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Rightways: Business and Economy
Infolinks.com, 2618740 , RESELLER
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KUALA LUMPUR: The RM40bil Semarak Niaga Keluarga Malaysia programme is seen as timely in helping businesses to recover, although its impact would depend on execution and approval processes, according to economists. `
The programme, launched yesterday by Prime Minister Datuk Seri Ismail Sabri Yaakob, aims to increase access to financing for businesses especially micro, small and medium enterprises (MSMEs) and the informal sector. `
The programme comprises direct loans, financing guarantees and equity injections. `
Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the programme is quite timely, as the global economy will take some time to recover. `
Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the programme is quite timely, as the global economy will take some time to recover. `
“This economic disruption is unlike the previous ones such as the 2008 global financial crisis. Governments around the world are still hesitant about reopening their borders and economies,” he noted. `
Regarding government debt and fiscal sustainability, he said the programme involves various government agencies and development financial institutions (DFIs). `
“I don’t think there is direct financing from the government except if there are financing guarantees involved. While the DFIs have a mandate to support the government’s agenda in terms of promoting the growth of MSMEs, the DFIs also exercise their own due diligence to mitigate risk,” he said. `
Afzanizam added that the financial impact of the increased access to financing would also depend on “how quickly the funds are disbursed”. ` “This should help the Micro, Small, Medium Enterprises to recover faster, especially as the government has signalled that there would not be any more lockdowns. We can expect better prospects, going forward, for MSMEs involved in tourism and consumer spending-related activities,” he said. `
Afzanizam also noted that many industries were facing issues such as inflationary pressures due to higher raw material prices, difficulties in getting workers and logistical delays. `
“The better access to financing will certainly help businesses manage their working capital and boost their liquidity position,” he said.
`Meanwhile, Centre for Market Education CEO Dr Carmelo Ferlito told StarBiz he had mixed views about the programme.
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Centre for Market Education CEO Dr Carmelo Ferlito told StarBiz he had mixed views about the programme.
“From one side, the programme is an open recognition that lockdowns harmed the economy more than the benefits they provided (if any). In this sense, the government’s attempt to support businesses in general and SMEs in particular is welcomed,” he said. `
However, Ferlito said he is concerned about the potential unintended consequences such as inflation. `
“In a nutshell, easy credit or financing can only further stress the inflationary pressures currently at play. Just to give you some figures: given 100 the values of 2019, at the end of 2021, gross domestic product was 97.33 (so, below the 2019 level); however, M1 (the basic monetary aggregate) was 127.78, consumer price index 101.8 and producer price index 107.64. `
“So, further money injections in the form of zero-interest loans and other refinancing initiatives can only add pressure on pressure,” he explained. `
Ferlito said another concern is that economic initiatives may be initiated only because of the financial support rather than on the basis of a sound economic plan. `
On fiscal sustainability, Ferlito said a less risky way to address the needs of businesses is through more favourable tax schemes and incentives rather than ambitious financing programmes, which present risks for inflation, sustainability (for banks too) and in general, for the overall cyclical dynamic of the national economy. `
SME Association of Malaysia national secretary-general Chin Chee Seong said: “This programme is very much welcomed. For businesses to revive and to help in their cashflow, it is important for them to have fresh loans with lower interest and longer repayment periods.” `
Chin said one issue he foresees is that the loans and micro credit schemes may be “taken up very fast” and may not reach the businesses in dire need of such financing. `
“Also, the DFIs should be less stringent in assessing the loan applications and lower the bar for loan approvals,” he said.
Tough times: A sign advertising job openings is seen in New York. The US economy is far from healed, with 5.3 million jobs lost to the pandemic yet to be restored and employers adding a mere 235,000 positions in
August - Last year, the United States massively expanded unemployment aid as Covid-19 broke out.— Reuters pic
WASHINGTON, Sept 6 — Spending less on food. Drawing down on retirement savings. Dropping out of the workforce altogether.
Last year, the United States massively expanded unemployment aid as Covid-19 broke out. But in the coming days those benefits will end, forcing millions of jobless Americans — some of whom haven’t worked for the entire pandemic — to make hard choices about how they will get by in an economy newly menaced by the Delta variant.
“I have no idea how we would survive, just on my daughter’s income,” said Deborah Lee, an unemployed phlebotomist in Arizona who is recovering from a Covid outbreak that affected her daughter and two of her three granddaughters.
The government-funded programmes that increased weekly payments and gave aid to the long-term unemployed and freelancers were credited with keeping the United States from an even worse economic collapse last year.
In recent months they have become controversial, with some states ending them early and arguing they encouraged people not to return to jobs that Covid-19 vaccines made safe, though studies have disputed that contention.
From September 6 they will end nationwide, and while economists don’t expect them to meaningfully dent the US economy’s recovery from its 2020 debacle, they’ll undoubtedly up the pressure on the unemployed.
“I think it’s going to be an underappreciated event in the economy,” said Andrew Stettner of progressive think tank The Century Foundation, predicting that 7.5 million people will be relying on the programmes when they end.
“It’ll be kind of a silent crisis.”
‘Screwed over’
The expansion of the unemployment safety net occurred in March 2020, when Congress rushed to blunt the emerging pandemic with US$2.2 trillion (RM9.11 trillion) in spending through the CARES Act rescue package.
While never meant to be permanent, the benefits were reauthorised twice, most recently in the US$1.9 trillion American Rescue Plan enacted by President Joe Biden and his Democratic allies in Congress last March.
While many in the Republican Party at first backed the programmes, by this year their lawmakers were arguing against them, and 26 states, most with Republican governors, moved to end them early in whole or in part.
A study published last month by researchers from American and Canadian universities found only modest improvements in hiring and earnings in some of those states that ended the aid early, while spending fell 20 per cent.
Meanwhile the economy is far from healed, with 5.3 million jobs lost to the pandemic yet to be restored and employers adding a mere 235,000 positions in August, according to government data released Friday.
In Delaware, Ohio, Karen Coldwell says she sends out about 10 job applications weekly but has yet to be hired. All other openings she sees are for low-wage work, the kind of jobs she held when she was younger.
At age 64 she is not yet ready to retire, but worries she’ll have to start dipping into her retirement savings once the long-term unemployment programme ends.
“There’s just nothing out there. There’s jobs, but the money’s not there anymore,” Coldwell said.
Others can’t return to the workforce, even though they know the benefits that make up their only income are ending. Brooke Ganieany of The Dalles, Oregon, said she has no one to care for her toddler son if she were to find employment.
“I feel kind of screwed over,” the 21-year-old told AFP. “I feel like they’re doing this to make us have a plan and get back to reality, which is not exactly the slogan they should be using.”
Unequal damage
Those eligible will continue to receive benefits under states’ regular unemployment programmes — but the end of a US$300 extra weekly supplement means their checks are about to shrink.
“It’s going to affect it so much. I’m going to have to cut back on food,” said 58-year-old Karen Williams, an unemployed graphic designer in Pennsylvania.
Gregory Daco of Oxford Economics predicted the cut off in benefits would lower household income by US$4.2 billion per week in September, or about US$210 billion annualised for the month.
“It’s not going to be the type of shock that puts the US economy into reverse,” he said in an interview, but predicted that “lower-income families and minorities are more likely to be negatively impacted.”
Fearful of further coronavirus variants and with her daughter missing badly needed pay from the family’s battle with Covid-19, Lee said she is waiting to hear whether the government will grant her disability aid for a hand injury, conceding her days of employment are likely behind her, at least for now.
“I don’t even know what the answer is,” she said. — AFP
On Oct 24 2020 during the Bund Summit in Shanghai, Jack Ma delivered his
keynote address where he criticised China’s regulators’ saying
“outdated supervision” of financial regulation was stifling innovation
and its global banking rules were like an “old people’s club.”
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PEOPLE who have invested heavily on China stocks in the past two years must be wondering when did it all start to go wrong? After all, China did celebrate the 100th anniversary of the Chinese Communist Party recently on July 1.
Usually on such momentous occasions, one would expect China’s government to prop up financial markets and show the world its economic strength. Ironically, most Chinese stock market indexes are down year to date giving up the strides made for the better half of the year as seen in table 1.
So, did it all start with Jack Ma? On Oct 24 2020 during the Bund Summit in Shanghai, Jack Ma delivered his keynote address where he criticised China’s regulators’ saying “outdated supervision” of financial regulation was stifling innovation and its global banking rules were like an “old people’s club.”
He called for change and said that Chinese banks had a “pawnshop mentality which affects many entrepreneurs.” Many suspected that this led to regulators scuttling Ant Group’s Us$37bil (Rm156mil) mega initial public offering (IPO) and the eventual three-month-long disappearance of Jack Ma.
Before Jack Ma, there was Dalian Wanda Group’s Wang Jianlin, once Asia’s richest man with a net worth of Us$46bil (Rm194bil).
He owned the largest cinema chain AMC (one of the popular Reddit meme stock in 2020/21) and had ambitions to overtake Disney but was hit hard when regulators embarked on capital controls to rein in capital outflow from China.
Businessmen who were taking on debts buying assets all over the world outside of China became a target.
When regulators flexed their muscles, Wang tried to avoid the same fate as HNA Group (one of China’s largest assets buyers which filed for bankruptcy) by immediately disposing foreign assets to comply. Wang then, was among one of the well-connected tycoons to Beijing’s political elites and at one point he was even bidding for the Bandar Malaysia project.
If we were to look back at history, Jack Ma or Wang Jianlin were definitely not the early precedents where China’s government had intervened in businesses.
During the Qing Dynasty, legendary “red-topped hat” businessman Hu Xueyan, the only merchant to be given a second ranked grade official position and control the economy with businesses ranging from banks, pawnshops, silk trade to daily essentials; met with a tragic end despite his fairytale-like rags to riches journey and contribution to the struggling nation then.
This raises the question, what causes the conflict between the China’s government and the business sector?
History have shown us that China is a country where public interests takes precedent over corporate profits.
There are no person or entities that are too big to fail.
This is a complete opposite to United States’s capitalist system. In addition, based on historical literature, the traditional social class structure of China dating back to the imperial periods, consist of four main categories; namely scholars, farmers, artisans and merchants.
Interestingly, merchants have always had the lowest standing in the social class structure.
In the case of Ant Group’s failed IPO, setting aside individual politics and ego, there were justifications for regulators to step in specifically on Ant Financial past lending practices at exorbitant rates.
It was able to bypass regulators’ scrutiny where a financial entity such as banks would otherwise be subjected to. This is rather similar to Malaysia where banks are subjected to regulatory supervision by Bank Negara, whereas money lending entities are subjected to supervision by Ministry of Housing & Local Government (KPKT), allowing it to charge interests as much as 18% per annum.
With regards to Didi Global Inc’s troubled Us$4.4bil (Rm18.6bil) IPO on the New York Stock Exchange (NYSE), the back story was Didi went ahead with its IPO, ignoring Cyberspace Administration of China’s (CAC) order to conduct a thorough examination of its network security. CAC was worried Didi’s massive data will fall into foreign hands due to greater public disclosure associated with a US listing. Clearly, in the interest of its shareholders, many of whom were foreign venture capital and private equity funds, Didi prioritised the listing over national interest.
In the latest regulatory clampdown on the private tutoring education sector, the Chinese government directed that companies in this space to operate as a social enterprise instead of a for profit model.
These new rules barred for-profit tutoring in core school subjects to ease financial pressures on families. The policy change further restricts foreign investment in the sector through merger and acquisition (M&A), franchises and others.
Historically, education is of paramount importance in Chinese’s culture. By doing this, China’s government is seeking to ensure affordable education to a majority of the people in expense of the profiteers.
From table 2, you can see how the best names in each sector have been impacted by China’s new regulatory framework changes in recent times.
Of course there are argument in terms of merits and weaknesses for each governance model. The US model spurs creativity and innovation but it also leads to wide inequality and disparity for the majority of the people. The Chinese model, whilst authoritarian and lacks transparency, does protect the welfare of the masses especially those who may fall through the cracks of society.
Neither one is perfect. It all comes down to different priorities. China have done very well eradicating poverty and lifting the people from hardcore poor to a burgeoning middle class society in the past twenty years.
No matter the propaganda painted in western media to shed China in a negative light, there is no denying that they have accomplished what many countries can only dream of – taking care of the majority of the people.
I am by no means a pro-china hawk as I have undergone western education my whole life. However, with my years of experience working with one of the largest Fortune 500 Corporation in China and being in the inner circle of decision-makers, I have learnt much about their fears, concerns and how they navigate the business, political and social spheres while building a fortune.
Every stock market has its nuances
There is a Chinese character “jing wei” when read together means respect and fear. This word aptly describes how China companies operate at all times.
If you are a Chinese company, wherever you may be, you will bend the knee if China’s government wants you to. It is not easy to be successful in China due to the intense competition. It is even harder to be successful and not attract government attention.
Many retailers often lament, “It is hard to make money from Bursa, better to invest in China and Hong Kong stocks.”
I think it is imperative to first understand that every stock market has its own nuances. Unless one has thorough understanding of the local investment climate, latest news flow and even culture, investing in overseas market is not as simple as just buying big brand names or familiar companies.
It is true that good companies in foreign stock markets is part of a bigger ocean with more opportunities and growth runway due to a larger addressable market.
Similarly there are bigger operators, syndicates or scandals lurking around the corner.
Who would have thought that a company like Luckin Coffee, listed on Nasdaq with a market cap of Us$12bil (Rm50.7bil), once the largest coffee chain in China and touted to be the biggest threat to Starbucks, would turn out to be a fraud?
Having said that, as a fundamentalist, I believe this regulation wave causing the sell down provides a great investment opportunity for these companies due to my belief in the long term prospect of China’s economy.
We must remember that very few people in the world are like Robert Kuok. Some have argued the reason for his success is his early entry into China. I beg to differ. I believe strongly his success in China is because he always placed the interests of China before his own corporate and personal interests.
So entrepreneurs who aspire to do well in China, may consider taking a leaf from Robert Kuok’s playbook and the easiest place to start, is to remove the “I” in the equation of things.
Not many will gain in the current furore over Xinjiang cotton, but the West may end up losing more.
As the soil and climate is ideal for cotton farming, Xinjiang produces one of the best quality cotton crops in the world.
XINJIANG has never left the radar of the United States and its allies in their relentless efforts in recent years to vilify Beijing. They have hurled accusations ranging from human rights violations to baseless claim of “genocide” against the Muslim minority groups.
The most recent blow, which has kicked up a huge international firestorm since March 24, centered on the alleged use of “forced labour” in the huge and vibrant cotton industry in Xinjiang.
Calling these accusations “malicious lies and fabrications”, Beijing has imposed tit-for-tat sanctions on politicians and groups in the US, Britain and the European Union (EU), in retaliation for Western sanctions on Chinese officials over their role in alleged human right violations in Xinjiang.
In its attempt to show the brain and culprits behind these allegations, Beijing has also said there are geopolitical and economic reasons in the conspiracy to “blacken” Xinjiang cotton.
Accusing the US of aiming to destabilise China, Beijing’s foreign ministry on March 26 showed the media a 2018 video that recorded a speech by career US army officer Lawrence Wilkerson, who told the US Central Intelligence Agency to use Uyghurs in Xinjiang to hit China from within.
Beijing has also highlighted the subtle link between US government and Geneva-based NGO Better Cotton Initiative (BCI), which has sanctioned Xinjiang cotton despite being informed by its Shanghai branch there are no signs of forced labour in Xinjiang in the latter’s own investigation.
The BCI, hitherto thought to be an independent trade group to promote better standards, is accused by China to have allegedly taken funding from US Agency for International Development (USAID).
According to USAID’s website, the work of the agency “advances the government’s national security and economic interest”.
The Chinese social media has taken this further. It points out that BCI council chairman Marc Lewkowitz is the president of Supima – the promotion and marketing organisation for American Pima cotton growers.
“The US has no right to accuse China over human rights. It’s time for some US politicians to end the drama they made up, directed and performed themselves, and it’s time for them to wake up from their own Truman Show, ” said Hua Chunying, China’s key foreign ministry spokesperson, at a regular press briefing last Wednesday.
As the history of Xinjiang is marred with bloody terrorism and separatism, which was only put to an end by the central government in 2016, the province populated with 12 million Muslim Uyghurs has become an easy target for anti-China groups to fan up religious and anti-China sentiment.
However, amid allegations against China, leaders from the Muslim world who have visited Xinjiang have not uttered disapproval. In fact, some Middle East nations even voiced support for Beijing’s treatment of the Uyghurs.
A 25-year strategic cooperation agreement signed on March 27 between China and Iran is seen as a stamp of confidence on China by a major Muslim country. The pact, signed at the height of the cotton conflict, covers military, trade, energy and economic cooperation. It has attracted Western media and eyes.
In countering the claim that Xinjiang cotton is tarnished by forced labour, China has questioned why its accusers have persistently refused to visit Xinjiang and do their own fact-finding.
In the past, Beijing has adopted a relatively passive response towards western accusations. Its rebuttals often came in the form of press statements and media interviews to show the good work they have done in Xinjiang, which include eradicating extreme poverty in this arid mountainous north-western province, setting up schools for the young, and creating employment for the jobless.
But this time around, China has dropped its soft approach. It has hit back mercilessly.
For politicians with wide-ranging commercial interest in China, it really hurts. One named person facing China’s sanctions saw his family fortune dwindle by US$1bil as businesses linked to him are hit, according to social media posts.
It is understandable that Beijing has to respond fast as these claims are hurting Xinjiang and undermining China’s economy. It has triggered boycott of Xinjiang cotton by Western brands led by H&M, Nike and Adidas – all members of the BCI.
According to China Daily, the boycott has had an instant impact on Xinjiang’s cotton/textile industry. Textile factories are planning to lay off workers and cutting purchase from local farmers due to cancelled orders.
The cotton/textile industry in Xinjiang has created jobs for 600,000 local people. More than 50% of farmers in Xinjiang grow cotton, with over 70% of these farmers coming from ethnic minority groups – the Uyghurs, Kazaks and Uzbeks, says the daily.
The boycott has had an instant impact on Xinjiang’s cotton/textile industry.
According to commentators on China’s official CCTV television (Channel 4) last Sunday, cotton farming was introduced to help eradicate abject poverty. As the soil and climate is ideal for cotton farming, Xinjiang produces one of the best cotton crops (in terms of quality) in the world.
With an annual output of 5.2 million tonnes, Xinjiang’s cottonco accounts for 87% of China’s output and 23% of world supplies. By end-2019, there were 808 cotton processing plants in Xinjiang, accounting for 84% of China’s total, says a report in Global Times.
These statistics show that cotton farming and textile manufacturing has become a mainstay of Xinjiang’s economy, apart from tourism.
If Xinjiang’s cotton is tarnished, this segment of Chinese economy will be affected. More so will be China’s efforts in poverty eradication, hailed by the World Bank as a great achievement.
Hence, it is no surprise China has had to roar back to stop further damage.
Arguing against the “forced labour” claim, the Global Times noted that over 90% of cotton fields in the northern part of Xinjiang is mechanised.
And interestingly, the cotton-picking machines of Xinjiang are imported from the US. John Deere of the US has sold US$500mil worth of cotton-harvesting equipment to Xinjiang since 2017, according to the South China Morning Post.
But the loss in this row is not just confined to China. Western brands that have dropped Xinjiang cotton are feeling backlash from the mainland’s consumers, who have called for a nationwide boycott by China’s 1.4 billion people.
Sweden’s garment company H&M, reported to have 505 sales outlets in China, saw its stores empty on March 25, shunned by local customers. It was reported that six stores have closed after landlords cancelled their leasing contracts.
As China is a major market for H&M in terms of revenue, H&M last Wednesday posted a statement on its website to defuse tension. It said without mentioning Xinjing: “We are dedicated to regaining the trust and confidence of our customers, colleagues, and business partners in China.”
Shuttered shops: Sweden's garment company H&M, reported to have 505 sales outlets in China, saw its stores empty recently due to backlash from irate locals - Reuters
But Chinese netizens are not happy with this statement.
The Chinese sentiment is largely reflected by a post by China’s Communist Youth League: “Spreading rumours to boycott Xinjiang cotton, while trying to make a profit in China? Wishful thinking!”
The foreign ministry’s Hua Chunying stated similar stance: “Chinese people will not allow foreigners to eat our rice and break Chinese bowl”.
More than 40 celebrities in the entertainment world have responded to call for boycott by quitting as brand ambassadors for foreign companies.
It was not a surprise when share price of some multinational companies plunged after the public outcry in China.
According to media reports, Germany’s Adidas saw its share price plunge by over 6% on March 25. Adidas and US-based Nike saw their combined market value dissipate by more than 70 billion yuan or US$10.7bil. The market value of H&M slumped by about 4.8bil yuan.
But if these multi-national corporations (MNC) want to continue to operate in China and earn billions from 400 million middle-class consumers, they may have to do soul-searching and research.
Zhang Yi, CEO of Shenzhen-based iiMedia Research, told Global Times these MNCs may find prospects and growth potential in the rapidly-expanding Chinese market dimmed, and their brand value could be reduced by half.
Before this cotton episode, many MNCs had rosy growth projections for 2021 in the Chinese market. For instance, Adidas was expecting 20%-30% growth in China in 2021, Zhang noted.
Apart from growth, MNCs could also face an irreversible loss in the world’s largest market. When an MNC loses its market share in China, another will promptly scramble in to fill the vaccum, according to Zhang.
According to media reports, Germany’s Adidas saw its share price plunge by over 6% on March 25.
However, not all MNCs are losers. Companies that have aired support for Xinjiang, such as Fila China and Muji China, are enjoying consumer support.
And California-based Skechers has won generous praise for having done its own fact-checking. The footwear firm has said its audits found no evidence its Chinese supplier had used “forced labour”.
Some Chinese brands have also emerged winners in this conflict as consumers turn nationalistic. These include Li Ning and Anta.
Globally, the losers are consumers.
Yang Shu, associate professor of China Agricultural University, said this cotton row would disrupt supply chain and push up costs.
Hence, consumers in EU, the US and Southeast Asia will have to pay more for products with Xinjiang cotton.
For China, this cotton row may be a wake-up call to review its international strategies.
Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation, told Global Times Beijing might have to exert “a far greater say in the global cotton/textile industry and in the formulation of standards and pricing”.
And rightly so, as China is the world’s second biggest cotton producer and largest textile/apparel exporter. Last year, it sold US$291.22bil worth of cotton-linked products to the world.
As US President Joe Biden has declared he will not allow China to overtake the US during his term of office, China can expect to see more blows from the US to contain China and counter President Xi Jinping’s successful Belt and Road Initiative.
But as the Alaska talk last month shows, Beijing is prepared to stand up to the US and the West. It has declared it will not allow China to be bullied and humiliated by the West like 120 years ago.
Responding to reports by
Chinese netizens of a "problematic map of China" on Swedish clothing
brand H&M's official website (hm.com), the bureau of planning and
natural resources in Shanghai informed the company and asked it to
rectify the "problematic map" promptly.
Malaysia is likely to make the transition from an upper middle-income economy to a high-income economy within the next five years despite setbacks from the Covid-19-induced recession, says a new World Bank report.
However, according to the “Aiming High: Navigating the next stage of Malaysia’s development” report, Malaysia is growing slower than many countries that have achieved high-income status in the past.
“Compared to many other countries that have graduated from middle-income status, it has a lower share of employment at high skills levels and higher levels of inequality.
“And compared to countries in the OECD (Organisation for Economic Co-operation and Development), Malaysia collects less in taxes, spends less on social protection and performs relatively poorly in terms of measures related to environmental management and the control of corruption, ” it said, adding that many of these fault lines were exposed during the pandemic.
Malaysia, it said, had been severely affected by Covid-19, adding that it would take “several years before the scars of the pandemic are fully erased”.
The 196-page report is expected to be launched today by Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz in a virtual event that will also see Minister in the Prime Minister’s Department Datuk Seri Mustapa Mohamad delivering his special address on Malaysia’s next development plan.
The report said policies that had enabled Malaysia to successfully transition from low to middle-income would need to be adapted to meet future challenges, adding that these policies and institutions which had worked in the past might no longer be appropriate.
Malaysia’s transition, it said, was also subject to a number of significant downside risks, especially the high level of uncertainty over what would be the “new normal” after Covid-19 and how this would impact the country.
“The Asian Tigers that achieved high-income status in past decades did so in a more benign international environment.
“Malaysia faces not only a global pandemic and a worldwide recession but also a looming international debt crisis, a heightened risk of a resurgence in trade disputes, the potential unravelling of global value chains, and the impact of disruptive technologies that will change the nature of comparative advantage, ” it said.
Domestically, Malaysia also faced ongoing political uncertainty and a significant increase in government debt from financing the economic measures to help the rakyat during the Covid-19.
While it was normal for Malaysia to experience decelerating growth before Covid-19 as it achieved a higher level of development, it appeared to have slowed down more than it should have relative to its potential.
“The country must adopt a new course for greater knowledge-intensive and productivity-driven growth. In this context, the Covid-19 crisis might usefully provide an opportunity to undertake much-needed reforms, ” it said.
The report also noted that as Malaysia positioned itself for the next phase of development and beyond the pandemic, many of the issues related to this transformation were being addressed and discussed, including through the 12th Malaysia Plan and the Shared Prosperity Vision 2030.
“With the impact of the Covid-19 pandemic and its potential to depress growth into the future, issues related to Malaysia’s readiness for the future have become even more significant, ” it added.
Quality better than quantity in foreign investments
World Bank Malaysia cht
KUALA LUMPUR: As Malaysia looks to transform its economy, there is also a need to reorient its practices and policies to attract quality foreign investments that would help the nation achieve its aspirations.
According to World Bank Group lead economist for Malaysia Richard Record, (pic below) the country is now focusing more on quality investments rather than in quantity.
“It is becoming clear that Malaysia is now looking to attract a different type of investment. In the past, Malaysia was at a low level of development and there was a lack of capital. So foreign investment was an important source of investment.
“Now, it’s less so about that, and more about the types of technology, management practices, job creation and opportunities to move into new areas of competitive advantage.
“So Malaysia is looking for something a little bit different from foreign investment now and there’s an opportunity here to rejig some of the policies towards that attraction of quality investments, ” he said.
These reforms include improving speed and transparency in investment approvals and incentive offerings.
Record noted that moving towards an automated approval process would put Malaysia at the forefront.
There is also a need for a more coordinated promotional effort. While Malaysia has a lot to offer investors, Record noted that there were many institutions competing in parallel. Thus, a more coordinated approach would yield a higher return on investment.
According to a United Nations Conference on Trade and Development report, the inflow of FDI into Malaysia dropped by 68% last year.
However, Malaysia is not an isolated case as the report noted that global FDI collapsed in 2020, falling 42% to an estimated US$859bil from US$1.5 trillion in 2019.
“Malaysia is a highly open economy and is exposed to international business cycles. So it is inevitable that we saw a reduction in investment flows to Malaysia last year, ” said Record.
Meanwhile, World Bank Group country manager for Malaysia Firas Raad noted that Malaysia’s fiscal position coming out of the recovery will be somewhat constrained.
Hence, there will be a higher reliance on private investment.
“We are in a highly competitive environment because every government around the world is trying to attract investments. So this is where serious reforms and initiatives have to be implemented to make sure that Malaysia’s offering is really competitive with the countries we see in the region, ” he said.
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