30 June, 2009

Malaysia in major liberalisation drive

Prime Minister Datuk Seri Najib Razak unveiled a raft of measures to boost investment in the slumping economy, coming close to ending an affirmative action program for ethnic Malays that critics say has stymied growth.

Najib Razak told a conference in Kuala Lumpur that his government would end rules on foreign investment in most sectors of the economy and would open up the investment management and brokerage industry, as well as property, ending requirements for 30 percent ownership by ethnic Malays.

He also promised reforms of Malaysia's huge government companies such as plantations and property giant Sime Darby, and said they would be forced to sell non-core assets to boost domestic competition in the Southeast Asian nation.

"We have become a successful middle income economy, but we cannot and will not be caught in the middle income country trap," Najib told the conference.

"We need to make the shift to a high income economy or we risk losing growth momentum in our economies and vibrancy in our markets."

”The world is changing quickly and we must be ready to change with it or risk being left behind,”

The most significant move was to change a requirement that ethnic Malay investors must hold a combined 30 per cent stake in listed companies. For newly-listed companies, the quota would be cut to 12.5 per cent and could be further reduced if companies later issue more shares. Foreign companies seeking a listing on the Kuala Lumpur stock exchange are not subject to the quota system.

Among other measures introduced on Tuesday, Malaysia will allow foreign investors to own 70 per cent of local stock brokerages, up from a current 49 per cent limit. This follows a recent easing of foreign ownership limits for insurance companies.

But foreign investors will still be limited to minority stakes in banks, telecommunications and energy companies, which are regarded as ”strategic industries”.

The measures could provoke a backlash among the ethnic Malay population that have benefited from the so-called ”bumiputra,” or sons of the soil, policy.

Meanwhile, Anwar said the Liberalisation measures not “comprehensive”

Measures to liberalise the economy are positive, but do not address issues of governance or affirmative action, he said.

"They must be coupled with affirmative action. Liberalisation must also guarantee the welfare of the poor and marginalised," Anwar said, adding that such affirmative action should be based on need rather than race.

Anwar also criticised the announcement as it did not propose measures to ensure better governance.

"If this is not corrected, it will not attract investors," Anwar warned, a reference to Malaysia's reputation for endemic corruption.

Speculating on the motives for the liberalisation, Anwar described them as "political".

"These are nice pronouncements for non-Malay [Malaysians]," said Anwar.



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