Malaysia Looks West for Investments

LONDON — With Europe’s economy mired in a debt crisis, governments in the region have been looking east for a helping hand, tapping the likes of China and Japan to buy their bonds and step up investments.

 

Queen Elizabeth met with Najib Razak, Malaysia's prime minister, and his wife, Rosmah Mansor, at Buckingham Palace. 

But at least one Asian country — Malaysia — still sees value in turning the opposite way, to enhance opportunities for its more assertive multinationals as well as bolstering investments from the West.

The Malaysian prime minister, Najib Razak, led a large official delegation last month to Britain via Turkmenistan, to capitalize on his country’s strong economy and investment inflows and assuage concerns about political agitation in the multicultural Southeast Asian country.

In past years, “it was just ‘please come to Malaysia,’ ” the trade minister, Mustapa Mohamed, said during an interview on the trip. “Now we are going to foreign countries to help provide access to Malaysian companies.”

Part of the sales pitch is selling the economic recovery story. The economy grew by 7.2 percent last year after shrinking 1.7 percent in 2009, and the government anticipates expansion of about 5 percent this year and next. The Malaysian inflation rate has been creeping up, though it remains moderate by global standards, at an annual rate of 3.5 percent in June.

But officials were also eager to ease potential concerns about the Malaysian political challenges.
“I think many investors have been to Malaysia, they understand the complications in Malaysia — multiracial, multireligious,” Mr. Mohamed said. “We need to have laws in place to ensure that things don’t get out of hand.”

The Coalition for Clean and Fair Elections, or Bersih, an amalgam of nongovernmental and activist groups, has pushed for changes in electoral law from the coalition government led by the United Malays National Organization, which has dominated politics since independence from Britain in 1957.

Bersih was declared illegal July 1, after which hundreds of activists were rounded up. Most of them were quickly released, but some were held longer. On July 9, thousands of protesters defied a government ban and held a large street protest, during which the police fired tear gas and water cannons and arrested about 1,700.

“We have to engage,” Mr. Mohamed said, “we have to continue changing, reform.”

Underneath the political tension is an economy that has proved increasingly attractive to overseas capital.
Nonequity foreign direct investment inflows in 2010 were $9.1 billion, according to the United Nations Conference on Trade and Development, up from $1.4 billion a year earlier. The government is confident that it can retain that momentum.

“It’s not having an impact on investor confidence,” Mr. Mohamed said of the recent disturbances.
Ian Bryson, an analyst in Singapore at Control Risks, a consulting firm, said that there was less political risk in Malaysia than most of its regional peers and that the country benefited from relatively low corruption and a fairly dependable judiciary.

“I don’t think the current political agitation is pivotal or that the country is at a tipping point,” he said. “Malaysians are not interested in a full-scale upheaval.”

“The opposition is factious but vociferous,” he said, adding that splinter, conservative groups from the United Malays group still had the potential to destabilize the governing coalition in the next election, which is expected to be called in 2013.

On the economic front, Mr. Bryson cited concerns about limits on equity ownership in certain sectors — favoring ethnic Malays known as Bumiputera — and the employment of foreigners. He also noted broader skills shortages and restrictive local hiring and firing rules. “It’s generally very open to business, but with some cultural and sociopolitical limitations,” he said.

A report from the World Bank’s private sector arm, the International Finance Corporation, ranked Malaysia 21st out of 183 economies globally for the ease of doing business. The country scored lower for starting businesses and enforcing contracts.