Discuss any initiatives taken by government to create investment climate and infrastructure.

Question:

Discuss any initiatives taken by government to create investment climate and infrastructure.

Answer:

Definition

Investment climate refers to economic and financial conditions in a country that affects whether individuals, banks and institutions are wiling to lend money and acquire a stake in the business operating there.

On the other hand, quality public business infrastructure are provided by the states such as sound regulation, market-supporting laws that are implemented fairly by honest and well-trained judges and a transparent procurement system.

Malaysia Incorporated Policy

One of the initiatives taken by the government to create investment climate and infrastructure is through the implementation policies. In 1981, The government has decided to implement Malaysia Incorporated Policy through the parliamentary process in which corporate bodies and government sectors discuss on how to attract investors and preventing Malaysia from being adversely affected by the crisis. This policy was introduced to encourage cooperation between the public and private sectors whereby both sectors act and operate within a “Malaysia Company” (UKAS, 2015). The concept of interdependence in this policy is seen where the private sectors upholds economic activities while the public sector draws up policies to facilitate the success of businesses. This policy is in accordance to the New Economic Model under the 10^th Malaysian Plan.

The government encourages private sectors to invest in development projects under the Privatisation and Public Private Partnerships (PPP) and these injection of funds stimulates Malaysian economy. Hence, the Privatisation Policy was launched in 1893 to support the Malaysia Incorporated Policy which aims to lessen financial and administrative burden of the government and assist in reaching the country’s economic policy’s goal (EPU,2003). Amongst the achievements of this policy are Kuala Lumpur International Airport (KLIA), Light Rail Transit (LRT) and Tenaga Nasional Berhad (TNB).

Government Transformation Program

Furthermore, the introduction of Government Transformation Program helps in increasing quality of life of Malaysians. This has caused a political stability during the reign of the former Prime Minister Dato 'Sri Mohd Najib bin Tun Haji Abdul Razak because government was seen as accountable. There are six pillars or National Key Result Areas (NKRAs) in the GTP based on the rakyat’s most pressing concerns. These are Reducing Crime, Fighting Corruption, Improving Student Outcomes, Raising Living Standards of Low-Income Households, Improving Rural Basic Infrastructure and Improving Urban Public Transport.

Under this policy, the government had won the trust of the investors because bad practices such as crime and corruption are reduced. This is evident when the 2010 GTP Report had claimed that the Index Crime had been reduced by 15% in four years and scoring 4.4 points in the Corruption Perception Index. These investors believe that in a country where there is positive public perception towards the government, businesses are facilitated to grow.

The government also implements nation-wide development of infrastructure that creates a harmonious environment in Malaysia. Among these infrastructures includes the building roads, construction of public transports and providing clean water. For example, the construction and completion of the Bandar Tasik Selatan Integrated Transport Terminal (also known as Terminal Bersepadu Selatan). These government facilities aids in the business transactions hence, attracting investors.

Diversifying Economic Activities

Moreover, the Malaysian government shifted its focus on diversifying its economic activities contributing to the conducive economic climate for investments. This is due to the financial crisis in 2014 when oil prices dropped which negatively impacts Malaysian economy as Malaysia had a great financial dependency on its oil exports. Among these economic activities includes telecommunications, oil and gas and financial services. However, the government restricts the percentage of other shareholders in the company. This is because the government will maintain as the major shareholder and do decision making while having investors funding these companies. For example, there is a limit of 70% foreign participation in Network Facilities Providers (NFP) and Network Service Provider (NSP) licenses such as in Telekom Malaysia. Under the terms of the Petroleum Development Act of 1974, the upstream oil and gas industry is controlled by Petroleum Nasional Berhad (PETRONAS), a wholly state-owned company and the sole entity with legal title to Malaysian crude oil and gas deposits. Non-Malaysian firms are permitted to participate in oil services in partnership with local firms and are restricted to a 49% equity stake if the foreign party is the principal shareholder. However, the central bank, Bank Negara Malaysia, would allow a greater foreign ownership stake if the investment is determined to facilitate the consolidation of the industry (US Department of State, 2017).

OECD Investment Policy Review

The Malaysian government, in partnership with the OECD and ASEAN, has undertaken a review of its investment policies as part of an active programme of investment policy reforms to help revive both foreign and domestic investment.

Malaysia stands out as one of the economic success stories in Asia. Foreign direct investment (FDI) has played a major role in the growth and diversification of the economy, and has been a key part of an outward-oriented development strategy. However the Malaysian economy is confronting numerous inter-related challenges as it strives to attain developed country status by 2020.

This review assesses the investment climate in Malaysia, including the institutional and legislative framework for investment. It focuses on policy options in the areas of investment, infrastructure, finance, responsible business conduct, corporate governance, and green investment and discusses measures to help revive both foreign and domestic investment. This will help the government in finding ways to improve the investment climate.

One of the successful implementations through this policy review is the enhancement of entrepreneurial skills and promoting the development of SMEs in Malaysia. For example, the government initiated 1AZAM program which aims to increase the gross income of lower income households through SME development. These lower income groups were given opportunities to become entrepreneurs through training programs.

References:

1. Abdul Jalil, A., & Abdul Rahman, R. (2010). Institutional investors and earnings
   management: Malaysian evidence. Journal of Financial Reporting and
   Accounting, 8(2), 110-127. doi:10.1108/19852511011088370

2. Government transformation programme : The roadmap. (2010). Kuala Lumpur:
   Performance Management And Delivery Unit (PEMANDU).

3. Jomo, K. (2003). M way : Mahathir's economic legacy. Kuala Lumpur: Forum.

4. Smallbone, D. (2010). Entrepreneurship and public policy (International library of
   entrepreneurship, 19). Cheltenham, UK: Elgar Research Collection.

5. World Bank. East Asia and Pacific Regional Office. (2005). Malaysia : Firm
   competitiveness, investment climate, and growth : Based on the productivity and I
   investment climate survey conducted between december 2002 and may 2003 with
   reference period of 1999-2001 (Document of the world bank, report no.
   26841-ma). Kuala Lumpur: World Bank.