Malaysia on the move - aims to expand economy on global scale - Statistical Data Included

Business Asia, June, 2001 by Nadia Cameron

In response to the challenge of a declining economy, Prime Minister Mahathir launched a campaign in April designed to reverse Malaysia's economic slide. The Malaysian Government's latest proposal to diversify its economy has resulted in a new spending charter, known as the Eight Malaysia plan.

The plan represents one of several components featured in a new 10-year blueprint for economic development. As part of the plan, the Malaysian Government will allocate 110 billion ringgit over the next five years to expenditure on ports and other infrastructure as well as social services such as education. Amongst this spending will be 21.2 billion ringgit on roads, railways, ports and airports between 2001 and 2005, and 5.5 billion ringgit to develop water and sewage network. 228 million ringgit will also be spent on telecommunications. The plan is based on a set goal of 7.5 per cent average annual growth, up from the seven per cent average experienced over the past decade.

Mohd Zain Sakmah, director of the Malaysian Industrial Development Authority (MIDA) in Sydney, is supportive of the Malaysian Government's economic proposals and believes its focus on expanding manufacturing and service industries will play a significant role in bringing the country through the global economic downturn. "The thrust of the plan will be to shift the growth strategy from input-driven towards knowledge-driven growth," he said.

The Malaysian Government has also introduced several new incentives and policies designed to attract and maintain manufacturing investment in the country. Of particular note, Mohd says, was the Government's extension of its equity guidelines for another three years. Introduced in July 1998, the guidelines allowed 100 per cent equity holdings in manufacturing companies by foreign investors irrespective of the percentage of their production exported. Prior to that, the proportion of foreign equity permitted was tied to the level of exports.

"The continued flexibility in equity holdings of investors, both foreign and local, means that new projects as well as the expansion and diversification operations of existing projects can be wholly-owned by project owners, foreign or local, without having to comply with the Government's export requirements," he said.

In addition, the Malaysian Government proposed various incentives for foreign investors in its 2001 Budget, including additional incentives for reinvestment, reducing the cost of doing business, tax exemptions on machinery and equipment, and extensions on incentives for promoted areas.

According to MIDA's reports, a total of 2826 manufacturing projects with foreign participation were approved between 1996 to March 2001, equaling US$21.5 billion ($41.1 billion). Most of these investments were in electrical and electronics products sectors. Other investment areas included petroleum products, paper, printing and publishing and chemical products.

Mohd says that although the decision to get rid of the capital control measures was a welcomed one for short-term investors, the changes will not affect longer-term manufacturing investments within the country.