30 March, 2010

NEM - may spell an end to some of the special privileges enjoyed by ethnic Malays ?

Prime minister Najib Abdul Razak has unveiled a new economic plan in a push to transform the country into a developed nation by the year 2020.

The plan, called the New Economic Model (NEM), will eliminate rent-seeking and patronage viewed as stemming from race-based policies favouring ethnic Malays in place for nearly four decades.

The past policy has provided ethnic Malays with privileges in areas such as jobs, housing, education, businesses and government contracts.

He promised to review the controversial race-based policy, and said the new model will provide fair treatment for those who form the bottom 40 per cent of the income strata.

Najib called the long-promised economic reforms a "bold transformation" when unveiling them.

He said "the objectives of the existing programme, known as an affirmative action policy, are still relevant "but it is time to review its implementation".

"It will now be need- and merit-based, rather than race-based, with the top priority to "eradicate poverty, irrespective of race", Najib said.

"So there will be a renewed affirmative action policy ... It will focus on the needs of all our people,"

Najib said the government will no longer tolerate practices that support "the behaviour of rent-seeking and patronage".

The NEM is designed to boost economic growth so that Malaysia achieves the income levels of a "rich" nation by 2020, more than double its $7,000 per capita income of today.

The proposed reform comes at a time when Malaysia is losing its attraction as a low-cost investment destination to other countries in the region such as Vietnam and Indonesia.

In view of that, the NEM proposes reducing subsidies and in raising education levels.

Najib said that two subsidiaries of Petronas, the state oil giant, would become listed companies and that the Employees Provident Fund, a state fund, would sell some of its holdings to boost liquidity on the stock market.


Following are some of the highlights of what he announced:

* State investor Khazanah to sell 32 percent stake in Pos Malaysia.

* To list stakes in two Petronas units.

* Facilitate foreign direct and domestic direct investments in emerging industries/sectors.

* Remove distortions in regulation and licensing, including replacement of Approved Permit system with a negative list of imports.

* Reduce direct state participation in the economy.

* Divest GLCs in industries where the private sector is operating effectively.

* Strengthen the competitive environment by introducting fair trade legislation.

* Set up an Equal Opportunity Commission to cover discriminatory and unfair practices.

* Review remaining entry restrictions in products and services sectors.

* Phase out price controls and subsidies that distort markets for goods and services.

* Apply government savings to a wider social safety net for the bottom 40 percent of households, prior to subsidy removal.

* Have zero tolerance for corruption.

* Create a transformation fund to assist distressed firms during the refom period.

* Easing entry and exit of firms as well as high skilled workers.

* Simplify bankruptcy laws pertaining to companies and individuals to promoteo vibrant entrepreneurship.

* Improve access to specialised skills.

* Use appropriate pricing, regulatory and strategic policies to manage non-renewable resources sustainably.

* Develop a comprehensive energy policy.

* Develop banking capacity to assess credit approvals for green investment using non-collateral based criteria.

* Liberalise entry of foreign experts specialising in financial analysis of viability of green technology projects.

* Reduce wastage and avoid cost overrun by better controlling expenditure.

* Establish open, efficient and transparent government procurement process.

* Adopt international best practices on fiscal transparency.

Key benefits

The New Economic Model outlines three key benefits for businesses - to provide an equitable environment in which investors will thrive, an effective ecosystem for operations and an efficient market to facilitate investment.

On equitable environment, there will be due recognition of the rights and possibilities of business owners and the rule of law that allows businesses to manage their affairs with the assurance of a fair and credible legal system, the National Economic Advisory Council (NEAC) said in the New Economic Model for Malaysia Part 1 Report released here today.

It said entrepreneurs will be given the freedom to fully own their
businesses and work with partners they choose while intellectual assets will be protected.

Regulations for small and medium enterprises (SME) will be appropriate and proportionate to the risk faced by small businesses while business operations will be free from rent-seeking, quotas and preferential treatment.

To provide an effective ecosystem for business operations, NEAC said the government will set up a transformation fund which will help entrepreneurs to have access to special assistance during the economic transition period.

It said approvals will be faster in public services while unnnecessary
licensing and undue regulatory burden will also be removed.

In terms of human capital, employers will enjoy an efficient access to the best talent they can afford and increased flexibility and timeliness of access to SME funding.

To ensure an efficient market to facilitate investment, NEAC said that there will be confidence in the openness and fairness of government tenders while entrepreneurs will thrive in liberalised sectors.

The council said the private sector will also have more opportunities to collaborate with the public sector and government-linked companies.

With minimal exceptions, NEAC said subsidies and price controls will also be eliminated to enhance more growth opportunities.

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