Malaysia: A Safe Harbor in the Storm
An Interview with Dato’ Sri Mohd Najib Bin Tun Haji Abdul Razak, Prime Minister of Malaysia

Prime Minister Dato’ Sri Najib was appointed as Malaysia’s sixth Prime Minister on April 3, 2009. Dato’ Sri Najib is the eldest son of Malaysia’s second Prime Minister, Tun Abdul Razak Hussein. He entered politics in 1976 and was elected to Parliament at the age of 23, the youngest ever member. In his long political career, Dato’ Sri Najib has served in a number of prominent positions: notably as Deputy Minister of Energy, Telecommunications and Posts; Deputy Education Minister; Deputy Finance Minister; Minister of Culture, Youth and Sports; Minister of Defence (twice); Minister of Education; Minister of Finance; and Deputy Prime Minister. In March 2009, Dato’ Sri Najib was elected unopposed as UMNO President after the former Prime Minister Tun Abdullah Ahmad Badawi decided not to seek re-election. Subsequently in April, Dato’ Sri Najib was sworn in as Prime Minister. He still holds the Finance Minister’s post.

Dato’ Sri Najib spoke to Forbes Asia special sections team recently on how the nation has weathered the current global economic crisis and put Malaysia on track to recovery.

 

The number one topic these days is the state of the economy. How is Malaysia faring in the midst of this global volatility?

Malaysia has not been spared. We have a very open economy. Our total trade is twice our GDP, which ranks as one of the highest in the world. Therefore we have experienced quite a significant downturn, particularly in our manufacturing. In the first quarter of this year we registered a negative 6.2% growth. But we are optimistic that the trajectory is reversing. It is in fact on an upward trend. Second quarter figures of negative 3.9% growth indicate that we are moving in the right direction even though they are still negative. The worst is over, and we have turned the corner. We are moving towards more positive figures in the future. We are expecting that by the fourth quarter of this year we should be in positive territory.

Have you taken measures to ensure that growth continues in Malaysia?

We have indeed. The two stimulus packages worth about US$19.03 billion which is close to about 9% of our GDP and among the highest stimulus packages in the world have contributed to the recovery. Our estimate is that it is about 1 to 1.5% of GDP growth. And this will surely help us to shore up domestic demand in face of plummeting exports. At the same time we have taken advantage of the situation to put in some necessary structural and policy changes. There are 27 subsectors that have been fully liberalized. We have also further liberalized the financial sector. There have also been changes with respect to the Foreign Investment Committee Guidelines, doing away with most of it. That has given a new and fresh look to our capital markets and investing in Malaysia. I believe we are now back on the radar screen of investors. And there is positive acceptance by the markets. A few of our players have done or are doing roadshows overseas and have come back with very positive signals from the international market. They are looking more and more to Malaysia now. So we are well positioned to take advantage of the turnaround in the economy.

Another source of foreign investment is into the stock market. You’ve supported a reform agenda at the Bursa Malaysia. What changes can investors expect to see in the stock market?

We have taken note of some of the signals we have received, in terms of how to integrate our stock market with other stock markets in the world, strengthen liquidity, and availability of good companies on the market. We are working on the relisting of [telecom company] Maxis, for example. That is a good solid company that will certainly add luster to the market. We are also looking at strengthening the regulatory mechanisms, to make sure company have principles of good governance. So these are some of the measures we are going to take.

One of the more exciting developments in Malaysia is the Iskandar Malaysia development. Can you give us an update on how this is progressing?

It is progressing well, more than I expected. It is now visible for people to see. The figures look quite impressive. Some of the commitments have actually been invested, including Mubadala Development Company [the sovereign wealth fund of Abu Dhabi] and LEGOLAND, as well as some other investments. We have had a commitment of US$12.56 billion, of which US$3.92 billion has already been invested.

You are the chairman of the East Coast Economic Development Corporation. Can you give us a sense of your vision for the development of the East Coast of Malaysia?

The emphasis will be slightly different for the East Coast as compared to Iskandar. We believe there are some very exciting prospects there. The key is to develop the Kuantan Port that will be the gateway to markets, particularly in East Asia. So there are plans to increase the number of wharfs and the capacity of the port. There was also the announcement of a Special Economic Zone that stretches from the north, in Cukai, downward to the new marine supply base in Tanjung Agas. This Special Economic Zone will be a new corridor for development, which will include a new package of incentives, including customized incentives for special types of investments in that region. Tourism, especially ecotourism, will play a very important part. We also want to develop some of the smaller, traditional industries like batik, for example.

Malaysia is developing a reputation as a hub for Islamic finance. What’s been accomplished and what else is planned to develop its global status?

We are the only country in the world that can offer the full plethora of financial products and services, and that makes us the global leader in terms of Islamic finance. We are involved in insurance, or takaful; Islamic banking, and the bond market, or sukuk. In fact, almost 66% of sukuk worldwide are issued in Malaysia. We also have the training institutions under the central bank, to provide the skills training necessary to administer Islamic finance.

Tourism is another priority area for Malaysia. What steps are being taken to raise Malaysia’s tourist appeal, especially to attract high-end tourists?

The tourism figures have been quite impressive, especially for 2008 when we received 22 million people. And recently judging from the performance this year, the figures are looking very strong. There has been a very sharp increase, for example, in the tourists coming from China, Singapore, Indonesia as well as Europe. The figures are looking good, particularly due to the intense promotion we have done. The “Malaysia Truly Asia” campaign has resonated very strongly. The efforts being made to reduce the requirements on visas also help, so one can get a visa on arrival, for example, for certain countries. We have also developed new tourism products such as Malaysia as a shopping paradise and ecotourism. People are excited about these. Prince Albert II of Monaco, for example, visited last year and he was very excited about ecotourism in Malaysia. He visited the Mulu caves, and other spots in Malaysia. The uniqueness about Malaysia is that we can offer you the full range, from the very cosmopolitan lifestyle in Kuala Lumpur right through to the pristine ecotourism that people cherish. So within your span of stay in Malaysia you can savor the whole range of attractions. In other countries, perhaps you can have one or two, but not the whole range we have here.

Malaysia has already had major success in developing its high-tech sector. What more can be done and is being done to develop this critical sector?

We have been able to attract in terms of renewable energy three major companies involved in manufacturing solar cells and photovoltaics. We have been able to attract pharmaceutical companies and those in aerospace, including those in composite technologies and so on. So we are in a position to grant special incentives for them, which are customized in nature. Some companies are looking for R&D grants, some are looking for training grounds, some are looking for rental reductions and so forth. But if your investment is considered high impact, and bringing new technology to Malaysia is considered one of the criteria, then that will make you eligible for these customized incentives.

Malaysia has always played a prominent role in Southeast Asia. What role would you like Malaysia to play in regional and global affairs?

We have been able to be forthright in our leadership role. In the past including in Dr. Mahathir’s time, the whole concept of East Asia multilateral initiative has come to fruition. We have the East Asian summit, we have the ASEAN plus 3, we have the ASEAN regional forum, and of course we have APEC. So apart from the leadership role we have played, and will continue to play, we also have a good geostrategic location, in the center of ASEAN and at the crossroads of trade, between China, the Middle East, and India. So we are well positioned to play a role as a gateway, to the other political, economic and cultural centers of the world. And not forgetting of course our historical legacy, we are comfortable dealing with the West because of our colonial roots, including the US and Europe.

Would that include a new engagement with the Gulf states as well?

Yes, the Gulf states as well are important to us. The investment by Mubadala Development Company is the first of its kind. I have met up with the Crown Prince of Abu Dhabi, and he has indicated another additional US$1 billion which he wants to invest in Malaysia.

Of course, Forbes will be coming to Kuala Lumpur this September to hold its ninth annual Forbes Global CEO Conference. For those who are not familiar with Malaysia, what can they expect to experience while in the country?

Well, I hope they see a friendly face – a warm and hospitable Malaysia. And a Malaysia that is exciting and progressing. Malaysia is a country that is determined to have its rightful place in the world. We are committed to bringing changes to Malaysia. We want to be an important player in the global networked economy.

Malaysia: A Safe Harbor in the Storm
Although signs of a global recovery are growing and the worst may be over, the world economy is not out of the woods yet. Malaysia has through this turbulent period been a relatively safe harbor in the storm. In part this resilience can be accounted for by several factors, one of which being that the country has learned from the Asian financial crisis of a decade ago. Overall, the country is now on a much sounder footing to weather any economic storms.

The strength of Malaysia’s economic fundamentals is amply shown by the figures from 2008, when the country could proudly show that it registered economic growth of 4.6%. While 2009 has been tough, the worst is over and the economy rebounded from a decline of 6% seen in the first quarter to a second quarter decline of 3.9%. A positive figure by the fourth quarter cannot be ruled out. For the full-year 2010, analysts are confident of full recovery, forecasting about 4% annual growth.

In addition, the government has taken a proactive stance in pursuing savvy long-term growth strategies through the implementation of carefully designed investment policies and aggressive stimulus packages to keep the country moving forward. These policies take in account and seek to address multiple goals such as regional development and growth of higher value-added knowledge-based industries and services. Some of the promoted industries and activities include high-end electronic products, biotechnology, aerospace and aviation services, machinery and equipment, medical devices, pharmaceuticals and alternative energy sources.

“Since embarking on its industrialization drive in the early 1970s, Malaysia has been successful in attracting multinationals from all over the world”, says Datuk Jalilah Baba, Director-General of the Malaysian Industrial Development Authority (MIDA), the government’s principal agency for the promotion of the manufacturing and services sectors. “Malaysia today is host to more than 5,000 foreign companies from over 40 countries, and many of these success stories from the US, Europe, Asia and Australia have also over the years expanded and diversified their operations in the country reflecting their continued confidence in the country’s business environment. Over the last 35 years, some of the world’s biggest names that have made Malaysia their manufacturing base including General Electric, Agilent, B. Braun, Dutch Lady, Ericsson, Fuji Electric, Samsung, Philips and Volvo,” adds Datuk Jalilah.

In 2008, investment inflows into the manufacturing sector were clocked at an impressive US$18 billion, the highest figure ever recorded, and more than double the annual target of US$8.4 billion established in the government’s Third Industrial Master Plan (2006 to 2020). The 2008 figure was also the fifth consecutive year of increased FDI in the manufacturing sector.

Approved investments in the services sector totaled US$14.5 billion in 2008 which exceeded the investments target of US$13.3 billion per annum as in the Third Industrial Master Plan (IMP3).

The Malaysian Industrial Development Authority (MIDA) provides a one stop center for investments in the manufacturing and services sector. Datuk Jalilah is the chairman of the National Committee for Investments in the Services Sector. This Committee will act as a focal point to receive and process applications for investments in the services sector.

The country can also count itself as fortunate to have strong fundamentals. Malaysia boasts low debt levels, a sound financial system and a diversified economy. There are many bright spots in the economy, such as growing tourism sector, a dynamic high-tech industry, vibrant manufacturing and services companies, and a traditional strength as a leading producer of valuable commodities such as palm oil and rubber, and a healthy energy sector.

The export sector is a significant contributor to the Malaysian economy and accounts for more than 120% of the country’s GDP in 2008. Some of its biggest exports by value are electrical and electronic products, chemical and chemical products, machinery, appliances and parts as well as optical and scientific equipment in the category of manufactured goods alongside such traditional exports as crude oil and palm oil, according to annual statistics from Malaysia External Trade Development Corporation (MATRADE), the national trade promotion agency of Malaysia.

With 40 offices around the globe and five domestic branches operated from its headquarters in Kuala Lumpur, MATRADE is responsible to promote, assist and develop Malaysia’s external trade. Its services include promoting the exports of Malaysian products and services as well as facilitating the sourcing requirements of foreign buyers. “It is most imperative that enterprises do not withdraw from the market now for it will be too costly to rebuild infrastructure, network and human capital when the economy recovers,” says MATRADE CEO, Dato' Noharuddin Nordin.

Economically, trade figures are still down overall last year, but most definitely a bottom has been reached and 2009 figures are on an upswing. In June this year, Malaysia’s exports rose 5.1% from May to reach a value of US$12.7 billion, which was the highest monthly export value in 2009. Imports also rose, by 9.1% to US$10.1 billion, again the highest for the year. A total trade of US$22.8 billion, a 7% increase, pushing the trade surplus to US$2.6 billion, making it the 140th consecutive month of trade surplus since November 1997.

The country is benefitting from its strategic location between some of the world’s fastest growing countries and regions, namely China, India, the Gulf and Southeast Asia. The country has significant links to all four of these markets, for example, its Islamic traditions make it a natural partner with the Mideast and Gulf, while its strategic location within the Asia Pacific region connects it directly with China, India and Southeast Asia. Its geographic position means it has always been at the crossroads throughout history, first as a key stopping point on the famed silk road trading routes to today’s interconnected world of global trade, finance and travel. Just within the Southeast Asian region, Malaysia can access a combined market of 575 million people and a combined GDP of US$1.2 trillion.

The country is known for its commitment to encourage a harmonious society, made up of many cultures and ethnic groups living together in mutual respect and dignity, coupled with an increasing emphasis on the steady upgrading of its human capital and infrastructure through strong public-private partnerships as outlined in various national economic plans. Finally, all of this is supported within a well-established framework of strong governance and transparency and a commitment towards excellence and respect for democratic values.

The current Prime Minister Dato’ Sri Mohd Najib bin Tun Haji Abdul Razak has recently introduced a host of reforms aimed at boosting growth and raising the international profile of the country. As a measure to further sustain the country’s competitiveness in the services sector, the government recently announced the liberalization of 27 subsectors in the services sector. The subsectors included in this measure were computer and related services, health and social services, tourism services, transport services, and business services. Foreign investors will now be permitted to own 100% equity in the designated 27 subsectors. This measure is also in line with the commitments that Malaysia made to the Association of South East Asian Nations (ASEAN) to open its services subsectors.

With the removal of equity conditions, Malaysia has set its sights on attracting increased foreign and domestic participation in the services sector with enlarged business opportunities, regardless of whether those investors come from the Asian, Gulf, Europe or North American regions. Indeed, the World Bank this year ranked Malaysia as 20th best country out of 181 countries in terms of the ease of doing business.

Additional liberalization measures were also announced by the Prime Minister on June 30 to further improve the vital services sector in the country. The key movements under this liberalization were the deregulation of Foreign Investment Committee guidelines and fund management as well as stock broking liberalization. Foreigners can now hold a controlling interest of 70% in investment banks, Islamic banks and insurance companies. All of the above were clear signals to the global investment community that Malaysia is open for business, and not waiting for the economic storm clouds to clear before it embarks on critical reforms to raise its global competitive profile in the Asian region and the world.

Building Centers of Growth

To see one of the boldest initiatives underway in Malaysia, one must go to Iskandar Malaysia in the southernmost tip in the state of Johor facing Singapore. Covering 547,436 acres (2,217 square kilometers) Iskandar Malaysia is three times the size of Singapore and was mostly mangrove swamps, plantation land and forests a few years ago. Today a world-class development is emerging that encompasses a vibrant waterfront community including a marina, an airport, theme parks, shopping centers, universities, industrial parks, ports, nature reserves, hotels, serviced apartments and high-end condos. “It will be a place where people can live, work, learn and of course play,” says Dato’ Haji Abdul Ghani Bin Othman, Chief Minister of Johor and Co-Chairman of Iskandar Regional Development Authority (IRDA). Investors into the region have already put US$3.92 billion which is 31.5% of the committed value of US$12.56 billion in actual investments, and are committed to put in several more than that in coming years. These investors include the likes of such global names as BMW, Panasonic and HSBC, and they come from places from Singapore to the Gulf states. To speed development and make the region investor-friendly, IRDA has been designated as a “one stop” super regulator to allow speed and consistency of development and streamline the bureaucracy for those wishing to invest in the region. The Iskandar Regional Development Authority (IRDA) is the regulatory authority mandated to plan, promote and facilitate the development of Iskandar Malaysia into a strong and sustainable metropolis of international standing, where living, working, business and leisure converge seamlessly. And to show the commitment of the Malaysian federal government to the project, the other co-chairman of IRDA is Prime Minister Dato’ Sri Najib.

The packages of incentives for investors are significant, including exemption from corporate income taxes for ten years and no restrictions on employment of foreign knowledge workers. “Looking into the future, this region will be a hub of growth and investment for the country,” says Dato’ Ghani. “There are definitely plenty of new opportunities for investors here.” To ensure the long-term future for the region, the area has been designed to ensure good regional and global connectivity. For example, there are three ports within Iskandar Malaysia including the Port of Tanjung Pelepas, a fast-growing and modern container port. For air links, there is Senai international airport, which is served by three airlines and connects to major airport hubs such as Bangkok and Kuala Lumpur, and handles more than 1 million visitors a year. “We have good infrastructure,” says Dato’ Ghani. For example, a new coastal highway is being built to link Kota Iskandar, the new administrative center of Iskandar Malaysia in Nusajaya with the city of Johor Bahru, which is the existing major city in Johor state next to the Iskandar Malaysia. The region’s close proximity to Singapore is another selling point, so that investors can have the best of both worlds, so to speak, with the advantages of location in Iskandar Malaysia while also being able to easily access Singapore. Another good point notes the chief minister, is the wide availability of sites that are greenfield, so investors have the freedom to develop what they want literally from the ground up. As a bonus, Malaysia and the Iskandar region can boast of multilingual, skilled work force who are ready to go to work – the total population is estimated at 1.4 million, of which two-thirds are of working age. The inclusion of so many diverse elements within one location creates a synergy greater than the sum of parts. All told, Iskandar Malaysia is primed and ready to become a hub of growth and investment.

For some of the biggest opportunities in real estate, one can scarcely do better than what’s available in Iskandar Malaysia.

Five delineated official zones are open to investment in the region: JB City Centre, the administrative center of Nusajaya, the Western Gate Development, the Eastern Gate Development and Senai-Skudai Airport City. Each is designated to serve a specific purpose and to work together towards a greater whole.

For example, Nusajaya will be home to Medini Iskandar Malaysia, the region’s flagship development divided into three themed zones – Lifestyle & Leisure, Financial Centre and Culture & Heritage. A 2,300 acre green field development, Medini is in close proximity to the second link bridge connecting Singapore and Malaysia.

Iskandar Investment Berhad (IIB) is the catalytic developer for Iskandar Malaysia, with stakeholders at both the federal and local Johor state level. IIB works in close partnership with IRDA, the regulator, to bring in projects which create a multiplier effect in the wider development of Iskandar Malaysia and the region.

Headed by Chief Executive Officer Ms. Arlida Ariff, IIB is a commercial entity with a long-term profit objectives and ownership of specific land banks.

“The reality is that we are getting people into real projects and that is when it gets exciting,” says Ms. Arlida. The global economic slowdown, if anything, has helped spur the growth of the region and its buildout.

“The slowdown has caused us to accelerate our catalytic projects that add value – a strategic move to create greater value for the community at a rapid pace,” says Ms. Arlida. She cites as an example the LEGOLAND Malaysia theme park.

Originally slated to open in 2013, the project is now rescheduled to open a year earlier, in 2012. This change of schedule has more impact than just the timing of the theme park itself.

A set of other projects tied to the opening of the park will move up their opening dates as well to synchronize with the early opening of LEGOLAND Malaysia. The Coastal Highway connecting the old Johor Bahru to the new city in Nusajaya and the second link to Singapore, for example, will be ready by the end of 2011.

The theme park is representative of IIB’s ambitions and its capacity to achieve them. It is Asia’s first LEGOLAND theme park and only the fifth in the world, based on the iconic children’s toy building blocks. The US$200 million project will cover 63 acres, including over 30 interactive rides, shows and attractions, with a projected 1.35 million visitors in its first year.

LEGOLAND Malaysia will also be the centerpiece of a 145 acre integrated complex that will include a lifestyle center, offices, hotels service apartments and residential units. The complex is located in the Lifestyle & Leisure zone in Medini.

Another catalytic project by IIB is EduCity, a 305 acre fully integrated best-in-class education hub comprising universities and institutions of higher education, academia-industry action and a research & development center. The area will also include accommodation as well as recreational and sports facilities. Newcastle University Medicine Malaysia (NUMed) is currently under construction and the campus is scheduled for completion in May 2011.

IIB is also spearheading the catalytic development of Iskandar Malaysia’s infrastructure, including the 15km six-lane, toll-free coastal highway which is one of the biggest infrastructure projects for the region which will significantly improve accessibility and traffic flow there. Another IIB-led initiative is the development of integrated waterfront projects including the Oakwood Residence Johor and Iskandar Residences in Johor Bahru city.

“With Iskandar, we have a vision and plans to create this vision of transforming the region into a dynamic and bustling sustainable development,” says Ms. Arlida.

For foreign investors, she says, “We want to have a balance, with the main criteria that foreign investors continue to grow and add value as Iskandar Malaysia continues to develop into a strong, sustainable conurbation of international standing.”

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