Malaysia must be the premier magnet for FDIs and undertake a revolution in good governance, transparency and integrity if we want to be a model for China and other ASEAN countries

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Speech
by Lim Kit Siang  
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(Parliament, Wednesday) :  I am very surprised by the keynote address of the Prime Minister, Datuk Seri Abdullah Ahmad Badawi at the third China-ASEAN Business and Investment Summit in Nanning, China on October 31 where he held up Malaysia¡¯s economic and industrial development plans as the model of openness and transparency for China and other Asean countries to emulate to attract foreign investors.

This might be an appropriate pitch to make two months earlier, but not after the World Bank released its Worldwide Governance Indicators (WGI) 2006 report in September and the United Nations Conference on Trade and Development (Unctad)  its World Investment Report 2006 in the middle of last month.

In the WGI 2006, Malaysia fared worse as compared to 10 years ago in five of the six good governance indicators ¨C voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law and control of corruption.

My warning  in Parliament on Monday morning that  the WGI 2006¡¯s very poor rating of Malaysia on ¡°control of corruption¡± foreshadowed a plunge in Malaysia¡¯s ranking in the Transparency International (TI) Corruption Perception Index (CPI) 2006 had been proved right, when the TI CPI released worldwide some five hours later revealed that Malaysia had slipped to an unprecedented 44th place, falling another five places from 39th position last year.

The Unctad  World Investment Report 2006 also revealed unflattering figures for Malaysia as it inter alia stated:

•Foreign direct investment (FDI) in Malaysia dipped to US$3.97 billion last year from US$4.62 billion in 2004;

•For the first time since 1990, Indonesia managed to overtake Malaysia in drawing FDIs. Inflows to Indonesia surged by 177% to US$5.26 billion last year. Indonesia  registered a 177 per cent  hike in FDI from US$1.89 billion in 2004 to US$5.26 billion in 2005, while Malaysia suffered a 14.3 per cent shrinkage of FDI.

•As a whole, FDIs to South, East and South-East Asia reached a new high of US$165 billion last year, a 19% increase over 2004, with China (US$72 billion), Hong Kong (US$36 billion) and Singapore (US$20 billion) as the biggest receipients of FDIs in 2005.

•Malaysia, placed seventh position in South, East and South-East Asia among the top 10 recipients of FDI inflows, is facing serious challenge from Thailand which registered an increase from US$1.95 billion in 2003 to US$3.69 billion last year as compared to Malaysia¡¯s US$2.47 billion to RM3.97 billion for the same period.

With such poor good governance and FDI showings, Abdullah keynote address for the third China-Asean Business and Investment Summit should have been rewritten although it might have some basis when it was originally crafted before the Unctad World Investment Report 2006.

In the past three years, China attracted a total of  US$186.53 billion in  foreign direct investment (FDI) ¨C comprising US$53.5 billion for 2003, US$60.63 billion  for 2004 and US$72.4 billion for 2004 ¨C as compared to US$11.06 billion  FDIs for Malaysia for the period, i.e. US$3.47 billion in 2003, US$4.62 billion in 2004 and US$3.97 billion in 2005.

Imagine a country which could only attract 5.93% of the US$186.53 billion FDIs which  went to China in the past three years having the temerity to offer itself as an example of its ¡°transparent¡± economic and industrial development plans to China as to how to attract FDIs!

Clearly, Abdullah needs advisers and speechwriters who are more nimble and agile to latest local and international developments so as not to expose the Prime Minister  to regional and international ridicule.

If Malaysia wants to hold itself out as a model of transparent economic and industrial development plan to China and other Asean countries, it must first fulfill two conditions -  firstly, be the premier magnet for FDIs in the region and not as at present, lagging behind others and even losing out to Indonesia,  with Thailand and Vietnam making strong progress in the international competitiveness stakes at the expense of Malaysia,  and secondly, undertake a revolution of good governance, particularly in transparency and integrity.

The government is not ready for such a revolution of good governance, transparency and integrity as evident by  the failure of the reform agenda in the past three years, and in particular, the  failure to honour the Prime Minister¡¯s  public undertaking on his return from Mecca on Oct. 16 to make public the EPU methodology and data on its corporate equity calculations.

During the debate on the Prime Minister¡¯s Department on Monday, I had spoken at length on the flaws of the EPU methodology, giving ten illustrations  on why the EPU methodology could be incorrect and  misleading, giving a false picture of ethnic corporate equity, the corporate sector and the national economy.

I had expected the Minister who has direct charge of EPU, Senator Datuk Seri Effendi Norwawi to come personally to Parliament to give a point-by-point rebuttal to my speech and  the 10 illustrations highlighting the six major flaws of the EPU methodology, but instead, he despatched his deputy minister, Senator Datuk Abdul Rahman Suliman who, when pressed, said he would give me a written reply to the examples I had given.

May be Effendi is embarrassed to come, because he is not only Umnoputra but NEPputra par excellence, who had benefited enormously from the NEP as compared to the overwhelming majority of the Malays ¨C as illustrated by news report last month of his RM50 million divorce settlement with his former wife Zariah Hashim @ alias Farida Effendi.  What percentage of Malays after 36 years of NEP could afford not 10 per cent, but one per cent, of Effendi¡¯s  RM50 million divorce settlement?

However, Abdul Rahman only disclosed part of the EPU methodology when what is expected of a government which wants to hold itself out as a model of transparency and good governance to China and other Asean countries is the full publication of the  entirety of the EPU methodology and data used.

Abdul Rahman had  dismissed the University Malaya research study entitled ¡°Bumiputeras in the Corporate Sector ¨C Three decades of performance 1970-2000¡±, by Dr. M. Fazilah Abdul Samad, head of department of finance and banking in the Faculty of Business and Accountancy, which was completed in 2002  which found that the 30 percent bumiputera equity ownership as targeted under the government¡¯s NEP had already been achieved about a decade ago when it hit 33.7 percent in 1997.

Abdul Rahman argued the methodology used in the Fazilah study  only covered public listed companies on the Kuala Lumpur Stock Exchange, now called Bursa Malaysia and did not differentiate between the bumiputera ownership and government-owned shares, and that the  definition of bumiputera equity include agencies which the government has interests.

Abdul Rahman is wrong and clearly he has not read or understood the Fazilah report.    Fazilah¡¯s research -   a 10-year analysis of bumiputera equity ownership between 1988 and 1997 of public listed companies on the KLSE based on the par value of the shares ¨C used  calculations which showed the bumiputera equity ownership hitting 33.7 percent in 1997. It did not include government-linked companies as claimed by Abdul Rahman. Fazilah had put the government-held ownership at 9.5 percent in 1997 under another category.   It also did not include

nominee company ownership which many economists have argued would be held in the majority on behalf of bumiputeras.

It is most deplorable that the government front-benchers are so irresponsible that they are not aware that they are showing utter contempt for Parliament and public opinion when they stand up and proudly claim that they have not read or understood repors and studies which come directly under their portfolio of responsibilites and which had been the subjects  of public controversies ¨C like the Asli report by Professor Dr. Lim Teck Ghee  and the Fazlilah study.  Some even have the cheek to ask the Opposition to give them copies of these reports, which are in the public domain.

This was also the stance of the Deputy Finance Minister, Datuk Dr. Awang Adek during question time yesterday, when he disclosed  that bumiputeras own 36.64% of corporate equity ownership valued at RM78.4 billion as at Dec 31 last year based on the listed companies on Bursa Saham.  As this is based on par value, the percentage of  bumiputera corporate equity would be very much higher if based on market value.

I wish to take this opportunity to ask for answer to the supplementary question which I posed yesterday, but which Awang Adek was unable to reply.
 

I refer to the tables on Ownership of share capital of limited companies by ethnic group and sector, between years 2002 and 2004 contained in the 9^th Malaysia Plan, which  raise a number of troubling issues. The changes reported have not been explained.

For instance, within the utilities group, the share capital ownership for both Bumiputera and Chinese have fallen significantly from 12.4% to 6.3%, and from 37.1% to 8.9% respectively. Foreign ownership of share capital, however, has increased from 32.1% to 67.3%. How and why was there such a large disinvestment by Malaysians. Who were the foreign interests that acquired such a sizable increase?

Similarly, within the finance group, share capital ownership of Bumiputera has reduced from 20.7% to 12.5%, whereas foreign and nominee companies ownership have increased tremendously.

This pattern can be seen within the transportation and finance groups, where foreign ownership has ballooned from 17.0% to 31.3% and from 27.1% to 59.5% respectively.

Nominee shareholdings have increased significantly, which is evident from the mining and finance groups, increasing from 6.5% to 25.4% and from 9.7% to 17.5% respectively.

Has ownership of share capital in certain sectors been transferred from Bumiputera to foreign and nominee companies between the years 2002 and 2004?

Answers to these questions must be forthcoming. Such answers are unlikely until there is full transparency about the methodology employed by EPU.
 

(08/11/2006)