will get more banana while old and out orangutan will get whatever leftover.

  12. #13 by negarawan on Thursday, 20 October 2011 - 7:21 pm

    The good point is this: The more UMNO plays its dirty politics, the more the right-minded rakyat will hate them as is happening now. The rakyat cannot be fooled by the cheap and dirty tactics of UMNO. The rakyat has no respect for an immoral, godless, and lawless party like UMNO. To the rakyat, UMNO leaders are the lowest form of life. So UMNO, keep up with your dirty brand of politics because its adding more support to the opposition to the contrary of your evil plans.

  13. #14 by HJ Angus on Thursday, 20 October 2011 - 8:18 pm

    comment #4 was under moderation for more than 3 hours.
    Looks like the A-word rings alarm bells!

  14. #15 by waterfrontcoolie on Thursday, 20 October 2011 - 10:41 pm

    cintanegara is like a broken record player which has one track mind in belittling YB LKS and family. Of course, he 4got the super-Ego and sons in his craze driven mind. maybe we should leave him just to count his rambutans as his ability to understand any plans beyond the planting of rambutan trees is near Zero! such mind is bogged in the quagmire for so long that I figure it is certainly no more functioning! Without the daily handouts from UMNO or just outside this country, I just wonder how long he would have survived?? This is the type of caliber we have created since Mederka for more than half a century and he thought it is an achievement!

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