NEP, brain drain holding back Malaysia, says World Bank

KUALA LUMPUR, April 28 — More than one million Malaysians live abroad, the World Bank said today, adding that policies favouring Malays are holding back the economy, causing a brain drain and limiting foreign investment.

In a Bloomberg news service report today, World Bank senior economist Philip Schellekens was also quoted as saying that foreign investment could be five times the current levels if the country had Singapore’s talent base.

“Migration is very much an ethnic phenomenon in Malaysia, mostly Chinese but also Indian,” Schellekens (picture) told Bloomberg in Kuala Lumpur on Tuesday ahead of the report’s release today.

Governance issues and lack of meritocracy are “fundamental constraints” to Malaysia’s expansion because “competition is what drives innovation,” he said.

Malaysia’s growth fell to an average 4.6 per cent a year in the past decade, from 7.2 per cent the previous period.

Singapore, which quit Malaysia in 1965, expanded 5.7 per cent in the past decade and has attracted more than half of its neighbour’s overseas citizens, according to the World Bank.

Malaysia has in recent years unveiled plans to improve skills and attract higher value-added industries.

The World Bank conducted an online survey in February of 200 Malaysians living abroad in conjunction with the Kennedy School of Government at Harvard University.

They cited better career prospects, social injustice and higher wages as their main reasons for leaving, the Washington-based lender said in the Bloomberg report.

Singapore has absorbed 57 per cent of Malaysia’s overseas citizens, with almost 90 per cent of those crossing the border ethnic Chinese, the World Bank said.

“If Malaysia has the investment environment of Singapore and also had the innovation and skills environment of Singapore, then foreign direct investment inflows into Malaysia could be about five times larger,” Schellekens said in the Bloomberg report.

“They need to boost productivity and strengthen inclusiveness.”

Prime Minister Datuk Seri Najib Razak has pledged to roll back the country’s NEP-style policies but he also told the Umno assembly last year that the government’s social contract of providing benefits to Bumiputeras cannot be repealed.

According to the Bloomberg report, Najib has eased some rules to woo funds, including scrapping a requirement that foreign companies investing in Malaysia and locally listed businesses set aside 30 per cent of their Malaysian equity for indigenous investors. Last year, he unveiled an economic transformation programme under which the government identified US$444 billion (RM1.3 trillion) of projects from mass rail transit to nuclear power that it would promote in the current decade.

“If everything is implemented as they say, Malaysia is going to be a star economy,” Schellekens told Bloomberg. “The problem is implementation.”