Prime Minister Najib Razak announces a major liberalization of the Malaysian economy on Tuesday, relaxing a host of restrictions on foreign investment. (Photo: Mark Baker, AP)

Malaysia Opens to Foreign Capital

The Malaysian government took a dramatic step on Tuesday to liberalize its economy as it heads into recession, relaxing a host of restrictions on foreign investment, including a controversial rule requiring some businesses to be partly owned by ethnic Malays.

Prime Minister Najib Razak announced in Kuala Lumpur that listed companies would no longer be required to allocate 30 percent of their stakes to Malays as part of a controversial and longstanding affirmative action program for the country’s ethnic majority.

The move was largely applauded by business players in Jakarta, some of whom noted that it wouldn’t affect foreign investment in Indonesia and would also opens doors for local investors looking at Malaysia.

“It’s a policy to attract foreign investors, but [Malaysia] is not our rival in drawing in investors,” said Purbaya Yudhi Sadewa, senior economist at the state-run Danareksa Research Institute in Jakarta.

“Investors are looking for growth in a country as well as labor and raw materials, putting us in a better position than them.”
“So, it will not negatively impact us directly,” he said.

Sandiaga Uno, managing director of Saratoga Capital, which is seeking investment opportunities in Malaysia, also praised the move, saying the requirement to have an ethnic Malay partner made running a business more complicated.

“However, I think Indonesia may still be a better investment than Malaysia,” he said, adding that the Jakarta government should find a way to respond.

“We have a better market than them, so the government must also take some action to attract new investors,” he said.

Najib said the rule limiting foreign ownership of enterprises neither benefited poor Malays nor was sustainable amid the global economic slowdown, which is forecast to force Malaysia into its first recession in a decade. The economy is expected to shrink by as much as 5 percent this year.

“The world is changing quickly and we must be ready to change with it or risk being left behind,’’ Najib told an investment conference organized by Malaysia’s stock exchange.

“It is not a time for sentiment or half measures but to renew our courage and pragmatism to take the necessary bold measures to advance the national interests for the long-term benefit of all Malaysians,”  he added.

Najib will have to walk a political tightrope by diluting the New Economic Policy (NEP), which provides a host of privileges in business, education, jobs and property ownership to Malays, who make up 60 percent of the country’s 28 million people.

Chinese and Indian ethnic minorities have long chafed against the NEP, which Najib has been slowly dismantling since taking office on April 3.

Even many Malays have protested against the program, saying it mainly favors elite Malays with connections in high places.
Najib later told reporters that the NEP has failed to meet its target of raising Malays’ share of corporate wealth to 30 percent by 2010. It stands at 19 percent now.

JG, AP

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