Malaysia to review guidelines for foreign investment

By PAULINE NG, Business Times (Singapore)
IN KUALA LUMPUR

Aug 1, 2008

MALAYSIA'S foreign investment guidelines will be reviewed soon to make them more 'friendly', starting with a list of sectors deemed to be of 'national interest'.

Foreign corporate ownership has slumped from 62 per cent in the early 1970s to 30 per cent now - the target set under the New Economic Policy (NEP) to restructure ownership so that more of the country's wealth is owned by ethnic Malays.

But the time has come to reconsider whether more foreign corporate equity should be encouraged in light of intense regional competition for foreign direct investment (FDI), the co-chairman of business task force Pemudah said yesterday. 'We are approaching the guidelines in a holistic way,' said Yong Poh Kon.

Should foreign ownership be expanded, it would be based on an expanding cake, he explained. Specific equity targets would not be particularly important.

Pemudah will work on a 'negative list' that identifies national interest sectors, said Mr Yong, who is managing director of Royal Selangor Pewter. He declined to say which sectors may be on the negative list. Government officials said there would not be many, but they might include defence, telecommunications and banking.

An investment magnet for the greater part of the 1990s, Malaysia has since seen a significant reduction in FDI in recent years, as foreign investors focus on emerging economic powers China and India, as well as other regional markets such as Vietnam, Indonesia and Singapore.

In Malaysia's case, the fight for FDI dollars is complicated by the affirmative action NEP implemented in 1972, which favours the majority Malays in public offerings, housing, government scholarships, procurement and employment.

The NEP set a target of 30 per cent for Malay corporate equity, but after more than three decades there are disputes over the actual level of ownership, with the government maintaining it is only 20-21 per cent and others saying the 30 per cent target has already been reached, or even exceeded.

The Foreign Investment Committee (FIC) is responsible for major FDI matters and formulates policy guidelines for all sectors to ensure the NEP objectives are met. In the past, some businessmen have said FIC's discretion to approve deals is too wide and its decisions too conservative and not pro-business.

Another area of contention in business circles is government procurement. Local and foreign firms want transparent procurement policies so there is less scope for interpretation. Clear guidelines would also let companies to better decide their chances in government tenders.

Pemudah co-chairman Mohd Sidek Hassan said government procurement and foreign labour are two 'higher-hanging fruits' the task force intends to tackle over the coming year.

Pemudah, set up by the government to facilitate business and help reduce red tape, is made up of public and private sector representatives. But the task force is not mandated to change government policies - only to provide feedback on policies that affect investment.

Mr Sidek earlier launched Pemudah's guidebook on registering freehold property in Malaysia. He said registration will now take only 41 days from the signing of a sale-and- purchase agreement, down from 144 days.