Tuesday, February 9, 2010
by Alex Paul
FEB 8 — As you read this, 400,000 people are in danger of being made homeless by rising sea levels, but we haven’t taken much notice.
We haven’t done so because those people live in the Maldives, a small nation with no natural resources other than its (non-extractable) natural beauty. Thanks largely to global warming, the tiny collection of 26 atolls are being submerged by the rising levels of the Indian Ocean, but is struggling to get help.
In October last year, its Cabinet staged a publicity coup of sorts by holding a special meeting under water. It worked — and the Maldives got its fleeting moment of fame to highlight the impact of global warming. The gimmick is a stark demonstration of the challenges that smaller countries face in getting any meaningful international attention, even for the most pressing of issues.
Further East, another landscape change of sorts is affecting Malaysia. In the rapidly changing world map of international investment, the relatively small Malaysia is increasingly fading from prominence. This isn’t entirely its own doing — the world looks very different today than it did 10 or 15 years ago.
Gone is Malaysia’s position alongside the Asian “tigers” of East Asia, once the rising stars of the emerging markets. In its place is an increasingly liberalised landscape dominated by the BRIC (Brazil, Russia, India and China) giants and populated by new investment destinations stretching from Turkey and Hungary in the West, to Vietnam and Indonesia in the Far East.
Malaysia’s prominence in this new environment matters because it is facing increasing competition for that all important ingredient for growth — foreign investment. Even the most avid “Malaysia Boleh” patriots amongst us should agree that its importance is vital in the development of the economy.
Malaysia, after all, serves as a testament to the positive role that foreign investment can play in the economic development of a young nation — foreign capital helped start whole new industries (from plantations to car plants) that created new jobs, imbued useful skills and transferred valuable know-how. Domestic investment and demand has yet to reach levels where they can independently sustain national growth.
The good news is that there is now more money than ever before looking for a home in the emerging markets. Investors ranging from hedge funds looking for a quick return to more traditional long-only equity funds are now allocating larger proportions of their portfolios to these markets as their clients demand a share in the economic expansion of the new world. Even the mighty Anthony Bolton, a highly respected former UK fund manager at Fidelity, has been persuaded to come out of retirement to invest the growing tide of international money looking to make a play on China’s growth.
The bad news is that despite this growth, Malaysia may not benefit if it remains passive.
The increase in quantity has not necessarily meant that there has been a corresponding growth in quality. So even as the pie has expanded, Malaysia must compete ever harder for a better slice. Some foreign capital is invested directly in actual businesses or projects and is known as Foreign Direct Investment (FDI). Other investments, categorised as Portfolio Investments, are less direct, and find a home in listed securities, whether debt or equity.
FDI is favoured because it is generally long-term in nature (what one financier I recently spoke to called “stickiness”) and often comes with non-financial benefits like a transfer of knowledge or technology. Portfolio Investments, whilst not always the case, are often short-term and is increasingly comprised of “hot money” looking to make a quick return from market imbalances or anomalies.
If Malaysia does not give itself a makeover to attract committed new capital, it will be left with short-term investments — the equivalent of speed dating in the international capital markets. International money will not invest in long-term projects in Malaysia if it perceives an opportunity to make greater returns with less risk in other markets.
In the borderless world of capital, foreign companies can still benefit from Malaysia’s markets by selling them goods made in newly-built plants in cheaper neighbouring countries whilst foreign investors can continue to cherry pick the best Malaysian companies or assets by buying listed securities.
Complicating this conundrum is Malaysia’s relatively small size. With a population of just under 30 million (compared with the 85 million Vietnamese and 120 million Indonesians), Malaysia has a small domestic consumption market. Having benefited from a reputation of being a source of cheap, skilled labour, it is now also perceived to be a more costly investment choice than its more populous neighbours.
So how is Malaysia to compete in this new environment?
Firstly, by creating a new Malaysian story. Liberalisation for its own sake is no longer enough. Malaysia’s ability to attract new investment by opening up its economy is somewhat limited by its social priorities domestically. The new policy framework must focus on attracting quality investments by creating a set of new, attractive and sustainable economic fundamentals. A low-cost labour base is no longer relevant. Instead, the new Malaysian story must focus on its undersold and unique asset — a growing middle-class that is well educated, English speaking, and increasingly spendthrift.
Secondly, it must sell this new Malaysian story to the world. One-off gimmicks will not do the trick here. Climbing mountains or landing Proton Wiras on the North Pole to get attention isn’t just ineffective, it’s a distraction. Instead, policies must lead perception. Malaysia needs a clear, loud and constant voice on the world stage. The Ministry of International Trade and Industry currently performs that role in some guise, but it needs to increase its profile. The bureaucrats in Putrajaya could do worse than to get some help from the likes of AirAsia, Genting and YTL — all home-grown companies of international repute.
Thirdly, Malaysia must be part of the Asean story. Malaysia must push not just for regional co-operation, but for economic integration. Investors increasingly look at markets in the context of its region, both positively (as Ireland has benefited from being a member of the EU) and negatively (as some Gulf states have suffered as a result of bad news emanating from Dubai).
Individually, Asean nations are simply not large enough to attract sufficient international attention. But as an economic bloc representing some 600 million consumers, its place on the world map will grow in prominence. If Asean moves from being a diplomatic platform to a more open and integrated market, the region will go from being a “nice to have” to a “must have” for international investors.
These actions are nothing if not ambitious, but as the competitive landscape continuous to evolve, Malaysia must take immediate and bold steps or risk being submerged in the rising tide of globalisation.
* This article is the personal opinion of the writer or publication. The blog owner does not endorse the view unless specified.
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