Monday, June 11, 2018

Malaysian Affirmative Action: Recession Victim?

It is generally well-known that businessmen of Chinese descent dominate commerce in Southeast Asia. Malaysia is hardly an exception to this reality, and this has in the past inspired race riots such as the May 13 incident of 1971. Fearing reprisals from Malays who constitute a large share of the population, Malaysia has for over four decades maintained policies favoring Malays. And so various bumiputra ("son of the Earth"; presumably in contrast to lighter-skinned Chinese) policies have been instituted giving preferential treatment. In particular, the government has aimed to have 30% firm ownership in bumiputra hands--with, it must be said, mixed success. Although Malaysia's economic fortunes have waxed and waned over the years, the Asian financial crisis affected it badly, variants of the New Economic Policy (NEP) have remained in force.

Perhaps we should add "...until now." As the Asian country with the third largest share of exports to GDP. Malaysia is once again being adversely affected. In particular, its ability to attract foreign direct investment (FDI) is coming into question. That is, does the need for 30% bumiputra ownership deter foreign investors who would otherwise consider the country an attractive investment proposition? This is an interesting question as the country begins pondering the dismantling of bumiputra/NEP to cope with a changed economic environment. Effective immediately, 27 service sectors will no longer be subject to such requirements, with the stated intention of helping develop these sectors. From the Malaysia Star:

The government has removed the 30% bumiputra equity condition in 27 services sub-sectors, with immediate effect. Prime Minister Datuk Seri Najib Tun Razak said the sub-sectors, which involved health and social services, tourism services, transport services, business services and computer and related services, would have no equity conditions imposed.

He said the liberalisation was aimed at creating a conducive business environment to attract more investments, bring in more professionals and technology, encourage competitiveness and create higher value employment opportunities. “We will be progressively undertaking liberalisation of the other services sub-sectors,” he told a press conference at his office on Wednesday.

Saying that the services sector would become a new growth sector of the economy, Najib said it contributed 55% to the GDP in 2008, and accounted for 57% of total employment in Malaysia. The Government wanted to tap the sector’s full potential and raise its contribution to 60% of the GDP, he said.
American journalists being American in being hung up on race, the Wall Street Journal covers more of the racial angle:
Malaysian Prime Minister Najib Abdul Razak announced a significant relaxation of the multiracial country's longstanding affirmative-action policies in a bid to lure foreign investors and accelerate its recovery from the global economic slump. Mr. Najib told reporters in Malaysia's administrative capital Putrajaya that foreigners investing in parts of the service sector will no longer be required to take ethnic-Malay partners, who now must own 30% of any joint venture.

The newly opened sectors include health, tourism, and business and technology services, but don't include areas in which there is heavy state involvement or which are politically sensitive, such as air travel, utilities and retail, where companies such as Carrefour SA of France and Tesco PLC of Britain have pushed for more access.

The policy change indicates how a central tenet of Malaysia's race-based political system is coming under pressure as the country struggles to cope with the global economic crisis. Mr. Najib hinted that further measures may be announced next week, including changes in the country's finance sector.

HSBC economist Robert Prior-Wandesforde predicts Malaysia -- Asia's third most trade-dependent economy after Hong Kong and Singapore -- will contract 3.5% this year, leaving the country's leaders scrambling for ways to give it a short-term boost and aim for a sustained recovery when the global economic climate improves.

"This is an area where investors have been looking for a change for a long time. There might not be an immediate effect -- there's not a lot of investment anywhere -- but over time it will help," said Mr. Prior-Wandesforde. The Singapore-based economist forecasts that Malaysia's economy will rebound strongly and grow 5.5% in 2010.

The scale of any potential backlash against Wednesday's policy shift among Malaysia's Muslim Malay community could determine whether Mr. Najib will attempt to continue dismantling the country's affirmative-action program, known as the New Economic Policy.

Malays make up 60% of Malaysia's 27 million people and demonstrators have recently staged marches in defense of Malay rights. A wholesale reversal of the affirmative-action policies could be a flashpoint in a country already divided over the issue as well as dealing with a political feud between Mr. Najib and opposition leader Anwar Ibrahim.

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