Economic Prospects Dangerous
2008 Budget Speech (4)
by Lim Kit Siang
The budget offers the rosy view
that the Malaysian economy will continue to be resilient, with a projected
growth of between six and 6.5 percent in 2008.
The economic prospects need to be placed in perspective. First and
foremost, the external economic environment has sharply deteriorated and
the international agencies and governments of the developed countries have
turned bearish on global economic growth prospects in the wake of the US
sub-prime crisis. Some analysts have even gone so far as predicting a
Malaysia, as an open economy, is not immune from these adverse
developments. History indicates that a global slowdown impacts on Malaysia
in a magnified manner lower exports linked to weak demand and lower
commodity prices; lowered inflows of capital and through multiplier
effects contributing to lower domestic economic activity, lower domestic
investment, and lower government revenues which in turn force the
government to increase borrowing with the inevitable growth in the
Thus, the over-optimistic assumptions and forecasts lack credibility. The
prognosis for 2008 must thus be viewed at best as one of increased
uncertainty and heightened risk.
A more realistic assessment would be that Malaysia may face an economic
crisis and will need to change course to withstand the looming economic
storm. It cannot continue on the present path. It is deeply troubling that
the Government does not appear to have recognized the perilous
circumstances that are now unfolding.
The Prime Minister offered in the latest budget more incentives and
concessions to the private sector and yet again exhorted the private
sector to take a lead in investing and promoting growth. What the Prime
Minister failed to acknowledge was the stark fact that implementation of
the NEP was the single most important impediment that affected the private
sector and its ability to play a fuller and more robust role. He offered
no indication of policy changes or attempts to allay the fears and
frustrations of the private sector concerning the NEP.
The private sector can be broadly sub-divided into three major components:
The foreign owned corporations or corporations in which there foreign
The Small and Medium sized Enterprises
It is appropriate to briefly review the current scene in respect of each
of these groups.
The GLCs constitute the largest and most important segment of the private
sector and operate as monopolies facing little or no competition. Many of
these entities are ill-managed and record humongous losses or at best low
returns on capital. Proton is but one example.
There is little evidence that the various tax and other incentives offered
via successive budgets have influenced their investment or other business
decisions. The corporate culture in many of these entities differs from
that prevailing in the multinational corporations.
The foreign owned multinationals have for the most part located themselves
in Malaysia in past decades for the most part because of the attractions
offered by a low wage labor market coupled with the tax holidays.
New investments have been affected by the disappearance of the low wage
factor, the over-regulation by the government, the high cost of doing
business and the increasing political uncertainties. These entities are
unlikely to expand irrespective of the changes in the so-called incentive
New investors of this genre are unlikely to locate themselves in Malaysia
as alternative investment destinations gain ground, e.g. Vietnam, China,
India etc. Furthermore, the growing negative factors in terms of the cost
of doing business, corruption, and lack of transparency, over-regulation
and the political risk factors outweigh the benefits of investment
incentives that are offered.
Malaysia's Small and Medium-sized Enterprises contribute some one-third of
its GDP of RM340 billion. An estimated 90 per cent of SMEs are
Chinese-owned. It is these that bear the full brunt of the NEP.
According to a recent survey conducted by the Associated Chinese Chambers
of Commerce & Industry of Malaysia (ACCCIM) these enterprises had a rough
ride in the first half of the year and are pessimistic about second-half
year prospects. The survey revealed that domestic competition, rising raw
material prices and operating costs, as well as opaque government policies
were the three factors which most adversely affected the business
performance of these businesses.
The survey indicated that despite the slew of ongoing government
initiatives to ensure the sustainability of the local economy, the
community appears less optimistic about economic prospects in H2.
A more robust ringgit had affected nearly a third of its 28,000 members
who are export-oriented. Only 20 percent of ACCCIM members who
participated in the survey anticipate a rise in export sales, compared
with 37 per cent in 2006. The pessimism also extends to local sales. Only
17 per cent believe domestic sales will increase. The survey also
indicated that inflationary pressures are expected to continue to have an
impact on sales, with 64 per cent believing rising inflation will affect
consumer sentiment and sales.
A more stark survey finding was that the Chinese owned SMEs do not expect
to benefit from additional government spending on a number of massive
development initiatives to ensure the sustainability of the local economy
in the years ahead. This is in part because they do not believe they would
be on the list of beneficiaries of these projects, and they anticipate
bureaucratic red tape will continue to act as a stranglehold.
The ACCCIM once again called for improving the delivery system. In their
view government policies need to be more transparent and liberal.
The ACCIM expressed deep concern about the policy guidelines on
distributive trade which the Domestic Trade & Consumer Affairs Ministry
has tried to introduce to the ire of many. These guidelines stipulate
businesses which are owned 15 per cent and above by foreigners should be
restructured in a way which allows bumiputras to hold at least 30 per cent
equity. The paid-up capital of the businesses also has to be raised to a
minimum of RM1 million and the composition of the directors and employees
must reflect the racial composition of the country.
It is these and similar issues which are matters of concern. These remain
unaddressed. Thus, granting more incentives as the present budget does is
not a solution. What is indeed devastating is the lack of consistency.
Whilst much is made of the incentives, the budget takes contradictory
One section in the budget - tucked under the Corporate Social
Responsibility section is likely to further alarm the private sector.
The budget proposes from next year, that all public-listed companies will
have to disclose their employment composition by race and gender, and list
program to develop local and Malay partners. This surprising section is
only one sentence long, but it will reinforce the idea of a stronger
Malay, rather than a national agenda. It is actions such as these that
bring into question the seriousness with which the Government approaches
the issue of improving the business climate.
The budget for 2008 continues to pay lip service about improving the
nations competitive position and a few rhetorical sound bites are
offered. There is however a total disregard of the fact that improving
competitiveness will demand drastic and vigorously implemented measures
Pursue relentlessly the elimination of corruption
Greater accountability and transparency concerning the use of public
Deregulation and a change in the licensing and permit regimes which feed
into the culture of rent seeking and corruption
Improve the productivity of the million plus public servants
Effective use of the nations reservoir of human resources via policies
that give scope for merit and talent
Elimination of counter-productive policies and procedures associated
with aspects of the NEP
It is noteworthy that the Budget speech, the most important and key policy
statement in the national calendar, contained no references to any of
these issues. Nor did the speech acknowledge, let alone offer solutions or
steps in facing up to the greatest and most dangerous challenge posed by
the acceleration in race polarization. The most telling message delivered
by the Budget is that these challenges are not to be met; the nation will
instead continue to rely upon short term feel good populist policies.
Opposition Leader, MP for Ipoh Timur & DAP Central Policy and Strategic
Planning Commission Chairman