Business

Tuesday September 1, 2009

New MIDA chairman on: Why progressive liberalisation?

Comment - by Tan Sri Sulaiman Mahbob


The speed of market opening must be in tandem with the capacity of domestic service providers to compete effectively

IT may not be far fetched to state that public policies in all countries are deeply intertwined with the dictates of national culture, political expectations and the broad political economy of the country.

Invariably, these matters influence investments and business policies of nations and investors’ decision-making too. The concerns can also be reflected in our programmes for economic liberalisation.

Malaysia is, therefore, no exception to putting various requirements to businesses and investment as long as they are transparent and consistent with the terms set by the World Trade Organisation (WTO), based on multilateral trade negotiations (MTN).

The fact that MTNs have stalled since the Doha Round does not in any way deprive signatory countries from putting specific requirements for trade and investments between them and other members, so long as they are not inconsistent with their earlier WTO promises.

Since the General Agreement on Tariffs and Trade (GATT) days, Malaysia has contributed to the multilateral processes of trade liberalisation, especially on the goods sectors. However, the last round of trade negotiations took some time to conclude (from 1986 to 1994), in part, due to the need to define comprehensively the multilateral terms of trade in services and the expectations that developing countries make significant offers of liberalisation within the services sectors.

The developing economies were very guarded in making offers in the services in the last trade round, and they were rightly so, for several reasons. First, their engagement in services negotiations was on the basis of progressive liberalisation. Second, they all knew that their services trade was relatively undeveloped and hence accelerated services trade liberalisation would lead to their countries being swamped by service providers from the developed countries, whose services constituted more than 75% of their total output.

Third, they were even more cautious when it came to financial services liberalisation because banking and finance is almost the lifeline of all national economic systems.

Thus one needs to be quite appreciative why services liberalisation has to be staged and done in the spirit of progressive liberalisation, the spirit of which is embedded in the negotiations history at the WTO.

The position for Malaysia vis-a-vis services trade is even more sensitive. Malaysia is graduating from being a favoured destination of labour-intensive industries. It therefore needs to strengthen its services sectors, especially in their exports potential.

Malaysia had made two important decisions recently – first, to liberalise 27 services sub-sectors, and, second, to do away with the Foreign Investment Committee requirements for mergers and acquisitions, except in areas related to national interest industries such as ports and airports, highways, and defence-related industries.

In preparing for this change and move, the Government has agreed to strengthen the Malaysian Investments Development Authority with powers to promote investment in the services industries such as education, health, tourism and professional services.

Some quarters are not too happy with the Malaysian announcements. Of course they wanted much more. Malaysia is always principle-based. Our offer is based on the need for progressive liberalisation, and our offer will be in line with the state of our services economy.

In other words, we will offer sectors (or sub-sectors) where we can effectively compete, and sectors where we need to strengthen with new investments and capacities.

There is no point in liberalising if such liberalisation may lead to the death of local suppliers. This does not mean that the domestic players do not need to strengthen themselves. They have to, especially in view of the increasing pressures for more liberalisation in our economy.

The concern of foreign investors is quite understandable though. With the current turmoil in the world economy, potential areas of investments are relatively few. That is why the stock markets have, in some cases, led their economic fundamentals.

Malaysia is seen as a safe haven for businessmen and investors. However, the experiences of 1997/1998 were still fresh in our mind when we got a big beating on account of being very liberal in our dealings with the short-term capital financial flows. The international regulatory authorities were of not much help then.

In this regard, what is the position of banking and financial services? A quick survey of the sector shows that the foreign presence in the sector is quite significant already. With the advent of information and communication technology, its exposure in the economy in terms of credit and deposit shares is even significant than it appears to be.

On this matter, we have however undertaken liberalisation of the sector along the lines of the national master plan for financial services which is already known to all in the market. Thus, in view of the need to advance its services industries, Malaysia must liberalise its services sectors in stages. The speed of liberalisation must be in tandem with the capacity of domestic service providers to compete effectively, and that our instruments to promote services are well in place.

However, we can be liberal in areas where our current capacity is non-existent but we may have the potential to grow the country into a strong business location for such services. In this latter area, we can be very liberal but we need to guide the market players with a transparent plan of action.

  • Tan Sri Sulaiman Mahbob is former director-general of the Economic Planning Unit. His appointment as chairman of Malaysian Industrial Development Authority takes effect Tuesday.

    • E-mail this story
    • Print this story