By Jeremy Grant in Penang
Financial Times

When Korean rapper Psy performed at a Chinese New Year concert in Penang recently, it was not only a sign of the singer’s crowd-pulling power in Malaysia.

The gig was hosted by the Penang branch of Barisan Nasional, the country’s governing coalition. Barisan clearly hoped to inject some “gangnam style” into its campaigning as the political temperature heats up ahead of a general election in this multi-ethnic nation of 28m, expected within weeks.

The poll will be the closest fought since Malaysian independence from Britain in 1957. Psy’s appearance has helped thrust Penang, on Malaysia’s western coast, into the limelight as Barisan faces an intense, and many believe unwinnable, battle to take it back.

For Barisan’s dominant member, the United National Malays Organisation (Umno) of prime minister Najib Razak, Penang was a painful loss at the last election in 2008, when it was snatched by the Democratic Action Party, the opposition’s ethnic Chinese party.

That catapulted its leader, Lim Guan Eng, to the post of chief minister. Mr Lim, 52, is no favourite of the ruling coalition in Kuala Lumpur, the federal capital. He twice spent time in jail, once under a now-repealed internal security act in connection with race riots, and again in 1998.

Mr Lim remains one of the opposition’s most effective public speakers, regularly appearing alongside Anwar Ibrahim, leader of the opposition coalition, and making lacerating attacks on the government in a weekly blog.

For Umno, the party of the Malay majority population, this might not matter if Penang was an economic and political backwater. But the state is one of the most developed of Malaysia’s 13 states, with the third largest economy after Selangor and Kuala Lumpur.

Its 1.6m population is dominated by ethnic Chinese, an important constituency because they make up a quarter of the national population. Awkwardly for Barisan as it tries to shore up support wherever it can get it, they have deserted the ruling coalition since the last election amid disappointment that more has not been done to roll back policies favouring majority Malays.

Mr Lim, an economics graduate of Australia’s Monash University and qualified accountant, has managed to turn Penang around, transforming the “Pearl of the Orient” – as Penang was known in British colonial times – with little help from the federal authorities.

His track record in Penang is likely to become a valuable tool for the opposition as it campaigns nationally, providing a counter to criticism from Barisan that the opposition’s lack of experience in government means it can’t be trusted with the stewardship of Malaysia.

“Penang is a shining example of economic recovery and doing so in a more or less non-corrupt manner,” says Oh Ei Sun, senior fellow at the S Rajaratnam School of International Studies in Singapore.

In his office, Mr Lim displays toy stuffed cats on a shelf next to official photographs – a play on an acronym he adopted on taking office. “Our motto is ‘CAT’ – competency, accountability and transparency,” he says. “We’ve run this state better than they [federal government parties] did for the last 50 years.”

After years of manufacturing decline Penang has not only reversed an exodus of foreign investors to rival locations in Thailand and Vietnam, but has managed to attract more than any other state except Johor, in the south, and Kuala Lumpur.

Foreign investors have committed an average M$5bn (US$1.6bn) a year to projects in Penang since Mr Lim took office. That is a 48 per cent improvement on the amount the state attracted in the five years preceding his term, according to federal government data.

Most of the investment in manufacturing – which makes up half of Penang’s economy – goes to electronics. In a sign of Penang’s increasing links to global supply chains, DHL, the express delivery company, last month boosted capacity at its Penang hub by 30 per cent.

Mr Lim attributes some of this success to his efforts to sell Penang as a “basically corruption-free” state. He and his top officials declare their assets annually online – a rarity in Malaysia where the line between personal and government business is often blurred.

“We are the only state in the country that declares our assets publicly,” Mr Lim says. “It’s simple stuff: separation of powers, making sure you have policies on internal controls. You don’t need to be a rocket scientist.”

In Penang city itself, there is evidence of a revival as tourism has flourished. many of the once-crumbling facades of George Town, a district packed with 19th century “shophouses”, are being converted into boutique hotels.

Mr Lim says the revival has happened in spite of an “obstructionist” federal government that refuses to approve funding for infrastructure or expansion of public transport.

Barisan has tried to exploit recent data showing a 73 per cent slump in combined foreign and local manufacturing investment in Penang last year, compared to 2011.

However InvestPenang, an agency that handles inward investment, argues that the fall was partly caused by a global slowdown in the electronics industry.

Barisan has also accused the opposition of going into the election campaign having still not named a shadow cabinet. However Lim says: “Our experiences in Penang have shown that while there was no shadow minister, when the time came we could appoint the [chief] minister – and do a good job.”