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MALAYSIA 2012 WHO’S WHO

Government Interviews Business Leaders’ Opinions Key Player Biographies Project Data Sector Reports Market Analysis Roundtable Debates

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MALAYSIA 2012

INTERNATIONAL INVESTOR WOULD LIKE TO THANK ITS KNOWLEDGE PARTNERS:

93 BUSINESS INTELLIGENCE: ERNST & YOUNG Malaysia’s corridor development authorities must outline their vision to appeal to citizens and investors alike in order to attract and retain the resources they need to build worldclass cities.

8 WHO’S WHO CONTENTS 12 MALAYSIA AT A GLANCE How does Malaysia compare with other economies in the region when it comes to the ease of doing business and in what areas can investors expect to be most challenged. Read this section to get key economic data and the business rankings that are of the most importance.

15 POLITICS & DIPLOMACY

16 OVERVIEW: POLITICS & DIPLOMACY It is just over 50 years since Malaysia gained independence. The intervening years have sometimes been rocky, but the underlying pattern is clear: reform and development. 20 INTERVIEW: NAJIB RAZAK, PRIME MINISTER

95 WHO’S WHO

16 43 ROUNDTABLE: ECONOMIC TRANSFORMATION This roundtable debate brought together leaders from government and the private sector to discuss the progress that has already been made with Malaysia’s Economic Transformation Programme. Read how investors have responded to the opportunities on offer and the problems that have been faced so far. 59 BUSINESS INTELLIGENCE: SUNWAY REIT 62 WHO’S WHO 70 BUSINESS INTELLIGENCE: SILVERLAKE

Malaysian Industrial Development Authority

74 M-REIT FOCUS

20 23 WHO’S WHO

35 ECONOMY

36 OVERVIEW: ECONOMY Economically, Malaysia’s tale has been a hugely positive one over recent decades. Assisted by major government initiatives, the outlook for the next ten years and beyond looks to be equally promising.

75 REGIONAL DEVELOPMENT

99 BUSINESS INTELLIGENCE: SARAWAK CORRIDOR OF RENEWABLE ENERGY With an abundant energy resource at its core this is a major initiative taken by the State Government of Sarawak. It is aimed at accelerating the economic growth and development of the state towards achieving a high-income economy. 102 WHO’S WHO

113 BANKING & FINANCE

114 OVERVIEW: BANKING & FINANCE As part of Malaysia’s focused aspirations to become a high-income economy by 2020, the BFSI sector is set to benefit and grow strongly over the coming years — and plans include stand-out elements such as becoming the world’s leading Islamic finance hub. 121 WHO’S WHO

77 ROUNDTABLE: ECONOMIC CORRIDORS Malaysia’s policy for regional development is characterised by the existence of its five economic corridors. This roundtable debate brought together central government, chief executives of the corridors and seasoned corridor investors to discuss the opportunities and challenges presented by these investment zones.

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131 ISLAMIC FINANCE

267 OVERVIEW: LOGISTICS A rapidly growing economy, the creation of 3.3 million more jobs and a shift to a service-based economy are all good news for Malaysia’s logistics industry. If logistics service providers can match the pace of transformation, there is great potential.

132 ROUNDTABLE: ISLAMIC FINANCE Malaysia is uniquely positioned in the Islamic Finance market. This debate brought together leaders from all sections of the market to discuss what steps need now be taken at this pivotal time in it’s development.

272 WHO’S WHO

234

243 ADVANCED ELECTRONICS

132 148 WHO’S WHO

155 ENERGY & COMMODITIES

244 OVERVIEW: ADVANCED ELECTRONICS Malaysia’s electronics industry has been focused at the lower value end of the market. However, government initiatives are aiming to move the industry up the value chain and could position Malaysia as a world class semiconductor and solar cell manufacturing destination. 248 WHO’S WHO

157 OVERVIEW: OIL & GAS The success of Malaysia’s Economic Transformation Programme will power an increased demand for energy. Besides exploration, development and services opportunities, renewable energy is a potential investment winner in the coming years. 162 OVERVIEW: COMMODITIES Although Malaysia is a major rubber and timber producer, almost three quarters of the country’s agricultural land is devoted to palm oil production — and the government is keen to increase private sector involvement by offering attractive incentives. 169 WHO’S WHO 199 BUSINESS INTELLIGENCE: 1GREEN ENVIRO

203 ICT

204 OVERVIEW: ICT The ICT sector will play a vital role in Malaysia’s transformation. Rapid developments in the internet and mobility, as well as ever-increasing access to technology, are driving growth in various sub-sectors. With the prospect of cloud computing round the corner. 211 ROUNDTABLE: COMMUNICATIONS & CONTENT This discussion brought together those who have shaped the market in recent times to analyse the many infrastructural and content development challenges still faced by the domestic market. 227 WHO’S WHO

287 CONSTRUCTION & REAL ESTATE

288 OVERVIEW: BUILDING TECHNOLOGIES Supported by committed government initiatives, green building technologies are expected to be at the heart of the country’s young and growing building market over the coming years — and Malaysia is keen to add foreign investment and technical expertise to the mix. 292 WHO’S WHO

Managing Director Colin Forster Publisher Ronnie Tracey

Country Publisher Cory D’Abreo Country Head Michèle Murzilli Editor Louis Black

203

Deputy Editor Vincent Lebon

Regional Editor James Featherstone

Country Editor Ahmad Samad Rahman Sub Editor Nick Howells

Production and Design Editor Paula Munakova Deputy Production Editor Izabela Austin

Designers Athila Armstrong, Sophie Paynter Picture Research Jeanne Falies

305 EDUCATION

307 OVERVIEW: EDUCATION Malaysia has had a strong tradition of educational provision since before independence. Since then, the sector has evolved but retained its commitment to inclusiveness and excellence.

Sales Consultant James Baron

Country Office Manager Siti Nurbaya Taha Operations Head Raymonde Fraisiers

Operations Assistant Kim Lee Book Design Abi Imaging Ltd

Photographer Marson Hendarno This publication is copyright protected. Copying any part of International Investor is unlawful without the prior written permission of Capital Knowledge Limited. No part of this publication may be reproduced or transmitted in any form or by any means nor held in any information storage or retrieval system.

155

261 TRANSPORT & LOGISTICS

262 OVERVIEW: TRANSPORT With very significant transport-intensive growth, Malaysia is planning a wave of major infrastructure projects across the country. In the next five years investment in the country’s transportation systems is expected to reach more than US$15 billion with KL’s mass rapid transportation project being central to these plans.

305 312 WHO’S WHO

319 HEALTH

320 OVERVIEW: HEALTH Malaysia’s healthcare system is moving up the world rankings and the private sector is rapidly growing. A major driver going forward will be the fast-growing worldwide economy in medical tourism, which Malaysia is well positioned to capture a healthy proportion of. 325 WHO’S WHO

335 CONSULTANCY & ADVISORY 336 WHO’S WHO 211

No warranty: whilst every reasonable effort has been made to ensure its accuracy, neither Capital Knowledge Limited nor any contributor accepts any responsibility or liability for the accuracy of any part of the content in this publication. Readers should also be aware that external contributors may represent firms that may have an interest in companies, funds and/or their securities mentioned in their contributions. No statement in this book is to be construed as a recommendation to buy or sell securities in any entity or enter into or exit an investment of any kind.

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349 HOTEL LISTING

info@internationalinvestor.com

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who’s who malaysia 2012

WHO’S WHO CONTENTS Gain valuable market intelligence and an understanding of the opinions and business philosophy of those who are shaping the economy. Read International Investor’s interviews with Malaysia’s business leaders POLITICS & DIPLOMACY 15 – 34

Najib Razak Prime Minister of Malaysia

Mustapa Mohamed Minister of International Trade and Industry

Idris Jala Chief Executive Officer PEMANDU

Rais Yatim Minister of Information, Communication and Culture

ECONOMY 35 – 74

Mohamed Khaled Nordin Minister of Higher Education

Maximus Ongkili Minister of Science, Technology and Innovation

Sulaiman Bin Mahbob Chairman, Malaysian Investment Development Authority (MIDA)

Johan Mahmood Merican Chief Executive Officer Talent Corp

REGIONAL DEVELOPMENT 75 – 112

Charles Ireland President MICCI

Mohd Yaakub Hj Johari President and Chief Executive SEDIA

102

Yong Poh Kon Managing Director Royal Selangor

104

Jhuvarri Bin Majid Chief Executive Officer Sabah Land Development Board

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Abdul Taib Mahmud Chief Minister Sarawak

Jebasingam Issace John Chief Executive Officer ECERDC

107

Ismail Ibrahim Chief Executive IRDA

109

Amar Wilson Baya Dandot Chief Executive Officer Recoda

Redza Rafiq Chief Executive NCIA

111

malaysia 2012 who’s who

BANKING & FINANCE 113 – 130

Tajuddin Atan Chief Executive Officer Bursa Malaysia

121

Osman Morad Managing Director and CEO Standard Chartered

123

Mukhtar Hussain Deputy Chairman and CEO HSBC Bank Malaysia

125

127

Krishna Chetti Chief Executive Officer, Malaysia BNP Paribas

ISLAMIC FINANCE 131 – 154

Goh Peng Ooi Chairman Silverlake

129

148

Muzaffar Hisham CEO and Head of Islamic Banking Group, Maybank Islamic

Noripah Kamso CEO, CIMB-Principal Islamic Asset Management

150

Rafe Haneef Chief Executive Officer HSBC Amanah

153

ENERGY & COMMODITIES 155 – 202

Anuar Taib Chairman Shell Malaysia

Edgar Pushparatnam Managing Director Technip Malaysia

182

Michael Nicholson General Manager Lundin Petroleum

169

184

172

Hugh Thompson Chairman ExxonMobil Subsidiaries in Malaysia

186

Mohd Ajib Anuar Group CEO Malaysia Smelting Corporation

174

Ahmad Ramli Mohd Nor Executive Deputy Chairman and MD Boustead Heavy Industries Corp

Low Ngee Tong Executive Chairman OM Holdings Limited

189

Mokhzani Mahathir Group Chief Executive Officer Kencana Petroleum

Othman Walat Group Managing Director Sawit Kinabalu

176

192

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who’s who malaysia 2012

ICT 203 – 242

Kongkrapan Intarajang Group Chief Executive Officer Emery Oleochemicals

Dharmesh Malhotra Head, Asia South Nokia Siemens Networks

195

231

197

Pang Teck Wai Chief Executive Officer Palm Oil Industry Cluster (POIC)

233

Michael Lake Chief Executive Officer, Pinewood Iskandar Malaysia Studios

Amrin Awaluddin Group Managing Director Media Prima

235

Leo Ariyanayakam CEO and Group Executive Director SCICOM

Samsul Husin Executive Deputy Chairman Century Software

227

237

Zamzamzairani Mohd Isa Group Chief Executive Officer Telekom Malaysia

Wing K Lee Chief Executive Officer YTL Communications

229

239

ADVANCED ELECTRONICS 243 – 260

Sandip Das Chief Executive Officer Maxis Berhad

241

248

Akira Sanuki Managing Executive Officer and President, Tokuyama Malaysia

John See Chief Executive Officer QAV Technologies

251

Yong Chong Chin General Manager Celestica

254

TRANSPORT & LOGISTICS 261 – 286

P’ng Soo Hong Managing Director First Solar

256

258

Thomas Reisinger Vice President & Managing Director Infineon

Azran Osman Rani Chief Executive Officer Air Asia X

272

Teh Kim Poo Chairman Port Klang Authority

CONSTRUCTION & REAL ESTATE 287 – 304

Mior Ahmad Baiti Chief Executive Officer Bintulu Port

278

281

Bjarne Foldager Managing Director, Malaysia, Singapore & Brunei, Maersk Line

10 www.internationalinvestor.com

283

Michael Tio Group Chief Executive and Managing Director, PKT Logistics Group

Shahril Mokhtar Group Managing Director Syarikat Prasarana

285

275

malaysia 2012 who’s who

A.K. Nathan Group Managing Director Eversendai Corporation

292

Jeffrey Ng Executive Director and CEO Sunway Reit Management

294

Raymond Chan Boon Siew Managing Director Sagajuta

297

Wan Abdullah Wan Ibrahim Managing Director and CEO UEM Land

299

Stewart Labrooy Chief Executive Officer Axis Reit

301

EDUCATION 305 – 318

Adam Radlan Adam Managing Director Maju Assets

303

Sharifah Hapsah Vice-Chancellor, Universiti Kebangsaan Malaysia (UKM)

312

314

Dzulkifli Abdul Razak Vice-Chancellor Universiti Sains Malaysia (USM)

317

Zaini Bin Ujang Vice-Chancellor and President Universiti Teknologi Malaysia (UTM)

HEALTH 319 – 334

325

Yahya Baba Chief Executive Officer, Malaysian Health Promotion Board (MySihat)

Siti Sa’diah Sheikh Bakir Managing Director KPJ Healthcare

328

Chan Kok Ewe Director Island Hospital

331

Raja Azlan Shah Raja Azwa Managing Director SIME Darby Healthcare Group

333

CONSULTANCY & ADVISORY 335 – 348

Abdul Rauf Rashid Country Managing Partner Ernst & Young — Malaysia

NOTES

Johan Raslan Executive Chairman PwC, Malaysia

346

336

338

Gopal R VP and Country Head, Malaysia Frost & Sullivan

1. All individuals held the positions stated at the time of International Investor’s interviews in Malaysia. Some may have subsequently left the positions they are said to occupy in this book. 2. Our interview with Danny Y. H. Hang, CEO, RG Gas & Chemical can be found on page 178 and is not listed in this section due to the lack of a profile photograph.

Too Hing Yeap Chief Executive Partner Shook Lin & Bok

340

Leong Wai Hong Partner Skrine

343

International Investor would like to thank all the leaders from government and the business community who have participated in and contributed to our work on the Malaysian economy.

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at a glanceâ&#x20AC;&#x192; malaysia 2012

Cambodia Vietnam

Gulf of T hai land

South China Sea

Thailand

Sungai Kolok

George Town

Kota Baharu

Kulim

Ipoh

Kuala Terengganu

Taiping

Strait of Malacca

Kelang

Kuala Dungun

Sungai Siput Kuantan

Kuala Lumpur

Bintulu

Sibu

Melaka

Jurong

Kuching

I n d o n e s i a J a v a

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S e a

malaysia 2012â&#x20AC;&#x192; at a glance

Facts and Figures ECONOMY OVERVIEW

Philippines

Sulu Sea

Region East Asia & Pacific Population: 27,913,990 Life expectancy at birth: 74 years Population below poverty line: 3.6% Literacy rate: 92% Income category: Upper middle income Unemployment: 3.7% GNI per capita: US$7,900 DB2012 rank: 18 Inflation: 1.7% Exports: US$210.3 billion Imports: US$156.6 billion

TOPIC RANKINGS

Kota Kinabalu Beaufort Kuala Belait Miri

Sandakan Lahad Datu

Tawau

Starting a Business Dealing with Construction Permits Getting Electricity Registering Property Getting Credit Protecting Investors Paying Taxes Trading Across Borders Enforcing Contracts Resolving Insolvency

DB 2012 Rank DB 2011 50 11 113 111 59 60 59 59 1 1 4 4 41 39 29 28 31 60 47 57

Rank Change +61 -2 +1 No change No change No change -2 -1 +29 +10

Source: Doing Business Database, World Bank

Starting a Business

Celebes Sea

Indicator Malaysia Procedures (number) 4 Time (days) 6 Cost (% of income per capita) 16.4 Paid-in Min. Capital 0.0 2 (% of income per capita)

East Asia OECD & Pacific 7 5 37 12 22.7 4.7 0.1 1 4.1

Source: Doing Business Database, World Bank

HOW MALAYSIA AND COMPARATOR ECONOMIES RANK ON THE EASE OF DOING BUSINESS Hong Kong SAR, China

Korea, Rep.

Thailand

Malaysia

18 20

Japan

Taiwan, China

Regional Average (East Asia & Pacific)

China 1

183

Source: Doing Business Database, World Bank

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at a glance malaysia 2012

RANK ON THE STRENGTH OF INVESTOR PROTECTION INDEX

RANK ON THE EASE OF STARTING A BUSINESS Hong Kong SAR, China

Taiwan, China

16 24

Korea, Rep.

Hong Kong SAR, China

Malaysia

4 13

Thailand 50

Malaysia

Japan 78

Thailand

Regional Average (East Asia & Pacific)

107

Japan

Korea, Rep.

79 83

Regional Average (East Asia & Pacific) 151

China

Taiwan, China

183

Rank

China 1

Source: Doing Business Database, World Bank

RANK ON THE EASE OF ENFORCING CONTRACTS Korea, Rep.

Hong Kong SAR, China

China

Source: Doing Business Database, World Bank

RANK ON THE EASE OF PAYING TAXES

Hong Kong SAR, China

Korea, Rep. 16

38 41

Malaysia 24

Thailand Malaysia

31 34

Japan

Regional Average (East Asia & Pacific)

Taiwan, China

71 100

Thailand 85

Regional Average (East Asia & Pacific)

120

Japan

Taiwan, China

122

China 183

Rank

Source: Doing Business Database, World Bank

RANK ON THE EASE OF REGISTERING PROPERTY

RANK ON THE EASE OF DEALING WITH CONSTRUCTION PERMITS 1

Thailand

Thailand 14

Taiwan, China 26

Korea, Rep.

China 63

Japan

Regional Average (East Asia & Pacific)

Taiwan, China

113

Malaysia

Rank

Hong Kong SAR, China

Japan

Malaysia

59 71

Korea, Rep. 179

China

Regional Average (East Asia & Pacific) 183

RANK ON THE EASE OF TRADING ACROSS BORDERS

Source: Doing Business Database, World Bank

RANK ON THE EASE OF RESOLVING INSOLVENCY

Hong Kong SAR, China

Japan

Korea, Rep.

Japan

Taiwan, China

Thailand

Hong Kong SAR, China

China

China 76

Thailand 60

Regional Average (East Asia & Pacific)

Malaysia

183

Rank

Source: Doing Business Database, World Bank

Taiwan, China

183

Rank

Source: Doing Business Database, World Bank

Hong Kong SAR, China

183

Rank

106

Regional Average (East Asia & Pacific) 183

Source: Doing Business Database, World Bank

Rank

183

Source: Doing Business Database, World Bank

The charts illustrate a summary of the World Bank’s Doing Business 2012 data for Malaysia. The first table, on the previous page, lists the overall ‘Ease of Doing Business’ rank (out of 183 economies) and on this page are the rankings by selected topics. Other data on key indicators for each topic and benchmarking against regional and high-income economy (OECD) averages can be found in the Doing Business 2012 database.

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politics & diplomacy

overview politics & diplomacy

Malaysia: the Challenge of Transformation It is just over 50 years since Malaysia gained independence. The intervening years have sometimes been rocky, but the underlying pattern is clear: reform and development

Malaysia has a deserved reputation as a stable and progressive Islamic democracy. That applies to its political system as well as its underlying economic and social aspects. It is difficult to overestimate the importance of this, given a global climate in which politics, economics and society are often fraught. Along with a number of its Southeast Asian neighbours, Malaysia now faces the task of further reform and development in all those areas. In fact, the various governmental structures — federal, state and local — and the political class as a whole, have set themselves those tasks. The road to here The origins of Malaysia lie in the Malay Kingdoms which came within the orbit of the British Empire in the 18th century. The 11 territories on Peninsula Malaysia — the southernmost tip of mainland Asia — were unified as the Malayan Union in 1946. Two years later, Malaya was restructured as the Federation of Malaya. The country finally gained independence from the British in 1957, although political restructuring, and even upheaval, was not at an end. Led by Tunku Abdul Rahman, a prince from Kedah state, the country prospered. Malaya welcomed the Borneo states of Sabah and Sarawak into the Union, and also Singapore in September 1963. The name of the country was changed to Malaysia. Just two years later, however, Singapore separated from the federation due to a number of political and social tensions. Further turmoil occurred six years later, in 1969, when the ruling coalition suffered major setbacks in the May elections, leading to civil unrest. Parliament was suspended for two years in the aftermath. Tunku Abdul Rahman, who once described himself as ‘the happiest prime minister in the world’, resigned a year later, giving way to deputy Abdul Razak Hussein. Abdul Razak expanded the Alliance coalition to welcome former opposition parties, including the Islamist Parti Islam se-Malaysia (PAS).

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politics & diplomacy overview

The over-arching political history of Malaysia has been one of the formation of ruling coalitions out of most of the mainstream parties. The new coalition, known as the Barisan Nasional or National Front, won the 1974 elections and set about reforming and stimulating the agricultural sector, with an emphasis on expanding and consolidating the country’s palm oil estates. Even today palm oil is a key economic sector for the country and much of the groundwork of its current success was laid in the 1970s reforms. Coalition politics is seen as an important factor in holding together a multi-ethnic country. The most significant development in the early 1980s was the emergence of Mahathir Mohamad as head of a government dedicated to ‘managed democracy’ as a way of combating some centrifugal political forces in the country. He became prime minister in 1981 after his predecessor, Hussain Onn, resigned due to health issues. With the advent of the Mahathir years, Malaysia entered a period of extensive reform. Dr Mahathir was prime minister for 22 years, the country’s longest serving prime minister to date. That two-decade period saw significant economic reforms. The Mahathir administration modernised what was previously an economy geared towards the exporting of commodities with a significant agricultural sector. The government pushed the economy to diversify into higher-value production, from electrical components to motor manufacturing. It also increased the pace of privatisation, helping to stimulate years of solid economic growth. The administration also completed large-scale infrastructure projects such as roads, ports, airports and the world’s tallest towers, the Petronas Twin Towers. The Mahathir government instituted the New Development Policy, which was designed to increase economic growth for all Malaysians rather than just Malays. Throughout the 1980s and 1990s Malaysia had one of the strongest economic records of all countries

in Southeast Asia, with average GDP growth of 6.5% up to the Asian currency crisis of 1998. The Asian currency crisis was a set-back for the country, but not one as serious as for many of its neighbours. After an initial period of sustained hits on the economy — the economy shrunk by over 6% in a year, and the Kuala Lumpur Stock Exchange plunged by 50% — the Mahathir government’s capital controls, controversial at the time, paid off. The ringgit was pegged to the dollar, capital controls were instituted to head off speculative attacks on the currency, and IMF loan money was refused. After the fire-storm had passed, Malaysia returned to sustainable growth. This political desire to be slightly apart from the speculative assaults of the global system has continued to this day. Dr Mahathir retired in 2003 and his deputy, Abdullah Ahmad Badawi, took over, instituting the Ninth Malaysia Plan, an economic blueprint for the years up to 2010 and an important precursor to the current Economic Transformation Programme. Dr Mahathir continues to be a strong presence in Malaysian politics and society today. The Badawi government instituted economic and political liberalisation policies, including a widely popular drive against corruption. A key free trade agreement was signed with Japan in 2005, leading to a large increase in trade between the two nations. His government also put forward an interpretation of Islam known as Islam Hadhari, which stressed the compatibility of Islam with modern technological economic development. Today, Malaysia is seen as a model moderate Islamic state. Dato Sri Haji Mohammad Najib bin Tun Haji Abdul Razak is the sixth and current Prime Minister of Malaysia. His administration has also concentrated on domestic economic and political reform. The liberalisation begun under the Badawi administration has continued. One early decision was to lift bans on two opposition newspapers and the release of 13 people held under the Internal

Malaysia’s political desire to be slightly apart from the speculative assaults of the global system has continued to this day

www.internationalinvestor.com 17

overview politics & diplomacy

A constitutional monarchy, the widespread use of the English language and a legal system in part based on English Common Law have stood the country in good stead

The Prime Minister’s Office at Putrajaya

Security Act. Perhaps the two most significant programmes of reform are the 1Malaysia policy and the Economic Transformation Programme (ETP). The former is a campaign announced by the Prime Minister in 2008, calling for all parts of the government and civil service to strive towards ethnic harmony and national unity. In a sign of the desire of Malaysia to become a truly hi-tech country, 1Malaysia has deliberately set out to use social media such as Facebook and Twitter to spread its message. The ETP is the central plank of the government’s desire to make Malaysia a highincome economy by 2020. Malaysia’s colonial legacy has, in common with many former territories of the British Empire, been mixed. It could be argued that the needs of Empire in terms of raw materials had the effect of retarding the country’s progress towards a sustainable modern economy. Equally, some of the ethnic tensions that have afflicted the country have their roots in colonial policy. Yet it is also true that structures such as a Westminster-style Parliament, a constitutional monarchy, the widespread use of the English language and a legal system in part based on English Common Law have stood the country in good stead. Indeed, all instruction in state schools in maths and science is in English, and English language teaching remains at the heart of Malaysia’s education system. One very visible sign of Malaysia’s transformation over the years is Putrajaya, Malaysia’s administrative capital. It is one of the newest cities in the world, construction being started only in the early 1990s. The brainchild of former prime minister Mohamad

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Mahathir, it is located some 25 kilometres south of Kuala Lumpur, and serves as the federal administrative centre for the country. The government was moved to the new city only in 1999, making the arrangement still something of a work in progress. Yet the whole complex is a monument to Malaysia’s political growth. Firstly, it signifies the growing strength of the federal system, a process that has been ongoing in the decades since independence. In 2004, Putrajaya was made Malaysia’s third federal territory, along with Kuala Lumpur and Labuan. Secondly, it indicates a desire among the political class to boost Malaysian business as far as is practical. Around 90% of the construction of the city was carried out by domestic companies, for instance. Finally, it holds up a mirror to Malaysia’s desire to forge a hi-tech future. How the government works Malaysia is a constitutional monarchy and federal state with 13 large territories and three federal territories. Unusually for most monarchies in the world today, Malaysia’s is based on elections. The Yang di-Pertuan Agong (Supreme Head of State) is elected to a five-year term from the nine hereditary rulers of the Malay States. The position effectively rotates through the state rulers. The Federal Government is based in Putrajaya, although the Parliament and Palace remain in Kuala Lumpur. The Prime Minister is head of government and executive power is exercised by the federal government and the 13 states. Legislation is passed by the Federal Parliament and the state assemblies. The Federal Parliament is divided into the Dewan Negara (Upper

politics & diplomacy overview

House or Senate) and the Dewan Rakyat (Lower House or House of Representatives). An international role Malaysia is well engaged with the international community and is a member of a number of significant bodies. It is a member of the Commonwealth of Nations, a legacy of its historical links with Great Britain; the United Nations; the Organisation of Islamic Cooperation and the Non-Aligned Movement. It also plays a key role in regional cooperative efforts. Under prime ministers Tun Abdul Razak and Tun Hussain Onn, Malaysia moved towards a more non-aligned, neutral stance in international affairs. The country’s stated stance is one of maintaining peaceful relations with all countries. Within that framework, however, a move towards a greater emphasis on regional ties has occurred, in particular throughout the Mahathir years. During his premiership, Malaysia joined an ASEAN free trade area and ASEAN—3, a regional forum with China, Japan and South Korea. Malaysia was also instrumental in expanding the ASEAN membership to Laos, Vietnam and Myanmar. Tensions arose during the Mahathir years with Malaysia’s traditional Western allies, in particular Australia. Even so, the Mahathir government continued to work closely with Western countries and led a crackdown against Islamic fundamentalists after the 9/11 attacks. Today, Malaysia’s ties with Western countries are generally close and warm. About 60,000 Malaysians hold degrees from Australian universities, for example. As with all countries, Malaysia’s diplomatic efforts have been focused as much on trade policy as on security. To that end, the country’s eyes have been looking further afield from their traditional relationships recently. One such place has been Kazakhstan, Central Asia’s biggest potential market for Malaysian goods and services. In the past ten years a number of significant trade deals have been signed with Kazakhstan, leading to a position in 2012 where some RM500 million of trade is done annually with the country, up from RM300 million a year previously. Challenges One significant worry that many foreign investors have is the nation’s often unwieldy race-based system of preferences, known as the Bumiputra (sons of the soil) system. Set in place for noble reasons (the under-representation of native Malays in many aspects of national life, from education and politics to business) the system has provoked criticism for being antithetical to the sort of meritocratic society a modern economy needs to have. In notable contrast, Singapore operates no such system. The Malaysian political class has been aware of some of the drawbacks of the Bumiputra

system for some time and has begun to address them. Prime Minister Najib Razak has launched a new version of the policy called the New Economic Model, which is designed to iron out some of the previous problems with the system. The idea behind the updated Bumiputra policy is to make preferences needs-based, rather than strictly racebased. It is early days for the revision, however, and the World Bank has written that ‘limited headway has been made on this front’. Even so, reforming such a central part of the country’s political and social life is not straightforward. Some positive signs are emerging which indicate that what divisions there are may be healing themselves naturally. Increasing numbers of Malaysian companies, particularly in growth sectors such as information technology, are owned and run by Chinese and Malays. Yet, due to Malaysia’s normally coalition-based governments, a careful path has to be picked through such a difficult reform process. Next developments — ETP The central mode of the country’s transformation in the coming years will be the Economic Transformation Programme (ETP), easily the dominant political project the country is undertaking currently. It is the political baby of Prime Minister Najib Razak and is designed to develop Malaysia into a high-income economy by 2020. Projects include developing the country’s oilfields and creating the infrastructure necessary for Malaysia to become a regional oil and gas hub. Also included in the plan is the building of three new power plants and other key infrastructure projects. A number of key economic areas are being stimulated with catalyst projects. The overall desire is to raise the skills level of the workforce and to turn the country into a hitech, high-income nation. Foreign investment has fallen off from the highs of the 1990s and the worry for the country is that it will remain stuck in a middle-income trap, especially given its position in an extremely competitive regional economy. It is hoped that the ETP will put Malaysia firmly back on the investment map by comprehensively increasing the skills base of its industry and workforce. The challenge for Malaysian politics is to become sufficiently flexible and responsive so that true economic transformation can come about. There are good signs that this lesson is at the forefront of political minds in Kuala Lumpur and Putrajaya. The ETP has been successful so far, with a number of key projects on track and key economic indicators looking healthy. The government has promised further and possibly more important announcements in the next couple of years. There may yet be bolder moves on the way. That’s certainly what the stated aim — economic transformation by 2020 — needs.

The Economic Transformation Programme is easily the dominant political project the country is undertaking currently

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interview politics & diplomacy

Najib Razak Prime Minister of Malaysia

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INTERNATIONAL INVESTOR: You were elected to Parliament in your twenties. Did you expect to end up as Prime Minister? NAJIB RAZAK: It might sound a bit presumptuous to say that I expected to become PM, because that is of course dependent on the will of many people, which is something I will never take for granted. However, what I can say for certain is that I had the ambition and the desire to lead when I went into politics. I think that in part this was driven by growing up and seeing my father delivering real, far-reaching change for Malaysia and its people. I suppose most young men are impressed by their father’s work and in some ways want to emulate them — so when your father is doing something that has such a positive impact on people’s lives, I think it would have been a little strange if I hadn’t wanted to follow in his footsteps!

politics & diplomacy interview

However, my desire to enter politics was also driven by a belief in Malaysia’s rich potential and a conviction that I could help the country to realise that potential and become a fully developed nation. That aspiration continues to motivate me to this day. In a speech to America’s Council on Foreign Relations recently, you said, ‘One of the things I decided when I took over was that what has served us well in the past may not necessarily serve us well in the future.’ Can you tell us what those things are? Like all Malaysians I am, of course, proud of our country’s history, but rather than looking back I am

My desire to enter politics was

also driven by a belief in Malaysia’s rich potential and a conviction that I could help the country to realise that potential and become a fully developed nation. That aspiration continues to motivate me to this day firmly focused on building our future. I won’t be able to do that most effectively unless I assess the current situation and make the choices I believe are best for us now and in the months and years ahead. I think that is true in every walk of life, which is why when I took over I decided to put in place new and radical measures to transform our economy, unite our country and make this government the most open and transparent in Malaysia’s history. This constant progression is needed for all countries to grow, so on top of the economic and government reforms I have made since taking

office I also recently announced a series of major changes, including the repeal of the Internal Security Act, to further transform our country into a mature, progressive democracy. This comes on top of other big reforms like a review of Malaysia’s censorship laws, the setting up of a bipartisan commission to address concerns about our country’s electoral system and the adoption of the Peaceful Assembly Bill — and I will continue to make the changes I believe this country needs as it moves forward in the 21st century. If you were to select, say, two main challenges to the country over the next decade, what would they be? When I became Prime Minister I said that there were two main priorities: economic recovery and building long-term prosperity. We can say that the first of these has been achieved, as the economy grew 7.2% last year and 4.4% in the first half of this year. However, this growth came off the back of one of the most difficult periods ever faced by the world economy, and if that period taught us anything, it should be that countries can no longer isolate themselves and must work together in this new global era. So this is the challenge that all countries face today — how, in a world with far fewer boundaries than in the past, can we best work together to build a brighter future for generations still to come? I think this is a question that is once again coming to the fore as we witness new uncertainty in the world economy, but it is also one that is applicable to other global issues like climate change, food security and terrorism that we are confronted with today. The second challenge, while interlinked, is somewhat closer to home, and that is the question of how we continue to grow, to build a sustainable and inclusive economy and to work towards our target of becoming a developed nation by 2020.

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interview politics & diplomacy

This is not an easy task and there will be plenty of obstacles to overcome along the way, but I have put in place a number of measures under the National Transformation Policy that will modernise our economy, improve public service delivery and harness the diversity that is characteristic of Malaysia. If we are successful — and I am confident we will be — we will not only immeasurably improve the standard of living of all Malaysians, we will also redefine Malaysia’s position on the global stage. There are currently two emerging mega-powers: India and China. European countries and America are focusing more and more on these countries, both strategically and as investment locations. It could certainly be said that Malaysia has a unique position, sitting between these two powers, both culturally and economically. How can the country leverage this position to its advantage? Malaysia is a multi-ethnic and multi-racial country and our Chinese and Indian communities play an integral role in our society — in politics, economically and culturally. This is reflected in us having public holidays for the Chinese New Year, Deepavali as well as Hari Raya and Christmas, a fact that as you can imagine is very popular with people from all religious backgrounds! This heritage, of course, puts us in a very favourable position when dealing with these countries, but as India, China and Malaysia all

The ETP, which aims to increase

Malaysia’s gross national income to almost RM1.3 trillion by 2020 and create 3.3 million jobs, has in little over a year secured over RM170 billion of investment and created more than 370,000 jobs continue their economic ascent we must continue to forge links, increase cooperation and make the most of each other’s expertise for our mutual gain — something that is increasingly important as Western economies continue to struggle. That is why last year we signed a Comprehensive Economic Cooperation Agreement with India — a landmark deal that will see trade between our two countries double to $15 billion by 2015. Equally, when Premier Wen visited Kuala Lumpur in April last year, he and I signed a bilateral Agreement on Expanding and Deepening Economic and Trade Cooperation that will put trade between China and Malaysia on track to exceed $100 billion by 2015. I certainly hope that over the coming years this

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trend towards increasing integration between our economies will continue, because not only do we all stand to benefit as nations, but the region and the global economy will reap big rewards as well. You have inaugurated the New Economic Model to make Malaysia a developed country by 2020, with approaching developed world levels of income. What gives you confidence in achieving this goal, given the short timescale involved? I unveiled the New Economic Model with the objective of doubling per capita income in Malaysia from US$6,700 in 2009 to US$15,000 in 2020. It set out an economic action plan that is both inclusive and sustainable, and one that seeks to inspire innovation, cultivate creativity and shift our sources of growth. The NEM was supported by measures under the Economic Transformation Programme (ETP) and our other transformation programmes, which now all fall under one National Transformation Policy. Overall it is a hugely ambitious agenda that we are undertaking, but it is also one that I am entirely confident we can achieve. That confidence is I think backed up by the results that we have seen already — the ETP, for example, which aims to increase Malaysia’s gross national income to almost RM1.3 trillion by 2020 and create 3.3 million jobs, has in little over a year secured over RM170 billion of investment and created more than 370,000 jobs. Nevertheless, we must not be complacent and we will continue to invest in our economy and to put in place further measures to drive the economy forwards towards our 2020 goal. Now that you are Prime Minister, can you affect things as much as you thought you might be able to? Well I couldn’t stop Manchester United losing the Champions League final and being thrashed in the Manchester derby, so I certainly haven’t been able to affect things as much as I would like! However, I think this is in many ways the ageold struggle for politicians — you want to be able to make the changes you believe are best for the people and for the country but understandably you meet resistance in some quarters. Like many before me I have sometimes faced this problem since becoming Prime Minister, but it is not something that has stopped me being able to implement a number of radical and ground-breaking reforms in a very short space of time that will deliver real and lasting changes in Malaysia. I believe these changes are essential for Malaysia to take the next step as a nation. It is certainly my hope that, when we hold the next general election, people will also decide this is the case and will allow me to continue with a process of reform that I have no doubt is right for all of us.

politics & diplomacy interview

MUSTAPA MOHAMED

Minister of International Trade and Industry

My background has always been in economics and finance. I graduated from the University of Melbourne and studied for a postgraduate degree at Boston University. I have devoted my career to the civil service. My career in active politics began when I served as the Deputy Minister of Finance in 1994 and since then I have served in the Malaysian cabinet under three different Prime Ministers, holding a variety of portfolios. MOTIVATION

Serving the interest of the Rakyat (the People) motivates me. This is why I am devoted to a career in the civil service. In representing the Rakyat, it is imperative the decisions the government makes are for their best interests; especially decisions that relate to the economic wellbeing of the country. As Abraham Lincoln once said, ‘Government of the People, by the People and for the People, shall not perish from the Earth.’ I find these words have a constant resonance with me.

LESSONS IN BUSINESS

Malaysia and the world have had many important lessons in business. One that I would highlight as highly significant is the importance of embracing technology. We have seen many former industryleading companies crippled overnight due to their inability to adopt new technology. As the world modernises and becomes flatter by the day, we realise technology remains the biggest product differentiator of new success stories in business. You cannot afford to fail in the technology game.

INternational investor: Malaysia has set itself an ambitious target for economic growth over the next few years. Can you achieve it? MUSTAPA MOHAMED: Malaysia is setting itself a target of 6% GNI (Gross National Income) growth per annum to 2020. Of course, such an ambitious target cannot be achieved in isolation and without leverage. Key to our plan, as outlined in the Economic Transformation Programme, is private investment of RM1.4 trillion from 2010 to 2020. A substantial amount of this money is pre-empted Foreign Direct Investments (FDI). As such, it is crucial for Malaysia to remain strategic in its relations with other countries and to work hard to develop its export markets. One such strategic export market for us is Indonesia. It recorded extraordinary economic performance in 2010 and has continuously demonstrated determination in introducing reforms. Indonesia is thus the sort of market that has a lot to offer us, and will be crucial in our economic growth. Nonetheless, Malaysia’s strategy remains flexible enough to look at a number of different markets. We will not make the mistake of putting all our eggs in one basket. While contribution to growth will come from China and India, other markets including the US and the EU will continue to contribute to the growth of Malaysian exports. In 2010 (Jan-Nov), Malaysia’s exports to China and India grew by 23% and 22.4% respectively. While exports to the US and the EU, Malaysia’s traditional markets grew, by 1.1% and 16.4% respectively. During the same period, exports to ASEAN countries also made a major contribution to our economy. They amounted to RM147.42 billion, making it Malaysia’s largest regional market. With further economic integration of the ASEAN nations, Malaysia’s exports to this region are expected to grow further. In an effort to further diversify and expand export markets Malaysia will also pursue opportunities in

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interview politics & diplomacy

“

It is crucial

for Malaysia to remain strategic in its relations with other countries and to work hard to develop its export markets

”

the fast-growing markets of West Asia, Central Asia and Eastern Europe. Our exports to these markets, which currently constitute 5% of total exports, are expected to grow further in the coming years. We also expect Malaysia’s export growth to be boosted by the free trade agreements which we have concluded with Japan, Pakistan, Chile, New Zealand and regional ASEAN agreements with China, Japan, Korea, India and Australia-New Zealand. Currently, we are embarking on free trade agreements with the EU, the US through the Transpacific Strategic Partnership, ASEAN+3, GCC Countries and several emerging economies. What do you think will be the main industries that will underpin Malaysia’s growth? Manufacturing will continue to be the leading sector, with the E&E sector maintaining its position as Malaysia’s largest contributor to total exports. In 2010, E&E exports contributed just under 40% to Malaysia’s total exports. Other major manufactured export products include chemicals and chemical products (6.4%), machinery, appliances and parts (3.4%), optical and scientific equipment (2.9%), as well as metal manufacture (2.8%). Commodities also contribute significantly to Malaysian exports. Again, in 2010, exports of commodity products such as crude rubber, crude petroleum, liquefied natural gas (LNG) and palm oil recorded growth of 110.6%, 28.5%, 24.8% and 23.9% respectively, with total exports amounting to RM115.16 billion. These four commodity products accounted for just under 20% of Malaysian total exports. the state of malaysia’s infrastructure Can Malaysia’s infrastructure cope with the expanded economic activity you expect in the next few years? Is there anything that needs to be done to improve it? Malaysia without a doubt is constantly searching for ways to upgrade its infrastructure. The Government Transformation Programme (GTP) and Economic Transformation Programme (ETP) both recognise the need for effective, efficient and sustainable public transportation, which is fundamental for any country to progress, compete and attract foreign investment. Inter-region and urban rail corridors form the backbone of people and goods movement in Malaysia. Traditional heavy rail is undergoing an infrastructure upgrade via the Double Track Project linking northern states (Perlis, Kedah, Penang and Perak — 329km) with Greater Kuala Lumpur/Klang Valley. In addition to this, work to link southern states (Negeri Sembilan and Johor) is expected to begin this year. The ETP has also identified the possibility of a modern high-speed rail (HSR) link between Greater Kuala Lumpur/Klang Valley and

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Singapore. The HSR is expected to be a catalyst for growth for both these two mega cities, with substantial economic spillover. The Prime Minister has announced plans to construct a new Mass Rapid Transit (MRT) which we believe will further boost the attractiveness of Klang Valley. We expect an uplift in gross national income of US$121.8 billion because of it. Through this plan, international and regional multinational firms will be attracted to invest and locate their headquarters in the area. The newly formed Land Public Transport Commission (SPAD) will regulate the implementation of the first MRT line, while a public transport master plan is currently being developed. The master plan will look at all urban rail and road based transport corridors. Malaysia’s ports are an important aspect of its infrastructure. What are the development plans for them? The development and expansion plan for the ports are as follows: (i) Port of Tanjung Pelepas (PTP) PTP currently has 12 berths forming 4.3 kilometres of linear wharf. The berths are serviced by 44 quay cranes and 122 Rubber Tire Gantry (RTGs) Cranes. These provide PTP with a total terminal handling

politics & diplomacy interview

capacity of 8.4 million TEUs, against the 6.53 million TEUs that it handled in 2010. PTP is now developing another two additional berths, which are expected to be completed by 2015. This will increase the current port capacity of 8.4 million TEUs to 9.6 million TEUs per annum. When the work is completed this will mark the end of the Phase 2 Development (out of five phases) of the PTP Master Plan. (ii) Penang Port The construction of an additional container berth at the North Butterworth Container Terminal (NBCT) added another 600 metres berthing length to the existing 900 metres. The new berth started operations in January 2011. This will increase the port capacity of 1 million TEUs to 2 million TEUs per annum. The government has approved an allocation of RM350 million under the Tenth Malaysia Plan for the North Channel Deepening Project to deepen the North Channel from its current depth of 11 metres to 14.5 metres in order to accommodate larger vessels calling at the port. (iii) Port Kelang Westports conversion of Wharf 5 (200 metres) from a conventional berth to a container berth was completed in November 2010, increasing the length from 3,200 metres to 3,400 metres. Westports is also constructing a new container terminal (CT6). The first phase of CT6 is 300 metres and a further 300 metres will be developed after the completion of the first phase. (iv) Kuantan Port Under the East Coast Economic Region (ECER) programme, new port facilities will be built adjoining the existing facilities in Kuantan Port. Currently, the Kuantan Port expansion master plan is being drawn up. The new port facilities will involve dredging, land reclamations, construction of break water and a berth. Malaysia recorded an impressive RM17.1 billion of FDI between January and September 2010, compared with just RM5 billion recorded for the whole of 2009. Diversifying exports into services sectors and attracting investment into these sectors will be key to this transformation. Tell us more about what services sectors you believe are poised for both domestic investment and FDI? Under the New Economic Model and the ETP, the services sector was identified as the main driver of economic growth for Malaysia and so measures for liberalising it are key to the mediumterm Tenth Malaysia Plan. The target is to increase the contribution of the service sector to 65% of GDP by the year 2020 from its contribution of 55.8% in 2010. The plan has identified 12 new key economic areas (NKEAs) as having the potential to contribute substantially to economic growth in the country.

These sectors are oil and gas, palm oil and related products, financial services, wholesale and retail, tourism, information and communication technology, education, electrical and electronics, business services, private healthcare, agriculture and to develop Greater Kuala Lumpur. The following services sub-sectors have been identified as potential areas for further development and which offer prospects for enhancement of both domestic and foreign investment: ■ R&D and design activities ■ Green technology including renewable energy and energy conservation/efficiency ■ Waste management ■ Regional operations such as operational headquarters (OHQ), international procurement centres (IPC) and regional distribution centres (RDC) ■ High value tourism activities such as eco-tourism and MICE (meetings, incentives, conventions and exhibitions) ■ Healthcare travel (medical tourism) ■ Aviation services ■ Education and training service government moves to increase investment What is Malaysia doing to attract more private sector investment? The government will continue with its efforts to enhance the investment environment to ensure that Malaysia remains competitive in attracting investment in the manufacturing and services sectors. We will do a number of things in this direction. First, liberalising and enhancing the investment policy in the manufacturing and services sectors. This will involve removing the restriction on foreign equity holdings for investments in new as well as expansion/diversification projects in the manufacturing sector. Under the new policy, foreign investors could hold 100% of the equity. We will liberalise the services sector. The government has identified 27 sub-sectors in the move to attract more FDI in the services sector in Malaysia. These 27 sub-sectors include computer and related services, health and social services, tourism services, transport services, sporting and other recreational services, business services, rental/leasing services without operators, and supporting and auxiliary services. Secondly, we aim to improve the government delivery system and enhance public sector efficiency through the establishment of a special task force (PEMUDAH) to facilitate business in Malaysia. This task force has been given the mandate to identify and propose appropriate measures to improve procedures, regulations and existing laws. We will provide customised fiscal and non-fiscal incentives for targeted projects in our high technology, capital intensive and knowledge-based industries.

“

The Prime

Minister has announced plans to construct a new Mass Rapid Transit (MRT) which we believe will further boost the attractiveness of Klang Valley. We expect an uplift in gross national income of US$121.8 billion because of it

”

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interview politics & diplomacy

IDRIS JALA PEMANDU

Chief Executive Officer

In 2009 I was appointed Minister in the Prime Minister’s Office, and Chief Executive Officer of the Performance Management & Delivery Unit (PEMANDU), a unit tasked with transforming the social and economic performance of Malaysia. To this effect, I have led the development of the Government Transformation Programme (GTP), targeting six National Key Result Areas (NKRAs). These are the most important aspects of the country’s development that we have identified. Prior to taking up my post at PEMANDU I was Managing Director and CEO of Malaysia Airlines. I began my job there in December 2005 in the aftermath of the company’s biggest financial loss in its history. In February 2006, I announced the airline’s Business Turnaround Plan to tackle this. From a nine-month loss of US$400 million in 2005, I succeeded in turning around the company in less than two years, with the airline achieving a record profit of US$260 million in 2007. In fact, the airline posted ten consecutive quarterly profits during my tenure as the CEO. Prior to joining Malaysia Airlines, I spent 23 years at Shell. Between 2002 and 2005, I was Managing Director at Shell MDS (Malaysia) and Vice President at Shell Malaysia Gas & Power (Malaysia). Between 1998 and 2000, I was the Managing Director of Shell Sri Lanka, where I helped to shape the turnaround of Shell’s LPG business in Sri Lanka. MOTIVATION

The transformation of Malaysia is my over-riding motivation. Everything we do at PEMANDU needs to be focused on the one task of raising the lifestyles and life chances of all Malaysians.

LESSONS IN BUSINESS

Stay focused on the task you have set yourself; measure what you are trying to achieve and be honest about success and failure; motivate your team.

INternational investor: The Economic Transformation Programme is an important, long-term project for change in Malaysia. What distinguishes it from similar government programmes? IDRIS JALA: The first thing is the sheer cohesion and determination within the government, from the Prime Minister downwards. We all want the ETP to be a major legacy for Malaysia and to make really significant changes to the country’s fabric and prosperity. The second differentiating factor is our determination to work closely with the private sector. That isn’t always the case with government programmes. With the ETP, we did not want it to be a top-down government plan. That is why we have involved private companies right from the start. We put in place a ‘laboratory’ system, for example, where we carry out intensive research with our private sector partners in the key economic areas we have identified as critical for the reform process. Right throughout the process we want to be able to tap into the extraordinary amount of expertise and knowledge, including the deep well of knowledge in the private sector. At a more concrete level, the bulk of the investment we plan to put in place will come from the private sector — over 90% in fact. Another thing that I believe will make the ETP different is how we intend to measure success. The whole plan is anchored in raising the national income. If an activity does not help us to increase GNI, it will not be part of the plan. We are totally focused on this central aspect of the ETP. We are determined to maintain this strict focus because there are examples of government plans that are too ill-defined and unfocused to really work. We have heard a lot about the ‘labs’. Can you tell us something about them? They are about creating an environment in which we can get a huge infusion of ideas from the private sector. We invite key players from certain

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politics & diplomacy interview

specified industries to sit down with us over a period of weeks or months and we thrash out ideas as to how best implement economic change. We want all our projects to be very well worked-out before we start, so all the analysis and testing is done in the labs before we turn the first shovel. The second thing we do is town hall sessions with the public. If a lab comes up with a solution, we will not implement it without testing it with the Malaysian public. The programme is meant to benefit every Malaysian after all. We also have as part of the lab process what we call a ‘published document in detail’. When we wrote the original ETP, we published it in such excruciating detail that we would have nowhere to hide. We want that to be the same with each result from the labs. Quite often, when governments issue plans, they put out very vague, wordy documents which effectively give them lots of ways of evading what they said they would do. We were determined not to do that, and to bind ourselves to definite results, clearly expressed. ARE GROWTH TARGETS REALISTIC? A key part of the plan is to achieve a doubling of national income by 2020. That will require, according to PEMANDU figures, annual growth of 6% throughout the life of the plan. Is that feasible? That level of growth is by no means unprecedented in Malaysia. In the past we have achieved growth figures of 10% and more. There is no reason to think we can’t achieve such growth rates in the coming years. I mentioned earlier our determination to focus clearly on defined outcomes, and that level of focus is one important thing that will help us

There is no way a country can

become a member of the select group of high-income nations without having a competitive private sector achieve our targets. If we were attempting to do everything at once, in all sectors of the economy, you would be right to be sceptical. However, we have deliberately chosen 12 key economic areas to concentrate on and to make key reforms in. If we continue our reform programme in these areas, we will create the conditions needed for them to really take off and drive our wider economic growth. We are already on track to achieve our aims for 2011, in fact. We said we wanted to achieve a total investment level of 1.4 billion ringgit by 2020; raise our total GNI to 1.7 trillion ringgit and our total number of jobs to increase by 3.3 million. In the first six months of 2011, increased investment was already at 170 billion ringgit, which is 12% of our target for 2020. In six months we achieved 220

billion ringgit of gross national income, which is already 13% of our target by 2020. In six months we created 362,396 jobs, which is 11% of the 3.3 million jobs. If we continue to focus on key areas, as we have been doing, we can do it. We’re proving it every day. Governments around the world make announcements, and often nothing much happens because economies are so complex that the state has little control over large-scale patterns. What makes you think that Malaysia is going to be any different in that regard? We will achieve it by placing a strong emphasis on the private sector, and creating the conditions for Malaysian companies to become highly competitive. There is no way a country can become a member of the select group of high-income nations without having a competitive private sector. That is the basis of what we are doing: not trying to wave a magic government wand to make it happen, but to create the most favourable environment for our industries to flourish. Our determination to focus on a relatively few, key industrial sectors is important, too. Equally important are the legal and regulatory changes we are making. Our new competition law came into force in January 2012. The new economic model, the ‘red book’, recommended 51 policy measures. We ran labs and town hall sessions for them. We are in the process of implementing all of them, including trade liberalisation, public finance reform, public service delivery, government role in business, and human capital development. I believe that the sheer effort we are making in putting all of this in place will make the difference.

“

We want

all our projects to be very well worked-out before we start, so all the analysis and testing is done in the labs before we turn the first shovel

”

In order to achieve all this, Malaysia will need a highly trained workforce. Is the education system up to scratch? Can it produce enough skilled people? It can, but there are still reforms that need to be made. We took a close look at countries like Finland, which made great economic strides in part on the back of education reforms. They began their reforms at pre-school level. That is something we need to do. At the moment, only 60% of our kids who reach Standard 1 have been to pre-school — 40% have not been to pre-school. If you get the kids to Standard 1 and they have not been to pre-school, they already struggle because their curriculum is based on the 60% who have attended. Last year alone we opened 1,500 preschool classes. An additional 54,000 children have now attended pre-school. This is an important step forwards for the country. We have also started a programme called the school improvement toolkit. We rang every school in the country — 9,814 primary and secondary

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interview politics & diplomacy

“

You must be

brave enough to pay for the talent to come, in the hope that in doing so, they will create the productivity and the wealth

”

schools. We know where they are ranked in terms of success, so if a school is down the order we will tell the principal and put in place mechanisms to improve it. These are some examples of the educational reforms we are making. As to the tertiary sector, the labs we ran on education reform concluded that we must involve the private sector much more, allowing many more colleges and private colleges to be founded, particularly focusing on vocational and technical skills. Our assessment is that out of the 3.3 million jobs we need to create, 46% of them will be for skilled workers, not graduates, so highquality skills training will be crucial. Yet, instead of asking the government to simply throw money at the problem, we are now encouraging the private sector to set up technical and vocational colleges themselves. HUMAN CAPITAL: THE VITAL ASSET A lot of companies face the problem of attracting and retaining talented Malaysians because so many of them go abroad for typically higher salaries. Is ‘brain drain’ a problem? If so, how will you deal with it? One thing we have done is to create the Talent Corporation. It has two main tasks: make sure that we retain Malaysians where we can, so that we keep the talent internally, and secondly to make it easier for us to bring in expatriates where there are gaps in the workforce. In my mind, there is no way that an economy can be totally selfreliant on the domestic workforce. All high-income nations need some injection of foreign talent one way or another, and so in Malaysia we will need foreign talent in places where there are not enough high-calibre Malaysians to do those jobs. I would predict that Kuala Lumpur will become a much more cosmopolitan city by the year 2020, because we expect a lot more multinationals to come to the country and have KL as their hub. They will naturally want to bring a lot of their own staff with them. They will add value and we will welcome them. Isn’t it the simple truth that salaries need to rise to attract people? That is undeniably important. Whether companies pay well enough is a key issue. However, so is whether they are offering a meaningful and challenging career. As we march towards a highincome nation, that in itself will allow us to be able to attract and keep the best talent; because if you don’t pay them well, they won’t come, and then you are stuck with a middle-income economy. It is like the chicken and the egg: do you pay them well first so that they come and help you to be productive, or do you become productive and only then increase salaries? I am of the view that the

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former works. You must be brave enough to pay for the talent to come, in the hope that in doing so, they will create the productivity and the wealth. You say that NKEAs will have dedicated focus from the Prime Minister and there will be fasttrack decision-making to resolve disputes and bottlenecks. Yet governments and civil servants around the world are often very resistant to change. Can you really push things through as fast as you want? We created 12 steering committees led by one or two ministers to oversee the various projects we are entered upon. They are held every month. They keep a close eye on the development of projects. If there is a private company scheduled to build a hotel, representatives will come to the meeting and be asked directly about the progress they are making. If the committee is told that, say, there are regulatory obstacles, or approval is being delayed, the committee can deal with it swiftly. In addition, every week the Prime Minister chairs an economic council meeting and all problems that cannot be resolved at the ministerial level will be sent to him to deal with at those meetings. We also have an investment committee with MITI and myself on a bi-weekly basis. We check whether we are on track on the investments, both from the private sector and the public sector. This mechanism is very important. By the way, from my own team every Friday I receive, without fail, a report about every project. I use a traffic lights system: green means a project is on track. Red means it is totally behind schedule. Amber means danger zone. The reason I want this on a Friday is because I can then become a nuisance to my team at the weekend — I send a BlackBerry email which says this project is on red, what are you doing about this? Is there anything you do here at PEMANDU that keeps you awake at night? What is the biggest problem or challenge that you have? The one thing I worry about is our overall attitude as a country. I don’t believe a country reaches a state of high income if that country starts talking itself down. Years ago, we didn’t have the social media. If I look inside the social media, I see and hear much negativity within there and I worry because, as Helen Keller used to say, ‘Keep your face to the sunshine and you will never see shadows.’ If we keep looking at our shadows, we are not going to make it. It is very important for us to look at the positive things that are happening, because when people are positive and confident, the self-belief will come; and when the self-belief comes we can achieve great things. To me, a nation rises to greatness when the collective begins to pull together with a positive attitude.

politics & diplomacy interview

RAIS YATIM

Minister of Information, Communication and Culture

Rais Yatim was born in Jelebu, Negeri Sembilan, in April 1942 and became a language teacher after graduating from the Language Institution in Lembah Pantai, Kuala Lumpur in 1964. He furthered his studies in Singapore and received a law degree in 1973. Subsequently, he pursued a doctorate of law at the University of London in 1974. Rais Yatim began his political career as Parliamentary Secretary, Ministry of Culture, Youth and Sports in 1974 and was then promoted to Deputy Minister in the ministry in 1976. He was Deputy Minister of Law from 1976 to 1977 and Deputy Home Affairs Minister from 1977 to 1978. He worked as Minister of Negeri Sembilan from 1978 to 1982. Before holding his current position, Dr Rais was Minister of Culture, Arts and Heritage and also Minister of Foreign Affairs and Minister of Information. He was appointed to lead the Ministry of Culture and Communication in April 2009.

INternational investor: Why does Malaysia need to transform itself? RAIS YATIM: The government, under the leadership of Prime Minister Datuk Seri Najib Tun Razak, has chosen transformation as the cornerstone of our current development programme. Our future plans are to develop Malaysia’s economy, leading towards the goal of becoming a high-income, developed nation by 2020. As such, we believe that virtually all Malaysian businesses and institutions will have to transform themselves, and develop, so that we can accelerate towards that economic and social goal. After all, we all want to ‘make the people prosperous’. Taking the 1Malaysia concept as the basis of this transformation programme, with a view of enunciating the very important themes of inclusivity and celebrating our diversity, the prime minister has rolled out a number of initiatives to bring the people together towards the pursuit of our shared goal. STRATEGIES TO TRANSFORM MALAYSIA Can you elaborate on the transformation programmes that are planned for the country? In 2010, the government rolled out the Government Transformation Programme (GTP), a bold programme aimed at radically transforming the way the government worked so that it could deliver real solutions to real issues and for Malaysia to make strong advances as a nation. Based on concerns expressed by the people, the GTP’s focus is to quickly deliver tangible results that can be felt and experienced by all Malaysians. We call it ‘touch points for the people’. The entire programme is premised on the government’s commitment to the promise of ‘People First, Performance Now’ under the 1Malaysia banner. What does the government want to achieve? It is the government’s goal, in line with the spirit

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interview politics & diplomacy

“

These may sound good on paper. But can you deliver? We have already had some quick wins in a number of key areas such as tackling crime and corruption, providing better transport, housing and education facilities, attracting sizeable and sustainable investments in more than 130 projects, to name a few. The government will continue to identify real problems and deliver tangible solutions for the people. We are confident we can make strong strides forward as a united nation and that no Malaysian will be left behind in this national transformation.

I believe

ours is a success story as a country. Malaysia, with just 28 million people, is punching above its weight internationally, as we are already one of the top 20 trading nations in the world

malaysia PAST AND FUTURE What are your thoughts on a Malaysia that is already more than half a century old? I believe ours is a success story as a country. Malaysia, with just 28 million people, is punching above its weight internationally, as we are already one of the top 20 trading nations in the world. That aside, I believe we are a symbol for the world in terms of our dynamic diversity in harmony.

”

of 1Malaysia, to create a modern, prosperous, peaceful and high-income nation and improve the lives of all Malaysians regardless of race, religion or social status. I must say that based on the feedback, we have done quite well, although the GTP naturally has its share of sceptics. I do believe that the ultimate judge of our performance and progress will be the people themselves. What about the Economic Transformation Programme or ETP? It is a comprehensive effort that will transform Malaysia into a high-income nation by 2020, where we will build on the strengths of our past and become a high-income nation. This comprehensive move is expected to lift Malaysia’s gross national income (GNI) per capita from US$6,700 (RM23,700) in 2009 to more than US$15,000 (RM48,000) in 2020, propelling the nation to the level of other high-income nations. This GNI growth of 6% per annum will also allow us to achieve the targets set under Vision 2020, a blueprint for the nation to achieve developed nation status in about eight years. What does this entail? This will mean continuing our shift towards a service-based economy, with the services sector contribution growing from 58% to 65% in the same period. More importantly, some 3.3 million new jobs will be created by 2020, spreading across the country in urban and rural areas. What is even more significant is that the nature of these new jobs will result in a shift towards middle and high-income salary brackets.

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Can you elaborate on that idea of diversity? We are proud of the fact that every race has a place in the sun in this country, be it positions in the government or business. No community has been marginalised. In fact, the government took affirmative action in 1970 to help the Malays and other indigenous peoples improve their economic position. Today that line of action has seen tremendous strides made by the Malays and the indigenous people in many sectors of the country. After many years of affirmative action, it is felt that a more inclusive approach should be undertaken via the 1Malaysia concept — hence the implementation of GTP and ETP, both aimed at transforming Malaysia’s destiny significantly. The GTP is all about building a future for all Malaysians. It is about holding on to the hope that we can truly become nobler, more compassionate and more harmonious as a nation. I would also say that it is about developing a sustainable future where all Malaysians can enjoy the benefits of a better quality of life, a highly effective and efficient level of service, as well as a thriving and globally competitive economy. The GTP, as a transformation engine, is unlike any other initiative ever implemented in Malaysia. It is without doubt a first-of-its-kind programme for the nation. It is within this premise and promise that this year’s national day theme is ‘Successful Transformation, Making the People Prosperous’. With the support of the people for the nation’s push towards greater excellence, I am confident that Malaysia will emerge as one of the great nations of the world in its next half century of development.

politics & diplomacyâ&#x20AC;&#x192; interview

MOHAMED KHALED NORDIN

Minister of Higher Education

Mohamed Khaled Nordin was born on 30 November 1958. He studied law at Malaya University in Kuala Lumpur and has been the Minister of Higher Education since 2008. He formerly held the post of Minister of Entrepreneurship and Cooperative Development from 2004 until the 2008 general election. In 1990, he was elected as a Member of Parliament for Johor Bahru â&#x20AC;&#x201D; he was re-elected in 1995 and 1999. In the 2004 general election, he was elected as a Member of Parliament for Pasir Gudang, Johor.

INternational investor: Tell us a little bit more about the National Higher Education and Strategic Plan, which we understand is entering its second phase. MOHAMED KHALED NORDIN: The core objective and mission is still the same, which is to ensure that we can produce first-class students. In the second phase, however, we will take the opportunity to enhance what we achieved under the first phase, and at the same time we will institute new programmes and new targets. We are finalising it, and will be launching the second phase early in 2012. Among the things we are planning to do is expand our higher education capacity by creating six research universities. We are also going to expand the number of business schools. When we first formulated the plan, we only planned to have two business schools, but we feel that as a result of the government policy on transforming the economy, we need to boost our entrepreneurial skills; so we feel that two high quality business schools for the country is not enough. It is important for the country to produce as many talented young business people as possible. In fact, we are going to focus more on entrepreneurship as a whole in the second phase. This will include focusing on our Knowledge Transfer Programme and enhancing technical and vocational education as well as life-long learning. malaysia as a centre for higher education Recently, Mahsa University College secured financing to develop a new campus in Saujana Putra, Selangor. In addition, Southampton University and Raffles University are establishing campuses in Malaysia. Tell us about your plans to make Malaysia a regional hub for higher education. Under the Economic Transformation Programme, we have identified education as one of the most important sectors that will contribute to economic growth. It is therefore vital for us to do all we can to boost our education system at all levels. In this regard, we believe that the private sector can help

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interview politics & diplomacy

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Universities

have to be much more involved in the ‘real world’. That isn’t to denigrate the pursuit of knowledge, it simply means that they must widen their vision and take on new roles

”

us to achieve excellence at the tertiary level. We envisage the country becoming a centre of global excellence in that field. Universities such as the ones you mentioned are an important part of achieving that goal. There are other international universities, such as Nottingham University, that are also opening campuses in the country. We are very excited about this development and the boost it can give to the whole country. Although we have the target of making Malaysia a regional hub for higher education, we are actually offering places to students from all over the world. An influx of foreign students will greatly enrich the life of higher education in Malaysia and make us a true global player. All over the world we see a growing middle class, with a resulting increased pool of people wanting to study at a higher level, but investment in higher education in many countries will not be able to provide that opportunity. Malaysia has had a head start on all this, so we are just continuing to develop our higher education sector, and ensuring we have the quality and right mix of higher education providers, not only from Malaysia but also from foreign universities present in this country. What do you believe are the benefits for foreign students coming to study in Malaysia? Apart from having a stable government, and a stable country, a key benefit of studying in Malaysia is that students will be exposed to the diversity that we offer. Today’s world is a world of diversity, and our young people will only be successful if they are able to face and overcome the challenges of living and working with people from different cultures and backgrounds. At the same time, it is enormously enriching for young people to meet and learn from people from different backgrounds. It is said that in a university there are three ‘Ts’. The first is talent — all the bright people are there. Second, technology, because of the high volume of research they carry out. Third, and most importantly, is their tolerance, and this tolerance is one of the bases of being innovative. It means at university, everybody is equal, you can give your views and ideas. On a more practical level, Malaysia has a very competitive cost of living compared with other countries. taking know-how beyond education The Knowledge Transfer Programme was announced in 2011. Could you tell us something about that initiative and also about how universities can play a bigger role in communities and community development? In a knowledge economy, which is what Malaysia wants to become, the role of universities changes. They have mainly been considered to be ‘ivory towers’, in their own worlds, somewhat divorced from the rest of the economy. In a knowledge economy, they are looked upon as an institution not only to produce

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human capital, not only to get new knowledge, but at the same time to provide solutions to all the problems and challenges that are being faced by the wider society. They have to be much more involved in the ‘real world’. That isn’t to denigrate the pursuit of knowledge, it simply means that universities must widen their vision and take on new roles. Thus the Knowledge Transfer Programme is about providing a transmission belt between universities and the rest of society so that knowledge gleaned on campus transfers quickly to the wider society. We believe that this will benefit everyone, including the universities. Practically, it will work either by universities setting up their own start-up companies — thus spinning off research into the economy — or by entering into agreements with established businesses to transfer research results into the companies’ own R&D departments. Do you ever see something like a Malaysian Silicon Valley emerging? We do indeed. In fact, creating that sort of ecosystem surrounding certain universities is highly desirable. If we want to get knowledge moving, to get it out of the ivory tower and into the wider economy, having such an eco-system to pick it up and carry it onward and outward is imperative. We can have plans, policies, targets and visions as much as we like, but without that practical establishment of businesses, nothing will happen. We cannot rely on the universities alone, and we cannot blame the universities if this knowledge transfer does not happen, because so much depends on there being a surrounding eco-system. Not just surrounding businesses, but also banks, start-up funds, legal assistance, entrepreneurs — everything that is needed to make research into concrete products. In this regard, we welcome the setting up of UNIK in the Prime Minister’s Department. That will look into all the R&D products of universities, among others, to see how they can be commercialised. Money is always important in getting these things off the ground. Will you rely solely on the private sector? The private sector of course must take a lead role in commercialising universities’ research, but we also have put in place a research grants scheme which will pump government money into viable research in our universities. The grants are designed to help out at the early stages of developing prototypes. Private companies can then come in and provide further capital to take products to market. We are having some significant success so far. There are already many universities that have set up companies. A few weeks back I was at UKM — they currently have more than 50 start-up companies. Most of our other universities have also had great success in setting up companies. It’s a really positive picture.

politics & diplomacy interview

MAXIMUS ONGKILI

Minister of Science, Technology and Innovation

I received my degree in agricultural science and a PhD in agricultural economics from La Trobe University in Australia, where I was made a Distinguished Alumni in 2009. I went on to a fellowship at the United Nations University in Tokyo and Harvard Institute for International Development in Boston. I also attended Oxford University at the SAID Business School. My general background is as a university researcher. I worked as a university lecturer at Universiti Pertanian Malaysia (now Universiti Putra Malaysia) and held senior research positions with the Institute of Strategic and International Studies, Malaysia from 1985 to 1987 and the Institute of Development Studies (IDS) Sabah, where I was Executive Director/CEO from 1991 to 1994. I took up my current role as Federal Minister of Science, Technology and Innovation in March 2008. I was very keen to take on a new, important challenge. Prior to my appointment I was minister in the Prime Minister’s department from 2004 — I held the portfolio for national unity and integration. I have been a member of Parliament for the federal seat of Kota Marudu since 1995. I was also concurrently a three-term member of the Sabah State Legislative Assembly for the Tandek constituency from 1994 to 2008. In addition to my parliamentary and ministerial duties, I have also served as Science & Technology Advisor to the Chief Minister of Sabah (2003-2004). I also served for two terms as a member of the Public Accounts Committee, both in the national parliament and Sabah Legislative Assembly. I have also been a member of the National Service Advisory Board, the Chairman of the Select Committee on National Unity and National Service from 2004 to 2009, and the Chairman of the Malaysian Crime Prevention Foundation from 2004 to 2008.

INternational investor: You designated 2011 as the Year of Innovation, a follow-up to 2010’s Year of Science. What did you want these years to achieve? MAXIMUS ONGKILI: The 2010 and 2011 programmes were intended to create a nationwide awareness of how important science is to business innovation, and vice-versa. We ran a number of training courses and events on innovation skills and staged some pretty large exhibitions to get the message across. We came to the conclusion that for innovation in business to succeed, it has to be firmly sciencedriven. Our goal was to see how our science environment — education and research — could feed into wider R&D efforts in business and industry. We engaged with secondary school pupils and spoke to parents and teachers’ associations. There were competitions and exhibitions. It was all designed to put in place a grass-roots awareness about how important science and innovation are. How will you measure the success of the Year of Science and how will you be able to gauge whether things have worked? We will look at several key performance indicators. One is how many people have attended our programmes and participated in the various seminars, exhibitions and teaching classes. We also want to benchmark against how many new patents and copyrights come out of the process. We will use the same benchmarks for the 2011 Year of Innovation. These sorts of initiatives are meaningless unless they produce real-world outcomes and we have been keeping a close eye on what our themed years produced. It is important when it comes to science and business innovation for universities and business to mesh together well. Can you help them do so? I think we can, but we have to get the balance right. We as a nation have traditionally been strong

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It is

Malaysia’s, and my department’s, determined purpose to make sure that the R&D infrastructure of this country continues to deepen and strengthen

”

in academic innovation, which is one of the reasons why we have become strong in the palm oil and rubber sectors. However, this approach is not enough to give us the 7% growth per annum that is envisaged under the Economic Transformation Programme. For that, we need to harness the power of the market as well. In fact, we need to make sure that both realms work together as well as they possibly can. There are a number of things we can do to help this happen. We can help our researchers to buy patents from overseas and bring them here to be commercialised. We give money for biotechnology services and commercialisation. We also give money for R&D for universities to develop more technology, as well as money for companies who want to snap up these patents and take them to market. So it’s a combination of technology-driven and market-driven. In my ministry 50% of the money is for fundamental research for universities and research institutes. The other 50% is for commercialisation, which includes biotechnology. a better way to reward innovation Who retains the patents and the potential rewards for innovative products? Up until two years ago, patentable ideas emanating from universities that were funded by MOSTI used to be owned by MOSTI. We changed policy on that so that today patents are owned by the researchers themselves. This policy has been adopted by the Cabinet. We took the view that if we didn’t arrange it like this, many of these potentially brilliant ideas would not make it to market. If we want to instil a vibrant culture of research and development, we have to provide the right incentives. Of course, the main incentive is: if you come up with a good idea you get a reward for it. The people who are best placed to understand the market applications of a product are a combination of whoever has done the R&D and perhaps an industry partner of some description. The closer the rewards remain to these people, the more efficient the whole process will be. We call it the Intellectual Property Rights Policy. Have you seen any concrete results on the back of this approach? The policy is quite new, so it is too soon to tell. We can say for certain, though, that university researchers are starting to make contact with the private sector much earlier than they used to. The fact that they now will retain the rewards from the patents is making it much more likely that they will look for investors. Equally, the private sector seems to have strongly warmed to the approach because the university researchers are reaching out to them more readily.

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Has the new approach created any difficulties? Not many, but a few. The private sector seed capital pool is still quite small. It is not yet at the level you would find in America or Europe. That is one of the challenges we must face. Secondly, there are still financial challenges in terms of getting the ideas to market. We are in the process of improving the situation, though. We have set up a body called the Agensi Inovasi Malaysia to address this. It is tasked to look at the most commercialisable ideas and provide the funds to get them to the market. It is relatively new, only being approved by Parliament in late 2010, so it is early days. research is key What are some of the other challenges for you in the future? There is still insufficient money for R&D overall. We are still hovering around 0.7% of GDP, whereas the aim was to get to 1% by 2010. We are confident that we will achieve the target in the next few years though. Something else we have to address is that the private sector’s level of investment is low too compared with other countries. We are in the middle of drawing up an agreement to offer certain tax incentives to the private sector so that they are rewarded for providing seed capital. Which sectors are you occupying most of your time with at the moment? Pharmaceutical research is a very important sector that we are concentrating on. The biotechnology sector and how it interacts with food production and security is important as well: developing ideas for new fertilisers, new hybrids, post-harvest technology, and so on. A lot of money has gone into both those areas. The ICT sector has been quite strong for us; climate change is rising in prominence as well. A particularly interesting area we are looking at is bio-informatics, which is the nexus between biotechnology and ITC. Water technology is extremely important, though, and remains a priority for us. What does the future hold? It is Malaysia’s, and my department’s, determined purpose to make sure that the R&D infrastructure of this country continues to deepen and strengthen. We are number one in palm oil and rubber production, largely because of excellent R&D, so we have an ability to do it. What we have to do is to provide sufficient R&D encouragement in monetary terms. Although that is extremely important, we also have to make sure the ‘ecosystem’ is right for it. It is not enough just to give grants out. The environment must sustain the whole endeavour, the patent law must be supportive, and the financing must be readily available. MOSTI must be in the business of managing the R&D ecosystem.

economy

overview economy

Towards a high-income nation Economically, Malaysia’s tale has been a hugely positive one over recent decades. Assisted by major government initiatives, the outlook for the next ten years and beyond looks to be equally promising

Background Through the lens of long-term development, Malaysia’s growth journey has been a success story (see fig.1). As highlighted by the Commission on Growth and Development (2008), Malaysia is one of the few countries in the world that has, since 1950, managed to register sustained economic growth at 7% per year or more for 25 years or longer. Malaysia witnessed a transformation from a poor country primarily reliant on commodities into a diversified upper middle-income country dependent on manufacturing and services. Even as the global economy dithers between sustainable recovery and sluggish post-recession take-off, Malaysia’s traditionally export driven economy appears to have taken its first steps towards pre-recession growth rates (analysis by Frost & Sullivan, a business research and consulting firm estimates overall exports to grow by 6.2% in 2011 and by 9% in 2012). However, continued strength in performance in other measures, combined with an increase in domestic spending over the next few quarters, would be necessary to allow for the easing of fiscal policy measures introduced at the height of the financial crisis. As Malaysia (in line with governments across the world) pushes away from over-reliance on government stimulus, it is critical that there is a significant uptick in private sector investment (see fig.2) for economic growth – this is a key indicator to monitor over the next few quarters. As a longer term performance goal, the government of Malaysia has set forth a New Economic Model (NEM) in 2010, which aims to elevate the nation from a mid-income economy to a high-income economy (defined as a per capita income of US$15,000) by the year 2020. In order to achieve this, a 6% annualised economic growth has been projected. The services sector is seen as one of the major contributors to this growth

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economy overview

— it is targeted to increase from the current 54% contribution to 65% in 2020. Another key tenet of the growth is to stimulate greater domestic demand and consumption. The impact of the NEM and the corresponding Economic Transformation Programme (ETP) is yet to be fully seen — as recent economic performance may be restricted due to other global events having a play (eg, a natural calamity in Japan, the Eurozone crisis and the US debt issue). Recent Economic performance The Malaysian economy grew by 7.2% in 2010 (with a robust 10.1% growth in the first quarter of 2010) — largely owing to a bounce back in exports (see fig.3) and government stimulus efforts — overcoming the challenges of the global financial crisis in the previous two years. Strong domestic demand and a steady recovery in global trade were key factors for robust growth. Significantly, trade volume grew by 18% to reach RM1.2 trillion; investor confidence improved, and foreign direct investments grew 500.3% to reach US$8.58 billion (compared with US$1.43 billion the previous year). According to international credit rating agencies — Moody’s and Standard and Poor’s — Malaysia’s strong external liquidity position will be a key factor in supporting its investment-grade credit rating. The agencies also cite robust balance-of-trade payment positions (see fig.4) and sound financial regulations as reasons why the country would possibly continue to receive favourable reviews. ‘Malaysia boasts strong and well-managed corporate and banking sectors; and its state-owned enterprises are undergoing reform,’ said Moody’s in its April 2010 rating rationale. ‘As a result the sovereign’s susceptibility to funding or exchange rate risks and contingent liabilities is quite low,’ it added. Meanwhile, Standard and Poor’s said that ‘Malaysia maintains an open, diversified and competitive

economy, which is underpinned by a moderately flexible labour market, relatively developed infrastructure, ample supporting industries and high savings rate.’ Among the high risks that the economy will face is a high export dependence, especially on the United States (US) — which in itself is undergoing an uncertain economic climate. Despite the large fiscal stimulus, Malaysia was unable to escape a recession in 2009 due to a collapse of demand among US consumers. The other risk factors, discussed further, are the high concentration of SMEs and access to skilled human capital to support economic growth.

Malaysia’s strong external liquidity position will be a key factor in supporting its investment-grade credit rating

Macro-economic Impact Factors The following are the key issues that are likely to either encourage or slow down economic growth in Malaysia. Drivers of Malaysian Economy Abundant Natural resources Malaysia is well-endowed with natural resources in areas such as agriculture, forestry and minerals. It is an exporter of natural and agricultural resources, the most valuable exported resource being petroleum. Agricultural: In terms of agriculture, Malaysia is one of the top exporters of natural rubber and palm oil, which together with sawn logs and sawn timber, cocoa, pepper, pineapple and tobacco dominate the growth of the sector. Palm oil is also a major generator of foreign exchange. Rubber, once the mainstay of the Malaysian economy, has been largely replaced by palm oil as Malaysia’s leading agricultural export. Forestry: Malaysia enjoys one of the highest percentages of forested land among developing countries such as Brazil, Indonesia, the Philippines and Thailand. A well-forested country, more than 59% (19.42 million hectares) of its land area is under forest, with 5.88 million hectares

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overview economy

1. ECONOMIC GROWTH (MALAYSIA), 1980-2020

DGP Growth (%)

GDP Growth (%)

15 10 5 0 -5 -10

1981-1990

1991-2000

2001-2010

2011-2020

Average Growth: 6.0 Key Developments ■ Economic Transformation ■ Exports Promotion with Industrial Development ■ Infrastructure

Average Growth: 7.1 Key Developments ■ High growth driven by exports ■ Vulnerability to external shocks - Asian Economic Crisis

Average Growth: 4.6 Key Developments ■ Economic and Trade Cooperation ■ Global Financial Crisis ■ Stimulus and Recovery

Average Growth: 6.0 Expected Developments ■ Focus of domestic demand ■ Export market diversification Source: Frost & Sullivan

Investment/GDP (%)

Exports Growth (%)

3. Other TRADE GROWTH (MALAYSIA), 1981-2011 minerals of some importance or INVESTMENTSMalaysia, TRENDS (MALAYSIA), 1981-2011 in2. Peninsular 4.30 million hectares in significance include copper, bauxite, iron-ore Sabah 50 and 9.24 million hectares in Sarawak. The 25 tree45 cover increases to more than 76% (25.90 and20 coal, together with industrial minerals like 40 15 35 million hectares) if crops such as rubber, oil palm, clay, 10 kaolin, silica, limestone, barite, phosphates 30 5dimension stones such as granite as well as and cocoa and coconut are taken into consideration. 25 0 blocks and slabs. As of January 2009, The20 rapid expansion of the timber industry, marble -5 15 -10 particularly after the 1960s, has brought about Malaysia has proven oil reserves of up to 4 billion 10 1981 2001 2011 1981 2001 2011 barrels (640×106 1991 m3). The government estimates a serious erosion1991 problem in the country’s forest Source: Frost & Sullivan Source: Frost & Sullivan Investment Stagnation Exports atVolatility current production rates Malaysia will be resources. However, in line with the government’s that Investment as a percentage of GDP stagnated at 25% since 2000, Exports dependency able to produce oil for up to 18 years and gas commitment to protect the environment and the leading to lower productivity High reliance on industrial markets forConcentration 35 years.on few product groups such as electronics, oil, gas and ecological forestry resources Achieving the system, 6% annual growth rate to 2020 will require are being investment to more than 12% over the next years agricultural products managed ongrow a bysustainable basis andfiveaccordingly the rate of tree felling has been on the decline. Developed Hard Infrastructure Cultivation of high-value trees like teak and other Malaysia’s persistent drive to develop and upgrade its infrastructure has resulted in one of trees for pulp and paper are also encouraged. ECONOMICTin GROWTH (MALAYSIA), 1980-2020 1.Mineral: and petroleum are the two main the most well-developed infrastructures among DGP Growth (%) mineral resources that are of major significance the newly industrialising countries of Asia. 15 in the Malaysian economy. It was only in 1972 Network of Highways: Peninsular Malaysia’s 10 that petroleum and natural gas took over from network of well-maintained highways is a boon to 5 tin as the mainstay of the mineral extraction industries. These highways link major growth centres 0 sector. Meanwhile, the contribution by tin has to seaports and airports throughout the peninsula declined. Petroleum and natural gas discoveries and provide an efficient means of transportation -5 in oil fields off Sabah, Sarawak and Terengganu for goods. To complement these highways, a Kuala -10 Lumpur containerised have contributed much to the Malaysian economy. Lumpur-Bangkok-Kuala 2001-2010 1991-2000 2011-2020 1981-1990 service known4.6as the ASEAN RailGrowth: Express Oil and gas Growth: resources are managed by Petronas, Average Growth: Average 6.0 Average Growth: 7.1 Average 6.0 (ARX) has Key Developments Key Developments Key Developments Developments initiated, with the Expected aim of expanding it to the state-controlled oil company which forms been Economic and Trade Economic Transformation High growth driven by exports Focus of domestic demand the Trans-Asia Rail Link that will include production contracts with other players Cooperation Exportssharing Promotion with Vulnerability to external shocks become Export market diversification Global Financial Crisis Industrial Development - Asian Economic Crisis Singapore, Vietnam, Cambodia, Laos and Myanmar like Exxon-Mobil and Royal Dutch Shell to explore Stimulus and Recovery Infrastructure Source: Frost & Sullivan before ending up in Kunming, China. oil fields in Malaysia. ■

■ ■

■

GDP Growth (%)

■

■ ■

■

3. TRADE GROWTH (MALAYSIA), 1981-2011

50 45 40 35 30 25 20 15 10 1981

Exports Growth (%)

Investment/GDP (%)

2. INVESTMENTS TRENDS (MALAYSIA), 1981-2011

1991

2001

2011

Source: Frost & Sullivan

Investment Stagnation ■ Investment as a percentage of GDP stagnated at 25% since 2000, leading to lower productivity ■ Achieving the 6% annual growth rate to 2020 will require investment to grow by more than 12% over the next five years

38 www.internationalinvestor.com

25 20 15 10 5 0 -5 -10 1981

1991

2001

2011

Source: Frost & Sullivan

Exports Volatility Exports dependency High reliance on industrial markets ■ Concentration on few product groups such as electronics, oil, gas and agricultural products ■ ■

economy overview

Strengths

weaknesses

■ Commodities

■ Access

■ Strong

fiscal fundamentals ■ Focused transformation by the government

■ Reliance

opportunities

threats

■ Untapped

■ Over-reliance

opportunities in the services sector ■ Geographic advantage — centre of Asian growth

International Airports: Malaysia’s central location in the Asia Pacific region makes it an ideal gateway to Asia. Air cargo facilities are well-developed in the six international airports — Kuala Lumpur International Airport (KLIA), Penang International Airport, Langkawi International Airport and Senai International Airport in Peninsular Malaysia, Kota Kinabalu International Airport in Sabah, and Kuching International Airport in Sarawak. Malaysia’s biggest airport, KLIA — surrounded by the four main cities, Kuala Lumpur, Shah Alam, Seremban and Melaka — has a capacity of handling 40 million passengers and more than 1.2 million tons of cargo per year. Cargo import and export procedures are fully automated at KLIA to cut down delivery time. Hi-Tech Telecommunications: Malaysia’s telecommunications network has seen impressive expansion and upgrading during the past decade following the successful privatisation of its Telecommunications Department. The latest digital and fibre optics technology is being used to provide high quality telecommunication services at competitive prices. Under the Equal Access Regime, telephone subscribers in Malaysia can choose from five network service providers for a full range of local, domestic and international services encompassing voice and data facilities. There are also six internet service providers and five Telco’s and other network facilities services supporting a full range of domestic and international services. Malaysia is linked to the rest of the world through various fibre optics and satellite consortia such as FLAG, SE-MA-WE, APCN, China-US, Japanese-US, Measat and Intelsat. To support the increasing demand for bandwidth, medium and high-end technologies such as IDSL, IP, VPN and ATM are being extensively deployed throughout the country. Developed Industrial Parks: Industries in Malaysia are mainly located in over 200 industrial estates or parks and 18 Free Industrial Zones (FIZs) developed throughout the country. New sites, fully equipped with infrastructure facilities such as roads, electricity, water supplies and telecommunications, are continuously being developed by state governments as well as private

to human capital on government stimulus ■ Limited private sector investments

■ Large

on investment led exports growth concentration of low-productive SMEs

developers to meet demand. FIZs are export processing zones which have been developed to cater to the needs of export-oriented industries. Companies in FIZs are allowed duty-free imports of raw materials, components, parts, machinery and equipment directly required in the manufacturing process. In areas where FIZs are not available, companies can set up Licensed Manufacturing Warehouses (LMWs) which are accorded facilities similar to those enjoyed by establishments in FIZs. Specialised Parks: Specialised parks have been developed in Malaysia to cater to the needs of specific industries. Examples of these parks are the Technology Park Malaysia in Bukit Jalil, Kuala Lumpur and the Kulim HiTech Park in the northern state of Kedah which cater to technology-intensive industries and R&D activities. TPM is among the world’s most advanced and comprehensive centres for R&D by knowledge-based industries. To the north is the sprawling 1,450-hectare (3,580-acre) Kulim Hi-Tech Park, the country’s first, fully-integrated high technology park. Besides providing one of the best infrastructures there is for high technology manufacturing and R&D, the park’s Master Plan also emphasises the quality of life within a self-contained township. Amenities incorporated in the plan include a shopping centre, a hospital, educational institutions and recreational facilities. Key Obstacles to Growth Human Capital The government has taken important steps in reforming its higher education institutions since the early 1990s, leading to a steady increase in college graduates. However, skills mismatches and shortages continue, as is evidenced by firms’ inability to fill vacant positions for professional or skilled employees despite high wage premiums. A 2009 survey found that firms continue to believe that a shortage of skills is a top obstacle: about 40% of participating firms reported this as one of their top three constraints. In addition, in relation to comparable countries and regions, an inadequately educated and skilled workforce is viewed by enterprises as a major constraint to

www.internationalinvestor.com 39

overview economy

4. Key Economic Indicators, 2006-2012 2006 2007 2008 2009 2010f 2011f Real GDP (% change) 5.8 6.5 4.7 -1.7 6.0 6.1 GNI per capita (% change) 9.6 10.5 11.9 -7.8 10.8 8.0 GNI per capita ($) 5,701 6 ,724 7,760 6,764 8,256 9,610 CPI (avg. % change) 3.6 2.0 5.4 0.6 2.3 Gross external Financing needs 74.7 73.3 69.5 75.4 77.7 77.9 Current account balance (% of GDP) 17.2 16.0 18.1 16.8 14.6 13.5 Narrow net external debt (% of CAR*) -22.0 -30.0 -18.8 -22.4 -23.4 -23.7 *Capital adequacy requirement

Source: EPU

business operations and growth, as well as moving up value chains. Over 45% of service sector firms face vacancies for professional positions, which they cannot fill for over six weeks on average. Large Concentration of Small and Medium Enterprises SMEs have a critical role to play in Malaysia’s aspiration to become a high-income nation. 99% of all businesses in Malaysia’s private sector are SMEs. As re-energising the private sector is one of the key objectives in the Economic Transformation Programme, it is clear that the SME sector will need to be a key player in the transition to a high-income economy. A vibrant SME sector forms the bedrock of

private sector dynamism and innovation. If capacity building does not take place in the SME sector, liberalisation of markets may result in a hollowing out of certain subsections. This would particularly apply to the services sector, which has generally been exposed to a lesser extent to competitive forces than the manufacturing sector. With AFTA 2015 on the horizon, domestic-oriented SMEs cannot rest on their laurels. There is a need to strive for capable, competitive and resilient SMEs that can survive in both internal and external markets. The Economic Transformation Programme Overview The Economic Transformation Programme (ETP) launched in 2010 by the government of Malaysia is a comprehensive effort with the aim to transform Malaysia into a high-income nation by 2020 (see fig.5). Its target is to lift Malaysia’s gross national income (GNI) per capita from US$6,700 (RM23,700) in 2009 to more than US$15,000 (RM48,000) in 2020, propelling the nation to the level of other high-income nations. The Growth Engines A bold new approach has been taken to develop the ETP. It is the first time that any effort of this kind has been undertaken in the history of Malaysia, or of any other developed nation. The programme provides a strong focus on a few key growth engines: the 12 National Key Economic Areas (NKEAs). These NKEAs

Oil, Gas & Energy is one of the 12 NKEAs selected by the government

40 www.internationalinvestor.com

economy overview

5. Economic Transformation Programme (Malaysia), 2011-2020 Key Factors Description ■ Target economic growth is 6% per annum. The Economic Transformation Target and Goals Programme (ETP) is a comprehensive effort that will transform Malaysia into a high-income nation by 2020. ■ To raise Malaysia’s gross national income (GNI) per capita from US$6,700 (RM23,700 in 2009 to more than US$15,000 (RM48,000) in 2020. ■ Inclusive, sustainable and high growth Focus Areas ■ Improve business climate and encourage private sector participation ■ The 12 NKEAs selected are: Oil, Gas and Energy; Palm Oil; Financial Services; Tourism; National Key Economic Areas Business Services; Electronics and Electrical; Wholesale and Retail; Education; Healthcare; Communications Content and Infrastructure; Agriculture; and Greater Kuala Lumpur/Klang Valley. ■ Four largest NKEAs (Oil, Gas and Energy, Financial Services, Palm Oil and Wholesale Retail) are projected to generate 60% of the incremental GNI growth. Source: Frost & Sullivan

are expected to make substantial contributions to Malaysia’s economic performance, and they will receive prioritised public investment and policy support. The ETP will be led by the private sector; the government will primarily play the role of a facilitator. Most of the funding is foreseen to originate from the private sector (92%) with public sector investment being used as a catalyst to spark private sector participation. The 12 NKEAs are at the core of the ETP. An NKEA is defined as a driver of economic activity that has the potential to directly and materially contribute a quantifiable amount of economic growth to the Malaysian economy. The 12 NKEAs selected are: Oil, Gas and Energy; Palm Oil; Financial Services; Tourism; Business Services; Electronics and Electrical; Wholesale and Retail; Education; Healthcare; Communications Content and Infrastructure; Agriculture; and Greater Kuala Lumpur/Klang Valley. These NKEAs will have dedicated focus from the Prime Minister and will have fast-track mechanisms to resolve disputes or bottlenecks. The government is committed to the ongoing support of growth in the non-NKEA sectors. However, the government will focus its efforts on the NKEAs because of the significance of the GNI contribution that these parts of the economy can drive. Implementation Mechanism The ETP has identified 131 entry point projects (EPPs) that concretely outline actions required to grow the economy. The EPPs and other business opportunities identified under each NKEA are anchored to how much they contribute to GNI; they were selected based on rigorous economic and financial analysis. Any public spending will be allocated on the basis of maximising GNI per ringgit of public expenditure. The ETP is also closely linked with the 10th Malaysia Plan on RMK 10 which specifies targets

for sectoral growth as well as targets for exports and foreign investments. Overseeing delivery of the ETP is a specially formed division under the Prime Minister’s Office, PEMANDU (Performance Management and Development Unit). Outlook The multi-speed nature of the global recovery, as seen in 2010, is expected to proceed, but with some heightened risks. Political turmoil and instability in certain parts of the world such as the Middle East and North Africa contribute to these uncertainties. Growth momentum in both advanced and emerging economies remains positive, but is expected to slow slightly. As the global recovery continues, macroeconomic policies will likely normalise further, though with geographical variations in pace. The conduct of global macroeconomic policy will likely remain complicated by the persistence of elevated inflationary pressures and the continued volatility in global capital flows. Despite the above external factors, we expect strong economic performance for Malaysia with Q2 2012 being the inflection point. Exports would be the main driver for growth with a 9.5% Y-o-Y increase in 2012. Whereas the near-term outlook for Malaysia is highly dependent on external developments, the medium-term outlook will depend to a large extent on the domestic structural reform agenda. On this front, the government of Malaysia has launched, over the past year, a series of initiatives centred on the objective of transforming Malaysia into a high-income economy through a process of inclusive and sustainable growth. These initiatives are welcome and provide a sound basis to revitalise the engine of growth. The medium-term outlook remains subject to upside and downside risks, both of them relating to the degree of implementation of the structural reform agenda.

The Malaysian government initiatives are welcome and provide a sound basis to revitalise the engine of growth

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economy roundtable

Economic Transformation Roundtable Held at the Hotel Istana, Kuala Lumpur, this live roundtable debate brought together leaders from government and the private sector to discuss the progress that has already been made with Malaysia’s Economic Transformation Programme. Find out how investors have responded to the opportunities on offer and the problems that have been faced so far. More importantly, how these challenges are being addressed and what we can expect next

AGENDA ■ Background to Malaysia’s development plans to become a developed country ■ Government Transformation Programme: how has it facilitated the Economic Transformation Programme? ■ Economic Transformation Programme (ETP) l What is it and why does it exist? l How will it work and how is it structured? What are the National Key Economic Areas (NKEAs)? l Why will it succeed? What makes it different? l How will it be funded? ■ Strategic Reform Initiatives (SRIs) ■ Implementation issues: l Where are the bottlenecks in execution being experienced? How can they be addressed? l Delivering projects on time l Demonstrable successes: the low hanging fruit ■ Investor issues: l What are investor attitudes towards Malaysia and the ETP? l What challenges are there in growing FDI and DDI? How are theses challenges being addressed? l What else can be done to attract more inward investment? l Policy and regulatory support ■ Coordination and execution: how will line Ministries, MITI, PEMANDU and the EPU coordinate and work together? ■ What key developments can we expect in the short to medium term?

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roundtable economy

Mustapa Mohamed Minister of International Trade and Industry (MITI)

PARTICIPANTS

Mustapa Mohamed has held a number of positions in the Malaysian government, including Deputy Minister of Finance and Minister of Entrepreneur Development. He has a degree in economics from the University of Melbourne and a master’s degree from Boston University. He began work as an Administrative and Diplomatic Officer in the Ministry of Finance in 1974 and entered into active politics in 1987.

Abdul Wahid Omar President & CEO Maybank

President since May 2008, he is also a Fellow of the Association of Chartered Certified Accountants (UK) and a Member of the Malaysian Institute of Accountants. Prior to joining Maybank, he was the Group Chief Executive Officer of Telekom Malaysia Berhad from 2004. He was formerly Managing Director/Chief Executive Officer of UEM Group Berhad as well as Executive Vice Chairman of PLUS Expressways Berhad.

Siti Sa’diah Sheikh Bakir Managing Director KPJ Healthcare

Spanning over thirty years, Siti Sa’diah’s career commenced in Johor Corporation in 1974. She was involved with JCorp’s Healthcare Division in 1978, and was appointed as the Chief Executive of Kumpulan Perubatan (Johor) in 1989. She was appointed Managing Director of KPJ in 1993. KPJ is Malaysia’s leading private healthcare services provider, with more than 20 hospitals in Malaysia that provide services to more than two million patients annually.

44 www.internationalinvestor.com

Idris Jala Chief Executive Officer PEMANDU

Idris Jala, is a Senator in the upper house of parliament. He was previously the Executive Director of Shell Malaysia Ltd, Gas & Power. He graduated from Universiti Sains Malaysia and holds a Master’s Degree from University of Warwick, UK. Idris Jala is of Kelabit ancestry from Sarawak and is a Christian. He is one of the few non-Malay non-Muslims to have been appointed to head a GLC.

Rauf Rashid Country Managing Partner Ernst & Young Malaysia

Rauf has been in professional practice for more than 20 years providing various types of assurance and advisory services to large international, Government-linked and local clients in various industries. He graduated in Accounting & Economics from the University of Southampton, United Kingdom. He is an associate of the Institute of Chartered Accountants in England and Wales and a member of the Malaysian Institute of Accountants.

A.K. Nathan Executive Chairman and Group Managing Director Eversendai

A.K. Nathan started his career at the age of 21 as a printing machine operator. He became acquainted with the structural steel construction business purely by chance when he was asked to help out as a sub-contractor on a construction contract for Nippon Steel Corporation. He learnt Japanese working culture which he incorporates in his management style together with a hands-on approach.

economy roundtable

Anuar Taib Chairman Shell Malaysia

Anuar Taib joined Shell in 1990 after graduating in Mechanical Engineering from Case Western Reserve University in America. Anuar has had assignments in drilling & completion, deepwater projects, project accounting, commercial project evaluation, acquisition and divestment and contracts & procurement in Miri, Kuala Lumpur and New Orleans before becoming chairman in 2010. He holds an MBA in International Management.

Sharifah Hapsah Vice Chancellor UKM

Sharifah was instrumental in developing the Malaysian Qualifications Framework and Code of University Good Governance. At UKM, she developed a transformation plan, commercialised research products and initiated innovative human capital development programmes. Her awards include Fred Katz Memorial Medal, COL-ICDE and Honorary Degrees from Yala Rajabhat University and Stevens Institute of Technology, USA.

Yong Poh Kon Managing Director Royal Selangor International

PK Yong is Managing Director of Royal Selangor International, a manufacturer and exporter of pewter products for the home as well as for corporate gifts and has also been President of the Federation of Malaysian Manufacturers. He has also served as a Board member of Bank Negara Malaysia, and was appointed by the Malaysian Prime Minister as Co-Chairman of PEMUDAH the Task Force to Facilitate Business.

Sandip Das Chief Executive Officer Maxis

PARTICIPANTS

Mukhtar Hussain Chief Executive Officer HSBC Bank Malaysia

Mukhtar has a BSc in Economics from University of Wales. He joined the HSBC Group in 1982 and went onto become assistant director of merchant bank Samuel Montagu and managing director Wardley Middle East Ltd. In 1995 he was appointed as CEO, HSBC Financial Services (Middle East). He was appointed as Deputy Chairman and CEO for HSBC Bank Malaysia on 15 December 2009 and also continues in his role as Global CEO of HSBC Amanah.

ROUNDTABLE PARTNERS

(247079-M)

Sandip serves as Director on the boards of Maxis Communications Bhd, Maxis Bhd and subsidiaries in India and Indonesia. He also serves on the boards of Sri Lanka Telecom PLC, Mobitel in Sri Lanka and Bridge Mobile Pte Ltd. Previously he was Deputy Managing Director of Hutchison Essar Ltd. He has an MBA degree from the University of Delhi and a degree in Mechanical Engineering from the National Institute of Technology, India.

(247079-M)

The National University of Malaysia

www.internationalinvestor.com 45

roundtable economy

Mustapa Mohamed Minister of International Trade and Industry

Mustapa Mohamed, Minister of International Trade and Industry: This is a time of profound transformation in Malaysia. It is a process that we expect to last for some years, and the eventual goal, as you all know by now, is the transformation of the country into a high-income economy by 2020. In order for us to achieve this we will need the hard work and commitment of people such as yourselves and, of course, all the people in the institutions you command. Equally important, we will also need your input, your energy and your ideas. Today we hope to dig down into a few of those ideas and to get a sense of where we all stand in regards to the transformation this country needs. There are so many areas that are important for our country’s transformation, but unfortunately we will not have time to cover absolutely everything. So this afternoon I would like us to concentrate on five main topics: the mechanism of the transformation programme; the contribution your individual business sectors can make; the issue of human capital; making Malaysian business competitive, and the ‘generation gap’. Dato’ Sri Idris Jala, would you like to begin by giving us a brief outline of the transformation programme, and where we are today. Idris Jala, Performance Management & Delivery Unit (PEMANDU): First let me say, before outlining what we want to achieve with the transformation programme, that the instigation and energy for this whole process comes right from the top. The Prime Minister has made a declaration that he sees Malaysia’s transformation — economic, social and political — as the key task facing us for the years up to 2020. The result for us was first the Government Transformation Programme (GTP) and, building on that, the Economic Transformation Programme (ETP). I will explain our thinking behind these programmes shortly, but first let me say that one of the first things we concluded was that

46 www.internationalinvestor.com

if these processes were to work, they had to involve everyone in the country. In fact, they had to be processes that issued from the ground up. As a result, one of the first things we did when designing the GTP was to consult the Malaysian public about what they would want to see their

I get a real satisfaction in seeing how energised the people I talk to are about this whole challenge. Businesses, politicians, ordinary Malaysians – I get a sense of their excitement that something profound is going to happen in the country government change. They named six areas they thought we ought to focus on: crime, corruption, basic infrastructure, urban public transport, low-income households and education. We then designed the GTP around those issues. It is important for the whole country to understand that this whole process is being done with the full consultation of all Malaysians; and that it’s vital to fix this basic stuff first so that we could prepare the ground for all the economic work later. We began the transformation work in January 2010, and the implementation is going well so far. The second thing the Prime Minister wanted to do is to focus on transforming the economy, and that’s where the Economic Transformation Programme comes in. We identified two things we thought would be absolutely critical to the whole process, things that other comparable countries had paid close attention to in their own economic transformations: focus and competitiveness. First, let’s look at focus. We cannot do everything all at once. Economies are complex entities and

economy roundtable

it is clearly not tenable to try and manage the whole thing. What you can do, however, is select key areas, and key projects within those areas, and use those as catalysts for the rest of the economy. As a result, we identified 12 National Key Economic Areas (NKEA): Oil and Gas; Palm Oil and Rubber; Financial Services; Tourism; Business Services; Electronics and Electrical; Wholesale and Retail; Education; Healthcare; Communications, Content and Infrastructure; Agriculture; and Greater Kuala Lumpur. Second is competitiveness. After focusing on those sectors, we have to lay the groundwork required to make them competitive in a world setting. Even if we are totally focused on success, if the products and services coming out of Malaysia do not win out in the international market we cannot make it as a high-income economy. We looked to the work of the National Economic Action Council and the 51 policy measures in their Red Book, in particular the concluding part, which is in fact all about competitiveness. It identifies crucial areas that will affect competitiveness, such as anti-competition law, implementing new business standards and trade liberalisation. There are others, but that gives you a flavour of what we are concentrating on. Again, only by laying all this groundwork will we be able to produce real and lasting economic transformation. However, there is the question: how are we going to measure all this? Aspirations are all very well, but if you cannot pin them down, you will not achieve anything much. Each one of you will understand this from your own business experience. Thus, if we want to measure whether we are succeeding there are three key performance indicators (KPI) to bear in mind. First, Gross National Income (GNI) must rise. That, quite simply, is the universal measure of what constitutes a high-income nation. In our case, we want to achieve a level of US$15,000 per

capita and an overall GNI of 1.7 trillion ringgit by 2020. Second, levels of investment must also rise. We want to see an increase of 1.4 trillion ringgit between now and 2020. May I say right away that, crucially, the bulk of it — 90% — must come from the private sector. Gone are the days, both here and everywhere else in the world, where government can create successful businesses on its own. Third, we need to see a big increase in the number of jobs in the economy. Our aim is to increase that number by 3.3 million, again by 2020. These are big ambitions and we are going to talk a lot about how to implement them today. However, I think they are achievable. As I just mentioned, we plan to set about our task by concentrating on what we call ‘Entry Point Projects’ (EPPs). We have identified 131 key industrial, infrastructural and economic projects that we believe will act as catalysts for a wider transformation of the economy. These 131 are just the start, though. More projects will be added to the list in the next nine to ten years, with the sole objective of achieving this catalysis. I get a real satisfaction in seeing how energised the people I talk to are about this whole challenge. Businesses, politicians, ordinary Malaysians — I get a sense of their excitement that something profound is going to happen in the country. Maybe even a once-in-a-century chance for radical improvement and change.

Idris Jala Chief Executive Officer PEMANDU

MM, Minister of International Trade and Industry: I absolutely agree: we cannot address the economic issues until we put our own government house in order. What will be key to the whole programme is sorting out government delivery, making everything we do efficient and effective. Businesses and people rely on their government working efficiently on their behalf. We can be a great facilitator for projects, but let’s be honest; we can also hinder transformation if we don’t work as well as we are able.

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roundtable economy

Abdul Wahid Omar President & CEO Maybank

I think, as part of that, we also need to be a lot more open and transparent in the way we operate. To the extent that Malaysian businesses interact with the government, they have to know we can deliver what they need, but they also need to see us doing it. I’m sure you all will have something to say about your experiences of government delivery. We need to change mindsets in the government and the civil service so that we are working together as a team, and we are working in full engagement with the private sector. The ‘Labs’, which we will come on to, are an early example of what we want to do in that area. So, that is a brief overview of the programmes and the government’s point of view. Let me hand over to our business colleagues and get your take on all this. Right away, I want us to tackle concerns and doubts. I know that many people are not always confident that we can deliver on all this. Wahid Omar, can I turn to you? I believe you had some concerns about implementation. Could you elaborate? Abdul Wahid Omar, Maybank: Like all of us, I want to be sure that the projects will be able to deliver on the promises. It’s all very well having great ideas, but they have to be implemented on the ground, and often the ground is hard. Will we be able to measure whether the process is working? Will we be able to get obstacles removed quickly as they arise? We need to keep a close eye on how the whole thing is unfolding, and the government needs to be as open as possible about it. So far I have been impressed, though. The calibre of people on the main NKEA committees seems to be very good. For every NKEA, there is a steering committee that is chaired by the Prime Minister, and members will include key ministers and people from the respective sectors. I think this level of participation will be very important in getting things done.

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For example, in the case of the Financial Services NKEA, the Prime Minister is the Chairman and the other members include the Minister of Finance, the Treasury Secretary General, the Bank Negara Governor and the Chairman of the

We need to change mindsets in the government and the civil service so that we are working together as a team, and we are working in full engagement with the private sector Securities Commission. The steering committee meets periodically and every single project identified is tracked in detail. If there are issues that are blocking implementation of a project, the role of the committee is to unblock them. If there are some projects that may not be there any more, they will drop off the list, and new projects are brought up to make sure that there is enough action to implement. From my perspective, being a member of the steering committee, the speed of execution is tremendous. MM, Minister of International Trade and Industry: Sandip Das, your views? Sandip Das, Maxis: The very fact that there has been participation from CEOs and senior people like us right from the beginning should ensure that the programme will stand the test of time; and the gaps that you would normally expect between conceiving an idea and implementation will be bridged. All of us, as chief executives asked to participate in it, are key to driving the programmes forward, which is again where I feel that the likelihood of success is extremely high. We could not have scripted a better plan in my view.

economy roundtable

Mukhtar Hussain, HSBC Malaysia: I largely agree with what has been said, but I would like to add three things. First, like all plans, the rubber hits the road not at the steering committees or these types of forums, but when an investor comes to the country and has to deal with the bureaucracy: approvals, permits, whatever they may be. That remains a challenge and it is a challenge in most countries because it is never a problem you ever completely fix. We can make it better, but probably not fix it entirely. That is just the way of the world, so we have to have realistic expectations. Second, I think it is important to get positive stories out to people. Not just for publicity, but to encourage people to invest by showing them clearly that it is working. Companies that have already invested can publicly outline why they did so. The story is best told by those who have been through the investment experience themselves and have credibility not only domestically, but also internationally — that is what people are going to want to listen to. They will say, ‘Did you as an investor choose to put your latest data centre here or did you choose to open X number of new branches?’ The news gets out to people. The third thing that I would put on the table is that the world has changed since the ETP was announced. What with economic problems in Europe and the US, many institutions are now beginning to think more closely about where they invest. Malaysia could be a very significant beneficiary of this re-thinking, so all the more reason to communicate the story and to attract people onshore. Mohd Anuar Taib, Shell Malaysia: From my perspective, the will is there and the markets seem to be on board. However, as has been said, where you often see problems is in the relationship between the programme manager and the implementation. Having said that, Malaysia is by no means alone in

this. There are similar problems in other countries. Even in the Shell group the bureaucracy does not always work quickly enough. However, we should strive to implement things more quickly. MM, Minister of International Trade and Industry: I would agree that we need to get the systems and procedures in place before we make an announcement; and it is something we are doing better. Abdul Rauf Rashid, Ernst & Young: It is vital that we don’t give the impression that this transformation process is just something for big businesses. It is something that is crucial to

Rauf Rashid Country Managing Partner Ernst & Young Malaysia

We can take on this role of training the next generations of skilled people. At the heart of all our work will be the creation and encouragement of future entrepreneurs all of us as citizens of the country — we are all stakeholders. It is the whole country that we are trying to transform. I also agree with what Anuar Taib has just said. Together with the government, we need to make sure there is no disconnect between what is proposed and what actually happens in reality. Often there is the perception that government agencies and businesses ‘over-sell’. People are very excited when they first come to you with their ideas and proposals, but the delivery sometimes does not match the sales pitch. That’s something that we need to keep a close eye on. Also — and I’m sure we will come to this later — the ‘people’ issue needs to be made a priority in all that we do. The quality of our human capital today requires urgent attention.

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Transformation needs to happen in the education system as much as anywhere else if we are to get the right skills and the right people in place. Put simply, we a need consistent, high-quality supply from our institutions of higher learning.

Sharifah Hapsah Vice Chancellor UKM

Sharifah Hapsah, UKM: I can address that point. The increased autonomy that will come to the higher education realm through the Education NKEA will be important for us to move forward.

The success of the whole Economic Transformation Programme will depend on providing Malaysia with a really first-rate telecoms system At UKM, we are already in the process of creating a university that is keyed up for the needs of Malaysian industry. We have done the sort of auditing of processes and structures that all the research universities have gone through and are designing a new curriculum which works with industry much more than before. We can take on this role of training the next generations of skilled people. At the heart of all our work will be the creation and encouragement of future entrepreneurs. The Malaysian Qualifications Agency Act has been an important step forward, too. With that law now in place there is a category of stamp accreditation, so we can be self-accrediting. A lot of things have been put in place for institutions to move forward very fast. Having said that, there are still a lot of hurdles. A.K. Nathan, Eversendai: I certainly believe that the transformation programme is excellent and will do a lot of good for the country and the people at large. However, I believe implementation is

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the key issue here and this has to take place effectively. When the Prime Minister announces a programme or issues a statement, it’s well received, but at the end of the day, achieving the goal becomes difficult when it’s not implemented effectively. We will only achieve ETP at large if proper implementation actions are put into place. MM, Minister of International Trade and Industry: I understand your concerns, and we have decided that the hype will be toned down. What we want to do going forward is simply talk about the success stories. Instead of big announcements, we are going to go onto the ground to see which projects are up and running so that we can come out with solid achievements; we can tell the world that yes, we have done something. IJ, PEMANDU: I too appreciate your worries, but not everything is hype. It’s worth outlining what we have achieved so far. Our investment target for 2020 was to have an extra 1.4 billion ringgit in our catalyst projects — we have already achieved 10 billion ringgit of confirmed investment for the initial 131 catalyst projects alone so far. We said we wanted to create 3.3 million new jobs — so far the 131 projects have created 372,000 jobs; that is 10% of the ten-year target in ten months. Even so, in the future we are going to be much more concrete in our announcements. From our next update onwards we will bring forward actual project managers so that they can announce what they have done so far: contracts signed on a new six-star hotel; a new 5 billion ringgit investment deal begun; Shell already achieving its total of investment spend. We want to be able to announce hard projects, not hype. Yong Poh Kon, Royal Selangor International: One way to move away from the hype is to focus

economy roundtable

on some of the smaller projects and on the manufacturing sector as a whole. In 2000 the sector was about 30% of GDP, but as we go into NKEA, I don’t think it is well represented. Perhaps some oil and gas is considered manufacturing, but the rest of the projects seem to be services. One thing the government could do is to begin to draw some focus back onto this unrepresented NKEA. It is made up of relatively small concerns, but overall it is significant. Just as importantly, it will give a concrete idea of what the programme is achieving. PEMANDU could draw attention to more of them. SD, Maxis: I see a lot of things coming out of PEMUDAH. In many cases they are quite good with breaking down bureaucracies. Is there a way that PEMANDU and PEMUDAH could work more closely from initiation to implementation, because we see the domain that PEMUDAH could take? MM, Minister of International Trade and Industry: We are already doing it. PEMUDAH is about five years old and PEMANDU is only a couple of years old, but there has been a lot of integration already. We have spoken a lot about not working in ‘silos’ and about breaking down barriers between agencies and people. I acknowledge there is a need for improvement, but the Prime Minister has been driving home this point repeatedly, and there has been a lot of improvement in PEMUDAH and PEMANDU, as well as in MITI. CONTRIBUTION OF THE SECTORS MM, Minister of International Trade and Industry: I would like to move us on now to begin to talk about the specific contributions of your own business sectors to the transformation process. Perhaps we can look at what we can do in the various sectors to make us more competitive globally; what the sectors themselves can do to help the overall

transformation process and, finally, what we can all do to attract foreign direct investment to the sectors. SD, Maxis: I think my own sector, telecommunications, can be seen as a sort of underlying facilitator for the whole economy. Today, with the proliferation of new and highly sophisticated devices like iPads and smartphones, that becomes ever more apparent. If it is not too arrogant to say it, I believe that the success of the whole ETP will depend on providing Malaysia with a really first-rate telecoms system. That is where we come in. I can see in each of the NKEAs that have been identified that there are great roles for us to play, whether it is in the area

Sandip Das Chief Executive Officer Maxis

I believe that around 25% of all the required investment will come from foreign sources, 7% from the public sector, and the balance from domestic corporates of crime or in the area of education or helping to improve the rural economy. Telecoms of a high quality can be a game changer. That is where the excitement is. We will all be able to do our banking, our healthcare, our basic business tasks — all via a high-speed data network. It is the way the world is going. We need to be right there at the forefront. We cannot afford to be left behind. In our own plans we have envisioned what we call ‘Beyond Telecom Services’, which is where we plan for people to move away from plain vanilla cellphones to a country where you can have sophisticated data devices in your hand wherever you are. Somebody once did a survey and said that for every ten mobile phones for a population of

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100, the GDP goes up by 0.6%. It is a staggering statistic. We are going into a hi-tech future and we better keep up.

Anuar Taib Chairman Shell Malaysia

AWO, Maybank: Sandip is correct to identify certain underlying sectors that will facilitate the rest. I think it is obvious that banking and the financial sector as a whole is another. We need to always be aware of how, and from where, the financing for all this new economic activity will come. From my own calculations, I believe that around 25% of all the required investment will come from foreign sources, 7% from the public sector, and the balance from domestic corporates. If you assume that the typical project is funded as two to one debt to equity, out of a billion ringgit investment, about 650 million ringgit will be in the form of debt funding and the balance of about 250 million will be in the form of equity. We are looking at about 60 billion ringgit of debt financing and 30 billion ringgit in terms of equity financing overall. As lenders we believe that we will be able to support all this financing, so I don’t think there will be a problem. Malaysian banks have been very responsible over the past few years, unlike some banks in Europe and in the United States. We are therefore in a healthy enough state to be able to cope with what will be a rapid economic transformation over the next decade. Some of the projects will also be achieved through private investments and we are happy that these projects have been the catalyst for the development of the debt securities market as well. We have some 79 billion ringgit worth of bonds in privatised entities to be issued in the pipeline already, and about 60% of those are projects that have been identified under the ETP. These projects in turn are helping the development of the capital markets and the bond market. I am quietly confident about the whole sector.

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Siti Sa’diah Sheikh Bakir, KPJ Healthcare: From the point of view of healthcare services, the components of what we need to achieve in our portion of the transformation are in place. We have a very competent and fairly mature industry. The availability and demand for healthcare services is high in Malaysia and we are gaining a strong

Looking from a business perspective, the honest truth is that talent can be bought. We do not live in an enclosed economy reputation around the world for our abilities. We are well placed to be able to grow, and to bring in significant amounts of foreign revenues. One key change is that before the sector was not being coordinated, but now it is. That is going to be important in the near and medium term. The government can help in terms of changing the way healthcare is regulated and the way it is purchased. We would like to see a system where people can purchase healthcare from any provider. That would be a significant boost to the industry. AT, Shell Malaysia: The whole energy industry – I would say that, rather than oil and gas – is going to be key as well. It is a facilitator too, as well as being an important revenue and jobs generator in its own right. Petronas has provided good governance in the upstream sector and has been looking after Malaysia’s national investments in that sector extremely well. Downstream, there is enormous potential for business to grow, and for us all to become part of a very real regional hub. We are also naturally inclined to form joint ventures with foreign companies, thus bringing them into the economy as dynamic players. The potential is enormous.

economy roundtable

BRAIN DRAIN: THE CHALLENGES OF HUMAN CAPITAL MM, Minister of International Trade and Industry: Can we now address the muchcommented-upon issue of human capital. Do we have the right people, the right skill-sets, in the right place to enable all this economic and social transformation? Do we do enough to attract and retain our domestic talent, or to attract new talent from elsewhere? Is our education system up to scratch? AKN, Eversendai: That is one of the biggest issues in Malaysia. In my opinion, the quality of people coming out of university can be improved upon. If Malaysia wants to achieve its goal of US$15,000 per capita income by 2020, we need to work on refining our education system. The teaching of English is a key concern. Look at China; they are pushing very hard now for training in the English language. Yes, Bahasa is our national language and I believe it is important, but we need to emphasise the English language if we want to be a global player and have a strong standing. SH, UKM: May I respond to the language issue first? I agree that by the time our students come to university they should be well versed in English. In the university they must have access to the knowledge that is available in journals or the internet. The truth is that the world of academia, and the world of business, is largely done in English. They can be fluent in their national language, of course; but they need English as well. We in the universities are well aware of this. It should be possible to design a schooling system where they become fluent in both tongues. MM, Minister of International Trade and Industry: The biggest issue is the 50% at the bottom; they have a problem and I believe our main challenge

is that we don’t have enough English teachers. It is something we need to address. IJ, PEMANDU: You must begin teaching them correctly — including languages — right from the beginning. When we looked at literacy and numeracy, it was clear that pre-school was a huge boost for individuals’ life chances. At the moment, 40% of our children do not go to pre-school, and since much of the subsequent curriculum is based on the assumption of a pre-school education, that 40% will struggle. We are trying to address this, though. We have in recent years built 1,500 new pre-schools and enrolled 54,000 additional kids. It is a good start, but there is still a way to go.

A.K. Nathan Executive Chairman And Group Managing Director Eversendai

AT, Shell Malaysia: We are the 18th largest trading nation in the world and our exports and imports are double our GDP. We need to plug into the world economy more and English is a key part of it. Whatever resources you throw into the system,

Keeping hold of our domestic talent will go a long way towards making Malaysian industry highly competitive if the recipients, the students themselves, see no incentive in learning, you are wasting your time. Could we not make things even firmer and say, ‘In five years’ time English must be a compulsory pass subject in SPM?’ The important thing is that you transform the incentives for students and make it clear that this is a requirement. AKN, Eversendai: Looking from a business perspective, the honest truth is that talent can be bought. We do not live in an enclosed economy. If we don’t pay an employee in line with the exposure, experience and qualifications they

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have, they will leave and probably go abroad. The other important point to note is that we, as companies, need to work towards giving people the right opportunities for really fulfilling careers, with the proper remuneration. I believe these solutions will keep our talent here in Malaysia and avoid the brain drain.

Mukhtar Hussain Chief Executive Officer HSBC Bank Malaysia

ARR, Ernst & Young: Overall you have a point. In the professional services industry, we are already offering some pretty good remuneration packages. Yet it is difficult for us to retain our talented people. Many of the senior managers in Malaysian businesses are former accountants who have left the professional services industry. Never mind the GCC countries or the Western countries — we are losing a lot of our people to a country just across the Causeway. We are improving, sure. However, unless there is better coordination between the public and private sectors in this area of talent

The challenge to the private sector is to create the Malaysian multinational big-hitters, like Nokia or Ericsson. That is our challenge in the coming years management, and greater recognition of the importance of promoting professional services within the economy, it is going to be hard to stem that outward flow. SH, UKM: As I mentioned earlier, we at UKM, along with other universities, are making great strides in building an institution and a curriculum that is more geared to the needs of the Malaysian economy. We have programmes designed to create the necessary skills for business success. We have the Campus Ambassador Programme with Universiti Teknologi Malaysia, for example, where

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we have specifically sat down to build an industry perspective into the curriculum. We are doing what we can to address any skills shortages the country might have. Could I also say that there is one type of skill we have not mentioned? What you can call the ‘higher artisan’ level. Sometimes young people think that just having a degree is enough, but we need the welders, builders and electricians just as much. COMPETITIVENESS MM, Minister of International Trade and Industry: Is Malaysian industry competitive enough? Can we improve? What needs to change? MH, HSBC Malaysia: If I may, I would just like to address that by going back to comments that people have made earlier about retaining human capital. Doing that, keeping hold of our domestic talent, will go a long way towards making Malaysian industry highly competitive. You can’t get around that basic equation. Multinational companies – HSBC included – can only remain competitive by offering people career advancement to either remain or locate here. We need to organise things so that they see a move to the country as an enhancement to their CV, their marketability. More specifically, there are gaps in my own industry, in banking and finance, which need addressing. At the moment, we lack a venture capital industry. Even if an entrepreneur comes up with a really great idea, they are hampered by the relative lack of availability of seed capital. We have no ‘angels’ to speak of. We are too keen to offer debt solutions to what are really equity problems. There are gaps not in the intent, but in the infrastructure. SH, UKM: I would come back to my own field of education in that regard. Like you say, there are no angels. So many young businesses have to go

economy roundtable

to mother, father or grandfather to get start-up capital. We can have some public investment, but it is usually in a different kind of market sector. I am wondering whether we can create an alternative investment market for smaller, startup companies? Perhaps it is an idea that we can develop. Then technologies that come up from the universities have a chance to breathe. Too often they do not see the light of day. Yet we cannot be depending on the government; the government cannot support all this. IJ, PEMANDU: There is no question that we need to do more for start-ups. However, in reality the big Malaysian companies need to become global players. Finland is a good example of a relatively small country, like Sweden and Norway, which punches internationally. The challenge to the private sector is to create the Malaysian multinational big-hitters, like Nokia or Ericsson. That is our challenge in the coming years. Without it, we will not become a high-income nation. All too often people ask the government, ‘Can you give me this contract? Why aren’t you doing this or that?’ To my mind that is the wrong question. The right question should be aimed at them: what are you doing to make your product and services so competitive that you win out there in the global market? AKN, Eversendai: Eversendai has 95% of its turnover from overseas and this year we will achieve a one billion turnover. SD, Maxis: You are absolutely right; we need to work ever harder at making ourselves globally competitive. To give you an example from Maxis, one thing we are doing is working with the Ministry and the University Development Programme to develop something called a Content Developer’s Challenge. A young university student develops

some software which can write across all platforms throughout the world; he develops something as simple as a halal product for identification in shops and we will take that product and roll it out across the entire Middle East, or the wider world. We need to develop mechanisms that can take this raw talent and make it raise its eyes to the wider world. YPK, Royal Selangor: We have tried to do something similar at Royal Selangor. We have deliberately extended our operations up the value chain, so that we now engage much more than we used to do in research and development and design. We have actively gone out of Malaysia to

Yong Poh Kon Managing Director Royal Selangor International

It is important for Malaysian companies to make themselves world players if they can. That is where the economic growth will come from source foreign designers to add to our already skilled group of domestic designers. That gives us much wider appeal outside the country. In addition, we have focused strongly on opening foreign outlets and now have them in Australia, Canada, England, China and elsewhere. It is important for Malaysian companies to make themselves world players if they can. That is where the economic growth will come from. MH, HSBC Malaysia: There is an issue with the equity market in this regard. Often, the issuance opportunities for Malaysian companies are low because there are very few investors from Malaysia that go overseas. When they do go overseas they are unanimously well received, fine. We have had the great pleasure of, for example, doing two sovereign sukuk issues for the government in

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Malaysia, which were very well received outside the country. However, if Malaysia is going to attract sufficient capital it needs to be more systematic in its approach to the regional investor community and to the international investor community.

Siti Sa’diah Sheikh Bakir Managing Director KPJ Healthcare

Healthcare has the potential to be a real world-beater for Malaysia. We have the skills and the passion to do it For an investor sitting in New York, London or Frankfurt, when they think of Southeast Asia do they think of Malaysia first? The answer is I’m not so sure. I fear most will think of Singapore or Indonesia. It isn’t that we don’t have a good enough story to tell; we often do. It requires each of the CEOs around this table to go and tell his story internationally, as you did very successfully in London during the Prime Minister’s visit, to make sure that story is understood. There are some things that Malaysia is uniquely good at, which are not very well understood by the world at large. Let me point to two: the first of those is Islamic finance. Malaysia today is unequivocally the best Islamic finance hub in the world. The Middle East might dispute that, but it is here. Yet do we shout about it enough? Do we write about it? Not particularly. Could we do more to promote it? Yes, we certainly could. My sector has a role to play, not only in funding for growth, but in diversifying the sources of that funding; bringing capital in from investors that are interested; and mobilising multinational companies who have significant presences here to use their global capabilities to promote locally what Malaysia does terrifically well. ARR, Ernst & Young: That is very closely related to what we do. Ernst & Young has a very extensive

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global network. We see this as an opportunity for us to promote Malaysia in the areas where we feel Malaysia has advantages over everybody else. One of those would probably be business services. If a client is looking to set up a data centre, for example, we can trumpet Malaysia’s skills in that area. And we do. There are other things facilitating the foreign investments that are going into places like Penang, Iskandar and other economic zones. We certainly market those. I think we can definitely help the ETP by leveraging further on our global network. We’ve also just mentioned Islamic finance. It is something in which Malaysia has an advantage compared with some other locations. However, the fact is Bahrain and the GCC countries as a whole are simply closer to the funds, which makes it easier for them to generate the demand for their products. And because of their ability to create that demand, we tend to lose Islamic finance professionals to the GCC countries. Often, it is not that we are not paying our people enough here, it is a question of where the stronger demand is. THE GENERATION GAP SSSB, KPJ Healthcare: Can we talk a bit about the generation gap? We are all relatively senior in our industries, and we often say that ‘Generation Y’ does not understand us. However, maybe it is the other way round. Maybe it is we who do not understand them. If we want to become competitive, we will need to understand the needs of the upcoming generations, surely? I know a lot of companies now talk of ‘reverse mentoring’ with a young person attached to a CEO, with the latter acting as a mentor. AKN, Eversendai: We have recruited graduates consistently over the past few years, but I think the quality of the graduates that we have needs to be improved. We realise during interviews

economy roundtable

with candidates that they are not in line with the company’s expectations. I believe most companies are facing a similar problem. Whatever is said and done, we have to work on quality graduates for an economic transformation. SD, Maxis: I think we definitely need to pay attention to the next generations. In my own industry, telecoms, we can all see how quickly things change and how much of a better grasp of the technology the younger people have. As I said earlier on, economies are becoming ever more dependent on hi-tech data networks. Could we become out of touch if we don’t pay attention to our young business entrants? I think we could. IJ, PEMANDU: To my mind it is not about reverse mentoring, it is about continuous learning, for all of us. It doesn’t matter where you learn it from, or from whom. I will give you an example. I had been reluctant to get onto Twitter. I thought that if I did, it would just be a distraction. I resisted doing this until my son insisted and said, ’No Dad, we do it all the time, it is no problem.’ I decided a month ago to start to tweet – and I answer all

This is a long journey, not a quick fix. That’s great, because as far as Shell is concerned, we have been here 120 years and we are intending to be here a lot longer of them, every single tweet! There were people saying, ‘It cannot be him!’ ‘But it is, and you can test me!’ Seriously, though, the issue is we must try and always learn. Someone once said: intelligent people seldom go beyond the boundaries of their

self-imposed limitations. We are so intelligent we impose limitations and therefore we stay within those boundaries. That’s a bad idea. SUMMING UP MM, Minister of International Trade and Industry: Perhaps it is time now for some summaries. SD, Maxis: First let me say that the Economic Transformation Programme is a great idea. I hope we persist with it and it produces all the fruits we expect it to. We must remain resolute and optimistic about it, though. Right at the start we spoke of lessening the hype and making things much more concrete. I think this is the way to go. I am confident that once we get some real achievements from the pipeline, people will see them, and they will act as real catalysts. PEMANDU has identified 131 initial catalyst projects, and I think that is incredibly important. Without concrete achievements, nothing will happen. SSSB, KPJ Healthcare: I want to reiterate the emphasis on Malaysian companies promoting themselves abroad. Healthcare has the potential to be a real world-beater for Malaysia. We have the skills and the passion to do it. However, what has been said about looking outwards is absolutely true. We all compete in a world market now, and we cannot deny it AT, Shell Malaysia: The programme certainly sets very lofty targets. That is fine, and so far it has produced a very good buzz in Malaysia. For my part, I want to re-emphasise that we need to watch out for implementation issues; that is what investors will be paying attention to — can we deliver. The better the implementation, the more confidence the whole country can generate. Also, this is a long journey, not a quick fix. That’s great, because as far as Shell is concerned, we have been

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here 120 years and we are intending to be here a lot longer. YPK, Royal Selangor: Yes, we are optimistic. Maybe there could be some additional labs set up which look at the process as a whole? They could look at what parameters need to be tweaked as far as the programme as a whole is concerned. We could measure the implementation on a higher level. AKN, Eversendai: Malaysia is a wonderful country with extraordinary people — a fantastic diversity of cultures and talents. I think we are able to do wonderful things if we put our minds to it. However, as I have emphasised throughout our discussion today, the key point will be whether we are able to push the implementation through in the right perspective. ARR, Ernst & Young: I fully support what has been said. As was mentioned earlier, though, a crucial aspect is that the whole Economic Transformation Programme needs to be seen as a programme for the benefit of everybody — the whole country. Ernst & Young have been very supportive of it from its inception. In fact, we are working with PEMANDU now to try and come up with some programmes to take all these things further. If I were to narrow my wishes to just one, it would be about human capital and talent management. I think we have emphasised how important that is, but let me stress it again: let’s really look into the education system, really look into the development of Malaysian talents. That’s ultimately where our economic success will come from. MH, HSBC Malaysia: I would only wish to echo comments made by other colleagues about the importance of the programme. The key thing, as has been repeatedly stressed, is performance and measurement. We need milestone announcements

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every quarter, every half — almost like company results. The committees should be required to tell the ‘shareholders’ — the people — what has been done in their name at all times. IJ, PEMANDU: What we have to do is remember that the government’s role is to provide a catalyst; to my mind the ETP is no more than a prospectus. It is a prospectus so that we can sell the country; to provide a guide for people to go and do it. We must never think about the government as the answer to all problems. As the Prime Minister has said, ‘The days when the

Let’s really look into the education system, really look into the development of Malaysian talents. That’s ultimately where our economic success will come from government knows all are over.’ We will help and assist, but it’s down to the private sector to accomplish our transformation. I am in no doubt that they will step up. MM, Minister of International Trade and Industry: Thank you everyone. This has been an interesting and exciting debate and we have learnt a lot from old friends here. The world is undergoing worrying economic conditions, but I am in no doubt that without the ETP we would be in a worse situation. I think that our current transformation programmes are only the start. Once we have achieved our current goals, who knows where we might go next? I am sure, in a few years’ time, we can all meet again and discuss the next ten years of transformation. Once again, many thanks for coming along today.

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90K

MARKET DOMINANCE OF SUNWAY REIT The Initial Public Offering (IPO) of Sunway Real Estate Investment Trust (Sunway REIT) was the largest REIT IPO in South East Asia for the period from January to July 2010 and continues to be the largest REIT IPO in Malaysia corporate history as at 31 January 2012. The successful listing of Sunway REIT on the Main Market of Bursa Malaysia on 8 July 2010, with a market capitalisation of approximately RM2.4 billion and total asset value of RM3.7 billion, marked the birth of the largest Malaysian Real Estate Investment Trust (M-REIT). As at 31 January 2012, the market capitalisation of Sunway REIT has increased by more than RM1.1 billion to a market capitalisation of approximately RM3.5 billion. The 46% increase of market capitalisation is mainly due to the steady demand from local and foreign investors who see strong potential growth in fundamentals of Sunway REIT. Total asset value has increased by 21% to RM4.5 billion and is mainly due to our first acquisition of Sunway Putra Place. The key statistics in table 1, normally used for benchmarking purpose, will demonstrate the dominance of Sunway REIT in the M-REIT market. Sunway REIT is the first Malaysian Real Estate Investment Trust (M-REIT) to implement the E-Dividend payment system for more efficient and effective quarterly dividend distribution. Finally, Sunway REIT has very focused growth strategies in order to maintain the strong momentum gathered over the past one year: 1. Organic growth: Sunway Integrated Resort City, a strong and unique sustainable

component and asset enhancement opportunities that include increasing income and cost savings to further value add to the portfolio of assets. This organic growth will be enhanced continuously over time. 2. Acquisition growth: Visible pipeline assets from the Sponsor (approximately RM2-3 billion) as well as a third party acquisition (approximately RM1-1.5 billion of which RM0.5 billion had been invested in Sunway Putra Place) and guided by our transparent investment strategies and investment criteria. 3. Capital & Risk Management: Tapping capital markets via a rights issue or placement through the equity market or bond programmes through the debt market, for more efficient funding to accelerate business growth. SUNWAY INTEGRATED RESORT CITY (SIRC) A sustainable growth component of Sunway REIT is due to the fact that approximately 74% of its asset value is contributed by four assets, Sunway Pyramid Shopping Mall, Sunway Resort Hotel and Spa, Pyramid Tower Hotel and Menara Sunway, which are located in the renowned Sunway Integrated Resort City (SIRC). SIRC is an 800-acre township which comprises of world-class retail, leisure, hospitality, education and healthcare businesses among residential developments. The township is situated in Greater Kuala Lumpur and is flanked by five expressways. Sunway Pyramid Shopping Mall (Sunway Pyramid) is the crown jewel of SIRC and is one of the leading shopping malls in Malaysia. The mall has won multiple

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business intelligence economy

table 1. Dominance of Sunway REIT in the M-REIT market As at 31 January 2012 Absolute amount Relative to M-REITs industry (%)

otal asset value T RM4.45 billion 20.5 Market capitalisation RM3.47 billion 20.8 Average daily trading volume 2.32 million units 16.1 since listing on 8 July 2010 Free float RM1.51 billion 22.1

awards including the internationally recognised FIABCI Prix d’Excellence Award 2011 (Best Retail Category). It attracts approximately 30 million visitations annually and provides unique shopping and dining experiences from its 700 businesses. Sunway Pyramid also houses the only indoor ice-skating rink in Malaysia, a 48-lane bowling alley, a 12-screen Cineplex and many other more entertainments. Adjoining to Sunway Pyramid is the popular five-star Sunway Resort Hotel & Spa and the four-star Pyramid Tower Hotel, both with a combined total of more than 900 rooms, gross floor area of over 1.4 million square feet and more than 1,100 car park bays. They are popular among business travellers as well as tourists, hosting various meetings, incentives, conferences and exhibitions (MICE). Menara Sunway is a 19-storey office building located within the SIRC. Sunway Group, with its headquarters based at Menara Sunway is the main tenant. Sunway Lagoon, an iconic multipark attraction, has won Asia’s Best Entertainment for four consecutive years (2007-2010), awarded by the International Association of Amusement Parks & Attractions (IAAPA). Sunway Lagoon offers over 80 attractions spread across five signature parks — Water Park, Amusement Park, Wildlife Park, Extreme Park and Scream Park. SIRC is also the only township in Malaysia that is home to various educational institutions that are owned and governed by the RM700 million Jeffrey Cheah Foundation: Sunway University, Monash University (Sunway Campus), Jeffrey Cheah School of Medicine and Health Sciences, Sunway College and Sunway International School. The numbers of private fees paying students are expected to grow

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from 15,500 to 19,000 over the next few years as demand for quality private education continue to grow. These learning institutions are attracting not only local students, but outstation and overseas students as well. Sunway Medical Centre, located in SIRC, is one of the foremost private medical care centres in Malaysia with an ISO 901:2008 certification since 2003 and it is in compliance with MS ISO 15189 as well as being a Malaysian Society for Quality in Health (MSQH) accredited private hospital. Sunway Medical Centre provides quality health care and wellness services as health awareness is on the rise. Last but not least, Sunway South Quay is a luxury lakeside metropolis with options from high-end bungalows to various lifestyle condominiums for residents who prefer to enjoy the serenity of the lake and lush green environment with convenient access to all the above mentioned facilities. There will be approximately 4,000 units of homes for 20,000 residents once the Sunway South Quay development is completed in the coming years. It is envisioned that with the synergistic interaction between the various components in SIRC and Sunway South Quay, full benefits of the Sunway integrated township will be further exploited when more developments are completed in the coming years. It will also provide a dynamic convergence place for all stakeholders to experience the ‘Resort Living within the City’ concept. SIRC will be a unique community where all can live, learn, play, work, shop and grow in a wellbalanced and conducive environment. More information on Sunway REIT can be found at the website of Sunway REIT: www.sunwayreit.com, while investor related enquiries can be channelled through irsunreit@sunway.com.my.

Sunway Tower (photo courtesy of Sunway REIT)

DATO’JEFFREY NG TIONG LIP

Chief Executive Officer T: (603) 5639 9901 E: jeffreyng@sunway.com.my http://www.sunwayreit.com/

SUNWAY REIT

Level 4, Menara Sunway Jalan Lagoon Timur Bandar Sunway 46150 Petaling Jaya Selangor Darul Ehsan Malaysia Sunway Real Estate Investment Trust (Sunway REIT) was listed on the Main Market of Bursa Malaysia Securities Berhad on 8th July 2010. Sunway REIT is currently the largest Malaysian REIT in terms of asset size of RM4.45 billion and market capitalisation of RM 3.47 billion as at 31 January 2012. In December 2010, Sunway REIT was the only REIT that was officially incorporated in the FTSE Bursa Malaysia Mid 70 Index. Sunway REIT was established with an initial portfolio of eight assets and has now grown to eleven assets primarily focusing in retail, hospitality and office sectors. Sunway REIT is sponsored by Sunway Berhad and managed by Sunway REIT Management Sdn Bhd, a wholly owned subsidiary of Sunway Berhad.

economy business intelligence

Total Asset Value (RM million) RM millions 4,450 3,632 2,576

606

171

184

Amanah HartaTanah PNB

Atrium REIT

800

839

1,007

Tower REIT Hektar REIT Quill Capita AmanahRaya Trust REIT

1,034

1,053

1,167

1,267

1,329

UOA REIT

AmFirst REIT

Al-Aqar KPJ REIT

Axis REIT

Al-Hadharah Boustead REIT

1,586

Starhill REIT

Capitamalls Malaysia Trust

Pavilion REIT

Sunway REIT

Source: Bloomberg as at 31 January 2012

Market Capitalisation (RM million) RM millions 3,270

3,472

2,626

1,128 379

111

139

Amanah HartaTanah PNB

Atrium REIT

Tower REIT

445

432

Quill Capita Hektar REIT Trust

515

530

571

AmFirst REIT

AmanahRaya REIT

UOA REIT

1,114

1,248

Starhill REIT

Axis REIT

685

Al-Aqar KPJ Al-Hadharah Boustead REIT REIT

Capitamalls Malaysia Trust

Pavilion REIT

Sunway REIT

Source: Bloomberg as at 31 January 2012

Average Daily Trading Volume (units*) 000’ Units 9,131^

2,323 22

Amanah HartaTanah PNB

UOA REIT

112

116

156

Atrium REIT Hektar REIT Al-Hadharah Tower REIT Boustead REIT

169

171

Quill Capita Trust

Axis REIT

221

207

Al-Aqar KPJ AmanahRaya REIT REIT

1,083

243

365

Starhill REIT

AmFirst REIT

Capitamalls Sunway REIT Malaysia Trust

Pavilion REIT

* For 1 year from 31 Jan 2011 - 31 Jan 2012 ^ Pavilion REIT’s trading volume is skewed due to short trading history (7 Dec 2011 - 31 Jan 2012) Source: Bloomberg as at 31 January 2012

Free Float (RM million) RM millions

1,507

998

860

Al-Aqar KPJ REIT

Amanah HartaTanah PNB

124

178

240

244

301

Atrium REIT Hektar REIT Quill Capita Al-Hadharah AmanahRaya Tower REIT Trust Boustead REIT REIT

323

366

368

AmFirst REIT

Starhill REIT

UOA REIT

Pavilion REIT

Axis REIT

1,118

Capitamalls Sunway REIT Malaysia Trust

Source: Bloomberg as at 31 January 2012

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interviewâ&#x20AC;&#x192; economy

SULAIMAN BIN MAHBOB MALAYSIAN INVESTMENT DEVELOPMENT AUTHORITY (MIDA) Chairman

I was educated as an economist, specialising in the area of economic and public planning. I joined the Malaysian Civil service in 1971. I have served in the Economic Planning Unit and the Ministry of Domestic Trade and Consular Affairs. I joined the Malaysian Industrial Development Authority in September 2009 as Chairman. Prior to that I was the Secretary General of the Economic Planning Unit of the Prime Ministerâ&#x20AC;&#x2122;s Department for about three years. I also served in the National Council dealing with the financial crisis of 1997 and 1998. MOTIVATION

I am always thinking about how to help the country. Seeing the country develop is always a big motivating factor for any civil servant, and I have spent most of my career working for the government. I also like to pass on what knowledge I have gained during my working life, especially to those in the intermediate and junior levels.

LESSONS IN BUSINESS

Businesses need to take account of the external economic circumstances in the country they work in. This applies to Malaysia as much as other countries. For example, in the long term we must address economic redistribution as well as immediate financial and economic stability. Business needs to do its bit in terms of helping the country to achieve higher levels of equality.

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INternational investor: How has MIDA developed since its recent inception? Could you describe its function today? SULAIMAN BIN MAHBOB: MIDA was in actual fact formed in 1967 when it was known as the Federal Investment Authority, or FINDA. In the 1970s its name was changed to the Malaysian Industrial Development Authority so that people were not confused between the US agency with a similar name. Initially we focused on labour-intensive industries but then moved to dealing with hi-tech, knowledge-based industries. Whereas we were once almost entirely focused on manufacturing, we have now been given the task of helping the service sector: areas such as education, tourism, healthcare and similar businesses. Like other developing economies, we are shifting our economic balance somewhat, away from labour-intensive manufacturing towards knowledge-based services. I think the change has been very positive and that we are now a much more effective agency in terms of promoting investment in the country. the inflow of foreign money Foreign direct investment into Malaysia has been very strong in the past few years. Can you give us some indication as to why you think that has happened and what trends you see developing in the future? We have indeed seen strong growth in recent years. In 2009 we had about RM32.6 billion of foreign direct investment coming into the country. This increased to RM47.2 billion in 2010. This speaks very clearly of the return of confidence in the Malaysian economy after some turbulent times. More and more we have seen foreign investors look to Malaysia as a primary location for their expansion plans. Domestically, the change of administration and the new road map it has brought in has had a big effect. I think that foreign investors view the

economy interview

country as a key investment location even more now. Of course, the country as a whole is going through a big economic transformation process and will be for the next decade at least. What sectors do you think are benefiting from the current surge in FDI? Most of the industrial sectors in Malaysia are benefiting from increased foreign investment flows, but to different extents. One key sector that has seen big FDI flows is the electronics sector — E&E, electrical and electronic products, as it is known. The current investment from foreign sources into the sector stands at around RM13.3 billion. Another highly important sector, for obvious reasons, is the petroleum products and services sector that accounts for around RM5.6 billion in FDI. Transport, too, comes in at about RM3.5 billion, and nonmetallic mineral products at RM3.2 billion. As for the main countries where FDI comes from, the top five projects last year were from the United States, totalling around RM11.7 billion. Japanese investors contributed about RM4 billion; those from Hong Kong RM2.8 billion, Singapore RM2 billion and Germany had projects worth RM1.9 billion. We can therefore see that Malaysia is attracting investment from all the major industrial and economic powerhouses. Penang in particular is in a strong position to exploit this influx of foreign capital into the E&E sector. There is less pressure in terms of infrastructure in that part of the country, so these are the areas. We can support investment more easily in that region. One of the main goals that the Malaysian government has set, as part of the Economic Transformation Programme, is transforming the country into a hi-tech economy by 2020. From what you have said you must think that is entirely possible. Can you explain? Yes, I think it is possible. Malaysia has to transform itself into a higher-tech, higher-income economy if it wants to prosper in the 21st century. Staying with the FDI theme for a minute, I believe that we as a country are in a good position to challenge Singapore for FDI money. Singapore is, as you know, a classically hi-tech economy. There is no reason why we cannot follow suit. We have the land, our labour costs are lower, we can compete well. What we still need to do is produce more high-quality products, but I think we can do that in the coming years. The government’s stated goal is to achieve a national average income of US$15,000 by 2020. Our national average income is about US$7,000 at the moment, so we have some way to go. We have to basically double our average income in nine years. I think this is possible if we concentrate on certain growth areas. We at MIDA have identified certain

business areas that we think can achieve high levels of growth. Solar power is one. In fact, we have recently brought four companies from the US into Malaysia. There are other hi-tech business areas that can help the country progress. Green technology as a whole is proving to be very important, not just in Malaysia but around the world. It is a growth area already and is going to be even more important in the future. Also, we need to be looking at other hi-tech areas such as photonics, biotechnology, nanotechnology, micro-electrical technology and telecommunications technology. Malaysia, especially with its economic development corridors, can become a serious player in all these specialities. We spend a lot of time talking to foreign companies, to get them to locate production facilities in the country. We visit them and show what we can do for them. We also run a number of offices abroad. We have five in the US and 18 others around the world, including a number in Europe. Why is malaysia a good business location? What do you think is it about Malaysia’s infrastructure that makes it an attractive place for companies to invest? We are in a strong position compared with Indonesia and the Philippines. The country has good basic connections: ports and airports, for instance. Areas such as Penang and Sabah are particularly well serviced in terms of infrastructure. Our neighbour is Singapore, of course, so if you locate in Penang, you get good infrastructure and labour costs, but you are also within an hour of Singapore. Even Sabah is only two hours away from Singapore. It isn’t just physical infrastructure that attracts companies to invest in the country. Malaysia also has enshrined all the main intellectual property laws in its legal system, so ideas are well protected. That I think gives foreign companies a lot of comfort. Our wider professional standards are of a very high quality as well. Whether it is engineering, medicine, law, dentistry or accounting — they are all based on British standards. To take accounting as just one example, most of our accountants are trained in Australia or the UK. Our legal system is, of course, partly based on the British system. I think that these international standards give foreign investors a sense of how sound the country is in terms of its skill-sets. If you want to globalise your company into the Asia-Pacific region, Malaysia is a very attractive destination. Then there are the people of Malaysia. It is well known that we are an ethnically mixed country, with Malays, Chinese, Indians and other groups. I believe this is strength, because it brings to the country a diverse range of attitude and outlooks. Of course we have our problems, but which country doesn’t?

“

Malaysia

is attracting investment from all the major industrial and economic powerhouses. Penang in particular is in a strong position to exploit this influx of foreign capital

”

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interview economy

JOHAN MAHMOOD MERICAN TALENT CORP

Chief Executive Officer

I studied economics at the University of Cambridge. After graduation I worked as a chartered accountant for PriceWaterhouse in London for four years. I then moved back to Malaysia and worked in corporate finance for three years. Then I switched to the public sector and worked for both the Ministry of Finance and the Economic Planning Unit. I have been doing that for the past seven years. My career has therefore been a good mix of the public and private sectors, including a stint overseas, but in many respects that ties in quite well with what Talent Corp is all about. We aim to attract people who have had similar career paths to myself. The World Bank has estimated that there are more than one million Malaysians overseas and, at one point in time, I was one of them myself — but I came back. My personal experience overseas also provided me with a valuable perspective to drive the agenda of Talent Corp forwards. We look to engage with Malaysians wherever they are abroad, optimise the foreign talent in the country, and build on Malaysians’ skills in Malaysia itself. MOTIVATION

I want to be able to make a difference. Malaysia deserves to be among the leading nations of the world, because we are blessed with resources, both physical and human. It would be the greatest shame if Malaysia does not achieve its potential and I want to be part of the group of people who are contributing towards helping Malaysia get to where it deserves to be.

LESSONS IN BUSINESS

There was a piece of advice given to me by one of my former mentors which is particularly pertinent as far as the mission that Malaysia is undertaking with its economic transformation. It was never let the perfect be the enemy of the good. Do something to make things better, even if it’s not perfect. Don’t sit doing nothing until perfection comes along.

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INternational investor: Can you give us a brief overview of the work Talent Corp does? JOHAN MAHMOOD MERICAN: The government decided to form Talent Corp at the beginning of 2011, in a sense to provide a fresh set of eyes to look at the talent needs of the Economic Transformation Programme the whole country was embarking upon. It is not intended as an umbrella body to take over all parts of human capital issues for the government, but to focus on being a bridge between the private sector and the public sector in terms of the key interventions required to provide for the country’s talent needs. Much of the work of Talent Corp is based on policy advice to see how we can make Malaysia much more friendly as a destination for talented individuals, not just as a destination for holidays. We want to implant the idea that moving to work in the country will be a valuable career step. To do this we focus on three key areas: attracting expatriate Malaysians back home; attracting foreign talent to the country, and developing the skills of Malaysians themselves. We continually speak to business and industry to find out what their needs are, and act as a bridge back to government. the extent of the brain drain in malaysia Is there a problem with retention of talent in Malaysia? If so, why? There is, but we must not overstate it. We should think of the provision of talented people as a pipeline. Our job, then, is to ensure there is a match between the supply of talent and the needs of industry. That pipeline, though, has leakages both in terms of people leaving the country, retiring or leaving the workforce. The challenge for a country like Malaysia is how to ensure that the ‘brain drain’ is mitigated or compensated to the extent that business can carry on. Obviously, if the leakage is of such a scale that it leaves businesses unable to function, you have major problems. However, as is

economy interview

mentioned in a World Bank report of 2011 which focuses on brain drain, to some extent Malaysia has been spared the worst. There are professionals leaving to work abroad, but by and large we are compensating for that by the number of graduates that the education system is producing. We should not be complacent, but we should not panic. What can be concretely done to mitigate the problem with human capital? Perhaps I can touch on three areas. One is the economics of the situation: how much people earn in other words. Businesses need to realise that they should be offering competitive salaries. The second issue is around career development: again, companies will attract more talented people if they offer real opportunities. Third is what we call liveability: how pleasant a lifestyle can an employee expects if he or she locates to Malaysia. That latter aspect is very important. Many expat Malaysians relocate back home because of lifestyle reasons. The government’s ETP (Economic Transformation Programme) looks at all these areas in as holistic a way as possible. If we want to become a highincome economy by 2020, we will have to get our employment issues on a solid footing. However, I would again stress that attracting and retaining talented people does not just depend on money. It is also about liveability and career development. How do you interact with the private sector? We work closely with key sectors of the economy, because we recognise that human capital needs differ by sector because they tend to be at different stages of evolution and face slightly different competitive landscapes. Therefore, talent requirements can differ by sector, so we have been engaging with what we call ‘sectoral working’ in order to work closely with all the different key sectors represented. To give a specific example, we have been engaging for some time with the electronics sector. We recognised early on that they needed to move up the value chain in terms of higher value-added manufacturing towards greater R&D. One of the challenges for these companies, then, is that a typical engineer graduating from university today is very much more geared to become a manufacturing or a factory floor engineer. However, the need for the future is to create a bigger pool of engineers who are more attuned towards R&D. That is something we can help with. We came together with the E&E sector and launched a programme called Fast Track, to enlarge the pool of engineers who have the competencies required to do R&D. The programme is a publicprivate partnership. It brings together a pool of graduate engineers who are put through a specific course with content provided by industry to build up their R&D competencies. That is followed by real

life practical ‘apprenticeships’ with E&E companies working on real R&D projects. That is an example of a public-private partnership or intervention which, while waiting for the full transformation of the education system, will today start initiatives towards enlarging the talent pool for future needs. Talent Corp has created a Returning Expert programme to attract Malaysians back to the country. How does it work? The Returning Expert programme has been around for about ten years. Its premise is that we recognise there are Malaysians with valuable expertise who work overseas but who could contribute to Malaysia if they returned. However, we also accept that in returning to Malaysia, many of them will suffer a reduction in income, so we want to cushion that adjustment for them. One thing the Returning Expert programme does, for example, is provide one or two cars for the individual and family, locally assembled and duty-free. We have high excise duties on cars in Malaysia, so that can be a good incentive for a returning expat. Another incentive on offer is a transitional income tax band, whereby instead of the top tax rate of 26%, they will enjoy a 15% flat tax rate for five years. In addition, some Malaysians may have married and have children who are holding foreign citizenship, so we then fast-track their Malaysian permanent residence status.

“

The need

for the future is to create a bigger pool of engineers who are more attuned towards R&D. That is something we can help with

”

malaysia as a home for overseas talent What about attracting foreign experts to the country? Can you do anything in that area? Ultimately, we want to be a destination that is synonymous with global talent. To some extent, Malaysia has perhaps in the past been relatively conservative in some of our immigration policies, but that has progressed quite a lot in recent years, driven by the Ministry of Home Affairs and by the leadership of the country. We see ourselves continuing this good work. One of our recent innovations has been the introduction of a Residence Pass. Previously, expatriates were in the country on work permits, which were applied for by an employer and were typically short-term. We are now saying if we have top global talent which is committed to contributing to our development and has the skillsets to do so, we want to facilitate their longerterm commitment to the country. Therefore, we have created an instrument called the Residence Pass which is of ten years duration and is personal to the holder, so it is almost as good as a permanent residence. We have already approved hundreds of applications, many of them very senior expatriates in leading multinationals, and expatriates in crucial technical areas. Our commitment is to attracting the best people to the country.

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interview economy

CHARLES IRELAND MALAYSIAN INTERNATIONAL CHAMBER OF COMMERCE AND INDUSTRY (MICCI) President

After graduating I joined Nestlé on a management trainee scheme and after circulating round a few different functions within the organisation landed in sales and marketing and stayed there for about ten years. Then, in my early thirties, I moved to a company called Diageo which owns the Guinness brand and I have been with them ever since. I have been on secondment to Guinness Anchor Bhd in Malaysia for about five years, since 2006, and will be for another year or two. GAB is a publicly listed business with 12,000 shareholders and a market capitalisation of about 3.2 billion ringgit; but one shareholder has 51% of the business, and that is a joint venture between Diageo and Asia Pacific Breweries. I have been on the commercial side of the business my whole career and have worked in sales, marketing, customer marketing and then for about the past nine years general management. I was Managing Director of Diageo Philippines before moving here and prior to that was Global Commercial Director for one of the business units within Diageo. MOTIVATION

I am incredibly competitive and the competitive nature is what drives me, so I love winning — absolutely love winning. I also absolutely hate losing and the power of those two things is incredible.

LESSONS IN BUSINESS

The most important lesson for me is that I have always been most successful when I have had good people around me. I passionately believe that people are the most important asset in business and if a business can get great people, create an environment where they can fully express themselves and achieve their full potential and be happy, then a business will be successful.

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INternational investor: Can you give us a brief overview of the Chamber of Commerce? charles ireland: It is an old and venerable organisation, begun nearly 175 years ago by a group of foreign companies, largely British and Dutch. It has been through a series of mergers and changes over the years and is now based in Kuala Lumpur, with branches all over the country. Our role is to engage the government on behalf of our members, creating a mutually helpful dialogue, to promote the Malaysian economy and help iron out some of the wrinkles in the business environment here so that business can grow. We obviously mainly focus on the international aspect of business, and our membership is confined to those businesses with some international exposure, not solely to foreign businesses. We have about 1,000 members from 33 different countries. They in turn employ around 600,000 people with a total salary bill of 14 billion ringgits a year. So our members’ presence in the economy is quite significant. What is the balance between foreign and domestic companies within MICCI? About 60% of our membership, so about 600 companies, have an element of foreign ownership. For instance, my company is a member and we have 51% foreign ownership; similarly with Nestlé, ExxonMobil and others, there is a combination. For the rest, we have a general entry criteria which is that we are a Chamber which is interested in international business, and therefore any businesses which wants to join must have an international element to what they do. In reality that is just about any business these days, whether it is buying of raw materials or an export element or some affiliation to global companies; it is quite a wide thing. What we find is that the MICCI is populated and largely driven by the big multinational corporations who see the Chamber as a vehicle for developing their agendas in a way that bilateral chambers

economy interview

can’t really do. MICCI, because of our broadbased and very international make-up, can talk objectively about what is the best thing for the business community in Malaysia. A SHARPER FOCUS You recently announced a new strategic approach. Can you tell us what it is? It is really a streamlining of what we were already doing. Before, we had 22 separate working groups looking at a wide range of concerns for our members. It was a bit too diffuse and ended up with businessmen just talking to each other. We have simply slimmed that system down to six major divisions which attach, so to speak, to individual government ministries: the ministries of Domestic Affairs, Human Resources, Finance and so on. It’s a more focused way of carrying out our business which gets our voice heard more readily. Each of the six is headed by the CEO of a major company; we have the CEOs of HSBC Malaysia, Nestle, ExxonMobil and similar figures. So we think we have more clout doing things this way. Has it produced results? We are broadly pleased with the results, and we do track them. The number of our interactions with the government has gone up; our invites from government to participate in their various initiatives are running at an all-time high; and we are seeing changes to the business landscape being made by the government — in terms of liberalisation of services and liberalisation of contracts and other things — that are in line with the conversations that we have been having with them. I would not say that we are the cause of all that, but we are helping influence events. What is your view of the Economic Transformation Programme? MICCI’s point of view is that it is a very good thing. It is an appropriate time for the government to be embarking on this process. We are very supportive of it because many of the things which have led Malaysia to be successful in the past are coming to the end of the time where they will enable Malaysia to be successful in the future. Aiming to be the lowest cost producer won’t work any more with the likes of China looming. The regional dynamics have changed massively in the past decade and we believe that the intent of the GTP and the ETP is absolutely right. I would add that I think there is much more of an intention to follow up on the rhetoric than we may have seen before. Mahatir came up with the idea of ‘fully developed nation status’, but it wasn’t always followed up on. I think that Dato’ Sri Idris Jala, who is a very bright guy, has got huge energy and warmth and I’m absolutely convinced

he has the desire and drive to get the job done. As a Chamber we are really keen, we are really supportive, we will lend a hand. How much support does the government give your members and the wider business community? I have found that the Malaysian government is very open to external points of view and contributions from the business sector. Sometimes in Britain, it looked like the civil servants and the politicians would get together and they would set the agenda almost independently of what was going on in the real world or what was going on in the business community. My experience of Malaysia is different. As President of MICCI, but also as the CEO of one of the major businesses here, my experience is that government is very open to dialogue. Is Malaysia competitive enough? What steps do you think it has taken in recent years to become a high-quality business environment? Malaysia has been an ambitious country for a long time. Perhaps its proximity to Singapore has stimulated a drive in the country to become economically more developed. I would say that Indonesia hasn’t had that drive for a long time; I would say that Vietnam hasn’t had that drive for a long time either; perhaps even Thailand hasn’t had that drive, but Malaysia has it and there is evidence of that. The example of the way KL has progressed is a good illustration of this. The road infrastructure is very well developed. The Twin Towers were built some years ago, but they are still global architectural icons. The country as a whole looks dynamic. For me, all of this is testament to the fact that Malaysia has serious ambition. And, though there are discounting elements to Malaysia’s ambition in that Malaysia hasn’t always followed through in the way that other countries have like Singapore, the country is not far behind. I think the ETP is a major step forward in stimulating this dynamism.

“

Aiming to

be the lowest cost producer won’t work any more with the likes of China looming. The regional dynamics have changed massively in the past decade and we believe that the intent of the GTP and the ETP is absolutely right

”

TRANSFORMING THE MALAYSIAN ECONOMY What do you think are the key challenges facing Malaysian business today? The main challenge is the one I alluded to earlier: the fact that the country is, quite rightly, transitioning from seeing itself as competing in terms of lowcost production, to a developed, higher-cost and revenue nation. It will simply not be possible to compete with the likes of China, Vietnam and similar countries in the future. If Malaysia is serious about wanting to be a high-income country by 2020, and I believe that it is, then the fundamentals of the economy will have to change. The business community is, of course, right at the heart of this transformation, and I hope and believe that MICCI will play a full and committed part in it.

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interview economy

YONG POH KON ROYAL SELANGOR Managing Director

I am very much a local Kuala Lumpur person, born here, educated here at the Methodist Boys School. I went to Australia to study for a degree in mechanical engineering at the University of Adelaide, and I came back to Malaysia in 1968. I enjoyed my time in Australia. I was the President of the Malaysian and Singaporean Students’ Association there, and had many, many good interactions with Australians. On returning to Malaysia, I began to sink my teeth into the pewter business, which at the time was very much domestic-market based. We began to introduce various methods of creating better alloys for the products, starting a formal design department to bring the designs up to a better level, and in the 1970s we began to export. At the time, exports were less than 2% of our business, so we had to build up the distribution chain, setting up distribution offices in Australia, then England, Canada and, of course, later on China and Japan. I am closely involved with the Federation of Malaysian Manufacturers, currently serving as its President. Today I am Managing Director of Royal Selangor and a Co-Chair of the government business task force, PEMUDAH. I feel it’s an important role to help bridge the gap between the business community and the government and civil service. MOTIVATION

LESSONS IN BUSINESS

I want to be able to make a difference to the country and add value to its economy. That goes for my role at Royal Selangor and my role in PEMUDAH. I want to feel that I can achieve something positive every day when I wake up. Business will always continue to change and evolve. I think the moment we sit back and say, ‘Well, this is it, we have reached a certain level and we can now stop,’ is where problems begin. The most important thing to do is to maintain momentum, and keep on adding improvements.

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INternational investor: Tell us a little bit about the history of Royal Selangor in Malaysia. yong poh kon: In 1885 when the pewter industry started in Malaysia, the country was already producing half of the world’s supply of tin, and in any country where there is tin there is normally a pewter industry, just like in Cornwall in England, where there has been a pewter industry for centuries. Likewise in the tin-rich province of Yunnan in China, which similarly has a strong pewter industry. In those days, of course, pewter was just made into teapots or incense stick holders in the temples and similar small items. As we began then to export to other countries, we started to design various items in different categories like, for example, wine decanters, goblets; and then we moved onto children’s gifts, so much so that in England we are one of the leading suppliers of children’s gifts. Today, Malaysia has one of the world’s most significant pewter industries and, of course, Royal Selangor is at the heart of it. ambitions for asia and beyond China, as you have just pointed out, is a very important market. You have made significant investments there recently? Can you tell us a bit more about your growth plans for that country? You are quite right, China is an important market. Perhaps the most important market going forward. Even in the turbulent period of 2009 and 2010, when many developed markets were suffering contraction in business confidence and in retail sales, China was one of the few places that managed to hold up and is today continuing to show year-on-year growth. For us, this is an incredibly exciting market for our products. That is why we are investing not only in terms of store openings or concession openings, but also in product development specifically for the Chinese market. We are engaging more with

economy interview

Chinese designers. We had a very successful range from Freeman Lau, a designer from Hong Kong who created a range of items following the traditional Chinese five elements of fire, water, earth, wood and metal. So as far as our growth is concerned, we believe that the Asian market, and China in particular, is still strong, and a great deal of our attention will be focused on this part of the world. It is worth pointing out, though, that Britain is still an important market, although we expect China to overtake it in the next few years. You have said that Asia is still a major market for Royal Selangor, but what about wider global ambitions? We very much see ourselves as a global company. We have traditionally exported to markets in Australia, the UK, Canada, and the new markets in India, South Korea and Taiwan. In India it has been quite difficult in the past because the retail premises, perhaps surprisingly, have a very high ratio of rental costs compared to sales. But now with the quite rapid development of retail malls in the country, we are looking again at expanding and there are various partners talking to us. We hope to get something going in India in the next year. hard times: survival tactics Economic conditions have been difficult in recent years. How have you gone about weathering the storm? We are rather fortunate in that our markets are quite diverse. We have a presence all around the world, which has helped us ride the turbulence out somewhat. The markets which suffered the most during the turbulence have been in the West: the United States, Canada and the UK in particular. There was a definite contraction in

As far as our growth is concerned,

we believe that the Asian market, and China in particular, is still strong

retail confidence in those places, but throughout it all we said to our retail partners, please continue. We will maintain whatever support we have given you in these tough times. It cannot be doom and gloom forever. There will come a time when there will be some recovery. In the meantime, we are experiencing growth in the Asian markets which helps to counter-balance this. One important thing for us during the contraction period, though, has been that the raw material prices also came down, and that helped the bottom line. Now that things are firming up, the commodity prices in tin, silver and gold are all rising, so there are pluses and minuses.

going forward What can you tell us about your future plans? We are always interested in appropriate tie-ups or acquisitions. In recent years we have acquired companies which are related to our businesses. For example, we bought Comyns a few years ago, which is an old British silversmith, and with it we acquired all the moulds and patterns — 35,000 designs which had evolved over 350 years. There is the possibility of similar purchases of companies that we think would fit with our business and benefit from being located in Malaysia. We would consider them if they could take advantage of a lower production cost in Malaysia and re-export back to their home countries. With the increasing numbers of Free Trade Agreements that Malaysia is signatory to, such re-exports are also duty free. How would you say Royal Selangor could fit into the Economic Transformation Programme? The aim of the Economic Transformation Programme is, of course, to transform Malaysia into a high-income economy by 2020. We are very much on board with that plan. It is important to note that, as many people have said, just basic manufacturing and the export of raw materials will not be enough to achieve what the country wants. What is needed in Malaysia is higher valueadded manufacturing. I think that Royal Selangor fulfils that role perfectly. You could hardly imagine a more refined, high-value product than the items we produce. For example, the average wages of designers and product developers are higher than the workers in pure screwdriver manufacturing companies. If this is replicated across the economy and more and more people do more of these value-added activities, the GNI per capita goal can definitely be achieved. We are also a strong exporting company, which will also contribute to the economic transformation of Malaysia.

“

What

is needed in Malaysia is higher value-added manufacturing. I think that Royal Selangor fulfils that role perfectly. You could hardly imagine a more refined, high-value product than the items we produce

”

You recently opened a second visitor centre. How important is educating people in the brand heritage? It is very important for us because I think nowadays people do not just buy a product. They are buying into an idea and a lifestyle. However, they must be able to have full confidence in the brand and how your product and your service fulfil that brand promise. The more your customers know about what you are, where you came from as a company and how your designs have evolved and are relevant to them, the more they want to have a long-term relationship with your company. One thing you can say about Royal Selangor is that we have a long and distinguished history, so we are keen to tell people about it.

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business intelligence economy

Symmetry at Work for Digital Economy Growth By Goh Peng Ooi Founder & Group Executive Chairman, Silverlake

EVERYTHING is ‘about symmetry and responses to symmetry’

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The current ‘mainstream’ of Economic Theory is generally thought to be neoclassical, with some new endeavor to revive Keynesian in view of current economic crisis. However, if we carefully analyze all the economic theories from the days of Adam Smith, we notice that the biggest problem with Economic Theories is the use of words. As Ludwig Wittgenstein and Uwe Poerksen had pointed out in many of their works, not only words are malleable, but they are generally unstable. Technically, Economic Theories are based on traditional deductive reasoning, or so called Syllogism, which was started in Greek since the time of Aristotle. In mathematics, Syllogism was replaced by Gottlob Frege’s First Order Logic in late nineteenth century, and now gradually being replaced by TOPOS, a product of late 1960. An example of the problem of current economy can be seen by the definition of GDP, which is defined as ‘the total market value of all final goods and services that are produced within the nation of a country within a year’. Anyone who is familiar with Set Theory is capable of pointing out the various ‘loopholes and paradoxes’ of this definition, and if analyzed from Category Theory point of view, it would be lucky if it is even 70% implementable. Since in Syllogism, we string together logical arguments, therefore, a string of 10 logical arguments can only be accurate to less than 3% (0.7 to the power of 10). In Economic Theory, this problem was removed by simple symmetry, like using of cause and effect, demand and supply, but most of the economists are not aware that such approaches are simple or loose symmetry.

Building economic theories on words is like constructing high rise on weak foundation. There is only that height you can build your theories. In other words, if we were to see more clearly what are the problems of today’s economy, we need a more accurate approach, not one that is just based on words. In 1951, there were two important economic theories written by John Nash and Kenneth Arrow. The one written by John Nash is foundation breaking, albeit it was only 12 pages long, and Nobel Prize committee took 43 years before confirming that it is a great piece of economic paper, and granted him Nobel Prize in 1994. The problem with these 12 pages of paper is that while its conclusion, that is, ‘All Games End In Symmetry’ is conclusive and exact, even John Nash himself wasnot able to prove the theory being correct. I personally suspected that his nervous breakdown after the theory was written has something to do with the profound meaning of so called ‘Non Cooperative Games Theory’, and proving this ‘Economic Theorem’ requires the whole of foundation of mathematics, and therefore why it is a very strong theory to build economy theories on. The strange thing in Nash’s paper was that he defined ‘Games’ in very broad terms using everyday languages, that is, ‘Game is defined as a tuple (ordered steps) of moves, and the moves are modified by internal coefficient which represents various imperfections and uncertainties like unwillingness, incompetency, uncertainty, ignorance, intentionless etc’. The word internal coefficient was coined by me,

economy business intelligence

Symmetry at Work for Powerful Innovations & Solutions The diagram outlines the E8 root system. E8, (pronounced “E eight”) is an example of a Lie (pronounced “Lee”) group. Lie groups were invented by the 19th century Norwegian mathematician Sophus Lie to study symmetry. Underlying any symmetrical object, is a Lie group. The American Institute of Mathematics (AIM), after four years of intensive collaboration, have successfully mapped E8, one of the largest and most complicated structures in mathematics in March 2007. Source: American Institute of Mathematics (AIM)

and the reason was by doing so, we defined exactly what are externalities in economy, that is, anything outside the internalities of each human move, which adds up to sets of human action. Against this ‘broad and open’ definition of Games, Nash Theory’s conclusion is very exact, that is, ‘Symmetry’. Symmetry is an exact term to mathematicians, physicists, chemists, and understood by learned biologists, musicians, poets, etc. This connection between ‘imperfection’, ‘uncertainty’, ‘ignorance’ etc to exact mathematical symmetry is a challenge even to modern mathematicians, and it is not surprising that Nash was not able to ‘prove’ the connection. Interestingly, in the same year, that is, 1951, Kenneth Arrow wrote another view of this theory, that is, people will make choices and translate them to ‘moves’ which will end them in diversified groups, such as professional groups, interest groups, etc. These so called ‘Groups’ or ‘Communities’ have very close relationship with mathematical symmetry. Another economic theory that is also closely linked to Nash’s Theory is Ludwig Von Mises’s ‘Theory Of Human Action’, where instead of choices, he proposed the use of ‘purpose’ as seen in his famous quote ‘All human actions are purposively aimed at achieving certain ends’. This phrase had been tested by all Misesians across the world and it is impossible to find a human action that is not purposively aimed at certain ends, be the purposes good, bad, neutral or unknown. If we were to apply Nash’s definition, we can say that all human actions are ‘tuple of moves’ modified by the same coefficient as proposed by

John Nash. By going through the works of Misesian scholars, we can say that the whole history of economy was very much the history of ‘human action’, as in Murray Rothbard’s ‘Man, Economy, State with Power and Market’. The above paragraph is actually a very simple paragraph on Economy, written in Economic language, yet, it is difficult to ‘visualize a picture’ in our brain. To make the above paragraph simple, we have to ‘order’ the arguments, that is, (1) economy is the study of games, (2) all games have two parts, human actions and symmetry, (3) the study of human actions are provided by economists like Misesian Scholars, or Kenneth Arrow’s followers. (4) all games end in symmetry. So, with the above, we know that economy’s current biggest problem is ‘what is symmetry’. In fact, without symmetry, it is impossible to explain Adam Smith’s ‘Invisible Hand’, and difficult to explain or predict ‘numerical measurements and their changes’ in Economy like GDP or monetary policies. The word Symmetry arises very early in Greek, as Symmetria, which means ‘common measures’. Adding our sense to that ‘common measure’, it can mean harmony, balance, sameness, mappings (like one to one mapping), antisymmetry, asymmetry, dissymmetry, etc. In fact, we can get all sorts of quotes on symmetry by physicists, chemists, biologists, botanists, artists, musicians, poets, craft men, etc, and of course mathematicians. In fact, I am so surprised in this modern day, while Google is flooded with explanations of symmetry, very few people really grasp even the introductory level of symmetry.

The search for the exact meaning of Symmetry, albeit that it was then not called Symmetry, started in 1827 by Galois Evariste, then only 17 years old, we later called his work Group Theory. During his time, even great mathematicians like Fourier, Poison, etc could not understand what he wrote. In fact, for another about hundred years, it did not get better and the research on symmetry was more or less passed from teacher to student, or students of friends of teacher, and the research on Symmetry magically moved on even with only less than a handful of people understanding ‘what it is’ until 1915, when Emmy Noether helped Albert Einstein prove ‘General Theory of Relativity’. Today, that portion of the proof is known as ‘Noether’s Theorem’. Emmy’s work is significant in the sense that somehow, ‘mathematics’, in her hand, is linked to the ‘real world’, ‘physics’. Immediately after that, quantum physics adopted the approach of Symmetry, and it was in 1953 that Herman Weyl wrote the first layman book, called ‘Symmetry’. Since then, practically every nuclear physics Nobel Prize winners had something to say about Symmetry, with Richard Feynman’s ‘Why is nature so nearly symmetrical? No one has any idea why’ (1964) and Steven Weinberg’s ‘After all, it is about symmetry and responses to symmetry’ (1988), both of which say everything about the linkage of Symmetry to the real world. Even as of today, and amongst most learned people, the relationship of physics and mathematics is thought of as ‘knowledge and tool’ relationship, but to most advanced physicists and

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business intelligence economy

mathematicians, they are intertwined, and on the fundamental level, you actually cannot separate them. It is hard to explain such phenomena here. And Nash, by a simple 12 page ‘write up’, linked Symmetry to Economy. It is easy to understand why Nash paper is so important. As stated earlier, current economic papers are built on the weak foundation, and there is no way these theories can go any higher, it will just tumble since the foundation cannot take such weight. This explains the current ‘lost generation’ of economists facing the current crisis, nobody comes near to explaining the phenomena, even after the fact. Nash effectively proposed a new foundation for economy, that is, Symmetry. As explained earlier, the first part of Nash Theory is actually about so called ‘Economic Phenomena’, which is well studied, and the resultant phenomena, symmetry, is both a mathematical-physics model, called Symmetry. In physics, we say EVERYTHING is ‘about symmetry and responses to symmetry’, mathematically, that obviously includes ‘Economy’, but Nash has given it a simple and layman way of looking at how to look at this seemingly impossible discussion. Unfortunately, most economists are not familiar with mathematics. Even more unfortunately, some even brush aside mathematics as useless for economy despite the fact that they know very little about current development in mathematics (most economic mathematics are at most nineteenth century mathematics). The current mathematics, based on work of Saunders MacLane and Samuel Eilenberg’s ‘Category Theory’, accidentally discovered in 1941-1945, and only turned ‘academic’ lately, is still

a challenge to most mathematicians. In view of this backdrop, it will take many tenths of years before the so called ‘Categorical Economy’ will appear in our world, an economy that can explain ‘All Games End In Symmetry’ in detail. In anything new, we expect skepticism. That reminds me of a story that said Sir Isaac Newton avoided algebra in his Laws of Motion because ‘algebra was Islamic’ and therefore ‘a witch craft’ at his time. That explained why Laws of Motion was written in Latin, in other words, Sir Isaac Newton being the ‘father of calculus’, and a master in Algebra, avoided algebra because of ‘social conditions’. But I expect the new world to be more tolerant and open minded, and the fact some of our best physicists, best chemists and of course the best mathematicians are familiar with the various discoveries in mathematical symmetry, even if it is new to most people inclusive of economists, there will be more and more people who accept that symmetry is the most promising foundation for economy. Not only the world is more open and tolerant today, the advent of computers provided another way to demonstrate symmetry without needing the audience to decipher impossible mathematical codes. Using computer techniques to demonstrate and market symmetry was the mission of Silverlake, and that explains the phrase ‘Symmetry at Work’ under the Silverlake logo. I will use the rest of this paper to quickly explain what Silverlake has done, and hope that this success of using symmetry in computer-economic application can one day lead more students of economy or mathematics or physics to devote their time to having a closer look at symmetry, which Leon Lederman (1988 Nobel Prize) described as ‘Beautiful’.

What Silverlake has Done Keep it Simple & Invariant 42 Centers/Cores, 46 Deliveries Objects & Processes Process & Object Centric Solutions, allowing Objects to Morphosise Simplicity to Solve Complexity Solving Connectedness, Completeness, Compactness, Convergence, Continuity Associative & Recursive Composition Bundles of Deliveries & Services Layered Decoupled Business Value Objects Core, Logistics, Representation Comparative Advantage Digital Cage Collaborative Groups Centers Communicate & Collaborate through sets of Rules Change without Change Derivatives of Invariant Core

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The Business, Digital and Technology Universe is getting more complex all the time. Yet, the Study of All Forms of Common Sense, Logics, Mathematical Functions and Structures, Computing Functions and Structures, and Physical Phenomena (including Economy) tells us that we require Simple and Invariant Core, Integration and Deliveries Solutions. Change is the only Constant. Hence for Real Dynamism and Adaptivity, Silverlake Solutions are designed and architected based on Layered & Decoupled Business Value Objects around 42 Centers forming the Core complemented by the Logistics (Integration) and Representation Layers to provide End to End Solutions (in line with Burnside View of 3 Layers). Three (3) Uniquely Separated Groups (Layers) but Unified and Working as One (1). This enables Open and Closed Changes to be made safely and repeatedly. By Associative and Recursive Composition, Silverlake delivers Bundles or Sheafs of Deliveries and Services for all Industries including the Digital Economy. Silverlake’s ability to leverage Simplicity to Solve Complexity also enables its Customers and Partners to achieve mutual Goals of Connectedness, Completeness, Compactness, Convergence, Continuity within a Digital Cage (a collective & virtual boundary for perfect balance of command & control as well as freedom). Flexible Sets of Rules are implemented between Collaborative Groups, so that Games can end in Symmetry and Economy (which are Goals of the respective Groups and Businesses). Application of Feit Thompson as the Flip Side of Burnside, produces Derivatives of Silverlake’s Invariant Core to power Communities for Financial and Digital Economy Synergies today. Mastering the Science of Change vs Un-Change is Key for Silverlake’s Perpetual Growth. In a Nutshell, Silverlake stands on the Shoulders of Giants to deliver and institutionalize practices, solutions and foundations based on Symmetry. Using a matured and proven Silverlake Symmetry Foundation we have provided all the Responses to Economies (Digital inclusive), which is the End Game for us, Customers and Partners. Symmetry is My Business, Your Business and Our Business especially in today’s Business Universe and Digital Economy.

economy business intelligence

Symmetry at Work for Digital Economy Growth Core Foundation (Burnside)

Common Core Attributes

Invariant Simplicity Commutedness Computedness Connectedness Completeness

DeConstruct

Core

Symmetry and Responses to Symmetry

Standing on the Shoulders of Giants Adam Smith John Nash Leon Lederman Emmy Noether Richard Feynman Ludwig Von Mises Galois Evariste, et al & Category Topology Group Graph Type Set

E8 Symmetry Foundation

gistic i res e nt at 42 centers

All Games End in Symmetry

E8 Digital Cage Foundation

SYMMETRY AT WORK

Local National

Symmetry My Business, Your Business, Our Business

Regional Global Virtual Construct

Deliveries

Symmetry Digital Economy SDE Foundation (Feit Thompson)

Associativece Recursive Distributive Connectedness Convergence Compactness Completeness Continuity

Economy Foundation based on Symmetry

Common SDE Attributes

GOH PENG OOI

Founder & Group Executive Chairman, Silverlake

Silverlake is a leading provider of Digital Economy Solutions and Services for more than 100 organisations in Banking & Financial Services, Payments, Retail, Airlines & Travel and Logistics.

Address : Level 2A, KPMG Tower, First Avenue, Bandar Utama, 47800 Petaling Jaya, Selangor, Malaysia Contacts : +603 772 16000 sales@silverglobe.com

Mr. Goh Peng Ooi founded Silverlake Group in 1989 and has built it to become an established provider of an advanced, state of the art universal integrated banking and digital economy solution. Mr. Goh was bestowed the Technology Entrepreneur Award Malaysia 2005. This Entrepreneur Award Program, organised by Ernst & Young, serves to recognise world-class entrepreneurs and provides a benchmark for entrepreneurial excellence. Prior to Silverlake Group’s formation, Mr. Goh had worked with IBM Malaysia. He held several senior positions over his 9 year career at IBM, his last being Marketing Manager for Banking and Finance Industry. Mr. Goh has a keen interest in Science and Mathematics and obtained his Bachelor of Engineering (Major in Electronics) at the University of Tokyo on a prestigious Monbusho Scholarship in 1980. Silverlake has grown by leaps and bounds and at present, its offices and customers are located in over 13 countries across Asia Pacific. Silverlake has earned many industry recognitions including the ‘IBM Star Stream Award’, the ‘IBM iSeries Director’s Award for the Best Global On-Demand Banking Implementation’, ‘IBM’s Asia Pacific Excellence Award for Regional System Integrators (SIs) and Independent Software Vendors (ISVs)’, ‘IBM iSeries General Manager’s Award’ and ‘IBM Partner World Beacon Awards’.

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m-reit focus economy

Outlook on the Malaysian REIT market by Sunway REIT Management Sdn Bhd

The past year has been a fruitful year for the Real Estate Investment Trust (REIT) industry in Malaysia (M-REIT). It was an eventful year where major players embarked on acquisitions trail in search for growth and entry of new players in boosting the prominence of M-REIT to international investors. The deepening of the Euro-zone debt crisis has caused investors to shift to safe haven investments that offer certainty in yields and income stability. M-REIT hogged the limelight and attracted investors’ interest due to the certainty in periodic income and is relatively defensive in nature. This is vindicated in the strong unit price performance of top 4 M-REIT (in term of market capitalisation) as exhibited in Table 1. The unit price performance of these 4 REITs outperformed the FBM KLCI where the latter was relatively flattish with a mere gain of 0.8% in 2011. We are excited at the prospect of the Real Estate Investment Trust (REIT) industry in Malaysia (M-REIT) and its role as well as its contribution to the growth of Malaysian capital market. The REIT industry in Malaysia has recorded exponential growth with an initial market capitalisation of RM356 million as at end December 2005 to RM16.1 billion as at end December 2011. We expect exciting times ahead with existing players continuing to embark on acquisitions trail in growing assets size as well as growing organically. We view such developments as healthy competition in ensuring continuous growth for the M-REIT industry and bringing the best values to unit holders. The other aspect of industry growth is underpinned by entry of new players. We strongly believe that entry of new REIT players augur well for the development and growth of M-REIT. In 2010, the REIT industry achieved another milestone with the listing of Sunway REIT and CapitaMalls Malaysia Trust in the Bursa Malaysia, the two largest REITs in terms of total assets size and market capitalisation. This has set a new platform for REIT industry in Malaysia and has put Malaysia in the radar screen of international investors. Sunway REIT has managed to attract foreign investors contributing RM674 million or 43.0% of RM1.57 billion (including over-allotment) of the total funds raised during the Initial Public Offer (IPO) in July 2010.

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In order for the M-REIT industry to grow further and contribute meaningfully to the growth of capital market in Malaysia, we need more sizeable REIT players to be listed on Bursa Malaysia. The overwhelming response from the listing of Pavilion REIT propelled M-REIT to another level where investors saw the floatation of a landmark asset in Kuala Lumpur. The prevailing low interest rate regime offers opportunities for proactive capital management initiatives. We see rooms for interest savings potentials should one optimizes the funding requirement and debt maturity profile. Debt funding aside, investors also view equity fund raising positively especially if the equity fund raising exercise is accompanied with acquisitions. In 2011, Axis REIT and CapitaMalls Trust Malaysia (CMMT) had undertaken equity fund raising exercise and the responses were well received. We expect the environment to continue in 2012 provided that the equity fund raising exercise is non-dilutive to existing unit holders. From capital market development perspective, we are pleased that the government alongside with regulatory bodies recognized the role of M-REIT and its contribution to the overall capital market development in Malaysia. In the Budget 2012 announcement, the Government confirmed the importance of REIT industry, hence extending the withholding tax rate of 10% on dividend received for noncorporate institutional and individual investors. This clarity of tax policy will help boost the REIT industry and attract more investors. We are hopeful that the Government can remove this withholding tax rate of 10% with respect to individual investors in the near future so that we can be as internationally competitive as Singapore and to help attract broader investor base in REITs. REITs in Malaysia are still dominated by institutional investors such as insurance and pension funds and the challenge to the entire REIT industry is to educate retail investors in Malaysia as many of them are still badly informed about the REIT industry. We are collaborating with Malaysia REIT Managers Association (MRMA) and Bursa Malaysia to conduct educational roadshows and seminars for retail investors in attempting to penetrate into the retail investors’ space. In essence, we anticipate an interesting year ahead filled with robust development amongst existing players as well as entry of new players into the market. As the industry evolves, we expect the landscape to move towards putting forward best practices with emphasis on corporate governance and high level of transparency. 1. Performance of Top 4 M-REIT (in term of market capitalisation)

Dividend M-REIT Share Price Performance (%)1 Yield (%)2 Sunway REIT 21.4 5.9 Pavilion REIT3 21.1 5.2 CMMT 28.6 5.5 Axis REIT 10.6 6.6 1

YTD performance from 30 December 2010 – 31 December 2011 based on share price as at 31 December 2011 3 Calculated from listing date on 7 December 2011 – 31 December 2011 2 Calculated

Source: Sunway REIT, Bloomberg

regional development

regional development roundtable

Economic corridors Roundtable Malaysia’s policy of regional development is characterised by the existence of its five economic corridors. This roundtable debate brought together central government, chief executives of the corridors and seasoned corridor investors to discuss the opportunities and challenges presented by these investment zones

AGENDA ■ Background to the economic corridors: why five corridors? ■ National transformation policy: what does this mean for the corridors? l Alignment and coordination l Leveraging off each others strengths ■ Sectors, key projects and clusters l Energy, oil and gas l Tourism l Manufacturing: high-value products l Agriculture: large-scale opportunities l Service sectors l Urban agglomeration ■ Challenges: l Infrastructure: l Requirements l Financing: role of the private sector and government l Human capital l Financing ■ Investor issues: l Current events: US, Europe l What are investor attitudes towards the economic corridors? l Why Malaysia’s economic corridors? What are the incentives, benefits, policy and regulatory support? l What challenges are there in growing FDI and DDI? How are theses challenges being addressed? l What else can be done to attract more inward investment? ■ What key developments can we expect in the short to medium term?

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roundtable regional development

Ali Bin Hamsa Director General Public Private Partnership Unit (UKAS), Prime Minister’s Department

PARTICIPANTS

Ali Bin Hamsa has a BA from the University of Malaya, a Masters in Economics, and a PhD from Oklahoma University in America. He has worked for a number of government departments, including the Ministry of Transport, Economic Planning Unit and Public Private Partnership Unit where he is currently Director General. He is responsible for corridor development and PFI projects. He is responsible for economic corridor development and PFI in Malaysia.

Amar Wilson Baya Dandot Chief Executive Officer Regional Corridor Development Authority (RECODA), Sarawak

Amar Wilson has a BA in Economics and an MA in Development Economics. As a civil servant, Amar has served in his homeland of Sarawak for a little over three decades. He began his career as the Assistant Secretary in Agricultural State Planning. Today, he holds office as the State Secretary of Sarawak.

Michael Lake Chief Executive Officer Pinewood Iskandar Malaysia Studios

Michael is tasked with developing Pinewood Iskandar Malaysia Studios as the destination for International Filmed Entertainment within SE Asia. He brings forty years of International Film and Television experience to the position, most recently as a Hollywood based senior executive for Village Roadshow Pictures and WWE Studios. Before that he spent fifteen years as President of Australia’s Warner Roadshow Studios.

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Mohd Yaakub Hj. Johari Chief Executive Officer Sabah Economic Development and Investment Authority (SEDIA)

Mohd Yaakub Johari has a BA from the University of Sussex, an MSc from the University of Manchester and a PhD in Sociology from the University of Salford, England. He sits in the boards of several corporate bodies, including Suria Capital Holdings Bhd, Warisan Harta Sabah Sdn Bhd, Institute for Development Studies (Sabah) and Kimanis Power Sdn Bhd.

Low Ngee Tong Executive Chairman OM Holdings Limited

Low Ngee Tong is Chairman of OMH and founder of the Group. He is a qualified Mechanical Engineer from the National University of Singapore. He was one of the founding directors of OM (Manganese) Ltd which pursued Manganese exploration and mining opportunities in the Northern Territory of Australia. Ngee Tong has extensive knowledge, expertise and marketing experience in the global steel, ferro alloy, metal and building materials industries.

Jebasingam Issace John Chief Executive Officer East Coast Economic Region Development Council (ECERDC)

Jebasingam Issace John is the Chief Executive Officer of the East Coast Economic Region Development Council. He has served at both Federal and State levels in Selangor, Perak, Kedah, Penang and Perlis. Isaace John was one of the key personnel involved in the planning and development of Putrajaya where he spent twelve years in the Prime Minister’s Department and in Putrajaya Corporation.

regional development roundtable

MOHAMED RAZEEK MD HUSSAIN MARICAR Chief Executive Officer Malaysian Resources Corporation Bhd (MRCB)

Mohamed Razeek Md Hussain Maricar was appointed to the Board of MRCB in 2009. He has a BA in Civil Engineering and is a member of the Institute of Engineers, Malaysia. Mohamed Razeek joined MRCB as the Chief Operating Officer in June 2009 and was promoted to the post of Chief Executive Officer on 1 December 2009.

REDZA RAFIQ ABDUL RAZAK Chief Executive Officer Northern Corridor Implementation Authority (NCIA)

Redza Rafiq was appointed as the Chief Executive of The Northern Corridor Implementation Authority in 2010. He holds a Bachelor of Science Degree from the University of Hull, United Kingdom and an MBA (Finance and E-Commerce). He is a member of the Perak State Economic Council, the Steering Committee of the E&E sector of the Government’s Economic Transformation Programme; and other special purpose committees Malaysia.

Akira Sanuki President & Managing Director Tokuyama Malaysia

Mohd Zakir Omar Director of Finance UEM Land

Mohd Zakir Omar is Director, Finance, and Corporate Planning for UEM Land. He is a Fellow Member of the Association of Chartered Certified Accountants and a Chartered Accountant with the Malaysian Institute of Accountants. He has a BA in Combined Studies, Accounting and Law from DeMontfort University, Leicester, England. He has worked for a number of multinational companies.

BENJAMIN BIN HASBIE Federal Commissioner Iskandar Malaysia

PARTICIPANTS

After graduating from Kyushu University in Japan in 1974, Akira joined Tokuyama and has had a whole range of different responsibilities, from designing and purchasing to construction management. In 1998 he transferred from the construction to financial control and has since become the point man to set factories up and realise the companies investments abroad. He currently heads the company’s Malaysian project in Sarawak that started in 2008.

ROUNDTABLE PARTNERS

Benjamin is responsible for liaison and coordination of all relevant ministries, federal departments or any other bodies of federal government in order to obtain desired approval for trade, investment or development that are available under the federal laws. He joint IRDA initially as Senior Vice President in charge of the Iskandar Malaysia Safety and Security Blueprint, and in 2011 he was appointed as Federal Commissioner.

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roundtable regional development

Ali Bin Hamsa Director General Public Private Partnership Unit (UKAS), Prime Minister’s Department

Ali Hamsa, Public Private Partnership Unit, Prime Minister’s Department: The Malaysian Government has been working hard on regional development in the past few years. The economic corridor concept has been absolutely central to that effort. We looked at how some comparable countries had developed and we noticed that economic development has often been strongly concentrated on the capital city, leaving the rest of the country somewhat behind. Bangkok, for example, is 35 times bigger than the next biggest city in Thailand, Chiang Mai. Malaysia wants to avoid concentrating all its growth in and around the capital and would like to achieve a more balanced development profile throughout the country. That is where the economic corridors — namely Iskandar Malaysia, the Northern Corridor Economic Region (ECER), the East Coast Economic Region (ECER), Sabah Development Corridor (SDC) and Sarawak Corridor for Renewable Energy (SCORE) — come in. They are a vital tool for achieving economic and social development

Bangkok is 35 times bigger than the next biggest city in Thailand, Chiang Mai. Malaysia wants to avoid concentrating all its growth in and around the capital and would like to achieve a more balanced development profile right across the territory. Initially, of course, the government has to ‘prime the pump’ so to speak, and inject a lot of infrastructure spending to get economic growth going. However, as time passes, the private sector will take off and really power the development. We have seen this happening strongly already.

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In this discussion we would like to address how the balance between government and the private sector works. Another key topic is what the wider social implications of this development will be. We want all Malaysians to benefit from our efforts. Finally, it will be worth taking a look at the wider Malaysian and global economic environment, perhaps focusing on how and whether the corridors can work together. None of the corridors exist in isolation. Perhaps we can start with the representatives from the corridor authorities giving us a brief overview of where they are today. Jebasingam Issace John, East Coast Economic Region Development Council (ECERDC): You mentioned that the main rationale for setting up the corridors was to correct a regional imbalance and to make sure that development did not become too heavily concentrated in Kuala Lumpur. From the perspective of the East Coast region, we saw an initial imbalance in terms of infrastructure. In the early days, the focus was on the West Coast because it was more expensive to get infrastructure development out to the East. That was something we had to address as a priority. With the right infrastructure in place, the East Coast region has some very important and impressive possibilities for development. I’ll name a few of them. First of all, our region is profoundly rich in resources. There is oil and gas, of course, and we have seen significant projects in that area. We have great potential to develop our tourism industry as well. It is a beautiful part of the country after all. Agriculture is another area we are focusing on. We have vast tracks of fertile land with great potential for development — not only in terms of crops, but also livestock, such as cattle, sheep, bird breeding and, of course, fisheries. We have a significant palm oil cluster with large plantations in the region. The Federal Land Development Authority (FELDA) is one of our

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lead plantation owners in the East Coast. We also want to develop the downstream part of the palm oil business. Next, we have made great strides in developing our manufacturing base. There is the automotive cluster in Kuantan, which has attracted popular brands like Mercedes and Suzuki, while Volkswagen will begin manufacturing at the end of 2012. Finally, we are looking at developing a halal cluster in ECER. Back to the infrastructure question, we are happy with our development so far. The major roads and expressways are in place. The challenge now is to take it to the next level and achieve the levels of GDP growth we need. At the moment the growth rate in the region is less than 5%. We are looking at a minimum of 6% GDP growth going forward. We have already identified specific projects and programmes in all these clusters — namely agriculture, tourism, manufacturing, oil & gas and education — to ensure that we can achieve that target. Redza Rafiq, Northern Corridor Implementation Authority (NCIA): The Northern Corridor Economic Region covers only 7% of Malaysia’s land area, but contributes over 20% of the country’s GDP. It contributes more than 45% of Malaysia’s manufacturing exports, more than 30% of tourist expenditure and also more than 60% of agricultural land for companies. In terms of urban sprawl, we have the eighth most liveable city in Asia: Penang. Penang and Langkawi airports are in the top five international gateways to Malaysia, with five million passengers every week. The use of corridors as a way of correcting imbalances has been mentioned, and I agree with that strategy. I would also stress the fact that each region has its own unique strengths, its own unique value propositions and reasons for being. When we correct imbalances, we must not strive for a single way of doing things.

The Northern region is largely a brownfield area. All the big ticket items have already been taken care of by the government – the second Penang Bridge, the widening of the Penang Bridge, the airport, the North South Expressway double tracking, to name but a few. Our job is to accelerate economic growth by developing the core economic sectors — such as agriculture, manufacturing, tourism and logistics — and last year we did 29 deals with the private

In the early days, the focus was on the West Coast because it was more expensive to get infrastructure development out to the East. That was something we had to address as a priority

Redza Rafiq Abdul Razak Chief Executive Officer Northern Corridor Implementation Authority (NCIA)

sector. So the question for us is not, where do we start, but how do we make the most of what is already there? There are other, equally important challenges we face. We must look at addressing what socioeconomic imbalances exist in the region. Our job is not just about increasing people’s income levels, it is also about narrowing the income disparity in the region. We also look hard at raising our knowledge and innovation capacities; without a solid base in that area, nothing else will happen. Amar Wilson Baya Dandot, RECODA: Unlike the other corridors, SCORE is quite different in terms of emphasis, focus, niche and the rationale by which we work. As far back as 1969 and then later on, about 197980, studies were done on the hydro potential of the state — the geographical relief structures, the vast water bodies, rivers and valleys that we have. Until the corridor concept came along we never went

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roundtable regional development

Mohd Yaakub Hj. Johari Chief Executive Officer Sabah Economic Development and Investment Authority (SEDIA)

deeper to it. However, now we are very focused on our energy potential because hydro and our coal deposits can generate — economically, sustainably and commercially — in the region of 28,000 megawatts of energy. It clearly shows the vast potential that we have. Of course, it requires investment at the state level, but we are achieving that. We have also carried out studies to determine which industries will be most suitable for using our energy production. Initially we identified something like 67 to 70 industries and later on, ten trigger industries. Some of the big ones are the aluminium smelters, the manganese producers and a few others. I should also mention that we identified growth nodes — Samalaju, Bintulu, Mukah and Tanjung Manis — for big energy industries. Samalaju and Bintulu have always been identified as growth areas, back before SCORE was implemented. Then there is Tanjung Manis. It was developed initially because of the port and water facilities, the shipbuilding and marine engineering that are all there. Later on, as things have changed, halal has become a major focus for us too. To sum up, in 2007 we did a study on investment possibilities in the region and we came out with the figure of RM330 billion worth of investment: 80% private sector — both foreign and domestic — and 20% public sector. That is the state of play today. Mohd Yaakub, Sabah Economic Development and Investment Authority (SEDIA): I want to reiterate the point about guiding regional development so as to avoid imbalances. The corridors are an excellent way of spreading development around the country. Malaysia needs to avoid a situation in which there is urban efficiency and wealth, and an impoverished rural sector. When the idea of a Sabah corridor was introduced I was heading the state’s think-tank. We have been

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planning for the development of the state for quite a while and we have been fully aware of the consequences of imbalanced development, as well as the lack of investment in infrastructure. In this regard, the notion that the federal government is prepared to listen to the state government authorities about appropriate developmental models has been very well received by us. That has allowed us to move ahead much more quickly than would otherwise be the case. We are still lacking in infrastructure, though. It takes time to invest in it. However, we essentially decided to see all the natural assets we have

The Northern Corridor Economic Region covers only 7% of Malaysia’s land area, but contributes over 20% of the country’s GDP and more than 45% of Malaysia’s manufacturing exports as a possibility for a quick win. That is why we have focused on tourism in the region. We have access to the coral triangle, for example, which has global significance – it has some of the richest marine and coral life in the world. We also have the Maliau Basin, which is part of the Heart of Borneo project; together with Kalimantan, Sarawak and Brunei it is close in size to the Amazon in terms of continuous area of pristine rainforest and it is the oldest rainforest in the world, comprising about 200,000 hectares of untouched rainforest. The people themselves are very welcoming, so that is why we have been doubling the number of tourists every four years. Apart from tourism we have substantial land mass available for agriculture. That is something we want to focus on to help redress the regional imbalances that there are. It is essentially an

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endowment we have which we have not put to full use yet. In acreage terms, 20% of oil palm is in Sabah, and that could be expanded. Besides tourism and agriculture, we are also targeting manufacturing and logistics. I am happy to say that we have been able to get all the necessary flagship projects moving, such as the Palm Oil Industrial Clusters, Keningau Intergrated Livestock Centre, Sabah Agro-Industrial Precinct, Oil and Gas Clusters and Tourism Gold Coast Enclave. Historically, development in Sabah has been very fragmented. We have the Western SubRegion, the Eastern Sub-Region and the Central Sub-Region. It has to do with geographical positioning as well, because there is a massive length of highlands separating the western part of Sabah and the central area. Each has their own respective endowment. Our task is to focus on all of these areas with development potential, get the infrastructure in place and get the private sector into them. So we are very rich resource-wise, but the question remains, how come poverty is widespread? This is where with a little bit of infrastructure spending, targeted at specific locations, we can unlock the development potential; that process will act as a locomotive to drive the rural sector. What is needed now is to get more support from the federal government in terms of such things as airports and airline access. Benjamin Hasbie, Iskandar Malaysia: Down south, formerly known as the South Johor Economic Region, Iskandar Malaysia is envisioned as a balanced and sustainable development with a dynamism that will be a new benchmark in the future. We plan to effectively address the economic imbalances between urban, or city-led, and regional development in Southern Johor. It is designed with investors in mind, with state-ofthe-art facilities, infrastructure and a one-stop

business centre to ensure business transactions for economic growth are seamless and convenient. Encompassing a vast area of 2,217 sq km, Iskandar Malaysia is among the largest single development projects ever to be undertaken in this region. It is positioned as the emerging metropolis located at the southernmost tip of Peninsular Malaysia, adjacent to neighbour Singapore. Considering the close proximity of Singapore and Iskandar Malaysia, one might think of the concept of ‘off-shoring’ economic growth, as is the case with Shenzen and Hong Kong. Through complementing one another, by 2025 Iskandar Malaysia is expected to win the greater proportion of global and regional investors’ interest in its five development flagships; namely, the Johor Bahru City Centre, Nusajaya, Western Gate Development, Eastern Gate Development and the Senai-Skudai Development. A complementary mixture of brownfield and greenfield developments, which include catalytic and even iconic projects, are being planned and developed. This is in line with our Comprehensive Development Plan, which focuses on nine promoted economic clusters and investment sectors. In the manufacturing sector we have concentrated our efforts on the electrical and electronic, petrochemical and oleo-chemical, and food and agro-based industries. In the services sectors we focused on financial, tourism, education, logistics, healthcare and creative industries. Via the implementation of catalytic projects in Nusajaya and Medini — by master developers such as UEM Land Holdings and Iskandar Investment — we managed to spearhead the rapid development that can be replicated by other development flagships. To understand how developments and businesses are being implemented in Iskandar Malaysia, we consult our key players — such as UEM Land, MRCB, Pinewood and OM Sdn Bhd — to share experiences and views.

Benjamin Bin Hasbie Federal Commissioner Iskandar Malaysia

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The establishment of corridor developments has spurred greater integration and coordination between the public sector, private sector and the community in the execution and delivery of projects in Iskandar Malaysia. In terms of capacity building, the public sector is energised, the private sector is empowered and the community is mobilised in crystallising our vision of a strong and sustainable metropolis of international standing. Mohamed Razeek MD Hussain Maricar Chief Executive Officer Malaysian Resources Corporation Bhd (MRCB)

THE PRIVATE SECTOR PERSPECTIVE AH, PPP Unit, Prime Minister’s Department: Let’s go to our panellists who are not the CEOs of corridors. Can you give us the private sector perspective? Razeek Hussain, Malaysian Resources Corporation Bhd: MRCB has had the benefit of working in three corridors, so I think our experience of how they are working is significant. In Johor we are building the new Marlborough College, and we are also constructing the Eastern Dispersal Link from the customs, immigration and quarantine complex (CIQ) to link up to the PLUS highway. That is a billion ringgit investment. We have also just finished Permai Hospital in Johor, which is close to a RM600 million contract. We are quite happy working and investing in Johor. We have a presence in Bakun, where we built the 275 kV switch-yard — that is a small contract of about RM150 million. Of course, the big one that we are hoping for is Penang Sentral; that has a gross development value (GDV) of potentially RM2 billion. In my opinion, without the NCIA, the ECER, SCORE and IRDA, I do not think that the development potential of these areas would have reached the level where it is now. Those bodies have been vital and their facilitation roles are extremely good. With the help of the NCIA, we have been able to enlist an extremely supportive role from the state

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government of Penang, not to mention the Federal Government. We are quite happy. One important development that needs to be mentioned as part of all this is the North South Highway. It shows how public and private can work together. For the private sector to undertake projects like that on its own is impossible. Although there are private concessions, the support by the federal government was key. The road has opened up the whole length of the Peninsular — that brings tremendous opportunities. Without it, we would not have sufficient growth in Penang; people would be languishing between the North and South centres of Penang and Kuala Lumpur. Government-led infrastructure projects are absolutely key. The only way we were able to go into Peninsular was because of the facilitation role the government played. Without that most development by the private sector is impossible.

Our projections are in the first ten years of operation, from when we open in 2013, we are going to create something like 23,000 jobs across the film productions that we attract to the regions here The reason I say this is from our experience of KL itself. We undertook to build the transport hub of KL Sentral Station, to the tune of RM1 billion. We started it in 1994, and then we were caught in the 1997/1998 recession. This is primarily the reason why the private sector cannot go in alone, because it is going to be very expensive and it is going to be very exhaustive as far as resources are concerned. Without the government’s help, federal or state, there is no way the private sector can do corridor development. Therefore, I am a

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great supporter of this. However, now comes the debate. The issue is, with a population of 27 million, whether we have sufficient domestic demand to take up the potential in the corridors. In my opinion we need to focus more on where the money should go, where the investment should go and how we attract foreign private sector concerns to come in, because on our own it is going to be difficult. Michael Lake, Pinewood Iskandar Malaysia Studios: I agree with that, and I suppose Pinewood is a good example of what you mean. What we are developing is a whole new industry, not just for Iskandar and Johor, but for the whole country. While there is a film industry here, it has been very much focused on local production, based out of KL or out of the Klang Valley. What we are creating is a new, international business. This is not about making local films; this is about attracting big investments out of the international movie marketplace. The clientèle that want to use our facilities in Malaysia will come out of Europe, China, India and, most importantly, it will come out of the US. This is attracting into Malaysia production work that is going to spend money here and train people here. Because we are a greenfield development — not only in terms of the buildings, but also in terms of the industry — labour and the training of talent is our biggest worry. This is not unique to us. It extends across many industries, especially in Iskandar because there is no industry there related to the film business. From an economic point of view, there is a real upside to this. Our projections are in the first ten years of operation, from when we open in 2013, we are going to create something like 23,000 jobs across the film productions that we attract to the regions here. We are going to attract RM4 billion in international spend into the country. This is an export business. One of the pluses is

that Johor the state will be the main beneficiary of these economic benefits; as we build the local industry, it is not just our facility but also the associated businesses that we attract that will be important. For example, in Medini there is a 35-acre piece of land that has been set aside to create a media village; we are already talking with Singapore’s Media Development Authority about how we can attract their SMEs to move to Johor, because it is becoming too expensive for them to set up in Singapore. There is a real opportunity here for

Michael Lake Chief Executive Officer Pinewood Iskandar Malaysia Studios

I came to Malaysia to look at building a one-million-tonne manganese alloy smelter. Then we decided not to build just one, but two us to attract other industries into the regional corridor from outside of the country, as well as internally growing industries. Malaysia has many pluses internationally: it has a stable government, a very stable economy, an exchange rate that is favourable to most countries — which is considered around the world to be a very important part of our industry — and is seen as a safe destination, which is very key in this day and age. It has a range of unique and wonderful locations for film-making. There are some real benefits here for us to be able to promote. Luckily we have a very good partner in the Iskandar Regional Development Authority, especially in terms of human capital development — we are working very closely with them. Ngee Low Tong, OM Holdings: I came to Malaysia to look at building a one-million-tonne manganese alloy smelter. Then we decided not to build just one, but two. One is in Langsat and one is in

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Mohd Zakir Omar Director of Finance UEM Land

Samalaju. The Samalaju plant that we are going to build will probably be the second-largest in the world, generating 500MW of power. It really impressed me coming to Malaysia and talking to government officials; local, state and federal. They are very friendly, very supportive. We are developing good relationships not only with Johor, but with other stakeholders as well. For that reason, we haven’t found it a problem to attract investors. Malaysia has a big potential to attract some of the biggest players in the world to locate here. I will give you an example. Vale, one of the world’s largest resource companies, will be setting up a logistics operation up in Perak. They will

Our Industrial land in Nusajaya is selling at RM36 per square foot at the moment. Similar land on a 30-year lease in an area of Toa, Jurung, will cost you perhaps SGD250. There is a lot of upside as far as property development is concerned stockpile millions of tons of iron ore and this can be a very attractive consideration for steel mills trying to expand production outside their own territory. If Malaysia can attract that sort of commitment, I think the country sometimes doesn’t realise its own potential. I believe that all the corridors each have their own strength. Sarawak will still eventually only be a heavy industry and downstream area. You can’t do property development there — there are only 2.5 million inhabitants. Each one has its own strength, but I am very happy to be here. Akira Sanuki, Tokuyama Malaysia: The organisations working with us in Sarawak are doing their best.

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However, they have limited experience with this kind of project. They are quite open-minded and willing to coordinate the relevant authorities, but the speed at which they develop the infrastructure of the industrial park needs to match the pace of investors. They need to embrace the big picture of the whole industrial park, which includes access roads, a communication network, a port and other infrastructure such as a fire station, a police station, a hospital and development office. Although we have many things to do to improve the infrastructure in the industrial park, the relevant authorities are giving us active support and we really appreciate that. They are very positive about our project and although progress is slow, it is going forward. Mohd Zakir Omar, UEM Land: I will quickly outline UEM’s situation in Malaysia. UEM Land Holdings is basically the master developer of Nusajaya – one of the key zones within Iskandar Malaysia. We have 24,000 acres of land there. We are property developers, but when you have 24,000 acres of land in a single location you need to adopt a slightly different strategy. The existing market, as far as we are concerned, of Johor Bahru is only 1.5 million people. If we develop Nusajaya like any other township in Malaysia, perhaps it will take 100 or 200 years to come to fruition with such a relatively small population. We have to adjust our vision and we have come up with three main strategies. Number one is to position ourselves as a regional city. Number two is to introduce catalyst developments –what we have is government clusters, industrial clusters, tourism clusters, as well as healthcare and wellness clusters. The third is to create a strategic partnership with other reputable developers. If we put all these in place, the development will be highly successful. Our partnership with the corridor authority is crucial for all this as well. We

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have a very good working relationship with them. The area has huge potential. Industrial land in Nusajaya is selling at RM36 per square foot at the moment. Similar land on a 30-year lease in an area of Toa, Jurung, will cost you perhaps SGD250. There is a lot of upside as far as property development is concerned. What is more important is how effective we tap the Singapore market, and the wider international market. Singapore has a very limited land bank. Even the Singapore government has to push some industries out of Singapore to Bantam, to Vietnam, to China; but not, so far, to Malaysia. That can change, and when it does it will really benefit Iskandar. We are very thankful to the government for the introduction of Iskandar Malaysia — that makes our task a little bit easier, but nonetheless it is still a tall order and we have recently only developed about 20% of our land banks in Nusajaya. We have to play by the market; we cannot simply develop and put a lot of products in the market. We have to create the catalyst, the source of employment; we have to create the residential, the commercial and the amenities together.

However, in that case, we have to be extra careful in how we target our spending. We have to be much smarter if it is all going to be sustainable in the long run. If we want to do the right thing in infrastructure terms, we might just have to increase the fiscal deficit.

THE WIDER ENVIRONMENT AH, PPP Unit, Prime Minister’s Department: Let me widen the discussion and get you each to tell us what broader concerns you have, what challenges you see coming over the horizon.

AWBD, RECODA: Indeed. When we are undertaking all these activities, we are working within a global scene where what is happening outside will impact on us; either drastically, marginally or at whatever level. We need to be mindful of the enormity of the external markets. Number two is that as we are doing this work we must not stall the pace of the development. We are in second gear or third gear right now. We need to move up a gear. It is very important for the success of our corridors that we don’t stall the growth. You have to understand that once engines cool down, that’s it. In a big factory you are going to be in trouble if you stop people mid-flow. It is the business of the corridors to help maintain that momentum.

AWBD, RECODA: One thing that is a natural concern in all this talk of development is whether it is fiscally sustainable on a governmental level. It is very good to put in place big infrastructure projects and use lots of government funds, but is it sustainable? Infrastructure is a lot of investment for a longterm return. Under the current global economic conditions it is too easy to say that we don’t want to be like the Western world, we don’t want indebtedness.

JIJ, ECERDC: From my perspective at ECER, we have to raise our sights above merely domestic demand. The Asia Pacific region alone represents a 4 billion-strong market. At least for ECER, we are focusing on China, Japan and Korea as our business partners from whom investments can come into the region. That is a big market. Perhaps only 10 or 15% of our produced goods should be for domestic consumption. We need to be focused on the world outside the country. Exports will drive economic growth. We shouldn’t be too worried about economic crises in Europe and America. If you look East, it is still relevant. I firmly believe that within the current economic context, our currency is still very relevant, it is very real and it is up to us maximise this potential.

Amar Wilson Baya Dandot Chief Executive Officer Regional Corridor Development Authority (RECODA), Sarawak

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The final thing I would say is we need to be skilful at managing multiple needs and interests. Whichever corridor we sit in, we are dealing with multiple stakeholders. I am saying this because if we are dealing with local people, particularly in our

We are in second or third gear and are moving forwards into fourth and fifth gears. It is 2012 now, but as far as SCORE is concerned, it is 2030. We need to be that forward-looking case with rural areas, we are dealing with a section of the population that isn’t urban dwellers, yet they expect the same levels of development, whether it is road infrastructure, utilities or whatever. On the other hand, going too fast on some of these things brings a fourth dimension – environmental issues. We need to be sensitive to them at all times. MY, SEDIA: I would like to raise the issue of cooperation between the different corridors. When the various corridors prepare their master plans, they are looking at their areas of concern, but now there are five economic corridors. If we get our acts together, we could help stimulate each other’s economic development by taking notice of investors who might be interested in investing in Malaysia, but not necessarily in our own area of jurisdiction. Perhaps we just exchange cards and put them in contact with the other corridors. Maybe it would be as simple as that. We all go to different parts of the world to attract investment and we often find that potential investors aren’t necessarily looking at this at the corridor level; they are looking at Malaysia itself as a destination. It would be foolish not to help each other out.

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ML, Pinewood: That is a very important point. Malaysia should be going out there with one voice to drum up business. We must avoid the confusion of different sectors going out there saying different things. There has to be a holistic approach to this. Malaysia is very well positioned in this current economic climate to take advantage of that. One of the pluses I didn’t mention before about Malaysia is that it is an English-speaking country. That is unique within the Asian region and it gives Malaysia great opportunities; a chance to be the PEMANDU of investment, not only from the English-speaking world, but also the Asian-speaking world as well. It could be a broker here in attracting investment into the region. I am also a great believer in the agricultural sector; that is going to be key in the future. If you have a strong agricultural sector then you are going to be very powerful in the world in the future; Malaysia is well suited for that. It is how you attract people to that; how do you make it interesting enough, or the opportunities great enough for people to want to go onto that instead of wanting to go into an urban environment? THE SECTORS MATTER AWBD, RECODA: We have to work together, it is true. However, let us not ignore the differences we have. Manufacturing and tourism, for example, overlap in a generic sense, but when it comes to the specifics we are different. The tourism that Sabah gets is not the same as ours. Our tourism comes from capitalising on the lakes, on the water bodies, the fishing and other associated recreations. While generically it looks the same, specifically we are different. It’s the same with manufacturing: we go for the bigger industries, the energy and capital-intensive industries. Yet another corridor may not do that; they will be focusing elsewhere.

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JIJ, ECERDC: I want to support that statement, but add that each corridor can complement the others. For example, in our case we have oil and gas and we have polymers, such as ethylene and propylene-based downstream industries. We can complement the industries in other corridors. It is the same with other clusters. Take halal, for example. When it comes to positioning, especially within ASEAN, the halal brand from Malaysia is well recognised. It is not only recognised in the Middle East, but also in Europe. We have halal agriculture areas in terms of livestock farming, fisheries and forestry, so all these are not just fresh animals or meat; it also includes downstream processing, which is where the value is. For example, the processing of fish fillets: that is where you add the value to the fish and you get the Malaysian halal brand. That is how we have to position ourselves. Unfortunately, Malaysia has not positioned itself well enough in the halal industry globally. The global halal industry runs into billions of US dollars. It is big money, but we have not taken advantage of it by getting ourselves known.

Even Chinese firms are looking at using it as a launchpad for halal products from China, making use of our downstream processing to add value before worldwide distribution.

RR, NCIA: In our case what we have done is to work with the Halal Development Corporation to identify our strong points. Each region has its own strength, as has been mentioned. For example, we have strong downstream processing resulting from the 40 years of evolution of the semiconductor industry. It is strange that the semiconductor industry has an effect on the halal business, but it does. Over the years it has created a strong set of baseline skills that has allowed evolution into aerospace, into solid-state lighting, into things like automotive engineering, which we would never have imagined previously, but also into food processing. And now we have a port – the world’s second-largest halal port after Rotterdam, in fact.

SOCIAL FACTORS RR, NCIA: On all of the blueprints that the corridors work by, there is a section on social equality. I think that is very important because in my view, we are now looking at the start of what can be the new face of capitalism. We are talking about a tectonic shift from a purely profit motive to some kind of ethical governance and corporate leadership in society. As we develop this country, we might be seeing the emergence of an ethical corporation through the collaboration between the government and the private sector, with the corridors at the heart of it. We have mentioned the local populations, and I think I am correct in saying that all the contracts that are signed with private sector

AS, Tokuyama Malaysia: Cooperation with other solar-panel-related companies in other industrial parks or economic corridors is fine. However, we would also like to contribute to our company’s growth and Malaysia’s development. NLT, OM Holdings: As an investor I always believe in competition so that you have different corridors competing with one another in a healthy way. Then your quality improves and more investment will come, because it is a cycle. Openness to compete is very important for investors. I can see from the corridors’ point of view that some cooperation is necessary, but don’t blunt the healthy competition.

Jebasingam Issace John Chief Executive Officer East Coast Economic Region Development Council (ECERDC)

RH, Malaysian Resources Corporation Bhd: Yes, a coordinated effort to present one face as far as Malaysia is concerned.

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concerns involve clauses that compel them to do things for society. There is an emerging trend of businesses focusing on three bottom lines: financial, environmental and social. Profit is not the only thing of importance. I see that as part of our vision for development.

Low Ngee Tong Executive Chairman OM Holdings Limited

AH, PPP Unit, Prime Minister’s Department: If I can add, Malaysia has in fact been going down this route since the 1970s. In 1971 we looked at this in our policy prescriptions. If we had gone by growth alone we would have grown by double digits up until today. Malaysia’s lower growth — around an average of 8% at that time — was because we have this policy of growth with distribution; basically growth with equity. We don’t want a certain part of society to be left behind because then it becomes a job we are leaving behind, but which we have to deal with later. ML, Pinewood: An important factor that has to be looked at in Malaysia is the education system, how people are trained to think more innovatively. That in itself will have a big impact on social mobility. Education is incredibly important. I have been having a lot of discussions with schools in Johor and addressing educators. In the creative industries you can’t start training early enough, be it film or any other area, because it builds creative thinking from the ground up. There is a problem here, though. It is the mind-set coming from parents and from careers advisers: you will be an accountant, you will be an engineer – there has to be a broader approach from an education basis if you are going to grow an innovative country. It is vital as the country moves forward that this happens. AWBD, RECODA: With the kind of industries we are bringing up to Samalaju, we are aware that

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we are creating a new workforce, a workforce that is not Department of Education driven, or Ministry of Education driven; it is a workforce that is industry driven. If not for the corridors, I doubt we would be creating this workforce, because as management bodies we are forced by the industries who drive us to do so. THE MALAYSIAN BUSINESS ENVIRONMENT AH, PPP Unit, Prime Minister’s Department: Perhaps we can all give our final thoughts? NLT, OM Holdings: Malaysia is still a good environment in which to do business, despite problems like labour availability. I have extensive experience of working in Australia. That can be a very difficult place to work in because sometimes the procedures take too long. You would be very surprised. I first went to China to do business three years ago. I am probably one of the pioneers in investing in China and have seen the market shift from a socialist market economy. They are

Malaysia has been a great place for us to work. As far as real estate is concerned, Malaysia has some of the most liberal policies compared with other countries in Southeast Asia; from India to Korea to Japan changing fast to become very much like the American mind-set, so that is why we are shifting to Malaysia. Every country will change as it grows, but Southeast Asia is very unique. I always say that in Southeast Asia you can do business, no matter how difficult; even if there is a problem you can fix your problem. I am new to Malaysia, but I am

regional development roundtable

positive about what I see; from the people, the government and the officials. AS, Tokuyama Malaysia: There still aren’t many companies in Malaysia involved in heavy and chemical industries like us, and there are few people with experience of working at these kinds of companies. However, there is potential for major growth in that field, supported by related technical education or training in future. We think both the federal and state governments’ desire for modernisation will support such growth. Malaysia is rich in natural resources such as land, minerals, natural gas and water for electricity, and once people get the most out of these resources, this country will achieve huge growth. RH, Malaysian Resources Corporation Bhd: We were looking at investing in India. Risk management, when compared with Malaysia, is challenging. We looked at Vietnam, too. However, with all due respect, it takes a lot of time and effort to agree on terms. We have a development in Melbourne and I agree with you — we were told by our local partners in Australia that approvals were very quick, but it took us a year and a half to get building approvals. Malaysia has been a great place for us to work. As far as real estate is concerned, Malaysia has some of the most liberal policies compared with other countries in Southeast Asia; from India to Korea to Japan. A foreigner can own leasehold and freehold. The exception is agriculture and Malay reserves, but beyond that you can hold anything. I just want to reiterate that without NCRA, we would not have come as far with Penang Sentral as we have. To me, it epitomises why the authorities of each corridor should exist; because they are great facilitators. This is arguably — and I would argue with anyone — the best country to do business in.

BH, Iskandar Malaysia: One pertinent point I would like to stress here is the importance of corporate social responsibility in our endeavour to strike the equilibrium between social and economic activities. Iskandar Malaysia has gone through the first phase of its development, where integration and coordination of the public and private sectors has formed a strong platform from which we can further enhance our capability

Our approach to social inclusiveness is rooted in well-regulated corporate social responsibility. This is in order to ensure no quarter of the community in Iskandar Malaysia will be marginalised from the rapid stream of development

Akira Sanuki President & Managing Director Tokuyama Malaysia

and ensure sustainability. Our approach to social inclusiveness is rooted in well-regulated corporate social responsibility. This is in order to ensure no quarter of the community in Iskandar Malaysia will be marginalised from the rapid stream of development. MZO, UEM Land: Human capital, as has just been mentioned, is a real challenge. Even as a property developer we face a lot of problems in recruiting the right people. That is a critical area. We hope the government can address this issue and we understand that it is currently undertaking initiatives in this area. AWBD, RECODA: SCORE is here to stay, here to provide the best facilities we can. We are, as I mentioned, in second or third gear and are moving forwards into fourth and fifth gears. It is 2012

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now, but as far as SCORE is concerned, it is 2030. We need to be that forward-looking. Just next to Samalaju is a town called Bintulu. When we did a study on implementing development for this region, oil and gas was the driving factor, and at the time it had a population of 5,000 people. Today it has 200,000-250,000 people, driven not only by oil and gas but by a whole range of other industries. So that is the kind of very optimistic view that I would like to put on this and we would like to continue to work together on this. MY, SEDIA: The idea of corridors in the form that they have been implemented here is something that has created unprecedented attraction for investors into Sabah. Now that we have moved

The idea of corridors in the form that they have been implemented here is something that has created unprecedented attraction for investors into Sabah. We think the future is rosy up a little bit on the ‘competitiveness’ and ‘doing business’ indexes globally, which is very much welcome, we think the future is rosy. As Dato’ Sri Ali mentioned at the start, things are moving, there is confidence because people see something is happening on the ground. ML, Pinewood: I also feel that these corridors are unique in a country which is developing. Certainly within Iskandar, IRDA has been proactive in our development and has made our life much easier with a new industry. When I came here I thought, ‘There is something happening here.’ I have lived in America for a long time, I have

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lived in Australia, but there is a real buzz about development here. The infrastructure that is being developed makes it very attractive to people coming into the country to work and to invest. There are things that could be fixed. Some of those are in the regulatory areas, some to do with addressing the issue of talent development and retention, but we are very confident. RR, NCIA: This, I believe, could be the start of a new phase of capitalism. We must not put our faith in market forces alone; that would be wrong, because the market can have a lack of humanity. Business has to be done in the right context — it has to be fit for purpose. There is nothing wrong in corporations prospering. We want them to, because it is in the private sector that sustainable economic growth lies. However, we do not want a repeat of 20th-century corporate history to take place. Government and corporates will need to work together. This will be the basis for the direction that the government has set for the Malaysia plan, where the private sector is the driver of economic growth. AH, PPP Unit, Prime Minister’s Department: Thank you all for your contributions to our discussion today. The structure of our discussion has been between the corridors and the private sector. This is an image of what we have to achieve: fruitful coordination between government and industry. The Prime Minister always stresses that public-private partnerships in their broadest sense are the way forward for Malaysia. The economic corridors have been a hugely dynamic way of achieving this, and the evidence so far has been extremely encouraging. Between now and 2020, all of you will have your important roles to play in this journey.

regional development business intelligence

Cities for citizens: Ingredients for urban success in Malaysia’s economic corridors By Chow Sang Hoe and Shashi Hariharan

To build world-class cities, Malaysia’s corridor development authorities must outline their vision to appeal to citizens and investors alike, in order to attract and retain the resources they need for the cities to grow.

Ours is an increasingly urban world. The UN predicts that by 2025, 57% of the world’s population will live in urban centres; while locally in Malaysia, this number is expected to be 80%1. The shifting economic power from West to East and North to South has increased both the number and the sophistication of urban centres in all markets, especially the emerging markets. Recognising the above trends, the Malaysian Government, under the 9th Malaysia Plan, has identified five economic corridors within the country to establish urban agglomerations and drive regional development2. In addition, globalisation has resulted in cities all over the world being more interconnected than ever before, as capital and people move freely between them, migrating to cities that are most aligned in terms of brand, strategy, investment, infrastructure, services and culture. This has increased the competition for talent and capital between cities worldwide. In the 10th Malaysia Plan, the Government acknowledged that having world-class cities within the five corridors would be a key ingredient to enabling their success while driving economic growth3. A worldclass city needs to provide a sustainable, vibrant community for its citizens to live, work and enjoy life while building an entrepreneurial ecosystem that supports the commercialisation of innovation and attracts foreign investors — in short, demonstrating a clear value proposition to attract resources. This represents a trigger point for action and a chance to examine the development plans for the cities that will form the respective nucleus of the five economic corridors.

In building world-class cities, corridor development authorities face a unique set of challenges and issues from stakeholder groups competing for limited resources. To strike the right balance, authorities must build the consensus needed to move towards a compelling vision. But while each corridor faces its own unique mix of competing stakeholders, there are common ways to increase their respective attractiveness: ■ Introduce powerful and accountable leadership ■ Build stakeholder confidence through delivery ■ Harness popular support and drive change ■ Embrace the future and step ahead To sell the vision to all stakeholders and transform ambition into reality by securing the right resources, it is vital that these actions be backed by a strong foundation, which is made up of the following building blocks: ■ Strategy: An integrated strategy is critical to the development of a world-class city as it clearly defines how vision will be translated to reality and sets out the framework for delivery. Typically, the strategy should take into consideration aspects of leadership, governance, skills / capability enhancement, diversity, and infrastructure and environmental improvement planning. ■ Targeted investments: Targeted investments will ensure the prioritisation of resources to meet strategic needs and enhance the city’s overall value proposition. Our research4 has shown that investments are typically made in the areas of: a) Education: Business needs talent as

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access to the right skills and capabilities is important to promote growth within the city and surrounding corridor. b) Major infrastructure projects: Robust physical infrastructure such as transport, communications, banking systems, technology and utilities is vital at the city level while providing a means to stimulate the larger economy. c) Support for local SMEs and entrepreneurs: SMEs and their entrepreneurial spirit play a critically important role in every urban economy, accounting for a disproportionately large share of new jobs5. d) Clusters: Clustering helps build a competitive advantage in a particular industry or sector, while creating localised synergies and greater access to talent. e) Support for development of green industries: Developing a brand in the “green” space will help heighten international awareness and attract outside investments. f) Public-private partnerships (“PPP”): While it is unlikely that PPPs will ever replace traditional infrastructure financing, doing more with less and considering new delivery models involving the private sector will, by necessity, become the new norm. g) Marketing and promotion activities: Marketing and promotion activities help to portray the city’s brand and value proposition to potential investors, businesses and talent. ■ Sustainability: A long-term sustainability policy and framework that are conducive to investment will increase the chance of capital investment at the necessary scale to deliver on the vision. ■ Governance and accountability: Empowerment to deliver an ambitious vision and strategy should be balanced by clear governance and accountability to citizens. Without these, there is no legitimacy. Therefore, clarity around governance structures enables a better understanding of how city and corridor leadership have been empowered to deliver the vision, and held to account for it. ■ Robust financial management: Managing the numbers, modelling options and their impact, and optimising resources are vital capabilities each city requires because businesses, citizens and investors alike will all expect city and corridor leaders to ensure that maximum stakeholder value is assured from every item of expenditure.

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So what does this mean to the cities that lie within the economic corridors of Malaysia? To build world-class cities, Malaysia’s corridor development authorities must outline their vision to appeal to citizens and investors alike, in order to attract and retain the resources they need for the cities to grow. City branding is critical, and a unique offering may be the deciding factor. They must also build stakeholder confidence in their leadership and the administration, while striving to be transparent in their reporting and welcome accountability to their citizens — their voters. If they are doing a great job, they should tell the voters and welcome the scrutiny that will follow. REFERENCES

Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, 2009, World Population Prospects: The 2008 Revision and World Urbanization Prospects: The 2009 Revision 2 The Economic Planning Unit 2006, Ninth Malaysia Plan 2006 – 2010, Prime Minister’s Department Putrajaya, Malaysia 3 The Economic Planning Unit 2010, Tenth Malaysia Plan 2010 – 2015, Prime Minister’s Department Putrajaya, Malaysia 4 Ernst & Young’s Cities for Citizens Global Survey 2011 5 OECD Centre for Tax Policy and Administration, 2009, OECD Tax Policy Study No. 18: Taxation of SMEs: Key Issues and Policy

CHOW SANG HOE

Managing Partner - Advisory Services, Malaysia T: +603 7495 8696 E: Sang-Hoe.Chow@my.ey.com

SHASHI HARIHARAN

Director - Advisory Services, Malaysia T: +603 7495 8780 E: Shashi.Hariharan@my.ey.com

ERNST & YOUNG ADVISORY SERVICES SDN. BHD.

Level 23A Menara Milenium Jalan Damanlela Pusat Bandar Damansara 50490 Kuala Lumpur Malaysia Tel: +603 7495 8000 Fax: +603 2095 5332 Email: ey.my@my.ey.com www.ey.com

The information contained in this article is intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. On any specific matter, reference should be made to the appropriate advisor.

regional development interview

ABDUL TAIB MAHMUD

Chief Minister, Sarawak

Taib is the fourth Chief Minister of Sarawak. He also holds prominent government positions in the capacity of State Financial Minister and Planning and Resource Management Minister, and is the President of Parti Pesaka Bumiputera Bersatu (PBB), part of the Barisan Nasional coalition. He was born in Miri on 21 May 1936 and was educated at St Joseph’s Primary School in Miri and St Joseph’s Secondary School in Kuching, after which he gained a Colombo Plan scholarship to study law at the University of Adelaide. Taib graduated with a bachelor of law in 1960 and continued his education at the Harvard International Summer Course. Following his return to Sarawak, Taib worked as the Crown Council from 1962 to 1963, after which he was a member of the State Legislative Council before becoming Minister for Development and Forestry in 1966. Taib became a Member of Parliament in Sarawak for the Samarahan constituency in 1970. Taib continued to take up ministerial positions with the Federal Government throughout the 1970s, serving as Deputy Minister within the Prime Minister’s Department from 1970 to 1972, as Minister of Primary Industries in 1972, as Minister of General Planning and Socio-Economic Research following his return as a Member of Parliament for the Samarahan constituency in 1974, and as Minister of Information and Special Function in 1975. In 1978, Taib became Minister of Primary Industries before taking the position of Minister of Defence, both in Malaysia. He became Deputy President of Parti Pesaka Bumiputera Bersatu (PBB) in 1973. In 1981, aged 45, Taib became the fourth Chief Minister of Sarawak, and has since become Sarawak’s longest-serving minister. In the same year, he assumed office as President of the PBB after winning the Sebandi by-election. The Sebandi seat was held by Taib until 1996, when he moved to the Balingian Constituency at the request of people in his ancestral town.

INternational investor: The Sarawak Corridor of Renewable Energy was introduced in 2008. Can you tell us a little about it? ABDUL TAIB MAHMUD: One of the special features of the government’s development strategy is the establishment of several Economic Development Corridors within the country. These include the Sarawak Corridor of Renewable Energy, or SCORE, which was launched on 11 February 2008. SCORE is a major development initiative undertaken by the state government to propel Sarawak towards a highincome and advanced economy by 2020 through the establishment of hi-tech industries and creation of high-value jobs. The main objectives of SCORE are: to create new sources of wealth, to move the state’s economy up the value chain, to achieve higher per capital income, to enhance the quality of life of the citizens, to achieve a balanced regional development and to eradicate poverty. I think SCORE has made significant progress towards achieving these goals. What are its key areas of success so far? SCORE has received an overwhelmingly positive response from investors. To date, SCORE has secured 13 projects with a total approved investment of RM26.4 billion. They are mainly in energy-intensive industries such as aluminium smelting, polycrystalline silicon, metallic silicon and ferro alloys in the Samalaju Industrial Park. Five projects comprising 20% of the investment value are wholly-owned domestic companies; two, amounting to 43%, are joint ventures between local and foreign investors, and six comprising 37% are wholly-owned by foreign companies. These projects are expected to create more than 9,700 direct employment opportunities besides creating vast business opportunities through spin-off effects. Can you tell us about the next steps to be taken? We will continue to develop our huge energy resources. They amount to 28,000 megawatts, of which 20,000

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acknowledged that for Sarawak to grow and transform into an innovation and knowledgeintensive highincome economy we have to venture into hi-tech industry. The state can help this process

”

megawatts are sourced from hydropower, to ensure that there is a sufficient and sustainable supply of renewable energy to the industries. We are also aware that the right pricing policy is critical to ensure that our electricity tariffs are competitive and attractive to potential investors. In addition to energy development, we are developing industrial infrastructure, especially the Samalaju Industrial Park, to facilitate the development of industries there. Also, in order to cater for the requirements of our heavy industries, we are planning to develop a new port at Samalaju Industrial Park. Is Sarawakian infrastructure as developed as it should be? If not, what are the main challenges? Infrastructure arguably is the most important enabler for economic development. However, Sarawak has never been an easy geographical region to develop due to its vast physical expanse. It measures about 124,449 square kilometres, or 37.7% of Malaysia’s total land mass. It is difficult terrain to traverse and dotted with a widely dispersed population. Even so, over the years we have built significant numbers of roads and bridges linking major towns to secondary towns and rural settlements. Sarawak is now served by a road network of about 20,333km compared with only 1,340km in the early years of independence. We cannot rest on our laurels, though. In order to further expand the infrastructure coverage in the state, we are working closely with the federal government, especially under the National Key Result Areas for Rural Basic Infrastructures programme. Under this programme, an additional 770km of rural roads will be built; rural electricity coverage will increase from 66 to 95%, while rural water coverage is expected to expand from 57 to 90% by 2012. Hi-tech industry has become an important part of Sarawak’s development, but this is an industry that moves extremely fast. Can the government really help this sector? Or is it a case of getting out of the way and letting business flourish on its own? We acknowledged that for Sarawak to transform into an innovation and knowledge-intensive high-income economy we have to venture into hi-tech industry. The state can help this process. For this reason, we have developed the Samajaya Free Industrial Zone (FIZ), which is dedicated to hi-tech, export-oriented electrical and electronic (E&E) industries. Among the companies sited in the FIZ are X-Fab and MEMC, which have helped position Sarawak as a key global location for the semiconductor industry. Capitalising on our huge energy potential, we are now moving into the development of heavy and energy-intensive industries located in the Samalaju Industrial Park. These industries also apply state-ofthe-art technology in their manufacturing processes. The Samalaju Industrial Park itself, with an area of about 7,000 hectares, is the biggest in Malaysia. It

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is being equipped with all the necessary utilities and facilities, such as a dedicated port, good road infrastructure, a sewerage treatment plant, water supply and telecommunications to meet the requirements of investors. The power sub-station and transmission line from Bakun HEP and Murum HEP are also under construction to ensure the timely and reliable supply of energy to the park. Can you tell us more about the various business clusters that have been set up in Sarawak? SCORE focuses on ten priority industries: oil, aluminium, steel and other metals, glass, marine engineering, palm oil, forestry and timber, livestock, aquaculture and fisheries, and tourism. The development of these industries will be spearheaded by ‘trigger projects’ that will help create their respective industrial clusters, value chains and R&D activities. The state has earmarked almost 77,000 hectares of land in Tanjung Manis as a Halal Hub for the development of halal industries, focusing on both the upstream and downstream activities based on the concept of Sustainable Green Development. We are also taking steps to attract foreign business and investment to the state. Among other initiatives, we run investment missions abroad including to the UK and the Middle East; promote investment opportunities in Sarawak, especially in the SCORE area, through various business and investment publications and magazines both locally and internationally; establish a one-stop centre under my office (State Planning Unit) that deals directly with potential investors to facilitate their investments in the state. We also work hard to develop our human capital, especially in technical and skilled work. How do you create the conditions for economic development while respecting and protecting local communities? Sarawak has always subscribed to the idea of sustainable environmental management, which is an integral component of our economic development policies and programmes. For example, in the development of Murum Hydropower, we are conducting a Social and Environmental Impact Assessment (SEIA) Study, which complies with international standards, namely the Equator Principles and the Declaration of United Nation Rights of the Indigenous People. The SEIA study will be applied to all our future hydropower development, especially when it involves the resettlement of affected communities. We also comply with our own local requirements, namely those of (i) the Natural Resources and Environment Board (NREB) of Sarawak on environmental matters; (ii) the Land & Survey Department; (iii) the Forest Department; (iv) the Sarawak Museum on cultural heritage and archaeology matters; (v) Sarawak Biodiversity Centre; and (vi) the Majlis Adat Istiadat on customary law matters.

regional development interview

AMAR WILSON BAYA DANDOT RECODA

Chief Executive Officer

As a young student at university my first love was the study of economics. I felt very comfortable with economic reasoning, with the way economists think about the world. In those days, in the 1960s and 1970s, classical Keynesian economics was all the rage. It seems he has made something of a comeback in recent years. After graduating, I joined the State Planning Unit of Sarawak, which at that time had just been established. So myself and my colleagues were pioneers. We were laying the foundations for the economy of the state. I left the unit on sabbatical and joined the Inter-Governmental Commodity Organisation in Jakarta, which was a fantastic experience for six and half years, because I saw a different world, different polity, different ways of doing things. It gave me a great sense of perspective and taught me that there’s no single way to move forward, there are many ways. When I came back to the state for about a year I realised that I needed to move forward, and I went back to the University of Sussex to do my masters in development economics. Having finished the MA, I was asked to do a project, an Asian Development Bank finance project. I was 35 years old at the time and I learned the art of coordination from that project. Bringing that model to the larger thing called RECODA was just a natural act after the experience of seeing how to get it done at the ADB. I then went back to the State Planning Unit where I was Director until 2000. I joined RECODA in 2009, where I have been helping to plan the future of Sarawak ever since. MOTIVATION

The continuous search for knowledge and ideas. Economics, my basic field of expertise, is constantly changing, so it can be very exciting. I find it fascinating to try and apply those ideas to the real world and to make a difference.

LESSONS IN BUSINESS

If you are in the middle of bad times, remember there is always a recovery. There is always a time when the economy begins to pick up again. I think we just have to prepare ourselves to live with both the ups and downs of the cycle.

INternational investor: Can you give us an overview of RECODA? AMAR WILSON BAYA DANDOT: RECODA (the Regional Economic Development Authority) is the overarching state development corporation for Sarawak. One of our major initiatives is the Sarawak Corridor of Renewable Energy (SCORE), which is a major industrial and economic regeneration project for the region. We hope to help make Sarawak a forward-looking, attractive investment destination — investment that will provide real benefits for the people of the region and the country as a whole. Although RECODA is the smallest in staffing among the corridor development authority, I believe we are one of the most efficient. We essentially act as a coordination hub for implementation and execution. Tell us a bit more about SCORE and what its development will look like. It is important to note that when we look at SCORE, it is not just about creating renewable energy, it’s all energy forms. Of course renewable energy will become the primary driver, particularly from the hydro-electric point of view, but we will certainly be pursuing the traditional energy sector as well. Obviously, the Bakun Dam will be the centrepiece of the whole development area. It is truly an impressive project that the people of Sarawak are justifiably proud of. When you talk about the 28,000 megawatts potential that needs to be developed, you can see what it means to the economy. However, to really take advantage of this energy and this development, we need physical infrastructure such as roads and ports. Of course we also need ‘softer’ infrastructure, the industrial estates for example, and also the utilities — water, energy, telecommunication. Down on the line, of course, we have human resource development. With the energy and the infrastructure you need users, consumers, and we are not talking

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When you

talk about the 28,000 megawatts potential, you can see what it means to the economy. However, to really take advantage of this energy and this development, we need physical infrastructure

”

about retail consumers — we’re talking about the big industries, heavy industries, and particularly energy-intensive industries as well: Tokuyama, OM Holdings, Asia Minerals, for example. They are located mostly in Samalaju because that’s the site identified for these big industries; very much side by side with the oil and gas energies, so it provides a fantastic base for industrial agglomeration. The cluster is there, with sufficient space to move on. It’s not just about numbers and quantity, though. It is also about quality. We need the right sort of industry. Studies have shown that we are really focused on the skilled, semi-skilled, para-skilled technical people, so 70 or 80% of the workforce has to be there. It is therefore important for Sarawak to prepare itself by getting the physical institutions in place so they can be harnessed and utilised.

What bits of the jigsaw puzzle are you happy with and what are the next big challenges going forward in Sarawak? The most important thing concerning me at the moment is the matter of speed, urgency and immediate priority. We have a big challenge now in getting all the infrastructure in place within the next five years, whether it’s roads, utilities, industrial estates or ports. We have some time pressure, but we are on course. Another example of the tasks we face is the airport at Mukah. It doesn’t have to be huge, maybe a facility allowing 50-100 people to land at any one time, but it needs to be built, and it needs to be good. So there are quite a few significant projects we are working on that simply have to be done, and done in the time available.

working with investment partners How does the investment flow work? Does RECODA act as a coordinating hub for it all? If there are no investors, nothing will happen. That much is true. The infrastructure we build will become white elephants. So that side of our work is extremely important, and we welcome discussions with all types of investor. Fortunately, so far we have been pretty successful in attracting the attention of a large number of potential investors into the region: FDIs, DDIs, locals, they come from all corners. RECODA acts as a sort of coordinating and information hub for all this activity. All the stakeholders, whether it’s SEB, whether it’s the Halal Hub, whether it’s the public works: they know where the investment is and what’s happening and what’s going to be developed because we act as a clearing house for this information. For example, we need a port in Samalaju. It will be a new project, but it is part and parcel of the whole SCORE development. The state government decided it would be developed by Bintulu Port. They are a good company and clearly the right people to do it. They know how to build, how to dredge, what size the port ought to be. The job of these guys will be to start building the physical side of it, and they are ready for it. However, it won’t be done by them alone, because they would be unable to produce good estimates, and therefore get the job done, without the sort of information we can provide. We provide them with detailed projections of activity and throughput, for instance. Every time we meet we share projected information with them and this enables the construction to go ahead. That is an important role for RECODA. In fact, our ability to attract investment and to work with potential partners has been really good so far. We have not really had to go out into the market and sell ourselves as a development. So far, investors have been coming to us.

One of the stated aims of RECODA is to minimise public service bureaucracy. How much red tape have you cut away? It hasn’t been too much of a problem for us. We have a culture in Sarawak of working together to get a job done, so the way we work on a daily basis in itself cuts red tape. However, we are aware it is a concern for business. We constantly work to make the system work as smoothly and efficiently as possible. To put it a different way: you can set up an agency and call it ‘one stop’, yet if the support from other agencies doesn’t come in so easily, it’s not going to work. However, for us it works very well.

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a wide spectrum for investment What would you define as the top three most exciting areas for investment over the next few years? The energy-intensive industries, of course, in part because of the brilliant Bakun Dam. That provides a real opportunity for us and for private investors. However, I really would not want to single out any particular sectors because we have so many great opportunities. We have Samalaju, Bintulu, Tanjung Manis — in each of these places there are great economic activities. We plan to do two more — Baram and Tunoh — but of course there will be a number of secondary growth areas such as Samarakan. We have a spread of geographical areas and different industrial niches. If you go to Mukah, it’s an administrative centre. We have the Halal Hub at Tanjung Manis. We have the Murum dam under construction, which will bring its own strengths to the region. So the thing about SCORE is that it’s not just in the areas that people have come to recognise as part of the project, but also in the interior areas where we expect considerable secondary growth. It is an integrated project. RECODA is proud to be at the centre of such a wonderful development.

regional developmentâ&#x20AC;&#x192; business intelligence

Sarawak Corridor of Renewable Energy (SCORE) The preferred investment destination in Malaysia

Photo Bakun HEP (courtesy of Sarawak Hidro)

â&#x20AC;&#x2030;Investing in the Corridor means gaining access to a competitively priced and abundant supply of energy, water and land

The Sarawak Corridor of Renewable Energy, or simply known as SCORE, which was launched on 11 February 2008 is a major initiative taken by the State Government of Sarawak, Malaysia. It is aimed at accelerating the economic growth and development of the state towards achieving a high-income economy and developed state status by the year 2020. The Corridor is located within the Central Region of Sarawak, stretching for 320km along the coast from Tanjung Manis to Samalaju, and extending into the surrounding areas and hinterland. SCORE covers an area of 70,709 sq km, with a population of 862,100 people. The major urban centres within the Corridor are Sibu, Bintulu, Mukah, Sarikei and Kapit. ENERGY RESOURCES IS THE CORE OF SCORE The core of the Corridor is the energy resource potential (28,000MW), particularly hydropower (20,000MW), coal (1.46 billion tonnes) and natural gas (40.9 trillion cubicfeet) which are found abundantly within the Central Region of Sarawak. This will allow Sarawak to price its energy competitively and encourage investments of energy-intensive industries, that will act as triggers for the development of a vibrant industrial sector in the Corridor. Ten priority industries promoted in SCORE Under the SCORE development plan, ten priority industries have been identified, namely aluminium, glass, oil-based industries, steel, palm oil, fishing and aquaculture, livestock, timber, marine

engineering and tourism focused on new hydro-power lakes. Out of the ten priority industries, four are considered to be the trigger industries, namely aluminium, glass, oil-based industries and steel. These ten priority industries will be promoted and developed extensively through greater private sector participation. The development of these ten priority industries and their associated downstream, value-added activities will be the driving force behind the growth of the industrial development of the Corridor. Focusing investment efforts in the five major Growth Nodes Samalaju, Tanjung Manis, Mukah, Tunoh and Baram have been selected as the five New Growth Nodes, with the aim of focusing investment efforts within the Corridor. The selection of these New Growth Nodes is a key element of the Corridorâ&#x20AC;&#x2122;s strategic development plan. Samalaju, with an area of more than 8,000 hectares, is being developed as a new centre for heavy and energyintensive industries. The development includes a new industrial park provided with all the necessary facilities and utilities, specialised port facilities needed for these new industries and a new township. Tanjung Manis is being developed as a halal hubt, the largest in Malaysia, focusing on the upstream and downstream halal food and manufacturing industries. With 77,000 hectares of land available, Tanjung Manis Halal Hub offers investors tremendous potential and opportunities

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business intelligence regional development

10 Tourism Industry

Trigger Industries Aluminium Industry

Glass Industry

Oil-based Industry

Steel Industry

10 Priority Industries 6 5

Marine Engineering

Timber Based Industry

Livestock Industry

Fishing & Aquaculture Industry

Palm Oil Industry SCORE – Ten Priority Industries

Trigger Industries

to capture the increasing demand for halal products globally. Aluminium 1 Mukah is being developed as a Smart Industry City and an administrative and service Glass centre for the development of the 2 10 Industry Corridor, focusing on human capital Priority development, infostructure, and research Oil-based Industries and development. 3 Industry Tunoh and Baram will be developed with oil palm, planted forests and tourism as Steel 4 part of the strategy to unlock the vast Industry potential in the hinterland of Sarawak. SCORE Area – Central Region of Sarawak, Malaysia Through the planned extended network of roads, ports and airports, the developments in the five Growth Nodes will draw from and extend benefits to the hinterland 10 vast Tourism Industryin the Trigger Industries Central Region of Sarawak. This in turn Aluminium will result in 9 the further development 1 Marine Engineering Industry of new and existing centres within the region. Timber Based Glass 8 2 10 Industry Industry PriorityInvestment Incentives in SCORE Investing in the Corridor means gaining Industries Oil-based access to a competitively priced and 3 7 Livestock Industry Industry abundant supply of energy, water and Tanjung Manis Halal Hub land. Investors will also &find a skilled Steel Fishing 4 6 is readily available. workforce that Industry Aquaculture Industry The government is pro-business and investors will5 appreciate the political Palm Oil Industry stability and racial harmony that exists in the state. The Corridor is also virtually free from calamities 10natural Tourism Industryand offers a good Trigger Industries quality of life. Existing infrastructure, infostructure, utilities and social Aluminium 1 9 Marine Engineering amenities will be upgraded and new Industry ones will be constructed under the Timber Glass Corridor Development plan. Based 8 2 10 Investors in strategic Industry Industry industries will Priority receive attractive financial incentives

Oil-based Industry

Industries

Steel 100 www.internationalinvestor.com 4 Industry

7 6

Livestock Industry

Fishing & Aquaculture Industry

Palm Oil Industry

10 Tourism Industry to establish their operations in SCORE. Among them are incentives offered by 9 Marine Engineering the Malaysian Investment Development Authority (MIDA), such as Pioneer Timber Based Status, Investment Tax Allowance and 8 Industry Investors in Reinvestment Allowance. SCORE could also receive incentives from the federal such as 7 government, Livestock Industry infrastructure allowance, import duty exemption and double on Fishingdeductions & 6 In addition, the state freight charges. Aquaculture Industry government will also offer competitive land prices, 5electricity tariffs and Palm Oil Industry water rates to the preferred industries operating in SCORE. SCORE Achievements SCORE has received overwhelming responses from investors, which are beyond expectations considering that it is still at the early stages of its development. The completion and on-stream Bakun HEP, with the capacity to generate 2,400MW, has kick-started the inflow of industries to Samalaju Industrial Park, the SCORE growth node planned to be the centre for heavy and energy intensive industries. The Bakun power and the incoming power from Murum HEP will empower the first batch of industries in Samalaju. To date, SCORE has secured substantial amounts of investment which are predominantly in heavy and energyintensive industries, such as aluminium smelting, polycrystalline silicon, metallic silicon and ferro alloys sited in the Samalaju Industrial Park. Among the major multinational companies investing in Samalaju Industrial

regional development business intelligence

Samalaju Industrial Park

Aerial photo of Samalaju Industrial Park

Park are Press Metal Berhad, Asia Minerals Limited, Tokuyama Corporation and OM Holdings. With high capital investment, these companies have triggered the whole range of development in SCORE, particularly human capital, construction, logistics and services sectors. The construction works are currently being carried out extensively on the ground. These investments are expected to develop both clusters and downstream activities of aluminium, steel-based

as well as solar-related industries in SCORE. Meanwhile, a long list of other investment projects are lining up to finalise their negotiations to start their projects in Samalaju Industrial Park. Tanjung Manis Halal Hub has started with the aquaculture projects that will form a resource for the development of downstream food-based and pharmaceutical related industries. The commitment of Taiwanese investors and a local company have started the investment in Tanjung Manis.

RECODA administrative building in Mukah

Investors in strategic industries will receive incentives to establish their operations in SCORE

CONTACT DETAILS: The State Planning Unit, Chief Minister’s Department, Sarawak, Malaysia and the Regional Corridor Development Authority (RECODA), Sarawak, Malaysia are spearheading the development, management and promotion of the Corridor. Detailed information on investment opportunities in SCORE can be obtained from the following agencies:

STATE PLANNING UNIT

Chief Minister’s Department 6, 7 & 9 Floor, Wisma Bapa Malaysia Petra Jaya, 93502 Kuching Sarawak, Malaysia

Tel: (6) 082-492276/492285 Fax: (6) 082-449481/442536 http://www.spu.sarawak.gov.my

REGIONAL CORRIDOR DEVELOPMENT AUTHORITY (RECODA)

2nd Floor, Old State Legislative Building Petra Jaya, 93502 Kuching Sarawak, Malaysia

Tel: (6) 082-444851/444852 Fax: (6) 082-446851 http://www.sarawakscore.com.my

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MOHD YAAKUB HJ JOHARI SABAH ECONOMIC DEVELOPMENT AND INVESTMENT AUTHORITY (SEDIA) President and Chief Executive

My academic background is as a social scientist. I was trained in the UK — I did my bachelors degree at the University of Sussex, a masters at the University of Manchester, and a PhD at the University of Salford. Prior to taking up my appointment at SEDIA, I had served for 15 years as the Executive Director/ Chief Executive of the Institute for Development Studies (IDS) Sabah, the official think-tank of the Sabah State Government. During that period, I was a board member of the Toronto-based International Federation of the Institutes of Advanced Studies; a governing council member of the London-based Commonwealth Association for Local Action and Economic Development; and the President of the Association of Development Research and Training Institutes of Asia and the Pacific. I took over as Chief Executive of SEDIA in March 2009. Currently, I am also a director of Suria Capital Bhd, Warisan Harta Sabah Sdn Bhd and Kimanis Power Sdn Bhd. My exposure in academic life, civil service, research institutions and the private sector has been extremely helpful in assisting me to carry out my current assignment. MOTIVATION

I think it’s the challenge of putting in place what you have carefully planned, and seeing it come to fruition. I take a lot of care in everything, in terms of the planning, in terms of the execution, in terms of staff recruitment, talent development, performance and also staff welfare.

LESSONS IN BUSINESS

First, it’s to be able to communicate clearly the things you think are fundamental. Second, to know that for everything you have communicated there is bound to be disagreement, so you have to also know how to weave your way through them and get your people to buy into the project.

INternational investor: Can you tell us something about SEDIA, and explain what is happening at the moment? MOHD YAAKUB HJ JOHARI: The Sabah Economic Development and Investment Authority (SEDIA) is designed to be a one-stop authority which is involved in planning, monitoring, evaluating and promoting the Sabah Development Corridor, based on the Sabah Development Corridor Blueprint document. The Sabah Development Corridor Blueprint document was prepared by the Institute for Development Studies as the principal consultant. The implementation of the Sabah Development Corridor was estimated to take 18 years, so we have just completed the first phase in 2010. We are now in our second phase, which will run until 2015. During the first phase, our focus was primarily to build the foundations for growth so that we can get investment mobilised for the sectors identified as strategic in the Sabah Development Corridor. The strategic sectors identified were tourism, logistics, agriculture and manufacturing. During the first phase, therefore, we embarked aggressively on the implementation of infrastructure projects, primarily public sector driven. As of last year, we had committed to about 1.27 billion ringgit worth of projects. The engagement with the private sector is to be the key focus of the second phase. We then solicited and processed the investment proposals from the private sector. In fact, as of the end of June last year our records indicate that the planned investment from the private sector is worth about 57 billion ringgit, which is close to twice the state’s annual GDP. FOUR STRATEGIC AREAS Could you give us some detail about the four strategic areas you mentioned? I can illustrate with specific cases. Take tourism, for example. Tourism is our most vibrant sector, and

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regional development interview

we have doubled arrivals and receipts every four years. Under the Sabah Development Corridor, we have just commissioned a master plan dedicated to getting the sector to reach new levels in terms of products and ease of access. The master plan has been completed, and the project’s possible developments include holiday homes, holiday resorts, areas for marine sports, marinas and creative clusters. The private sector can come in, they can build resorts, they can participate in the development of the wellbeing industry within tourism, marina infrastructure — there are all sorts of possibilities, and that’s only as far as tourism is concerned. In agriculture we have a palm oil industrial cluster in Lahad Datu, and also in Sandakan — these are dedicated to supporting the industrial processing of oil palm-based products. The cluster can be a base for manufacturing as well, especially in pharmaceutical and biomass-related products. There’s also the potential biotech application of turning waste into consumable items. We also have a plan to develop the livestock sector: the Keningau Integrated Livestock Centre in Keningau. Another area which we are working closely on to get things to take off is the Sabah Agro Industrial Precinct — this will focus on the development of agro-industry, principally food and related biotech-based products. The agriculture sector right now is very much being addressed at all levels, both upstream and downstream. We also have what we term as ‘agropolitan projects’ — these are projects which, although they are principally meant to address poverty, are also meant to ensure that we can unlock the value potential of the rural areas. They could be utilised to plant rubber trees, for the rubber, but also for the timber. So then we would be able to produce furniture from rubber wood. In terms of manufacturing, we are promoting resource-based industries. The sub-sector that might well grow rapidly is the oil and gas sector. In this regard there are parallel initiatives which are taking shape, such as the use of gas in the development of a power plant in Kimanis that will generate 300 megawatts, the Sabah oil and gas terminal in Kimanis, as well as another gas pipeline linking Kimanis and Bintulu. Along the way there is a proposal to have a urea plant in Sipitang, so that could serve as an anchor initiative that will drive the petro-chemical industry. There is also the possibility of engaging the oil and gas sector with the bio-based sector, for example in the development of biopolymers. So these are areas where we are looking ahead at. Overall, I would regard Sabah as a premium location for investors. I mean, you pay the price to get the right quality of product, and there is

a value proposition in Sabah. We like to promote Sabah as heaven for green industries, and we like to promote Sabah as a destination for business, culture and nature. FUNDING IS NO PROBLEM What are the prospects for foreign direct investment? I think at the moment our key concern is to get the entire infrastructure we have already planned in place as soon, and efficiently, as possible. Next, we need to ensure that we have the relevant human capital in place. As far as we are concerned, funding is not exactly an insurmountable issue right at the moment. The government has been very successful in raising funds, even the Sabah state government. We have raised 500 million ringgit denominated bonds recently; and IDB has been considering funding strategic projects in the economic corridors, such as human capital development, PPP projects and high technology projects. So in terms of funding even from the public sector, it’s not an issue. I also think our banking system is very resilient, with currently low interest rates — by historical standards, in Malaysia, they are quite low. Bank Negara has been very accommodating — they haven’t rushed to increase interest rates, although the direction is quite clear and they will probably have to increase, but rates are still benign compared with what they have been in the past. Having said all that, there have been a lot of enquiries from foreign parties. We went recently to Germany, Austria and France, and also South Korea. It looks like there might well be a lot of interest from all of these economies. In fact, the French responded quite beyond my expectations. France has never been aggressive as an investor in Malaysia, although they do have their presence. The British obviously are strongly present for historical reasons, but the interest from the French was surprising. I believe that Sabah, which has been outside the radar screen of mainstream investors in the past, is set to change. The well-targeted policies, programmes and investment promotions under the SDC, Economic Transformation Programme and the state’s Development Agenda — The Halatuju — are fast transforming the Sabah investment landscape. Furthermore, the close cooperation between the state and federal government, led by the probusiness Prime Minister, Datuk Seri Najib Tun Razak, and the business-savvy Chief Minister, Datuk Seri Panglima Musa Aman, has enhanced business confidence overall. Sabah is fast emerging as a preferred investment destination, especially for discerning investors who have discovered Sabah to possess a unique value proposition for business, culture and nature.

“

I think at

the moment our key concern is to get all the infrastructure we have already planned in place as soon, and efficiently, as possible. Next, we need to ensure that we have the relevant human capital in place

”

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JHUVARRI BIN MAJID SABAH LAND DEVELOPMENT BOARD Chief Executive Officer

Land has always been a part of my life. Coming from a family that owned a piece of land and planted crops to survive on for daily necessities, it comes as no surprise that I would one day venture into a career related to land. I had my early and secondary education in my hometown. In 1978 I pursued my education in Public Administration from UITM on a SLDB scholarship and continued to further develop myself and gained an MBA/BBA in Strategic Marketing from the University of Hull in the United Kingdom in 1999 as an external student. Upon graduation, I was offered various posts but I decided to enter into land development. When you are raised in soils, somehow you will come back to serve it. I have spent more than 30 years throughout my entire career at Sabah Land Development Board (SLDB). I started out as a management cadet in 1975 and I have served in all the main divisions in the organisation, such as human resources, accounts, marketing and operations. MOTIVATION

I have a very strong commitment to success. I define my job satisfaction as being able to see land being used productively, for crops to grow well on those lands and to be able to help the rural people to improve their daily life. I am also motivated to give something back to society and would like to see the Sabah people become more independent, progressive and successful as far as agriculture is concerned.

LESSONS IN BUSINESS

You need to be passionate and focused on things you are doing. But the main thing is to have honesty and integrity in delivering it — without that there is no point being in business.

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INternational investor: SLDB has a mission to transform the well being of the rural population of Sabah through land reform. How is that working today? JHUVARRI BIN MAJID: As far as the whole country is concerned, the level of poverty in Sabah is still on the high side and these people are scattered around the interior regions of Sabah. Our main focus is to develop land through agricultural projects, with the purpose of helping the rural and interior people’s wellbeing. We have a poverty eradication programme to resettle the landless people into allotted lands and these people are the main beneficiaries of our scheme. We will open a land for oil palm planting and the people will be made shareholders in the land, which in turn gives them a stake in it. Hopefully, with this process they can gain a certain economic status by being self-sufficient. Besides that, the high side of it will be that all the basic infrastructure, such as houses, schools, clinics, market places and community halls will be provided. This is a government-planned initiative called the Agropolitan Project which SLDB has been entrusted to implement. The first of at least three such Agropolitan Projects has taken off at Tongod, deep in Sabah’s interior. The two others will be at Tenom and Lingkabau, Beluran. The total land area allocated is almost 30,000 acres and these projects will benefit a total of 3,500 families. At the same time, we want to educate people to be involved with other agricultural types of activities that they are familiar with, such as cattle farming. Free financial aid is not the answer to eradicate poverty among the interior people. We want these people to become self-sustaining so that they can become independent and live on their own. Our role is to implement and develop the programme so that every individual will have their own slice of the cake, which in turn will contribute to the stability of the state and the country as a whole.

regional development interview

What progress have you made towards further land reform in Sabah? The potential for land development and modernisation in Sabah is tremendous. There is nearly two million hectares of land that is suitable for agricultural development, but only slightly over one million hectares is under cultivation at the moment. We are faced with quite a challenge. One of our main problems is infrastructure, as a lot of the land in Sabah is not readily accessible because of the poor road structure, no piped water and electricity. That hampers our ability to develop the land. Nevertheless, we are still making progress, albeit on an incremental basis. We have a total land bank of around 50,000 acres, which we intend to develop on a more gradual basis and we are hoping that the government will assist us so we can speed up the infrastructure that will serve these areas. working with local people Do you have to convince local people about the benefits of changing the way they use their land? Sabah is fortunate because we do not have that much subsistence cultivation, but the indigenous people tend to have small plots of land, which are very uneconomical to develop. It is a challenge for us to get to these people and change their way of thinking and to adapt to more viable methods of

farming. We want to encourage them to look into a more organised way of farming and plantation so they can obtain the maximum benefit from the land. A key issue, again, is infrastructure; we spend a lot of effort in planning where the government can most effectively build it, as it is very costly. As one of the key agencies, we have support from the wider government to build the basic infrastructure such as roads and so on, but the rest, such as schools and medical facilities, is up to us. We have to convince the local people about the benefits of all this. We have to respect the fact that their land is something which they hold dear, as it has been passed down from generation to generation, so it can be difficult for them to be uprooted from that area. We educate them to see the potential for developing land in a more organised way and the long-term benefits such as jobs and earning opportunities. Right now, we are trying to increase their interest in our development plan, which has been very successful and we do not have that much resistance. How have you gone about attracting private sector investment to your developments? We are interested in joint ventures with private investors. This is what we designate as PII (Private

“

The

potential for land development and modernisation in Sabah is tremendous. There is nearly two million hectares of land that is suitable for agricultural development, but only slightly over one million hectares is under cultivation at the moment

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interview regional development

“

We are the

largest producer of palm oil and cocoa in the country. Rather than just exporting the crude palm oil in bulk, we should get investors to look into downstream processing locally

”

Investment Initiative). We will provide the land, survey it properly and obtain all the necessary official documentation. The private company then provides the necessary funds to develop the land. The private investor takes a 70% stake in the venture, with us retaining the rest. This is for a single 30-year cycle of development, after which it is up for renewal for potentially another 30 years. How big is the investment opportunity in Sabah for this type of agricultural development? If we compare Sabah to the other states in Malaysia, we are the biggest producer of palm oil in the country. Palm oil gives the best return on investment, compared with other crops such as maize. We are also interested in cattle rearing. We are involved in designing a project that would cost about RM100 million and this would become the biggest producer of milk and dairy products as well as beef meat in the country. We are lucky in the fact that we are the only state in Malaysia which is free of foot and mouth disease. We are also looking at eco-tourism, as the tourism sector is an important revenue earner for the state. Sabah has great potential for tourism and agro parks can be one of the tourist attractions. People are attracted to fruit farms, herbariums and nature — all these would be the main things that would be offered in agro parks. We would look with great interest and welcome any private investment proposals, as we are involved in much more than just the basic land reform for agricultural purposes. What sorts of incentives are there for foreign investors? Investors are approaching us to talk about joint ventures for oil palm plantation. Basically for a new piece of land at the moment, you need to pay a premium for the title which costs about RM500 per acre. As an incentive to investors on the joint-venture with SLDB, they do not have to pay a premium for the land since we are developing government land and there is no land title required for the said lands. Apart from that, there are numerous other incentives provided by the state and federal governments as well. a changing landscape: sabah and the etp Sabah is an important development area under the government’s Economic Transformation Programme, and agriculture is designated as a National Key Economic Area. How does SLDB fit into this transformation programme? As far as the economic transformation of the country as a whole is concerned, one important thing to highlight is the situation of the Bumiputra. The majority of them are still not part of the mainstream of the economy and we feel we have a particular responsibility towards them. Our role

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as an agency is to get these people involved and engaged in one way or another with the oil palm plantation business. A lot of the plantations here in Sabah are run by big companies, therefore we would like to provide opportunities for the Bumiputra themselves to own a piece of the business. In fact the Prime Minister himself has stated that he is concerned that the income gap should not widen any further and that all the people should be brought together to be part of this economic transformation. We are very much involved in poverty eradication. Apart from ownership, we also provide Bumiputras and other interested groups with the opportunity to grow. I am one of those people who have made it up the ladder, albeit the hard way, but not every other one of my countrymen has had that opportunity. This is where we are playing a critical role; their eyes and hopes are on us. Give us some idea of where you see Sabah going in the near-to-medium term. The first thing to realise is that Sabah is one of those states that is quite far off from the mainstream economy, unlike Sarawak to a certain extent because Sarawak is blessed with many more natural resources such as oil and gas. We would like to bridge some of the disparity between all the states in the country. Now we are the largest producer of palm oil and cocoa in the country. Rather than just exporting the crude palm oil (CPO) in bulk, we should get investors to look into downstream processing locally. By this, it can benefit the state economy and it would also help to create job opportunities for the locals. Furthermore, Sabah is located right in the middle of the East Asian Growth Area (BIMP-EAGA), which is an economic development zone for Brunei, the Philippines, Malaysia and Indonesia. The countries involved in BIMP-EAGA can easily complement each other in terms of the economic development they want to implement. The Southern Philippines, Brunei, Sarawak, Kalimantan and Sabah are the new growth areas that the respective governments should seriously consider. For example, Brunei is very rich in revenues from oil and gas, but in the agriculture sector Brunei more or less relies on imports. However, it has an established halal brand, one of the best in the world that is saleable not only in the Middle East but also the rest of the world. We could leverage on that by developing a cattle farming industry and supply the live cattle for its halal hub. It could represent another source of income generation with a large potential. The over-arching point is that in this day and age all agencies, private companies and governments should be looking to leverage opportunities like this. If we all can look at things in such strategic terms, who knows what can be achieved? I like to think we have implemented some innovative thinking in Sabah and made a start.

regional development interview

JEBASINGAM ISSACE JOHN EAST COAST ECONOMIC REGION DEVELOPMENT COUNCIL Chief Executive Officer

I have been in the development business for more than 30 years, where I have worked at the state, federal and local levels. I was mainly involved in the planning and development of Putrajaya, Malaysia’s administrative capital. It was a big project and I was in it from the very inception ten years ago. I was also involved in the development of Langkawi and Kulim High Technology Park. I became the Chief Executive Officer of the East Coast Economic Region Development Council (ECERDC) in 2008 and have been in the job for four years now. In addition, I have also worked with Petronas, being entrusted with developing the Master Plan for the East Coast Economic Region (ECER). MOTIVATION

I want my work to have a direct impact on the people we serve. I want it to improve the conditions of the community, both social and economic. Without knowing that lives are being improved, I am not motivated.

LESSONS IN BUSINESS

Learn to manage your business prudently. Also, at the same time, learn how efficient networking and the gaining of information from all your stakeholders can enlarge your understanding of your business and move it forward.

INternational investor: Can you tell us about the ECER? In particular could you explain the reasoning behind the five industrial clusters that make it up? JEBASINGAM ISSACE JOHN: The East Coast Economic Region is a resource-rich region. We are blessed with significant resources in terms of oil, gas and associated petrochemicals, as well as land and agriculture. In addition, we have beautiful tourism resources that can play a major role in developing our economy. Based on these resources we want to optimise our development and for this reason, we have developed our five clusters: Oil, Gas & Petrochemical, Manufacturing, Tourism, Agriculture and Education. We decided that we must look at what our strengths are and try to capitalise on them in designing the clusters. ready for investment How is the region changing in terms of the physical infrastructure necessary to support these clusters? As far as the East Coast Economic Region is concerned I think significant infrastructure transformation is in progress, and has been for some time now. We spent most of the first two years of this process looking closely at what infrastructure we would need in order to achieve our goals — in other words, laying the groundwork. We put a huge amount of effort into making our region as viable for direct investment as possible. So far, the government has put nearly 2 billion ringgit of infrastructure investment in place. Now that the infrastructure is in place, the ECER is open for business. When I say open for business, I mean we are ready to welcome investors. We have also put in place significant Human Capital Development Programmes into the East Coast to prepare ourselves for receiving the new investments into the region.

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“

So far, the

government has put in nearly two billion ringgit of infrastructure investment in place. Now the infrastructure is in place, the ECER is open for business

”

What would you say are the iconic or significant projects currently in development in the region? Our Polymer Cluster is a significant cluster for us. Hi-tech industries such as these can only become increasingly important in the years to come, and we aim to be at the forefront of the whole development. Of course, the main thrust of Malaysia’s economic development project out to 2020 is to get these hi-tech industries really moving in the country, so something like our Polymer Cluster is extremely important for us. One of the major investments in that area that we have coming on-stream is CJ Arkema, a South Korean and French collaboration. The investment is a big boost to the development of the ECER, having these two giant global players invest nearly 2 billion ringgit into the region. The other area I would point out is the Automotive Cluster in Pekan, Pahang. That industry is very important for us and we already have international brands here such as Mercedes, Suzuki and Isuzu. The latest major corporation which is about to locate its operations here is Volkswagen. I think it is a great achievement for us that we have been able to attract these global players to the region. Why have they chosen the East Coast? There must be plenty of competition for them to choose from. It is location, location, location. The East Coast is an increasingly important regional location for international business. Our strategic location is the most significant aspect about us as a region. We face the Asia Pacific, which is an enormously important market of four billion people. No investor, whether regional or international, can afford to ignore the huge potential here. With the positioning of our

Our strategic location is the most

significant aspect about us as a region. We face the Asia Pacific, which is an enormously important market of four billion people. No investor can afford to ignore the huge potential here Kuantan Port, we are a very convenient gateway for exports not only to Asia but the entire Asia Pacific region. Then there is the fact that the cost of doing business here is highly competitive, and we also offer an attractive package of incentives as well for our investors. We have attracted some significant Chinese investors who see this value. For example, in December we had the ground-breaking for the steel manufacturing plant, Eastern Steel, which is a joint

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venture between a Malaysian company and China Shougang Group, a major steel manufacturing company in China. The ground-breaking for the factory took place in December 2011 and the whole investment will be worth around 1.8 billion ringgit. There are also some other reasons why foreign companies would choose to locate here. One is intellectual property law, which is very strong in Malaysia. European and American investors are particularly attracted by this aspect of our legal environment. We also have an attractive package of incentives on offer for overseas investors, including some significant tax breaks. Many East Coast investors will be eligible for a ten-year tax break from the year they make a profit, for example. Another key incentive is land. We have what we call a ‘plug-and-play’ concept, where we provide land with well-developed infrastructure, so an investor can just come and ‘plug in’ and build up his facility without too much fuss. branding malaysia for global investors Can you tell us about the types of investors you are looking for, and where they will come from? At the moment our main investor markets are the Middle East, China, India, Korea and Japan. That is where we see the best synergy and interest, but that does not preclude Europe and the US. We need to increasingly promote these projects and programmes and the opportunities that are available here to the widest audience possible. When an investor comes from Europe to invest in the ECER it is not just the Asian market they are looking at, it is the entire Asia Pacific market, so once you locate your business here that is where your market is. We need to brand Malaysia as a great investment location because so many western investors don’t automatically think of the country as a prime investment location. If we can explain the benefits, I think we will gain much higher levels of investment that we already have. You have outlined some of the key physical and economic aspects of investing in the East Coast region. What about human capital? Many CEOs tend to be concerned about that issue. If you are an investor, make a commitment to come and invest in ECER today, and we will work with you to identify what your human capital needs are. By the time you are ready for operations, we will be able to identify the manpower that will be needed to develop your industry and, more importantly, work hard to train them. Like the rest of Malaysia, we are intensely focused on the need to develop our people to the highest standards. All state bodies must look into doing this in collaboration with private industry, though, so that the real needs can be met.

regional development interview

ISMAIL IBRAHIM ISKANDAR REGIONAL DEVELOPMENT AUTHORITY (IRDA) Chief Executive

I was educated at the Malay College in Kuala Kangsar, Perak, and then went to the UK to take a degree in town planning at Heriot-Watt University in Edinburgh, Scotland. I returned to Malaysia in 1983 and served as a town planning officer with the Federal Department of Town and Country Planning, under the Ministry of Housing and Local Government. After gaining some experience, I did my master’s degree in planning law at the University of Newcastle, UK, in 1989. Upon returning to Malaysia, I was appointed Director of Penang State Town and Country Planning Department, and also made Secretary to the Penang State Planning Committee. In 2006 I was seconded to Khazanah Nasional Berhad as the Senior Vice President of Special Projects to oversee the planning of the South Johor Economic Region, the initial name for Iskandar Malaysia. When the Iskandar Regional Development Authority (IRDA) was created, I was made the first Federal Commissioner of the authority. I returned to the Ministry in 2009, but before the year ended, I was asked to become the Chief Executive of IRDA. I was fortunate to be part of the team that formulated the idea of a special development corridor in the Iskandar Malaysia region. It took a lot of hard work and dedication, but we made it a success and it serves as a model for the other four development corridors. MOTIVATION

I am motivated by the challenges of the role and the project I am in charge of. The key is in being responsible in getting the work done and making a difference to the wider society. I admit that I am also a competitive person, and I like to be three or four steps ahead of everybody else so I that can get a good overview of things.

LESSONS IN BUSINESS

You need to get a grip on two related things. One, you must understand the culture of the person, or people, you are dealing with, so that you can get the best out of them. Two, you need to understand their business culture, the way they do business. Only then will you be able to understand each other and be able to work in a way acceptable to both of you.

INternational investor: How would you best describe IRDA today and the role it undertakes? ISMAIL IBRAHIM: From a geographical standpoint, the development area covers a region of about 2,217 square kilometres, situated at the southern tip of the Malaysian peninsular — although it is slightly misleading to say ‘tip’ since it covers a fairly large piece of land. It is about three times the size of Singapore (which, of course, is just across the water to the south). So we are not short of land to carry out our development plans. The idea is for IRDA to play the role of the motivating force which drives the region’s economic development and realises its potential, which I believe is huge. Its geographical location alone gives it huge potential. Of course, the region has always been growing, at its own pace. No one had really looked deeply into how it could be better guided to realise its potential. This is where IRDA comes in. Thus, around 2005/2006, Khazanah Nasional was tasked to take a hard look at this region and see what could be done about it. In the latter part of 2006, Khazanah came up with several recommendations, one of which was to create the Iskandar Regional Development Authority (IRDA) as the body that would be responsible in driving the economic growth of this region. IRDA was created by an act of Parliament with the task of regulating and driving the various stakeholders, both in public and private sectors, towards our vision of developing Iskandar Malaysia into a strong and sustainable metropolis of international standing. Khazanah also recommended that in order to direct the economic growth of the area properly, we must have a really clear plan — a blueprint — that could be shared and used by all the stakeholders in the project. This led to the creation of a document outlining what we termed as ‘catalyst projects’. These comprise the basic infrastructure and economic drivers that would help kick-start the economic growth and attract investors to Iskandar Malaysia.

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interview regional development

“

The idea is

for IRDA to play the role of the motivating force which drives the region’s economic development and realises its potential, which I believe is huge

”

regional transformation Could you tell us more about the five ‘flagship zones’, and what industries you are looking at developing in the zones? We have identified five zones in the Iskandar Malaysia region — they are designated A to E — which have existing businesses and industries within them. We believe it is sensible for us to concentrate on strengthening what the zones already have to offer, rather than artificially imposing things on them. At the same time we want to help diversify the economic activities where appropriate. The five zones gave us a good framework to develop the blueprint. Before selecting the zones, we conducted a thorough study. First, we needed to know what were the strengths and weaknesses of the various towns and areas. We did an in-depth review of the existing economic drivers in the area and whether it would be viable for us to carry out the transformational exercise we had in mind for that locality. After we had identified and determined the zones that have both the required economic potential — plus either the correct infrastructure or the ability to have the infrastructure in place without too much trouble — we announced the five flagship areas. We found that each of these flagship zones has its own strengths that could be harnessed and developed to support the creation of a business cluster around the zone. We didn’t decide from the beginning that we wanted to have five flagship zones; it is just that these five areas presented themselves as natural candidates. A common planning process would be to decide upfront upon a certain number of development areas — we want an airport, two seaports, a hotel complex and so on — and then look at how to shoehorn these developments into the chosen area. We wanted to be more organic and work with what is already showing potential in a particular area. What is most exciting about the development in Iskandar at the moment? If you had been in Iskandar five years ago and then made it a point to visit the region every six months, you would have witnessed a sea-change in the way business is being done. The region has palpably grown from being a ‘laid back’ place in which business was a day-to-day sort of thing, to being a place where there is a real sense of vibrancy and expectations. This has been the result of very clear direction and planning which we had initiated earlier. It is working well. How do you fit into the government’s Economic Transformation Programme? The development plan for Iskandar Malaysia covers the period 2006 to 2025. It is deliberately designed to span 20 years in duration, so that it can take into account the 2020 deadline the government has set for the first stage of the ETP. We are very much aware of the ETP and determined to do all we can to

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help achieve its goals. Clearly, creating clusters and economic development regions like IRDA is important if we want to accelerate the economy into being more hi-tech, more international and more productive. big steps forward What stage is the project at so far? We are at a point now where the first phase of the development is coming to an end and is, effectively, overlapping with the second phase. The completion of Phase One means that you will see two things happen. First, you will see the completion and delivery of the required infrastructure projects: the roads, the river cleaning, the flood mitigation, some elements of public transport for improved movement of goods, public housing and an improvement of communication utilities and connectivity across the zones. That is the government’s contribution in creating the right environment for investment and lifestyle. This stage is absolutely essential. If the infrastructure is not up and running in a reasonable time-frame, the whole project could look as though it is not viable. I am extremely pleased because, in general, we have managed to put everything in place and on time. Second, because Iskandar Malaysia is essentially going to be a private-sector-driven initiative, we will also be witnessing some of the catalyst projects coming to completion quite soon and starting up their business activities. When we mesh these two things together — the infrastructure and the start-ups — we will see even more acceleration in the development of the whole project. We will be able to see the lifestyle and the quality of life aspects of Iskandar Malaysia starting to take shape. We hope this will spur further interest in the developments and will attract more people and businesses to the area. Can you tell us about the second phase? The second phase will be more exciting and more challenging. We hope and expect that the catalyst projects will attract increasingly larger numbers of visitors to the region and that they can see for themselves what it has to offer. Just to share with you some projections, we are now expecting an influx of between four to six million visitors to Iskandar Malaysia in a typical year. You can imagine what impact that level of footfall will have on the levels of food consumption, hotel room accommodation, transportation and everything else that goes with high visitor rates. It will be a major stimulus to the economy of the area. However, we also expect those visitors to be the sorts of decision makers who can help us to move the whole project on to the next stages of really building a solid and vibrant economy. Of course, we hope that the government continues to support us in the way it has so far. The state and the private sector working together is the best way for a project like this to make a real difference.

regional development interview

REDZA RAFIQ NORTHERN CORRIDOR IMPLEMENTATION AUTHORITY Chief Executive

I was appointed as the Chief Executive of the Northern Corridor Implementation Authority (NCIA) on 1 January 2010. The NCIA is the body responsible for strategic socio-economic development of the Northern Corridor Economic Region (NCER), which encompasses the states of Kedah, Perak, Perlis and Pulau Pinang. Prior to this appointment, I was involved in the development of MSC Malaysia, the national ICT initiative, for 12 years. I was appointed as the Chief Executive of Cyberview Sdn Bhd, the company that owns Cyberjaya in 2004; and I was with the Multimedia Development Corporation (MDeC) prior to my secondment to Cyberview. I started my career at the Renong Group of companies under the Renong Group Management Office and was exposed to various corporate work. I am currently a member of the Perak State Economic Council, and also sit on the boards of Penang Port Sdn Bhd, Malaysia Venture Capital Management Berhad and also serve as the Deputy President of the Malaysian Institute of Corporate Governance. MOTIVATION

I am basically motivated by the work we do here: how to get the region moving economically, how we can generate economic growth through private sector participation, as well as how we go about structuring business models to ensure optimal socioeconomic spillover to the people of the region.

LESSONS IN BUSINESS

There are two lessons that I have learnt over the years. Firstly, the bottom line is always the most important factor. Secondly, never make a promise unless you intend to keep it.

INternational investor: How would you best describe the work the NCIA does today? REDZA RAFIQ: Our basic function is to drive private sector participation in the NCER. The region is unique in the sense that it is ‘brownfield’ in nature. It is not ‘greenfield’, which is about having to put a lot of basic infrastructure in place, such as roads and so on. All the big ticket items — such as the North/South expressway, the double-tracking project and the expansion of the Penang Bridge, the development of the second Penang Bridge, the upgrading of the airport — are either already built or are in the process of being built. So our task is not to work from that ground level. Our task is to see how we can best optimise the economic benefits and spillover that arise from the existence of those big-ticket items; and how we can leverage on what is already in place so as to make the area attractive for the private sector. That means big companies — such as Singapore Aerospace’s subsidiary Aviatron Malaysia, Singapore Aviation Manufacturing (SAM) or Honeywell Aerospace, both of which came in with big investments — or smaller, local investors whom we hope can benefit from such economic endeavours. We have worked with SAM and Aviatron to ensure the involvement of local companies in their new endeavours in the NCER, so that they are able to generate a sustainable business model for these vendors, some of which are SMEs. Our efforts to date have already created an aerospace cluster in the NCER; and now it is important that we leverage on the value that these companies bring to the region to generate jobs and business opportunities. Is your goal to become a predominantly hi-tech business area? Yes, hi-tech, but also high value. The Malaysian economy as a whole has to move up the value chain and away from being a basic low-value assembler or raw-materials supplier. A good example is a

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interview regional development

“

We have

seen 40 years of evolution, of delivering precision products and services to multinationals. That has created a culture of business excellence in the NCER

”

company called Flora Bee Hive (FBH), which is a big producer of honey and royal jelly in China and the north of Thailand. In Malaysia, FBH is concentrating on the production of royal jelly, which is a highvalue product. FBH is creating agro-entrepreneurs as well and will eventually have 200 in Perak, 200 in Penang and 200 in Kedah and Perlis. There are spin-offs from the system too. For instance, if an entrepreneur discovers that they can actually build hive boxes for the bees in a more economic manner, as opposed to what can be done by FBH, the company will say, ‘Go ahead and do it’ — because the end game that FBH is interested in is the collection of royal jelly (as opposed to merely selling systems or equipment). Those are the dynamics that we want to produce, since at the end of the day it is about the creation of jobs and business opportunities in the region. A MIXED ECONOMIC BASE IS VITAL What are the key industrial sectors you are looking to develop within the NCER? The key thrust areas that we hope to move to the next level are agriculture, manufacturing, tourism and logistics. These came about as a result of a study that was done when the NCER blueprint was created. They were felt to be the most suitable and viable business areas. More specifically, the heart of the electronics industry in Malaysia is in the NCER. We have seen 40 years of evolution, of delivering precision products and services to multinationals. That has created a culture of business excellence in the NCER. It has also created a set of baseline skills that have allowed new industries to come in, such as medical devices, solid-state lighting, LED, automotive engineering and solar power. High-end technology is hugely important to us. At the same time, though, agriculture is important to the region because no other sector can match it in terms of outreach to the mass population. So despite the fact that we have the high-yield sector of electronics, we also need agriculture. However, if you look at how things have developed, even agriculture has been cross-fertilised by the hitech sector, and has adopted more technologically sophisticated processes. How is the region different from similar ones? I think the culture. That is the X factor for the NCER. We have had 40 years of evolution for business culture in the region, and 40 years of evolution in the delivery of precision products and precision services. That has embedded certain attitudes and mind-sets among the people working here. It has also engendered a lot of flexibility. Everyone involved knows that businesses change, and so you have to be prepared to change with them. The baseline skills, the mind-set and the flexibility are all in-built into our DNA.

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What is your view of the Economic Transformation Programme? What is NCER’s role in it? We are very heavily involved in the E&E sector. In fact, the term National Key Economic Area (NKEA) was developed by us. I sit on the steering committee of the NKEA for E&E, which gives you an idea of how involved we have been in the development of the programme and the goals it has identified. We are also involved in developing the programmes for agriculture and tourism. Tell us about the challenges facing the NCER? How far afield do you look for potential investors in the region? Competitiveness is always a challenge, but we think we are a good position to maintain it in the NCER. If you just maintain the status quo, you always lose out in the long run. However, as I said before, our businesses are flexible and ready to move when the time demands it. We are also constantly moving up the value chain, which also contributes to our flexibility. I have been to the US, to California, and to a number of countries in Europe to take our message out. We want companies from everywhere in the world to look to our region as a viable location for them to invest. What I say to them is, if you are in the private sector overseas and you are looking for an area to do business, where the level of expertise and the experience in delivering precision products and precision services are in abundance, come to the Northern Corridor Economic Region. The Collaborative Engagement Charter that the Northern Corridor Implementation Authority (NCIA) has will make sure that we hand-hold you through the process of preinvestment, investment and post-investment. Could you tell us a little more about the Collaborative Engagement Charter? How long has this been in existence? It has been in existence since 2010. It is basically about taking your stakeholder with you, making the whole process of investment as smooth as possible for them. Let’s put it this way: the local authorities, the financiers and so on are all stakeholders for a particular endeavour or initiative. When we get them on the same platform early on, and engage them continuously throughout, you will be surprised at the level of buy-in and what it can achieve. Therein lies what I call the Collaborative Engagement Charter, because we work with all these parties to gel them together and to identify their requirements, to make sure that we deliver industryrelevant products and services, and industry-relevant human capital. We want the NCER to be a place where all stakeholders can work as productively as possible for themselves, but also form a coherent whole which is mutually self-supporting.

banking & finance

overview banking & finance

Great expectations As part of Malaysia’s focused aspirations to become a high-income economy by 2020, the BFSI sector is set to benefit and grow strongly over the coming years — and plans include stand-out elements such as becoming the world’s leading Islamic finance hub

BACKGROUND AND INTRODUCTION The banking, financial services and insurance (BFSI) sector is a critical pillar of any economy. Malaysia had a robust GDP growth of 7.2% over the years 2006-2010. Continued high growth, coupled with the Financial Services National Key Economic Area (NKEA) that is targeted to raise the total Gross National Income (GNI) contribution by RM121.5 billion by 2020, means the BFSI sector is poised for a strong growth trajectory in the years to 2015. In tandem with this GDP growth and increased awareness of the availability of ready-to-invest projects due to the Economic Transformation Programme (ETP), Malaysia has witnessed a strong growth in the areas of FDIs; equity capital markets and gains in the Malaysian currency. International Investor together with our Knowledge Partner, Frost & Sullivan believes that the BFSI sector has the potential to achieve strong expansionary growth during this period. While the economy is on a growth trajectory, inflation continues to be one of the chief concerns. Food prices coupled with rising demand in wages have been the reasons behind inflationary conditions in the country. The universal panacea to rising inflation has been higher interest rates. However, given the current economic situation, increasing interest rates is likely to result in increased capital inflows which may add to the existing inflationary pressures. To counter this, the government is undertaking efforts to rationalise subsidies while Bank Negara Malaysia is taking preemptive measures to control risks associated with the tightening of monetary policy. Fig. 1 depicts the rates of inflation over the years 2001 to 2015. High inflation also resulted in a sharp depreciation of the US dollar against the ringgit. Other reasons for an appreciating ringgit include significantly high capital inflows, Asia’s buoyant economic conditions in comparison with the developed economies and increased liberalisation in foreign exchange administration rules.

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banking & finance overview

Additionally, Bank Negara Malaysia’s release of better-than-expected GDP growth rate numbers for the fourth quarter also contributed to the appreciation in the domestic currency. Fig. 2 depicts the rates of currency movement over the years 2001-2011. The flip-side to an appreciating currency is that it results in less competitive exports and dearer imports, potentially leading to a fiscal imbalance. Fiscal consolidation has been another key trend in Malaysia which was evinced by a marked improvement in the government balance-toGDP ratio. Boosting revenues and reducing the operating expenditure were considered key to achieving fiscal consolidation. Malaysia has survived the global financial crisis due to its robust financial system, as was evidenced by high loan quality, low risk profile, large international reserves, strong capitalisation, low external debt and a significant current account surplus. These factors have resulted in a healthy liquidity in the Malaysian banking sector. For the purpose of this article, Banking, Financial Services and Insurance will include the following: ■ Banks: this category includes commercial banks and thrifts & mortgages. ■ Financial Services: this will broadly include capital markets, consumer finance and diversified financial services. Capital markets are further divided into asset management and custody banks, diversified capital markets and investment banking and brokerage services. ■ Insurance: this segment consists of insurance brokers and companies that provide life and health insurance, multi-line insurance, property and casual insurance and reinsurance. ECONOMIC TRANSFORMATION PROGRAMME: AN INTRODUCTION In the financial services arena, the Malaysian government has identified four strategic thrust

areas, sub-classified as ten entry-point projects (EPPs), to grow incremental Gross National Income by RM28.8 billion by 2020. The incremental GNI contribution and jobs created by EPP in 2020 are highlighted in brackets. The four major thrust areas and allied EPPs include the following: Strengthen the core: ensure the vibrancy and health of financial services to support the needs of businesses and consumers. ■ EPP 1: Revitalising Malaysia’s capital markets (RM3.33 billion, 8,598 jobs) ■ EPP 2: Deepening and broadening bond markets (RM180 million, 1,429 jobs) ■ EPP 3: Transforming or rationalising developmental finance institutions (DFIs) (RM1.79 billion) ■ EPP 4: Creating an integrated payment ecosystem (RM2.65 billion, 7,765 jobs) Serve the needs of a high-income population: developing financial institutions’ products and service portfolios to cater to the changing needs of citizens and residents as Malaysia transitions towards a higher income status. ■ EPP 5: Insuring most, if not all, of our population (RM1.54 billion, 8,659 jobs) ■ EPP 6: Accelerating the growth of the private pension industry (RM2.06 billion, 2,208 jobs) ■ EPP 7: Spurring the growth of the nascent wealth management industry (RM2.10 billion, 6,147 jobs) Develop new growth sectors: nurture new sectors for growth. ■ EPP 8: Accelerating and sustaining a significant asset management industry (RM2.40 billion, 7,430 jobs) Go on the offensive: in markets of strength, encourage the financial institutions to go on the offensive and tap external markets for their sustained growth. ■ EPP 9: Developing regional bank champions (RM5.57 billion, negative 8,524 jobs) ■ EPP 10: Becoming the indisputable global hub for Islamic finance (RM7.24 billion, 11,644 jobs)

Malaysia has survived the global financial crisis due to its robust financial system, as was evidenced by high loan quality, low risk profile, large international reserves, strong capitalisation, low external debt and a significant current account surplus

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overview banking & finance

FINANCIAL SERVICES The financial stocks are boosted by positive investor sentiment and have outperformed the KLSE stock index since May 2009. There is also an encouraging environment for corporate debt financing against the backdrop of a flat benchmark yield curve and growing inflation. This makes it very attractive for the financial services firms. The Impact of ETP on Capital Markets: Malaysia aims to have a vibrant, liquid capital market which

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1. INFLATION OVER THE YEARS 2001 TO 2015

5. M&A ACTIVITY FRO

cost-push inflation, as 1. 5.5 INFLATION OVER THE YEARS 2001 Mainly TO 2015

40 M&A ACTIVITY FRO 5.

food and fuel items accounted for almost 60% of inflation, the price rise Mainly cost-push as

(e)2015 (e)2015

(e)2014 (e)2014

(e)2013 (e)2013

(e)2012 (e)2012

2010 2010

(e)2011 (e)2011

2009 2009

2008 2008

2007 2007

2006 2006

2005 2005

2004 2004

2003 2003

2002 2002

food and fuel items accounted for almost 60% of the price rise

2001 2001

Inflation Inflation (%) (%)

5.0 4.5 5.5 4.0 5.0 3.5 4.5 3.0 4.0 2.5 3.5 2.0 3.0 1.5 2.5 1.0 2.0 0.5 1.5 1.0 0.5

(e) Estimate

Source: Frost & Sullivan based on IMF data

2.CURRENCY MOVEMENT OVER THE YEARS 2001-2011

40 50 30 40

0 10

Ringgit is flat against the USD as it was pegged against the benchmark currency

Jul-11Jul-11

Jan-11 Jan-11

Jul-10Jul-10

Jul-09Jul-09

Jan-10 Jan-10

Jan-09 Jan-09

Jul-08Jul-08

0 Jan-08 Jan-08

Jul-07Jul-07

Jan-07 Jan-07

Jul-06Jul-06

Jan-06 Jan-06

Jul-05Jul-05

Jan-05 Jan-05

Jul-04Jul-04

Jan-04 Jan-04

Jul-03Jul-03

Jul-02Jul-02

Ringgit is flat against the USD as it was pegged against the benchmark currency

Jan-03 Jan-03

Jul-01Jul-01

174

2001 2002 2003 200 76 53 30

Transaction Volume 2001 2002 2003 200 Average Transaction Transaction Volume Average Transaction

6. PUBLIC OFFERINGS

20 30 10 20

Jan-02 Jan-02

USD/MYR USD/MYR

50 PUBLIC OFFERINGS 6.

3.9 2.CURRENCY MOVEMENT OVER THE YEARS 2001-2011 3.8 3.7 3.9 3.6 3.8 3.5 3.7 3.4 3.6 3.3 3.5 3.2 3.4 3.1 3.3 3.0 3.2 2.9 3.1 3.0 2.9

35 40 30 35 25 30 20 25 15 20 10 15 5 10 0 5 0

Source: Frost & Sullivan based on IMF data

(e) Estimate

Source: Frost & Sullivan based on IMF data Source: Frost & Sullivan based on IMF data

4. MARGIN ANALYSIS BY SECTORS FROM 2007 TILL JUNE 2011 4. MARGIN ANALYSIS BY SECTORS FROM 2007 TILL JUNE 2011 100

ATTACK Strategies 100 80 ■ Revitalising

Malaysia’s capital markets and broadening bond markets 60 40 ■ Transforming or rationalising developmental finance 20 40 institutions (DFIs) ■ Becoming the indisputable global hub for Islamic 20 0 LTM Gross LTM EBITDA LTM EBIT LTM Net Income finance Margin (%) Margin (%) Margin (%) Margin (%) 0

Margins Margins (%) (%)

Malaysia aspires to having its banks among the top three banks of the ASEAN in terms of market capitalisation by 2020

CURRENT STATE OF BFSI BANKS There was a significant demand for financing and this was reflected by the faster growth of borrowings than deposits. The cost of borrowing pegged at 5.1% as at February 2011 continues to be supportive of economic activity and is below pre-crisis levels of 6.1% in 2008. The interest rate spread declined over the period 2006-2010 and going forward, it might further decline given the growing competition in the banking sector. The loans lent for residential property purchases and passenger cars accounted for 70% of the total loan portfolio. Though the growing household debt to GDP ratio necessitated corrective macro-economic steps, the short term outlook is expected to witness a marginal decline in this ratio compared to 2010. This decline is due to pre-emptive measures of the Central bank and higher non-performing loans to total loans of 3.8% in H1 2011 compared to 3.7% in 2010. The ‘loan-to-value’ cap of 70% for the third and subsequent house purchases is expected to mitigate speculative purchases. Another case in point is the transitioning of the Islamic finance market from infancy to growth stages, which augurs well for the wealth management services of the banks. The Impact of ETP on Banks: Malaysia aspires to having its banks among the top three banks of the ASEAN in terms of market capitalisation by 2020 by adopting the following strategies: ■ Prudent international expansion of regional banks ■ Expanding horizons beyond ASEAN Private funding of RM26.4 billion is anticipated. The Impact of ETP on Islamic finance: Malaysia harbours ambitions to be the indisputable global hub for Islamic finance by: ■ Codifying and standardising Sharia guidelines for contracts ■ Driving global convergence and mutual recognition of Islamic standards ■ Becoming a centre of excellence for Islamic finance research, development and education ■ Expanding Islamic banking to priority markets ■ Developing Islamic fund management ■ Expanding Takaful products overseas and restrengthening Malaysia’s re-Takaful capacity These activities necessitate private funding of RM35.6 billion.

60 80

■ Deepening

LTM Gross Margin (%)

LTM EBITDA Margin (%)

LTM EBIT

LTM Net Income

Margin (%) Margin (%) Types of Margins REINFORCE Strategies Malaysia Banks Diversified Financial Insurance Types of Margins ■ Spurring the growth of the nascent wealth Source: Frost & Sullivan and Capital IQ Malaysia Banks Diversified Financial Insurance

management industry Source: Frost & Sullivan and Capital IQ ■ Implement market-friendly positive action programmes targeting the bottom of the pyramid, which comprises 40% of households

DEVELOP Strategies ■ Creating

an integrated payment ecosystem

■ Reduce operating expenditure and increase revenues

to achieve the goal of fiscal consolidation ■ Reduce brain-drain by attracting, developing and retaining talent

AVOID Strategies ■ Economic model to gradually reduce reliance on export machinery ■ Avoid regional concentration of asset management industry

543 543

267 106 267

2004

2005

106 2006

2004

2005

2006

Total Public Offering Average Public Offe Total Public Offering Average Public Offe

banking & finance overview

Strengths

weaknesses

■ Improvement

■ High

in domestic demand ■ Strong debt markets, robust capital position of banks ■ Asian hub in Islamic banking ■ Strong financing demand consistent with economic expansion

levels of income inequality stunting growth risk-averse investor base ■ Lack of competitive product portfolio in wealth management ■ Lack of scale ■ Narrow,

opportunities ■ Untapped

FDI potential

■ Innovative delivery mechanism of financial services ■ Structural reform programme towards making Malaysia a high-income country ■ Migration of money lending business to conventional or Islamic banking

attracts quality listings and investors and wants to grow from the 2010 market capitalisation of RM1.0 trillion at a CAGR of 15% to RM3.9 trillion by 2020. To that effect, the following actions may be taken: ■ Offload stakes in government-linked companies (GLC) ■ Improve breadth and depth of product offerings — REITs, ETFs, diversify commodity derivatives ■ Increase volatility in markets ■ Accelerate liberalisation of stockbroking to create efficiencies and generate better returns ■ Integrate with leading exchanges ■ Improve Bursa’s IT infrastructure and training and upgrading human capital The above action items require private sector investment/funding of RM862.7 million. The Impact of ETP on the Bond Market: Malaysia’s vision of developing a deep, broad and liquid bond market envisages outstanding private debt securities (PDS) to develop from RM270 billion in 2010 to RM880 billion in 2020. The yearly average trading value is expected to grow at 23% CAGR during 2010-2020. The following action items are proposed: ■ Broaden the credit spectrum of the bond market ■ Create incentives for foreign issuers and investors and increase retail participation. The above action items require private sector contributions of RM43.74 million. The Impact of ETP on Pension Management: Aligning pension systems with demographic and socioeconomic changes eases fiscal pressures and hence pension reforms include a private pension scheme. Malaysia envisions the private pension industry to include 2.7 million participants worth RM73 billion by: ■ Developing private pensions, supplementing public pensions ■ Inducing quick ramp-up to achieve private pension critical mass ■ Financial education plan for public Impact on Wealth Management: Malaysia

threats ■ Weaker

than expected global recovery strengthening of inflationary conditions ■ Potential weakness in fiscal consolidation ■ Further

envisages the following steps to attract offshore Malaysian wealth and draw foreign wealth and grow the Assets Under Management (AUM) from RM17 billion in 2010 to RM350 billion by 2020 by: ■ Increasing diversity of products ■ Promoting Islamic wealth management ■ Inviting top wealth management institutions These efforts are expected to require a private contribution of RM495.5 million. Impact on Asset Management: The ETP aims to position Malaysia as the regional asset management hub by 2020 and improve the size of AUM by six times to RM1,700 billion through the following initiatives: ■ Increase GLC mandate to external fund managers ■ Stimulate the retail market ■ Create a niche for Islamic Asset Management Further, it is expected that this will result in a private funding opportunity to the tune of RM679.7 million. INSURANCE Per capita insurance premiums on life insurance and general insurance presented an upward trend. Life insurance per capita improved from RM695 in 2007 to RM771 in 2010 and general insurance improved from RM369 in 2007 to RM444 in 2010. This corresponds with a premium income of RM31.9 billion in 2010 compared to RM27.1 billion in 2007, translating to growth of 5.6% CAGR. In comparison, the benefits payments reported a faster growth of 9.7% over 2007-2010 and recorded RM18.8 billion, resulting in a claims ratio of 59%. The capital adequacy ratio for the insurance industry was 226% in 2010. However, at 2.8% of GDP, life insurance penetration in Malaysia is still low relative to other developed nations such as Singapore and Japan. This can mainly be attributed to a lack of disposable income among low-income earners that is preventing them from taking out insurance coverage. The Impact of ETP on Insurance: By 2020, Malaysia aspires to have the penetration of life insurance at a level of 4% of GDP by:

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overview banking & finance

3. Market Size and Concentration by Sector Revenues Particulars Market Revenues Top 3 Companies Top 5 Companies Top 10 Companies

High levels of capitalisation and asset quality indicated the robustness in the banking sector

(RM million) (RM million) (RM million)

(RM million)

Commercial Banks 56,165 32,273 39,754 Diversified Financial Services 12,749 10,512 11,874 Consumer Finance 2,663 2,195 2,663 Capital Markets 3,549 1,754 2,371 Insurance 13,920 6,728 9,667 Total Market Size 89,046 53,462 66,330

49,629 12,720 N/A 3,293 13,149 78,790

Concentration of Companies (%) Top 3 Top 5 Commercial Banks 57 71 Diversified Financial Services 82 93 Consumer Finance 82 100 Capital Markets 49 67 Insurance 48 69 Total Concentration 60 74

Top 10 88 100 93 94 88

*N/A: Not Applicable

Launching employee insurance schemes Introducing separate tax relief for insurance and EPF Of RM68 million committed until 2020, the private sector may contribute 65%.

■ ■

MARKET SIZE OF SECTORS The three major sub-sectors included in the BFSI sector are banks, diversified financials and insurance. Banks can be subdivided into diversified banks and regional banks. Diversified financials can be classified as capital markets, consumer finance and diversified financial services. The insurance sector is grouped into multi-line insurance, property and casualty insurance, life and health insurance, reinsurance and insurance brokers. Of the Malaysian BFSI market size of RM89.04 billion, banks occupied a 63% share translating to RM56.16 billion. Diversified financials accounted for 21% of the BFSI market while insurance captured the remaining 16%. CONCENTRATION INDEX BY SECTORS As banks have the highest share in the overall BFSI market, the overall concentration trends mirror the banking sector. However, capital markets and insurance appear to be least concentrated (see fig. 3). FINANCIAL PERFORMANCE BY SECTORS Fig. 4 depicts the margin analysis by sectors from 2007 until June 2011. BANKS The banking industry’s profitability improved in 2010 compared to 2009 as the appetite for private

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Source: Frost & Sullivan, based on industry sources

funding improved. High levels of capitalisation (indicated by growing net loans to deposits) and asset quality (stable non-performing loans to total assets) indicated the robustness in the banking sector and the fixed charges coverage was heading downwards towards historical figures in 2011, signalling confidence in the banking sector. FINANCIAL SERVICES Financial services, comprising the capital markets, consumer finance and diversified financial services, have registered significant improvement in profitability metrics (return on assets, return of equity, and return on capital and margins). The financial services industry is deleveraging to stabilise and improve the interest coverage ratio. The working capital management is comfortable as denoted by the stable current ratio. It is further expected that companies are expected to increase their efficiencies to improve their fixed assets turnover. INSURANCE Historically, the insurance sector witnessed significant volatility in profitability and hence the trading multiples were among the lowest in the BFSI industry. This was a key factor that drove consolidation in the industry. Insurance companies in Malaysia were also deleveraging in 2010 to maintain coverage ratios and hence the long term solvency ratios depicted an upward trend. With the rising per capita expenditure on insurance, growing Takaful contributions to life insurance and recovery of the equity markets resulting in increased value of insurance fund assets, profitability is expected to improve.

Jul-11

Jul-10

Jan-11

Jul-09

Jan-10

Jul-08

Jan-09

Jul-07

Jan-08

Jul-06

Jan-07

Jul-05

Jan-06

Jul-04

Jan-05

Jul-03

Jan-04

Jul-02

Jan-03

Jul-01

Jan-02

pegged against the benchmark currency

2.9

Total Public Offering Volume (x) Average Public Offering (MYR million) Source: Frost & Sullivan and Capital IQ

banking & finance overview

Source: Frost & Sullivan based on IMF data

4. MARGIN ANALYSIS BY SECTORS FROM 2007 TILL JUNE 2011

Margins (%)

100 80 60 40 20 0

LTM Gross Margin (%)

LTM EBITDA Margin (%)

LTM EBIT Margin (%)

LTM Net Income Margin (%)

Types of Margins Banks Diversified Financial

Malaysia

Insurance

Source: Frost & Sullivan and Capital IQ

TO 2015 TO 2015

(e)2015 (e)2015

(e)2014 (e)2014

(e)2013 (e)2013

(e)2012 (e)2012

2010 2010

(e)2011 (e)2011

ainly cost-push inflation, as ood and fuel items accounted ainly cost-push inflation, as or 60%items of theaccounted price rise oodalmost and fuel or almost 60% of the price rise

5. M&A ACTIVITY FROM 2001 TILL JUNE 2011 5. M&A ACTIVITY FROM 2001 TILL JUNE 2011 40 40 35 35 30 30 25 25 20 20 15 15 10 10 5 5 0 0

50 50 40 40 30 30 20 20 10 10 0 0

Jul-11 Jul-11

Jan-11 Jan-11

Jul-10 Jul-10

Jan-10 Jan-10

Jul-09 Jul-09

y y

Jan-09 Jan-09

584 584 76 76

174 174

53 53

30 30

813 813 379 379

217 217

57 57

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

6. PUBLIC OFFERINGS FROM 2004 TILL JUNE 2011 6. PUBLIC OFFERINGS FROM 2004 TILL JUNE 2011

EARS 2001-2011 EARS 2001-2011

Jul-08 Jul-08

1063 1063

1600 1600 1400 1400 1200 1200 1000 1000 800 800 600 600 400 400 200 200 0 0

Transaction Volume (x) Transaction Volume (x) Average Transaction Size (MYR million) Average Transaction Size (MYR million) Source: Frost & Sullivan and Capital IQ Source: Frost & Sullivan and Capital IQ

llivan based on IMF data llivan based on IMF data

Jan-08 Jan-08

1357 1357

1353 1353

543 543

2004 2004

748 748 267 267

2005 2005

106 106

2006 2006

794 794

430 430 13 13

2007 2007

2008 2008

2009 2009

2010 2010

2011 2011

1500 1500 1200 1200 900 900 600 600 300 300 0 0

Total Public Offering Volume (x) Total Public Offering Volume (x) Average Public Offering (MYR million) Average Public Offering (MYR million) Source: Frost & Sullivan and Capital IQ Source: Frost & Sullivan and Capital IQ

llivan based on IMF data llivan based on IMF data

2007 TILL JUNE 2011 2007 TILL JUNE 2011

EBIT EBIT in (%) in (%)

LTM Net Income LTMMargin Net Income (%) Margin (%)

ancial ancial & Sullivan & Sullivan

Insurance Insurance and Capital IQ and Capital IQ

MERGERS AND ACQUISITIONS ANALYSIS HISTORICAL TRENDS The volume and value of transactions witnessed an improvement in 2010 in comparison to 2009 (see fig.5). However, it has not surpassed 2007’s highs. In 2011, the average transaction size was greater than 2007 and this was mainly due to the recently announced transaction of RHB Capital Bhd, which was valued at RM5.89 billion. The majority of the deals in the BFSI sector in Malaysia are ‘friendly’ in nature. Though diversified financial services recorded the highest transaction volume (81 deals) in the BFSI vertical, banks reported the highest average transaction value of approximately RM2.7 billion. However, most of the bank deals were done in 2007 when approximately RM19 billion worth of transaction value was recorded. In 2010, the

average transaction value of deals involving banks was approximately RM5 billion. In Diversified Financial Services (DFS), the average transaction value in 2010 was RM34 million. In 2007, DFS average transaction values were approximately 20 times higher at RM735 million. Among the BFSI vertical, the insurance sector registered the maximum number of deals in 2010. In 2010, insurance saw the maximum number of deals (63% of transaction volume) but only 27% of total transaction value. OUTLOOK THROUGH TO 2012 The overall deal volume is expected to improve compared to 2010. The average deal size for insurance and diversified financial services is expected to improve. With further consolidation, the foreign banks are expected to accelerate product innovation and knowledge to Malaysia’s banking sector. PUBLIC OFFERING ANALYSIS HISTORICAL TRENDS 2010 saw 47 deals, the maximum number of public offerings since 2004 (see fig.6). This was driven by the recovery of diversified financial services. In line with the high volume in 2010, the first six months of 2011 witnessed 25 public offerings, indicating a recovery in the markets. However, banks were the outperformers with respect to the deal value. Among banks, diversified banks reported the highest transaction value (RM1.4 billion) in public offerings. As components of public offering, fixed income offering and follow-on equity comprised 80% and 15% of public offerings respectively. A slow recovery in the IPO market reflected low levels of investor confidence. While follow-on equity offering had a better average transaction value than fixed offering, the sectors that dominated the public offering were investment banking, brokerage and diversified financial services.

During 2012 foreign banks are expected to accelerate product innovation and knowledge to Malaysia’s banking sector

OUTLOOK THROUGH TO 2012 The overall deal volume is expected to improve compared to 2010. The average deal size for insurance and diversified financial services is expected to improve. LEGAL AND REGULATORY DEVELOPMENTS Regulatory and supervisory oversight of the financial services sector is within the jurisdiction of the Central Bank of Malaysia (Bank Negara Malaysia or BNM) and the Securities Commission (SC). BNM and SC are also responsible for the health of the financial services sector and are actively involved in promoting sustainable growth of the sector. The most important development in the BFSI vertical is the announcement of BASEL III reforms

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overview banking & finance

Malaysia as an Islamic financial hub is expected to succeed due to its first mover’s advantages, religious background and the strategic position between the populous Muslim nation of Indonesia and the wealthy Middle East

Malaysian ringgits

in September 2010 to strengthen global capital standards and introduce global standards for liquidity. IMPLICATIONS OF BASEL III The impact of BASEL III reforms on banking institutions is modest. The extensive reforms undertaken post the Asian financial crisis have ensured that the major features of BASEL III are already in compliance. For instance, though both the aggregate risk-weighted capital ratio and core capital ratio drifted downwards to 14.3% and 12.6% as of February 2011, they were comfortably exceeding regulatory minimum levels and Basel III standards. Nonetheless, there are certain parameters which might be challenging for the banking institutions, such as liquidity coverage ratio (current coverage between 60-80% as against required 100%). Additionally, compliance with BASEL III might inappropriately hinder the delivery of credit to low-risk and economically productive activities, and avoid long-term financing which may affect the banking system’s vital role in maturity transformation. Overall, the implementation of BASEL III is positive and is expected to help in developing a more resilient banking system, and reducing the magnitude of lending activities during economic downturns by promoting counter-cyclical buffers and reducing the impact of pro-cyclical trends. CONCLUSION — OUTLOOK FOR THE MALAYSIAN BFSI SECTOR Malaysia’s financial sector is set to progress strongly with the momentum set out by the Financial Services NKEA, one of the components of the ETP. The New

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Economic Model (NEM), another component of the ETP, aims to list out policy options to improve the enabling environment in order to achieve the macro targets of 10 Malaysia Plan and Vision 2020. Developments in private pensions, insurance and bond markets, regional champions and Islamic finance centres are set to outshine the other EPPs. Malaysia as an Islamic financial hub is expected to succeed due to its first mover’s advantages, religious background and the strategic position between the populous Muslim nation of Indonesia and the wealthy Middle East. The Malaysian banks are more likely to further strengthen their capitalisation so that they are better positioned to grow by organic means or by participating in M&A, particularly in less developed markets. In the near term — until 2013 — the underlying fundamentals supporting the BFSI sector include a robust GDP growth rate of 5-6% and marginally declining levels of unemployment, stabilising at approximately 3%. Over the years 2013-2015, this is likely to translate into a sustainable business model of stable revenues and lower NPAs in the banking sector. Inflation is expected to be stable at around 3% and housing prices are expected to increase marginally over the years 2012-2015, resulting in a higher quality of banking assets. The Asian financial crisis saw a strengthening of banking norms in Malaysia. This has facilitated the smooth transitioning of the banking system towards the BASEL III requirements, which is likely to result in a lower cost of compliance relative to the advanced economies.

banking & financeâ&#x20AC;&#x192; interview

TAJUDDIN ATAN BURSA MALAYSIA

Chief Executive Officer

I have been working in the finance industry for 28 years now. I started off my working life at Bank Bumiputra and remained there for 17 years. I worked in lots of different roles and places, including a five-year posting to New York. After I came bank from America I decided I needed to broaden my horizons, so I moved into the private sector and worked for a number of companies for four years, after which I returned to banking. I am very glad I have that experience of the world outside of banking. Before joining Bursa Malaysia I worked for RHB Capital as Managing Director. Although I only joined Bursa Malaysia as Chief Executive Officer in 2011, I was on the Board from 2008. MOTIVATION

I am someone who tends to get bored easily, so I need to have a big challenge to grapple with. I like to have the opportunity to really change an organisation, to move it forward. That gives me a great sense of accomplishment. That is the key to motivating me.

LESSONS IN BUSINESS

Businesses change; contexts continuously evolve. You need to be abreast of this constant movement; only then will you be successful.

INternational investor: Can you give us an overview of where Bursa Malaysia is today? TAJUDDIN ATAN: When I first joined the board I wanted to look at where we are as an exchange. The Bursa was demutualised in 2004, so it is now coming up to seven years in its new state. We experienced an initial period of growth, then some consolidation, and I now think we are poised on the edge of another period of sustained growth. Between now and, say, 2013 is going to be a period of dynamic transformation for us. The securities market remains our core area, of course. We are, in my estimation, one of the most advanced securities trading platforms in Southeast Asia in terms of listings and market capitalisation. We have also developed a significant derivatives trading platform, which has pushed us onwards. In addition, we have managed to hugely develop our Islamic securities trading business. That is a real step forward for the Bursa and for Malaysia itself. These are the three core areas I am trying to grow and build in this growth period. One challenge for us, going forward, will be to create and sustain liquidity. I think that is the same for all emerging markets. We need to continually push to get not only domestic, but also foreign investors interested in what we are able to provide. I think we have a good, strong regulatory framework for achieving all this, so I am very optimistic. an islamic financial hub How important is the Islamic side of the business for you? Malaysia has developed its Islamic banking business quite well. We have positioned ourselves as a leading Islamic financial centre in the region and the world with regard to sukuk, and with regard to other aspects of Islamic banking. Fully 88% of the securities listed on the Exchange are Sharia compliant, which comprises 62% market cap. So you

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interview banking & finance

“

There is a big

pool of potential capital on offer which we hope we can tap into. In short, the liquidity and vibrancy of the market will be enhanced with the increased participation of retail buyers

”

can see how important that side of that business is to us. One of the success stories that has been introduced by the Bursa is called the Suq Al-Sila’. This is a money market-based commodity where you place your money market short-term against a commodity as an underlying guarantee. These are important Sharia-compliant products from a money market perspective.

have a subsidiary, Bursa Derivatives, in collaboration with the Chicago Mercantile Exchange which owns 25%, to create a thriving market in those products. We will certainly be developing our offering in that area. Crude palm oil futures are growing strongly, for example. The Globex trading system we are using will also make a huge difference and make it potentially an international market.

diversity: attracting new buyers Foreign funds have been an increasing presence on the Bursa. In May 2011 they passed the 50% mark in terms of value traded. Have you set out to attract these buyers or is it a function of market prices? We have done a lot to make the Malaysian market more visible to the international community. One thing we have put in place is the Invest Malaysia initiative. It talks to fund managers, researchers, analysts and other interested professionals to inform them of what is on offer here. So, yes, we have set out to attract foreign investors. A lot of funds are now trying to move into Asia. We in Kuala Lumpur are trying to be one of the key destinations. It will be increasingly important for the liquidity of the market going forward. It has been in operation for six years now. We ran roadshows in New York, in the New York Stock Exchange itself, in 2011 at which the Prime Minister attended to give a key-note speech. We also held similar roadshows in Hong Kong and Shanghai. We went to London in 2010.

Bursa Malaysia was recently raised to Advanced Emerging Market status from Secondary Emerging Market status in the FTSE global equity index series. What does that change mean to you? We were very happy about that. It was a major milestone for us. I think it will help raise our profile tremendously. We can make some more noise! More seriously, it will mean that people around the world will look at us in a different light. They will look more closely at what our offering is, and what we can do for them. When we go out and do our roadshows, it will be easier to tell our story now that we are in that superior category. All of a sudden they feel that a certain amount of due diligence has been done already, and they can have a lot more confidence in our product offerings. I must point out though that we were also re-rated upwards by the MSCI Index as well, so that was another bit of welcome news.

You said recently that retail participation in the market is key to its future growth and indeed the government has set a target of 50% by 2020. What are the reasons behind this decision? A couple of reasons. First, we want to diversify the ownership base of the market. We don’t want to just play host to institutional investors. If it’s only funds, the market only tends to move one way. Without the diversity retail buyers bring with them you will not see many investment strategies. So in that sense we would hope that volatility would increase; that the market would become more vibrant. Another important reason to get retail funds involved is that Malaysians are great savers, so there is a big pool of potential capital on offer which we hope we can tap into. In short, the liquidity and vibrancy of the market will be enhanced with the increased participation of retail buyers. The range of products offered by Bursa Malaysia has increased over the years. Is there a next level of sophistication you need to get to? One of the areas that we are proud of at this point in time is the growth of our derivative market. We

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regional trading You have been working together with five other exchanges in the region — the Philippines, Indonesia, Vietnam, Singapore and Thailand — to create interoperability between all of you. What are you hoping to achieve with the ASEAN Exchanges’ collaboration project? Cross-border trading is increasingly important for all of the exchanges involved in the project. We effectively all agreed that it would become more and more important to promote an ‘ASEAN asset class’ as a distinct set of securities. Key western players, or example, will want to have exposure to the Asian growth story, and we didn’t want that to simply mean China. ‘Asia’ doesn’t just mean North Asia. It is the ASEAN countries as well. Also, we thought that it would be important to facilitate trade among ourselves by having some systems and procedures in common. We selected 30 stocks from each country, creating a pool of 210 companies, as the beginning of this ASEAN asset class. At the moment they are just selected as a separate listing, but we hope to put together an index in due course. We started with creating that separate profile, and engaging in distinctive marketing. Eventually we hope to also have a separate trading platform. These are exciting times for Malaysia and the region.

banking & finance interview

OSMAN MORAD STANDARD CHARTERED

Managing Director and CEO

My career was spent mainly in commercial and international banking. My first job was working in the Gulf and was professionally rewarding, as I was in a region that was undergoing tremendous transformation. A great deal of development was going on, a great deal of change. Joining Standard Chartered in 1994 provided me with an exceptional opportunity to expand my professional experience within the bank’s global footprint. Initially I was stationed in Dubai and thereafter, I was transfer to Bahrain as the CEO. That’s where my career really kicked off as the CEO of Standard Chartered Bahrain. Asia was the next destination for me when I was repositioned as the Country Manager for Bangladesh. It has always been my goal to expand my career into Asia. Now it has been two years since I came to Malaysia to be the CEO and Managing Director. Indeed, it has been a very satisfying and rewarding experience. MOTIVATION

LESSONS IN BUSINESS

When I first started my career, I was very focused on my career advancement — my motivation was very narrow. However, as I grow wiser and my career progresses, I realise and understand that there are many other important areas that I can focus on in my career and life. I became conscious of my environment and community. I want to make a difference. In business, one must understand the nature of risk as it is unavoidable. It is important to assess the different type of risk based on facts and intelligence. Once assessed, decision making becomes a factbased process, an intelligence exercise.

INternational investor: What is distinct about Standard Chartered’s Malaysian business? osman morad: One of our greatest strengths is to infuse a global bank with a local focus. So while there is a lot about the bank here in Malaysia that you would find familiar across the world, at the same time we are still uniquely Malaysian. With a long-established bank such as ours, we have learnt how to leverage on our heritage in each market that we operate in. Our success is very much related to our respect for the local culture. We would not have been so successful had we not learned how to do that. Another significant aspect to our business in Malaysia is that we try to maintain a balance between our wholesale and commercial businesses, so we have two businesses virtually equally contributing to our business. Finally, Malaysia is one of the main markets in which our primary global shared service centres is located. Our Kuala Lumpur operation alone employs more than 4,000 employees and services 70 countries around the globe. How are you going to drive your presence in this market? One key area of growth that we have identified is the Mass Affluent category in the coming years. With two million Malaysians under that category, there is definite growth potential in this segment. To us this is an untapped potential. As the Malaysian economy continues to develop, I believe the SME segment will continue to become increasingly important as the backbone of the nation; hence we have aptly provided various service propositions to support local SMEs. On a broader stroke in view of the mass market, wealth management is increasingly vital to assist our customers to grow their wealth. As a service organisation, we focus on building and deepening our relationships with our customers to provide

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interview banking & finance

“

I think many

Islamic financial centres have to work out how to find ways in which Islamic products can be standardised across all Islamic markets. That is obviously a work in progress because the markets differ

”

fast, friendly and accurate financial solutions. At the heart of all this, we are preserving our status as a relationship bank and not just a product bank. Islamic finance: Standard chartered’s role Malaysia is positioning itself as a hub for Islamic banking and finance. Is Standard Chartered a part of that? It is a real opportunity for us. As I mentioned, we straddle the commercial and the wholesale parts of the business, and I think that both can benefit hugely by growing the Islamic banking business. The wholesale side is quite active in the issuance of debt in the Sukuk market, so it gives us an opportunity to be able to bring our clients here from other markets to tap into local liquidity. I do not think there is any doubt that this area of business is going to grow strongly. Malaysia will continue to attract more and more regional and Asian issuers as well. We have done several issues for companies from the Gulf and elsewhere, keen to take advantage of what is a vibrant market. I think many Islamic financial centres have to work to find ways in which Islamic products can be standardised across all Islamic markets. That is obviously a work in progress because the markets differ. Malaysia, for instance, has a more practical approach than perhaps some others. Yet I think that things have moved forward a long way. What do you consider to be your most significant challenges in this market? Pricing is always a challenge in any market. But pricing for risk is something that I think really has not developed yet the way we would have wanted. The basic ability to discriminate between risk factors is something that needs to be developed. People are the other big challenge. Finding, attracting and retaining the best or right talent is important to deliver objectives. This puts us in competition with other growth markets, as talents are scarce. We are all seeking the same talent. What role do you feel Standard Chartered is able to play within the Economic Transformation Programme and how will the bank contribute to transforming Malaysia into a high income economy? The financial sector as a whole will play an enormously important part in the transformation of the Malaysian economy, and we are at the heart of that. But more directly, we are also deeply involved in many of the specific sectors that have been identified by the government as crucial for the transformation programme to work — manufacturing, oil & gas and palm oil are all sectors we are significantly involved in. There are major new developments planned in our bank, which we think will contribute to the

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development of the Malaysian financial sector. For example, we will have a commodity specialist team, we are interested in commercial real estate and we are looking at projects that are happening within the Klang Valley. I think the bank is evolving fast. For much of our history we have been a trade bank, a commercial bank, which also provides financial services for individuals. However, that is now changing. Over the past few years we have started adding new products and services. I believe businesses have to be more dynamic, more responsive to the needs of the country if we want the nation’s 2020 goals to be achieved. We are adding new capabilities and we know this area as well as anybody else, if not better. With the two together, we bring a lot to the table. regulatory transformation The Prime Minister has recently spoken about improving the regulatory environment. From your point of view, what needs to be done in this area? We always want regulatory changes to happen yesterday, but I think we do understand that these things take time, and clearly the trend is in the right direction. The regulator has been liberalising consistently over the past five years. There will be more to come in the next financial sector plan. I think from our perspective the fact that there will be more players, more new banks coming in, does make our life a little more difficult — but the experience has always been that if you have more competitors, the market will grow, hence, the pie gets bigger. This has been proven many times over. These are exciting times for all of us.

banking & finance interview

MUKHTAR HUSSAIN HSBC MALAYSIA

Deputy Chairman and Chief Executive Officer, HSBC Malaysia and Global CEO, HSBC Amanah

I joined HSBC in 1982. I spent 11 years working for the bank in the City of London before taking up a role in the Middle East in 1993, where I spent about 13 years building up the wholesale platform for HSBC. I went back to London for a few years as the Global Head of Private Equity Principal Investments. I came back to the Middle East for a year or so in 2009 and effectively took over responsibilities for Malaysia at the end of 2009. I have two jobs, which I am deeply privileged to carry out: Deputy Chairman and CEO of the bank in Malaysia, and Global CEO of Islamic business in HSBC. We brand that business under the title HSBC Amanah. MOTIVATION

Life is defined by both inspiration and perspiration. The inspiration is the ability to contribute to one of the world’s leading financial services players, to be able to make a positive difference in a market where we have had such a strong historical presence. In fact, what motivates me every day is being able to lead one of this country’s greatest institutions — we have been here for 127 years after all. The perspiration is to find the energy to run hard every day and to inspire others to do so as well.

LESSONS IN BUSINESS

You need to maintain integrity and honesty. Also, be open, dependable and connected: open to your customers’ demands and wishes, dependable in the sense that you are not a fair-weather friend, and connected in terms of knowing what is going on, both in the neighbourhood and across the world so that you can apply that knowledge to make yourself relevant.

INternational investor: In what ways do you think HSBC contributes to the Malaysian banking industry as a whole? MUKHTAR HUSSAIN: I think there are three areas where we contribute in particular. One is Islamic finance. Malaysia itself is increasingly regarded as a leader in the world, or among the leading centres, in this area. Islamic finance has been something that the government has taken a very progressive approach towards and we have been delighted to play a role in that. That is demonstrated through the establishment of a separate subsidiary called HSBC Amanah, which is the dedicated Islamic financial services arm of the bank here in Malaysia. We have the ability to open 26 new retail branches in Malaysia. We are three years into its operation and we have opened about ten branches to date. We have also been able to open a takaful business and we have a dedicated takaful subsidiary which we established four years ago in conjunction with local partners. The other thing I would point to is our increasing involvement in the capital markets here — both in the conventional market as well as in the Islamic market. We were deeply privileged back in 2002 to be the bank that launched the world’s first sukuk for the government of Malaysia and last year we raised a sovereign sukuk for the government as well. The domestic sukuk market is growing in scale and sophistication year on year. One of the successes of Malaysia since the Asian financial crisis has been to develop one of the largest and most liquid domestic bond markets in the region. This is an area where the sukuk industry has a natural role to play, and we have a role to play within it, as we are the world’s largest sukuk house. As the market matures the ability for foreign issuers to tap into the sukuk market here and issue in ringgit or issue in dollars becomes more open. Finally we have a major role in connecting Malaysia to the world and connecting the world to Malaysia through trade, investment flows but also technology connecting people and markets.

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“

The crisis

of 1997 was a very challenging time for Malaysia, but one must pay enormous respect to Bank Negara and to the governor in particular for how they dealt with it and how they implemented reforms of the financial system thereafter

”

How do you think the banking system in Malaysia could improve? One of the most remarkable features of Malaysia was how it used the Asian economic crisis to develop a robustness and strength in the financial system. The crisis of 1997 was a very challenging time for Malaysia, but one must pay enormous respect to Bank Negara and to the governor in particular for how they dealt with it and how they implemented reforms of the financial system thereafter. There has been a very clear strategy of allowing domestic institutions to grow in scale and in capital base and to become more robust in terms of their ability to manage shocks. There are a number of strong domestic and foreign financial institutions that have operated here. It is a mature market in that respect. There has been increased liberalisation as well, with the issuance of new licenses to foreign banks — Chinese, Japanese, Middle Eastern. Improvement will come through innovation and opening of new market segments and channels.

the availability of finance to support the growth that is anticipated through ETP. There are aspects of the ETP where the finance sector has a really important role to play, most notably the assumption that over 90% of the funding for many of the projects that are listed will come from the private sector, and therefore we have a role in mobilising capital through the capital markets and through the FDI flows that will be necessary.

What are HSBC’s growth strategies for its Malaysian business? We currently have 52 branches and we hope to get to about 76, inclusive of the Amanah branches, by the end of the expansion process. We are also intending to come out with a number of new offerings in the credit card business. We are investing in our commercial banking business, focusing on our ability to connect our customers, especially those that trade and manufacture. We shouldn’t forget the importance of SMEs, which are the backbone of the national economy. Many of them are involved in exporting activities and HSBC is a logical partner for them. Of course, at the same time we are supportive of the government’s sovereign issuance programme. We have a world class markets business here which is able to meet the foreign exchange demands that come through: either trading, hedging or managing one’s money. All these markets are getting more competitive by the year, but we still see lots of opportunities available. It is an exciting time to be in Malaysia. We are at the forefront of a new era of growth and development. We expect to play our part, both as an investor and as a facilitator of other investors, whether they be domestic or foreign coming into the market. We obviously hope to maintain our leadership position.

Malaysia requires about US$100 billion for its ETP, but Indonesia is also looking for about US$150 billion for its economic development in the next decade or so. How can Malaysia differentiate itself so as to attract the FDI it needs? Whether it is direct or foreign direct investments, all countries attract investment through their own economic fundamentals. It is the relative attractiveness of a particular country and its core sectors that matters to investors. Malaysia is a country that has an enormous tradition in the production of commodities: rubber and timber 100 years ago, palm oil and timber today. These are important areas in which Malaysia can be extremely competitive, but there needs to be thinking about what value can be extracted from basic commodities. Looking at oil palm, for instance, producers are concentrating much more on the higher-value downstream products. The question that needs to be asked by Malaysian commodity producers is what value they can add. This is extremely important. Domestic investment is important. Domestic investors understand the country well and have always stepped up. Traditional sources in Europe and America are important too, but it also needs to be realised that FDI is now as likely to come from the Asian region itself as well as from those older sources. The premier of China visited Malaysia and Indonesia recently. Visits like that are extremely important and emphasise how much government-to-government contact is crucial in stimulating investment flows. China represents an enormously significant potential source for FDI, and Malaysian corporations need to bear that strongly in mind. But I am confident that the talent is there, and the ability to attract the levels of FDI needed is entirely possible if we in Malaysia broaden our horizons sufficiently.

How do you view the government’s Economic Transformation Programme? Can HSBC contribute? We are very positive about the plan, we think it is very well co-ordinated and thought through; it was consultative and it engaged all the stakeholders to produce a set of findings that were both coherent and focused. We were involved in the ‘labs’ that were held, in terms of the sectors we are involved in, as well as contributing to labs that talked about

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What are the biggest challenges for FDI and how can they be solved? It is a competitive market in terms of attracting FDI flows. If you look at Southeast Asia, Singapore is more able to attract FDI money than other countries. There is a challenge for a country like Malaysia to communicate that FDI opportunities are available. We commend the Malaysian Industrial Development Authority and the government’s constant efforts in reaching out to the international community to promote awareness of key opportunities.

banking & finance interview

KRISHNA CHETTI BNP PARIBAS

Chief Executive Officer, Malaysia

Born and brought up in Mauritius, I started my career with BNP Paribas in 1994. After seven years I decided to move to the bank’s head office in Paris, with my family, where I spent four years with the General Inspection team, carrying out mostly international assignments in the Americas and Asia. I then joined the Corporate & Investment Banking team, focusing on Asia and the Middle East. In 2007, I relocated to Malaysia, where I took up the post of Country Head with a clear mandate to grow the bank’s operations and expand its platform in a country with significant potential. MOTIVATION

The driver of our action is the capacity to support our clients to the best of our ability. We are not here to sell products, but to understand our clients and their needs. This strong relationship we have with our client base is a big motivator to achieving our ambition of building a strong and sustainable platform here in Malaysia.

LESSONS IN BUSINESS

It is important to establish good relationships with clients, which may prove useful in the long run. Another important lesson is to always prove you are the best. There is no point at which you will have understood everything; there is no position you have secured forever.

INternational investor: What is BNP Paribas’s history in Malaysia? Krishna chetti: A representative office was set up in 1973 and since then the bank has continuously invested a lot of time and resources in Malaysia. In 1993, BNP Paribas was one of the first banks to open an offshore banking branch in Labuan and we also expanded our investment banking capabilities by setting up our corporate finance and research businesses. In 2007 and 2010, BNP Paribas obtained the necessary licences that kick-started our asset management businesses, including Islamic asset management. In 2010/11, we obtained a full banking licence in Malaysia, making BNP Paribas the only European bank to be awarded this full banking licence. In a market which is dominated by local currency, obtaining the full banking licence was crucial to expanding our business, including Islamic banking. Our new bank, BNP Paribas Malaysia Berhad, became fully operational on 1 June 2011. expansion across malaysia Can you give us an idea of your strategy for growth in Malaysia? Our ambition is to become the best foreign wholesale bank in Malaysia, servicing corporate and institutional clients with a full spectrum of products and services. These range from fund raising through bank financing or capital markets to risk management across all underlyings — Fx, interest rates, commodities, advisory and investment products, whether simple deposits or more sophisticated instruments . BNP Paribas’s strong expertise across these products, supported by equally strong local client coverage, gives us a unique business model to achieve our ambition. In Malaysia, we will focus on the wholesale market, working with both multinational and domestic corporates, government-linked

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“

Our ambition

is to become the best foreign wholesale bank in Malaysia

”

companies and financial institutions including banks, insurance companies and funds. We also aim to indirectly service the retail market through partner banks. What are your thoughts on the PPP frameworks to develop infrastructure projects in Malaysia? Could BNP Paribas get involved? Having adequate modern infrastructure as well as connectivity is essential for internal development and hub positioning, especially within ASEAN. This will involve huge investment capital which cannot be solely government funded — hence PPP, or some other similar structure involving the private sector, has to be put in place. BNP Paribas is recognised globally in Project Advisory & Financing and we are already involved in some of the discussions. islamic finance: a foreign perspective How important is the Islamic finance sector to you? BNP Paribas is one of the pioneers of Islamic finance. The bank started transacting in Islamic finance in the 1990s. Our Islamic banking business is growing very fast, which can be seen by our active involvement in very visible transactions both in the GCC and Asia. Just to mention a few of them: arranging of the first Shariah compliant French-Malaysian optimised transaction for an aircraft financing for AirAsia; Bookrunner and lead arranger in a significant number of sukuks, including IDB; setting up of our Al Hilal Income Fund (sukuk fund). BNP Paribas Najmah (our brand name for Islamic finance) is organised around two hubs: Bahrain for the Middle East and Africa, and Kuala Lumpur for Asia Pacific. We consider Malaysia to be the natural hub for Islamic finance and our ambition is to actively contribute to the internationalisation

You have to be modest about

the impact you can have on the Islamic market in Malaysia

of the Islamic financial sector in Malaysia, bringing our foreign clients to Malaysia. To achieve this, we need to be a credible player in the local market — ie the most developed Islamic market in the world. In that respect, our recent development in Malaysia in obtaining a full banking licence is key to us becoming a global Islamic finance hub. What is it about BNP Paribas that differentiates the bank in terms of Islamic finance? Firstly, you have to be modest about the impact you can have on the Islamic market in Malaysia.

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The market is already very developed and considered to be the most innovative. With a comprehensive framework in place, we are here both to learn from the market and contribute to its future development. To grow further, especially when competing with other financial centres in the region, Malaysia needs to be continuously innovating and developing a sophisticated range of product offerings. This is where BNP Paribas’s product expertise can make a contribution. I think we are ahead of the product curve in many areas and can bring this expertise in Islamic finance into Malaysia. We can also contribute by leveraging on our presence in other markets, in Asia or globally, which are important for the development of Islamic finance. What are the biggest challenges for BNP Paribas in terms of building a franchise and a brand within the market? The Malaysian market is certainly very competitive, with a lot of foreign institutions already present. However, the momentum or focus is different from one institution to another. We see ourselves as having the possibility to expand our reach in a market that we have been in for 40 years. Thanks to BNP Paribas Group’s strong commitment to Malaysia, we have what it takes to compete and become the best foreign wholesale bank in the country. boosting the malaysian economy Where and how do you think you can contribute to the government’s Economic Transformation Programme? Our strategic focus is in line with the direction set by the government and by Bank Negara. A number of themes are very important in the Economic Transformation Programme: investment, infrastructure projects, links to the global economy, Islamic finance. BNP Paribas is fully aligned on all these themes. For example, BNP Paribas is present in more than 80 countries, with four domestic markets in Europe; we also have a large network in the western part of the United States, and a solid and fast-growing business in Asia. We can contribute by further connecting Malaysia with these different markets, whether inbound or outbound. We expect our contribution to the Malaysian economy to be broad, including areas like education. Currently we have our own educational development programmes for our staff and in addition we have also committed to some local initiatives which we hope will benefit Malaysia. It is vital for Malaysia to continuously develop the local talent pool and we are making sure that we are fully in line with this objective.

banking & finance interview

GOH PENG OOI SILVERLAKE Chairman

At a very young age I wanted to be a nuclear physicist. I would go to the library, read physics books and try to understand the universe. In due course I got a scholarship to study physics at university in Japan. I was initially going to be an academic, but my responsibility for my family meant I began to look at the world of business. I began to study solid-state physics to give myself an engineering skill so that I could perhaps get a job in industry, in a chip manufacturer for example. I got involved in chip design, but quickly realised that the same techniques for chip simulation could be used for economic simulation as well, and that has led on to my present career at Silverlake, designing banking systems. I started reading economics and found that it is not much different from simulating a chip or simulating a physical equation. It is not really much different from a mathematical point of view. I worked or IBM for a while and became interested in game theory and what is called ‘symmetry’. That is based on work by the American mathematician John Nash and describes how players of games can settle into equilibrium based on the knowledge they have of each other’s strategies. Anyway, I found that this concept could be applied to financial systems. Building software, hardware — everything could be based on symmetry. That is why you find under the Silverlake logo the phrase ‘Symmetry at Work’. I founded the company in 1989. MOTIVATION

What drives me is actually the search for unification and its symmetry. Also, whatever you do, you impact the economy in a certain way, irrespective of what you do. There is always an economic model in whatever you chase after.

LESSONS IN BUSINESS

Business is actually a game, irrespective of what the business is. Whether it is oil, banking or stockbroking, whether it is pharmacy or medical, it is still a game, so game theory can be applied to it.

INternational investor: Can you give us an overview of what integrated banking solutions are and what benefits they can bring financial institutions? What is it that Silverlake brings to the table that other IT providers cannot? GOH PENG OOI: It is again to do with the same sentence: ‘All games end in symmetry.’ Therefore, you have to identify what symmetry is in a so-called integrated banking system, and that is what we do. We apply the insights of game theory to banking solutions. That goes for all the systems we design and implement. getting to grips with symmetry You have been influenced by John Nash’s work. Can you tell us something about that? John Nash’s seminal paper, ‘Non-Cooperative Games Theory’, is only 12 pages long. It was published in 1951 and he received the Nobel Prize in 1994, so it took the Nobel Prize Committee 43 years to read 12 pages! It is basically a question of whether you can understand why it is important. If you look at John Nash’s conclusion, it is that all games end in symmetry. Now, games in that paper are defined as a series of moves modified by coefficients. It is up to you to put a meaning into the coefficient; it can be imperfection. It can be emotion. It can be intention. It can be purpose. It can be anything, but whatever intention or purpose or motive you have, a move is still a move. Therefore, moves modified by coefficients are called a game and all games end in symmetry. So if you look from my point of view and how Silverlake works, if everything ends in symmetry, why don’t we boost symmetry? Why do we try and confuse everything as the mountain of information increases? We are obviously becoming more and more saturated with information in the modern world. How do you deal with this over-information issue? That is the question. However, whether

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interview banking & finance

“

The truth

is they are all businesses. So you can apply theories of symmetry to them all in a standardised way. Islamic banking is actually symmetry on an Islamic principle

”

it is information or not information, they are all games because whatever the information is, it needs a move to carry it. The content modifies the move, but it still needs a move. You cannot have information that does not move. If it doesn’t move, it will never reach you, so it is not information. It is not that complex if you understand what symmetry is. Anything you do is actually a game because, again, it is moves modified by coefficients. Whether you are a doctor, it is a move modified by coefficients, whether it is oil and gas, it is a move modified by coefficients. Everything that moves is modified by coefficients, so everything is a game as per the John Nash definition. It all ends in symmetry. Now, what do we mean by business? A business has an end point. It is so simple that all businesses have economic end points. Any game that has an economic end point, you can call a business. All games end in symmetry; that is exactly what John Nash said, so you build symmetry. the islamic connection Could you give us an understanding of how important the Islamic finance banking solutions are to the business as a whole? One thing that many people are not aware of is that the Islamic world has been amazed by the fact of symmetry for hundreds of years before 1000AD. In fact, if you go to any mosque, the designs are all symmetrical. One of the most amazing drawings is in Isfahan, and it represents quasicrystal. That theory of quasicrystal was only understood in the 1960s by Roger Penrose. Today we call it Penrose crystal — this is one of the important discoveries that he got a Nobel Prize for. So symmetry is actually a very interesting thing that emerged from the Islamic world in 880 — and, of course, before that from many great thinkers, but not in a systematic form. Therefore, when you look at integrated banking from that point of view, when you tear down the so-called integrated banking solution, you find

We apply the insights of game

theory to banking solutions. That goes for all the systems we design that on one side it is businesses — because banking actually supports all sorts of businesses. Some businesses are Islamic businesses, some businesses are non-Islamic businesses, some businesses are small businesses. However, whatever it is, whether they are all businesses of fishermen, whether they go out into the ocean and do small-scale fishing, you finance them and you call it micro-financing, but it is a business whether you finance them at

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1,000 ringgit, 2,000 ringgit or whether you finance them 1 billion ringgit — the truth is they are all businesses. So you can apply theories of symmetry to them all in a standardised way. Islamic banking is actually symmetry on an Islamic principle. So you are saying Silverlake wants to apply its theories of symmetry to all sorts of businesses, not just banking? Absolutely. It doesn’t need to be in banking, it can be in retail. We have big customers in retail. We have big customers in banking. We have big customers in stockbroking. We are helping to build a social network in China, for instance, and the same principles apply there too. If you come to me as a potential client, I ask you what your dream is, but on my terms I will say that you play a game and you have an end point. I know your end point will be symmetric because all games end in symmetry. We see you as making many moves, so now why should you pay me? You pay me because you achieve your end point. If I cannot help you to achieve your end point you would not pay me. Therefore, from that, in order for you to achieve what you want, I will know the things that you need to do, and the solution I need to provide to you, generated by symmetry. What is the single most practical thing you can do for a client? Improve their profits. You might reach symmetry in 100 years or symmetry in 1,000 years, but in business, they want to reach profit in one year. Time is of essence. That leads to the issue of how I can expedite a client’s profit. I believe our systems, based on the idea of symmetry, can achieve that for most clients. Since all games end in symmetry, information technology is just a game. So why not boost symmetry and expedite whatever people want to achieve. Could you explain Silverlake’s mission today? We carry a scientific and mathematical mission; that is research into symmetry, and without income we could not continue our research. Therefore, we have to associate our research with certain industries. The first industry with which we associated ourselves was banking. It is very easy and very obvious why we associated ourselves with banking — because you help the bank to expedite their journey, therefore they achieve what they want, and therefore they pay you a large amount of money and, from that amount of money, you continue to do your research. It becomes a cycle. You further enrich your symmetry research. Of course, you have to be very realistic that theory and the real world could be miles apart, and you have to double-check whether it really works how you thought.

islamic finance

roundtable islamic finance

Islamic Finance Roundtable Malaysia is uniquely positioned to potentially become the undisputed global leader of the Islamic finance market. However, this is not a foregone conclusion. This debate brought together leaders from all sectors of the market to discuss what steps need be taken at this pivotal time in the market’s development

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AGENDA ■ What is the long-term value proposition of the Islamic finance market? And how does it differ from the conventional finance model? ■ Pros and cons of using Islamic finance to raise capital l Why should issuers use Islamic finance? What are the benefits and considerations? l Malaysia compared to other ASEAN markets? l Impact of the current global financial environment ■ Key issues and challenges l Legacy challenge: conventional versus Islamic product comparison l Innovation bottleneck l Innovation versus replication l Developing human capital: how can stakeholders in government, industry and education collaborate more? l Islamic scholars l Risk profiles l What else? l International convergence of the Shariah concept and Malaysia’s role l Financial markets l Capital markets ■ Globalisation l Legal and regulatory challenges l Education issues l GCC and SE Asia l How can these markets work more closely and collaborate? l Growth of cross-border transactions l West and Far East

Everyday, we share Asia’s future with

21 million partners. The true potential of Asia comes from 3.6 billion people working for a better future – a future we share with you. By helping communities prosper, connecting people and businesses via our global network and putting our experience to work for you, each and every day we are helping Asia achieve its vast potential. Starting with our 21 million customers and partners, we are

Humanising Financial Services Across Asia.

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Investing in the

Philippines Leading the way in

In the Philippines, Maybank has over 50 branches, serving communities from Manila to the provinces of Luzon, Visayas and Mindanao.

Islamic Banking Maybank Islamic is one of the world’s leading Islamic financial institutions, and the biggest Islamic bank in ASEAN, offering customers across Asia and globally, a shariah-compliant way to access funding and seek Islamic financial solutions.

USD 135 BILLION IN ASSETS 2,100 OFFICES IN 17 COUNTRIES 42,000 MAYBANKERS HUMANISING FINANCIAL SERVICES ACROSS ASIA

roundtable islamic finance

Abdul Rauf Rashid Country Managing Partner Ernst & Young Malaysia

Zainal Izlan Zainal Abidin Executive Director, Islamic Capital Markets Securities Commission Malaysia

As well as being Country Managing Partner Rauf is also Ernst & Young Malaysia’s leader in Islamic financial services. He graduated in Accounting & Economics from the University of Southampton, England. He is an associate of the Institute of Chartered Accountants in England and Wales and a member of the Malaysian Institute of Accountants as well as the Malaysian Institute of Certified Public Accountants.

Izlan has over 20 years’ experience in the financial services industry. He was CEO/Director of i-VCAP Management and MIDF Amanah Asset Management, and also worked with Schroder Investment Management (London) and Citibank. He graduated from The Wharton School, University of Pennsylvania and is a Chartered Financial Analyst.

PARTICIPANTS

Muzaffar Hisham Chief Executive Officer Maybank Islamic

Muzaffar Hisham is also Head of the Group Islamic Banking Division. He started his career at Asian International Merchant Bank. He later joined Amanah Merchant Bank and Amanah Short Deposits where he worked in corporate debt and financing. Prior to joining Maybank, he was the Deputy Chief Executive Officer of CIMB Islamic Bank Berhad.

Daud Vicary Abdullah President and CEO INCEIF

Daud Vicary Abdullah has been in the finance and consulting industry for over 38 years, focusing solely on Islamic finance since 2002. He is a frequent speaker, writer and commentator on Islamic finance matters. Daud was the Managing Director of Hong Leong Islamic Bank, COO at Asian Finance Bank and Global Islamic Finance Leader with Deloitte.

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Noripah Kamso Chief Executive Officer CIMB-Principal Islamic Asset Management

Since 2008, Noripah has successfully established a global platform for the firm to extend its reach worldwide. The firm is a global partner to institutional investors, offering capabilities in global Equities and Sukuk to clients such as central banks, pension houses, takafuls and sovereign wealth funds.

Jal Othman Senior Partner Shook Lin & Bok

Jal Othman is a senior partner of Shook Lin & Bok. His areas of practice are corporate commercial and finance and Islamic Finance. He heads the Firm’s Islamic Finance practice and is the deputy head of the Corporate Commercial practice group and the Real Estate practice group. He is an adjunct professor at the Institute of Islamic Banking and Finance, International Islamic University Malaysia.

islamic finance roundtable

Rafe Haneef Chief Executive Officer HSBC Amanah

PARTICIPANTS

Rafe Haneef is also responsible for HSBC Amanah Global Markets, Asia Pacific. He established the Global Islamic Finance Department at ABN AMRO. He has played a key role in developing Sukuk and Islamic structured and project finance products since 1999. He has a Masters of Law from Harvard Law school and qualified for the New York Bar.

Aznan Hasan Shariah Advisory Committee Member Bank Negara

Aznan Hasan received his first degree in Shari’a from the University of al-Azhar, completed his Master degree in Shari’a from Cairo University with distinction and obtained his Ph.D from University of Wales, Lampeter, United Kingdom. He is Assistant Professor in Islamic law at International Islamic University Malaysia; Chairman, Shari’a Advisory Board, ACR Retakaful Bahrain and a Shari’a Board member for various international institutions.

ROUNDTABLE PARTNERS

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roundtable islamic finance

Abdul Rauf Rashid Country Managing Partner Ernst & Young Malaysia

Abdul Rauf Rashid, Ernst & Young: Islamic finance is a topic that is discussed very often in Malaysia. In fact it is a significant competitive edge for the country. How far have we come since 1983, when the Islamic Banking Act was first introduced in the country? We have gone from having just one Islamic bank to a large number. And we have expanded much further. For example, 55% of capital market debt is currently in sukuk form. Malaysia is, in fact, the largest sukuk issuer in the world. That is a significant achievement. Overall, the Islamic finance market is worth about US$1 trillion now, and with 15 to 20% growth projected annually we are expecting the Islamic finance market to stand at US$2 trillion within five years. Malaysia can, and does, play a central part in this dynamic growth. The questions before us today centre on how we can build on this success. Are there changes that need to be made? Can we foresee obstacles ahead? To address these questions, we have with us today some of the country’s Islamic finance practitioners and also the regulators and promoters of Islamic finance in Malaysia. Perhaps we can begin with each of us giving a brief overview of where we think the Malaysian Islamic finance market stands today. OPENING OVERVIEWS Zainal Izlan Zainal Abidin, Securities Commission: A good point for me to start with would be to mention a key plank of the Securities Commission’s recent work: the Capital Market Masterplan Two, which the Commission released in April 2011. The plan is designed to cover the ten-year period up to 2020 and to set out a forward-looking framework for the growth of the Malaysian capital market, which includes the Islamic capital market, in that period. Basically, we are projecting that the size of the Islamic capital market in Malaysia will grow by slightly over 10% per annum through those years, taking it from about RM1 trillion today to RM3

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trillion by 2020. That is an ambitious target, but one I think we can achieve. If we get to a position where the Islamic capital market amounts to RM3 trillion, it will comprise, according to our forecasts, about 60-65% of the entire Malaysian capital markets. That gives you an idea of just how much the industry has come along in recent years. We believe a few factors will drive this growth. One is the industry achieving scale efficiencies as it widens its international base and as more players enter the market. Secondly, we are also looking at greater product innovation and development coming through, not just in Malaysia but across the world. We are expecting expansion not just in terms of the number and type of products, but also in terms of the specificities of the products. For example, we are expecting to see more foreign currency issuances as well as products that will have more global appeal. More varied sector funds will also cater to a wider target market. Another area we are looking at to drive expansion of the Islamic capital markets would be promotion of what we call the ‘Sharia-based’ approach. This is as opposed to the Sharia-compliant approach, which many institutions use to design their products today. What is the difference? There is no formal definition of what is Sharia-based, but we use the term to describe structures that are more aligned to the principles of Sharia rather than being products that merely do not contradict them. For example, risk sharing principles and transparency in terms of documentation and the structure of the product. Islamic finance, having grown very rapidly over the past two decades especially, will need a major shift in terms of the product offerings. Sharia-based forms of products are, we believe, the way forward. A key value proposition for Islamic finance going forward, however, will be the wider point about

islamic financeâ&#x20AC;&#x192; roundtable

ethics â&#x20AC;&#x201D; the underlying moral framework implied by this type of finance. These are ethical values; socially responsible values which apply not just to Muslims, but to other religions and cultures also. In fact, I believe they transcend religion and borders. They are to do with fairness, equitable sharing and not taking undue risks. In light of the current global economic environment, Islamic finance can offer more stability than conventional finance. That will be a significant selling point for Islamic finance right around the world. We just need to get that message across. One last point is that Islamic finance also promotes financial inclusion. There are areas or countries, primarily Muslim countries, where the people do not have the option of transacting via Islamic finance and they also choose not to transact through conventional finance, so these people are not participating in the financial system. Expanding Islamic finance to them will facilitate financial inclusion, which is imperative for economic and social growth. Daud Vicary Abdullah, INCEIF: The reality is that Malaysia has done very well in the area of Islamic finance. In the past ten years it has grown from comprising 6% of the market to 22 or 23% today. The challenge we face now is that we are not going to drive a market from 23% even higher by just doing more of the same. There is a real challenge there and I will put it in terms of both education and perception. There needs to be a lot of work done, not only within this business environment but globally, in changing mind-sets. Malaysia can do a great deal by helping achieve that through education and getting consistency in language, in terminology and interpretation. This is key. What do we really mean by this product? What do we really mean by the Sharia interpretation? What do we mean by handling risk in a Sharia-compliant way? Consistency and clarity will be essential if Islamic finance is to take the next step.

Make no mistake, there are substantial gains to be made. The US market for ethical investments alone is worth US$3 trillion. Given what has just been said about the ethics underpinning Islamic finance, it is a market we could tap into, but we are still nowhere with regards to it. We have an awful long way to go and it is important we get

â&#x20AC;&#x2030;These are ethical values; socially responsible values which apply not just to Muslims, but to other religions and cultures also. In fact, I believe they transcend religion and borders

Daud Vicary Abdullah President and CEO INCEIF

some of these conceptual issues around consistency of language and message right. That can be a major opportunity in itself for Malaysia. We have ourselves been educating regulators and practitioners in the GCC region over the past 12 months. Malaysia has experience in this and we as a country could leverage that to provide education and training for the wider world. There is an opportunity there. It would not be about parachuting the entire Malaysian model in to another country, but learning from our experience. I think when the Gulf states start getting onboard, the rest of the world will follow because that is where the money is. ARR, Ernst & Young: Perhaps we should ask some of the practitioners to give us their views? Aznan? Aznan Hasan, Bank Negara: Despite its successes, up until now I think that people have spoken of Islamic finance as essentially a niche area. I think the time has come for us to speak of it as a major business, and a business that can become mainstream on a global basis. It is not just about

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roundtable islamic finance

Muzaffar Hisham Chief Executive Officer Maybank Islamic

basic banking; it is about asset management, dealing in the capital markets — all the main aspects of the traditional financial world that people have been used to so far. However, we have to make people realise this. We have to change mind-sets. We will do that through a sustained effort at education. That is something that Malaysians can achieve because of our unique history in the market. People are looking to Islamic finance to be a challenger of conventional banking in its range of product offering. If we can position Islamic finance as a mainstream business, we can start to change people’s thinking. A lot of effort needs to be put into finding the best way for Islamic finance not just to coexist with conventional, but in some areas to be even better than conventional banking. The ideas we need to be putting forward to people are that Islamic finance has sustainability, universal value

We are at a crossroads. Practitioners within the industry were previously following what conventional finance was doing, but now we are looking to expand our horizons beyond that model. So what is stopping us? and unique ethical aspects, plus the ability to carry out the whole range of financial services that individuals and businesses need. Then we will convince ever more people that this form of finance has something real to offer them on a deep level. I would argue that all these things are, in fact, values that have over the years been accepted by everybody in the world, not only by Muslims. We have to switch our thinking from being in a niche

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area to being a mainstream business, but based on sustainable and eternal values. That is the point. ARR, Ernst & Young: What is stopping us from making Islamic finance a mainstream alternative to conventional finance? Perhaps we can hear from the largest Islamic banks in the country on that issue? Muzaffar Hisham, Maybank Islamic: I completely agree, we are at a crossroads. Practitioners within the industry were previously following what conventional finance was doing, but now we are looking to expand our horizons beyond that model. So what is stopping us? I want to mention two things that are important, which are always a concern for countries wanting to venture into Islamic finance: tax and regulations. The industry would need to get these right so that there are sufficient incentives in place and an effective regulatory framework within which to operate. The Malaysian government has granted various tax exemptions and incentives to spur the growth of Islamic financing. If transactions in the first instance could attract additional taxes because there are no interest/‘riba’ elements, Islamic financing is based on buy and sell as well as profit sharing structures. In Indonesia and Singapore, we start off with tax neutrality for Islamic finance transactions but this is not necessarily enough. I agree with what Dr Aznan is saying. In Malaysia in particular when we look at the banking sector, let’s take a step back. We need to be careful because we are beginning to see some worrying signs which call for greater effort to address risk management per se. Bank Negara has done very well in promoting Sharia governance and sound risk management practices. When it was first implemented it was an eye-opener for all practitioners. Islamic banks would do well to brace themselves for the implementation of Basel III, considering the liquidity issue that the industry is facing.

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Noripah Kamso, CIMB-Principal Islamic Asset Management: From my perspective as an asset management house, Islamic asset management can, I believe, be a major player in the Islamic capital markets space. This view is shared by MIFC (Malaysian International Islamic Finance Centre), which has 17 MIFC-initiated, licensed asset management companies in Malaysia. The country is an attractive place for them to base their business, as there is a comprehensive legal and regulatory framework to support their business plans, including benefits like tax exemption on their revenue until 2016. I would agree also that Islamic finance will coexist with the mainstream and will not remain a niche. The myth abounds in asset management globally which says that Islamic investing is only for Muslims, or that it is inflexible. It is said that Islamic investing cannot be hedged because we cannot invest in derivatives; Islamic investing is too complicated for non-Muslims to deal with, and so on. The truth is Islamic investing is for a broader investor base, it is flexible, derivatives are allowed using Islamic contracts like wa’ad or salaam, and it is not complicated. The only difference from the conventional investing approach is the screening and purification process. The biggest challenge in convincing international non-faith-driven investors is the ‘image risk’ on the word ‘Islamic’. When I go to Europe or to the GCC region, in terms of positioning Islamic asset management I present different marketing collaterals depending on where I am and who I am talking to. I may call the same product ‘ethical’ in one place and ‘Islamic’ in the other. In Europe I focus on the quantitative risk overlay that is present at the portfolio level itself, considering investors there are more risk averse and mature. This is an important aspect that Islamic finance needs to be able to communicate, especially in the current economically troubled

European region. Does an investor prioritise stability in stock prices? Does he want a portfolio of companies with strong balance sheets? We can provide all of this through the institutionalised Islamic investment approach. Islamic investing started to be internationalised about six years ago and I believe it will co-exist as another asset class in an institutional investor’s portfolio in four years’ time. Case in point, it took investors at least ten years to accept that global emerging markets equity is a valid asset class in parallel with developed markets equity asset class. We can get there, as long as we maintain this effort to push our message strongly.

Noripah Kamso Chief Executive Officer CIMB-Principal Islamic Asset Management

DVA, INCEIF: Muslims should be using this type of finance in any case; but for the rest of the world it can be an interesting alternative, a competitive product which fills a particular asset class; it fills your risk management profile, it gives a good return. Many investors should not look at it from the perspective of it being a religious decision. Things are changing, though. Ten years ago, eight out of ten questions I had were, ‘Do I have to be a Muslim to participate?’ It may be six out of ten now. Perceptions are changing. Rafe Haneef, HSBC Amanah Malaysia: There is a danger in calling what we do ‘Islamic’ and then behaving like conventional finance. That causes confusion. Datuk Noripah has an easier process compared to us in banking, because at least in asset management it is quite clear – it is a socially responsible investment, an investment based on ethics. In that sense, socially responsible investment based on Islamic ethics fits well within the asset management business. With Islamic banking the challenge is greater. Although it is based on Sharia principles, its function is similar to conventional banking. Thus many people get confused because they say, what

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Jal Othman Senior Partner Shook Lin & Bok

is the ultimate difference? If you are a Muslim, you end up confused because it is an Islamic-structured product, but it behaves similarly to a conventional structure from a dollars and cents perspective. You are not worse off or better off in the end. It is therefore harder to make the case for it. For non-Muslims it is even harder to make the case. They say, ‘I have to take a different journey to end up at the same spot where I would have been if I had taken a conventional route.’ I don’t think it appeals to them intellectually, to be honest. The question then becomes one of how we shape it so that it differs from the conventional finance model and appeals to people? At the moment it doesn’t differ because the conventional model has incentives built into it that also attract Muslims. For example, look at the way limited liability corporates operate. We all moved towards limited liability centuries ago. It allows shareholders to maximise their return on equity without losing all their personal assets. That is a huge incentive. For Islamic finance to change that incentive system you have to re-look at the corporate entity concept. That is a huge area. These issues are not just about changing mindsets, or about educating people, they involve often profound changes to the incentives and reasoning within the systems. It would, at least, mean revamping the tax laws, revamping the corporate laws, revamping the banking laws to allow risk sharing and to make it truly attractive in the face of conventional structures. That is a huge political issue. ARR, Ernst & Young: Perhaps we can hear some views from our lawyer on this. Jalalullail Othman, Shook Lin & Bok: Certainly some form of rebranding and tailoring of message is required. But Rafe has a good point. Let’s look at the basic consumer who walks through the doors of a bank for a housing loan. If you remember the days

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when we started, the things that we did wrong in terms of the perception of Islamic banking was to tell the person two things: one, that it was no different from conventional banking. The obvious reaction then was, ‘If it is no different, then why should I change?’ Second, at a very early level we were also saying, ‘It is cheaper financing.’ It is indeed fixed, but that misses the point. What we are offering is an effective hedging tool because of the certainty that is required, because of the prohibition on Gharar. With all hedging tools, if you get it right it is cheaper; you get it wrong, you don’t blame the tool. Certainly a lot of perception needs to be

To a certain extent we need to downplay the Islamic card and start the story with the underlying benefits of the products and only then say, ‘It happens to be Islamic’ – rather than starting the story with Islamic and then moving everything else from there changed in that respect. To a certain extent we need to downplay the Islamic card and start the story with the underlying benefits of the products and only then say, ‘It happens to be Islamic’ — rather than starting the story with Islamic and then moving everything else from there. With regard to the regulatory and legal frameworks, we need to see a unified decisionmaking body created. Malaysia has taken a great leap in that direction by the recent amendments to the Central Bank of Malaysia Act, constituting the Sharia Advisory Council of Bank Negara as the final arbiter of Sharia issues in Islamic Finance. The Act also goes further in making the decision of the Sharia Advisory Council binding on the parties.

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Malaysia has an excellent legal and regulatory framework in place and it also has many institutional building blocks lined up. We have several firsts in terms of deal innovation but we don’t quite see these being followed through with the seconds and thirds. We also need to sustain the momentum and not run the marathon like we would do a sprint. However, having said that, Malaysia has immense potential in terms of human capital, political will and legal infrastructure. So Malaysia is in a sense like a Ferrari revving its engine in the garage, but the doors are not open. NK, CIMB-Principal: Can I stress the ethical component again: even Ghandi practices Islamic finance… he has stated that there is enough in this world for everybody’s need but not enough for everybody’s greed. The crisis faced by the capital markets in 2008 and now is because of greed. If there is ‘capitalism and free markets’ in the conventional space, there is ‘fair distribution of wealth’ in the Islamic space. Furthermore, Sharia financial transactions must have underlying assets — sharing of profit and loss; prohibition of usury, ambiguity and uncertainty in contracts — and exclude non-Sharia-compliant companies. Internationally, there is a shift of investment preference towards a more socially responsible/ethical investing approach, which demonstrates that there is a clear opportunity now for Islamic investment products to succeed. FORGING THE RIGHT IMAGE ARR, Ernst & Young: We have touched on education. Can we elaborate on how we can enhance the perception of Islamic finance? ZIZA, Securities Commission: We organise a number of events regularly designed to raise awareness of the industry. One example is our annual International Islamic Capital Market Forum.

The topic for this year (2011) was: Risk Sharing: The Way Forward to Public Good. That is a central topic for us all, and something we have touched upon in this discussion. The idea of public good is a concept that is universal, and offers a way in for people to Islamic finance. We also run events specifically targeted at regulators across the world. We have an annual Islamic Market Programme (IMP) where global regulators, especially those with an interest in Islamic finance, come for a two-day conference in Malaysia organised by the SC to understand more about what Islamic finance is all about. Through this sort of interaction we are able to highlight its value propositions. In addition, we participate in roadshows, seminars and conferences around the world to get our message across. It is all very important. NK, CIMB-Principal: These are good initiatives, but I want to highlight another facet of this issue of raising the perception of Islamic finance. Should we even use the word ‘Islamic’ in the course of our business? DVA, INCEIF: I recall speaking at a conference a decade ago where I was asked that question: ‘Should we change the branding?’ I replied, ‘I know it is Sharia-compliant; it doesn’t matter whether it is called Islamic or not.’ The rest of the panel rounded on me and said, ‘We are Muslim and proud and it should be called Islamic.’ I said, ‘I am also Muslim and proud, but you have to speak to the understanding of your audience.’ In certain markets, you probably need to call it Islamic upfront so they can understand what it is all about. However, calling your products and services ‘Islamic’ in other places merely creates a barrier to understanding. We do need to get round that. I am not sure there is an easy solution to the problem, but I do think that talking about other aspects of what

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the products can do for an investor is a great idea instead of getting hung up on the ‘Islamic’ label. For instance, I quite like the fact that Islamic finance in Turkey is often called ‘Participatory’ finance. That is quite neat and it captures something essential about the whole thing.

Rafe Haneef Chief Executive Officer HSBC Amanah

ZIZA, Securities Commission: What you need with branding is a constant reminder of what the underlying value proposition is. If you can couple that with some big impactful transactions on an international scale that show how effective the system is — where you can see that it does not necessarily have to do with Islam — you have a powerful brand. JO, Shook Lin & Bok: We must always remind ourselves that we aim to convert not to preach; that is very important. We sometimes get things wrong, just like when it comes to religion. We don’t glorify the religion by condemning other religions; sometimes likewise in Islamic finance. We spend half the time condemning conventional as a means of glorifying Islamic finance; that again marginalises a certain group of people. NK, CIMB-Principal: I agree that not using the word ‘Islamic’ doesn’t make it any less Islamic. Market players should be able to position themselves uniquely in response to varying investors’ expectations in different markets. In Islamic asset management for example, Amana Global Equity Fund is the largest global equity strategy. Yet the name is just Amana, although it is a Sharia fund nonetheless. This is also the case with another large fund, Crescent Global Equity. This demonstrates that players in Islamic asset management can still be successful without explicitly using the term ‘Islamic’ in products or company names. My bottom line is this: it doesn’t make it less Islamic to use different names, there

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is no downside in not using the word ‘Islamic’. It is always the principles that matter above all. MH, Maybank Islamic: In my view, Islamic finance as a brand has come a long way and is generally acceptable. The emphasis should be on how we market our products. I would never have dreamt that Bank Islam would be able to run a cash contest over the past four or five years; but they have done it quite well. I don’t think it is necessary to use the word ‘Islamic’ when we market our products or conduct campaigns. We should be innovative in our approach. Take the ‘Profit Now’ by Maybank Islamic and ‘Why Wait’ by CIMB Islamic for example. The naming convention did not matter but the product still sells as an Islamic product. Let’s emphasise the substance and value of the product rather than emphasising ‘Islamic’ alone. ARR, Ernst & Young: From what you have all said, it seems that companies and organisations should be careful about tailoring their message to the markets and people they are addressing. They should be more focused on explaining the underlying value proposition to prospective clients — the deal, not the name. THE MALAYSIAN HUB? ARR, Ernst & Young: I do not think anyone doubts that the global market for Islamic finance will grow strongly in the coming years. Can Malaysia capitalise on that? Can it be a significant hub? Perhaps the pre-eminent hub? RH, HSBC Amanah Malaysia: If we want to be a hub for global Islamic finance, if we want to tell the rest of the world that we will set the global standard, we can’t propagate a standard that is lower than the current global standards. For example, take the issue of Bai’ al ’inah (sale and buy-back agreement). It’s only in Malaysia and perhaps Brunei where we implement

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Bai’ al ’inah; the rest of the world says ‘no’. That is not sustainable. NK, CIMB-Principal: If Malaysia wants to be the global hub, we should attract international players to be based in Malaysia and they will bring international talent. To attract global investment mandates, I am conscious that I need to internationalise my distribution model. So it is not the Sharia ‘model’ that we want to internationalise and standardise, it is the product distribution that needs to be internationalised. That is why CIMB-Principal Islamic is establishing a global fund platform in Dublin, Ireland. This enables international investors to more easily and conveniently access global investment strategies in the currency of their choice. DVA, INCEIF: I look at this from an educational standpoint. It is not just about foreign players coming in. So far they have made a difference. They haven’t made as much difference as everybody wanted and they didn’t do it as quickly, but it is also about us going out there and making reciprocal arrangements in terms of education. That will really shape Malaysia as an important location for Islamic finance. INCEIF are currently forging relationships with major universities and business schools around the world. We engage in collaboration on research, collaboration on using our programmes; we jointly share them and we have some world-class names, either signed up or lined up to work with us on that. AH, Bank Negara: Bear in mind, when we talk about global players in Islamic finance we do not only mean bankers. There are other segments we have to be mindful of when we allow people to come in: the legal fraternity, accountancy and other parts which are also integrated within the financial system.

I believe that when we talk about allowing people to come in, or when our own firms go out into the wider world, the most important thing is the underlying suitability of the model that allows other international players to enter Malaysia. Are we going to adopt the Singapore model? Are we going to adopt the UK model? Are we going to have our own model, which has not been thought of carefully until now? DVA, INCEIF: It is really important to change the business model that we have, that is certain. We are in a different ball game now. We have grown

Aznan Hasan Shariah Advisory Committee Member Bank Negara

What does the legal system look like? What does our regulatory infrastructure look like? How do we take our business out of the country? What are we going to do with our metrics? We shouldn’t be afraid of defining new global metrics, because the world probably hasn’t defined all of them yet from 6% to 23% in a relatively short number of years; growing any further is now outcome based. Part of the outcome we have to define is what the business model will be. What does the legal system look like? What does our regulatory infrastructure look like? How do we take our business out of the country? What are we going to do with our metrics? We shouldn’t be afraid of defining new global metrics, because the world probably hasn’t defined all of them yet. That is something we can do. We don’t necessarily have to follow what the current conventional world has. We should say, ‘We have the perfect right to do it.’ Why? Because we have done most of it already. We

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are out there at the front of the curve, we have tried and tested models and products. We have made some mistakes, sure, and we have continual improvement going on, but there is nothing to stop us from going out there and saying, ‘This is how things should be measured. These are the standards we expect’. We can define many of these issues: legal, contract, product definitions, recognition of income, how we take different products to market. We are already starting to define areas of cross-border liquidity management, aspects of raising projects — the list goes on and on. SCHOLARS AND SCHOLARSHIP NK, CIMB-Principal: Some Sharia scholars sit on more than 40 Sharia advisory boards. How do we avoid appointing the same Sharia scholars? How do we increase the pool? Can we discuss a totally different Sharia advisory board concept? AH, Bank Negara: We have a new forum — the Association of Sharia Advisers in Malaysia — which I think is very important and we had our first meeting recently. One of its main purposes is to help us enhance the capability of the Sharia scholars. We believe that at the end of the day we should have a proper training course that gives us the opportunity to enhance our knowledge so as to keep up with new developments in the market. Bankers often complain about scholars. They say that they have to go again and again to the same scholars. Whether that claim is true or not, some bankers simply go for the easy way out. They appoint the same scholars again and again for the purpose of what they call ‘easy endorsement’, as these scholars understand everything already and are familiar with product structures. If they get another scholar, who is perhaps a little bit younger, it’s more difficult for the bankers. So they appoint familiar scholars and really have no

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grounds to complain if it is difficult to find new, good scholars. It takes two to tango. So, overall, how do we educate and bring on good scholars? First there is the theoretical part of the process. We can give them the theory, but in order for them to develop themselves further in the financial area, they have to be engaged with real transactions. Give them an opportunity to learn, not just the theoretical perspective,

Some bankers simply go for the easy way out. They appoint the same scholars again and again for the purpose of what they call ‘easy endorsement’ but through practise. We have seen a lot of young scholars who are very good, yet they don’t have those opportunities for the reasons I have just mentioned. DVA, INCEIF: There are challenges here, but to be fair, Malaysia is not in denial on this and is trying to do something about it. It is in Bank Negara’s development plan, for example. The moves in 2005 to change the Sharia board structures to encourage more people to come into them have been important. When I was a banker, if I was doing something internationally I wanted one of the top 20 Sharia scholars on board, but it’s difficult to get them. Look at the figures: the top 20 Sharia scholars have 621 board memberships around the world between them. The next 260 have 520 between them. It is 30 against two. There is a challenge there to get high quality on board. You can do some things to try and bring the businesses closer to the Sharia scholars and to encourage them to learn, but you need to have an educational facility. NCEIF is not a Sharia training school in that sense, but it is

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a school where we do have a number of Sharia people — and, from a business perspective, we are raising the bar for people who will be going out into the business world; who will be in a position like Rafe before too long, and expect more of their Sharia scholars. JO, Shook Lin & Bok: Let me just say something in support of the scholars. Increasingly there has been a scarcity of scholars. The problem has also been compounded because at the same time the responsibilities and obligations of the existing scholars have been increased, as the figures we have just had mentioned have shown. There is one very clear example in that their scope has been extended to even the legal documentation of a deal, not just the overall structure of it. First they have to get the structure correct and they have to endorse that. Then they have to do a crash course in many other areas, and that is not easy. NK, CIMB-Principal: I would suggest that we move towards a model away from the current practice, whether it is a council, whether it is a board, whether it is a committee. The practice currently in most of our legal entities is that we appoint Sharia boards comprising only Sharia scholars. The model for a Sharia board could potentially be a mix of Sharia scholars and Islamic finance professionals like bankers, lawyers and accountants that are totally independent. This way, the board is able to take into account different views and make practical and implementable decisions, bearing in mind the Islamic fatwas. RH, HSBC Amanah Malaysia: We have done the same thing at HSBC: we have one finance professor and one auditor in the Sharia Council, and three fiqh, people with Islamic law backgrounds. It is a good mixture. The depth of the Islamic fiqh is still lacking. They still need to come up the curve.

MH, Maybank Islamic: Let the market decide. A scholar should be able to sit on at least two or three boards. Given a timeframe of ten years, let the market develop expertise; after ten years you can revise to make sure they are admissible. INCENTIVISING ISLAMIC FINANCE ARR, Ernst & Young: Let’s look at the role of incentives in Islamic finance in Malaysia today. When we started off, there were already tax incentives and many more were introduced thereafter. The question is, do we need to change the incentives, or is the current set good enough to do the job? JO, Shook Lin & Bok: If incentives are seen as a catalyst or a spur then ‘yes’. If incentives are then framed as crutches, then let’s think twice. A bag of goodies shouldn’t be in place there forever. ARR, Ernst & Young: The danger of that is such a regime of incentives would take away the value proposition of the financial product — the idea of fairness. MH, Maybank Islamic: I am of the belief that they would kick-start things and not detract from the value proposition. I would not recommend huge monies being put in place as incentives, tax or otherwise. However, there is place for some slight pathways, just to help things develop. NK, CIMB-Principal: Islamic finance is used as a differentiating niche for financial centres to compete with each other. London uses Islamic finance to compete with New York. Singapore uses it to compete with Hong Kong. Dubai uses it to compete with Bahrain. Luxembourg uses it to compete with Ireland. However, for Malaysia we encourage all these financial centres to embrace Islamic finance so that we each have a slice of a bigger cake on top of Malaysia being the global hub.

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SUMMING UP ARR, Ernst & Young: Perhaps our participants would like to give a brief summing up of their thoughts at the end of this very fruitful discussion. RH, HSBC Amanah Malaysia: The take-away for me is how much we as a nation, and as an industry, are at a crossroads. We have achieved so much, but there is so much more to do. We have spoken a lot about how we interact with the global financial market. How do we shape things in that arena? Do we stand in the same stream, or create our own stream and bring the rest along? My proposition is that we need to create a different stream and bring the rest with us so that we eventually create a force of equitable banking. It may not be called ‘Islamic’ banking, but it is banking based on equitable principles above all. We are still a long way from that, but as pointed out by Dr Aznan, we have to start somewhere. Just the fact that we are not able to reach it now doesn’t mean that we stop doing that. We should take baby steps at first. NK, CIMB-Principal: I agree, considering that we are in consensus that all of us are at the pioneering stage. It is important for us to assume it as our responsibility to work as a team to educate the investing public. For example, in Islamic asset management I need to educate the international investing community on the opportunities that prevail as an outcome of the many ‘black swans’, or shocks, over the last six years. Despite the volatility in the equity market as a result of shocks like the 2008 global financial crisis and 2011 Eurozone sovereign debt crisis, Islamic asset management has produced higher returns than conventional investment strategies. That five-year investment track record is very compelling when we take it to Europe, the UK, the US and Asia.

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Finally, we benefit greatly from being headquartered in Malaysia. Malaysia has the best level of communication integration, both from the top down and from the bottom up, across policy makers, regulators and market players. That is a key success factor that any country should replicate. JO, Shook Lin & Bok: Malaysia’s greatest strength has always been its moderation. However, our most immediate threat is complacency. There may be, in a certain sense, a level of what I would call ‘burnout syndrome’. We do need to go back to the spirit and the vigour that we had when we first started; when, if you remember, at the time the GCC had not invited us to their party because we sang a different tune. So we decided to hold a party of our own on the side, and now we are taking it to another level with the MIFC. In all our internationalisation, in all our opening up, in all our attraction of all parties all around the world, I feel we should also not forget that the MIFC is our baby; people are coming here and in that process we should make sure that the country in all respects leverages on that. That is also important. We should give equal weight to value creation and not just wealth in terms of meeting numbers. Islamic finance should not just be preoccupied with reading the figures and the numbers and increasing the data. We should maintain, if not increase, at all times the depth and breadth rather than just the spread of things. AH, Bank Negara: We are lucky that Islamic finance is in continuous progress, but how we can guide that process intelligently is another matter. We tend to look at the big numbers only, but sometimes we may need to pause and look at the model we should adopt. I believe Islamic finance has a set of core values that are attractive for natural reasons, and which can attract everyone, Muslim or otherwise.

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What we have to do is put forward this proposition to the widest possible audience. We may call it whatever we want, but if we rely on this core set of values we can go everywhere. The problem we face is that we may fail to convey this clearly to people. That is our challenge. MH, Maybank Islamic: It has been a very fruitful discussion. I have learnt a lot, but going back to what I said we just have to see innovation as the name of the game. We need to be coming up with innovative products all the time. At the same time, we have to emphasise the value proposition behind those products. And, of course, get the execution right. These are basic things that constitute the foundation of any successful business, and Islamic finance is no different. It is time for us to move out of the local Malaysian market. DVA, INCEIF: The key take-away for me is that we do have extraordinarily good people here in Malaysia. They are highly capable. However, we need to do a little bit of refocusing and transfer the discussion we have had into action. Good words must transfer into solid action. I echo the thoughts of everybody else thus: we need to be sure what model we want to adopt. We have to be very true in articulating the core principles and the value proposition we have, and to be clear about that. That, in a way, will determine the learning outcome, the outcome we want to get to and it will help us with the roadmap of how we are going to get there. If we articulate core principles, it will set the groundwork for the improvements we all want to see. ZIZA, Securities Commission: We have spoken about the underlying value propositions of Islamic finance and I would like to think all of us

firmly believe in those values. To move forward, I would like to see more collaboration at all levels: at the regulatory level, the industry level, the education level and at the Sharia level — the lawyers, the auditors, everybody else. We are at a crossroads, so we need to realise that we can’t all work independently, we can’t work in silos any longer. Fortunately for us, getting Islamic finance off the ground precipitated success and growth that has lasted for the past one or two decades. However, for us to go to the next level there needs to be a lot more collaboration, not just between the stakeholders within Malaysia, or within each jurisdiction, but across jurisdictions globally. We need to develop some truly international linkages within the Islamic finance industry.

Zainal Izlan Zainal Abidin Executive Director Islamic Capital Markets, Securities Commission Malaysia

ARR, Ernst & Young: I want to thank you all for your contributions to our discussion today. The one thing which has become clear to me is that we have all the ingredients in place in this country to achieve great things when it comes to the development of Islamic finance. We are, it seems to me, uniquely placed to become the sort of significant centre for Islamic finance that we all believe we can be. We are already, in many respects, ahead of other comparable jurisdictions. I believe our discussions here have brought those factors out. In terms of our legal and regulatory frameworks, and the ingenuity with which our financial professions have designed their products and services, we are strongly ahead of the curve. What is crucial, though, is that we continue to look squarely at the things that might stand in our way and that we face them. I believe that our discussion today has at least begun, or perhaps continued, that process. This isn’t just about Islamic finance. It is about Malaysia’s future as a strong and globally significant economic force.

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MUZAFFAR HISHAM MAYBANK ISLAMIC

Chief Executive Officer and Head of Islamic Banking Group

My career started in 1994 when I first joined the Asia International Merchant Bank. Most of my experience back then was in corporate banking until the emergence of Malaysia’s quick developing bond market drew my interest. I subsequently joined Amanah Merchant, and spent a good few years exposing myself to the domestic ringgit bond market. The Asian Financial Crisis struck in 1997/98 and those were some interesting times, when there was a lot of debt restructuring done in the market. Following that, I moved to Commerce International Merchant Bankers and got more involved in the investment banking side, including working on Islamic-related deals in the private and securities market; it was then that my interest in Islamic banking came about. I was later invited to set up an Islamic capital market desk at HSBC Malaysia and spent my time between Malaysia and Dubai. Subsequently, I was given an offer to fill the Deputy CEO position for CIMB Islamic Bank, post the CIMB and Southern Bank merger. Now, here I am privileged to have the opportunity to be part of the Maybank Group, managing Maybank Islamic for the past year. MOTIVATION

LESSONS IN BUSINESS

I am passionate about finance and have liked banking since day one. The relatively new area, or niche, of Islamic banking is something that excites me as well. It is the challenge to always try to break barriers with the objective of reaching the next phase in banking that motivates and pushes me forward to learn and do more. Learn from your mistakes. I have made mistakes before but what is important is for me to learn from them.

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INternational investor: You have projected strong growth in Maybank Islamic. In the coming year, what will be the biggest challenges in turning this projection into a reality? MUZAFFAR HISHAM: The biggest challenge is innovation. I think that we are at a pinnacle point, in the sense that what conventional banking has had for the past 15 to 20 years, Islamic banking is about to mirror, albeit with slight changes, in a short period of time. This process is not easily accepted by all, as the purists or the Islamic scholars may say, ‘We are definitely different from the conventional side.’ This is partly true, as primarily Islamic banking is different when it comes to structuring and offering. However, for most of the men on the street or even for the wholesale business, they just want value in products and services. There are things under Islamic finance that we could offer and do slightly differently, but fundamentally it is not merely coming up with a product, it is the whole process of it — the mindset change among the practitioners in the industry and, to a certain extent, in the market. The rise of islamic banking What is your take on the development of Islamic finance over the past few years? I think one of the events that stimulated the growth of the Islamic finance market was the Asian Financial Crisis in 1997/98, and so Islamic finance only really began to take off after 2000. Another factor that contributed towards the growth of Islamic finance is the strong push by the authorities — from the Central Bank, the Ministry of Finance and the Securities Commission. Incentives (including tax incentives) were given to encourage the development of Islamic finance. The other key factor was the availability of a huge amount of liabilities or Islamic funds — be it Takaful, Tabung Haji (our pilgrimage fund), the EPF and some of the government funds looking for assets. At one

islamic finance interview

point, Islamic liabilities/funds were so high that supply of Islamic instruments were not enough to cater for the demand. As a result, some of these bonds or Sukuk were trading at huge discounts off the normal yield; in terms of pricing this translated into a significant saving for any corporation. We understand you are Asia Pacific’s largest shariah financier. Can you tell us what key products this is based on? Yes we are, and although we are currently still very much concentrated in Malaysia, we are also looking to establish a stronger footprint regionally. In getting to where we are today and where we want to be in the future, it helps to have strong support from the Maybank Group. We have what we call an ‘Islamic First Strategy’, whereby there is a push for all front-liners to offer Islamic products/services first. Some say that Islamic banking is segmented and is perhaps only for Muslims or the Malay market; however, we believe it is a real option for anyone who walks into our branches. Thus anyone who walks into Maybank is spoilt for choice in that they can have conventional and Islamic banking. Our strong growth is also attributed to the strong support received from the authorities. Incentives are put in place to encourage the development of the Islamic banking industry. For example, there is a certain amount of discount off stamp duty and clarification on tax treatment in relation to buy and sell contracts (so as to create a level playing field). So if I have a conventional and Islamic mortgage with the same pricing, the Islamic product will likely be more competitive due to the stamp duty discount. Maybank Group recently purchased the Singaporean broker, Kim Eng. How has that purchase been integrated into your business? One key ‘door opener’ that Kim Eng has brought the group, including Maybank Islamic, is the licences that it has within the Southeast Asian region; in

Thailand, Indonesia and Singapore. The acquisition opens up a lot of capital market opportunities for us in those countries. Maybank as a group can add a lot of value to its existing customers by tapping into Kim Eng’s network and vice-versa. Is the raising of finance through Sukuk issues something that you want to be at the heart of within the region? Definitely, and we aspire to do that with support from the Central Bank, specifically under their Malaysia International Islamic Financial Centre (MIFC) initiative. We feel that there are many opportunities that we have yet to tap into under the MIFC, and this extends beyond the Sukuk market alone — for example, there is a lot of potential in the area of direct lending, bilateral lending and syndication markets as well. We are also exploring certain areas of the asset management or the liability side to open up some doors for foreign currency play. We hope to find some solutions and to capitalise on Maybank’s position as a regional player.

“

Some say

that Islamic banking is segmented and is perhaps only for Muslims or the Malay market; however, we believe it is a real option for anyone who walks into our branches

”

What sort of interest have you seen coming from your clients in these markets? We have seen an increasing level of interest from corporate CFOs on the subject of Islamic financing. A typical CFO wants to achieve the best pricing and best structures in financing; and this is where Islamic financing comes into play. Shariahcompliant funding or debt can help in terms of profiling and better equity structure on a wider corporate structure level so as to appeal to a larger investor base — this includes Islamic funds out of the Middle East or in Malaysia that place importance on a companies’ debt-equity ratios and Shariah-compliant financing. the importance of indonesia Is Indonesia a difficult market to penetrate? Indonesia is certainly a very competitive market to penetrate but it is definitely a market we need to be in, given its position as an emerging economy and its natural importance to Islamic banking for being the most populated Muslim country in the world. We are all watching closely, with a particular interest in the growth of the consumer side. Statistics-wise, total Islamic assets as a percentage of total banking assets are still very low at only close to 2%. I am quite confident that space can only grow further and this is going to happen with the right propositions, the right set of services and products and with support from the government. We are gearing ourselves towards this and we hope to be right at the heart of it when the time comes. Maybank currently has presence in Indonesia via our subsidiaries in Bank International Indonesia (BII) and Maybank Syariah Indonesia (MSI).

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NORIPAH KAMSO CIMB-PRINCIPAL ISLAMIC ASSET MANAGEMENT Chief Executive Officer

I have been at the forefront of CIMB-Principal Islamic Asset Management Sdn Bhd (CIMB-Principal Islamic) as Chief Executive since its inception in 2008. Since then, I have successfully established a global platform for the firm to extend its reach across the world. The firm acts as a global partner to global institutional investors, providing a range of Shariah investment portfolios to suit the needs of institutional clients such as central banks, pension houses, Takafuls and sovereign wealth funds (SWFs) in various jurisdictions such as Southeast Asia, GCC, United Kingdom and Europe. In my previous role I served as the Chief Executive of CIMB-Principal Asset Management Berhad (CIMB-Principal), which evolved from a Malaysian company to a regional asset management house with offices in Malaysia, Indonesia and Singapore. CIMB-Principal also pioneered the listing of the world’s first Regional ASEAN Exchange Traded Fund, CIMB ASEAN 40 ETF, listed in Singapore in 2007. With more than 25 years experience in corporate credit and lending, I have successfully overseen CIMB-Principal’s previous expansion into new markets and institutional mandates before taking on the challenge of a global role with CIMB-Principal Islamic. MOTIVATION

What motivates me greatly are new and pioneering initiatives that come with the job. The more complex and uncertain the business, the more motivating and exciting it is for me. Having an environment of full empowerment not only motivates me, but it grants me the flexibility of leadership.

LESSONS IN BUSINESS

The most important lesson in business is establishing trusted and sustainable relationship. As a leader, one must have soft skills, such as interpersonal relationships and warmth. It is also important to deliver what you articulate. One must walk the talk, which can be supported by deliverables for sustainable business. When it comes to global business, you must be versatile and flexible because global business is complex, uncertain and not within your control. During the Arab Spring crisis in early 2011 to June 2011, we switched our marketing resources to ASEAN and changed our business plan to keep up with the ever-changing market landscape.

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INternational investor: How is CIMBPrincipal Islamic weathering the current volatile and uncertain global economic situation? What are your biggest challenges and how are you addressing them? NORIPAH KAMSO: We see challenges in every crisis as opportunities for us, viewing them with a glass half full perspective. Having pioneered an investment management business in the midst of one of the most severe global financial crises, the company has developed flexibility and versatility in reviewing and revisiting the company business plan. This experience has helped us to recover quickly and take the opportunity to adapt to market changes by employing pragmatic efforts to develop the business; ultimately so the company can deliver investment solutions that benefit its investors. Allow me to give you some examples. Firstly, the Arab Spring where the ‘METALS’ countries (Morocco, Egypt, Tunisia, Algeria, Libya and Sudan) were impacted. This gave us the opportunity due to the flight of security that was focused on ASEAN and UAE. In the past two and half years, CIMB-Principal Islamic achieved commendable achievements and was able to win 11 institutional portfolios with a total AUM of US$764 million as at 31 Dec 2011. These monies are from sophisticated ASEAN pension houses and central banks. Secondly, we have also been able to demonstrate and achieve empirical evidence in the past five years during this crisis that Shariah investing offers comparable risk returns or even better returns than conventional investment. The crisis offered the opportunity to test the Islamic investment process (screening process), which ultimately demonstrated that Shariah investing is resilient against Black Swan and conundrums. Thirdly, CIMBPrincipal Islamic took advantage of the Eurozone crisis, which resulted in more pipelines for global sukuks. The bulk of the sukuks are issued by

islamic finance interview

emerging and frontier markets to finance US$750 billion of development in emerging markets and US$40-50 billion in poorer countries in the next five years (source: World Bank). To date, we are managing a global sukuk for a UAE bank — Al-Hilal Bank. Lastly, we are optimising the economic growth story of global emerging markets (Asia ex-Japan and ASEAN). CIMB-Principal Islamic has established three equities strategies (iGEM, Asia Pac ex-Japan and ASEAN) on the Irish/Dublin platform distribution to service international investors in order to meet their investment agendas. current investment themes What trends are emerging for global corporate and institutional investors in relation to your Islamic asset management offerings? The trends focus on two strategies: asset class and geographical preference. With regards to asset class, investors are looking at an alternative to the conventional space and Shariah investing has been the focus. It has ignited deep interest in understanding its benefits (from countries such as Germany, Austria, France, Russia, Central Asian states and Turkey) and how it can improve performance for institutional investors. There is diversification on both geographical and investment products. It is best to diversify in

either different investment products or different countries. For example, if a GCC client in the past five years invested in Islamic equities, they would have lost 45%. However, if they invested in Asia Pac ex-Japan they would have gained 31%. If they invested in emerging markets they would have gained 23%. If they invested in Malaysia they would have gained 67%. Institutional investors are therefore seeing the benefit of diversifying across different regions in their portfolio. Currently, there’s a global demand for dividend yield or regular income, more stable less volatile capital-protected investment products. the expansion of islamic finance CIMB-Principal Islamic already has a strong global presence, so how do you intend to grow the global business and the regional Asian business even more? What are your plans to expand into Europe and America, for instance, where Islamic finance is becoming more prevalent? While we have visibility in Asia, GCC and Europe, we have yet to pluck the low-hanging fruits. This was delayed because of the necessity to create a minimum of three years track record in various investment strategies. That said, we are growing the global business even more through three business models:

“

With regards

to asset class, investors are looking at an alternative to the conventional space and Shariah investing has been the focus

”

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Model 1: The direct approval/institutional asset manager role to capture pension houses, SWFs and central banks. This is business as usual initiated at MIFC level. Model 2: An advisory role to asset managers who have local presence to capture family offices and private bankers. This is an opportunity in the GCC whose capabilities are focused on domestic/MENA. Model 3: To distribute Dublin-registered USD funds through global and local bank networks to capture the retail mass-affluent and the Takafuls. Model 1 (institutional mandates) is business as usual, while Model 2 (sub-advisory roles) is progressing in the GCC and Model 3 (registering Dublin USD funds) is being explored. We are also registering and distributing our UCITS Irish funds in the three equities strategies in the UK, Germany and Switzerland to capture HNIs, whom we believe are a good segment of the Islamic communities. The three UCITS-compliant equity funds are: (1) The Islamic Global Emerging Markets Fund, (2) The Islamic Asia-Pacific ex-Japan Fund and (3) The Islamic ASEAN Equity Fund. On another note, we were recently chosen as the Best Asset Management Company (Asia) and Best Overall Islamic Asset Management Company 2011 in the Islamic Finance News’s Islamic Investor Poll 2011, beating other asset management houses such as BNP Paribas (Europe), NCB Capital (Middle East), Aosis Asset Management (Africas), and Saturna Asset Management (Americas). This global recognition will not only escalate visibility for us but also help us to expand our business further as Islamic finance becomes more prevalent. making use of a good track record What do you think will be your most important development in 2012? Having established close to three years track record on global capabilities for institutional mandates —

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with the track records being opaque to the public and institutional investors — 2012 would be focused on: showcasing our track records to international investors and building a global sukuk track record that is visible. In showcasing our track record on equities strategies, CIMB-Principal Islamic has embarked on a conscious strategic intent of using Dublin as the global platform for UCITS for Irish equity funds as mentioned earlier. The UCITS platform provides a regulatory framework that is clear and straightforward and easily understood. It also provides a harmonised framework for fund managers relating to investor protection, transparency and disclosure requirements. The UCITS framework also enables investment managers to have flexibility with multiple classes within a single fund to cater to retail and high-net worth, as well as to institutional investors. This offers the fund manager the flexibility to set different fees and requirements to cater to different investor classes — a feature that may not exist for domestic market-centric funds. It also enables the fund to be available in multiple major currencies, making it easier for international investors to invest in a fund. CIMB-Principal Islamic intends to distribute its funds in seven jurisdictions by offering this capability as a choice and diversification investment agenda for international investors. In building a global sukuk track record, CIMBPrincipal Islamic will work alongside al-Hilal Bank Abu Dhabi of UAE in being the investment advisor and opportunistically work alongside as a team to increase the AUM internationally. With both asset classes (equity and sukuk) having track records that are visible to international institutional investors. It is our strategic intent that these institutional investors will appoint CIMB-Principal Islamic as their investment manager for any of these capabilities for their institutional mandates.

islamic financeâ&#x20AC;&#x192; interview

RAFE HANEEF HSBC AMANAH

Chief Executive Officer

I started working for HSBC Amanah in London back in 1999 and I was one of the founding members. It was a time when Islamic banking was just starting to evolve. In fact, we were one of the first international banks to set up a dedicated team to cater for that market. We focused mainly on structured finance. We were looking at trade finance in Turkey, the Middle East, selectively in Latin America and as far as Korea and Kazakhstan. Once we had established that side of the business we wanted to broaden our remit, so we began looking at the retail sector. We launched a retail proposition in the US, home finance in particular, and then we launched a similar home financing proposition in the UK. The bank felt that we needed to be present in the Middle East to harness the future growth of Islamic banking, so we shifted to Dubai, and I was one of the first to relocate there. That was in 2001. We continued to innovate in the field of Islamic finance. For example, we pioneered the sukuk market. The first global sukuk was done by HSBC Amanah in 2002. We felt it was an important step forward in liquidity management. Given my securities law background I was able to get the right model in place in terms of having a sukuk that is understood by the conventional bond investors as well as meeting the requirements of Islamic investors. I moved back to Malaysia in 2006 and joined Citibank. They wanted someone to grow the Asia Pacific business, and I relished the challenge. Then there was an opportunity to come back to HSBC in 2008. They were looking for someone with a global markets background to head up an Islamic subsidiary, so I fitted in quite well back in HSBC. MOTIVATION

LESSONS IN BUSINESS

Islamic banking is a lot more challenging than conventional banking, given that it is still at an early stage compared with conventional banking which has more than 800 years of history. What motivates me to be in this industry is the sheer challenge of developing the best financial solutions that are Shariah-compliant for my clients. When I see the customers enjoying these benefits that keeps me going. Sometimes you have to trust your gut feelings. Sometimes you may find that financial numbers may appear very good, and can cloud your judgment. However, your gut tells you that something is not quite right. Pay attention to those feelings. Trust your instincts.

INternational investor: There has been significant interest in the sukuk concept from non-Islamic countries. What do you think is causing this interest? RAFE HANEEF: Quite simply, the tightening of the credit markets. In November 2011 the Bundesbank failed, for the first time in years, to auction the entire bond issue that it had hoped to sell â&#x20AC;&#x201D; and at a time when Indonesian sukuk were over subscribed. You may find that a lot of non-Islamic issuers will look to tap into the Islamic credit markets for diversification purposes. Given the constraints in the Euro Zone market in particular, you will see a lot more issuers now trying to come to the Islamic finance market. The biggest challenge for the Islamic finance market is pricing, which is a concern. The Islamic finance market is attractive to Single A, Triple B types of issuers, so there is a yield play. If you are a high-grade issuer the yield on the bond may be too tight to attract investors in the Middle East. While there is a significant amount of liquidity in the Middle East now, it is still chasing higher yields, so if you are a Triple B Plus issuer you will generate a lot more interest in the market compared with a Double A or a Triple A issuer. islamic finance: a learning curve To what extent is education still a major issue as far as the development of the Islamic financial services market is concerned? It is still important to get the message across, but there has been a significant education drive in recent years in core markets like Malaysia, Indonesia and the GCC. This is taking place mainly in the sukuk market, not so much in retail or other businesses. Education is happening in some nonIslamic countries as well. For instance, Australia is going through a learning curve in terms of getting ready to tap into this market. They are adjusting their tax laws to facilitate this.

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“

From a

capital adequacy perspective, most Islamic banks are well capitalised. In fact, it is usually a lot higher for Islamic banks. The challenge lies on the liquidity management side where we still lack sufficient tools

”

Is the Malaysian market being insufficiently harmonised with the wider Islamic financial markets beyond its borders? The Malaysian market is quite peculiar. For the ringgit business, the Malaysian sukuk issues are structured around Malaysian requirements, but the moment a Malaysian issuer goes outside they will comply with the GCC or a global standard, so in a way we can say it is a dual standard model. There are different regulations for local currency as opposed to foreign issues. We have seen a progressive harmonisation for all global issues, but the local Malaysian market is still following a separate standard. Will this affect Malaysia’s desire to be an Islamic finance hub? Ideally if you want to be a hub you should not only be promoting a standard which is globally accepted, but you need to also enforce that standard in your own country. If we want to be a global leader in Islamic finance, we need to push the global standard at home. If we don’t do that,

The Islamic concept of risk sharing

is interesting for the whole financial world to understand. Depositors do not just passively deposit their money in a bank — they actively invest in a fund

we will end up with a situation in which we have a lot of resources in Malaysia which we will simply not be able to deploy abroad. We need to understand what we mean by ‘hub’. We cannot say that we are a hub by just looking at the numbers. We may have 60 to 70% of the global sukuk market, but if that is all in local currency, using standards specific to Malaysia, then we are not really a hub, we are just a local player with a deep sukuk market. We need to make sure our talented people are familiar with the global standard, and all the local support systems are fully familiar with the same standard. Then there is a greater chance of Malaysia becoming a true global hub. What impact do you think Basel 3 will have on the Islamic financial services industry? Basel 3 will have the same impact on Islamic banking as on conventional banking. From a capital adequacy perspective, most Islamic banks are well capitalised. In fact, it is usually a lot higher for Islamic banks. The challenge lies on the liquidity management side, where we still lack sufficient tools. If Basel 3 requires a significant amount of assets to be liquid then Islamic banks will tend

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to have less liquid instruments compared with commercial banks because of the structure of their instruments. At the moment we only have the sukuk as a liquid instrument. However, it is a capital market instrument — five, seven, ten years in duration. For anything below 12 months, the instruments that are available to us are inter-bank bank deposits. However, they are far from perfect instruments. It is an issue that needs dealing with as a matter of priority. lessons from islamic finance Could Islamic finance have anything to teach mainstream banking and finance? The central Islamic concept of risk sharing is an interesting one for the whole financial world to understand. Depositors do not just passively deposit their money in a bank — they actively invest in a fund. Islamic banks are supposed to be like fund managers, providing a risk and reward-managing asset service to their customers. This radically changes the relationship between customer and bank, making the customer more involved in the whole business of banking. If every depositor — whether conventional or Islamic — is treated like an investor, and the investor is supposed to be intelligent to discern the type of risk that is suitable to him, then he should behave as an investor. If you are aggressive, you choose a portfolio which gives you a higher return but higher risk. If you are conservative then you choose low risk with low return. Obviously many customers may not be able to understand the risk profile on their own, so a ratings system could be put in place to inform them of what the risks are. I think this would have a revolutionary impact not just on the banking industry but on the whole fund management industry as well, because then there would be quite close convergence between what is a bank and what is a fund manager. It would also help avoid the sort of devastating systemic risk we have seen since 2008. If every depositor becomes an investor and rating agencies and other bodies can help them to understand the risk they would be investing in, I think banking would become very sustainable. The conventional solutions are very attractive because you have deposit protection, so if anything goes wrong the depositors will be protected. That gives people the comfort that it is better to bank the conventional way. However, when some banks fail the same depositors are on the streets protesting that we need to reform the banks — yet I think we need to reform ourselves first. If every depositor turned around tomorrow and said, ‘Look, I want my deposit to be invested and I don’t need the deposit protection’, then you would not need to protest because you would have changed the way banks work.

energy & commodities

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energy & commodities overview

And the winner is... The success of Malaysia’s Economic Transformation Programme will power an increased demand for energy. Besides exploration, development and services opportunities, renewable energy is a potential investment winner in the coming years

Reserves Offshore in Deep Waters Malaysia’s oil & gas wealth lies in offshore blocks. Malaysia has oil & gas reserves of 20.56 billion barrels of oil equivalent (bboe) and considering current levels of production at 584 million bboe every year, the theoretical reserves-to-production (R/P) ratio works out to 34 years. Malaysia’s undiscovered hydrocarbon resources, estimated to be around 10 bboe, is in deep/ultra deep waters. Most of the shallow water fields have reached maturity and it will be quite an uphill task to maintain oil & gas production at current levels. It will also be a challenge to extract all the reserves with existing methods and technology. Oil & gas demand is projected to increase with the economic growth. The country has stepped up exploration efforts to increase reserves. Deepwater projects, development of marginal fields and enhanced oil recovery projects (EOR) are the major thrust areas to add domestic reserves and increase production. Facilities to import gas are also being developed to cater to the increasing domestic demand. Successful Hydrocarbon Resources Management for the Nation’s Progress Exploration & Production Petroliam Nasional Berhad (Petronas) is Malaysia’s national oil company and the custodian of petroleum resources with rights to explore and produce resources. Petronas retains ownership and management control in exploration, development and production of oil resources in Malaysia. Expenditure and profits are managed under the Production Sharing Contracts (PSCs) with oil & gas exploration and production companies. Petronas Carigali Sdn Bhd (PCSB), a wholly owned subsidiary of Petronas, is the domestic exploration, development and production arm, producing approximately onethird of Malaysia’s total oil & gas. There are currently 77 active PSCs between Petronas and the oil & gas companies. Of these,

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28 are in exploration, 15 in development and 34 in producing stages. Out of 20 international oil & gas exploration companies present in Malaysia, 16 operate oil & gas upstream assets in the country. LNG Production The Petronas LNG complex in Bintulu produces around 23 million tonnes of Liquefied Natural Gas (LNG) every year. Japan buys around 60% of the LNG produced by Malaysia, with the rest taken up by South Korea, China, Taiwan and other countries.

Deepwater projects, development of marginal fields and enhanced oil recovery projects (EOR) are the major thrust areas to add domestic reserves and increase production

National Gas Network Petronas Gas Bhd (PGB) manages the gas processing facilities and distribution network. Natural gas is distributed to customers across Peninsular Malaysia through the Peninsular Gas Utilisation (PGU) pipeline network. PGB will fully implement Third Party Access (TPA), wherein the PGU pipeline system will be opened to external parties (shippers) in addition to Petronas for them to transport their gas for a specific fee under a zonal tariff arrangement. In 2011 PGB embarked on the construction of the world’s first-of-its-kind Island Jetty LNG Regasification Facilities in Melaka. This LNG import terminal will allow Malaysia to import LNG from other countries to meet increasing domestic demand. Refining Malaysia has a refining capacity of 557,000 barrels per day. Petronas owns and operates four refineries, with a total capacity of about 440,000 barrels a day. Royal Dutch Shell and ExxonMobil also own and operate refining assets in the country. Stable Electricity Industry The electricity supply industry in Malaysia is large, serving a consumer base from the residential, commercial, industrial and other sectors. The electricity consumer base exceeds 8 million and consumes 91,000 GWh of electricity annually. This is expected to increase in the coming years as Malaysia’s economy continues to grow. The generation, transmission, distribution and retail of electricity are dominated by three major utility companies, Tenaga Nasional Bhd (TNB), Sabah Electricity Sdn Bhd (SESB) and Syarikat SESCO Bhd (SESCO). TNB generates, transmits and distributes electricity in Peninsular Malaysia, while SESB carries out the same principal activities in Sabah and SESCO in Sarawak. TNB also has ownership stakes in SESB. The electricity generation activity of these three utility companies is complemented by the Independent Power Producers (IPPs). The energy supply industry in Malaysia has developed from one that was monopolistic in nature and vertically integrated by a state-owned utility firm to one that presently comprises both state-owned utility firms and IPPs.

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1. Activities along the Upstream Value Chain GREENFIELD SERVICES Exploration Phase ■ Seismic activities ■ Drilling services ■ Marine support Development Phase ■ Hook-up and commissioning ■ Drilling rigs and services ■ Construction and fabrication of structures ■ Marine support BROWNFIELD SERVICES Production Phase ■ Engineering and project management ■ Operations and maintenance services ■ Field review and optimisation ■ Retrofit work ■ Hook-up and commissioning ■ Fabrication of structures ■ Structural maintenance and upgrade ■ Equipment maintenance and upgrade ■ Marine support Abandonment Phase ■ Well plugging ■ Dismantling of structures ■ Decommission machinery and equipment ■ Marine support Integrated Service Providers offer services across the value chain Source: Frost & Sullivan

The IPPs have a combined installed generation capacity of 14,777MW, which is 68% of the total installed generation capacity in Malaysia. The remaining 32% capacity is from TNB’s power plants. Electricity is transmitted throughout Peninsular Malaysia via the National Grid. TNB, SESB and SESCO play integral roles in distributing and ensuring continuity in the supply of electricity to these consumers in their respective regions. Renewable Energy Power Generation to be a Winner Malaysia adopted a five-fuel policy almost a decade ago to include renewable energy as a key contributor to the national energy mix. However, renewable energy for power generation never really took off due to challenges associated with the financing of projects. Recent developments have changed the position of renewable energy from being an option to one of high priority. Increasing demand for gas coupled with declining domestic supply is expected to double the price of gas-based power generation. Malaysia has to rely on coal imports to meet up to 90% of demand. Coal exporting countries are likely to divert coal to domestic needs rather than export, as with the case in China and India. Though Malaysia is adding more coal-based power

energy & commodities overview

Strengths

weaknesses

■ Malaysia

■ Malaysian companies only contributing on support services (ie, marine support services, OSC and recently ROVs) in the oil & gas sector. None of the local companies own 3D seismic technology and seismic barges ■ Difficult financing environment for renewable energy-based power projects

continues to attract foreign companies to bid for and operate offshore blocks ■ First deepwater project in the APAC region. Malaysia is currently one of only five proven deepwater areas in the world — this gives more leverage for higher exploration investments ■ Malaysia is a veteran in offshore production activities l A vast pool of field operators who are of international standards l Good understanding of type of reservoir and its production strengths and constraints

opportunities ■ Market showing early entry of deepwater service players into Malaysia. Technology import gaining ground ■ Malaysia to be positioned as the regional hub for deepwater, oil & gas field services and OSV shipbuilding ■ Development of marginal oil & gas fields ■ Development of domestic capabilities to service the entire oil & gas value chain l Malaysian companies collaborating with international companies are able to provide full EPCIC service ■ Development of the renewable energy industry

■ Competition from other countries for investment in oil & gas exploration ■ Competition with other regions for rigs offered by international drilling companies ■ Acreage disputes with neighbouring countries limiting or slowing down exploration activities ■ Marine and ecological concerns from intensified exploration and development activities

generation capacity, coal may not be the long-term answer for the country’s power needs. There is a question mark over the immediate fate of nuclear power in Malaysia. Malaysia was in an advanced stage of planning for a nuclear power plant when the Japan incident happened. Large scale hydro projects have difficulties getting environmental clearance, as noted in the case of the recently called off Bakun Power Plant. Malaysia has made a strong environment commitment to reduce greenhouse gases by 40% by 2020 from its 2005 level. This reduction would either come through renewable energy or energy efficiency, both of which have assumed a prominent role in government policy. Renewable energy (RE) in the current situation is an ideal solution to solve the country’s need for long-term energy security as well as meeting environmental commitments. There are many ongoing developments and initiatives which showcase a positive intent to realise renewable energy targets: ■ Malaysia has passed the RE act which sets a roadmap for renewable energy development, setting aside quotas for different renewable energy technologies and giving a Feed-in-Tariff to renewable energy-based power generation. ■ The cost of gas has already been increased by RM 3/MMBTU and the government is expected to continue subsidy reduction for gas by following

a subsidy rationalisation programme. The cost of electricity has been increased in June 2011 to reflect the higher cost of gas. ■ The electricity price shall be increased by 1% to provide the RE levy for the Feed in Tariff (FiT) fund. This is effective from September 2011 and would amount to RM 300 million of the RE fund. ■ An initial RE fund of RM 189 million has already been set aside for FiT. ■ The Sustainable Energy Development Act (SEDA) bill was passed in April 2011 and a dedicated body for the implementation of the FiT mechanism has been set up. The favourable FiT policies and ongoing development of a strong market infrastructure in both solar and biomass power indicate a strong probability of success for RE power generation in Malaysia. Presence of a sufficient RE fund, removal of technical barriers such as grid access by the RE Act, presence of a dedicated agency like SEDA to implement the RE act, a sound track record of TNB and policy consistency in Malaysia show that RE project developers have little to fear on account of revenue assurance risk. The only major hurdle for renewable energy projects in Malaysia is a perception of risk by banks and financial institutions. Banks and financial institutions would need to assess RE projects in light of new favourable developments and with a futuristic outlook. If banks and lending institutions

threats

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overview energy & commodities

2. Competitive Landscape for Oil & Gas Support Services Competitive Landscape Measurement Trend Number of players in Between 60 to 80 Increasing base year (2010) Categories of competition Multinational companies Stable Medium to large regional Increasing and local companies Smaller local companies Increasing ■ Technical & project Competitive factors management ability ■ Reliability ■ Experience ■ Time for completion ■ Price ■ Local presence ■ Availability of work barges/work boats ■ Financial resources Key strategies Provide end to end Integrated Increasing services — ‘One Stop Shop’ Specialized services Stable — Niche areas Source: Frost & Sullivan

can differentiate the perceived risks of RE from actual risks, there could be an opportunity of RM19 billion loan values for them by 2020. Economic Transformation Programme Focus on Oil & Gas and Energy Projects Domestic oil & gas production is not expected to grow substantially beyond current levels, as the size of the new oil & gas discoveries are smaller than in the past. Future growth in production is likely to come from Enhanced Oil Recovery (EOR) techniques and development of smaller fields. Deepwater discoveries being developed will also add to production. Malaysia, with its mature fields, presents significant opportunities for maintenance and replacement of assets. Development of new fields will drive the growth in the Greenfield sector. Creating a Regional Oilfield Services Hub The oilfield services and equipment industry supports the upstream sector (see fig.1). Competitive Landscape for Oil & Gas Support Services The table (see fig.2) gives the competitive landscape for the upstream oil & gas sector support service providers. Licensing is an essential prerequisite in order to compete in this industry. The oilfield services market generates revenues of RM 2 billion annually. This market is poised to grow with increasing upstream activity. Prominent domestic service providers include Scomi, SapuraCrest, Petra Energy, Kencana Petroleum, Wasco, Bumi Armada and Tanjung Offshore among others.

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Larger projects with increasing complexity are being anticipated, and integrated O&G service providers would be in a stronger position to provide superior delivery capabilities. Large projects require service providers with economies of scale, breadth of specialist skills and financial strength. The market presents many M&A opportunities. Recently, SapuraCrest and Kencana announced their intentions to merge. The combined entity would have the capacity to handle larger projects. High Market Entry Barriers Entry barriers to the upstream oil & gas support service market are high. All service providers to the oil & gas sectors must be licensed by Petronas. This requires a high level of technical capability coupled with previous experience. Financial backing is important. So, only companies with sufficient capital and technical capabilities can be expected to enter this market. Important equipment for providing these services is required. Ownership of marine support vessels such as work boats and barges gives a competitive advantage. Entrants from other industries such as construction have had difficulty in securing and fulfilling contracts in the upstream oil & gas market. Previous experience is very important as the oil & gas industry is very conservative when it comes to trying new entrants. Health, safety and environment issues have compelled oil companies to engage experienced contractors only. The possibility of loss of production prevents oil companies engaging new entrants. Competence of current in-house personnel is essential to undertake assignments in this market. Licences must be valid when bidding for contracts. The two major categories under which Petronas issues licences are: Supply and Service. There are various sub-categories under these two main categories. The sub-categories are further sub-divided for issuing a licence. Licences are issued for these sub-divisions of the specific sub-categories such as equipment supply, platform design and construction, equipment maintenance and so on. Service providers must be licensed for the specific activity that they bid for. The prerequisites for a service provider to obtain a Petronas licence and to participate in tenders are: ■ Prior experience ■ Financial backing ■ Technical abilities ■ Ministry of Finance (MOF) registration Local companies may tie up with Original Equipment Manufacturers (OEM) for supply and/or servicing of equipment. Local companies seeking to supply proprietary equipment or services need to have an exclusive tie-up with the relevant OEM. Multinational firms also have local subsidiaries that participate in the tenders.

energy & commodities overview

The Makings of a Regional Deepwater and Subsea Industry Hub Malaysia’s deepwater potential for oil & gas reserves is estimated to be 10bboe. Malaysia’s deepwater presents unique challenges such as complicated sea-bed relief with slope and stability issues. Shallow hazards are present and there is a need for hydrate management. The government has identified Labuan, in Eastern Malaysia, to be developed as the regional deepwater and subsea industry hub. The key driver for Labuan is the development of Gumusut/Kakap, Malikai, Jangas, Ubah Crest, Pisangan and Kamunsu deepwater fields. Development of the deepwater hub presents opportunities for oil & gas exploration companies, specialised equipment manufacturers, service providers and offshore engineering companies. There is emphasis on building local capacity and Petronas aspires to transfer project development and operation activities for deepwater projects to Malaysia. Exploiting Marginal fields Petronas has identified around 90 marginal fields in Malaysia that can be developed economically at prevailing oil & gas prices. The government is offering oil & gas companies a series of tax breaks in a bid to encourage exploration and production activity for marginal fields. A consortium approach will be followed for marginal field development. The consortium will consist of a foreign and local company, with the foreign partner leading the consortium. The local player should have a minimum equity of 30% in the consortium. Sepat, Berantai, Cendor Phase 2, Balai and Bentara fields, Cenang and Tembikai, Desaru, Jambu and Serendah are the first batch of marginal fields marked for development. The Sepat pilot project is the first, followed by Berantai. The CAPEX required

to develop a marginal field is estimated to be US$0.7 to US$1 billion and the project is profitable when oil prices are over US$65/bbl. Enhanced Oil Recovery Techniques to Boost Production Enhanced oil recovery (EOR) technology and services will play an important role in maintaining the country’s current level of hydrocarbon output from mature fields. EOR techniques have been carried out at a few pilot sites in Malaysia. ExxonMobil’s EOR project at the Tapis field is to start in 2013, with an investment of over US$1 billion. Oil & Gas Technology Import Opportunities Malaysia presents opportunities for the import of technologies in the following areas: ■ Deepwater technologies — Imaging technologies; Drilling — cost effective technologies for drilling in deeper water; Subsea technologies. ■ Reservoir stimulation techniques ■ EOR technologies ■ Carbon reduction technologies

If banks and lending institutions can differentiate the perceived risks of renewable energy from actual risks, there could be an opportunity of RM19 billion loan values for them by 2020

Oil & Gas and Energy Sector Investment Opportunities — A Summary The Economic Transformation Programme planning has been done well and implementation is in progress. The thrust is oil & gas and energy projects. Exploration and development activities have increased. Malaysia is building its capacities in oilfield services, development of marginal fields, EOR techniques and deepwater projects. The country has the potential to be a regional hub for oilfield services and the deepwater industry. The country has mature oil & gas fields that offer opportunities for oilfield services and EOR technologies. Renewable energy power generation has investment opportunities.

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overview energy & commodities

Palm Oil poised for growth Although Malaysia is a major rubber and timber producer, almost three quarters of the country’s agricultural land is devoted to palm oil production — and the government is keen to increase private sector involvement by offering attractive incentives

Commodities The commodity sector in Malaysia comprises palm oil, rubber, timber, cocoa, pepper and tobacco products. While now known for its industrial activities, Malaysia’s roots can be traced to a strong agrarian economy. Once the world’s biggest rubber and tin producer, Malaysia moved aggressively into the palm oil industry in the early 1980s. Until recently, Malaysia used to be the largest palm oil producer. Though overtaken as the world’s biggest palm oil producer, Malaysian companies are very active in the regional economy by way of owning many plantations in Indonesia. Hence, Malaysia’s influence in shaping the direction of the global palm oil market cannot be ignored. Under the government’s Economic Transformation Programme (ETP), only one commodity features prominently — palm oil. However, under the Ninth and Tenth Malaysia Plans, other commodities are included such as rubber, cocoa and timber. These commodities contribute significantly to the Malaysian economy. Currently, Malaysia’s palm oil industry is the fourth largest contributor to the national coffers, accounting for at least 8% GNI per capita. The commodities sector is mostly driven by the private sector, with the government having a strong presence through its Government-linked Companies (GLCs). The local palm oil industry is very mature, spanning involvement in both upstream and downstream activities such as palm oil mills, refineries, biodiesel plants, oleochemicals, etc. In Malaysia 71% of total agricultural land is used by oil palm plantations. As of 2009, the total planted area for oil palm estates stands at 4.7 million hectares. Growth is estimated at more than 7% in the next ten years, driven by FFB (fresh fruit bunches) yield, expansion overseas and downstream activities. Together with the ETP and the Palm Oil National Key Economic Area (NKEA), the government’s main thrust is to reinforce involvement of the

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energy & commodities overview

private sector in steering the industry, promoting downstream activities and strengthening independent smallholders. Although most of the attention is given to palm oil in the national economy, rubber and other commodities are not neglected. Downstream rubber activities are the main focus in the rubber industry. Today, Malaysia is the largest producer of rubber gloves in the world, with a commanding 60% market share. By end of 2011, rubber’s total export value is estimated to top RM10 billion. Natural rubber (SMR20 grade) dominates the export market with 47.9% in 2010. (SMR20 is a technically specified natural rubber used in the manufacture of high performance passenger and truck tyres. Its low viscosity and other properties reduce the mixing period considerably, making it a very efficient material). Timber and its derivatives contributed RM19 billion in export value in 2009. Malaysia is also the largest exporter of tropical logs, accounting for 35% of the global supply. The local timber industry is well structured and governed by local authorities such as the Department of Forestry, Forest Research Institute Malaysia (FRIM) and Malaysian Timber Industry Board (MTIB). To attract investors, the Malaysian government has introduced many incentives to spur the industry forward. These include incentives for reinvestment in resource-based industries. However, these companies must have at least 51% of their shares in Malaysian hands. In addition, the companies are required to be in the rubber, palm oil and woodbased industries producing products with export potential. These companies are also eligible for fiscal relief in the form of income tax and investment tax. Overview As of 2010, commodities related economic activity in sectors including agriculture, forestry, mining,

quarrying and manufacturing accounted for 45.2% of the country’s GDP. Total export value of commodities and commodity-based products was RM113 billion in 2010. Net export value for primary commodities (see fig.1) increased 18% to RM94 million between 2009 and 2010, while our import value of selected products such as synthetic rubber, tyres, cocoa beans, chocolate, wooden and rattan furniture has also seen a similar average increase of 30 to 40% annually. There is no major fluctuation in the average prices of primary commodities as they have been steadily increasing since 1990. Most of the commodities’ average price, such as crude palm oil (CPO), palm kernel oil (PKO) and natural rubber, has multiplied twofold and threefold in the past ten years due to massive agricultural land conversion and government initiatives supporting the growth of the industry, such as the National Agriculture Policy and the Malaysia Industrial Master Plan. Malaysia’s primary commodities export fiveyear landscape has seen consistent growth, where 2010 export value has increased by 48% since 2006. Palm oil export is the leading primary commodities sector. Although the mining industry shows a higher contribution to the total export value, this is mainly due to the increased price of commodities. For instance, tin ore prices increased by 67% in 2010 from USD15,588 to USD26,103.83 per metric tonne. Malaysia’s primary commodities industry is driven by local players that have a global presence, such as Sime Darby, IOI Corporation and KLKepong Berhad. These large corporations have expanded their upstream activities to countries such as Indonesia and are establishing downstream activities in countries such as the Netherlands, China and South Africa. Unlike most of the other global commodities producers, Malaysian players are governed and supported by the Malaysian government’s Ministry of

Currently, Malaysia’s palm oil industry is the fourth largest contributor to the national coffers, accounting for at least 8% GNI per capita

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overview energy & commodities

1. EXPORT VALUE OF PRIMARY COMMODITIES AND COMMODITY-BASED PRODUCTS 2010

JOR

80 9,126.8

459.5

Mining RM78.6 billion ■ Metallic mineral – tin metal, bauxite,ilmenite, iron-ore ■ Non-Methalic or Industrial Mineral– aggregates, clays, feldspar, kaoli, limestone, mica, sand and gravel, silica ■ Energy Mineral - coal Palm Oil RM62 billion ■ Palm Oil **, palm kernel oil, oleochemicals, palm-based products, palm kernel cake and others

009

60 50 40 30 20 10 0

2010

ssia, Canada, apore, Taiwan,

Products y Acid Distillate

Oil

267

264

ion MT of FFB 32 million MT

ost & Sullivan

Cocoa RM4 billion ■ Cocoa beans, cocoa butter, fats, oil, cocoa powder, chocolate

Source: Frost & Sullivan

Plantation Industries and Commodities (MPIC). The with standards set by various agencies and associations, such as the Malaysian 90,000,000 is aiming Malaysia Palm Oil Board (MPOB) and the Malaysian Palm 80,000,000 Oil Association (MPOA) for oil palm, the Malaysian to transform itself 70,000,000 Rubber Board (MRB) and its R&D arm the Rubber into60,000,000 a centre of Research Institute of Malaysia (RRIM), the Malaysian 50,000,000 Timber Industry Board (MTIB), the Malaysian Cocoa excellence for 40,000,000 Board and the National Mineral Council. the30,000,000 commodities One of the pressing issues for the commodities 20,000,000 industry in Malaysia is the demand for agricultural sector and 10,000,000 land to expand plantation area in order to increase as a major 0 production. 2006 2007 2008 2009 In order 2010 to meet raw material demand, Malaysian producers have resorted to importing producer of higher Coca Beans and Coca Products Timber Products Mining primary commodities from other countries. *Cocoa Products: Cocoa beans, cocoa butter, cocoa powder (including value-added Imports of commodities increased by 39% from cocoa powder containing and not containing added sugar or other sweetening matter), cocoa paste, chocolate otherThe chocolate 2009(including to 2010. total commodities import value commodity-based preparations in blocks, slabs and bars) and cocoa shell is estimated to account for RM19 billion in 2010. ** Major Timber Products: Logs, sawntimber, plywood (includes blockboard products (includes The commodities and laminated board), veneer, mouldings wooden dowels) industry in Malaysia also relies highly onor industrial foreignmineral labour. Dependence on foreign *** Mining Products: metallic mineral, non-metallic and coal labour is due to a lack of interest among the locals Source: Frost & Sullivan and low wages. This contributed to the influx of more than 300,000 registered foreign workers in 2009 for the plantation sector alone. High dependency on manual labour is also a result of a lack of technological innovation in the industries to enhance production methods and promote better production quality across all commodities. Global demand for palm oil and major timber products is increasing on average at 4% annually — the price of SMR20 peaked at RM105.80 per kilogram in 2010 compared with RM63.70 per kilogram in 2009, and demand for cocoa beans almost doubled in 2010. High product quality and international recognition attributed to the constant demand for Malaysia commodities. The Malaysian government’s Ministry of Plantation Industries and Commodities (MPIC) has introduced various initiatives to further support Malaysian commodities growth and new segment exploration, such as the MPIC 5-year Development Plan that ensures the development programme for the 4. EXPORT VALUE OF COCOA PRODUCTS*, MAJOR TIMBER players are also guided PRODUCTS** AND MINING PRODUCTS***

RM Million

Olein icals Oil Stearin cessed Palm Oil

Timber RM20 billion ■ Saw logs, sawn timber, fibreboard, plywood, builder’s carpentry & joinery, wooden & rattan furniture and others

* Rubber Goods excludes shoes, apparels, toys, and games and dipped products except gloves ** Includes crude and processed

ost & Sullivan

RODUCTS

Rubber RM25 billion ■ Natural rubber, materials of rubber, tyres & tubes, articles of rubber, rubber gloves *

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plantation and commodities sector that has been outlined and planned. Malaysia is aiming to transform itself into a centre of excellence for the commodities sector and as a major producer of higher value-added commodity-based products, to compete in the global market. Neighbouring countries such as Thailand, Vietnam and Indonesia also produce similar natural resources and are advancing in the area of technology utilisation for upstream and downstream activities. There are also economic trade protectionist policies to address. Some countries such as Germany, the UK and Spain are using both tariff and non-tariff barriers to restrict market access to protect their local commodities industry — such as the Renewable Energy Directive adopted by the European Union, which imposes strict regulations on carbon emissions, distorting the palm oil commodity price. Commodities highlight: Palm Oil For the past 25 years, the Malaysian palm oil industry’s stronghold has been in upstream activities, where FFB production has achieved higher yields of production per acre compared with other producers globally. Malaysia boasts strong local production of palm oil, which contributed 37% of palm oil production globally. Major exports are to China, European economies and Pakistan. In recent years, the world has witnessed a strong entrance by Indonesia. Despite domestic problems, Indonesia has emerged as a significant exporter and aggressive competitor in all palm oil markets, especially the production of fresh fruit bunch (FFB). Indonesia’s weak rupiah has also allowed Indonesia to sell below Malaysian prices. In ensuring the sustainability of palm oil, organisation at a global level — such as the Roundtable on Sustainable Palm Oil (RSPO), comprising all sectors in the palm oil industry including oil palm producers, palm oil processors or traders, consumer goods manufacturers, retailers, banks and investors, environmental or nature conservation NGOs and social or developmental NGOs — aspires to transform the markets to make sustainable palm oil the norm. At the national level MPOB, the Malaysian Palm Oil Association (MPOA) and the Malaysian Palm Oil Council (MPOC) are collaborating to set structures and standards for the local industry. MPOB has outlined the best practice for the palm oil supply chain in Code for Practice for the Oil Palm Supply Chain. The code promotes high quality production by recommending optimum processes for areas such as good agricultural practice, milling, refining, crushing, handling, transport and storage of palm oil products. The MPOB also drives initiatives through research and development to introduce higher quality seeds and seedlings for local plantation usage.

energy & commodities overview

Strengths

weaknesses

■ Commodities

■ Currently 70 percent of local land bank is actively being used for upstream commodities industry resulting in fast diminishing land for re-planting due to long maturity period of commodities ■ Lack of innovation in upstream and downstream sector resulting in high dependency on labor. Foreign labor from Indonesia, Bangladesh and India were brought in legally and illegally

industry remains one of the major contributor to Malaysia’s GDP, accounted at 45.2 percent ■ Positive balance of trade for primary commodities registered for the past five years ■ Consistent growth in demand for primary commodities globally resulted in over 48 percent increase in export value in 2010 ■ Establishment of local players and partners at global arena that have harness best practice in both upstream and optimizing the downstream potential ■ Structured governance to ensure quality and best practices are applied by industry players under MPIC and its various agencies

opportunities ■ Price of primary commodities such as crude palm oil and natural rubber SMR 20 has been on the rise where the recorded at RM2704 per tonne and RM105 per kilogram respectively ■ Strong support by the Malaysian government for the industry by introducing various fiscal initiatives, tariff-friendly incentives and facilitation service for foreign investors

The main areas of research focus on increasing yields, quality of palm oil and decreasing the height of the oil palm trees for easier harvesting. The land exploration for palm oil in Malaysia is increasing rapidly. In 2010, the total planted area was 4.8 million hectares compared with 2.02 million hectares ten years ago. Currently, 52% of the planted area is in Peninsular Malaysia, 19% in Sarawak and 29% in Sabah where 61% ownership is by private corporations. Lack of available land is a major concern for the upstream industries. As a result, major players in Malaysia have started to focus on downstream activities such as production of downstream oil products, product packaging and global distribution. Export value for palm oil products increased to RM59.79 billion in 2010 (see fig.2) in comparison with RM49.66 billion in 2009. Commodities highlight: Rubber Malaysia’s rubber industry contributed RM18.5 billion to national GNI in 2009 (excluding contributions from rubber wood at RM7.11 billion). Malaysia is currently the world’s third largest natural rubber producing country (see fig.3) behind Indonesia and Thailand, with a total of 1.02 million hectares planted and another 1.4 million hectares of replanted area. Today, Malaysia has the world’s largest and most extensive rubber R&D infrastructure, including research facilities in the UK. The rubber industry has accumulated a pool of expertise on all scientific aspects of natural rubber in the areas of plant

threats ■ Developed countries such as Germany and UK are utilizing economic trade policies in form of both tariff and non-tariff to create entrants barrier in order to protect their local market

science, agronomy, plantation management, processing, rubber and rubber products technology, rubber wood furniture design and manufacturing, and overall marketing. Advanced R&D from major local players and the Rubber Research Institute of Malaysia (RRIM) has propelled average natural rubber yields for estates to a 30% increase per hectare. The Malaysian rubber industry is mature, with various upstream and downstream activities. In the downstream segment, the Malaysian rubber products industry is made up of more than 500 manufacturers producing latex products, tyres and tyre-related products, industrial and general rubber products. In 2010, the total contribution to export earnings stood at RM12.96 billion. Malaysia’s rubber plantation area has been gradually declining at a compound annual growth rate of 2.9% over the past 10 years. This is mainly due to the conversion of rubber land to grow other crops. Productivity remains low due to the existence of old and low-yielding seed clones, and low adoption of the latest latex harvesting technologies and mechanisation. The government continues to promote the development of Malaysia’s resource-based industries in order to diversify the country’s sources of growth. In addition to fiscal incentives which are currently available for promoted products and activities, the government has further finetuned the incentives to promote specific activities, among which is the rubber products industry. To

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products, palm kernel cake and others

overview energy

1995

2000

2005

2007

2008

2009

2. 2010 EXPORT OF DOWNSTREAM OIL PALM PRODUCTS 22,452

RM Million

RBD Palm Olein Oleochemicals RBD Palm Oil RBD Palm Stearin Other Processed Palm Oil PKO Finished Products Palm Fatty Acid Distillate PKC Biodiesel Palm Acid Oil

8,036

4,922

743

267

264

451 Palm oil mills with capacity to process 102 million MT of FFB per year, 78 Palm oil refineries with capacity to produce 32 million MT of CPO per year Source: Frost & Sullivan

further encourage investment in resource-based industries, local companies in the rubber industry that reinvest to expand their projects are eligible for Pioneer Status — this guarantees income tax exemption of 70% of statutory income for a period of five years or an investment tax allowance of 60% on additional qualifying capital expenditure incurred within a period of five years. Timber, Cocoa and Mining The export value of cocoa products, major timber products and mining products (see fig.4) cumulatively accounted for 54.1% of the total export value of primary commodities and commodity-based products in 2010. Timber Similar to palm oil and rubber, the Malaysian timber industry includes upstream and downstream activities. Timber and timber products registered a positive growth of 5.3% in total export value from RM19.5 billion in 2009 to RM20.5 billion in 2010. Malaysia continues to experience high global demand for its timber — in 2010 a total of RM562 million of sawn logs were exported to China and Taiwan, while RM525 million of sawn timber was exported to Europe countries and RM417 million of plywood was exported to West Asia countries. However, the production of logs per cubic metre has declined over the years by an estimated 57% since 1990; Sarawak is the highest producer at 10.4 million per cubic metre. Cocoa Malaysia is not a major world producer of cocoa, but cocoa is also cultivated in various parts of

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* Rubber Goods excludes shoes, apparels, toys, and games and dipped products except gloves ** Includes crude and processed

Source: Frost & Su

the country. Malaysia recorded 18 million tonnes 4. EXPORT VALUE OF COCOA PRODUCTS*, MAJOR TIMBER ofPRODUCTS** cocoa beans in 2010 compared with world AND MINING PRODUCTS*** production of 3 billion tonnes. In90,000,000 this sector, upstream cocoa activities declined by 80,000,000 77% in terms of production, despite higher 70,000,000 average prices for farmgate dry and wet cocoa 60,000,000 beans. Due to the decreasing cocoa cultivation 50,000,000 areas, pests and disease along with a switch in the 40,000,000 relative competitiveness of other crops, such as oil 30,000,000 palm and rubber, there has been a significant shift 20,000,000 towards economic activities in the downstream 10,000,000 production of cocoa butter, cocoa powder, cocoa 0 paste, chocolate cocoa shell. 2006 and 2007 2008 2009 2010 Coca Beans and Coca Products

4,491 4,400 4,342

1,465 1,152

The land exploration for palm oil in Malaysia is increasing rapidly. In 2010, the total planted area was 4.8 million hectares compared with 2.02 million hectares ten years ago

2010

RM Million

1990

*Major countries: Argentina, Australia, Brazil, C.I.S & Russia, Canada, Czech Republic, Europe, India, Japan, Korea, Singapore, Taiwan, & China, commodities Turkey, USA, Yugoslavia. Source: Frost & Sullivan

Cocoa RM4 billion ■ Cocoa beans, cocoa butter oil, cocoa powder, chocola

Timber Products

Mining

Mining *Cocoa Products: Cocoa beans, cocoa butter, cocoa powder (including The mining cocoaMalaysian powder containing and notsector containingcomprises added sugar or metallic, other sweetening matter), cocoa paste, chocolate (includingHowever, other chocolate non-metallic and energy (coal only). the preparations in blocks, slabs and bars) and cocoa shell mining industry is on the decline as the resources are ** Major Timber Products: Logs, sawntimber, plywood (includes blockboard estimated haveveneer, beenmouldings exhausted. government and laminatedto board), (includesThe wooden dowels) has taken stepsmetallic in recent years to develop the *** Mining Products: mineral, non-metallic or industrial mineral and coal domestic mining industry by revising the National Source: Frost & Sullivan Mineral Policy (NMP) that was first drafted in 1994. The NMP outlines the overall integrated development of the mineral industry to assure such development would meet its policy objectives. The NMP provides the foundation for the development of an effective, efficient and competitive regulatory environment for the mineral sector. The thrust of the policy is to expand and diversify the mineral sector through optimum exploration, extraction and utilisation of resources using modern technology as well as R&D. Emphasis is given to environmental protection, sustainable development and the management of social impacts. Investment opportunities and outlook The total commodities export value has seen 5.4% growth (RM2.8 billion) in the first half of 2011, mainly attributed to higher exports of fixed vegetable oils and fats, crude, refined or fractionated, and crude rubber. To further spur the palm oil sector, the government has introduced various policies to attract investment. Palm oil companies that are at least 51% Malaysian-owned in the rubber, oil palm and wood-based industries are eligible for one of the following forms of relief: A) Pioneer Status with income tax exemption of 70% of statutory income for a period of five years. Unabsorbed capital allowances as well as accumulated losses incurred during the pioneer period can be carried forward and deducted from the post-pioneer income of the company. B) Investment Tax Allowance of 60% on the additional qualifying capital expenditure incurred within a period of five years. The allowance can be offset against 70% of the statutory income for each year of assessment. Unutilised allowances can be carried forward to subsequent years until fully utilised.

energy & commodities overview

RM Million

1995

2000

60 7,214.0 50 40

4,459.5

3,028.1

Palm Oil RM62 billion 2,575.1 ■ Palm Oil **, palm kernel oil, oleochemicals, palm-based products, palm kernel cake and others 1990

9,126.8

1,907.6

20 10

2005

2007 0

2008

2009

2010

MiningRM25 RM78.6 billion Rubber billion ■ Metallic mineral – tin metal, ■ Natural rubber, materials of bauxite,ilmenite, iron-ore rubber, tyres & tubes, articles ■ Non-Methalic or Industrial Mineral– of rubber, rubber gloves * aggregates, clays, feldspar, kaoli,RM20 limestone, Timber billion mica, sand and gravel, ■ Saw logs, silica sawn timber, ■ Energy Mineral - coal fibreboard, plywood, builder’s carpentry & joinery, Palm Oil& rattan RM62 billion wooden furniture ■ Palm Oil **, palm kernel oil, and others oleochemicals, palm-based products, palm kernel cake Cocoa RM4 billion and others ■ Cocoa beans, cocoa butter, fats, oil, cocoa powder, chocolate

70 60 50 40 30 20 10 0

*Major countries: Argentina, Australia, Brazil, C.I.S & Russia, Canada, * Rubber Goods excludes shoes, apparels, toys, and gam *China, Rubber Goods excludesEurope, shoes, India, apparels, toys, and games and dipped Czech Republic, Japan, Korea, Singapore, Taiwan,products except gloves ** Includes crude and processed ** Includes crude and processed Turkey, USA, Yugoslavia. Source: Frost & Sullivan Source: Frost & Sullivan

2. EXPORT 2010 EXPORT OIL PALM PRODUCTS 4. VALUEOF OFDOWNSTREAM COCOA PRODUCTS*, MAJOR TIMBER PRODUCTS** AND MINING PRODUCTS*** 22,452

RBD Palm Olein Oleochemicals RBD Palm Oil RBD Palm Stearin Other Processed Palm Oil PKO Finished Products Palm Fatty Acid Distillate PKC Biodiesel Palm Acid Oil

90,000,000 80,000,000 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 8,036 0

2006

2007

Coca Beans and 4,922Coca Products

4,491 4,400 4,342

2008

2009

2010

Timber Products

Mining

*Cocoa Products: Cocoa beans, cocoa butter, cocoa powder (including cocoa powder containing and not containing added sugar or other sweetening matter), cocoa paste, chocolate (including other chocolate 1,465 1,152 preparations in blocks, slabs and bars) and cocoa shell 743 267

264

** Major Timber Products: Logs, sawntimber, plywood (includes blockboard and laminated board), veneer, mouldings (includes wooden dowels) 451 Palm oil mills with capacity to process 102 million MT of FFB *** Products: mineral, non-metallic or industrial mineral perMining year, 78 Palm oilmetallic refineries with capacity to produce 32 million MT and coal of CPO per year Source: Frost Frost & & Sullivan Sullivan Source:

4. EXPORT VALUE OF COCOA PRODUCTS*, M PRODUCTS** AND MINING PRODUCTS***

90,000,000 Most of the 80,000,000 investment 70,000,000 60,000,000 opportunities lie 50,000,000 in the area 40,000,000 30,000,000 of technology 20,000,000 adoption and 10,000,000 mechanisation 0 2006 2007 2008 200 to reduce reliance Coca Beans and Coca Products Timber Produc *Cocoa Products: Cocoa beans, cocoa butter, cocoa pow on foreign labour cocoa powder containing and not containing added sug RM Million

4,459.5 Palm Oil4,054.2 The 3,028.1 future roadmap for the palm oil sector aims to 2,575.1 address two major concerns: 1,907.6 ■ Sourcing technology that enables shorter replanting periods and the development of high 1990 1995 2000 2005 2007 2009 2010 quality seeds and seedlings to2008increase yields *Major countries: Argentina, Australia, Brazil, C.I.S & Russia, Canada, produced for FFB, CPO and palm kernel. China, Czech Republic, Europe, India, Japan, Korea, Singapore, Taiwan, ■ To Turkey,aggressively USA, Yugoslavia. develop the downstream sector Source: Frost & Sullivan in terms of increasing the downstream product output and increasing production efficiency and quality via R&D. 2. 2010 EXPORT OF DOWNSTREAM OIL PALM PRODUCTS Incentives for Reinvestment in Resource-Based 22,452 RBD Palm Industries created under the Promotion of Olein Investment Oleochemicals Act 1986, such as Pioneer Status,RBDare designed to Palm Oil Palm partners Stearin propel more collaboration among RBD local or Other Processed Palm Oil PKO point projects smallholders to participate in entry Finished Products (EPP) for palm oil — for example,Palm accelerating the Fatty Acid Distillate PKC replanting of oil palm where initiatives and financial Biodiesel Acid Oil players, support are made available for Palm industry offering financial assistance of up to RM7,000 per hectare. PEMANDU has outlined an action plan to clear a backlog of over 300,000 hectares of palm oil8,036 trees aged over 25 years in its Economic Transformation Progamme (ETP). MPOB has been tasked with 4,922 champion the effort by implementing 4,491 4,400 4,342 binding replanting policies for smallholders and plantations. That includes 1,465providing financial 1,152 743 264 267 support targeted at independent smallholders, giving access to quality planting materials (seeds, 451 Palm oil mills with capacity to process 102 million MT of FFB clonal material, seedlings, ramets) for replanting per year, 78 Palm oil refineries with capacity to produce 32 million MT of CPO perand year setting up an implementation task force activity, Source: Frost & Sullivan to manage all replanting activities. On the technology advancement perspective, the government is encouraging technology adoption and innovation by giving out licences to investors that are interested in commercialising R&D innovation that has been developed locally. One of the innovations is generating electricity from methane. Methane gas produced when processing FFB can be captured to generate electricity; mills can benefit from this new revenue source as well as from the carbon credit programme offered under the United Nations Framework for Climate Change Convention (UNFCCC). Currently only 12 mills in Malaysia have embarked on the development of biogas plants and PEMANDU has recommended that 500 additional mills be developed by the year 2021. There are several opportunities offered in the area of constructing and operation of biogas plants, including building gas flaring facilities (worth RM1.7 billion), investing in connection of mills to the grid (worth RM845 million) and investing in gas burners (worth RM259 million).

RM Million

5,786.5

1. EXPORT VALUE OF PRIMARY COMMODITIES 3. RUBBER TO MAJOR 1. EXPORT VALUE OF NATURAL PRIMARY COMMODITIES AND COMMODITY-BASED PRODUCTS 2010 COUNTRIES* RM MILLION

RM Million

Most of the investment opportunities lie in the 3. EXPORT VALUE OF NATURAL RUBBER TO MAJOR area of technology COUNTRIES* RM MILLIONadoption and mechanisation to reduce reliance on foreign labour. Malaysia’s expertise in the global palm oil and rubber 9,126.8 market cannot be ignored. Better R&D efforts to register 7,214.0 higher yields from its produce are encouraged.

sweetening matter), cocoa paste, chocolate (including preparations in blocks, slabs and bars) and cocoa shell

** Major Timber Products: Logs, sawntimber, plywood (inc and laminated board), veneer, mouldings (includes woo

*** Mining Products: metallic mineral, non-metallic or in and coal Source:

In line with the effort to move investing focus to the downstream sector, the emphasis on shifting national production from basic oleochemicals to higher-value oleo derivatives (from the current 1% share to a forecasted 40% by 2020) is in action. This requires a massive R&D effort focusing on high-value oleo derivatives that includes the setting of pre-commercialisation investment and technology acquisition funds through the provision of global market knowledge and research support. The government is planning to provide tax incentives, such as the Investment Tax Allowance (ITA), for foreign acquisitions to support local companies in setting up joint ventures abroad. The ITA offers an allowance of 60% on its qualifying capital expenditure incurred within five years from the date the first qualifying capital expenditure is incurred. Companies can offset this allowance against 70% of their statutory

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overview energy & commodities

Currently only 12 mills in Malaysia have embarked on the development of biogas plants and PEMANDU has recommended that 500 additional mills be developed by the year 2021. There are several opportunities offered in the area of constructing and operation of biogas plants

Cocoa pods

income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised. The remaining 30% of the statutory income is taxed at the prevailing company tax rate. The Malaysian oleochemical industry has the potential to exploit synergies with petrochemical companies by sharing key raw materials for oleo derivatives and hence spreading the necessary investment across the two industries. MIDA and local government authorities will aggressively promote five proposed oleo hubs, which will each have a centralised utility facility to support the plants. Rubber The rubber industry in Malaysia faces tough competition from countries such as Thailand and Vietnam, which represent more than half of world natural rubber production and export. Therefore, the country’s direction in this sector is set to capture the areas where Malaysia has the competitive advantage, such as: ■ Producing more high-quality natural rubber that captures higher value in the market, ie SMR20 ■ Intensifying the effort to produce innovative downstream products and increasing efficiency in production The Ten Malaysia Plan (10MP) has also set a target to promote a replanting scheme for rubber, where RM30 million has been approved for the replanting of 5,700 hectares of rubber. Partnerships between local partners and investors for the development of land are expected to ensure agricultural best practice is in place to spur the production of higher quality latex.

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The industry also welcomes more innovative solutions and encourages technology adoption to produce high-value added rubber products. New areas for promotion would include the extraction of biochemical products from latex using biotechnology. These efforts will ensure the continuous improvement in product quality in order to maintain competitiveness in the export market. R&D activities will be intensified to ensure Malaysian latex products meet international standards in health and safety. In addition, the emphasis is on R&D activities in manufacturing technologies and higher value added products, such as bridge and seismic bearings, engine mountings and marine fenders, advanced, nano and smart materials, and environmentally friendly rubber products. Timber Since the decrease in log production in comparison to ten years ago, the focus of the industry has shifted to the production of wooden and rattan furniture, instead of on the upstream plantation activities. The export of wooden and rattan furniture to countries such as USA, Singapore and the UK accounted for RM6.5 billion in 2010. The Malaysian government is fully in favour of spurring a higher value of export by offering double deduction on freight charges for exports of rattan and woodbased products (excluding sawn timber and veneer). In addition, tariff related incentives are also in place for exemption from import duty on raw materials/ components. Full exemption from import duty can be considered for raw materials/components, regardless of whether the finished products are meant for the export or domestic market.

energy & commodities interview

ANUAR TAIB SHELL

Chairman, Shell Malaysia

I joined Shell in 1990 as a drilling engineer working on oil rigs offshore in Sabah and Sarawak. Since then, I have had assignments in drilling operations, well engineering, project finance, upstream commercial, contracts and procurement in various capacities in Miri, New Orleans and Kuala Lumpur. I was appointed as Managing Director of Shell Malaysia’s upstream companies in September 2009, then Chairman of Shell Malaysia in January 2010. It’s not too bad for a person whose initial intention was to work with the company for two years before going back for my masters degree! It has been a great journey of professional and personal growth. I hold a BSc in mechanical engineering from the Case Western Reserves University, USA and an MBA in international management from the RMIT University, Melbourne, Australia. My wife, Yani, and I are your typical Shell dual career couple with four children aged from 6 to 19 years old. Yani works at Shell as a team leader in one of our engineering teams. MOTIVATION

I am motivated by the sense of achievement; be it in business results, staff development or even in my private life. I enjoy the cycle of setting up targets, striving to achieve those targets and celebrating success once targets are achieved. I also cherish all my failures, which are numerous, as those failures provide me with many lessons for future endeavours.

LESSONS IN BUSINESS

It is important to learn how to mobilise people around you towards a common goal. To do that, we must have clarity of purpose and direction, create a sense of ownership, share our own sense of vulnerability to allow others to contribute, be very disciplined in implementation, celebrate success and, equally importantly, not shy away from admitting mistakes and then to learn from those mistakes. I must admit, it is easier said than done. I am by no means good at it yet, but the intention is that I work every day to get better.

INternational investor: How do you think the role of the oil and gas sector will evolve in the Malaysian economy in the coming years? anuar taib: The oil and gas industry in Malaysia is easily 120 years old, but over the past decade it has become an even more pronounced driver of the economy. A dip, or a rise, in crude exports can materially impact the country’s GDP growth proportionally, especially in a country like Malaysia where the oil and gas industry is a significant contributor to the economy. The sector is fairly well matured now. The country has upstream production, liquefied natural gas business, refineries, a petrochemicals industry and a strong retail sector. In the past, the industry, especially upstream, was very much dominated by Shell, Exxon and Petronas. However, over the past few years more players have entered the market. The Malaysian oil and gas industry needs to go through a transformation process. In the exploration and production area, future reserves will come from more difficult areas; gas with high levels of contaminants such as carbon dioxide, deepwater, enhanced oil recovery, high pressure, high temperature and marginal fields. This new environment would require oil and gas companies like Shell to bring key technologies and develop capabilities in the country. It will also require players in the oil and gas service industry to transform their business models. The service industry needs to be more competitive, invest in key capabilities and some of the companies need to consolidate to create scale. In essence, these companies must use emerging challenges in Malaysia as opportunities for them to grow as regional and global players. Petronas is to be credited for spearheading the development of the Malaysian oil and gas service industry. We are proud of the role that we play in supporting Petronas’s and the country’s drive towards the development of these industries in Malaysia.

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“

Malaysia

needs to grow its high-end oil and gas equipment design, manufacturing and service industries to support not only development and production within the country, but also regionally and, in the future, globally

”

The increasingly competitive environment augurs well for Malaysia and the industry. Malaysia is an important market for us; one of our heartlands. It has a stable regulatory framework, investor friendly, talented people and a very fair and professional national oil company in Petronas. We have grown together with the country and we want to continue growing with the country. Do you ever foresee a move away from oil and gas exploration to a more service-centre focus in the Malaysian economy? Oil and gas exploration and production certainly will remain key to the development of Malaysia for decades to come. However, we must also realise that Malaysia does not possess large oil and gas reserves on the scale of some countries in the Middle East, Russia, Africa and South America. The country needs to grow its high-end oil and gas equipment design, manufacturing and service industries to support not only development and production within the country, but also regionally and, in the future, globally. Take for instance Singapore — it does not produce a single drop of oil or gas but is a thriving hub for regional oil and gas service companies. Shell Malaysia plans to invest 800 million ringgit in the construction of a diesel processing plant at its refinery in Port Dickson. Can you tell us more about why you are doing this, and what it says about the development of the markets you are supplying? Is it part of the government’s Economic Transformation Programme (ETP)? At the beginning of the year, when we announced our capital investment for 2011, we announced three projects under the ETP including the diesel processing unit. The refining business is cyclical, with a focus on margin enhancement. In our case, we are enhancing our desulphurisation capabilities to allow us to vary the kind of crude diet that we can bring in, which will reduce the cost of purchases and improve the margins for our refinery. What other projects are you in the process of developing? Is deepwater exploration becoming more crucial for your business? In the upstream exploration and production business, we aim to be the most reliable oil and gas producer in the country through investment in asset integrity and reliability enhancement projects. In building our future in Malaysia, we focus our investment in three areas; delivering our deepwater projects, enhanced oil recovery (EOR) and renewed exploration (especially gas) efforts in Sabah and Sarawak. On the subject of EOR, we are extremely pleased that on 10 November 2011, we signed a Heads of Agreement with Petronas for two 30-year production sharing contracts for EOR projects offshore in

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Sarawak and Sabah. This is a tremendously positive development for Shell Malaysia and further consolidates Malaysia as a heartland for Shell. It will also give rise to numerous opportunities for the local oil and gas industry and provides us with the opportunity to work together with Petronas on building local knowledge and capabilities in enhanced oil recovery. In the deepwater play, we are developing the Gumusut-Kakap (Gumusut) field together with our partners Petronas Carigali, Murphy Oil and ConocoPhillips. The Gumusut field is located offshore of Sabah in a water depth of 1,200 metres, and will be developed through the largest floating production system in Southeast Asia. The floating production system has a production capacity of 150,000 barrels per day. This is a great example of the technology and capability transfer that global companies like Shell can bring to Malaysia. The entire construction of this large facility is at the Malaysia Marine and Heavy Engineering (MMHE) facilities in Pasir Gudang, Johor. The manufacturing of high-precision subsea manifolds, subsea trees and equipment is also done in Malaysia. In addition, using our global capabilities from the US and the Netherlands, we are also developing a strong cadre of Malaysian geologists, subsurface and facilities engineers and operations specialists whom we hope will develop future generations of a deepwater technical community here in Malaysia. As a Malaysian, I am extremely proud of Shell’s contribution to developing capabilities in Malaysia. We are in the early stage of developing a couple of other deepwater projects. These are significant projects, although not in the league of Gumusut in terms of reserves. We are optimistic about our future in deepwater in Malaysia. In the upstream gas business, we are investing in our Shell Middle Distillate Synthesis (SMDS) plant in Bintulu to enhance its speciality wax manufacturing capabilities. We aim to become one of the best specialities manufacturers in the world. In the downstream business, we are investing in our refinery in Port Dickson to enhance its capabilities and building a new terminal in Westport, Klang. We are a market leader in retail and lubricants in Malaysia. These investments would help us be competitive and maintain our leading position. a large share in the etp Shell Malaysia has invested approximately 5.1 billion ringgit in 2011 alone in Economic Transformation Programme-related projects. That is a substantial investment. So what does the ETP mean to you? The ETP signals to us that the government is listening to industry feedback, and it is prepared to

energy & commodities interview

It has a committed leader in YB Dato’ Sri Idris and visible support from the Prime Minister, YAB Dato Seri Najib Tun Razak. We have seen early successes but transformation programmes such as this require not sprints and spurts but persistence and stamina to go the distance. It is important that equal attention is given to both the announcement of new initiatives and aligning the various parties to ensure unencumbered implementation. Having observed the two transformation arms of the government, PEMANDU and PEMUDAH, from close range I feel there are opportunities for them both to make significant improvements. Working in tandem, the two organisations can transform the investment environment in Malaysia.

provide a better environment for us to invest in. We have been investing on average at least US$1 billion annually in the years leading up to 2011. The incentives that came out of the recent ETP announcement mean we can look at putting more effort into exploration, the development of marginal and more difficult fields such as EOR, highly contaminated gas, high pressure, high temperature and other marginal fields. In a PSC arrangement, the government’s and Petronas’s take are larger in comparison with that of foreign investors like us. With the ETP, there is recognition by the government that the more difficult a development project is, the higher the risk and the more it costs; thus the need to review the percentage take of the various parties. This shows that Petronas and the government see it like this: having a lower percentage take of an economic activity is much better than having a higher percentage take of zero economic activity. What challenges do you think the ETP will face? As with all such large-scale transformation programmes, the real challenge is in the implementation. It is much easier to come up with plans than it is to drive them forward and make sure they are put into practice. I have to say, though, that from our point of view the ETP is being driven forward quite well.

malaysian talent: still underdeveloped Are there any aspects of the ETP that you think are particularly important? The development of Malaysian human capital is very important. The challenge for us in the oil and gas industry is always to get the right people, with the right capabilities, at the right time and in the right place. Funds can be secured, technologies, steel, rigs and all can be bought but capability needs to be developed and nurtured. It is not just about getting the technical degree, it is also about developing inquisitive minds, the courage to compete globally, and pride and ownership in their efforts. Shell is a global company and we are always on the lookout for talent who can be deployed globally. Our current recruitment trend in Malaysia is approximately 10,000 graduate applications for every 100 new graduates we recruit with the attributes that I mentioned earlier. This ratio tells us we have some way to go in uncovering globally deployable talents in Malaysia. We have been working with four local universities through our ‘Campus Ambassador’ programme to provide input to these targeted faculties. Much more can be done, for mutual benefit, in terms of encouraging better linkage between industry and universities. Other than universities, we also need to strengthen the development of highly skilled technicians and artisans such as welders, electricians and so on. Malaysia can no longer depend on being a country known for contract manufacturing through cost advantage. There will always be another country that can provide cheaper labour and costs of doing business. The oil and gas industry offers opportunities for highprecision, high-end products and services with high paying jobs. Long-term industry players such as Petronas, Shell and other companies have had programmes that support the development of highly skilled technicians and artisans. The ETP should encourage more industry players, especially new entrants, to invest in the development of human capital in Malaysia.

“

Petronas and

the government see it like this: having a lower percentage take of an economic activity is much better than having a higher percentage take of zero economic activity

”

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HUGH THOMPSON EXXONMOBIL SUBSIDIARIES IN MALAYSIA Chairman

It is a great honour for me to live and work in Malaysia and especially to lead an organisation like the subsidiaries of ExxonMobil. We are proud of the fact that for over a century we have been a leading member of Malaysia’s energy industry. I have been with the company for 24 years and have experience a variety of assignments. After graduating from Herriot Watt University in Scotland with a Masters in Petroleum Engineering, I started my working life in the North Sea fields. Since then, I have worked in the United States, London and now Malaysia. ExxonMobil takes a long-term view in managing the careers of its employees and it is not unusual for employees to experience a range of functional and technical skills training so that they have a breadth of knowledge, and are able to develop judgement and experience against different backgrounds. I am an engineer by background, as are most of our senior management. That is important in an industry like ours. The company likes to develop its workforce from within, and the experience we gain means we tend to be really hands-on. I took up my role in Malaysia two and a half years ago and, as I say, I am proud to be leading this organisation. Aside from positions on the Board of a number of the ExxonMobil Subsidiaries in Malaysia, I am a member of the Board of Governors of the American Malaysian Chamber of Commerce, a General Committee Member of the Malaysian International Chamber of Commerce and Chairperson of MICCI Sustainable Development Council. I think most people would agree that it is not only a very dynamic time for our business right now, but it is clearly a very dynamic time for Malaysia. MOTIVATION

My values are very much aligned with ExxonMobil’s, with an emphasis on continuous improvement. I want to get up in the morning and go home at night feeling that I have made a difference, that I made things a little better than they were the day before.

LESSONS IN BUSINESS

It is important to motivate all your staff and ensure they know their role and how they contribute to the whole enterprise. I believe that everyone, from security guard to CEO, can make a difference. Everyone needs to realise that they are all doing unique and important jobs which contribute towards meeting the objectives of the company. Knowing how you “fit in” and who your key contacts are, and how these interdependencies work, is critical to the success of any large complex organisation.

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INternational investor: Can you give us a brief outline of ExxonMobil’s place in Malaysia today? hugh thompson: ExxonMobil has been doing business in Malaysia for over 100 years. We came here in the 1890s, selling kerosene as lamp oil. Someone once said to me, ‘To develop a nation, first you need to build a school, but you also need to ensure safe, affordable and reliable energy supplies to power the nation.’ I think that is what we have contributed to the country over the years. We have been at the heart of Malaysia’s energy industry for over a century. It is a big responsibility, which we take very seriously. ExxonMobil, historically and today, is a major oil producer and natural gas supplier in Peninsular Malaysia. Of course, our business comprises oil, but also what I would call ‘flowing gas’, which I distinguish from liquefied natural gas. We supply 50% of that flowing gas to Peninsular Malaysia, which is mainly used for power generation. Everything ExxonMobil produces in Malaysia stays in Malaysia. That is a powerful rallying call for our employees, 97% of whom are Malaysians. They literally work to keep the lights on for the people. Today, as the Malay basin enters a mature phase of its lifecycle, we are entering a period in which we are trying to get more out of what exists already. That is why we are investing in enhanced oil recovery projects in certain mature key fields. This is, to me, the next exciting phase of our participation in Malaysia’s energy business. Being able to maximise recovery from some of the large legacy fields will ensure a plentiful supply of energy for the people of Malaysia for many years to come. A lot has been said about the possibility of Malaysia becoming a regional oil and gas services hub. Is that realistic? Definitely. In fact, I think it is a natural progression of the overall business here. Other oil and gas basins around the world — the North Sea, the Gulf

energy & commodities interview

of Mexico — have naturally developed such centres, and Malaysia is no different. There is a real market opportunity in Malaysia for energy companies to extend their reach to the region as a whole. Malaysia has the space, the talent and the infrastructure to do so; there is no doubt about that. In 2011 ExxonMobil Corporation announced its plans to sell Esso Malaysia Berhad and two other downstream affiliates in Malaysia to the Filipino company San Miguel Corporation (SMC). What was the reasoning behind that deal? What does it say about your corporate strategy? ExxonMobil continually looks at its portfolio of assets across the globe, to see what makes sense for our business model at any one time, and what doesn’t. In some cases, it may make sense for someone else to take on what we have been doing. They may see more value in it, and we may see more stakeholder value in a divestment strategy. That is just the nature of our business, and that was the case with Esso Malaysia Berhad and the other two downstream affiliates. SMC has also expressed interest in continuing to invest in the business and this will be very positive for Malaysia, the employees and the business overall. This is an example of a deal that is good for everybody who is involved in it. going forward in malaysia Can you give us an idea of your strategy for the next few years in Malaysia? The most important thing to do is to continue to align ourselves with Malaysia’s needs. We will continue to develop further gas opportunities where it makes sense, when we are given the opportunity and when we see benefit for the country. On the oil side of the business, we will continue to look for additional fields to apply enhanced oil recovery technology. There are quite a few low BTU gas deposits with high CO2 content and we continually evaluate how some of our proprietary technology could be brought to bear to develop these resources. Control Freeze Zone technology that removes CO2 from a gas stream is an exciting prospect for us and one that we believe could be deployed in many areas across the globe. We are also evaluating technology designed to burn low BTU gas to provide power generation. We have driven the success of our company based on innovative technology and this is the type of new thinking we can bring to bear in Malaysia, but the most important thing is that we remain aligned with the country’s needs and desires for the future. There is a lot of concern about whether Malaysia has enough human capital to achieve its economic goals. Do you think it has? I think Malaysia, and perhaps ExxonMobil, are victims of our own success. The country has a track

record of training and producing a large number of skilled people, as does ExxonMobil. But that gives people highly transferable skills. They go to work for other companies or they go and work in other countries. It can be a squeeze at times, and we sometimes feel that human resource issues are a capacity constraint, but it is not a permanent problem and the government is also addressing the issue. For ExxonMobil, we can bring our staff back from abroad to benefit the country, as can Malaysian business as a whole. We continue to hire, train and develop our local workforce and have the benefit of being able to offer them global opportunities as part of that development. malaysia’s etp: playing your part ExxonMobil has been a central part of the Economic Transformation Programme in Malaysia. How do you see your role in that process? We were privileged to be invited to be involved in the initial discussions over the shape ETP would take, through the industry laboratories that were run, to the actual projects that are now being rolled out. We have development projects that are implicitly tied to the whole ETP project. We are investing in excess of RM10 billion in new oil and gas assets to help ensure reliable and sustainable energy supplies to Malaysia. It is important to emphasise, that without the faith we have in the government we would not be so comfortable investing these sums of money. ExxonMobil is a very large company with operations in over 200 countries around the world. The fact that we are choosing to continue to invest heavily in Malaysia speaks volumes about our belief in the country, our belief in the people and our belief in the investment environment that the government and Petronas have created, and continue to create.

“

The fact that

we are choosing to continue to invest heavily in Malaysia speaks volumes about our belief in the country, our belief in the people and our belief in the investment environment

”

What are the key challenges for ExxonMobil and for Malaysia? Malaysia has embarked on an ambitious programme of economic and social development. However, a country cannot grow without energy. There is no growing economy that does not need a safe, affordable and reliable source of energy. The challenge for the government and the energy industry is how to meet and manage the substantial energy requirements that come with continuing economic growth. Will the government, and of course the private sector, be able to put in place the resources and infrastructure required to allow this to happen? Given our experience in this country, we have the confidence that this can be done. We very much look forward to working with Petronas and the government of Malaysia to ensure a continued bright future for this unique country that our company and employees have been proud to call ‘home’ for over 100 years.

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AHMAD RAMLI MOHD NOR BOUSTEAD HEAVY INDUSTRIES CORPORATION

Executive Deputy Chairman and Managing Director

I am a professional naval officer by training. I started my naval training at the Brittania Royal Naval College at Dartmouth, England. I came up through the ranks, holding various key appointments, such as the Chief of Strategic and Development Plan for the Royal Malaysian Navy. I then became the Fleet Commander and the Deputy Chief and then, eventually, the Chief of the Royal Malaysian Navy. While I was in the service I also pursued tertiary education and completed my Public Administration masters degree at Harvard University in the United States. I retired in 1999, and in late 2005 I was appointed as the Managing Director of PSC Industries Berhad, which changed its name to Boustead Heavy Industries Corporation Berhad. The company was in difficulties and was heading towards insolvency — in our context, it was classified as a company under the Bursa Malaysia’s Practice Note 17. A timely financial restructuring exercise ensued and Boustead was able to take over the company and became the main shareholder. We were then able to take over management control as well. That was in late 2005. Since then, we have been able to turn around the company and make it what it is today. MOTIVATION

I felt that there was an obligation on me to do my part and to turn the company around. Of course, there was an additional sense of national duty because the customer of this particular set up was the government and the Navy.

LESSONS IN BUSINESS

You have to equip yourself with knowledge and skills so that you are able to fit into any environment. Whatever you do, you must be hands on. You cannot — especially if your company is in bad shape — just rely on other people. You must have your feet on the ground and also be ready to dirty your hands when there are problems. You have to get involved.

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INternational investor: How would you best describe the business, and as the company’s CEO how do you plan to evolve it? ahmad ramli mohd nor: Our vision is to be a company that is able to deliver quality and timely services to the region. Maybe, in the long term, even to be a global player. In the process, we have to work towards excellence in whatever we do, and to invest in human capital. That is what we are doing right now because we have gone through a very difficult period when we took over a company which was frankly in dire straits, with many delivery responsibilities, but which we have, to date, delivered. Now we are going through a very aggressive transformation programme and we are quite confident that within one year we will be well placed to take on new challenges. Of course, we have to start with satisfying the needs of our country, our domestic market. However, we are also promoting ourselves to the region, as well as to the market at large. In fact, now we have clients from Europe. We believe in having the right people on board. We are taking on a large number of young engineers, for example. We even go directly to the universities to recruit top candidates before they have even graduated. Then we go through a process of making sure that they are well trained and have the requisite experience. We have programmes that are coming up which will absorb these trainees as they gain experience. A STRONG AND SKILLED WORKFORCE Developing a skilled workforce aligns you quite closely with some of the goals of the Economic Transformation Programme (ETP). Can you tell us more about how Boustead will benefit from the ETP and also the role you can play to help Malaysia in this path to a high income nation? We certainly are very much in the midst of it. As an organisation, we also have our own Training Academy, which provides on-the-job training in various areas. We also have agreements with different bodies,

energy & commodities interview

institutions and government agencies, where they send their staff to be trained and to gain experience. The creation of local specialists in specific technical fields fits well into the ETP concept. Do you have any joint ventures, or partnerships, with foreign companies? We have partnerships with other foreign companies in terms of knowledge transfer, but at this stage we are still in the business of transferring knowledge to our own people. However, later we believe that our own people will eventually be the ones who will be transferring this experience and know-how to others. What are the main challenges the shipbuilding industry, and heavy engineering in general, faces in Malaysia today? We have a very aggressive and well structured vendor development programme (VDP), established in 2007 to groom local vendors into capable entities. We have engaged more than 500 local vendors. We believe in its long term benefit; it is also part of our contribution towards the industrialisation of the country. I think the key challenge of the VDP is to have a business model that is sustainable. That means vendors cannot just depend on one activity and one customer. They have to be far more flexible and wideranging in their activities. As part of the programme, we look at a vendor’s business model and evaluate it for sustainability, because we cannot have a situation where if they don’t get business from us they will get washed away. They must have a viable model that incorporates plans to become self-sustainable. Have you been involved in the Sarawak Economic Corridor or other economic development areas? We have not been all that active in Sarawak. For the time being we are focusing on Sabah. As you know, our country is made up of Sabah, Sarawak and Peninsular Malaysia. So we have to position our company in both East and West Malaysia. If there is a reason for us to move south to Sarawak, we will

do that. For the time being, a large number of our activities are linked up to the Navy, and the Navy’s second main base is in Kota Kinabalu. A large number of our activities are therefore naturally there. We are involved with submarines from there; we operate our surface fleet from there as well and with it there are many industrial necessities we are involved with. But we also feel that later on we can start to provide services to other navies in the region. OIL AND GAS As a company you are also a significant player in oil and gas. Can you tell us a little about that? We have a number of offshore activities in and around Sabah and Sarawak. There are a significant number of deep-sea explorations happening in the region and we have positioned ourselves as a key fabricator. In fact, we are one of the few licensed fabricators in the country, so we are ideally placed to improve and enhance our services in the oil and gas sector. Which of your main businesses — shipbuilding or oil and gas fabrication — do you think has the most exciting potential? Both are exciting because oil and gas is just as demanding as shipbuilding. I think that you know that platforms are expensive. Of course, we have to be correct and precise, so that is something that we are working on. For the moment I would say that shipbuilding is going to take up most of our attention.

“

We believe

in having the right people on board. We are taking on a large number of young engineers, for example. We even go directly to the universities to recruit top candidates before they have even graduated

”

You are still working on that piece of the jigsaw? We are there already in one sense. In fact, we were one of the earliest fabricators. We have so far been working on shallow water platforms, five to ten thousand tonnes. We want to be moving up to fabricating platforms in the 15 to 20 thousand tonne region. However, we have to look at our facilities. When you begin working in the deep sea arena, your yard must have enough depth for the loading and unloading of those structures. In moving up to that level we would have to invest in infrastructure.

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MOKHZANI MAHATHIR KENCANA PETROLEUM

Group Chief Executive Officer

I graduated with a BSc in Petroleum Engineering in 1987 from the University of Tulsa, Oklahoma. From there I went straight on to join the multinational energy company Shell. I worked for Shell Berhad in Sarawak on their offshore oil rigs as a well-site operations engineer for about two years. After gaining that experience, I decided to take up some investment opportunities in Kuala Lumpur and moved to the city to live. I went into manufacturing first of all, and then diversified into finance and stockbroking. The years from 1993 to 1997 were a boom time for the KL Stock Exchange, so I found that there were lots of investment opportunities available. In the process I built up a group of companies. We were involved in healthcare and we had the second largest chain of private hospitals. We were also heavily involved in manufacturing, but unfortunately that sector took a tumble during the Asian financial crisis, so I had to divest most of it — in fact all of it — and restarted, well, reinvented myself in 2001. Having worked in a large range of sectors, I decided to come back to work in the oil and gas industry in 2001. We invested in a small engineering company in Lumut, Perak, and we began to grow the business. We were fortunate in that it was the early days of what became a bull run in the oil and gas industry. Oil was trading at about US$18-19 a barrel then and, of course, it slowly grew to somewhere in the region of $113-114 by 2007. Today the company in which we invested in 2001 is the core of the Kencana Petroleum Group. I have been active in the oil and gas industry for the past ten years. We have ploughed back nearly everything that we have earned into developing and growing the business. You can call it luck, you can call it a vision of what the future turned out to be like, but of course there are elements of everything. MOTIVATION

LESSONS IN BUSINESS

I am motivated by the thought that I can do something positive each day I am at work. I can achieve things that can leave a significant mark on the industry, or on people’s lives, for the better. Another motivation is to learn from others, and perhaps to be able to pass on one’s own experience and knowledge to others. Here is my main lesson: no one knows everything. So, while retaining your optimism, be humble as well.

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INternational investor: What role will the oil and gas sector play in the evolving Malaysian economy? And what are the prospects for domestic companies in that process? MOKHZANI MAHATHIR: The oil and gas sector has been identified in the current Economic Transformation Programme as the economic sector that will have the most significant impact on the Malaysian economy going forward. It is the key industry for pushing the country towards being a fully developed nation. You only have to look at Petronas, a company which contributes easily the largest amount to government revenues. You can see how important it is for Petronas to be in synch with the wider aims for the economy. As for Kencana, Petronas recently did a survey and audit of all the companies servicing them in the past ten to 20 years to see which could become key players in the mission that they have embarked on. I think that we are one of the companies that has got a track record of capability in manpower and financial resources to deliver at least a small portion of what they need to do. So we, along with other big companies in Malaysia, have to play a strategic and significant role in fulfilling the nation’s and Petronas’s mission to get the industry and country going forward to where they need to be. So, yes, the success of the oil and gas industry is going to be crucial for the future of Malaysia. recent strategies and ventures Kencana recently bought Allied Marine and Equipment. Can you let us in on the strategic rationale behind the purchase? Was it a departure from your previous business model? We look at our clients’ needs first and foremost and try and make sure our services match them. That determines the kind of strategy we will adopt in terms of expanding our business in the next three, five and ten years. So it isn’t a case

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of sticking to a business model. We always need to be flexible. The purchase of Allied Marine and Equipment fits into this way of looking at things because it fills a gap for us. We want to offer an end-to-end solution for our clients and if the market says that out of all of the services that are required there are only one or two providers who can service them properly, as in the case of AME, then we will buy into that particular niche market service. It is not a departure from our strategy; it is an expansion, an addition. We are servicing the same clients, just giving them more. How important to you is your recently signed joint venture with SapuraCrest and Petrofac to develop the Berantai Field? What does it tell us about the direction of your business? It is very significant to us. It definitely takes us above and beyond where we are today. The funding scheme is a new departure for us, though. It is front end-loaded in that we act as a contractor for the client, but we invest in the infrastructure needed ourselves, but will not see any revenue until the client markets and sells the oil and gas. So, for example, if each contractor comes up with US$2 billion as in the case of the entire development of a programme like ours, you are talking about $50 billion of contractors’ money tied up in developing 25 marginal oil and gas fields in Malaysia, and all the client needs to do is regulate the process and make sure it works properly. However, the potential returns are large. We are taking on a certain amount of risk in this funding formula, but we are confident of the competencies of all of the partners within the joint venture and believe that we can deliver according to the schedule, according to the cost and produce what needs to be there. What we see here is that we meet all the requirements, and we will end up with a margin above and beyond being a mere contractor because we have part financed it ourselves. Looking beyond malaysia Can you please provide us with an insight into your wider regional strategy in the Asia Pacific? There is no hard and fast rule in how we will develop the business, but one thing is that of late we are now really looking at positioning ourselves in Malaysia to be a key component of Petronas’s plans to develop the oil and gas industry further. We have also got ventures that we are pursuing in Indonesia and in Vietnam and we do service clients all the way to Australia, to India, to Thailand and to New Zealand. That doesn’t mean we don’t mainly concentrate on Malaysia’s growth

because this is our own backyard and we have to make sure we are always ever ready to step up and serve the clients here first. Kencana has said that a key aim is to become a fully integrated oil and gas company. Are there any constraints to achieving that? The biggest challenge facing us and in fact everybody else in this industry — and probably others too — is manpower. Malaysia has a relatively small population, and that places a certain constraint on how easily we can maintain our levels of skilled staff. Talented people go abroad to work, so there has to be concerted effort on the part of the government and industry to attract them back; to make it worth their while. I think we are succeeding to a certain extent. In 2004 to 2008 a lot of skilled Malaysians expatriated to the Middle East because the oil and gas industry there was booming. But we are now getting a lot of enquiries from people who want to come back. There are challenging opportunities now available in Malaysia, but the industry also has to raise salary packages to properly reward people so as to attract them back. Malaysia’s economic future Can you provide us with details on how Kencana will integrate with, and assist, the government’s Economic Transformation Programme? The Economic Transformation Programme is quite unprecedented. The close working relationship we now seem to have between the private sector and the public sector is very important because historically that public-private partnership has driven Malaysia’s transformation from being a highly agriculture-based economy to an investment-based economy from the 1980s onwards. That was a huge success at the time, as the current development of the country shows. I must admit, if we compare ourselves to our traditional competitors — Singapore, Jakarta, even Bangkok; you can’t even mention Hong Kong in the same breath because they are so far ahead of us — we are still lagging. Somehow we have not been on the international radar for a long time, but now we are and we have a lot of catching up to do. Having said that, it means that there is a big upside, so now is the time for investors to come in and that is what we at Kencana are trying to facilitate and capitalise on. The country has been given an opportunity, and we at Kencana have similarly been given an opportunity to invest in projects within Malaysia. There is tremendous growth potential for domestic companies to invest in and for international investors to come in as well. The future looks bright from where I am sitting, if only we as a country, and we as a community of businesses, can do the right thing.

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The oil and

gas sector has been identified in the current Economic Transformation Programme as the economic sector that will have the most significant impact on the Malaysian economy going forward. It is a key industry

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Danny Y.H. Hang RG GAS & CHEMICALS Chief Executive Officer

The first important thing to note is that I’m not a graduate. I completed my high school, but then went directly into the construction business. My motivation was really to invent and create from an early age. So I found that to be the best route. Ambition comes in different forms and mine came as a desire to be hands-on from an early age. That said, I went on to study electrical engineering in Singapore for two years, which I found very rewarding. When I came back to Malaysia, I traded electrical appliances for four or five years in the early 1980s. After a while I became more involved in the construction industry, starting with some very small jobs, but then progressing to more complex projects. Then, about six years ago, I moved into oil and gas. I worked with the company Sabah Gas and then Labuan Gas to get experience in the industry. I reasoned that the oil and gas sector was going to be one of the most important sectors in Malaysia in the coming years. We formed RG Gas and Chemicals four years ago, mainly to deal in the argon gas market. We get our supply from the Petronas Kertih Plant. This was our core business during that early period. Also about four years ago we got the major infra project here in Kimanis, the Sabah Oil Gas Terminal. It took us less than two years to complete, ahead of schedule. We are also the successful bidder for the infra works at the Power Plant project in Kimanis. MOTIVATION

It isn’t particularly money. I just feel it is right to work and to strive. I always wanted to change my situation in life, possibly because of not having had a formal education.

LESSONS IN BUSINESS

Nothing in life comes easy; we need to work for it.

INternational investor: Can you give us an overview of the business today? DANNY HANG: We looked at Pulau Daat off the coast of Labuan and saw it could develop into a major oil and gas hub. We acquired the island and came up with a business model to make it an integrated oil and gas hub. There are storage tank farms on the island as well as fabricating yards for sub-components of oil platforms and pipeline infrastructure. A logistics and supply base is also included in the master plan. We see it as being complementary to Labuan and therefore it is our main development focus at the moment. This project has been designated and included in the Economic Transformation Programme (ETP)/ Entry Point project (EPP) for Malaysia’s economic development. What will Labuan need to be an oil and gas hub? How can RG Gas & Chemicals help it to prosper? Labuan is already an oil and gas centre. Labuan is running out of space for bigger companies to run their logistics services, fabrication and similar land-intensive operations. We think that Pulau Daat can provide the space needed to allow the international O&G players and Labuan-based companies to extend their operations. A lot of fabrication, for instance, could be done there. It would be an extension of what Labuan has to offer. We will be providing the land, the infrastructure and the location. We are flexible as to whether an energy major wants to lease land long-term or buy it outright. It is a privately owned island, and the government approves the project structure of course, so this is not a problem. Would you describe RG Gas & Chemicals as much of a land development company as an energy company? Yes, we are basically a land development company specialising in the oil and gas sector. At the same time we will be operating our own business,

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Pipeline Rentis Yard for the stringing of pipelines. It is a big investment. We projected nearly RM3 billion of FDI and local investments over ten years, a huge amount of money. If you look at some of the EPPs it ranks as one of the biggest investments and puts us firmly on the map. So what will be the effect for RG? How will this investment change the company? It means we will be at the forefront of the industry. This is a huge investment, with all the growth potential in the oil and gas sector which that implies. This is a natural progression for RG Gas to go forward; we are not just content with being a construction company. new oil fields and a strategic location: the place where the action is Tell us a little bit more about what is happening in and around Labuan to make it such a good site for this sort of investment. We are expecting Labuan to have a number of new marginal fields coming on-stream. At the last count there have been five or six new deep sea oil fields coming on-stream and beginning production so far. This is a significant amount of activity going forward, so RG Gas needs to be part of it. The location of Labuan is important

as well. It is on a major oil route, coming down from Singapore and up to China, Japan and Korea. We are not competing with Singapore, though. Singapore is the major hub at the moment, and we have learned a lot from them. However, we are not going to be competing directly for their business. We are hoping at least for some spill-over. It is also important to note that Singapore is not cheap, so we can perhaps try and be competitive in that respect. Will there be associated developments in Paulu Daat, such as residential developments to provide living accommodation for workers? Have you got plans in that regard? We are involved in the whole development including local manpower. We are going to be involved not just in the creation of the hub but also the commercial industries that surround the manpower and have a multiplier effect on the industry.

“

Another

thing we are looking towards is listing on the stock exchange. We don’t know when, but it is certainly in our minds to do so

”

Can you tell us a little about your future plans? The island, of course, is one of our major strands going forward — it will certainly occupy a lot of our time and effort in the near future. However, another thing we are looking towards is listing on the stock exchange. We don’t know when, but it is certainly in our minds to do so.

TO WIDENING OUR BUSINESS VENTURING ON OIL & GAS FIELDS

RG Gas & Chemical (M) Sdn, Bhd. Lot No: 28-30 & 30-2, 2nd floor, Block C, Bundusan Commercial Centre, 88300 Kota Kinabalu, Sabah, Malaysia Contact: + 6 088 718923 / 719923 rg_gaschemical@yahoo.com jimmytym@ribuangaya.com www.ribuangaya.com/daat/index.htm

RG_Advert_3.indd 1

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A SUPPORTIVE GOVERNMENT IS NECESSARY How supportive has the Malaysian government been with regards to this project? Very supportive. They are as aware as we are that the oil and gas industry has huge potential and so they see projects like Paulu Daat as absolutely key to its development. The support is coming right from the top, which is clearly a significant factor in getting a large project like this up and running. In reality, nothing big has happened in Labuan for the past 15 years except for the big international offshore centre. So this project is, as much as anything, a major stimulus to Labuan as a whole. When will Labuan be open for business and when do you expect the first industry players on the ground? We have already put in place a Memorandum of Understanding with a China-based company to construct and operate storage tanks and oil terminals. The second project we hope to complete is the logistics base and fabrication yard for pipelines. We are hoping to bring it to completion in around 18 months. There is already a buy-in from investors. LABUAN PROVIDES SIGNIFICANT INVESTMENT OPPORTUNITIES What areas of Labuan do you consider to provide the more significant investment opportunities going forward, or projects that you think are going to be very relevant in the next year? Currently Labuan is an off-shore centre, as well

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as a duty-free centre. Labuan is also strategically located for sea routes between East Asia and West Asia, as well as up to the continent of South America which is a largely untapped with regard to Asian trade. The investment opportunities are in shipbuilding, bunkering and marine logistics, more educational institutions — especially technical/ engineering disciplines in the oil and gas sector. As more employment opportunities come about, there will be a need for upmarket housing catering to a higher income group. More jobs need to be created and we believe that the Pulau Daat development as a private sector initiative can enhanced and add value. We are mindful of the Prime Minister’s vision of ‘People first, performance second’ and our development is in line with that aspiration. This in itself will attract more talents and skilled professional groups in all sectors. Furthermore, being a federal territory the government has built significant infrastructure on Labuan. What about the prospects for the wider Malaysian economy? In the past, Malaysia has always been looked upon as a raw materials supplier. Now it is being recognised as a producer of end-user products from its rich resources, such as palm oil, timber, oil and gas, etc. Malaysia is also currently exporting worldwide and going into downstream processing — this requires high capital expenditure which, to a large extent, is necessary. Sustainability of such supplies and products is a top priority.

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EDGAR PUSHPARATNAM TECHNIP

Senior Vice President, Technip in Asia Pacific Managing Director, Technip in Malaysia

I began working in the oil and gas industry in 1983 as an engineer at Petronas Carigali. I worked for Petronas for about seven years, and then joined Technip. This will be my 23rd year working for Technip. It has been a very rewarding career, and throughout it I have had a full range of experience within the industry, working in many different roles. When I began working for Technip I was a project engineer and then in 1996 I was sent to Brunei to set up an office — Technip had grown to the point where it needed to expand beyond Malaysia’s borders. After that I set up an office in Indonesia; then Thailand, China and Australia. I did a lot of travelling and relocating from 1996 onwards, but eventually came back to Malaysia in 2005 to take up my current role. It has been a great experience and I really enjoy my current challenges in this job. MOTIVATION

One is to make sure that Technip has enough work to maintain our 5,000 people in Asia Pacific. The second — and this really excites me — is the challenge of bringing all the new technologies in the industry to our operations in the region. Deepwater, LNG, FLNG and refining technologies are great challenges and at the forefront of technology. .

LESSONS IN BUSINESS

The most important lesson is to make sure that your company has a win-win culture whenever it does business. Because whenever someone feels that he wants to be better than you, he tries to make sure that you lose and he wins. That sort of zero-sum way of conducting business never works in the long run. Collaboration is the key.

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INternational investor: Could you give us a brief outline of Technip’s activities today in the Asia Pacific region? EDGAR PUSHPARATNAM: We have been operating in the region for 30 years now, starting in Kuala Lumpur in 1982, so we have a substantial track record. At the moment, the oil and gas business in the region is very buoyant. In fact, going forward, we expect that Asia Pacific will be one of the biggest generators of revenue for the group. We expect that there will be a lot of opportunities with more deepwater fields opening up in the future. More generally, over the years Technip has spread its wings throughout the region to almost all the countries in the ASEAN area — plus, of course, China and Oceania. We also support Petronas’s projects in the Caspian Sea. The Kuala Lumpur office is Technip’s Asia Pacific headquarters, a major hub for our activities. We have proven our capacity to execute some major engineering, procurement and construction projects in the region. a broad project portfolio Tell us a little more about some specific projects Technip is involved in. Let us start with deepwater. There are so far three deepwater projects in Malaysia. We have been involved in the first two projects, Kikeh and Gumusut, and wish to participate in the third on Malikai. In China, the first deepwater is Liwan and in Indonesia the second one, Gehem Gendalo, is just in the early stages. In Australia, there are also deepwater projects. You can see that it is an important step forward for us. In the future, we are going to have more and more of these projects. In the gas sector, Australia has major gas deposits that are being developed, each one ranging from 20 to 50 billion US dollars. This is evidently a sector of enormous promise, and we think we are very well positioned to help in the gas developments in Australia. It is an additionally attractive place to

energy & commodities interview

go into because although resource-rich, Australia needs manpower — they have a population of just 20 million. We are also looking at the gas market in China where they have mini-LNGs. We have just won (a couple of months ago) a second project in China, where we are doing small LNG trains. This is a market where the gas is found in remote areas onshore. In order for the gas to be transported to the point where it is required, a gas pipeline is not economically feasible. You need to liquefy it and then transport it. There is another type of stranded gas deposit and this type of gas is located offshore. Technip has been given a contract by Shell to develop Floating LNG. Technip is well positioned because we have the expertise for subsea, topsides and Floating Production Storage and Offloading (FPSO) units. Technip is now designing Shell’s first Floating LNG for a field in Australia called Prelude and is looking at other opportunities in Malaysia, Brazil, Indonesia and Australia. Can you tell us more about your strategic 8% stake in Malaysia Marine Heavy Engineering Bhd (MMHE)? What was the rationale behind this? In what other areas can we expect similar investments from Technip? We acquired our 8% stake in Malaysian Marine and Heavy Engineering Holdings Berhad (MHB) in 2010. Why did we want such a stake? We believe it will reinforce our position in the fast-growing Asia Pacific region in line with our overall strategic goals. It is a collaboration agreement to provide Engineering, Procurement, Construction and Installation (EPCI) capability and technology to Petronas. Besides, MMHE, a subsidiary of MHB, owns a major fabrication yard in Southeast Asia that is centrally located with a strong platform fabrication track record. That was important for us. It is entirely possible that similar such deals will be done by us in the future. We always look for investments that fit our strategic goals and can carry us forward. In return, we bring added value to partners by helping them to achieve their aspirations. It’s a win-win approach. How does the Economic Transformation Programme (ETP) impact on your business in Malaysia? What benefits have you derived or feel you will get from the ETP? And what role is Technip playing in supporting the ETP? We see the whole process as extremely important for the country, and also for the industry we are in. Oil, gas and energy is one of the 12 National Key Economic Areas which are at the core of the Economic Transformation Programme. We bring sizeable shares of our global operations and expertise to Malaysia — from transfer of technology to investing in a manufacturing plant in Johor. Over

the past 20 years Technip has participated in the increase in the number of high-income people by employing and training thousands of engineers in the oil and gas industry and by maintaining a high level of investment. We believe in investing in human capital development to increase the level of competency and knowledge of our Malaysian staff. Our engineers are regularly cross-posted to Paris and other Technip offices and construction sites in order to gain vital global experience. We have also set up an R&D centre here in the KL office. Not to mention the Asiaflex Products plant, which represents a significant investment in the country and brings with it the technology transfer to build a specialised workforce; developing their skills and upgrading their competencies and also creating local economic opportunities. We have sent around 50 personnel for training in our Le Trait facilities. Technip currently employs 350 people in Asiaflex. And as mentioned earlier, with the 8% stake in Malaysian Marine and Heavy Engineering Berhad (MHB), Technip helps to develop MHB through capability building programmes. talent: a rare commodity Can you expand a little on the issue of human resources? How much of a challenge it is for Technip to make sure there is a good flow of qualified people coming into your business? This is the biggest challenge that we have at the moment. You can buy or build equipment, ships and materials, but you can’t buy or build people. Like many companies in Malaysia, getting and retaining talent is something that we have to concentrate on all the time. One thing we are doing to address the issue is embarking on a very active talent management programme in Malaysia, where we try to identify capable people that we want to keep and train them in the relevant disciplines that we are looking at. For our company that means deepwater, obviously, but also LNG (liquid natural gas) production, refining and similar functions. We are lucky in Technip in the sense that when it comes to the LNG part of our operations we have a very established centre in Paris, where the expertise is available. We send people there in order for them to learn, or we bring people from our Paris centre here to execute work, so that we can develop the local capabilities. The same thing applies with deepwater work. Overall, we try and do as much as possible to nurture our staff so that they are keen to stay working for us. We create opportunities in crosssegments of the business, the types of contracts we put forward and geographically across various countries and regions. Our staff and those who join us know there are plenty of opportunities for them to expand their experience and career.

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You can

buy or build equipment, ships and materials, but you can’t buy or build people. Like many companies in Malaysia, getting and retaining talent is something that we have to concentrate on all the time

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MICHAEL NICHOLSON LUNDIN PETROLEUM General Manager

I graduated from the University of Aberdeen with a degree in economics and management studies. I began working for Aberdeen University Petroleum Economic Consultants. We helped advise governments on establishing fiscal terms for attracting oil and gas investment activity. Example projects involved working for clients in Kazakhstan and the Falkland Islands, helping them set up contractual mechanisms for their energy industries. So I had quite a good start early in my career working within the upstream side of the industry. In fact, my experience prior to heading up Lundin Malaysia was working in various finance/economics, strategic planning and commercial roles within the upstream business. Before joining Lundin I worked for the German company Veba Oel and the US firm Marathon Oil. I also took some time out of the oil industry to work with the Canadian Imperial Bank of Commerce on the origination side, looking at M&A and corporate finance. For the past seven years I’ve been working with Lundin Petroleum, which has been very satisfying. My first position within Lundin was as commercial manager. That job was mainly to do with business planning and evaluation: looking at asset acquisitions and the economic evaluation of all of our investments across the various business units. Since moving to Malaysia I have become more involved in the operations side of the business and growing our business here, which is an invaluable experience for me. It’s been hugely challenging but very exciting. MOTIVATION

I love the challenge of the work I do. I particularly enjoy the challenge of building and working with a highly competent, motivated team. There is nothing quite like starting on a new project with, more or less, a blank sheet of paper.

LESSONS IN BUSINESS

Be patient when building your business, as things usually take longer than you first expect. Learn to ask the right, pertinent questions. Be in a position to move quickly when an opportunity arises.

INternational investor: Could give us an overview of Lundin’s story, and where you are in relation to Malaysia? MICHAEL NICHOLSON: Lundin Petroleum is itself just ten years old. There was a predecessor company called Lundin Oil. Back in the early 1990s Lundin Oil operated the PM3 licence in Malaysia and through a series of successful exploration efforts made a large number of discoveries in the license. By 1996 we brought on-stream a first phase oil development of a field called Bunga Kekwa. This was the first ever FPSO that was used to develop an oilfield in Malaysia. It was called the Armada Perkasa, a Bumi Armada FPSO. Talisman bought Lundin Oil in 2001, and Lundin Petroleum was formed following the acquisition. In the past ten years Lundin Petroleum has gone from two exploration licences, one in Iran and one in Sudan, to a company that now has 33,000 barrels of oil production per day, 190 million barrels of reserves and a market capitalisation of close to US$8 billion. The company has recently been responsible for one of the biggest ever discoveries in Norway, estimated to hold between 1.7 and 3.3 billion barrels of oil. So quite a phenomenal transformation in the past ten years. As far as Malaysia is concerned, it’s an important area for us. We’ve recruited an excellent team of people both locally and from overseas. We started off with a blank sheet of paper and a very large exploration and investment programme ahead of us. We originally signed three PSCs back in 2008 and since then we’ve doubled our acreage position, signing new blocks last year and also earlier this year. There’s never been a dull moment. oil and gas: a quest for discovery You made some significant finds offshore in 2011. Can you tell us about them? In Malaysia in 2011 we planned to drill five exploration wells, the first two in Sabah and the final

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three in Peninsular Malaysia. So far we have had a successful start with two gas discoveries in Sabah from two wells, and one oil discovery in Peninsular Malaysia from two wells; so a 75% success rate. Our final well this year is an exploratory appraisal of an old discovery, so it’s possible that we could reach an 80% success rate in our first year which is significantly above the norm in the industry. Each well in the 2011 campaign was targeting geologically independent plays, so the focus will now move to further evaluating and understanding what we have uncovered this year with our five well campaign that we have planned for 2012. Further afield, the discovery of that illusive ‘Elephant’ — the Alvadnes field in Norway — has transformed the company into an entirely different league altogether. What is attractive about Malaysia? Lundin’s core areas are in Northwest Europe — we have a big business in Norway, for obvious reasons. We just recently spun off our business in the UK. So we were looking for new areas to work in. Our track record in Malaysia made it an obvious place to concentrate on. Plus there is the fact of the attractive business environment. We knew the players well, and had the relationships. Our strategy is always subsurface-led, though, so when our new ventures team was looking at new areas to try and grow the business in Southeast Asia, they looked at the acreage that was being offered by Petronas at the time. They saw an opportunity, and we pursued that with a fundamentally technologyled strategy. We knew there were proven petroleum systems in the areas where we were looking, so I think those two components combined with our strong track record made this an area that was very interesting for us to pursue. human capital in malaysia What about the Malaysian domestic talent pool? Are there sufficient numbers of people and companies to support operations like yours? We’ve been fairly fortunate in attracting talent to the organisation. Currently our organisation is split one-third to two-thirds between expatriate and Malaysian staff, so our approach is always that if we can find a qualified Malaysian candidate to fill a position, then that will always be our first preference. We are an aggressive exploration company, though, which seems to attract some really good people. We’ve managed to attract some very good geoscientists and some petroleum-engineering specialists who see our aggressive portfolio and feel they can make a real difference through their professional efforts. It is that fundamental business culture that is the key factor in our ability to attract and retain good Malaysian staff.

Tell us about the biggest challenges your organisation faces on a day-to-day basis? There has been a huge increase in competition across the region in terms of the number of new players that are trying to access exploration opportunities, not just within Malaysia but also elsewhere in Southeast Asia. It’s natural in business, but it is particularly acute in this region. That’s a challenge. I also think that competition for new exploration licences has reached levels that we haven’t seen in the past five years. Keeping our momentum and continuing to build a business is going to be our biggest challenge as we look forward. Can you give us an insight into Lundin’s development in the wider region? We’re very interested in opportunities in Indonesia. In fact, looking regionally, our two main areas of interest are Malaysia and Indonesia. Our regional Managing Director and new ventures specialists have done the same in Indonesia as we’ve done in Malaysia. We’ve picked up some significant licences immediately across the border, in the Western Natuna Sea and also in North West Natuna Basin, so we have a fairly large acreage position in Indonesia. I would characterise it as being the same approach as we have taken in Malaysia: building large core areas where we can drill a number of wells across independent plays. We’re still looking further afield at new opportunities. However, our work is always driven by the subsurface opportunity.

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We were

looking for new areas to work in. Our track record in Malaysia made it an obvious place to concentrate on

”

How has your experience been of doing business in Sabah? To come into and set up a new exploration core area, one of the strengths Sabah has is an established supply base and infrastructure that you can rely on to support your operation. It’s been a great assistance to us in support of our activities; that you do have that mature and established operating environment in a proven hydrocarbon province. Has the government’s Economic Transformation Programme impacted on you at all? Have you been involved? As an investor in Malaysia we’ve been extremely encouraged by some of the changes we have seen in the upstream oil and gas sector. I think recognising that oil production has been in decline for some time in Malaysia, and also looking at the forward supply challenges for domestic gas production, the government has reacted with a very strong policy response via the ‘entry-point projects’ that they have identified within the oil and gas sector. The changes the government has made with respect to fiscal incentives in some of the areas we are involved in has certainly altered our perspective of how we can move forward with some of those projects.

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interview energy & commodities

MOHD AJIB ANUAR MALAYSIA SMELTING CORPORATION Group CEO

I trained as an accountant and did the Association of Chartered Certified Accountants degree in London. However, from the day I left college in 1971 until today, I have been in the tin mining and mineral resources industry — almost 40 years. In the 1970s, if you had employment either in a plantation industry or mining industry, you were considered as one of the fortunate ones. I got a job six months before I graduated with a subsidiary of Chartered Consolidated UK. The company approached various local institutions to see whether they could identify potential future employees before they left, and I was one of them. I joined the company as a trainee and subsequently became a personal assistant to the managing director. Since then I have been exposed to practically all areas of management: from finance to sectoral administration, resources to mine management and international marketing. I seem to have been through everything in my career. MOTIVATION

I have been in the industry for such a long time I have developed a strong feeling and passion for it and the people within it. I think that is key for me. The global tin industry is relatively small. The annual turnover at current prices is about US$10 billion, so it has developed as a place where everyone pitches in. It is often like being part of a family in that sense.

LESSONS IN BUSINESS

The ability to get into the market today, to create something of sustainable value and take it to the world. We have geologists, mining engineers, mineral processing engineers, metallurgists, lots of disciplines — we have developed deep relationships over many years, and what I feel satisfied about is the ability to get these people together and create something meaningful for the world.

INternational investor: Can you tell us a little about the tin industry in Malaysia today and MSC’s position within it? MOHD AJIB ANUAR: After the collapse of the world tin market in the 1980s there were very few mining licences issues by the state governments in Malaysia. Partly as a result, our country dropped from first place in the world ranking of tin producers to contributing less than 1% of world production. However, MSC had managed to sustain our smelting capabilities and enhance our global positioning. In terms of current positioning, last year (2010) MSC was the secondlargest world supplier of tin, contributing something like 45,000 tonnes. We did that last year by importing concentrate and ore from all over the world to convert to highly refined tin metal and then re-exporting it. As to Malaysia itself, the country was not very active in tin mining for almost three decades. During that period those areas where there were reserves of tin were basically turned over to other uses — property development, plantations for palm oil, some were developed for recreational activities and resorts. I would say about 80% of the land that contains reserves of tin and other resources has been ‘sterilised’. In terms of future tin production, we are looking at this remaining at 20%. Most of it is in alluvial mining deposits — very sandy, soft ground — but we believe there is still a lot of tin unexplored in what we call the ‘primary sources’ — basically hard rocks. What the government can do now to help in this process is to issue prospecting and mining licences. The price of tin is high today, so all those areas which were not profitable before can be made profitable. Could you tell us about the formation of the Malaysia Smelting Corporation? There were originally two management companies.

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energy & commodities interview

One of them was Associated Mines, the other was Anglo Oriental. They merged to form one single management company called Pernas Charter Management. Then there was a takeover of a group of mining companies from the UK by a Malaysian government company called Pernas. Pernas took over this group and there was a merger between this group and the management company to form MMC, the Malaysian Mining Corporation. Subsequently there was another merger between MMC and the management company. The global tin industry collapsed in the late 1980s, resulting in massive retrenchment of employees. There was a lot of rationalisation work that needed to be done, because MMC at that time also had a LME broking company and a tin marketing company in London. MSC also had to transform itself from being a domestic smelter to become an international customer smelter. The repositioning was achieved through the progressive upgrading of its smelting and refining facilities in Butterworth and aggressive expansion of its international commercial network. The 1980s also saw the corporate restructuring of MSC, resulting in the company being jointly owned by the Straits Trading Company Limited of Singapore (58%) and Malaysia Mining Corporation Berhad (42%). MSC

became a listed company in Malaysia in 1995. In 2007, MMC subsequently sold its entire interest to STC. In January 2011, MSC became the first company to be listed on both Bursa Malaysia Securities in Malaysia and the Singapore Stock Exchange Securities Trading in Singapore. Opportunities for the private sector Do you see any prospect for public-private partnerships going forward? Yes, and I think we can take the lead. We can provide the capital, the expertise, the market, and we have the smelting facilities. You can more or less have the comfort if you choose us that you are dealing with people who know the business. In some states they have their own State Development Corporations, and some of these State Development Corporations have been given licences, either for exploration or for exploitation. These are the corporations that are looking for partners, and they will approach us or we will approach them.

“

The price of

tin is high today, so all those areas which were not profitable before can be made profitable

”

What are the biggest challenges your company faces going forward? For a tin mining group, the main challenge is being able to sustain our production and to grow. That is a function of resources and reserves. That means

BUTTERWORTH SMELTER 27 Jalan Pantai, 12000 Butterworth Penang, Malaysia Tel: (604) 333 3500 Fax: (604) 331 7405/332 6499 E-mail: msc@msmelt.com CORPORATE OFFICE B-15-11, Block B, 15th Floor Unit 11, Megan Avenue II 12, Jalan Yap Kwan Seng 50450 Kuala Lumpur, Malaysia Tel: (603) 2166 9260-1 Fax: (603) 2166 9245 www.msmelt.com

A GLOBAL INTEGRATED TIN MINING AND SMELTING GROUP • • • • •

One of the world’s leading integrated producers of tin metal and tin based products Possesses unparalleled niche expertise in tin exploration, mining, mineral processing, smelting and marketing Global leader in custom tin smelting since 1887 and operates one of the most cost efficient and reliable smelting plants in the world Ranked as the second largest refined tin producer globally in 2011 and 2012 Listed on the stock exchanges of Malaysia (Bursa Malaysia) and Singapore (SGX-ST)

Subsidiaries: PT KOBA TIN Arthaloka Bld. 12th Floor Jl. Jend. Sudirman No. 2 Jakarta 10220, Indonesia Tel: (62) (21) 251 1566 Fax: (62) (21) 251 1532 E-mail:kobatin@jkt.ptkoba.co.id www.ptkoba.co.id RAHMAN HYDRAULIC TIN SDN. BHD. B-15-11, Block B, 15th Floor Unit 11, Megan Avenue II 12, Jalan Yap Kwan Seng 50450 Kuala Lumpur, Malaysia Tel: (603) 2166 8057 Fax: (603) 2166 3057 PT MSC INDONESIA Arthaloka Bld. 12th Floor Jl. Jend. Sudirman No. 2 Jakarta 10220, Indonesia Tel: (62) (21) 5793 9120/1 Fax: (62) (21) 5793 9119

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“

Knowledge-

based growth is driven by smart people because these are the people who contribute disproportionate value to the organisation

”

investment in exploration — however, investment in exploration carries risk, so what kind of exploration do we undertake? Is it brownfield exploration, is it greenfield exploration? Is it what they call exploration within our own leases? We will have a combination of all those. For example, we have an ongoing exploration programme where we do drilling within our leases that leads to lengthening the life of the existing mine. knowledge is vital Do you have any final thoughts on the industry? This is increasingly a knowledge-based industry, and has to be seen as such. If you want to grow you have to grow in an industry that is also growing. We have to be in the position where we can drive

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this. We have to be proactive in making sure that the industry is driven by people with smart ideas. Knowledge-based growth is driven by smart people because these are the people who contribute disproportionate value to the organisation. There are very few people who can do this — and one has to provide space and opportunity for these people. I am not only providing space within the company but also within the industry. That is why I am very proactive, pushing forward with ideas, providing leadership and vision and giving them proper space — it is helping these smart people to overcome challenges, find opportunities and create successful business models in order to grow the industry.

energy & commodities interview

LOW NGEE TONG OM HOLDINGS LIMITED Executive Chairman

I began my professional working life as a Mechanical Engineer, having graduated from the National University of Singapore. My exposure to the carbon steel materials business was gained through working in a number of companies during the 1980s and early 1990s. Between 1980 and 1981, I worked as a project engineer for Chiyoda, Singapore, a Japanese engineering firm, after which I moved on to be a mechanical engineer at Brown & Root, Singapore, a US offshore consultancy and construction company. After three years I realised that career path was not for me. I decided to change tack and went into commodity trading, focusing on steelmaking raw materials. In 1991, I was headhunted by a Japanese trading company and relocated to work in Hong Kong, which was very transformative for me. In 1993 I decided to take the initiative with the opportunities available to me and establish my own trading business. In 1998 the company successfully listed on the ASX (Australian Securities Exchange). As I expanded the trading business globally, I became more and more interested in the supply chain of the steel industry — from mining to processing to smelting. I gradually positioned the company’s business interests to cover this full spectrum of integration. In 1999, the company’s business was relocated to Singapore so as to expand the business to other markets outside East Asia. The trading business headquartered in Singapore is the strategic trading hub of the OMH Group. It is an importer and trader of specialised metal materials and products, and handles the logistics, marketing, product flow and product distribution of the group. The business focuses on developing new markets, and expanding and enhancing the range of raw materials being marketed, dealing with an expanding array of ore and alloy products. MOTIVATION

I have constantly tried to move the business on to new horizons, seeking new opportunities and challenges. I am also motivated by setting realistic and ambitious goals and being driven to implement and achieve those goals for myself, my team and all other stakeholders.

LESSONS IN BUSINESS

Try to make sure that in business you are working with people with whom there is a mutual trust and respect. Also, seek to stay focused and ensure the team executes to the best of its abilities the task in hand.

INternational investor: Please explain to us what your niche is in the specialised raw materials market. You say that you want to create a ‘complete raw materials supply chain’. What does that mean in terms of your business? LOW NGEE TONG: It means working throughout the whole of the supply chain, from mining to smelting. We want to be in a position to control the production of the raw material — manganese, silicon, reductants and so on. We want to be able to have the sufficient energy supply so that we can carry out large scale smelting. That, among other reasons, is why Malaysia is attractive to us. The Bakun Dam offers us long-term, sustainable power, and that is extremely important to us. This completeness of vision is right at the heart of our business. energy as a key attraction OM Holdings has committed quite strongly to Malaysia. Why is that? It is a very attractive country to do business in, for a number of reasons. As you know, we are building a smelting plant in Sarawak. That is a big commitment for us. Malaysia is, first of all, important in its strategic location. Malaysia and Indonesia both offer great opportunities in the raw materials and energy sectors. What tipped it for us in Malaysia’s favour was the captive Bakun Dam and power plant. It meant that vital aspect of the infrastructure we will need is in place. We would not have to think about building our own power generation facility. Second, Malaysia as a country is very stable, and well governed. Along with Indonesia, it must be said, it has been progressing very smoothly. Both countries have demonstrated that they are very pro-business and that they are happy to go out of their way to attract new investors. In fact, we think that the investment opportunities are better here than in China. We believe that the whole of Borneo

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“

The biggest

challenge for us is how quickly and efficiently the Sarawak authorities can get the Bakun Dam project up and running

”

is going to be a big energy hub, simply because of the power generation ability. We are, in fact, building our future strategy for the next several decades on that basis. So the Bakun Dam was central to your decision to locate in Sarawak? It was critical. I have watched its development over many years — I believe the project was first mooted 30 years ago. Now, though, there is definitely going to be a major power generation facility. Already the government has installed eight 300 megawatt turbines, and we will need upwards of 500 megawatts of that total for our smelter. It is important to realise that for that level of power generation, you can’t rely on coal-powered generation alone. You need the power generation abilities of a dam, which is what Bakun gives us. In addition, we have total assurance that the project will be executed and delivered on time. How have you found the investment environment in Malaysia, perhaps compared to China? China’s energy market is changing. Up until recently, they were big suppliers of the raw materials we use — silicon and reductants, mainly. That is becoming less so as its economy changes. We found that it made much more sense to grow our smelting/ downstream processing business in Malaysia. In fact, we believe that Malaysia can capture a lot of that previously Chinese raw materials business. However, in both countries the element of trust in your business dealings is crucially important. If you get that right, and you understand the country

We think that the investment

opportunities are better here in Malaysia than in China. We believe that the whole of Borneo is going to be a big energy hub, simply because of the power generation ability and its ways, you can succeed. For that reason, we have always employed lots of Malaysian managers who bring us invaluable expertise and local knowledge. I would go so far as to say that our relations with the Malaysian government are more direct and easy than we found in China. We are very happy to be here. You recently explored a dual listing where you were listed on both the Australian and Hong Kong stock exchanges. What is your rationale behind that decision? We simply found that investors in Hong Kong understood our business better. We considered

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Singapore or Malaysia, but although those markets have great potential, we felt they were still not quite mature enough to understand the resource industry and our specific business model. Investors there clearly do understand the smelting business, but mainly in terms of tin, not so much manganese and ferro silicon. Going back to Australia, we didn’t feel the market there shared our passion for vertical integration and geographic diversification; our desire to work across the entire supply chain. They are experts in mining, which will always be an integral part of our business, but not necessarily our specific future focus and orientation. The potential shareholders in Hong Kong we feel understand our industry, markets, customers, the company and what we want to achieve. At the end of the day, we are running a business and we need to have shareholders who understand what we do and who support our vision and strategy. Given the market conditions we have at the present time deferred this process — however, we will continue to re-assess it. realising potential in malaysia Your stated aim is to become one of the world’s top raw material suppliers and traders in the steel-production raw-materials business. What are your current challenges? Most immediately, the biggest challenge for us is how quickly and efficiently the Sarawak authorities can get the Bakun Dam project up and running. The second big challenge is how well the entire regional development plan pans out. How will the Sarawak government support local businesses in terms of human resources, for instance? We can do our bit, though. Every player must have a very clear and workable programme so that they will be able to bring in experts and also be able to train the locals from unskilled to skilled to management. If we all work together and get it right, though, we can create a great environment for doing business. We wouldn’t have invested so much in Sarawak if we didn’t think it was achievable. Finally, tell us something about your wider investment ambitions for Malaysia. As I said, Borneo is important for us. We have recently bought a plot of land — 100 acres — at the Iskandar New Port area next to the old Pasir Gudang. We are currently planning a small smelter and logistics hub there. Eventually, if things go according to plan, we are looking at using the area to gradually become our regional hub for distribution along with a research and development centre. So we have made two major investment commitments into Malaysia. The potential of peninsular Malaysia, in resource terms and in straightforward business terms is immense. We intend to be on board.

MINING MANUFACTURING MARKETING EXPLORATION OMH is a dynamic international company committed to making a significant and meaningful change to the lives of all stakeholders through a balance of profits and returns to shareholders, the safety and empowerment of its workforce and a commitment to environmental and society responsibility.

OM Holdings Ltd 80 MARINE PARADE ROAD, #08-08 PARKWAY PARADE, SINGAPORE 449269 TEL: +65 6346 5515, FAX: +65 6342 2242, EMAIL: om@ommaterials.com , WEBSITE: www.omholdingsltd.com

interview energy & commodities

OTHMAN WALAT SAWIT KINABALU

Group Managing Director

In 1972 I started my career with Felda Holdings after graduating in agriculture and was quickly promoted to be a manager of one of their schemes. In 1975 I joined Guthrie, a plantation company in Malaysia and worked my way up from a young executive to the head of plantation business, overseeing, among others, training, processing & engineering and marketing. At the height of my career, I was overseeing 300,00 hectares of oil palm plantation in Malaysia, Indonesia, Africa, Thailand and I was reporting to the CEO of the group. In 2005 I was invited to come to Sabah to be the CEO of Sabah Softwoods. I felt that this was a once in a life time opportunity for me to head a company and I took the challenge. I managed to transform the company in the first year by doubling their profits and for the next three years continued to improve the financial performance of the company substantially. In 2009 I was again offered to head the biggest Sabah state-owned company, Sawit Kinabalu Group, an opportunity which I found too hard to resist. I joined Sawit Kinabalu in September. During that time we were in the middle of an economic downturn, but the tough get going when the going gets tough. My management team and I cascaded the ideas down to every level of employee within the group to work hard, to streamline the operation and to be more effective and efficient for sustainable performance. MOTIVATION

LESSONS IN BUSINESS

My passion in life is to think that we can do better, therefore that constantly makes me think there is unfinished business. In my professional life I am always looking for ways to do better, which means I am very often in a contemplative mood. I find that I am always looking forward to the day because, if you like the work you are doing very much you feel that every day is an exciting day. It’s very important to have values and they must reflect a high level of professionalism, human interaction, integrity and hard work.

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international investor: What is your vision for where Sawit Kinabalu needs to be in the near term? What are the challenges you might face? OTHMAN WALAT: We want to be one of the major established companies in the palm oil business worldwide. One thing we recognise if you want to be a serious player in this, or any other, industry is that you have to reach a certain benchmark. If you look at the normal parameters that are used to measure the performance of a company that operates in the palm oil business just as much as elsewhere: what will be your profit? what will be your production per tonne or per hectare? or your cost per tonne, whatever it is in terms of ratio or percentage, are we really able to measure ourselves against the other players, are we there yet? That is my biggest task. It’s not complicated, but it is often difficult to achieve. I am aiming to be above the industry average. We will achieve that by using the resources and people we have, and putting in place the necessary structures. We concentrate mainly on crude palm oil, but we also have refineries which produce the finished oil. We are now marketing that refined oil around the world. We are particularly keen on moving into high-value. This is where there is a lot of potential. EXPANDING THE PALM OIL MARKET What scope is there for the expansion of Sawit Kinabalu? Are you mainly looking at the local market or are you interested in expanding into foreign markets? Our operations are currently mainly limited to the local market, the Chinese and Indian markets. Pakistan is important for us as well. However, there are many other potential markets in which we have yet to have a presence. There are two key reasons behind this. One is to do with difficulties in penetrating certain markets. Europe is a major difficulty in this regard. There are certain regulatory requirements that act as a brake on our expansion

energy & commodities interview

there. Before you enter Germany or France, for instance, you have to fulfil those countries’ regulatory criteria. And that can be very challenging. There is also the challenge of explaining the industry here to the European market. For instance, if one orang-utan dies, there will be a big poster that says, ‘Palm Oil Kills Orang-utan!’. That systematically misrepresents what goes on in the industry and hampers our efforts to market ourselves further afield. It is not healthy and it prevents us from playing on a level field. So for these reasons we find ourselves still confined largely to our traditional markets. Despite that fact, it does not mean we are not willing to try to penetrate foreign markets. There are steps we are taking, though. We are, for example, working towards fulfilling the criteria for RSPO (Roundtable on Sustainable Palm Oil) certification. The RSPO certification does not guarantee you entrance into markets such as Germany, for instance, which will have its own set of rules, but it is a major start. We want to achieve the certification to tell the world that we are in a sustainable agricultural industry. But the local regional buyers are still your focus? They are. We are committed to RSPO certification and, in the long term, to entering the European

markets, but as it stands, when you look at the palm oil market in the Asian region, there is actually not very much incentive to expend all that much effort in marketing products into Europe. We will not necessarily get value on the dollar going in and coming out, so many people in industry often wait and see. For now we have a huge market here in the region which is buying our products so, some are taking it easy until that is saturated. It is worth stressing, though, that this does not mean we will ignore wider markets, but the projection towards entering a market like Europe in a big way is going to be measured in years rather than months. We are looking at the medium term, so perhaps in the next ten years or so it will happen, but some are not in a hurry. A BUSINESS CLUSTER FOR THE PALM OIL INDUSTRY Can you tell us something about the Palm Oil Industrial Cluster (POIC) in Sandakan? How do you differentiate yourself from the other cluster at Lahad Datu? There are key differences between POIC and Lahad Datu. Lahad Datu mainly produces biodiesel and a few other downstream products initially. Sawit Kinabalu decided against just producing biodiesel because it is not really a high enough value business. There is a whole range of products

“

Entering

a market like Europe in a big way is going to be measured in years rather than months. We are looking at the medium term, so perhaps in the next ten years or so it will happen, but we are not in a hurry

”

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“

The products

we are mainly interested in are the various types of oleo chemicals: health products, food products and such like that can be derived from the palm oil industry. However, that requires a great deal of effort and investment

”

that can be produced from palm oil. It is not just about soap, candles and other low-value products. The products we are mainly interested in are the various types of oleo chemicals: health products, food products and such like that can be derived from the palm oil industry. However, that requires a great deal of effort and investment. Sabah is not yet a very industrialised country or state, so the infrastructure must be put in place — the port, the jetties, the power, the roads, the logistics, telecommunications and so on. We want to ensure that people coming in will have a genuine interest in setting up an industry there for future growth. But at the moment, we are still in the infrastructure development stage of the process. It is almost complete; we are just putting power lines in place as we speak. What has been the speed of progress of the infrastructure development? What sorts of companies are investing? There are some private companies that want to come in and join with us where we believe it is essential to the growth of that project. There are also people who want to come in on their own but we have to evaluate the project properly because we need to ensure that this is in line with the objective of the POIC. THE ATTRACTIONS OF BEING TOGETHER What are the attractions for a company in moving to the cluster? For a start, the state of Sabah & Sarawak produces one third of the country’s entire production of palm oil. Also, the human capital in this state is available for working in this industry. In the global economy, everybody is looking at their cost base, so cost is king at the moment. Labour costs here, fortunately or unfortunately, are still relatively low. In addition to all that is the crucial fact that the product is right on the doorstep. So it is just about moving into the factory and beginning processing, so to speak. We understand that the company is looking at partnering local and foreign companies. Is that correct? Can you elaborate more on these possible tie-ups? We have some in the area of energy. We are working with a few companies and we hope to be successful. We have signed an agreement, we have chosen the site, we have seen the business plan. THE GREENING OF PALM OIL Are there any green aspects to your business? And if so, how important are they to its future development? This is a business which could be very creative in terms of energy usage and capture. During milling of palm oil, we produce a great amount of effluents

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Palm oil nursery

which are not environment friendly. But in order to tackle the problem, we do not want to just throw away the waste and hide it somewhere. We can, with some ingenuity, try to retain the value of the waste materials. So we have been looking into things like methane capture technology, which would be both environmentally friendly and energy efficient. You mean waste-to-power type solutions? Yes, using the waste gas to generate electricity which, in turn, will be used for our own consumption or can be hooked up to the national grid and then sold as energy. We are also using other waste materials like empty fruit bunch (EFB) from the mill to produce organic fertilisers which we can in turn sell to generate income. Who are the key stakeholders in Sawit Kinabalu? One key stakeholder is the government of Sabah, which of course means the people of Sabah. While we are managing the company, we must remember that we have to contribute back to the people of the region. We need to think about helping those people who are not that fortunate. In the UK, if you are not working you have the security of welfare, but in Sabah we do not have that kind of institution. Therefore, we have to come up with a fund using the returns from this company to plough back into the people as part of our corporate social responsibility. A couple of million dollars every year will be given back to the people to give them some help.

energy & commodities interview

KONGKRAPAN INTARAJANG EMERY OLEOCHEMICALS

Group Chief Executive Officer

My passion has always been to create new things that will have an impact on people’s lives. Hence, I studied for my bachelors degree in chemical engineering at Chulalongkorn University, Thailand and my PhD in chemical engineering from the University of Houston, Texas. I have accumulated more than 17 years experience in the petrochemical and chemical industries. My career began with Thai Oleofins PCL (TOC), a subsidiary of PTT PLC, which later became PTT Chemicals PLC, the largest petrochemicals company in Thailand. My positions included Senior Vice President in the Performance Product Business Unit and Corporate Business Development of PTT Chemicals PLC, Chairman of subsidiaries such as TOC Glycol Co, Ltd and Thai Ethanolamines Co, Ltd, President and the member of the board of Thai Oleochemicals. Throughout my career with PTT Chemicals PLC, I have led a variety of functions including corporate strategy, business development, project development, research and development, corporate finance and investor relations. My recent focus was in the area of business growth, which led to the initiative to expand PTT Chemicals PLC internationally. Through the acquisition of shares in Emery Oleochemicals, a new partnership was formed with its existing shareholder, Sime Darby Plantation Sdn Bhd. I am currently the Group CEO and a member of the board and Executive Committee of Emery Oleochemicals Group, as well as being a member of the board of PTT Chemical International. MOTIVATION

I like new challenges, and I believe this stimulating environment spurs creativity and innovation. When initiatives turn into projects and, consequently, growth of the organisation, that inspires my team and I to thrive for greater success.

LESSONS IN BUSINESS

Putting together a good team is fundamental to an organisation’s success. Your ability to empower people while keeping them focused on the same goals and objectives is also very important. At the end of the day, I think it’s about being yourself and enjoying your work.

INternational investor: Can you give us a brief outline of Emery Oleochemicals today, and where you want it to go? KONGKRAPAN INTARAJANG: Emery Oleochemicals, a name synonymous today with the successful development of high quality, natural-based chemicals, traces its history to Cincinnati in 1840. From a humble store-front that manufactured and produced tallow for oil lamps, today we employ about 1,100 people with a global footprint that spans three major regions. Present in America, Europe and Asia Pacific, we produce a wide range of oleochemical products derived from natural renewable raw materials such as palm oil, other vegetable oils and animal fats. Our products are used in a vast range of applications, including soaps and detergents, cosmetics, pharmaceuticals, plastics additives and oilfield drilling chemicals. While we are already strong in oleochemicals and have a number of other speciality solutions in place, we understand the need to grow in the higher value market to become a key player in providing total solutions in various market-based platforms. With the industrial users’ and end consumers’ increasing awareness of sustainability and ecologically acceptable products, we have created a long-term growth plan that will allow us to be more visible in the strategic downstream segments, such as the home and personal wellness (HPW) market and green polymer additives. We have already embarked on a few initiatives to get us ready for the growth plan, including realigning of our organisation, strengthening and growing strategic relationships with key business partners, and boosting our R&D capabilities. Our growth and expansion plan is in line with our vision of being the world leader in value-added, natural-based chemicals. In our drive to broaden our portfolio into speciality chemicals, customers can still expect us to maintain our focus on our core commodity chemical business. We will continue to leverage our competitive advantages — in size, scale, global footprint and technology.

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“

The

high growth of renewable chemicals is mainly driven by changes in market behaviour towards sustainability, as end-consumers’ environmental concerns escalate. This provides an immense opportunity for naturalbased chemical producers

”

Are there any other platforms key to this strategy to further penetrate the speciality market? Both the HPW and green polymer additives segments have enjoyed the most stable demand growth globally, and represent significant opportunities. Our commitment in growing in these two segments is further reinforced through our recently announced investment of over MYR400 million in Telok Panglima Garang, Malaysia. Here, work on Asia Pacific’s first fully integrated, natural-based green polymer additives plant is in progress, with expected commissioning in Q4 2011. Two other plants that will be built in Malaysia are poised to grow our presence in HPW, with one of them being a result of our recent joint venture with AK ChemTech, a prominent Korean speciality chemical player. Further innovations in these key segments are to be expected. How does Emery Oleochemicals fit in with the Economic Transformation Programme? Very well! We are excited that our five year growth plan we had developed is aligned to the government’s downstream expansion and sustainability plan in the palm oil industry. Of particular relevance to our plan is the EPP 6 which aims to shift Malaysia’s focus towards high value oleo derivatives. As the core focus of the Palm Oil National Key Economic Area (NKEA) is to reinforce the leading role of the private sector in steering the palm oil industry, we can actively participate in positioning the country as a global player in the downstream segment. As we implement our own growth agenda, Emery Oleochemicals itself will become increasingly visible in the home and personal wellness (HPW) and green polymer additives markets. Significant growth is expected for us in Asia Pacific as we bring more solutions closer to our customer base in this region. As we also look to expand in other high value derivatives categories, we will simultaneously develop the local highly skilled talent pool through knowledge transfers too. We believe human capital growth is fundamental to our long-term success. The Economic Transformation Programme has reinforced our belief that Malaysia is a good place for us to be and we will do our part to enhance its profile as a strategic hub for the oleochemicals industry. You decided to tap into the Islamic financial markets for funding with an Islamic bond. Can you tell us a little about that decision? There are a few factors that led to this decision. The choice of an Islamic bond is primarily because Malaysia is one of the major financial centres globally for sukuk issuance. We also envisage much more capital intensive growth strategies going forward for which similar financing structures may be considered. The second thing is that we want to have a secure lending programme, and an Islamic bond is good for us given the appetite from the investing community.

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We aim to establish our name, a reputation and a following among investors which will ease our financing requirements in the future. Coupled with the rating that we anticipate, we are confident that we will be able to get a good price for the funds. How big is the issue? RM480 million over five years, so it’s a good bonds programme. We are on track with regulatory approvals, issuance and our financing plans, which also support our core commodity chemicals business. This leverages our competitive advantages (size, scale, global footprint, IP assets) as we take steps towards becoming a leader in natural-based chemicals. What are the biggest challenges going forward, and how do you think you can address them? Since we are still currently 70% commodity chemical based, the main challenge is the fluctuation of the market. Like everyone else in the business, the volatility of price and supply is our biggest concern. In the future, we hope this hurdle will be abated as we grow our portfolio in specialities which are normally less cyclical. With that, our earning quality and stability will be very much improved. The challenge, and the opportunity, remains our capacity to provide natural-based, customised solutions that our customers and the market is looking for. By tapping on our customer intimacy, market knowledge and technical know-how, we are quickly evolving to become a market-driven organisation. Through a continued alignment of our investments and focus with that of our customers and the market, we will have increased our capabilities in delivering innovative solutions. This will, of course, increase our brand equity and increase shareholder value. So where does the company go from here? The high growth and market demand for renewable chemicals is mainly driven by changes in market behaviour towards sustainability, as end-consumers’ environmental concerns escalate. This provides an immense opportunity for natural-based chemical producers such as ourselves. We are focused on continuing our successful development of ecofriendly solutions and implementation of a complete value chain that supports international regulatory requirements such as those tabled by the Roundtable on Sustainable Palm Oil (RSPO). Aside from the product and business expansions discussed earlier, our next steps are also to ensure that we remain an active participant in driving the global sustainability agenda. Accolades received this year — such as the Ohio Chemistry Technology Council (OCTC) Excellence Award for environmental performance and 2011 Frost & Sullivan Asia Pacific Green Excellence Award for Product Innovation in Renewable Chemicals — bears testament to the industry’s recognition of our longterm sustainability efforts and its positive impact.

energy & commodities interview

PANG TECK WAI PALM OIL INDUSTRY CLUSTER (POIC) Chief Executive Officer

I was born and bred in Sabah, and educated there to Form 2 level. My childhood experience has given me a great feeling of connection to Malaysia. After secondary school I went to live in Sydney, Australia, where I stayed for 20 years. I studied for a degree in economics at the University of New South Wales, which was a great experience and taught me a lot. In particular, it gave me a desire to focus on how countries could develop, both economically and socially. After graduating, I taught at the university for some years and did a doctorate in developmental economics. I returned to Malaysia in 1985 and began work as a researcher for a state government think tank — the Institute for Development Studies Ideas. Think tanks were all the rage back then, as the country really turned its mind to how it could accelerate its development. I remained working for the Institute until the late 1990s when I was offered the job of Economic Advisor to the Chief Minister. Then I began to get involved in another major development called KKIP — Kota Kinabalu Industrial Park. At the time this was supposed to be the instrument that could transform the state’s industrial direction because we are much less developed industrially compared to other states in the nation. So KKIP was conceived to effect economic transformation. No nation or economy in the world has been able to transform from a low income economy to a high income economy before industrialising. Big or small, you have to go through that transition from agriculture to industry, so I thought it was my duty to try and see how we could best effect that in Sabah. I then joined POIC in 2005 and have worked here ever since. MOTIVATION

Setting and achieving goals have always motivated me. I like to envisage how this industry, and the wider economy, will advance in the next five, ten or 20 years, and help to achieve that. I am really target driven. And feel a sense of duty.

LESSONS IN BUSINESS

Set your goals, and then do a lot of work. Have perseverance, patience and be prepared to overcome any obstacle to achieve your aim.

INternational investor: What was the thinking behind the setting up of POIC? pang teck wai: When we started to focus on how to develop the region economically, we realised that some of our major industrial sectors were either declining or were exhausted, such as cocoa and timber. What we had left was still some pretty impressive potential industrial sectors, and palm oil was a major one. We presented the case for developing the oil palm industry to the Chief Minister in 2005 and that another development platform, alongside KKPI, should be founded. The Chief Minister approved it without hesitation. That was the thinking behind POIC: to take one of our key industries to the next level and make it a real income generator for the region. Really, in order for an economy to reach developed status one of the things it needs to do is to evaluate whatever raw material it has and how to translate that into more downstream products. All developing economies tend to export resources in their raw form at the early phase of their development, with very little, or minimal, processing. What was the first stage in moving the economy from, as you say, under-developed to developed? Our first challenge was to put the infrastructure in place. That was really the organisation’s focus right from the beginning. We had to start off with the very basic items: prepare the industrial land, put water and electricity in place. It is a good idea to concentrate on what a prospective company’s supply chain will look like, and what they will need to have in place in order for them to decide to locate to your region. In other words, how will they get the product from where it originates — in the case of oil palm the tree and the land — to the market? So our intention is to try to understand the supply chain from where the raw material is to its final destination — the consumer. We do not just

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“

Our first

challenge was to put the infrastructure in place. That was really the organisation’s focus right from the beginning. We had to start off with the very basic items: prepare the industrial land, put water and electricity in place

”

concentrate on one part of the jigsaw puzzle; the entire chain has to be in place before this whole thing will work at the rate that we want it to. Some people say, leave it to market forces. That is fine when the infrastructure is in place, but it needs to be in place first. We identify the problem, we diagnose the problem and we will intervene and try to get the system going. In other words, we try and short-circuit the problems and speed up the process. Can you give us some concrete examples? One example I often point to is the oleo chemicals industry, which we have had quite a lot of success in helping to found and develop. It is exactly the sort of industry we want because it is higher value than just exporting raw materials. Currently, we have 70 oleo chemicals plants in the peninsula. And going back to the issue of infrastructure, it was important to get that in place before these manufacturers would come in and set up manufacturing plants. We also developed and built an oil jetty to facilitate the export of the oleo chemicals — again, a necessary infrastructure project to help kick-start the industry. Would the idea of having private partners working together with government to put some of this infrastructure in place be an interesting idea? Is it something that has been discussed? Not at the moment. This is still an all-government initiative. That doesn’t mean to say that we are in any way hostile to private sector involvement. For instance, we have engaged in some really fruitful discussions with the Port of Rotterdam, Holland, to talk about developing our ports. We value their expertise, so private sector involvement is by no means out of the question. In fact, the Chief Minister has officially visited Rotterdam and they have visited us many times. They are interested in our port in relation to what they can do in Southeast Asia with logistics.

Malaysia is the world’s number 1 exporter of palm oil

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Palm oil is obviously a central part of what you do, but do you intend to go beyond that industry? Our organisation and the effort we put in is certainly about more than just palm oil; it is about industrialising the state as a whole. Whatever comes up that can help us to move the industrialisation process forward will be what we will focus on. It is not confined to palm oil, but we use the oil palm sector as the starting point because it is the single largest sector we have in the state. There are lots of opportunities out there for industries apart from palm oil. However, it bears repeating that the palm oil industry has huge potential. It is worth probably four times the size of the state’s GDP if we can develop it properly. If we can mobilise this one sector, it has enough to affect an industrial shift in a very big way. What sort of industries would you like to help develop based on the infrastructure investment that you have made? We continue to look in many directions. I will give you some examples. Next to palm oil we will be looking at other major industries in which Sabah has a competitive advantage. One big sector would be timber. Another is food, in particular halal production, although we envisage a mix of halal and non-halal. We are looking at a major, national agricultural production region of around 100,000 hectares. If we can pull it off, we will be able to develop a major food production centre. Biomass is a third form of industrial production we are seriously looking into. Much of the waste from palm oil production can be put to productive use if the systems and infrastructure are in place. That is obviously where we at POIC can make a difference. How do you see the future developing for POIC and the region as a whole? Expanding the logistics aspect of what we do. In fact, expanding the whole region as a logistics hub. That, among other things, is why our relationship with the Port of Rotterdam is important. Malaysia’s strategic position within the wider Southeast Asia region is a great opportunity. We can make ourselves a major part of the region’s supply chain, not just the country’s. Whoever can come up with efficient ports and infrastructure, and sufficiently competitive costs to handle serious trade — resources will naturally move to those areas. We could well be in a very strong position to align ourselves in that regional business. We are an optimally positioned region; we will have excellent infrastructure; excellent governmental support; space to expand; strong, existing companies — I am extremely confident about our future. I think POIC has made a big difference, and we will be around to continue our efforts in the coming years.

energy & commoditiesâ&#x20AC;&#x192; business intelligence

Greening the oil palm universe What if it we could create a truly green, yet more profitable oil palm industry? Impossible? Not at all if a revolutionary technique developed by 1Green Enviro is rolled out across the industry, says Raymond Chan

We have developed a patented process which takes the empty fruit bunches and produces high-quality pulp fibre

The oil palm industry has been under increased pressure from environmentalists recently. Hardly a day goes by without it being criticised for its environmental sins. But what if it could be put on a truly sustainable footing? What if the environmental concerns expressed by NGOs and governments around the world could be met head on and assuaged once and for all? More than that, what if the industry could actually increase its profitability by doing so? At 1GreenEnviro we believe we have developed a way of achieving all this and more. We have developed a process that can turn what was previously a lowgrade, low-value by-product of the oil palm industry into high-grade, high-value product. We can turn empty fruit bunches into high-quality paper and cardboard. We believe we have created a process that can address the environmental challenges the oil palm industry faces, and make them a better profit into the bargain. What is the basic challenge? The problem is easy to state. Oil palm producers are faced every day with what to do with a major by-product of their work: empty fruit bunches. Empty fruit bunches (EFB) are what you get when the palm oil is extracted from the raw material â&#x20AC;&#x201D; oil palm fruit. They are exactly what they sound like: bunches of fruit that have been squeezed dry of their oil content. Under normal circumstances, they are of little use to the oil palm millers. At best, this residue can be sold on for a low price. At worst, it is discarded at a cost to the producers.

But there is a better way. In fact, we think that the potential for empty fruit bunches is huge. We have developed a patented process which takes the empty fruit bunches and produces high-quality pulp fibre from them which can then be used for the manufacture of paper-based products. The pulp our process produces is of a higher quality than current methods, and the system of plants we envisage will make the industry dramatically more efficient. Our goal is to create a network of plants, located in optimal places around the country, which will work in synergy with existing oil palm industry factories to produce high-quality paper products that can compete on the world paper market. A simple but revolutionary proposal It is possible already to turn empty fruit bunches into paper pulp, but the process produces inferior fibres which do not produce the best quality paper. As a result, EFB is not used very much to produce paper pulp. Tests by the Forest Research Institute Malaysia have shown that the length of the fibres that result from the existing methods of EFB processing is just 0.82mm on average. Our process produces fibres exceeding 1.2mm. This doesnâ&#x20AC;&#x2122;t sound like much, but to the paper industry it is a significant increase in quality, and it makes the whole business of manufacturing paper products from oil palm waste much more viable. How does it work? We take the empty fruit bunches and put them through our patented process to produce Recycled Bleached Mechanised Pulp (RBMP).

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Estimated yields per three tons of EFB Pulp conversion ■ Corrugated pulp price — US$300 per metric ton ■ Corrugated paper price — US$600700 per metric ton ■ Carbon credit sale price — variable, but a significant additional yield

KEY POINTS ■ Empty Fruit Bunches is a residue from palm oil production which can be used to produce pulp for the paper industry ■ Global paper market: US$5 billion per annum ■ Annual growth rate: 3.4% ■ EFB per annum: 30 million tons ■ 17 trees felled per ton of paper in current manufacture ■ 0 trees per ton using EFB pulp

The process is based on a combination of chemical, mechanical and thermal treatments which progressively processes the EFB fibres while retaining as much of their strength and length as possible. The end result is a pulp which is ideal for the production of exactly the sorts of paperbased products used extensively around the world. The process has been tested extensively and we have shown that it reduces the overall time and cost of producing EFB pulp. Our patented process, then, has three main benefits: it produces higher quality EFB fibre, at a lower cost, and more quickly than conventional methods. We believe it can produce a revolution in the oil palm industry. But why is such a revolution necessary? Let’s look at some background information. Answering a significant challenge Currently, palm oil producers face the worst of two worlds. They are in an industry increasingly threatened by international environmental regulations and attacks. In addition, they are left with a by-product of their industry which is of little or no value to them, but which must still be got rid of or processed somehow. In recent years, the oil palm industry has come under intense focus from many of the world’s leading green NGOs and a number of developed-world governments. The accusation is, fairly or unfairly, that the plantation industry contributes to unsustainable deforestation, and the destruction of wildlife, and thus has a detrimental effect on the global environment. Leaving aside the very real debate that surrounds these accusations,

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clearly the oil palm industry cannot ignore these negative voices. Already there are active campaigns in Western Europe to halt the development of oil palm plantations in South-east Asia and to ban all palm oil imports. Anti-palm-oil laws are being debated in the European Parliament. A number of big companies such as Cadbury, Lush Cosmetics and Australia’s KFC have banned the use of palm oil in their products. If this goes on and spreads to key markets such as India and China, the consequences for the Malaysian oil palm industry could be severe. Oil Palm production could well go the way of rubber and tin mining. The impact on Southeast Asia as a whole, and Malaysia in particular would be enormous. It is not that nothing has been done to address some of these threats. Some producers have signed up to the Roundtable on Sustainable Palm Oil’s RSPO Certificate, which guarantees that their oil has been produced under environmentally sustainable conditions. The RSPO Certificate does indeed ease the path to sales around the world. But research has shown that it can add up to 10 per cent to production costs — a serious disincentive for oil palm growers to sign up to it. As a result, just 100,000 tons out of an annual production of 1.5 million tons of palm oil is produced on this RSPO Certificate basis. Equally, the millions of dollars spent by the Malaysian Palm Oil Council to counter the negative publicity surrounding the oil palm industry has been largely ineffective. The oil palm industry is the country’s third largest revenue earner. Malaysia

energy & commodities business intelligence

INTRODUCING THE COMPANY Green Enviro was formed in November 2010 with an initial paid-up capital of RM500,000. We have a dedicated management team in place, with many years’ experience in related industries. We have been awarded the sole Malaysian rights to use the main technology behind the process by the patent holder, Patent Technologies Sdn Bhd (GPT). The patents have also been filed in China, Thailand and Indonesia. The technology is mature and proven. It has been ratified by the Malaysian Ministry of Energy, Green Technology and Water.

is the world’s second largest producer. Something needs to be done to square this circle, as there is a real threat to what is a crucial industry for Malaysia. Our proposed method of turning empty fruit bunches into high-quality pulp for the manufacture of paperbased products will add significantly to the profitability of oil palm producers, thus making it more viable for them to sign up to environmental initiatives like RSPO certification. A big increase in downstream profitability can easily

1GreenEnviro believes that our production process can make a significant contribution to the Malaysian government’s Economic Transformation Programme. Indeed, the pulp and paper industry has been identified as one of the priority areas for investment and development under the government’s Third Industrial Master Plan. Apart from the inherent viability and attractiveness of the initiative, the fact that it fits in with the government’s own programme of economic transformation makes us confident that it will be supported by federal and state governmental agencies.

offset a marginal increase in upstream environmental costs. It will also deal with the millions of tons of waste product the industry produces each year, for which it has little or no use. A significant benefit to the global eco-system Yet there is a second environmental aspect to this proposal that could well be even more persuasive to green campaigners. The existing global paper industry itself comes under immense criticism

for its environmental impact. Enormous areas of forest are felled each year to produce paper products. It is estimated that 17 trees are needed to produce one metric ton of pulp used in the paper industry. Millions of hectares of forest are felled each year to provide the raw material required to produce the world’s paper requirements. Imagine if the oil palm industry could produce sufficient amounts of high-quality pulp to replace all that? All from sustainable by-product? At a stroke, the industry would capture a significant extra market while contributing to the preservation of forests worldwide. Look at the facts. Each year, the oil palm industry produces over 30 million metric tons of empty fruit bunch waste product. The industry deals with this waste in what we consider to be highly inefficient ways. It is disposed of as low-value mulch, or as equally lowvalue feedstock for heat generation. At worst, it is merely discarded at a cost to the millers. Sabah alone has 1.3 million hectares of oil palm plantations and 120 palm oil mills that produce 6.5 million metric tons of empty fruit bunch each and every year. It is a resource that is currently being squandered when there is a worldwide paper-products market that could be tapped into if the right industrial process could be put in place. Take a further look at how the waste is dealt with at the moment. Sending EFB to be put in landfill is environmentally damaging. EFB in landfill produces copious quantities of methane — a greenhouse gas associated with global warming. Empty fruit bunches sent to be used as mulch is a very low-yield use of a potentially valuable waste product. Fields are usually a long way from the oil mills, leading to traffic pollution and the degradation of local roads. There is little demand for EFB-based fertiliser because of its higher cost compared to inorganic fertilisers. Empty fruit bunches can be sold as fuel for electricity generation, but this yields only about RM80 per ton. There are also high costs involved in treating the waste so that it can be converted into appropriate fuel. Fibre boards, tatami mats and egg trays — all low-yield compared to papermulch usage.

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the Philippines are also increasing their production of oil palm. Since we have patented our technology, there is real scope for additional revenue from licensing it to companies in these territories.

All in all, the financial considerations alone make the conversion of EFB into high quality paper mulch an obviously better bet. In fact, our calculations indicate that the yield on EFB turned into paper could be between US$300-700 per metric ton. A compelling environmental story We estimate that 10 million metric tons of EFB pulp suitable for the paper industry could be produced from the 30 million tons of EFB waste currently produced each year. Taking the figure of 17 trees cut down for each ton of premanufacture pulp in the paper industry at the moment, it means that 374 million trees will not have to be cut down if the current EFB waste was converted into paper. Looked at another way, 6.2 million hectares of forest would be saved. And all from replacing existing paper pulp with EFB pulp. For an industry that comes under constant criticism for alleged deforestation, this sort of saving of forest would be impossible to ignore. It is important to recognise the how big the potential market is for paper products worldwide, and just how large the opportunity is for oil palm producers, so let’s look at a few facts: the global paper pulp market is estimated to be worth US$5 billion annually. It is currently growing by about 3.4 per cent per year. Demand from the Chinese market for paper pulp is expected to surpass the United States’ demand by the end of the decade. Qingdao and Shenzhen Customs statistics show that China is importing more than 50

per cent of the world’s recovered paper at the moment, and that is set to grow. The carbon trading angle There is a further aspect to this process that is just as important: carbon trading. Under the Kyoto Protocol on global warming, it was established that companies, largely in the developing world, could sell carbon credits to developed-world firms. If oil palm producers can demonstrate that this new form of EFB processing prevents the destruction of forests elsewhere for paper production, profitable carbon trading is a real possibility. We will explore this possibility further as the development of our pulp processing system matures. A very real possibility just round the corner This is not just blue sky thinking. The technology is here, today. It is tested, proven and efficient. Already we have test plants working to produce significant amounts of paper each year. Our patented technology has been shown to produce better fibres for pulp than existing methods. We have shown that the system is a viable user of oil palm waste. All that remains is for the system to be rolled out all across Malaysia. But there is no reason why this technology should be limited to Malaysia. It has the potential to be sold into all major oil palm producing countries. Indonesia is an obvious potential market for this technology, but there are other potential markets. Thailand, Papua New Guinea, Cambodia, Colombia, India and

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An opportunity that comes around once in a lifetime As long as there are oil palm plantations and palm oil mills in Malaysia there will be ample supplies of empty fruit bunches. The raw material for a significant new industry for the country is readily available. The technology we have developed can produce a seismic shift in the way oil palm is produced not just in Malaysia, but worldwide. And it can alter the economic basis of the industry. We believe we are on the brink of a major shift, both commercially and environmentally. Using our technology, palm oil producers can engage in environmentally friendly production methods while increasing their profits. We can make the oil palm industry truly sustainable for the first time. There is a win-win outcome available to us all, if we choose to take the step.

RAYMOND CHAN

Chief Executive Officer

T: +603 2288 1778 E: rc1borneo@gmail.com

1GREEN ENVIRO

Level 7, Lot 7.02 (East Wing) Menara BRDB, 285 Jalan Maarof Bukit Bandaraya 59000 Kuala Lumpur Malaysia MISSION AND VISION OF 1 GREEN ENVIRO: CREATING A NEW GREEN INDUSTRY BY Developing sustainable ‘green’ palm oil and pulp and paper through: l Recycling EFB biomass, l Reducing green house gas (GHG) emission l Avoiding deforestation Developing multiple revenue streams through: Meeting increasing worldwide demand for pulp and paper l Selling carbon credit revenue by recycling waste and reducing GHG l

ict

overview ict

The Crucible of Creative Disruption The ICT sector will play a vital role in Malaysia’s transformation. Rapid developments in the internet and mobility, as well as ever-increasing access to technology, are driving growth in various sub-sectors. With the prospect of cloud computing round the corner

Introduction The story of the global ICT sector in the past decade and a half has been about opportunities shaped by creative disruptions — the biggest two of which were the advent of the internet and mobility. These two overarching trends have created a uniquely positioned ICT eco-system, with the following as key characteristics as of the year 2010. 1. An aggressive phase of mobilisation: 2010 was characterised by some key inflection points, such as the packet data exceeding voice on mobile networks, mobile broadband devices exceeding fixed broadband devices, and in many countries more mobile broadband lines than fixed broadband lines. 2. Emergence of a new category of devices: 2010 saw the launch of the first mass-market tablet, the iPad, and with it a completely new category driving consumer internet consumption behavior. 2010 was also characterised by mass marketisation of smartphones, with many countries boosting shipments of smartphones by more than 50%. 3. Collision of computing, mobility and internet technology cycles: These three eco-systems began to converge like nothing before, leading to the cherished status of platforms, with industry leaders like Google, Apple and Microsoft trying to stitch a comprehensive platform across serving needs — communication, entertainment, information, commerce, participation and experience. 4. Internet and entertainment synergy: 2010 also saw the rapid expansion of smart TVs, with increasing shipments of Smart TVs — much higher than over-hyped 3D televisions. 5. Smartening of telecom wholesale models: Driven by either regulatory reasons, or the nonviable economics of multiple network deployments, 2010 saw further momentum in terms of wholesaling of telecom services and models of network infrastructure sharing. 6. Cloud computing: 2010 saw the concept move from specific case studies and restricted

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ict overview

deployments to mass-market deployment across the SaaS, IaaS and PaaS platforms, with both new and traditional players active in the space. 7. Connected world: The visions of a connected world being painted since 2000 began in 2010 to assume a realistic shape, with near unanimity in terms of the way forward in connecting people, devices and applications. If we delve a bit deeper, we see broadly three main themes prevalent in the ICT sector, namely 1) Ubiquitous access to technology, 2) Access to these technologies at an increasingly lower cost and 3) Increased personalisation of this technology consumption. These overarching themes have created a number of technology trends that are impacting the adoption of ICT. Some of the key trends include: 1. Rapid connectivity across people, devices and applications 2. Rapid advance of the mobile broadband cycle 3. Emergence of a new device paradigm across phones, tablets and other devices 4. Importance of social media for business purposes 5. Paradigm shift in the IT consumption model, which is driving the adoption of cloud computing 6. Increasing importance of green IT, especially where it drives business efficiency 7. ICT as an efficiency and productivity multiplier across other industry sectors One of the questions often asked by various Malaysian Information & Communication Technologies (ICT) players while debating product or service uptake has been the comparison of Malaysia with similar countries in the world. The question, however, has been singularly difficult to answer. Malaysia boosts a nominal GDP per capita of around US$8,600 (est. 2010) which places it somewhere between a typical developing and developed country, whereas the same at purchasing power parity is around US$14,700 (est. 2010), putting it closer to a developed country. In

addition, the country has been blessed with a low population density, access to natural resources, a relatively peaceful socio-political environment and, not least of all, an enviable natural beauty. As such, it is prudent to classify Malaysia as unique in terms of its position vis-à-vis other countries. This unique position is arguably assisting Malaysia to unleash creative disruptions in the various fields of the ICT sector. It is an unequivocal point that great opportunities exist in this sector, which is characterised by a high degree of disruption. These disruptions can be internal or external to the system and may, therefore, either disrupt the ICT sector on its own or enable ICT to disrupt other industry sectors. The Malaysian ICT industry in the year 2010 comprised about RM69.3 billion in revenues, with the telecom ICT sub-sector forming the largest in contribution (see fig.1). It is expected that the total ICT sector in 2015 will reach RM110 billion in revenue size, thus growing at a nearly 10% CAGR over the next five years. The economic value added to the Malaysian economy in 2009 from the ICT sector was about RM50.92 billion, which is a 12.5% contribution to the national GDP. The juxtaposition of global ICT trends with the unique position of the Malaysian ICT industry is creating distinctive opportunities in the industry. These opportunities can be located both within and outside the Malaysian ICT industry, and they will be discussed in further detail in subsequent sections.

The juxtaposition of global ICT trends with the unique position of the Malaysian ICT industry is creating distinctive opportunities in the industry

Malaysian Telecoms Sector The Malaysian telecoms sector is the largest subsector in the Malaysian ICT industry. The industry is characterised by the presence of Telekom Malaysia (TM) as an incumbent fixed line and the largest broadband and enterprise services player. Maxis Communications, Celcom and Digi are the three largest mobile service providers. In addition there

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exist a number of fixed wireless broadband players, The investment mix is also expected to change notably P1 and YTL. from radio infrastructure to more backhaul The broadband segment (see fig.2) has been infrastructure, given the deluge of data that is and 80 the fastest growing segment in the country in needs to be carried by the mobile networks. 70 69.3 2010, in terms of percentage subscriber growth. The enterprise segment has been the 10.6 The country had more than 3.6 million broadband revelation in the telecoms sector in Malaysia, 60 40.0 1. LANDSCAPE IN 1. ICT ICTfor LANDSCAPE IN subscribers by the end of 2010, which creates with a very high growth rate the industry; 50 MALAYSIA MALAYSIA (2010) (2010) a critical mass of homes/lines with broadband TM alone has been generating high double-digit 80 40 80 connectivity in the country. Interestingly, more growth in the data communications business. 30 than half of the broadband lines in Malaysia are The enterprise segment 70 is evolving, with 70 69.3 69.3 10.6 10.6 using wireless technology as an access mechanism. growth across traditional data services as well 60 20 60 11.0 40.0 The High Speed Broadband (HSBB) rollout being as emerging managed services. 40.0 With cloud 50 10 50 carried out by TM has also been progressing rapidly, computing gaining rapid mindshare in Malaysia, 7.7 0 with the provision that the HSBB network could enterprise play is therefore4040emerging as very Services Hardware be used by other service providers to offer retail important for Malaysian service providers. 30 30 Software Telecom services to Malaysian customers. One of the key To summarise, the key opportunities in the Source: Frost & Sullivan applications on HSBB is the IPTV service offering Malaysian telecom sectors are 2020 as follows: 11.0 11.0 10 10 from TM, although it doesn’t fully compare with ■ Broadband disruption: Given the increasing 7.7 7.7 the Pay TV service from Astro. penetration of broadband in both consumer and 00 However, the increased broadband usage has business environments, the need for content will Hardware Services Hardware Services 6. MALAYSIAN SAAS MARKET FORECAST (US$MN) 6. MALAYSIAN SAAS MARKET FORECAST (US$MN) Telecom Software Telecom Software led to an exponential increase in data traffic considerably escalate in areas such as: 45% 225 45% 225 Source: Source: Frost Frost && Sullivan Sullivan on the networks. For mobile players especially, l Enterprise mobility 56.3 56.3 39.4% 39.4% 40% 200 40% 200 37.1% 36.9% 37.1% 36.9% l this 34.2% has created a situation wherein the cost of Location-based content 35.9% 35.9% 34.2% 2% 35% 175 32.6% 2% 35% 175 32.6% 31.5% 31.5% data traffic carriage has the potential to exceed l Online advertising 40.6 40.6 30% 150 30% 150 the revenues from the service. It is therefore l Marketing and customer interaction using social 2% 2% 25% 125 25% 125 30.2 becoming imperative to either drive additional media tools 30.2 100 20% 100 20% services on the underlying broadband connectivity l E-learning driving growth in areas such as 22.4 22.4 2% 2% 15% 75 15% cost of data carriage. 75 and/or to reduce the open source e-learning tools, workplace e-learning 17.0 17.0 10% 50 10% 50 The mobile sector, on the other hand, also (particularly in the business services, financial 12.4 12.4 9.3 9.3 5% 25 5% 10% in the year 2010 in terms 25 6.8 grew by more than and pharmaceutical sectors) and the integration of 6.8 19.4 26.3 36.4 51.0 70.7 94.7 19.4 26.3 36.4 51.0 70.7 94.7 125.0 125.0 161.4 161.4 0 00 0 of subscriber base, though the revenue growth e-learning into corporate infrastructure 2010 2011 2012 2013 2014 2016 2017 2015 2010 2011 2012 2013 2014 2015 2016 2017 15% was much lower. The mobile penetration rate in l Localised content BAaaS Security + UC Growth Rate BAaaS Security + UC Growth Rate 16% 2010 exceeded 113% and is expected to cross 165% ■ Mobile broadband disruption: The immense boost Source: Source: Frost Frost && Sullivan Sullivan by the year 2015 (see fig.3). The sector is thus in the number of mobile broadband subscribers is 24% characterised by falling ARPUs, leading service creating opportunities in areas such as: % 5% 4. 4. PERCEPTION PERCEPTION OF OF CLOUD CLOUD COMPUTING COMPUTING IN IN MALAYSIA MALAYSIA (N=55) (N=55) 15% providers to focus on both services to drive revenues l End-user devices across the spectrum of phones, % 7% and with measures tojargon optimise the key tablets and traditional devices 15% 35% 15% 9% 15% Some of27% 35% 15% 9% costs. 27% The various The vendors vendors are are confusing confusing the the marketplace marketplace with various cloud cloud jargon 16% 27% 2% 36% 16% 18% initiatives expected in this include: l Mobile commerce II would from who 27% 2% segment 36% 16% 18% would be be unwilling unwilling to to procure procure cloud cloud services services from providers providers who don't don't have have aa data data centre centre in in my my country country 9% ■ Drive consumer revenue through premium l Location-based services 13% 24% 40% 24% 13% 24% 40% 24% Cloud Cloud computing computing gives gives me me an an opportunity opportunity to to reduce reduce costs costs 22% mobile data services l Localised lifestyle applications 7% 22% 36% 29% 5% 7% 22% 36% 29% 5% Private Private clouds clouds are are the the same same as as hosted hosted data data centres centres 18% ■ Increased play in the ■ enterprise segment to Cloud and data deluge disruption: In order to 5% 36% 15% 9% 35% 5% 36% 15% 9% 35% Cloud Cloud has has the the potential potential to to change change IT IT into into aa ‘utility’ ‘utility’like like electricity electricity diversify the revenue base recoup their investments in the backhaul, service rost & Sullivan 13% 31% 25% 24% 7% 13% 31% 25% 24% 7% Cloud Cloud computing computing and and virtualisatlon virtualisatlon are are one one and and the the same same ■ will providers — especially mobile service providers — Leverage thethe broadband to35% 2% 16% 31% 16% 2% 16% access 35% deliver 31% 16% By be By2020, 2020,90% 90%of ofall allenterprise enterpriseapplications applications will bedelivered deliveredfrom from thecloud cloud will become more9%9%aggressive in riding the cloud services such as IPTV, etc. 2% 40% 36% 2% 13% 40% 13% 36% Cloud isis not NNECTIONS PENETRATION FORECASTS Cloud computing computing not yet yet enterprise enterprise ready ready AGE) 2% 31% 13% 33% to create 22% opportunities in delivering: the Network management, given wave Cloud 2% cost 31% 22% 13% 33% Cloud computing computing can can be be as as ‘disruptive’ ‘disruptive’■as as the internet internet infrastructure Connections 2% 31% 44% 18% 2%5% 5% and revenue 31% 44% l Full spectrum 18% Cloud over-hyped Cloud computing computing isis an an 165.3 over-hyped phenomenon phenomenon the asymmetry in data deluge generation SaaS and IaaS services to 157.3 148.1 Strongly Somewhat disagree Neutral Somewhat agree Strongly agree 138.2 ■ Strongly disagree disagree Somewhat disagree Neutral Somewhat agree Strongly agree Operational cost management enterprises and Small and Medium Businesses (SMBs) 126.4 Source: Frost & Sullivan

2009

RM bn bn RM

RM bn

Growth Rate Rate (%) (%) Growth

Revenues ($ ($ Million) Million) Revenues

Source: Frost & Sullivan

113.5

2. 2. BROADBAND BROADBAND SUBSCRIBER SUBSCRIBER BASE BASE FORECASTS FORECASTS 66 2010

2011

Subscribers millions millions Subscribers

100

1. ICT LANDSCAPE IN MALAYSIA (2010)

5.600 5.600 4.850 4.850

2012

44 33 22

2013

2015

Source: Frost & Sullivan 1.431 1.431

11 00

2014

1.651 1.651

3.442 3.442

2.800 2.800 1.849 1.849

1.997 1.997

2.097 2.097

2.160 2.160

2.203 2.203

0.931 0.931

2009 2009

Fixed Fixed BB BB

1.996 1.996

4.100 4.100

2010 2010

2011 2011

2012 2012

Wireless Wireless BB BB

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2013 2013

2014 2014

2015 2015

Source: Source: Frost Frost && Sullivan Sullivan

3. 3. MOBILE MOBILE CONNECTIONS CONNECTIONS PENETRATION PENETRATION FORECASTS FORECASTS (IN (IN PERCENTAGE) PERCENTAGE) 180 180 160 160 140 140 120 120 100 100 80 80 60 60 40 40 20 20 00

Connections Connections

100 100

113.5 113.5

126.4 126.4

138.2 138.2

148.1 148.1

157.3 157.3

165.3 165.3

64.8 64.8

2008 2008

2009 2009

2010 2010

2011 2011

2012 2012

2013 2013

2014 2014

2015 2015

Source: Source: Frost Frost && Sullivan Sullivan

ict overview

Strengths

weaknesses

■ Deployment of the HSBB network across the country

■ Relatively

■ High

mobile broadband penetration ■ Greater than 100% mobile connectivity penetration ■ Robust IT infrastructure, especially in the large and medium enterprises ■ Global connectivity and high growth in the domestic data centre business ■ Presence of global and local SIs and Value Added Resellers (VARs) in the country ■ Downward trend in the pricing of connectivity and IT services ■ Government focus on promoting ICT usage in consumer and business segments through a variety of national goals

higher price of global connectivity of adequate quantity of talent ■ Over-reliance on public sector projects ■ Relative inadequacy of eco-system completion in the local ICT landscape ■ Relative lack of home-grown IT software and hardware vendors ■ Lack

opportunities ■ Enterprise

solutions for mobile and fixed carriers broadband based applications to cater to local lifestyle demands ■ Content localisation and local content development of initiatives across education and healthcare ■ Rapid deployment of both SaaS and IasS varieties of cloud services, targeting both the enterprise and the SME segments ■ Further development of the outsourcing industry through local opportunities and moving up the value chain ■ Data centre hub for the region, with a focus on the Disaster Recovery and Business Continuity value proposition ■ ICT enablement of other industries such as urban planning, healthcare, education, automotive, etc. ■ Green IT opportunities in e-waste management, green data centres, software and applications to support verticals such as Smart Grid, Smart Transport Management, etc, and certain communication technologies ■ Mobile

l Managed services across unified communications, hosting, security and WAN optimisation l ICT as an external disruption: Growing broadband adoption will allow greater potential for the use of ICT in other industry sectors such as: l Tele health solutions as well as healthcare provisioning, including services for patient record management, web-based support and diagnostics, and the use of ICT in biotech research l Education to drive e-learning l Urban planning l Energy through Smart Grids l Retail to drive efficiency Malaysian IT and ITES Services Sector The IT services sector is the second largest ICT

threats ■ Competition from neighboring and other countries in outsourcing and data centre hub opportunities ■ Data privacy and security issues in ICT enablement in the healthcare sector ■ Dependence on government, especially in the education sector ■ Cost structure escalation could impede Green IT adoption ■ Security and SLA issues could dampen cloud adoption

segment in Malaysia, contributing around RM11 billion in revenues in 2010 — and this is from a decline in 2009 as a consequence of the global economic crisis. It is expected that this segment will grow at a double-digit growth rate of around 13% to reach RM20 billion within the next decade. IT services, together with the software and the hardware segments, will be impacted by the burgeoning growth of the cloud computing paradigm in the country. In a recent Frost & Sullivan survey of IT managers with their own data centres in Malaysia, 29% responded that they had used some form of could services in the previous 12 months. Among the cloud users, nearly all had used SaaS, about 71% had used IaaS and about 50% had used PaaS. Based on the survey (see fig.4), some of the key points that need to be highlighted include:

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17.0

50 25 0

overview ict

9.3

10%

12.4

6.8 19.4

26.3

36.4

51.0

70.7

94.7

125.0

161.4

2010

2011

2012

2013

2014

2015

2016

2017

BAaaS

Security + UC

Growth Rate Source: Frost & Sullivan

4. PERCEPTION OF CLOUD COMPUTING IN MALAYSIA (N=55) The vendors are confusing the marketplace with various cloud jargon I would be unwilling to procure cloud services from providers who don't have a data centre in my country

15%

9% 2% 13%

Cloud computing gives me an opportunity to reduce costs

Private clouds are the same as hosted data centres Cloud has the potential to change IT into a ‘utility’ like electricity

By 2020, 90% of all enterprise applications will be delivered from the cloud 2% 2%

13%

Cloud computing can be as ‘disruptive’ as the internet

13%

Cloud computing is an over-hyped phenomenon

2% 5%

Strongly disagree

Somewhat disagree

2. BROADBAND SUBSCRIBER BASE FORECASTS ■ 53% expect cloud computing to be as

40%

Neutral

24% 29% 36%

35%

24%

35%

31%

Somewhat agree

7% 16%

40%

36% 33%

5% 15%

31%

25%

16%

Cloud computing is not yet enterprise ready

16%

36%

15%

36%

24% 22%

13%

Cloud computing and virtualisatlon are one and the same

35%

27% 27%

18%

31% 44%

Strongly agree

9% 22% 18%

Source: Frost & Sullivan

3. MOBILE CONNECTIONS PENETRATION FORECASTS

as PERCENTAGE) can be seen in the disruptive ITES (IT Enabled Services), (IN 5.600 Connections growth of the Shared Services and as the internet. They believe that it will change the burgeoning 180 4.850 5 160 Outsourcing (SSO) industry in the country. way application software is delivered today. 4.100 138.2 4 140 126.4 3.442 ■ The point is further strengthened, as 47% in the expect To summarise, the key 120opportunities 113.5 2.800 100 3 100 as follows: 2.203 2.160 Malaysian IT services sector are that by 2020 90% of1.996 enterprise applications will 2.097 1.997 1.849 1.651 2 1.431 80 64.8 ■ Outsourcing be delivered disruption:60 Business Process 0.931through the cloud. This is driven by 1 40 the various advantages of shifting to the cloud Outsourcing (BPO), Systems Integration and 0 20 2014 2015 and improvements in broadband, primarily cost with a focus 2009 2010 2011 2012 2013 IT Consulting, 0 on the following 2008 2009 2010 2011 2012 Fixed BB – which Wireless BB reduction 64% of respondents agreed with. application areas: Source: Frost & Sullivan ■ It was also interesting to note that 52% of l Mobile and wireless communication enterprises are unwilling to procure services from l Business application software development SPs that do not have a DC in Malaysia. These are l Internet-based business applications in the primarily composed of the banking vertical and financial sector compliance requirements play a key role in this. l Digital content development The cloud paradigm creates a significant impact l E-commerce for networking and outsourcing on the current IT eco-system (see fig.5). While the l Bio-informatics IT eco-system would go through an upheaval, the l E-government users – both enterprises and SMBs — will be deriving ■ Could disruption: The shift to cloud would open significant benefits in terms of cost and scalability up opportunities in areas as follows: of their IT infrastructure. l Full-spectrum SaaS and IaaS services to Other than native IT services, in past decade enterprises and Small and Medium Businesses Malaysia has also gained significant strength in (SMBs)

47% of IT managers with their own data centres in Malaysia expect that by 2020, 90% of enterprise applications will be delivered through the cloud

Subscribers millions

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148.1

2013

157.3

2014

165

201

Source: Frost & Sul

ict overview

l Cloud brokers and real-time federators l Channel partners to cloud service providers l Data centre services in both co-location and managed hosting Malaysian IT Hardware Sector The Malaysian IT Hardware sector is the third largest, marginally behind the IT services sector at about RM10.6 billion in 2010, and is expected to grow at around 10% CAGR to reach RM17 billion by 2015. The growth is expected to be driven by the rapid adoption of tablet PCs, smartphones and mobility devices such as GPS and other security solutions. While from a cloud adoption perspective, a certain percentage of storage and server spending is expected to move from on-premises locations to cloud providers, the impact on the overall spend is not going to be significant. However, it is expected that the IaaS model will gain significant momentum and grow at a CAGR in excess of 40% over the next five years. To summarise, the key opportunities in the Malaysian hardware sector are as follows: ■ Cloud disruption: Opportunities for SMBs and enterprises to go for IaaS, thus driving the market for: l Servers l Storage ■ Consumerisation of IT disruption: With employees wanting to be able to use consumer IT devices such tablet PCs and smartphones in a business environment, the trend towards consumerisation of IT is gaining rapid momentum, thus accelerating the use of such devices in a business environment. Malaysian Software Sector The Malaysian Software sector is the smallest within the ICT space, at about RM7.7 billion in 2010, and is expected to grow at around 15% CAGR to reach RM16 billion by 2015. The growth is expected to be driven by a higher adoption of business applications by mid-

sized businesses and SMBs, provision of software access to a larger base of employees, and on mobile access mechanisms and riding on the cloud wave. The software industry is getting significantly impacted by the cloud paradigm, with even traditional vendors launching utility-based pricing and delivery models for their software suite of products. It is expected that this global trend will be seen in Malaysia as well and will continue to gain momentum. On the other hand, a cloud-based delivery model also allows smaller and home-grown ISVs to enter the market, with cloud-based delivery obviating the need for an expensive channel strategy. The SaaS market in Malaysia in 2010 is estimated to be around RM78 million and is expected to reach RM375 million by 2015 (see fig.6). The growth is expected to be powered by CRM, Collaboration and Human Resources Management (HRM) software applications. Enterprises in Malaysia have recently begun embracing the SaaS delivery model. Their interest is primarily driven by the lower total cost of ownership in the services model, the conversion of CapEx to predictable OpEx and the ability to scale up or down depending on business needs. Most of the early SaaS adopters in the Malaysian market have adopted CRM to start their journey towards SaaS, resulting in CRM applications accounting for a large share of the market in 2010. However, enterprises continue to remain skeptical of cloud adoption due to security and privacy concerns. This, along with the low reliability of broadband internet in the country, may hamper BAaaS adoption in the short-term. The government’s efforts towards building a knowledge economy and improving broadband infrastructure would alleviate these challenges in the long run. To summarise, the key opportunities in the Malaysian software sector are as follows:

The growth of Malaysia’s IT Hardware sector is expected to be driven by the rapid adoption of tablet PCs, smartphones and mobility devices such as GPS and other security solutions

5. Cloud Impact on the IT Eco-system ■ Financial and competitive pressure to grow services business Vendors ■ Existing business models and GTM ungeared for ‘services’ play ■ Lucrative maintenance revenues will dry up in the future ■ Vertical understanding and ‘customisation’ are clear differentiation Outsourcers/Global SI ■ As basic IT services turn commoditised, SI revenues will dry up ■ Need to give up lucrative existing contracts to retain customers Resellers ■ As IT becomes commoditised and simple, SI revenues will start drying up ■ Procurement rationalisation towards fewer providers ■ Massive consolidation ahead ■ Pressure to move up the value chain as product margins reduce Distributors ■ Services play critical for survival ■ Conflict ahead with vendors ■ Need to capitalise on the advantages of billing, relationships and infrastructure Service Providers ■ Lack of nimbleness and IT branding are inhibiting early growth ■ Sought after channel partner in the short-term for pure-play cloud providers

Source: Frost & Sullivan

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RM bn

overview ict

40 30 20 11.0 10

sound business logic. As such, the key opportunities that can be identified as driven by Green IT adoption include: ■ Green IT disruption: The opportunities include: 2%l Managing e-waste, especially for consumer devices 2% l Green buildings (ie, data centres) 2%l Software and applications to increase performance of supporting verticals, such as Smart Grid, Smart Transport Management, etc. l Communication technologies, such as video conferencing and Web 2.0, that can allow companies to reduce the cost of travel and energy usage

6. MALAYSIAN SAAS MARKET FORECAST (US$MN)

200

35.9%

56.3

39.4%

37.1%

36.9%

34.2%

Revenues ($ Million)

175

125

9.3

35%

25% 20% 15%

17.0

40%

30%

22.4

31.5%

30.2

100

32.6% 40.6

150

45%

Growth Rate (%)

225

10%

12.4

6.8 19.4

26.3

36.4

51.0

70.7

94.7

125.0

161.4

2010

2011

2012

2013

2014

2015

2016

2017

BAaaS

Security + UC

Growth Rate Source: Frost & Sullivan

7.7

Hardware Telecom

Serv Soft

Source: Frost & Su

Conclusion It is often said that Malaysia is a blessed country, entrepreneurial ISVs to offer with software injargon areas 9% given15%its access to 35% a low population 15% 27%natural resources, The vendors are confusing the marketplace various cloud a stable socio-political such as: 27% 18% 36% environment 16% with I would be unwilling to procure cloud services from providers who don't 2% density, data centre in my country l aCRM access to beautiful beaches and green highlands. It have 13% 24% 40% 24% Cloud computing gives me an opportunity to reduce costs is also22%often repeated36%that for Malaysia29% to become a l ERP 7% 5% Private clouds are the same as hosted data centres developed country by 2020, the ICT sector will play a l SCM 5% 9% 35% 36% 15% Cloud has the potential to change IT into a ‘utility’ like electricity l HRM very important role. While Cloud 13% 25% 31% 2020 is less than 24% a decade 7% computing and virtualisatlon are one and the same a lot of 35% things can happen Byl2020, BI90% of all enterprise applications will be delivered from the cloud 2% away, 16% 31%in the next 16%eight ■Cloud — disruptions that can speed Software for larger2% years 13% 36% 40% up the process 9% computing aggregation: is not yet enterpriseOpportunities ready critical risks that players suchcanasbe astelecoms 13% disruptions 33%that can act as 31% 22% need Cloud computing ‘disruptive’ asservice the internetproviders to2% or 31% 44% 18% Cloud computing is an over-hyped phenomenon For the various opportunities we provide a platform for aggregating software from2% 5%to be overcome. disagree Somewhat disagree Somewhat agree some Strongly mentioned earlier, of agree the critical risks that different ISVs, so as Strongly to serve as a single point of Neutral Source: Frost & Sullivan can be identified at present are illustrated in fig.7. supply for all software needs. However, there is a very high potential that 3. MOBILE CONNECTIONS PENETRATION FORECASTS 2. BROADBAND SUBSCRIBER BASE FORECASTS the risks highlighted will be(INovercome. Green IT PERCENTAGE)This will 6 5.600 driven by the demand side, maturity One of the themes that cuts across the various be primarily Connections 4.850 5 with certain IT sub-sectors is around the focus on Green IT. 4.100and industry competitiveness, 180 165 157.3 4 160 148.1 3.442 is not 138.2 government initiatives in promoting ICT in the Arguably, the focus on Green IT2.800 in Malaysia 140 126.4 3 113.5 as a catalyst.120 driven by CSR or legislative reasons, 1.997 but more 2.097 by country 2.160 acting2.203 1.996 100 1.849 Subscribers millions

4. PERCEPTION OF CLOUD COMPUTING IN MALAYSIA (N=55) ■ Cloud disruption: Opportunities for smaller and

2 1

0 Key

1.431

1.651

0.931

Risks Identified for the select Opportunity Areas 2009

2010

2011

2012

2013

2014

2015

100 80 60 40 20 0

64.8

Opportunity Areas Risks Identified Fixed BB Wireless BB 2008 2009 2010 Source: Frost & Sullivan ■ Pricing and channel model for SMBs Enterprise Solutions ■ Creation of local software ■ Data privacy ICT enabling other ■ Need for consolidated industry-wide initiative industry sectors ■ Regulatory guidelines on data storage and processing Outsourcing ■ Price competition from lower-cost countries ■ Limited size of thrid-party players ■ Scalability issues ■ Smart school implementation Creative Content ■ Standardisation not finalised ■ Lack of local competence Industry ■ Commitment to go green by local enterprises Green IT ■ Government mandate to introduce green solutions such as Smart Grid not in place ■ Cost structure to encourage adoption not in place ■ Weak ecosystem, especially access technologies and m-commerce applications Mobile Broadband ■ Lack of awareness and regulatory commitment to drive e–commerce ■ Low internet access speed and quality of experience deters drive from consumers to experience the full potential of broadband ■ Content industry ecosystem maturity and talent availability

2011

Source: Frost & Sullivan

210 www.internationalinvestor.com

2012

2013

2014

201

Source: Frost & Su

ict roundtable

Communications and Content Roundtable Although booming, there are still many infrastructural and content development challenges faced by the domestic market. This lively discussion brought together those who have shaped both the communications and content markets in recent times. Find out how they think Malaysia can best leverage its position and what bold moves industry needs to embrace to move ahead

AGENDA ■ Economic Transformation: government plans and importance they place on the Communications & Content National Key Economic Area (NKEA) ■ What challenges is the industry facing? How does the Malaysian market compare to the rest of the world? ■ Connectivity l Challenges and solutions to connecting the country l Catalytic projects, collaboration and partnerships l Investment opportunities ■ Content l Connectivity and content developing in parallel l How will content provision develop? l In what ways will the industry support ETP? How will ETP change communications in Malaysia? l How will communications change services sectors? Where are the most interesting business opportunities? l What needs to be done to encourage both domestic and foreign content providers? ■ Technology evolution l LTE developments and impact l Network and infrastructure sharing l Where are the financing and investment opportunities? ■ Role and development of managed services and outsourcing ■ Government support: what else can be done? ■ Conclusions

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roundtable ict

Mohamed Sharil Mohamed Tarmizi Chairman Malaysia Communications & Multimedia Commission (MCMC)

PARTICIPANTS

Mohamed Sharil Bin Mohamed Tarmizi joined the Malaysian Communications and Multimedia Commission in 2000, becoming Chief Operating Officer in 2008. Previously, he was Head of Strategy at BinaFikir, a financial advisory and strategy consulting firm. He has worked with the Internet Corporation of Assigned Names and Numbers, where he was Chairman of the Government Advisory Committee. He qualified as a Barrister at Gray’s Inn, England.

Amrin Awaluddin Group Managing Director Media Prima

Amrin has served the Group for nine years in various positions. Amrin played a pivotal role in transforming MPB into an integrated media powerhouse with a solid financial position. He holds a Bachelor of Business Administration from Acadia University, Canada and Master of Business Administration from the University of Hull, England.

Michael Lake Chief Executive Officer Pinewood Iskandar Malaysia Studios

212 www.internationalinvestor.com

Zamzamzairani Mohd Isa Group Chief Executive Officer Telekom Malaysia (TM)

Zamzamzairani is an engineer who has held various key positions in TM and several multinationals before entrusted with his current responsibility in 2008. Under his leadership, TM launched the HSBB service under landmark collaboration with the Government of Malaysia. TM is undergoing a transformation to strengthen its position as Malaysia’s broadband champion and new generation communications service provider.

Dharmesh Malhotra Country Head, Malaysia Nokia Siemens Networks

As Head of Asia South and Country Head for Malaysia, Dharmesh Malhotra oversees all of Nokia Siemens Networks business in Malaysia, Singapore, Philippines, Sri Lanka and Brunei. He has held several senior positions, including customer team head for Hutchison in Indonesia and operations head in India. He worked with several regional and international operators including Vodafone, Telkomsel, and Indosat.

Mohammed Shazalli Ramly Chief Executive Officer Celcom Axiata

Mohammed Shazilli Ramly was appointed Chief Executive Officer of Celcom Axiata Berhad in 2005. He was also Chief Executive Officer of ntv7. He has also worked for Lever Brothers, Malaysian Tobacco Company and British American Tobacco. He graduated from Universiti Teknologi MARA Perlis in 1982, holds a Bachelor of Science (Marketing) from Indiana University and an MBA from St. Louis University.

ict roundtable

Wing Lee Chief Executive Officer YTL

Wing Lee is Chief Executive Officer of YTL Communications. In post since 2009, Wing has led his team to provide the first 4G mobile internet network in Malaysia. He previously held senior positions in Clearwire and Sprint in the USA. He has 12 US Patents to his name. Wing graduated from the University of Texas at Austin and has completed Executive Program at MIT’s Sloan School of Management.

Michael Lai Chief Executive Officer Packet One Networks (P1)

Prior to becoming Chief Executive Officer of P1, Michael was the CEO of TMNet, the region’s largest fixed Internet service provider. Under his leadership, TMNet was transformed into a billion-dollar enterprise with over 1 million subscribers. P1 is the only WiMAX Forum Board Member from South East Asia. P1 has grown to be worth US$371 million in market capitalisation. P1 is now the world’s largest 80211.16e 2.3GHz 4G network, outside Korea.

Nitin Bhat Partner & Head of Consulting Frost & Sullivan

PARTICIPANTS

Nitin Bhat drives the ICT Practice at Frost & Sullivan, Asia Pacific, responsible for consulting studies, research and syndicated projects. He has worked on numerous consulting projects offering business strategies and recommendations to some of the world’s leading multinational corporations. Previously he worked in the Equity Research and Risk Management group at SBI Capital Markets Limited.

Mohd Naguib Razak Director General National Film Development Corporation Malaysia

He was Managing Director, of Blue In Green Productions; Fellow at the Asian Public Intellectuals Fellowship and Senior Executive at the Asia-Pacific Broadcasting Union. He has made a number of ground-breaking documentary films, and continues to do so.

ROUNDTABLE PARTNERS

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roundtable ict

Mohamed Sharil Mohamed Tarmizi Chairman Malaysia Communications & Multimedia Commission (MCMC)

Mohamed Sharil Mohamed Tarmizi, Malaysia Communications & Multimedia Commission (MCMC): It is a great pleasure to welcome you all today. Together we represent a key sector of the Malaysian economy, which can have a profound impact on the country’s transition to a high-income economy: communications and media. We have representatives from the technological side of the business and the ‘softer’ part of it — content. Countries can become fixated on the physically productive sides of their economies — the cars, the electrical goods — and forget that without a strong and vibrant communications network, nothing in

Voice is still the big revenue earner

for many of us. Yet the Voice market is flattening out, and we need to realise it

today’s economy gets done. The focus of today’s discussion is how our sector has developed, how it is developing today, and how it can help to further the overall goal of the country as outlined in the Economic Transformation Programme: Malaysia’s transition towards a high-income economy by 2020. So we will focus on: What is the state of Malaysia’s communications and media industry today, and how can we take it forward? What are the challenges, what are its strengths? Can we cooperate such that we can help the government achieve some of the challenging targets that have been set? The goal is to significantly increase Malaysia’s gross national product, and to transform the country from a middle-income to a high-income economy by 2020. I think, as we all do, that our industry will be a key player in that transformation. Let’s start by hearing from the infrastructure people around the table for their take on where we are today, and where we have come from.

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Dharmesh Malhotra, Nokia Siemens Networks: I’d like to outline where I think we are today in Malaysia in terms of our telecommunications systems. We have achieved the first key milestone: good voice-data penetration in the market. Takeup of standard voice services is now over 100% – close to 120%, in fact, because many people own more than one mobile device. It is about as good as possible. Where our challenge lies is in taking it to the next level: higher-value data transmission. One significant change that we have seen in recent years is the proliferation of new hi-tech devices across the industry: smartphones, iPads and so on. They are contributing to how our provision of data services is developing. However, they are obviously very data-intensive devices. Although they are a great development in the industry, they also pose a challenge because Voice is still the big revenue earner for many of us. Yet the Voice market is flattening out, and we need to realise it. What will these developments mean? Well, one thing is that we will have to look at different ways of charging for data. We will need to look at moving further away from flat data rates towards something like incremental charging, depending on what the customer wants in terms of data channels and quality of service. Malaysia today is no different from elsewhere in the world: there are going to be customers who are willing to pay for higher quality services. It doesn’t mean you can ignore the mass market, but the premium sector is going to become more important as we move forward. Incremental charging has to be looked at seriously. I believe that there will, over a period of time, be a good mix between a flat data rate and differential data rates. Nitin Bhat, Frost & Sullivan: We at Frost & Sullivan often get asked about the development of the Malaysian communications market. From my perspective, there are four main trends, or perhaps

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Zamzamzairani Mohd Isa Group Chief Executive Officer Telekom Malaysia

challenges, facing the market. First is a factor that we call the ‘service of business transformation’: in other words, how do companies retain their current revenues and how do they achieve new revenue steams. It sounds obvious, but in a fastchanging market, it is not at all straightforward. Second is cost management. It is an ongoing task to reduce costs, in particular when networks become overloaded and blocked. Costs can easily rise, and they need to be kept under control. Third is managing the customer experience. Sometimes this doesn’t get the kind of attention it used to, but we do see telcos making a lot of investment in operational support systems (OSS) that offer a greater ability to provide customer experience management. Without satisfying customers, both in terms of ease of network and content, you are nowhere. Finally, there will be some significant organisational transformation going forward, whether it is in terms of the kind of services that need to be taken to the market, or how network management begins to change in the future. Zamzamzairani Mohd Isa, Telekom Malaysia (TM): Dharmesh spoke about pressure on the Voice side of the business because of customer migration to higher-data systems. For a fixed profits player like us, that causes tremendous pressure. We started off after the de-merger with the bulk of our revenues coming from the Voice side of the business, and that is the side of the business that is experiencing a double-digit decline. Infrastructure is a core business for us, so that poses significant challenges. What we are undergoing now is the second inflection point in the industry as far as that infrastructure is concerned. The first inflection point was when we migrated from analogue to digital and now we are in the process of transforming from a legacy digital into an all IP network and services. I think this is a very

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important milestone for all of us and everybody needs to think about reducing their costs in order to carry high-bandwidth content and applications. I think this is where an operator will have to make some key decisions on how quickly they want to transform themselves in order to do this. As far as Telekom Malaysia is concerned, I believe we were fairly successful in achieving this

In 2009 we crossed a threshold so

that now the bulk of our revenue is from non-Voice rather than the Voice income stream. What it means is that the bulk of our revenue is now coming from the growth side of the business transformation. In 2009 we crossed a threshold so that now the bulk of our revenue is from non-Voice rather than the Voice income stream. What it means is that the bulk of our revenue is now coming from the growth side of the business and, therefore, that will enable us to reinvest into becoming an enabler for this whole ecosystem. I am very optimistic about that. As to content, a purely fixed player like TM probably won’t want to jump into becoming a producer of content. What we would be looking at is partnering with others, so that by having all this content application riding on our infrastructure we will get a better chance of recouping the heavy investments we have made. Michael Lai, Packet One Networks (P1): We are at a different state in all this. We are pretty much a data player; an IP data player from scratch, so the great shift from Voice to data I think we acknowledge, but it doesn’t affect us in quite the same way. We talk a lot about networks and costs, but what

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also needs mentioning is the rapid evolution of the devices people use and the applications they run on them. As has been mentioned, devices like the iPhone and iPad, and other smartphones, have changed the game. Also, applications like Facebook and YouTube are developing rapidly, which brings its own challenges. When YouTube started just a few years ago, it was only about 360P. Now it is 1080P with high definition. There is one final point I would like to make, though. We have mentioned data pressures and cost management. In order to manage these challenges I really believe we have to come together as an industry. We need to cooperate much more. I think this is how the industry model will have to be: cooperation not just among mobile or fixed players, but even with the content side of the business. We will be able to manage costs much more easily if we look to how we can cooperate at all stages. That will shape what we see in the next ten years. Wing Lee, YTL Communications: The opportunity we see in Malaysia is tremendous. First, the country is blessed with a very young population. The median age of Malaysians is 26, which means that the industry has a tremendous opportunity to drive the next stage of growth from this young populous. They are internet savvy and are much more likely to use data-centric devices and applications. It will be a challenge for the industry to keep up with their needs and wants, but this also represents a great opportunity to develop an internet economy in Malaysia. Second, while mobile penetration from a voice and SMS standpoint is over 100%, our internet penetration is not quite there yet. Again, there is a fantastic opportunity for us to convert the rest of the country and to close the digital divide once and for all. People will then really begin to see the value of the internet in all sorts of areas. I think people

often assume that the internet is just YouTube and Facebook. However, we all know around this table that the internet can do a whole lot more. For our country to achieve its goal of becoming a high-income economy by 2020, all dimensions of the internet must be in place: commerce, education, healthcare, security, safety — all these different aspects are important for a modern economy. As we build our infrastructure to power the country from a broadband standpoint, guys like us need to think beyond infrastructure — we need to provide wireless services and go deeper, to find more places to enable people’s lives through content, application and devices. Having said that, from my perspective the missing link is to create relevancy. That is, how do we go beyond plain connectivity to create value for the small businessman, for the hawker, for the student and so on? That is why we firmly believe that the next generation of opportunity lies above and beyond just data connectivity. We have to ensure people get to use the internet to create values such as relevancy in applications and contents. That is the next major opportunity that we all should spend some time thinking about.

Wing Lee Chief Executive Officer YTL

CONTENT IS KING MSMT, MCMC: Can I ask the content people what they think? How will content develop in the medium-term? Especially since, as we know, while some parts of the country are as developed as anywhere in the world, there are other parts that don’t even have basic connectivity. Will a one-sizefits all approach work? Amrin Awaluddin, Media Prima: From our experience, we see ourselves not so much as a media company but as a consumer goods company. We are no different to the Nestlés of this world. We sell content - information, news, entertainment — and what we intend to do is ensure that our

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Mohd Naguib Razak Director General National Film Development Corporation Malaysia

content can be consumed anywhere; be it on your traditional TV set, radio, newspaper, smart devices, iPads, even now smartphones. At the moment, we are pushing our content from the traditional TV, radio and newspaper industries into these new devices, mainly because ‘Generation Y’ are reading fewer newspapers and watching less TV. They are consuming content on the go, so that is how we are shaping our business today. We are selling them a product and they want to consume their product anywhere at any time. The style of content is changing, too. The days of the one-page article are numbered: a lot of Generation Y will not read more than 400 words. They also want shorter, bite-sized TV. They just want ten minutes but spread over four episodes or five episodes. These changes will shape the entire industry, I believe. Mohd Naguib Razak, National Film Development Corporation Malaysia: I believe that there is also space for traditional content. The market is fragmenting, sure, and we are in the middle of a global economic downturn, yet one of the industries that hasn’t suffered at all is the film and entertainment industry, which is the area people turn to in times of doom and gloom to escape from the realities of life. It is true there is a strong trend with the younger audience going for content that is shorter, but we need to understand that the market is breaking into two and therefore there are opportunities. However, long-form content takes time and effort to create. I think we need to accept the reality that Malaysia cannot go it alone in producing really highquality content. Therefore, the challenge is to see how we can create synergies with other players in other markets. There could be co-productions, for example, where we would be able to straddle different countries, different markets.

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Michael Lake, Pinewood Iskandar Malaysia Studios: There are great opportunities here in Malaysia, but it is still a very fragmented industry, which holds it back, so perhaps you are right and we need to have more cross-border cooperation. There are a lot of different players in the field and there is no real focus on how the overall industry can be developed for the future. You could say that Pinewood Iskandar is one such cross-border venture. Our focus is to bring international production to this country and we are hoping that by bringing in international expertise we can help to expand the experience and improve the quality of the people here. They will get a chance to work on a bigger

We have mentioned data pressures

and cost management. In order to manage these challenges I really believe we have to come together as an industry. We need to cooperate much more canvas than they are used to. They are not stuck working on a 500,000 to 1.5m ringgit picture; they can work on something that has a budget of five, ten, 20 times that. The most important part of all this, though, is really ideas and script. No matter what the content, it is all about story and ideas and that is one of the things I believe has not really been given the space to develop here. It is something that really needs to be looked at, be it long-form, be it webisodes. I also believe that in the future, telcos are going to become more and more like broadcasters. That is just the nature of what is happening. They have the opportunity now with digital, with IPTV and so on. I also think that they will start to get into the production area. It has happened in other countries and I am sure either by partnering with other

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companies or going on their own, telcos will get into this area. Mohammed Shazilli Ramly, Celcom Axiata: I also beg to differ on the issue of long- versus shortform content. Look at the queues of young people outside cinemas. Short-form content will not drive out longer content. What will happen is an addition to the palate of what is available, not a reduction of it. In fact, I think we will have more readers than ever before with the increasing spread of the internet. It’s just that the way people read will change. They will add the likes of Facebook and Twitter to their existing content consumption. The second thing I would say is, do people always want to pay for what they consume in this field? Stories are there to make you laugh or to make you cry, and I don’t think I should have to pay to laugh or cry. I can get the Koran or the Bible as free apps on my iPad, so why should I pay for other content? That is what people will think, and it is something we as an industry will have to grapple with. ONLY CONNECT: COOPERATION AND CONNECTIVITY MSMT, MCMC: Let me bring us all back to issues regarding connectivity. Whatever happens with content, the basic infrastructure is our responsibility to provide. Where do we stand today? What do we think about the idea of more cooperation in the market? NB, Frost & Sullivan: For any service to be accepted you have to cover three gaps. One is the accessibility gap: do people have access to the network? The next part is the affordability gap. Can the people you are trying to provide access to afford it? Third is the desirability gap — do they desire a service that is driven by content or that is driven by connectivity? With accessibility, we have had some traction and maybe there has to be some more effort on the

USO-funded part of the business. With affordability, the price points for various services have come down in the last few years, so things are getting better, but we need to look at whether there is something additional that needs to be done to make it more affordable for people. As to desirability, well, that is down to the content providers. And not just things like films and social networks. Things like e-government and e-healthcare can bring enormous benefits to the country. I have my doubts about telcos becoming content providers. The unpredictability of returns when it comes to things like feature films means that it will be difficult for telcos to match what true content providers do. I think, instead, you will see telcos creating the network and trying to see how they can create value, giving everybody else the opportunity to ride on the network. Also, one more comment from a regulatory perspective: if I am giving equal access to the infrastructure to all the content guys shouldn’t there be a quid pro quo about content exclusivity being removed? This is a question some regulators and some countries have begun to ask. In certain markets consumer welfare has declined because of content exclusivity and competition inside the markets.

Mohammed Shazalli Ramly Chief Executive Officer Celcom Axiata

DM, Nokia Siemens Networks: If I can just comment on the idea of cooperation and sharing. I think it is without doubt the way forward. In fact, it is happening already. Players in the Malaysian market are, in my experience, quite open to the idea of sharing systems. We have already seen some instances; Celcom and DIGI teaming up recently, for instance. It is important to note that it is happening in more developed markets, too. In the UK recently, a joint venture was announced between T-Mobile, Orange and Three to roll out a single network. They are going to cover the entire country for roughly 25% less cost than if

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they had done it on a stand-alone basis. A common infrastructure here in Malaysia will equally reduce costs and make the business more viable. At the end of the day, if the business is not viable nobody is going to succeed. WL, YTL Communications: Infrastructure sharing is a great idea but that is assuming that we are satisfied with the existing infrastructure. I think as a country we need to expand it further to reach more places. The second point is that one of the fundamental costs for us to provide service is the bandwidth cost. Domestic bandwidth costs thanks to Telekom Malaysia’s infrastructure have been good, but the international bandwidth cost is still quite high relative to some of our regional peers. In Asia-Pacific in general, per-megabit bandwidth costs for IP transit vary by country. Relatively speaking, we in Malaysia pay a whole lot more than our peers in Singapore and Hong Kong, where operators enjoy one of the lowest costs in AsiaPacific. So as an industry we need to work together and work with the government to identify ways to further reduce the international IP transit costs. This high cost in international bandwidth directly impacts our unit cost and the cost of internet services for the country. We have to address this ahead on. I’d say that given we are still in the early stages of an internet economy, we should not get ourselves so worried about sharing the same pipe domestically. The pipe is going to expand. However, international bandwidth cost is a real challenge for the reasons I described. MSMT, MCMC: We have come a very long way from where we were even five years ago. This is something we need to get across to foreign investors. Our communications landscape, our telecoms landscape, has evolved massively in the past ten or 12 years. A decade ago, every infrastructure provider or every telco traditionally built up his or

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her own network in order to reach the consumer. Since the introduction of the Communications and Multimedia Act, that has changed. Two things were raised just now about the infrastructure reach and also the high cost of IP transit in Malaysia, which seems to be affecting everybody; content providers, content creators and the telecoms industry as a whole. Some of you may know that we have under the Economic Transformation Programme (ETP) started the push towards lowering the cost of international access — 24 of the larger licensees have banded together to look at finding ways to reduce IP transit costs and international bandwidth costs from primarily the US, Hong Kong and Japan into Malaysia. ZMI, TM: We are a member of that consortium. We have to recognise that sometimes when we provide connectivity, we need to have certainty about usage and then it is easier for us to bring the prices down. We can do it if the commitment period and the

Players in the Malaysian market

are, in my experience, quite open to the idea of sharing systems volume is there, so you have to give some certainty to the provider as well. If there is not enough capacity, then of course the prices will be high. It is also cyclical. Capacity in international cables is taken up very rapidly; sometimes even before the cable is up and running the capacity is sold off. Then you have to wait for the upgrade to come onstream so you can get capacity again, and then you see prices drop. So it goes up and down. In relation to content I believe that it would be better if we worked at the Asian level to ensure that the prices in connectivity encourage free flow of content within the region.

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COMPETING REGIONALLY ML, P1: One thing that pains me is that a lot of our (internet) traffic goes down to Singapore. Why? Because the Peering Portal is in Singapore. The Googles, the Yahoos, the MSMs - they are all in Singapore. Our Malaysian customer goes onto Google or Yahoo and they think they are going to the Malaysian site, but it is hosted in Singapore. Therefore we continue to have outbound traffic but mostly for domestic consumption. Yet Singapore is so much smaller than Malaysia and it is so much more expensive; electricity, for example, costs a lot more. We have a tremendous opportunity to capitalise on this because we have lots of good, low-cost land, a stable power supply, so why can’t we encourage the hosting of services domestically and therefore drive the traffic domestically? DM, Nokia Siemens Networks: Malaysia vis-à-vis Singapore indeed has a cost advantage, so there should not be any reason why people would not be willing to move here as long as there are incentives for them to look at setting up in the country. Even for us as a company, we look at locating services in Malaysia rather than Singapore because of this cost differential. ML, Pinewood Iskandar: I agree. Where you locate is becoming less dependent on networks, because the network is becoming so good. Going forward, more and more business will be dependent on the connectivity to international ports and on basic costs like land. If Malaysia can continue to develop its data portal as we have been discussing, it will be a in a strong position. Take a look at our industry: by 2015 there will be no more film prints going out to cinemas. Instead, we will be sending movies to cinemas over a data connection. As Pinewood builds its animation and visual effects sectors here, we will need more and more capability of very stable broadband to

the outside world. So it is something that needs to continue to grow or it will start to restrain the growth of the content industry here. NB, Frost & Sullivan: When it comes to Singapore, we have to acknowledge the fact that we have to compete with them. There is no other way. If we say that Malaysia can be a hub, that means competition, and I don’t think that is necessarily bad; but we have to base it on more than merely being cheaper. Cheap Malaysia will not work. When a company is creating a data centre, the cost of power is not the most important thing. It is the quality of the power, whether the people who could be working in the data centre want to live in Malaysia and so on. Over the past few years in Singapore, the incentive structure has moved away from hard incentives completely. Although they still offer some hard incentives, they have moved more towards offering softer incentives to make people in senior and middle management feel that this is the right place to be; because it allows you access to good education for your children, for example. They run a programme where they measure how pro-business the regulatory agencies are; those agencies that are not pro-business are told to change. We need not copy them, but we need to understand what they are doing and compete appropriately.

Nitin Bhat Partner & Head of Consulting Frost & Sullivan

DM, Nokia Siemens Networks: The question is how do we create a perception and how do we create the value proposition which is attractive enough for the others to automatically start looking at Malaysia? ZMI, TM: Foreign companies have a wide choice of where to locate. They can go to Singapore, Vietnam or Indonesia, to name but three. What we have to do is have the ecosystem ready as a basic platform to ensure that Malaysia becomes the natural choice. Data centres, for example. Do we have the people to run them professionally? Where

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do we locate them? Is there high-quality education for managers’ children? Is there personal security? The whole ecosystem needs to be looked at, not just basic things like electricity costs.

Michael Lake Chief Executive Officer Pinewood Iskandar Malaysia Studios

MNR, National Film Development Corporation Malaysia: I would also add that our language ability, our multiculturalism, allows us to translate opportunities much better, such as making in-roads to important markets like China, India and the Middle East. We are already a natural gateway to all these different cultures. ZMI, TM: Also, we are already ahead in terms of regulatory framework. We have a Communications and Multimedia Act that already combines the telecommunications and media sides of the industry. Singapore has two different regulators. That makes things simpler. If you look around this table here there is a good mix of people from the telco, infrastructure and content sectors. As has been said, we need to constantly push the collaboration between the two sides, with all governed by the same framework. FUNDING REQUIREMENTS MSMT, MCMC: In the main, we are still servicing a purely domestic market; that’s the problem when it comes to funding. In America, by contrast, companies know they are likely to have a worldwide market for their product, which makes raising funding much easier. In Malaysia we are still confined to local sources of funds. AA, Media Prima: : It is a chicken and egg situation. If you want to go for the international market you need to invest big time. At 100,000 ringitts per episode for a soap or comedy, you are lucky you can get it across the border to Singapore. You have been in production before. How much does Universal spend per episode?

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ML, Pinewood Iskandar: A good point, but the fact remains, if we don’t source additional, external funds, then this country is going to be confined to a vicious circle of just servicing the local market. Something has to break that circle. AA, Media Prima: I would come back to the idea of regional content. We eat similar food, have similar cultures, so our content providers should be able to produce dramas or movies where we co-produce with companies from other jurisdictions. We keep the Malaysian rights and they keep the Singapore/ Indonesian/Thai rights. ML, Pinewood Iskandar: Yes, I think that is a strong model for the future. However, it needs stressing that this is still a country of 27 million people. I hear people say, ‘Oh, it is a small audience, we can’t do much.’ Yet Australia has got a smaller population — 22 million people — and in Australia there are seven broadcasters. Here there are what, three broadcasters in this country? AA, Media Prima: Malaysia is a fragmented market, though. There is only one language in Australia. In Malaysia there are four. To produce an app, for instance, the developer has effectively to produce four versions of it. So economies of scale come into the picture. Also, companies like ours rely 100% on advertising revenue. In Malaysia, advertisements per capita is so small compared with Australia. WL, YTL Communications: There are pros and cons to the cultural diversity you mention. The con is that we do have a diverse culture and therefore all the work we do, we might have to deal with language or cultural adaptation and so on. However, a big pro is that if we expand the aperture to beyond Malaysia then cultural diversity is a fantastic competitive advantage that we can use to export our content and provide services to other parts of Asia.

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If we can create an infrastructure that convinces our talented individuals not to leave Malaysia then they, too, will have a way to compete outside Malaysia while remaining right here in Malaysia. That becomes a fantastic opportunity for us. The funding will follow because we will have established ourselves as a strong regional or even global centre. MNR, National Film Development Corporation Malaysia: If the Malaysian content industry wants to attract more foreign funds, our procedures and guidelines, in the industry and in government, need to become more formal and transparent. Foreign partners need to have systems they can see and understand so that they feel secure. The second important thing will be to streamline the funding process in such a way that the deals are made at the stage of pre-production. At the moment, there are a lot of cases of products being made in the hope that it will sell internationally, but that is the wrong model. DM, Nokia Siemens Networks: How do we create an environment so we are able to really attract and retain the best of the talent we have? Talent and ideas will attract funding. We face the same issues as the rest of Malaysian industry: attracting and retaining talented people. There are still a lot of people who move outside Malaysia to other parts of the world, and the content ideas go with them. ZMI, TM: Sharil, you mentioned the funding the government has made available. What worries me is that it will be spread too thinly. Rather than give this 100 million ringgits to 100 producers to produce 100 movies, work on something like ten and maybe four will make it to the region; but still that is a good start. MSMT, MCMC: I don’t believe in the role of government as being a complete funder to any

initiative because that tends to spoil the market. Government should be a catalyst to investment, but there must be a private entrepreneur driving it. ML, Pinewood Iskandar: I partly agree. With government money, part of the problem is that if you are not careful you can create a grant mentality. In fact, there shouldn’t be grant money. It should be equity and it should be accountable. There is no real accountability here on the monies that are given out and that creates the wrong message. People should have to account for the money and how it is all spent; that’s the key. It raises professionalism. It’s not just a case of ‘Here’s a cheque for what you want.’ That becomes a crutch and can make things worse.

Dharmesh Malhotra Country Head Nokia Siemens Networks

NB, Frost & Sullivan: Emphasising good business practice in all such efforts to help is really important. Take the incubation centres there are in certain universities, which allow people studying filmmaking. Many of these courses are fragmented in the sense that maybe they teach about film-making, but the business side is really under-emphasised. Malaysia has to develop the whole ecosystem, not just the content side of things. WL, YTL Communications: Agreed. An incubation centre is a greenhouse. Greenhouse-produced plants often don’t thrive in the real world. Artificially simulating innovation, if I may use that description, might not work very well in the actual industry. Capitalism works on the basis of survival of the fittest, so my suggestion is that we should let the natural selection process of the real world identify potential winners, and then invest in them. We shouldn’t just indiscriminately fund projects and people. If they are proven to be winning, invest in them to help them win further. This will inspire people to compete and win based on real-world merits. This is also the fundamental premise of entrepreneurship.

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ML, Pinewood Iskandar: Australia has a fund like that where they back winners. Applicants have to present their business plan in detail, and then the government will support them over three years if they measure up. The money is tough to get, but amounts to around AU$500,000 a year.

Amrin Awaluddin Group Managing Director Media Prima

MSMT, MCMC: We also have a small fund of about 20 million ringgits which we have put aside for private and public universities to fund starter projects. Individuals and teams can buy basic camera and production equipment and what is needed to start creative teams. The idea is to try to allow the creative juices to flow even from a young age. Hopefully from there we can ask FINAS or Pinewood to assist them going forward. ML, Pinewood Iskandar: Just coming back to Australia and the idea of government funding. It is important to remember that the system took a long time to get where it is. I see some real parallels with Malaysia today, in fact. The Australian authorities got it wrong sometimes, but now they have got a very strong industry, including exports, with a creative talent that took some years to grow. So Malaysia shouldn’t expect quick fixes. Interestingly, Malaysia makes more films per annum than Australia, so the potential is there. However, a lot of it is based on a very strong television culture, which is often the incubator for a lot of the rest of the industry. MSMT, MCMC: So a very strong television industry, in light of what we were just discussing about making content platform agnostic, is that relevant today in the Malaysian context? AA, Media Prima: Certainly. Content has to be platform agnostic. TV is important, but we can’t rely on TV anymore to sustain the industry because people watch content online now. We have to think creatively.

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MNR, National Film Development Corporation Malaysia: Again, the Asian regional model applies here. There is all the talent around the region but they don’t always have the producers to take their creativity overseas. If we are to consolidate on our strengths here in Malaysia, we have to learn how to tap into that regional talent pool. If we are just going to look at the talent in Malaysia, it is not going to work because there is only so much Malaysian talent that can really produce the goods. I think the most important thing that we are being blind-sided by is the fact that we don’t realise that we do not have producers that understand

We shouldn’t just indiscriminately

fund projects and people. If they are proven to be winning, invest in them to help them win further the film business itself. We have a lot of creative people, but the people who are going to nurture the projects and monetise them are not there. They need to be trained. We are different from Australia where there is already a television culture and a pool of producers to get things moving. Without producers, you can have all the creative talent in the world and it will do you no good. PUTTING SYSTEMS IN PLACE NB, Frost & Sullivan: As Naguib has just mentioned, we have focused a lot on the creative side of the business, but there is an equally important aspect to it which is production, distribution and the other components of the content industry. It is perhaps not as glamorous, but without it nothing happens. One question that interests me is which aspects of this production part Malaysia could perhaps specialise in. There is aggregation, pre-production, rendering, transcribing, delivery mechanisms,

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marketing — all the different components that lay behind a good product. Marketing also, other than the creation point. We could look at which part of the value chain Malaysia can participate in, whether it is for the Malaysian market or even for the global market. Maybe having Pinewood Studios locating here is part of moving towards creating these vital systems here in Malaysia. Why, for instance, did Singapore invite Lucas Films to set up there? To generate an ecosystem, not only to produce creative content. In addition, these are parts of the media business where you can have a lot clearer and more tangible ROI (Return On Investment). ML, Pinewood Iskandar: Pinewood certainly does something like that here in Malaysia. We are basically a servicing business. We are not going to be a content producer. We are a hotelier basically. We rent out rooms and what that will do is attract production. When I ran the studios in Australia in the last ten years I was there we attracted US$1.5 billion-worth of production into the country. That is the sort of work flow and investment flow that starts building new infrastructure in a country. It creates an industry infrastructure that trains people up to a higher level so that they can then bring more to the industry elsewhere. MSMT, MCMC: The automotive industry is a good example here. The difference between Malaysia’s approach to the automotive industry and, say, Thailand’s is that Thailand has no local brand but invites everybody to come in and build automotive parts in the country. There is then a spillover effect. SMEs develop and they create parts for car-makers globally. Toyota has big operations there. For Malaysia to invest in a car, you end up having maybe a few local manufacturers, and spending maybe even more money and not having a known footprint.

ML, Pinewood Iskandar: I think there could be a balance. One of the great things about doing the servicing is you can show the government tangible export results. This is an export business that we are in, it really is. The manufacturing per se takes place in the country, but the finance comes from offshore, so that starts to change the perception of the industry because there are clear monetary gains here; there are clear employment values here. We are working with one of the bigger universities here to create a dedicated film academy, so when you start to build a whole range of things like that the Government can see, ‘Ah yes, there is something in this industry.’ However, at the same time you have to be creating the local industry as well. ZMI, TM: To go back to the funding issue: if you have Rm100 million to spend, the question is, do you give it to 50 film-makers to make 50 video films, or do you spend it on building capability to support the entire industry? If the Rm100 million is spent on building the support part of that industry, in other words getting the best equipment, I believe the likelihood of getting back the money from foreign customers wanting to use that, in parallel with building our own industry, is greater than if you just keep throwing money at film-makers. You can create a virtuous circle where you bring money into the country, which develops the industry, which then in turn develops the creative talents. So you get your films in the end, but you have been financially savvy about it. MNR, National Film Development Corporation Malaysia: We certainly need to build the production industry, I agree, and turn it into a profession rather than a free-for-all where everyone wants to be a film maker. That will really inculcate

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Michael Lai Chief Executive Officer Packet One Networks (P1)

standards of professionalism, ethics, seriousness and business models into the industry in totality. This is very important. One thing that I think is an exception is that we need to put money into projects that are of genuine international co-production value. If we can identify those projects where there is more money coming into the country than going out, and with partners who we know have a very strong track record and will deliver internationally, those are the strong products we could finance. WHAT IS TO BE DONE? THE ROUTE TO 2020 MSMT, MCMC: A significant part of the ETP concerns our industry. We will play a key role in helping the country achieve high-income status by 2020. What else does the government need to do to reach that goal? What does the media and communications industry need to do? ML, P1: Immediately I can identify a few things in my area of expertise. The first thing I would point out is that there is a lot of opportunity still remaining in the film industry in terms of the other languages. Right now our market is almost totally built on the Malay audience — teenagers, in fact — whereas the other segment of the Malay language audience is not really coming to the cinemas. There is potentially a big Chinese language audience out there which is not being catered for. If we really put some effort into creating content and services for the other language groups, I think there is great potential for growth. The other important area is making it easier for international film-makers to come to Malaysia to shoot on location here. If they can do production work here as well, all the better. I appreciate that is an area that Pinewood Iskandar is working closely on. The government could look again at developing an incentive scheme to cultivate more opportunities internationally as well as locally.

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The third area is, of course, that we have to be aggressive with national co-production treaties and agreements so that we create a platform, a pipeline for more international partnerships. Then you will see numbers in all those key areas. MNR, National Film Development Corporation Malaysia: From our perspective content is all. That is what will drive the business in the coming years, despite the need for production infrastructure, which I agree about. However, we don’t have large amounts of money to invest so we have to be quite discerning in what we back. I would also mention the importance of the internet in providing a key platform for content going forward. WL, YTL Communications: Yes, we think content is important as well. However, the digitalisation of content is also very important or else it won’t be internet-ready. As a natural extension, the digitalisation of the country’s infrastructure is going to be even more important. This is why we decided to invest so heavily in this country, so we could play a role in using technology to fundamentally improve the competitive capability of our country. The overall level of professionalism will lift up to the extent that we can bring forward professionals and give them an opportunity and a platform to do well here. MSMT, MCMC: On that optimistic note we will end our conversation. I would like to say it has been a really great opportunity to interact with all of you. It certainly makes sense for us to work more closely in the future, and I would reiterate the idea of increased cooperation within the business. There is huge opportunity for this business to expand and to be a real world-class business, competing with some of the best globally. You are all going to be part of a great success story, I’m sure. Thank you for your contributions today.

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AMRIN AWALUDDIN MEDIA PRIMA

Group Managing Director

I started working for Media Prima Berhad (Media Prima) about ten years ago when I was taken on as a part of a team to implement the restructuring of what was called TV3 at the time, the forerunner to Media Prima. I joined as the Group Chief Financial Officer, then became Chief Executive Officer of NTV7, which was one of the group’s subsidiaries. Then in September 2009, I was appointed as Group Managing Director of Media Prima itself. MOTIVATION

When the company is successful it motivates everybody to work even harder. When the company is doing well the staff are happy, colleagues are happy, and the customers are happy as well.

LESSONS IN BUSINESS

Always make sure you are focused on your core business and what you know best. In our case that is media management. Any expansion that we do at Media Prima is really about staying within our core business. Also, make sure that your decisions in terms of acquisitions are good for your shareholders.

INternational investor: Media Prima has become the country’s biggest media group in less than eight years. What were the key challenges during the journey and what were your strongest strategies? AMRIN AWALUDDIN: Our main challenge has been to grow the business in what is still a very young media market. Throughout those years we have had to work to create awareness of our products. Another significant challenge has been competition. Media platforms are now agnostic when it comes to content. In the evening you won’t want to read the same article or watch the same video as you had in the morning, so competition is much fiercer. Content has therefore become much more of a driver of the industry. As a result we took the decision to grow by means of acquisitions as well as organic growth. We have wanted to broaden our content provision as much as possible. That is something we will continue to do. We don’t really see ourselves as a media company in fact. We see ourselves actually as a fast-moving consumer goods (FMCG) company. You drink a cup of coffee in the morning and when you drink a cup of coffee you want to get news, either in the newspaper, on your iPad or by watching TV, so content — news and other things — is actually our domain. Our business is to be able to sell what a customer wants, whether it is news or entertainment, whenever and wherever the customer needs it. We are a retail vendor really. Media Prima is involved in a number of different areas already — television, content creation, radio, print and outdoor, among other things. Do you have further plans to diversify and grow the company? Currently we are the only fully integrated media company in Malaysia and in the ASEAN region. What we mean by ‘fully integrated’ is that our services range across a number of different platforms. The

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With the

advertising multiplier, every percentage point of economic growth can benefit a company like ours by 1.5 times that growth

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first outdoor billboard that you see on the highway is most probably one of ours. When you tune into a radio station to hear the news or songs, hopefully one of the radio stations that you listen to will be owned by Media Prima. When you arrive at your hotel there will be a complimentary newspaper and hopefully one of the newspapers will be a Media Prima owned publication. If you switch on the TV, hopefully one of the channels that you watch is a Media Prima channel. And then when you surf on your iPad 2 to check emails or browse the web you will go to a local portal, and hopefully one of the portals is owned and operated by Media Prima. So we aim to touch everyone and we hope to influence everyone through those platforms. That is what I mean by us being the only fully integrated media company in the ASEAN region. We are not done yet, either. We are constantly looking to grow organically, or through acquisitions. There are platforms we can still expand onto.

it will contribute to the further development of Malaysia’s infrastructure. In the past, our infrastructure development was focused on the agricultural sector and, later, the industrial sector. Under the ETP, the country expects to move into higher-value, hi-tech businesses; that means good infrastructure for those industries must be created. Another aspect of the ETP is that it must also be able to help Malaysia differentiate itself from other markets in the region. The ASEAN market comprises 500 million people. If Malaysia can successfully differentiate its offerings, I believe we can have a great economy and a great future within the region and beyond. As far as Media Prima is concerned, we see the ETP as key to our own transformation. With the advertising multiplier I mentioned, every percentage point of economic growth can benefit a company like ours by 1.5 times that growth. These are indeed very exciting times for us.

prospects for the media market You have grown strongly in the past few years. Are you confident of similar growth in the next few years and are you bullish about the market? Yes we are. The consensus among analysts and experts is that media will continue to grow in the next few years. Suggested GDP growth figures for this year (2012) are in the region of 4.255.5%. Advertising revenue usually runs at a 1.5% multiplier of GDP figures, so we expect growth in our industry of anything up to 7.5%. I am therefore quite bullish about the market. With the projected strong economic growth the country is hoping to achieve in the next decade or so, I believe that can boost our growth very strongly as well. What are your views on the government’s Economic Transformation Programme? How do you think Media Prima can contribute to it? The ETP will definitely contribute significantly to the economy. I think it will be a major catalyst for economic growth. I am also confident that

How do you see ASEAN level content developing and how can Media Prima play a more significant role in that? The ASEAN market, containing as it does 500 million people, is very important for Media Prima. We in Malaysia have strong cultural links with most of the region. We eat similar food, often speak the same language. We are currently in a joint venture with two Indonesian TV stations, for instance, to produce content together. This I think is the way forward for us — to leverage our abilities across similar cultural markets. I foresee us becoming more like continental Europe, where lots of TV programmes are produced for multiple countries. The same thing will happen in Asia and Media Prima wants to be right at the heart of that development.

Media Prima is Malaysia’s biggest media group

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moving forward What are the biggest challenges that Media Prima faces today? If you ask me what keeps me awake at night it is actually the implementation and execution of our ideas. We have a good and fully worked out strategy for the future, but making it all happen is a different matter. That goes for any business. You can have all the plans laid out but you can’t always execute them as you would wish. The certain increase in competition is a key challenge for Media Prima, as I mentioned before. It is not only platform agnostic, but also increasingly cross-border in its orientation. We therefore need to make sure that our content is of the highest quality and that we can move between platforms seamlessly. The media industry has always moved quickly. That pace of change is definitely not going to slow down. It is going to accelerate as companies, consumers and platforms become more and more sophisticated.

ict interview

ZAMZAMZAIRANI MOHD ISA TELEKOM MALAYSIA

Group Chief Executive Officer

I was born into an average Malaysian family. My father was headmaster of a primary school. After schooling in Malaysia, I went to the UK for my degree in communications engineering. Upon returning home, I began working in the Telekom Department as an engineer for satellite communications for just under 13 years, rising to become general manager for global business before leaving to get some experience outside the company. I worked for a couple of service providers, including Global One Communications, where I became the Business Development Director for Asia Pacific, after which I returned to Malaysia to join Lucent Technologies as chief executive officer for Malaysia. Following that, I was on my own for a while until May 2005, when I was invited to rejoin TM again, as the Senior Vice President for group strategy and technology. I was appointed as TM Group CEO in April 2008, immediately after the de-merger. I think what was good about the journey I took was that I had the opportunity to grow up at Telekom Malaysia and then go out into the market, take a look at TM from the outside, before returning with both knowledge sets. It gave me a strong idea of what TM could become. Coming back to TM wasn’t an easy decision, because you think, ‘I’ve been there, so why am I coming back, why don’t I go and look for some other new experiences?’ However, I believe TM can provide me with that platform to really have an impact on the mainstream telecommunications and ICT industry in Malaysia. MOTIVATION

A sense of responsibility to Malaysia. Working in foreign companies was great, but I felt I could contribute more to the development of my country working back for Telekom Malaysia. The development of my fellow countrymen is important too. This is something that I value very deeply.

LESSONS IN BUSINESS

Bear in mind you have a wider responsibility than just your immediate organisation. We are not just a business organisation; we have responsibilities as a major lever for the development of the country. That is a lesson I learned very early on in my career.

INternational investor: Can you give us a brief outline of Telekom Malaysia and its history? ZAMZAMZAIRANI MOHD ISA: The company was originally a government department, the Department of Telecommunications. It dates back about 100 years to the colonial era. It is a big organisation today, with around 27,000 employees. The organisation was privatised in 1987 and we listed on the stock exchange in 1990. In 2008 the TM group de-merged itself. The domestic mobile and the international investment arm were spun off into what is now called the Axiata Group. Telekom Malaysia then remained focused on fixed line provision, especially in the broadband area. Another milestone in the history of the company was the public-private partnership we signed with the government to develop a high-speed broadband network in 2008. This covers not only the access side, which is fibre to the home; it includes the national IP backbone network, as well as the international connectivity on IP. It’s a massive co-investment project: 11.3 billion ringgit over ten years with TM investing RM8.9 billion over ten years and the government investing RM2.4 billion over three years. How would you best describe the transformation of Telekom Malaysia’s business today? During the de-merger it was clear that the mobile sector was the high-growth part of the industry, so the challenge for us was to make sure TM sustained growth as well. One key area of growth even back then was in broadband and IP provision. In fact, you could say that the industry is undergoing its second inflection point. The first was back in the 1980s, when it transformed from analogue to digital. The second inflection point is happening right now, when we are transforming ourselves from legacy digital into an all-IP network and services firm. The origins of TM were, of course, as a voice exchange. We are going into the next phase in our transformation journey — that is, our aspiration for TM to evolve from a voice exchange to an information exchange.

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TM’s

aspiration is to evolve from a voice exchange to an information exchange. This means whenever there is an information flow from one user to another, no matter whose customers they are, we want that information to touch our network

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In simple terms this means whenever there is an information flow from one user to another, no matter whose customers they are and what device they use, we want that information to touch our network. strategies for success This is obviously part of a wider strategy, can you tell us about it? Our main strategic position is based on providing the best physical connectivity — fixed line fibre — to the home and office, and therefore the best broadband service. However, customers’ expectations are much more complex today. We are already moving into ‘convergent services’. To a customer, what convergence means is that they will be able to access content with the same look and feel whether they are at home accessing this content via fixed line broadband or UniFi fibre in the office, or when they are mobile. Customers don’t really care about the technology, what they care about is whether they are able to access their content on whatever devices they use. Information and communications technology (ICT) is another area we are pursuing. We are laying a strong foundation in achieving the company’s aspiration towards becoming an ICT/Business Process Outsourcing (BPO) powerhouse by leveraging the opportunities in the new growth areas, ie cloud, ICT/BPO segment including data centre and content development. TM Enterprise and our ICT arm, VADS Berhad (VADS), are our flag-bearers in this arena and as a managed ICT service provider, VADS aims to provide customers with the latest in IT and BPO, empowering businesses to maximise their growth. Are you looking to provide wireless services? Although we are strongest at home and in the office, we need some form of wireless solution to complete our service offering. We complement our fixed data and broadband services with a host of wireless solutions, including WiFi, fixed wireless technology via Code Division Multiple Access (CDMA) as well as Evolution Data Optimised, or Evolution Data Only (EV-DO). As part of our overall wireless aspirations and in line with our plan to provide wireless broadband services to our existing customers, nomadic customers as well as in-building users, we continue to record the highest WiFi zones for the industry with more than 19,000 sites nationwide. Apart from WiFi, we also need a mobility solution. We think that MVNO, for example, is one way of doing that, especially for the SME market. The smaller SMEs are always on the move, and they need all three systems: static, WiFi and mobile internet. That is what we are aiming to provide for them — a complete data package that is seamless and well priced. Over and above that, MVNO will also enable us to provide service to segments that we are unable to serve today via our fixed infrastructure.

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What difference has being in the private sector made to the organisation? In the 1990s licences were issued to other players, so for the first time ever TM faced competition. That was a good thing because it motivated us to adapt and be flexible. When TM started it was the only player in town — we used to call customers as subscribers, now we aptly call them customers. Subscribers at that time would have to apply for our service. When they applied it was completely up to us whether we wanted to provide it. Today, customers order our service and we are obligated to provide them with the best service that we can give. That in itself has been a big transformation of mindset. telecoms and economic change How does Telekom Malaysia support the Economic Transformation Programme? The implementation of the government’s (ETP) initiatives will be another driver and its focus on the development of a holistic Communications Content and Infrastructure (CCI) ecosystem will ensure not only industry sustainability but also catalyse how Malaysia leverages ICT. This all bodes well for our quest to further increase broadband adoption and usage. Broadband penetration in a country has a direct impact on economic growth. It is important that we are a major player in the development of the internet in Malaysia. We are Malaysia’s broadband champion and preferred partner of the government in this area. We are not just about business and making money. We have a responsibility to also be a major lever for the economic development of the nation. Many Malaysian companies are very innovative, but they lack the capacity to go out and buy a billing system, an authentication system, and similar services. Providing a really good, well priced, technology outsourcing service to Malaysian business is probably the main way we can help transform the nation. Where does TM currently stand? The first three years since the de-merger were all about reinventing Telekom Malaysia. We reorganised ourselves into lines of business based on our market segment: consumers, SMEs, government and large enterprises. We rolled out new products to serve those segments. The second three-year cycle is going to be about delivering on those and executing the plans to develop products for those segments. The plan of reinvention has happened, the execution is now being put in place, the rewards are starting to come in and TM is at an exciting time. We have been providing shareholders with the highest returns for any shareholders for the past three years, about 30% annually.

ict interview

DHARMESH MALHOTRA NOKIA SIEMENS NETWORKS Head, Asia South

I graduated in electronics engineering in 1990. After a year of training, I joined ABB’s Automation and Drive business unit in India and was responsible for sales. After spending about eight years there rotating between sales and project execution, I moved to IBM in India in 2000. This was the time when the IT sector was growing rapidly in India, providing lots of opportunities. I spent close to five years with IBM and was responsible for sales and execution of their outsourcing business. I then moved to Nokia India in 2004 and oversaw development of their services business in the networks organisation. I led the team to win a significant managed services contract with Hutchison. I was then made responsible for delivery of what I had sold, which meant spending two years in the managed services operations business. This particular role gave me exposure and experience in both sales and execution. In 2007, I accepted an opportunity to move to Indonesia with the newly formed joint venture of Nokia Siemens Networks, with responsibility for managing Hutchison. I spent two years turning the business around before becoming head of the services business for Indonesia. Four years later, I had an opportunity to come to Malaysia to head Nokia Siemens Networks’ business in Asia South, comprising Malaysia, the Philippines, Singapore, Sri Lanka and Brunei. MOTIVATION

The telecoms industry is phenomenal, in the way that it changes, the speed at which it’s changing. I don’t know of many industries where change is so well ingrained into our daily lives. We have moved, evolved and transformed from fixed to mobile, SMS to data and voice to mobile internet and now with 4G, it is all coming together. The sheer pace of change in this industry motivates me. I am also motivated by getting close to customers and understanding what their plans are, and how we can address their needs.

LESSONS IN BUSINESS

Always be on your toes. Be aware of how you can adapt to changes. Because if you are not able to adapt, you are dead. The second most important lesson for me is whatever we are committed to as a team, we need to make sure that we deliver. If we are not delivering on our commitments, then we cannot survive. Competition is fierce, so we need to always be ahead of it.

INternational investor: Can you give us a brief outline of your business here in Malaysia, and how it fits into the wider Malaysian telecoms market? DHARMESH MALHOTRA: Malaysia is an extremely important market for us and we are looking at ways to grow here. That has been one of my main targets since taking the job on. Our key target is to evolve from 2G, 3G and current broadband services, into newer technologies such as LTE. Consumers are increasingly buying new, data-intensive devices such as smartphones and tablets, and that means they will demand much higher data rates. We are not alone in this, of course. Our competitors are also looking towards the same evolution. So not just broadband, but mobile broadband is crucial. The other area which is significant for us is customer experience. Our customers are demanding more and more in terms of quality of service. There is still significant room for improvement on that front. I see a lot of opportunities to help our customers and bring better value to end users. Finally, managed services is an area that is increasing in importance for us, and for the industry. More operators are looking to partners such as Nokia Siemens Network to outsource their operations and provide value for them. These are the three key focus areas, I would say, for Malaysia as a market. Things are developing fast. Most of the operators are looking to modernise the network, to make sure that they are actually able to catch up with the data speeds that are needed by the market. More operators are enhancing customer experience as well as looking at options for outsourcing to aid them in focusing on core business. How does the Malaysian market fit in with other markets in the region? Are there differences? The Philippines, Singapore, Sri Lanka, Malaysia and Brunei — all these markets are quite diverse. Malaysia is fairly developed in terms of broadband

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Operators

are examining how to modernise their networks; how they can address the data hungry consumer; how they can increase network speeds

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data needs. The Philippines is more of a developing market, still focused on SMS and voice and now moving towards data. Singapore on the other hand is a developed market with a high usage of mobile internet. Malaysia is somewhere between the Philippines and Singapore in terms of development. We are equipped to deal with these diverse cultures and needs as we can leverage from our extensive global experience as well as cross share experiences from the cluster of countries that I manage. We have true mobile broadband experience at different points of the evolutionary chain of service provision. modernising malaysia’s networks What is the significance of the recent deal with Celcom to modernise the country’s networks? Is this the type of deal you will be actively seeking going forward? More operators are examining how to modernise their networks; how they can address the data hungry consumer; how they can increase network speeds — that is one of the prime reasons they are looking to modernise the networks. Moving forward, we will see more networks being modernised and we want to be in there. In that context, Celcom is very significant because we secured the central region, the Klang Valley, which is where growth and technology evolution will stem from. We have the capability to upgrade the network from the current speed of roughly 14mbps up to 42mbps and simultaneously prepare for LTE. The intent is that the moment the licensing and regulatory regime is in place — somewhere around 2012/2013 — we will be able to easily upscale. What about the challenges in rolling out this sort of improvement in a country like Malaysia? From an operator’s standpoint, most of the challenges are to do with the cost of modernising the networks. Most data tariff plans are at the moment based on a flat rate fee structure, so it is becoming more difficult to generate sufficient income to constantly upgrade their systems. This is where innovation comes into play. By offering varying degrees and quality of service and data rates, you do not need to charge a flat rate. Instead, you can charge based on what value you want to get from your network. Things are changing in this regard, as in Europe. They started with flat rates but now they are shifting towards differential charging. Customers who pay certain premiums will get better speeds, for instance. That is one way of generating sufficient income to keep modernising, hence maintaining a loyal subscriber base. Another way of generating sufficient income is in constantly improving customer experience. By doing so, there is no reason why a customer will not be willing to pay a bit more.

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Human capital: a local issue How do you address the problem of retaining, and developing, sufficient human capital? We are investing significantly in making sure that we have the right capabilities, technology and human capital. One thing we do for the latter is to leverage our global experience to improve our local businesses. As an example, we have set up a global centre of competence in Malaysia. By leveraging our global competence into Malaysia, by making sure we have appropriate training programmes, by investing in the country, we can address development of Malaysia’s human capital. We also work hard on maintaining a strong, attractive corporate culture so that we attract and retain the right people. The same goes for the country as a whole, I believe. You have been here in this role for just over a year. What lessons have you learned so far? There are a few key things we need to bear in mind in terms of outsourcing. One, most of the operators are looking at savings, because the market is getting more competitive, even for them. In Europe, it is very easy for companies to get those savings; because the manpower is very high. The moment they outsource to companies like Nokia Siemens Networks, it is easier to bring in those savings. Secondly, they want to know how they can keep pace with technology. That is a main reason operators are looking more seriously now into outsourcing, because companies such as Nokia Siemens Networks have such a large scale. Worldwide, we are managing close to 500 million plus subscribers through our global delivery centres. We can leverage on that for our customers via our Asia Pacific operations through our three global delivery centres, which can bring savings and high-end technology infrastructure. Telecoms and economic transformation What sort of contact do you have with government in terms of helping to produce the conditions necessary for economic growth in the country? We have extensive contact with government departments and authorities. We have our interface with the regulatory body, where we share information on how the business and regulatory environment is changing. We also interface with the European Chamber of Commerce and with the Malaysian Communications and Multimedia Commission. It is important to keep in regular contact with these bodies so that we can bring some value to the country from a technological standpoint. It is part and parcel of our commitment to the Economic Transformation Programme.

ict interview

MICHAEL LAKE PINEWOOD ISKANDAR MALAYSIA STUDIOS Chief Executive Officer

I have had more than 40 years’ experience in the film and television industry, initially within Australia but for the past 15 years I have been more internationally focused. During this period I have been fortunate to have worked across many facets of the industry, from producing to heading up my own company. I have held senior executive positions with production companies both in Australia and Hollywood, including Village Roadshow Pictures and WWE Studios Inc. I also headed up a film studio facility for Warner Bros and Village Roadshow on Australia’s Gold Coast for 15 years and was instrumental in the development of the local industry there. Over the years that I have worked in the industry I have been involved in the production of hundreds of hours of television programming and close to 100 feature films. In 2010 I was appointed as CEO of Pinewood Iskandar Malaysia Studios and it is as though all of my years in the industry were preparing me for this exciting challenge. MOTIVATION

My main motivation is that I work in an industry that I love. Each and every day brings new challenges, which keeps your perspective fresh. I am motivated by the challenge of taking on big new projects and sharing my knowledge with the next generation of filmmakers.

LESSONS IN BUSINESS

You have to have patience, to be able to keep a clear focus on what you are doing, and listen to other people’s points of view. But most importantly you have to have a passion for what you do.

INternational investor: What is different about Pinewood Malaysia? michael lake: I have done a lot of consulting around the world on studios, both with private enterprise and with governments, and in most cases I have advised them: don’t build it, this is not a ‘build it and they will come industry’. You have to have a long term financial commitment to it, be focused and prepared to weather the down times. When I was approached about the development of the studio facility in Iskandar, what interested me was that it was government-backed; they had a long term and serious commitment to the sector and saw the studios as a catalyst to not only create a new industry within Johor but to also take the Malaysian film industry to a new level. Importantly, the creative industries have been recognised as one of the nine key industries within the Iskandar development; and under the Economic Transformation Programme the creative content industry has been recognised as one of the key transformation industries. Given this commitment, I saw there was real opportunity here for a successful development. What stage are you at in the overall development? Construction commenced in October 2011 and will proceed over the next 19 months for a May 2013 opening. The main facility will consist of 24,000 square feet of HD-equipped television studios, five film stages with a total area of 100,000 square feet, together with a state of the art vision and sound postproduction facility. This will all be complemented with the normal support facilities such as production offices, production workshops, wardrobe and makeup facilities, dressing rooms and a 50-seat screening room all set on an 80-acre site. Adjacent to the studios is the Medini Media Village, which is being developed as a destination to house film industry support infrastructure, which helps in our development of the media ecosystem within Iskandar.

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Malaysia

to date has been very much under-marketed as a filmmaking destination. However, it has a compelling story to tell

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You have spoken of creating a ‘media ecosystem’ in Iskandar. What do you mean by that? To me the media ecosystem is the labour and supporting SME companies involved in the film industry that will be either attracted to or develop within Iskandar. The aim is for Iskandar to be a one-stop shop for media producers, with all the facilities that they require. To do this there is a range of other services that we’ll look to attract to the area. There is also a flow of business into the local community that happens when a studio facility is established. For example, timber merchants and steel merchants, office supplies, hotel accommodation, car rentals and crane rentals. This will build a very vibrant media ecosystem within Iskandar. maintaining local talent A lot of Malaysian companies complain of ‘brain drain’ — that is, attracting and retaining human capital. Could this be a problem for you? Human capital is to me probably our biggest challenge. Remember that this is a greenfield development for this industry. The plus is that, within a short flight from here, we can tap into a very good market of experienced people in Australia, or in Thailand, both of which have very developed industries. However, what makes a facility like this attractive to international producers is having that skilled labour force close to the facility. It is vital for us to create a self-sustaining talent pool within Malaysia. We have done a lot of research based on what will be required and discovered that around 70% per cent of the skills that we need are in the technical areas, be they in our television and film studios or in our post-production facility. Currently there are no dedicated courses within Johor to address that. Therefore, we are talking to universities, polytechnics, community colleges and with the human capital development department at IRDA, to look at what can be done to develop skills in the region. For example, can we establish a dedicated film academy in Iskandar not only for our needs but the needs of the region, can Iskandar not only be the hub for media production in the region but also the media training hub? How can we cross skill people from other industries so they can enter our workforce — what external or internal courses do we have to put in place to train a labour force to be able to work in the film industry? Are we on the cusp of something? Could Malaysia become a serious regional destination for the media industry? Can you help promote it as a destination? Definitely, there is a real opportunity for Malaysia to become the hub for the media industry within

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Southeast Asia. Malaysia to date has been very much under-marketed as a filmmaking destination. However, it has a compelling story to tell: a stable currency with a competitive exchange rate; the fact that labour and cost of living is economical; it is an English-speaking country which makes it unique in Asia and, most importantly, it has a stable government and is considered a safe country to do business in. Wrapping those attractions up with an economic incentive will make Malaysia a serious player in the media industry, both regionally and internationally. One of the pluses about Malaysia is that the country has such a strong trade association with our two key markets within Asia: China and India. The diversity of the population in Malaysia also works in our favour. So it is important that we not only market the studios internationally but also Malaysia as a filmmaking destination. What sort of economic incentives are necessary to create a boost for the Malaysian media industry? Incentives to attract production to a particular country are in place all over the world now. In America they tend to be tax-driven incentives. However, the ones that work really well are those that are transparent and with surety. Australia is a great model. If you spend money in the country on your production, subject to certain qualifications you get a rebate for doing so which is paid after the event. The country receives the economic benefit well before it has to pay the incentive. It is very rare now that an American studio will go to a filming destination that doesn’t offer an incentive. It is a little like a PPP — the private sector spends the money and when the project is finished the government provides an agreed level of incentive after receiving an application with the audited financial records. The benefits of locating in iskandar How are you finding the Iskandar Corridor project? Does it suit your industry? It certainly does. One important factor is the region we sit in. Asia is becoming an incredibly important market for the film industry. The US box office, for instance, has changed markedly over the past five to ten years. It used to be that 60% of a US film’s income would come from the US domestic market and 40% internationally. That has now switched to more like 40/60 the other way round. And around 42% of the international box office now comes from Asia, which makes studios keen to focus on how they can set more of their films in the region. One of the great things about Iskandar is that it is such a forward-looking project, which taps into an internationally focused mind-set.

ict interview

LEO ARIYANAYAKAM SCICOM

Chief Executive Officer & Group Executive Director

I was born in Sri Lanka and left when I was two. I grew up in the Middle East in Kuwait, and I left there when I was 15 and went to London to do my A-levels and a degree in biochemistry. I started a business in London trading in medical supplies and decided to return to Malaysia to start the same sort of business there. I was only 23 years old and within 16 months it all crashed and burned! I moved into livestock trading and became Southeast Asia’s largest operator by 1993. In 1994 I moved into internet services, setting up a webbased consultancy and marketing company. I eventually sold the company to an American conglomerate. In 1997, my brother and I set up Scicom, realising that call centres in the future could be located anywhere because of the internet and improvements in data traffic handling. The contact centre business began to go through the roof in 1998. We began to get some really big contracts, from the likes of Nokia, for instance. From 1998 we expanded throughout the Southeast Asian region. Our focus then was working for multinational clients that had a customer base in Asia Pacific. Today we service our clients’ customers in Asia Pacific, the Middle East, Africa and the UK in more than 30 languages. MOTIVATION

The intellectual aspect of mastering the business I am in, and also being able to work with great people (both internal and clients) across diverse industry verticals using the latest technologies. I also enjoy controlling a large, well-designed business machine.

LESSONS IN BUSINESS

Nothing beats experience and nothing beats a bad experience. The most important thing is that you have to learn from it.

INternational investor: Tell us more about the business philosophy of Scicom, and explain your concept of ‘total customer delight’. leo ariyanayakam: The business philosophy is very simple. We go to any client we have or any prospective client and say to them: we are going to do three things for you. We can acquire customers for you, we can retain who you have right now and make them spend more money with you. So we have a whole suite of services and products that feed into those three channels. When we say ‘total customer delight’, for us that means our customers are our people, our customers are our clients and our customers are our clients’ customers. You work for an extensive range of foreign clients. How does Scicom market its services outside Malaysia and within the Southeast Asian region, or further afield for that matter? Every one of our clients has come through a relationship in the early days. We had a relationship with the advertising company who introduced us to Nokia. We had a relationship with an executive from British Telecom who introduced us to Ladbrokes. That is how we have captured foreign customers: positive word of mouth. Once you achieve critical mass, you start to get people coming to you. Today we are in this lovely sweet spot where companies approach us, because they know we can do it and do it well, so we hardly have to do any marketing in that perspective. Can you tell us what you consider to have been the key technical developments in the business in recent times? Full-suite technology, not just answering the telephone. For example, a very large fast food company asked us to build a system for them where we would receive food orders, and send them out to the correct restaurant and delivery

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That sort

of integrated technology and marketing solution is where the industry is at today. That is what we try to achieve for our customers

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rider. We designed a system so that each of the riders has a GPS-enabled device with custom-built applications to manage productivity. The customer can also go in, pay online, pay through applets on their iPads or their BlackBerry or their iPhones. We then built a system to be able to manage the one thousand guys around the country to make sure there are enough people in different outlets at different peaks during the day, all coupled with a great customer experience. That sort of integrated and marketing technology solution is where the industry is at today. That is what we try to achieve for our customers. What is the regulatory environment like in Malaysia for your industry? Malaysia has been very kind to us; it has given us MSC status. From a regulatory perspective, there is nothing like doing business here, it is very easy. Everything is in English. If you present to the government you do it in English; every proposal is in English, every discussion is in English, even in government. For people like us, this is somewhere where it is really easy to do business. The Economic Transformation Programme is, equally, an interesting and important development. I think it is needed. However, the government has to enhance one fundamental issue which is education; kindergarten to high school and above. There are significant reforms that are taking place there to make the country more competitive. Malaysia as a whole is actually a good place to carry out an outsourcing business. Because we are a relatively small nation — 28 million people as opposed to over a billion in India — we cannot compete on a scale basis. We have had to develop a whole different suite of services to differentiate ourselves. We are, therefore, solution providers, not just volume outsourcers. I see us as a mini Accenture, a mini HCL — those sorts of guys, because we do everything from A to Z.

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Scicom has been heavily involved in education and training. Could you go into more detail about that? We found that we never had enough management bandwidth here at middle management level. We found that because there was always a supply/demand mismatch in a rapidly expanding industry, everybody who was working with us for six months would get a job at double the price somewhere else and a promotion. That is exactly the same as what happened in India over many years. So you had a 20% increase in wages every year in that country. We decided to create our own IP by giving them intensive training and education. Then we converted that IP into a retail offering. This year we trained over 5,000 people in customer contact management. We came up with a three-month, highly intensive course in customer contact management that has applications in lots of different areas. You could be in tourism, hospital administration or in retail, and the course would train you in high-quality customer relations. In fact, we won the Training Provider of the Year award from the government in 2010, because we had a 96% placement rate for our graduates, thus moving these people from being unemployable to totally employable. Do you ever find it difficult to attract and retain high-quality staff? Not so much in our case, we have been fortunate. We offer great training, good salaries and a good working environment. Malaysia has all the right ingredients, it has a huge amount of good people, but unfortunately there is a definite brain drain going on. Singapore is full of Malaysians; there are a lot of Malaysian businesspeople and professionals in Hong Kong — they are all over the world. There is a lot of potential here and the ease of doing business is pretty amazing. But something needs to be done to retain talent.

ict interview

SAMSUL HUSIN CENTURY SOFTWARE

Executive Deputy Chairman

I am an accountant by profession. I studied accountancy at Universiti Kebangsaan Malaysia. I worked with the government in the Accountant General’s Office in 1987 and was there for three years. Before that I was a lecturer at the Malaysian Entrepreneurship Development Centre at the Universiti Teknologi MARA. In 1990, I resigned from government work and began working in the private sector, holding positions in financial-cumportfolio management. I saw that IT and accounting were becoming much more related in terms of career opportunities, so I took some courses in IT and worked for an IT company for a few years. In 1996, we set up Century Software which is now a well established firm. In 1999, we were offered contracts with the government to implement our own accounting system, SAGA (Standard Accounting for Government Agencies), across a number of departments. The government wanted a single accountancy software system for all its agencies and departments, and we could implement that for them. One other reason we got the contract was that we were looking at the so-called Y2K bug, which was worrying the government at the time. We rolled the software out across seven agencies at first. Because of the trust we generated with the government, we ended up getting many more contracts to put in place accountancy software. MOTIVATION

Money is one thing of course, but for me the most important thing is the happiness achieved by creating and developing something from a small beginning, which in the end becomes something significant that benefits many people.

LESSONS IN BUSINESS

Our philosophy is about commitment: focus on what you know best — don’t try to do a lot of things. Also, maintain your credibility in business. If you don’t have the money, it is OK, but if you don’t have credibility you are out.

INternational investor: What you think Century Software represents today and how would you best describe your business? SAMSUL HUSIN: Our business is in the software industry, specifically focused on financial management, not just on accountancy. Nowadays we call it ‘business collaborative software’. We collaborate with the business or organisation and bring them a solution of software which is going to benefit them in terms of increasing efficiency, productivity and the bottom line of a viable client. We look at our company as a collaborative partner to the business or the organisation. What we do is provide bespoke solutions to an organisation’s needs. You have said recently that you want to increase the proportion of your revenue that comes from the private sector from 10 to 20%. Can you achieve that? It is true that in the past 14 years our focus has been on the government because they were 90% of our business. If you look at our Australian operation, based in Sydney, all our clients there are private sector, so we have shown that it is possible. Our offer is deliberately comprehensive to appeal to the private sector: financial, trade, distribution — all the way through from procurement to trade settlement. To move into the private sector we need the right people with the right knowledge; we are hiring people now who have the capability to move the product into the private sector. The goal of the Malaysian government is to transform the nation from a middle to a highincome country, party by expanding the hi-tech parts of the economy. In what ways do you think Century Software can support the Economic Transformation Programme? Under Prime Minister Dato’ Seri Najib’s leadership and the Economic Transformation Programme,

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It is part of

our vision to be a global company. We can achieve our growth target as we have a well-developed product to take to the market

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there has been an increase in the level of support for local softwares. In line with the Malaysian government’s initiative under PEMANDU (Performance Management & Delivery Unit), there is ongoing transformation in digital technology. With support from the Malaysian government, more Malaysian firms will be able to develop the required experience to produce viable hi-tech solutions and products. If we get a big contract from the government, we can build the capacity and build the knowledge and can develop highly skilled workers. That will have a knock-on effect throughout the industry. If all companies can begin to do that, the country will begin to increase its talent pool in the hi-tech sector. Can you tell us a bit more about the role that you see for institutional investors in the future financing of this company? It is part of our vision to be a global company. We have a regional and global growth plan over the next three years. We can achieve our growth target as we have a well-developed product to take to the market. That is the difference between us and other domestic IT companies: we have our own product to sell not only in Malaysia but also in America and to the rest of the world. So listing was a big stepping stone for us. It gave us capital in addition to the resources we already had. penetrating other markets What markets are going to be important to you in the short term, medium term and long term? How do you foresee your expansion? We have recently acquired a 60% stake in PT Praisindo Teknologi, a company based in Jakarta, for RM4.35 million. This was acquired from its existing major shareholder, PT Mahaka Media Tbk,a listed entity on the Jakarta Stock Exchange. Praisindo Teknologi

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is a software development company which develops a range of portfolio management solutions for the fund and asset management industries. This acquisition marks our expansion into Indonesia, and is an indication that we have the capability to grow beyond Malaysia. The objective of this acquisition is to penetrate into the huge Indonesian market in the fastest way, and at the same time to cross-sell Praisindo Teknologi’s products in the Malaysian market. Did you have any interest from foreign investment funds in your listing? Our listing was a branding plan as well as a financial transaction, so we certainly wanted to attract the attention of foreign investors, including foreign funds. In the end, most of the buyers were Malaysian, but we did get some interest from foreign investment funds. We had visits from their representatives, and I have met with them several times myself. We are a growth company with global ambitions, so we believe we have a compelling story to tell to overseas institutional investors. We are able to expand abroad easily because in terms of capital expansion we don’t need to invest a lot to achieve it. It is easy to move from one country to another. Some of the tenders we have competed, for instance, have been progressed via conference calls. That is the way the industry works today — fast, hi-tech solutions. It is also worth mentioning that we have a costbase advantage in being based in Malaysia. That is something we can leverage into foreign markets. Indonesia isn’t our first foray into the international market. We already have a small start-up in the US to tap into the market there. We also have operations and clients in Australia. Our products are generic and they do not speak a specific language. Therefore it can be applied and implemented in companies all around the world.

ict interview

WING K LEE YTL COMMUNICATIONS Chief Executive Officer

I obtained my bachelors in Information Systems at the University of Texas at Austin and completed the Executive Program at MIT’s Sloan School of Management. I have been in the industry for nearly 20 years now. I started with Sprint, one of the largest American telecommunications companies. I oversaw development of software that operates the company’s nationwide fibre optics network. Then I led the overall architecture and design of Sprint’s nationwide wireless data network — America’s first. It was there that I learned, first-hand, that wireless data can’t differentiate from fibre purely on the basis of capacity and speed. It has to create a new set of values. So I headed up Technology Innovation at Sprint, and created numerous industry-impacting innovations. I have so far been awarded 12 US patents for the innovations I have created. I am most fortunate to have been recognised as the 2002 Asian American Engineer of the Year in the US. When Sprint decided to invest in 4G, I decided to head up Product Development in the new business to realise these innovations in customers’ hands. We later merged the 4G business with Clearwire, to bring our spectrum together to form a nationwide footprint. I then joined Clearwire to lead next generation 4G Device Development. The opportunity offered by YTL is tremendous — a strong infrastructure conglomerate with the commitment and financial capability to self-fund a nationwide 4G network, with a completely clean slate. It is truly a once-in-a-lifetime opportunity for someone like me to apply technology to improve people’s lives on a national scale. MOTIVATION

LESSONS IN BUSINESS

As a technologist by training, I believe in the power of using technology to improve people’s lives. If I am given the opportunity — which I have been with YTL — to use technology to improve the lives of people on a national scale, it simply can’t be more gratifying. To me, this is more than just a job — it is my passion. Even though we are ostensibly in the technology business, it remains fundamentally a people business. We can buy all sorts of boxes with worldclass brand names on them, but, ultimately, it is the people behind those boxes who create the real value.

INternational investor: How do you think the telecoms industry is developing in Malaysia today? wing k lee: While Malaysia’s mobile telephony has 100% penetration, we are lagging when it comes to mobile internet penetration. So while virtually everyone has a mobile device in his pocket, many of them only use it for phone calls and SMS. This is the digital divide that YTL is determined to help bridge. The World Bank tells us that every 10% increase in internet penetration drives a GDP increase of 1.3%. From where we are today, we can most certainly help increase internet penetration in Malaysia by more than 10% and we hope that results in a meaningful and sustainable GDP increase. Let me give you a personal example. I travel to the airport quite a bit. Until the launch of our network, my journey to and from the airport has fairly poor mobile internet access, so my smartphone becomes not so smart, and my productivity not so productive. Taken to a macro level, the lack of robust mobile internet sets us back in terms of economic growth. Humans are fundamentally mobile. Our 4G network provides mobile access to the most important global platform for innovation and learning — the internet. Take, for example, our students. What if they could use the internet as a platform for lifelong learning? Wouldn’t we have a sustainably higher quality workforce, and wouldn’t the entire country benefit as a result? What plans do you have to win that market share? Are you focusing purely on the data side? We wanted to achieve three things. One: we set out to build the most powerful and largest mobile internet network that Malaysia has ever seen. I think we have clearly achieved that. Two: we recognise that having the ‘fastest internet pipe’ is just a table stake. So we wanted to ensure our customers can access our services in ways they couldn’t have done before, and to give them the freedom they need. Our entire portfolio of products and services — from the world’s most complete line-up of 4G devices to

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If Malaysia

is to achieve significant GDP growth, we have to take an active role in creating awareness and making the internet relevant to all

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our advanced mobile telephony service — can be accessed with just a Yes ID and password, all at the same time. It doesn’t matter whether they are at home, at work or everywhere in between. Three: we believe that performance and innovation of our 4G network should not come at a higher cost. In fact, we should help our customers save money. We have a suite of applications called Yes Life that lets our customers enjoy voice and SMS not just on phones, but on their favourite iOS and Android devices, plus Windows and Mac computers. Using Yes Life, our customers always have access to our highly competitive domestic and IDD tariffs, whether they are on our network or from any internet connection globally. In summary, we don’t want to make any compromise — best performance and innovation must also deliver real savings. This is how we will win. The Deputy Prime Minister recently said he wanted 95% of the population connected to broadband by 2020. Do you think it is achievable? Absolutely! We believe our approach of using a nextgeneration wireless network will help make that a reality. With wireless technology, a single base station provides the surrounding community with instant access to the internet at blazing speed. And with our ever-expanding network footprint, they will get to have access to the same high quality network not just in their own community, but throughout the county. The internet is a powerful platform for innovation. But it can only be used to create value if you can get to it whenever you need to, wherever you are. We believe that the role played by a truly amazing mobile internet experience is paramount. That is what we are trying to achieve at YTL. What do you feel are going to be the biggest obstacles you are going to face as a CEO in terms of realising the objectives of YTL communications? Showing people in Malaysia just how transformational mobile internet can be to their lives. Getting them to realise what they can do now that our network sets them free with mobility at performance levels not seen before. If we don’t have a world-class digital infrastructure, we can’t compete as effectively as a nation. My challenge as a CEO is to create awareness of the power of the internet as a level playing field for everyone in this country to get ahead and to unleash their potential. Does Malaysia possess the human capital, the raw talent, to achieve this? Without a doubt we have lots of smart and enterprising people in Malaysia. We have an incredible team at YTL Communications. The internet is a platform of opportunities. It is our hope that the mobile internet infrastructure we are building will provide local talent reasons to stay right here in Malaysia to compete and to win at a global level. We also hope that overseas

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Malaysians will see this as a platform for them to return home. At YTL, we want to help reverse the ‘brain drain’. In fact, we have attracted Malaysians returning from the UK, the US and Australia. What are your plans to expand throughout the Southeast Asian region? It is a tremendous opportunity for us. Apart from Singapore, not too many countries in the Southeast Asian region have the kind of digital infrastructure needed to compete globally. Malaysia is our homebase. We intend to go as far as we can to showcase how we can help the country leapfrog. This is the surest way to earn the credibility to expand our reach beyond Malaysia. You hear a lot about cloud computing these days. We have a modern data centre complex in Kuala Lumpur. With such an advanced infrastructure in place, it makes perfect sense to leverage that to diversify business lines, expand the customer base and extend the reach of our innovation. In fact, in an IP-based world, there is no reason why we could not go even further still. What does the future hold for YTL? The first thing to stress is that we are determined to help advance Malaysia into an innovation-driven economy. The wireless nature of our deployment means we can bring a world class internet experience to more people faster. We launched our network with 1,200 base stations in November 2010. As we come toward the end of 2011, we will have 2,400 base stations. That figure will soar even higher in 2012. There is no better metric to gauge our determination. The government has stated its intention to achieve developed-world status by 2020. We believe that our network will help contribute to that, but having the network alone is not sufficient. Equally important is how that network is used. Content, services and applications also have to be available and relevant in order for us to use the internet to power the next generation of economic growth. How do you see the evolution of services on your platform developing and what are going to be the first things to look out for? Once you have great connectivity, you can use it to create value for everyone. Our work is not done until people see value in internet access wherever they go and whenever they are. For city folks, I think most of them get it. But for so many others, the internet is not yet an essential utility. If this country is to achieve significant GDP growth, we have to take an active role in creating awareness and making the internet relevant to all. There is no such thing as a ‘killer app’ on the internet. Everyone has his or her needs and wants. We have to help them see how they can use the internet to get ahead, to gain a competitive edge, to learn and to develop. We are determined to help make that happen.

ict interview

SANDIP DAS MAXIS BERHAD

Chief Executive Officer

I was born and grew up in India. When I was 15 I enrolled on an engineering course at the Regional Engineering College (National Institute of Technology) in Rourkela, India. At the time India had five-year engineering courses, so I graduated when I was 20. I worked for a while and saved up to do my masters in Business Administration. I started my career with Indian consumer durables giant Usha International, Shriram Group as a management trainee. I worked for them for about ten years and then moved to Toyota in the Middle East and became involved with a large Dubai business group called the Al Futtaim group. I worked with them for about six years and then returned to India. Within a year of my coming back, India moved towards the privatisation of the telecoms industry. That is when I set up India’s first private telecoms company, Hutchison Telecom. I set up that business in 1994 with paging and then in 1995, our company set up India’s first cellular business. In 2007, I was the Deputy Managing Director of the company and on the board of Hutchison in India. I left Hutchison and joined Maxis Communications Berhad in 2007, so I have now been in KL for five years. Maxis Communications Berhad is now, of course, the holding company which has subsidiaries Maxis Berhad in Malaysia as well as Axis in Indonesia and Aircel in India. I also sit on the board of our Sri Lankan telco businesses, which is not directly held by Maxis, but by the Usaha Tegas group. MOTIVATION

LESSONS IN BUSINESS

I love the challenge of turning businesses around or creating businesses from nothing. What also motivates me is working with people; to be able to unleash the potential of people around you. Finally, I am excited by the technology business because it is at the cutting edge of our society. There is not a single day that I do not feel like coming into work in the morning because telecoms is such a fascinating business that tests your all roundedness. Integrity is the highest value in business, particularly business leadership. I don’t only mean money; I also mean integrity about the way you deal with human beings. Having said that, you have to be a little bit unemotional about business. People sometimes tend to fall in love with businesses and they don’t know when to end something that is slowly haemorrhaging your investments or when to start something.

INternational investor: What are your plans to grow the business? sandip das: About two or three years ago, we were acutely aware of the fact that the voice market was becoming mature and therefore there was a need for us to diversify and transform our business. Most of our customers have phones, they use voice, they use data and they use SMS, but clearly we saw that there was an opportunity for us to provide more services to them beyond what we provided already. We were already the leading mobile company in Malaysia, but took the decision to become the leading integrated communications company overall. This meant altering the focus of our company so that we would become a company that could provide the customer with communication solutions that would cover everything: house, office, personal, fixed-line or mobile access, mobile broadband IPTV services, interactive services, machine-to-machine applications, cloud computing — the works. Now, that really changes the model. We are moving from the traditional mobility business to the world of what we call ‘beyond telecoms’ in which a company like ourselves is in the business of providing total information and interactive solutions for our clients. This sounds like a radical vision. Yes, I think it is. When you consider the fact that there are over six billion people in the world, of which perhaps four and a half billion people use mobile phones — the cell phone has become a ubiquitous tool. With the expanding bandwidths we are now seeing, you can put almost anything through this channel. And the fact that we are talking about wireless delivery means that no part of the world is going to be out of reach. For example, we are working with the government on rolling out the school syllabus on mobile phones. We are also looking at providing a health portal in a similar manner. People living in remote areas who at the moment cannot get access

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We offer

a whole range of options, from post-paid to prepaid, so you can sign up for as little or as much as you like. The next challenge is providing exciting content. This is where our alliances will become important

”

to many services will be able to, say, call on medical expertise immediately. All this is possible within the technology available at the moment. However, you cannot do any of this if you can’t reach the customer. So we created the largest mobile 3G high-speed network in Malaysia this year. Today we cover 81% of the population on wireless broadband. We already cover 95% on our 2G voice service. We currently have the largest footprint access in the country, whether on fixed line or wireless. Where is the business at in terms of hardware? We were the first to offer iPhones and BlackBerrys. We have just introduced Android phones, and we are also offering tablets. We have signed important alliances with companies like PayPal because we know that interactive services and online shopping, etc, are going to be big. We have spent 18 months putting the basic infrastructure in place, working with alliances, getting people moving, getting the structure done, particularly in the area of convergent billing systems and CRM systems. There has been furious paddling underwater for future services rollouts. economic growth: the broadband link Do you think you can contribute to the Economic Transformation Programme? The government wants to fast-track Malaysia’s development, so we feel that as the leading telco, we have a great responsibility to see that we achieve full broadband penetration in the country as a spine to that programme. Already our national broadband coverage is touching more than 55% of the people. Our goal is to achieve 70-75% coverage by the end of 2015. Having achieved our target for 2010, we feel we are well on our way as the nation races towards the next threshold. Certainly, broadband is going to be the next big growth area for the company. How do you go about encouraging this broadband growth? First and most basic, you just have to establish a good network so that people have fundamental access followed by good experience in using broadband. Then you build a range of products that are attractive to people, whatever their needs or circumstances. We offer a whole range of options, from post-paid to pre-paid, so you can sign up for as little or as much as you like. The next challenge we face is providing exciting content. This is where our alliances will become important. You will begin to see a lot of development in areas such as banking, advertising, health and similar services. This is where the future growth of the business is going to come from because people are going to be doing much more of their daily business through their mobile devices.

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Malaysia is an amazing country when it comes to internet usage. More than 17 million people use the net. Its potential is huge. About half the population is under the age of 25, making it a perfect demographic for social networking sites like Facebook and Twitter. These are amazing statistics for future growth. a business that benefits society Do you have a social role apart from your basic business considerations? We are a business, so we are primarily driven by returning value to our shareholders. But we are also driven by contributing to the wider economy and the social fabric of the country. We want to make sure that Malaysians have the best services available to them. We put in a great deal of effort in community development and ICT training, especially for children. Children are, after all, where the future of the country lies. Children being children, if you teach them some basic things about IT, they will then go on and pass the knowledge on to the adults in their communities. I have no hesitation in saying that Maxis is at the forefront of the economic development of the country. The basis of our ability to contribute is our creating a data network that will allow all sections of society to participate in the broadband revolution. In fact, we have invested in infrastructure in areas of the country where the return for us is low. We have invested in these areas because we are driven by a sense of national development just as much as by development of the company itself. The other thing is talent. We offer substantial scholarships to send young students abroad to study. We fund them to go to some of the best universities in the world. These scholarships are available to subscribers’ children as well as our own employees. The idea is to raise the fabric of economic development, based on education. With most of these initiatives, you will find us right at the forefront. We are confident that we can achieve and drive some of these things forward. We have done these things on our own initiative. We have been an outstanding company for many years, and I think we will continue to demonstrate leadership both in the commercial market, but also in the wider aspects of the society we live in. Since our listing, we have paid out more than RM4 billion in dividends to our shareholders, so that tells you a great deal about our commitment to investors who have faith in our business model and ability to execute. We have put the right strategic pillars in place. As to the wider society, that is an ongoing project for us, although as I have described, we have made a significant start. We have expended every effort in rolling out a good broadband network to as much of the population as possible, and we expect to be expanding our coverage even further in the near term. We are a company totally committed to the development of Malaysia.

advanced electronics

overviewâ&#x20AC;&#x192; advanced electronics

Moving up the value chain Malaysiaâ&#x20AC;&#x2122;s electronics industry has been focused at the lower value end of the market. However, government initiatives are aiming to move the industry up the value chain and could position Malaysia as a world class semiconductor and solar cell manufacturing destination

The Malaysian electronics sector grew from the 1970s when the government realised the importance of the sector as a driver for the overall Malaysian economy. In 2010, the electronics sector contributed an average of 40% of total overall export revenue for the country with the key export markets being USA, China and Singapore. The electronics sector is expected to account for 38% of employment in various roles, with the majority supporting the manufacturing activities. Initially the electronics sector concentrated on low-end device manufacturing before moving on to semiconductor packaging. The goal of the government is to encourage the development of activities supporting the higher end of the value chain, with emphasis on R&D activities. The recently launched Economic Transformation Programme (ETP) identified the advanced electronics sector as one of the key initiatives by the government in order to bolster the Malaysian economy. A key goal of the programme is to encourage the focus of the sector on activities which are high value and high growth. This goes in line with the nationâ&#x20AC;&#x2122;s aspirations to achieve a high income economy which can be achieved by moving up the industry value chain (see fig.1). Challenges Facing the Electrical and Electronics Sector Increased competition from neighbouring countries such as Vietnam and Thailand due to their lower manufacturing costs has caused a decline in low cost electronics manufacturing in Malaysia. In the higher end market, Singapore and Taiwan continue to dominate as the key investment destination for companies in the higher value sector. Activities in Malaysia continue to be dominated by passive assembly which does not add much value. Significant proportions of Malaysian Electrical & Electronics (E&E) activities lie in lower value device assembly rather that high value activities

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advanced electronicsâ&#x20AC;&#x192; overview

such as R&D or high-end manufacturing. High value activities such as wafer fabrication and electronics design continue to lag behind Singapore and the result of total value added per worker is only comparable with China. Electronics Industry Performance in 2010 2010 was a growth year for the Malaysian manufacturing sector, largely driven by strong external demand and improved global sentiments. This growth was lead by the E&E sector which registered a robust growth in production, with 29.9% in Q1 and 36% in Q2 of 2010. This growth was largely driven by semiconductors and audiovisual products. For the first nine months of 2010, E&E products export reached US$59.7 billion and accounted for 39.5% of total exports. The major category, integrated circuits (ICs), dominated with 26.9% of total exports of E&E products. ETP Focus on the Electrical and Electronics Sector The strategic focus of the ETP programme highlights the importance of four particular sectors within the broader E&E industry, with emphasis on semiconductors, LEDs, solar and industrial/ consumer electronics. Within the ETP initiatives the government has highlighted several entry point projects (EPPs) which aim to deliver high growth projects to support the aims of the ETP for the E&E industry in Malaysia. The government aims to develop the various development regions with their own specific goals for each National Key Economic Area (NKEA). The Northern Corridor with its established hub of multinational companies (MNC) for semiconductors is poised to grow further with initiatives planned for expansion in solar and LED manufacturing. The Greater Klang Valley with its concentration of educational hubs can be developed for sophisticated services which can include boutique design houses and developmental

activities. The southern region of Johor, which has lower costs and closer proximity to Singapore, is primed for intensive E&E manufacturing, including closer opportunities for joint development with Singaporean companies. Sarawak, which has large reserves of natural resources including silica, can develop these assets to be a global centre for silicon substrate manufacturing. Industry Value Chain Roadmap The strength of the Malaysian E&E industry lies within the assembly, testing and packaging sector, which has been the bulk of the Malaysian exports. However, it is this sector that is seeing the greatest competition from other countries which can offer lower operating costs. It is therefore a desire of the ETP programme to offer a suitable operating environment to foster industry growth and encourage the emergence of activities within the higher value activities, namely R&D and wafer fabrication.

The goal of the government is to encourage the development of activities supporting the higher end of the value chain, with an emphasis on R&D activities

Semiconductor Initiatives Semiconductor fabrication plants are capital intensive investments which could bring forth an entire value chain of industries to support their activities. Thus, the government hopes to foster attention by encouraging investments in this area. Opportunities driven by the activities of the Malaysian Industrial Development Authority (MIDA) include plans to acquire and transfer mature wafer fabrication facilities into the country. In addition, industries supporting a wafer fabrication plant could see an increase in business opportunities once the plant begins operations. A key driver for the acquisition of such wafer fabrication capacity is to deliver the capability for niche product fabrication such as custom designs, analog devices or power chips. Such niche products do not require the need for costly state of the art fabrication capabilities but are able to deliver sufficient margins to deem such a venture viable

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financially. Furthermore, the growth of subsequent support facilities such as substrate supplies and packaging could flourish as a result of wafer fabrication. Other supporting sectors such as design houses and device packaging activities could also benefit. As the operating model for the purchase of the wafer fabrication plant is on the basis of build and lease, potential partners could take advantage of the initiative from MIDA to lease the operations of wafer fabrication to produce custom designs. The government could come up with discount programmes to encourage and help fund such initiatives in an effort to develop more boutique design houses which often lack the economies of scale to produce custom devices at competitive prices. Having a wafer fabrication plant which is close by could help with initiatives to encourage home-grown electronics development and assist entrepreneurs to launch products. Solar Initiatives The Malaysian government aims to position Malaysia as a worldwide hub for the production of solar photovoltaic (PV) modules which are used in renewable energy projects for power generation. With the projected increase in solar PV installations, it is expected that the global demand for PV modules will reach 113GW annually in 2020. The steps involved in manufacturing PV modules are almost similar to those used in the semiconductor industries, and many of the initiatives taken can be leveraged off each other. With the solar sector still in development globally, with USA, Germany and China being the global leaders in this sector, the government believes that Malaysia could play

an important role and participate in all activities of the value chain in this sector. In the production of solar PV modules, the industry value chain draws great similarity to that in the semiconductor industry. The use of silicon as raw material is similar to semiconductors except that for use in solar application, the silicon used can be of lower value. It is here that suppliers of silicon substrates either in raw silica material or in the form of ingots can cater to both industries. The government has identified Sarawak as a suitable site to host such activities, as the state has large deposits of high-grade silica and has abundant renewable electricity which can be supplied at favourable rates to substrate suppliers. PV cells are then fabricated from the wafers and it is in this area where Malaysia has a foothold. The government has been actively encouraging European and American PV cell manufactures to establish their presence here. Industry players such as First Solar, Sunpower and Q-Cell have already committed to Malaysia by building fabrication facilities in various parts of the country. Further to this, module assembly manufacturing is another activity which already has a strong presence due to cheaper labour costs – such activities are labour intensive and also require good transportation links to global markets. Companies such as Flextronics and First Solar already have running operations in Malaysia in this activity. The government understands that a key requirement to growing the solar industry further is a sufficient workforce and has embarked on retooling existing training establishments to cater

1. industry value chain Upstream Midstream Downstream Application Silicon Wafer Assembly, Testing EMS Local demand and Packaging ■ Leading EMS Capability ■ The chemical industry ■ Home to foundries ■ Malaysia has in Malaysia is one of such as X-fab and historically companies such as the most developed Silterra. been a major Flextronics, Solectron, ■ Under ETP the sector semiconductor in the world. Sanmina-SCI, Celestica, ■ Also exports its has received tow deals; back end Jabil Circuit and chemical products LFoundry GmbH from manufacturing Plexus have their to countries like Germany with QT centre. operations in Malaysia. Japan, Hong Kong, Hightech Malaysia Sdn China, Singapore, and LFoundry Malaysia Thailand and Sdn Bhd and Mitsubishi even the USA. UFJ. The project is aiming to develop five wafer fabrication plants in the Northern Corridor Economic Region. Silicon Ingot In-house + Imports (Manufacturers + Wholesalers, Trading Companies and Distributors) and Wafers

■

Consumers in Malaysia are vibrant, with PCs, mobile phones and desktops, which in turn drive the demand. Also serves neighbouring countries by exporting consumer electronics.

Source: Frost & Sullivan

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advanced electronics overview

Strengths

weaknesses

■ Attractive

■ Development

trade infrastructure ■ Excellent business and physical connectivity ■ Government incentives ■ Efficient workforce

of skilled workforce between tertiary-educated graduates versus industry needs ■ IP creation and R&D innovation l Lack of innovation drivers and R&D capabilities l Mismatch

opportunities ■ To emerge as a world class front end semiconductor manufacturing destination ■ Emerging Southeast Asia solar cell manufacturing hub ■ The Economic Transformation Programme (ETP) announced by the government is likely to create growth opportunities for the electronics industry

to the needs of the solar industry. Central to affirming Malaysia’s position as a global hub for solar PV manufacturing, R&D activities and homegrown technology will be important to ensure less reliance on cheaper labour costs as a pull factor. Within the ETP initiatives, the government hopes to establish multiple local consortiums which will aim to partner with foreign technology providers to jointly develop solar PV technology. Another aspect to look at is the potential commercialisation of the various technologies developed by Malaysian universities and to encourage university involvement in developing next-generation technology. With the growth in PV manufacturing, supporting industries providing components such as glass, backsheets and electronic components may see a rise in demand to support the PV production. Solid State Lighting Initiatives The emergence of solid state lighting (SSL) in the form of light emitting diodes (LEDs), which traditionally have been used in display devices, has seen a rapid adoption of the technology as a source for illumination. With several large MNCs dealing with LEDs already present in Malaysia, the government believes that more effort should be focused on expanding the value chain for the industry. Efforts highlighted in the ETP focuses on developing a full ecosystem of value chain players and home-grown suppliers supporting the larger manufacturers. To this effect, efforts driven by the government focus on developing local manufacturers encompassing the entire industry value chain through the use of research grants and infrastructure support. In addition, efforts to reduce trade barriers with China could help manufacturers within Malaysia gain access to the Chinese market. Further to this, moves to eliminate import taxes on raw materials used in LED manufacturing could encourage more global manufacturers to make Malaysia their hub of operations. It is expected

threats ■ Availability of incentives offered by other countries and low cost locations in Asia l Push by neighbouring countries to further expand R&D activities

when more global companies relocate, some of them would bring along their front end activities to take advantage of the development incentives offered by the government. Broader Industry Initiatives In an effort to bolster higher value chain activities such as front end manufacturing and R&D activities, the government (through its various arms such as MIDA and MITI) has in place several incentive schemes. One such incentive is the Pioneer status tax exemption which allows for a tax free period of 10 years for qualifying industries. For corporations that no longer qualify under the scheme, tax rebates are available for capital expansions and R&D activities. Furthermore, the government recognises the importance of training and continuous learning in an effort to ensure an adequate supply of skilled workers. Several schemes and training grants are already in place to encourage companies to train their workers in state of the art technologies. Local universities are encouraged to seek industry collaborations to ensure graduates are equipped with the skills needed to support the hi-tech industries. Closer bilateral relations with Singapore could also promote cross investments and allow Singaporean companies to relocate to Johor to take advantage of the cheaper costs. Conclusion The advanced electronics sector in Malaysia is poised to further drive the Malaysian economy as E&E activities are the major contributor to the country. Rising labour costs in Malaysia have already triggered an outflow of labour intensive and low value added industries to neighbouring countries where cost is lower and the government realises this. Therefore, with the advent of the ETP programme, investment in high technology activities and job creation for a high income economy is expected to receive great attention and incentives from the government.

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AKIRA SANUKI TOKUYAMA CORPORATION

Managing Executive Officer & President of Tokuyama Malaysia

I graduated from Kyushu University in Japan in 1974 with a degree in mechanical engineering. After graduating I joined the Tokuyama Corporation — a major Japanese chemical company — as a mechanical engineer. My main role there was to design specialised machinery and plant for the production process. However, as was the policy of the company, I ended up doing a whole range of different jobs, from designing and purchasing to construction management. I also rotated through the main factories in the group, producing the company’s principal products — for example, cement, caustic soda and silicon. This was company policy to give their people good all-round experience of the company’s operations. After a few years I began to be posted abroad, to work in the company’s foreign operations. My first foreign posting was to work on the construction of a Tokuyama factory in Indonesia, which was to produce PVC. In 1983, after two years doing that, I returned to Japan. However, two years later I returned to Indonesia with my family, to help run the factory I had a hand in building. There then followed a further period back in Japan, some time working in the Philippines on a cement-producing factory, and then back to Japan again in 1998 to transfer from the construction side of the business to a management job in financial control and budget forecasting. The Malaysian project I am currently working on began in 2008, with choosing the location in Sarawak. It wasn’t certain we would choose this particular site, but I flew in and made the decision to go ahead. Now the project is fully underway. My task now is to make sure our Malaysian operation works well and efficiently. MOTIVATION

LESSONS IN BUSINESS

It is in my nature to want to take on new projects and try new things. I like the challenge of the new, so I have always found it difficult doing the same thing all the time. That is why I have enjoyed, and been motivated by, setting these projects up for the company in foreign markets. As a business person, the key thing is to know what your ultimate goal is. Prepare your strategy carefully. Then, with the right amount of work and effort, you will achieve what you set out to do. However, also be prepared to alter your strategy if it doesn’t seem to be working out as you planned. Adaptability is extremely important in business.

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INternational investor: Can you give us a brief overview of Tokuyama Malaysia? AKIRA SANUKI: First of all, as you probably can tell from our offices, we are a very new operation. Although we began the process of setting up operations in Malaysia in 2008 with the selection of Samalaju Industrial Park, we have only just started serious construction of the factory earlier this year. We plan to have finished construction by the fourth quarter of 2012 and to be in production by the second quarter of 2013. The total cost of the investment, including infrastructure, will be around RM3 billion. The main focus of the facility will be the production of polycrystalline silicon, which is used in the production of solar cells. All our production of polycrystalline silicon is currently at our Tokuyama factory in Shunan, Japan. However, the decision was taken to diversify the risk and expand production with a Malaysian operation. The decision was taken at an optimum time because demand for solar cells is currently very strong and is expected to grow in the coming years. We expect to be producing 6,200 tons of silicon per year when this first factory is fully operational, although we are in the process of expanding our Malaysian operations even further. infrastructure and incentives Why did you choose Malaysia as a location for your newest factory? There were a number of inter-connected reasons, but one very important factor was electricity. Polycrystalline silicon production consumes a huge amount of electricity. Near to the industrial park is the Bakun Dam hydroelectric plant which produces large amounts of stable, predictable electricity at a competitive, stable price. It is not an exaggeration to say that if the Bakun Dam had not been in the vicinity, we would not have chosen to locate the factory in Malaysia. The Malaysian government’s

interview advanced electronics

“

It is not an

exaggeration to say that if the Bakun Dam had not been in the vicinity, we would not have chosen to locate the factory in Malaysia

”

investment in that sort of large infrastructure has been very important in attracting businesses like ourselves to the country. It is also the case that the Malaysian government is keen to promote hi-tech industry, and the solar power industry in particular. We were offered preferential tax treatment and support for the acquisition of permits and licenses from the federal and state governments. Are you satisfied with the development of the Samalaju Industrial Park? The area is still not served sufficiently by seaport. That is something that needs to be addressed. Having said that, I must stress that the area is a good fit for us overall, and the government has been very accommodating. Along with other companies, we have effectively been able to draw

Another thing that is attractive

is the potential for cross-fertilisation between the different companies in the park. That is the beauty of business clusters like Samalaju our own map because the Samalaju Industrial Park is such a new development. This is very important to us. By being a first-mover, we have had a lot of influence over the development. Another thing that is attractive about the development is the potential for cross-fertilisation between the different companies in the park. A by-product of one company could combine with a by-product of another, and you end up with something creative and new. That is the beauty of business clusters like Samalaju, and it is why the local and national governments are so keen to see it succeed. I personally hope we will see such creative combinations and that we, Tokuyama, make a big difference to the area. What is Tokuyama Corporation’s background in this industry? The corporation began life in 1918 in what is nowadays called Shunan City. It was founded to produce soda ash, a key ingredient in glass production. The company moved into cement production in 1938 and continued that successfully into the 1960s when it began to expand its cement business. Throughout the 1960s and 1970s we expanded into the petrochemical business with the founding of a number of new factories in Japan. The 1980s were a period of huge expansion for us with moves into the household toiletries market, the fine chemicals business, the medical diagnostics market and a number of other ventures. The polycrystalline

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silicon business has been extremely important for Tokuyama for years now, and a move into Malaysia as a second region of production is a key aspect to our overall development as a company. demand for polycrystalline silicon Can you tell us about any expansion plans you might have? In May Tokuyama announced a second phase for its production development in Samalaju. We have decided to build an additional polycrystalline silicon plant in the industrial park. The new factory will also be producing polycrystalline silicon for solar cells and is planned to have an annual capacity of 13,800 tons. This is testament to the importance of polycrystalline silicon for the solar cell businesses. We expect the costs of the new plant to be in the region of RM5 billion. Construction will begin in February 2012 and we expect the facility to begin operating in the second quarter of 2014. When the second phase is completed, we expect the total production capacity of our Malaysian operation to be 20,000 tons. As with the first plant, we will be acquiring property, plant and equipment to make sure it happens on time and efficiently. What is your view of the market for polycrystalline silicon? It is becoming tighter and tighter, possibly because of the recent problems in the nuclear industry, but largely because of a worldwide demand for renewable forms of energy production; solar power is a key form of that. My job here in Malaysia is to respond efficiently to that increased demand. I think you can see, with the substantial investment we are putting into the production of this material, that we are very serious about the market and about responding to the needs of our customers. Tokuyama is obviously heavily involved in upstream production, but there is also scope for downstream investment. Do you have any plans in that area of the business? We are looking at that possibility, yes. There are one or two companies in the cluster that we may well look to starting some sort of business venture with, but it is too early to say at the moment. Certainly, the state authorities in Malaysia are very keen on encouraging companies like ourselves to enter into further business structures with companies in the region, and we appreciate their help. The downstream business — the solar power industry — is an important and growing sector. We will be keeping a close eye on it and if the appropriate opportunity comes along, we will think seriously about entering the downstream market. However, at the moment we are focused on getting a worldclass production facility up and running for the raw material — for polycrystalline silicon.

advanced electronics interview

JOHN SEE QAV TECHNOLOGIES

Chief Executive Officer

A Malaysian, born 1965, John See obtained a bachelor of electrical engineering from Warwick University, Australia, in 1990. He has more than 20 years experience working in the Electrical & Electronics industry. John started his career as a product and test engineer at Nortel Telecom Malaysia Sdn Bhd in March 1990 and worked his way up to become Test Engineering Director before leaving in December 2002. At Nortel he was responsible for its Research & Development divisions in three separate manufacturing plants, located in Penang, the Philippines and Thailand. He has successfully steered QAV Technologies to being the first company in Malaysia to receive the standard Malaysia certifications for the testing industry, and also the first company outside of the US to gain the American National Standards Institute certification in terms of lighting, performance and measurements. John is one of the two founders of QAV Technologies, and is married with three children. MOTIVATION

Getting a breakthrough in new ventures motivates me to strive harder for the next one. I believe that you must know your strengths and be focused on what you are doing — and keep doing it with passion and dedication until success happens. My passion is to help realise the full potential of people.

LESSONS IN BUSINESS

Through my business dealings in QAV Technologies, I have found that hard work, trust and perseverance are the three most essential attributes. I also discovered that human capital and training people are important areas that I need to concentrate on in the testing business. Also, overcoming the many challenges during these ten years has made me stronger and more able to steer the company to the next level of growth.

INternational investor: Can you give us an outline of QAV’s business? JOHN SEE: We are in the quality assurance testing business, concentrating principally on the electronics, automotive, aerospace and medical sectors. Primarily it is an activity whereby semiconductor parts, electronics parts, etc, are subjected to regimental environmental stresses to filter out the infant mortality or dead on arrival cases at customers’ sites. For example, let’s say a company manufactures an ECG machine. They will pass that piece of equipment on to us, we will do the testing and stressing; with the aim of taking up a maximum of 5% of the life of that product, leaving 95% of the life of the product for customer end use. By doing that we can filter out the infant mortality, leaving the good part to be used by the end customers. We were the first company in Malaysia to get the standard Malaysia certifications for the testing industry. We were also the first company outside of the US to gain the American National Standards Institute certification in terms of lighting, performance and measurements. That means, for example, we can test an LED made by a Malaysian company domestically, and send a report to the relevant departments in the US for certification. We have basically created the ability to test products within Malaysia, whereas before they had to be tested elsewhere. the hi-tech industry home and abroad Is there a growing market for your services in Malaysia as the economy becomes more hi-tech, or is this just a location to export services abroad? It is a combination of both. The Malaysian hi-tech industry is growing, so we are getting a lot of business from those companies. The automotive sector, for example, is becoming ever more successful here, so we are doing a lot of LED testing from motor vehicle manufacturers. We

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“

We have

basically created the ability to test products within Malaysia, whereas before they had to be tested elsewhere

”

are also getting work from foreign companies who have factories in Malaysia, mainly producing LEDs. Because we are now ANSI certified, they can get their testing carried out in Malaysia and the results will be valid in most of their major markets, in particular America. Right from the founding of the company my vision was to have a 50/50 split in terms of domestic and foreign work. That will give us sufficient diversification of our customer base, so that we will be more able to ride out shocks from one direction or another. What has your growth strategy been so far? We have been extremely fortunate in gaining a lot of trust, and therefore a lot of work, by word of mouth recommendations. We gave MNCs (multinational companies) great service within Malaysia and they introduced us to more and more companies which they had connections with outside the country. Because of these companies’ trust towards the MNCs, they are willing to visit us and audit us. That

We have even seen companies

There are a number of solar companies operating in the country today: First Solar, Samsung Power and others. Does that constitute a cluster now? Does it have critical mass? There are indeed a healthy number of solar power companies, and high technology companies in general operating in various clusters now. Malaysia has been highly successful in attracting some of the best companies in the world to its shores. That is obviously very good for a company like ours. One thing the government has been quite right to do is to offer incentives, often tax-based, to technology companies. Our Prime Minister regularly holds meetings with appropriate partners, as do many other ministers. The government also runs roadshows abroad to showcase what we have on offer here in Malaysia. All these initiatives are extremely important. As I said before, if Malaysia wants to become a fully developed, high-income nation by 2020 it is important to make it as easy as possible to set up a company, or to relocate a company’s operations here in Malaysia.

close down their Chinese operations and relocate to Malaysia. One key reason has been the fact that the ETP has been so effective at smoothing the path for foreign companies to relocate to the country

Do you have any ambitions to extend your operations into China? It is a huge market. We have thought about it. China is, as you say, a huge potential market. However, it is also a very difficult place to enter. You have to have the right contacts, and the government insists on taking a stake in your business. Perhaps one day we will open for business there, but not in the immediate future.

is the edge we have by having the MNCs in Malaysia — by word of mouth they introduce us, so we gain. It’s been an organic growth so far. However, our gaining of certification and a wider international reputation may mean we change our marketing and look to selling ourselves abroad more in the future.

the role of the government How have the various government agencies helped? What sort of assistance have you received at a local or a central level in terms of your business? Overall, the agencies have been very helpful indeed. The most useful and important thing they have done for us is to provide us with introductions to important companies we might want to work with. As I mentioned, most of our growth so far has been organic and word of mouth, so these contacts are vital to us. That is changing to the extent that the various government agencies are putting us in touch with potential business partners and clients. Of all the agencies, though, it is PEMANDU which has been the most proactive and, indeed, aggressive in their help for us. They have even introduced us to companies within Malaysia that we didn’t know existed. We have been getting about ten Malaysian business enquiries a month from them. They have also managed to introduce us to some US customers, and in the past three months we have gained two new customers. Due diligence becomes a lot easier for new clients

Has the Economic Transformation Programme, even though it’s early days, made any difference to the attitudes of companies that you hear about coming to Malaysia? From our point of view, it has made a major difference. Only three yeas ago, we weren’t seeing all that many foreign LED or solar panel companies coming to Malaysia. Now they are and that, of course, benefits our business tremendously. In fact, the volume really seemed to take off in 2010. We have even seen companies close down their Chinese operations and relocate to Malaysia. One key reason has been the fact that the ETP has been so effective at smoothing the path for foreign companies to relocate to the country. In terms of business support, the building of clusters and corridors, and the easing of regulatory regimes, the ETP has proven a major boost.

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because of the trust they place in PEMANDU, and the trust PEMANDU places in us. The lead time is a lot shorter for new clients because of PEMANDU — they can provide a stamp of approval that other organisations aren’t able to do. challenges in a fast-moving environment Can you tell us about the biggest challenges for both QAV and the development of the testing industry in Malaysia as we head towards 2020? The training and retention of human capital is the biggest challenge we face, not only as a business or an industry, but also as a country. Malaysia as a whole needs to work hard at education and training, and with luck we will then create a business environment that is self-sustaining in attracting and retaining talented individuals. In terms of my own business, industrial testing, one big challenge is the constant updating of the testing standards. The standards generated by the Americans can normally be used for just two years — after that we need to get a new set of accreditations. The business is fast-moving, and we have to keep up all the time. Because of trade barriers, each country might come up with something which I don’t know about right now; certain standards which we have to test. Most countries will somehow

insist that a particular product has to satisfy certain standards, so we need to change accordingly. That’s the most challenging part. What next for QAV? We are halfway through our first ‘ten-year plan’ which we worked out a few years ago. We had a stated aim to move into the LED market, and we achieved that. We said we would then move into solar power, and we are halfway to achieving that aim as well. So we are immediately focused on completing those plans. Our next goal is to move into medical technology testing. That is a potentially very important market, which is dominated by foreign multinational companies. That in itself will be important for our goal to work for more foreign MNCs. One other thing we have on the horizon is a possible partnership with Underwriters Laboratories — the largest certification house in the world. We are currently working with them with the intention of expansion with them. Another one of our main aims is to grow QAV so that we are as big as or, who knows, even bigger than PSB TUV Sud Singapore, which is a major testing house in Asia. From my estimation, we are about eight to ten years behind them. We believe at the rate we are moving we will eventually overtake them. The sky is the limit!

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YONG CHONG CHIN CELESTICA

General Manager

I was born in Penang, so I am a local boy. After going to school in Malaysia, I went to Canada for my higher education. I graduated with a BSc in Electronic Engineering from the University of Alberta in Edmonton. Upon graduating in 1985 I returned to the country. Since then I have been working in the electronics industry for the past 25 or more years. The good thing about being in Penang is that there is a lot of opportunity. Over the past 25 years I have had the opportunity to serve in various different industries and various different multinationals. I was in the semi-conductor industry at the beginning of my career, and then eventually I moved on to the hard disk drive and EMS (Electronic Manufacturing Services) industries when the market picked up in this part of the region. For the past ten or more years I have been in the EMS industry. Over the course of my career, I have moved from initially spending quite a lot of time in the engineering field, then moving on to operations and lately I have been doing a great deal of general management. I joined Celestica in 2006 as General Manager of the Malaysian business in Kulim. MOTIVATION

I think the things that motivate me are to realise a vision that I have set myself and working in the right way with the people surrounding me; how do I develop my staff to march towards the mission I have set for everyone. That is something that is really exciting.

LESSONS IN BUSINESS

There are a few basic things you need to keep in mind: • Understand the market, the market players and the competitive landscape. Have a clear vision on the market segments you want to be in. • Understand the business dynamics. Formulate a clear strategy to drive business success. • Understand the needs of your customers. Be adaptive, be agile, be savvy. • Deliver on your promise to your customers. • Continue to refine your business strategy. Think win-win. • Always adhere to professional business ethics while conducting business.

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INternational investor: Can you give us a brief outline of your business? YONG CHONG CHIN: We provide assembled circuit boards to our OEM (Original Equipment Manufacturer) customers, who in turn assemble the final system assembly for the aerospace industry. In recent years we have expanded our offerings such that now, our circuit boards are used in virtually every part of an aeroplane, from cockpit to cabin to power supply. We are an integral and important part of the wider Celestica organisation and we play a significant role in providing savvy solutions to our customers in the aerospace industry. How does Celestica Malaysia fit into the wider company’s structure? The broader Celestica company has a few main pillars that we call ‘vertical segments’: aerospace and defence, healthTech consumer, industrial, communications and green technology. Celestica is a leading EMS aerospace service provider in the world. The overall goal is to develop Malaysia into being a world centre of excellence for A&D. We are doing well in that regard. We are very proud that over the past few years we have gone from an almost zero base in aerospace in Malaysia to where we are today — we have achieved many successes with our aerospace partners. The advantages of malaysia as a base Why is Malaysia an attractive location for this type of business? What were the strategic considerations in locating this manufacturing in Malaysia? There are two main things that make Malaysia such a good destination for industries such as ours. Firstly, the complexity of what we do requires both an educated workforce and good business infrastructure. Malaysia has both. There is a great deal of human talent within the country, the workforce is stable and motivated, and overall

advanced electronics interview

the country has a good, positive business focus. Secondly, intellectual property rights are important for our customers, and Malaysia has a good, welldeveloped legal system that provides the right protection. It is a skilled, well-developed economy, in other words. Also, the position of Malaysia in relation to, in particular, China is improving. The country is becoming much more competitive as costs in China increase. Labour costs in particular are rising in China, so there is less pressure for companies to locate there. Malaysia is therefore becoming more competitive in terms of the cost base of a company.

within the aerospace industry. We currently offer repair services to our customers as well, and that is becoming an increasingly important part of our business. Other areas we are looking at to expand our scope are system integration, value engineering and design. Through these value-added services, we strive to provide savvy solutions for our customers, helping them to anticipate and overcome the challenges of tomorrow. The other areas we may become involved in are green technology and oil and gas. I think it is an industry with a great opportunity for Malaysia to expand.

A lot of businesses worry about being able to attract and retain sufficient human capital. Have you found that a problem? We do have those challenges as well, but we have managed it relatively well. A large part of a company’s success is in attracting and retaining good people. We nurture internal talent by creating a positive environment for our people to grow. Celestica also has a structured talent management system and a good succession planning process. With these programs and initiatives, we have been able to retain a lot of key staff over the past few years.

the outlook for the future What are the biggest challenges to your business in the near and medium term? We have learnt a great deal over the past few years, and our journey has sufficiently prepared us to manage our business in today’s uncertain global economy. For us to grow the business and bring it to the next level, I would say we need to connect with our business partners; communicate with them on a regular basis and collaborate with them, helping them to navigate through the current choppy business environment while achieving mutual business success. Developing those relationships properly is going to be our next big opportunity. Most of our customers are still doing a lot of in-house manufacturing. A lot of the time they may underestimate the complexities of the investment needed from their end as well for the business to be successful over here. So a great deal of communication and collaboration will be needed. Our customers know we have a passion for their business and we fully comprehend the challenges ahead of us as a team. We will work as a true partner to overcome all issues to ensure that the business is successful for both parties.

government and business Would you say, therefore, the wider Malaysia business environment is becoming more favourable for businesses like yours? What has the government done to turn this into a reality? Malaysia is definitely becoming more attractive, not just to businesses like ours, but to the wider hi-tech sector. The government is focusing a great deal in terms of the higher value-added industry. That is part of the ambition to transition to a highincome economy by 2020. For example, lately the government has been putting a great deal of focus on green technology and also on aerospace, the industries that we are in. So we are working closely with the supply chain over here, and with the government, to establish the concrete ecosystems that support industry today. Another good sign is that the government has been encouraging the growth of quite a lot of SMEs (small and medium-sized enterprises) to support the aerospace industry — that basically aligns very well with our long-term visions, to provide fully integrated services for end customers. Do you have any plans to develop other areas of business here in Malaysia? Today my immediate focus is to continue to grow and expand our service offering for aerospace. We are concentrating a great deal on the electronic base in the circuit board assembly. We see that as helping us to expand our offering

“

Celestica

is a leading EMS aerospace service provider in the world. The overall goal is to develop Malaysia into being a world centre of excellence for aerospace and defence

”

Assembling a circuit board

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P’NG SOO HONG FIRST SOLAR

Managing Director

After graduating in social science from the Universiti Sains Malaysia, I went to work for Intel in Penang as a production executive. There, I worked my way up quite successfully because the company has an emphasis on developing internal talents. Eventually, I received an opportunity to go abroad to manage Intel’s operations in Chengdu, Sichuan province, China. It was a greenfield site and the team that I led was successful in starting up the factory there from ground zero. That was one of my most satisfying achievements with the company. After my China stint, I was tasked with going over to the United States as an expatriate involved in wafer fabrication. In total, I spent 17 years of my career with Intel. In October 2008, I left Intel to join First Solar Inc. I saw this as a new and exciting opportunity for me. First Solar was growing and the world was looking ever more intently at renewable energy as a more environmentally friendly alternative to fossil fuel. I remember during my interview with Bruce Sohn, the president at that time, I asked him why he had joined First Solar. He immediately pointed to the company’s mission statement of affordability, sustainable and clean energy. That is what First Solar wants to bring to the world. So, without hesitation, I said, ‘That’s impressive! I’m on!’ MOTIVATION

I derive my motivation ultimately from caring and being cared for by my family. Next is by being entrusted to look after the wellbeing of my staff. Additionally, I am also strongly motivated by a sense of responsibility for the more than 3,400 people and their families who depend on the company for their livelihoods.

LESSONS IN BUSINESS

It is always easy to manage during the good times. The real challenge comes when we enter the bad times, such as during an economic recession. During those times, the real challenge is to manage people’s morale and keep motivation levels up, especially with strictly limited resources. In any case, keeping them upbeat and focused is very important.

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INternational investor: How would you best describe First Solar’s operations in Malaysia? What do you think has made the company successful here and why Malaysia? p’ng soo hong: Allow me to answer the last question first. Why Malaysia? Well, Malaysia has a mature Electrical and Electronics (E&E) industry. This industry has been around for about 30 years with the likes of Intel, A&E, Fairchild and Motorola being the prominent players in the country. Today, E&E manufacturing is a well-developed sector. It employs many talented people. Moreover, we have a strong research and development (R&D) base in the E&E sector too. So, although we had no prior experience in the solar industry when First Solar first established in the country, it was relatively easy to find sufficiently talented people. As a matter of fact, we sent a lot of people to our manufacturing plants in the US and Germany to give them training. However, I have to stress that the success of First Solar in Malaysia is primarily due to the quality of our workforce in the country. As for the company itself, we have grown very fast in recent years. We started construction of our first plant in 2007, with production starting the following year. By the middle of 2011 we already had six plants. Moreover, we are currently the largest factory in Kulim. So, you can see how rapidly we have grown. I believe the prospects for this industry in Malaysia is huge. green technology and green business You pride yourselves on your environmentally friendly business policies. Can you tell us about that? We do our best to ensure that everything we do is environmentally friendly. Obviously, solar energy itself is a green technology, but we extend our environmental commitments to our manufacturing and after-sales services as well. For example, we

advanced electronics interview

have a very comprehensive pre-funded recycling program for all our solar modules. Here, our customers get a 25-year warranty on purchases from us. We know that it is our responsibility to ensure that we recycle everything that we can. That’s why we have this pre-funded warranty programme. Anywhere in the world, if a customer requires us to bring back a panel we have made for him, we do it. At our Kulim site, we have a big facility for recycling. In terms of the carbon footprint of our technology, it has the lowest carbon footprint of any solar technology that is available at the moment. What are some of the more significant challenges First Solar faces going forward? Like all fast-growing companies we have had our fair share of challenges in the area of human resources. First of all, attracting and retaining high-quality people is always the main challenge for Malaysian companies. Most company managers you talk to will say the same thing. However, we are fortunate that the hi-tech E&E industry here is well developed. Thus, there is a good pool of talent already available. However, we still have to face the challenge of developing our internal talent. This is very important because the company is growing so fast. We actually have many talented young people whom we need to train and nurture to take on more demanding roles in the future. It’s a good challenge to have! I believe that we can master the technologies and develop our manufacturing capabilities but the main contributor to organisational excellence is actually our human resources. Therefore, we need to work hard to achieve good results in developing the human culture of the organisation. We have an emphasis on providing training programmes in order to try and achieve this. In addition, we pay a great deal of attention towards organisational development as well. going forward: solar energy’s future What is the long-term potential of the solar energy industry in Malaysia? The potential is great. There’s no doubt about it. Solar energy is an important clean form of energy and will become increasingly significant for the world’s sustainable energy requirements in the future. Having said this, I am not totally sure that the government and the industry have strategically planned and brought in the right players as yet. However, I think that it was the right decision to have the manufacturing firms here first. At least now we can determine exactly what our upstream and downstream industrial needs will be and bring those players into the region.

From our own supply chain standpoint, we have developed local suppliers to provide us with some of our raw materials, the build materials. For example, there is the Saint Gobain — one of the world’s largest glass manufacturers. We requested them to set up a plant here in order to form part of our supply chain. We are working in similar ways with other suppliers. We currently don’t have a solar energy cluster. So things are developing more organically and are definitely moving forward. You mentioned earlier the challenge of developing sufficient internal talent. Is there a challenge in attracting human capital in the first place? Malaysia is a relatively small country in terms of the size of its population and that is the main problem when it comes to human capital. We only have 28 million people. Thus, we need to take care of our human resources because they are limited. There are a few obvious things we can do. We need to improve the education system. This is a must! We need to take more active measures to attract back home those Malaysians who have gone abroad to work. We don’t have to go too far. There are thousands of talented Malaysians in Singapore, for instance. We, in the industry, need to constantly look at our incentives and work culture to make it more attractive to this group of people to return and serve in their country.

“

We are

fortunate that the hi-tech E&E industry here is well developed. Thus, there is a good pool of talent already available

”

solar energy and the etp How is First Solar involved in the Economic Transformation Programme, and how do you feel First Solar is benefiting from the ETP? We are part of the hi-tech industrial sector that the government is trying to stimulate with the ETP. In this sense, we are intimately connected with it. We have contributed millions of ringgit back to the local economy by our presence here. We are also trying to create as much upstream work for our suppliers as possible. If we can be instrumental in creating a cluster, then there will be a momentum created and the surrounding companies can go on to support other technology innovations. That is the sort of thing Malaysia needs to be doing. In fact, a lot of the neighbouring countries are looking to Malaysia as a leader in the renewable market. As far as First Solar is concerned, we have been engaged with the ETP right from the start. We can definitely assist to take our Malaysian platform to the next level. The Economic Transformation Programme to me is not just about dollars and cash and all those things — it’s also about creating the needed ecosystem within the country for this sector.

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THOMAS REISINGER INFINEON

Vice President and Managing Director

I was raised in Regensburg in Germany. I went to school there, and studied at Regensburg University, gaining a PhD in Physics in 1996. During my doctorate, I had already focused on semiconductor technology, although more on the optical application side rather than the silicon. I have always been a practical person, interested in the concrete applications of science and technology. After completing my PhD I joined a company called SubMicron Semiconductor Technologies, which was a joint venture between Philips Semiconductors and IBM, located in Boeblingen near Stuttgart. I started out as an engineer, but after a year I was asked to head up a small matrix team to improve quality; another year later I moved into management. I stepped out of front-end wafer production for a while to build up a manufacturing unit similar to a back-end packaging line, including process transfer from a laboratory in the US to mass production mode field. Then I rejoined the same organisation and took over responsibility for a wafer production line. I came to Infineon in May 2008 and managed the Regensburg site for front-end wafer production. I did that until 2010 and then I was asked to take over the MD position for Infineon Technologies Kulim, in Malaysia. MOTIVATION

LESSONS IN BUSINESS

I am a very hands-on person, so I am motivated by activities that involve building and making. My heart is in production. Also, I find motivation from the people here in Malaysia. I have never had such a young and dynamic team before in my professional career. The average age of my employees at Infineon Kulim is 31 years, which is incredibly low. The most important lesson for me is to take care for my people. This is especially valid in Malaysia. In Germany, the attrition rate is near zero, unlike in Malaysia where young people have the choice to work abroad. So we train them, help them in their careers, and help them to grow in all sorts of ways. The employees stay in the company if they are proud to work for it and they have the feeling they are supported by their management.

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INternational investor: Can you describe your company in Malaysia? THOMAS REISINGER: Infineon has four wafer factories — three in Europe and one in Kulim which I am responsible for. Among all its global operations, Infineon has the largest head count share in Malaysia. We employ more than 8,000 people located in two sites. The bigger site in Malacca is the main assembly and test facility, with around 7,000 people. It has had an established presence in Malacca of nearly 40 years. By contrast our highly automated wafer factory in Kulim, which is now in its sixth year, has 1,500 highly skilled people. During the 2008-2009 downturn, we kept our employees because we valued their experience; and we knew once the market picked up again, we would have to compete for experienced people. As a result, we were quite successful at maintaining a low attrition rate and keeping the staff numbers stable at both sites. R&D is an important component of Infineon’s work in Malaysia. Can you give us a brief overview of your work in this area? Infineon invests around 12% of its annual revenue in R&D worldwide. To be a major player in our focused market segments, we have to continuously innovate and develop new technologies, processes and products. If we don’t research and develop, our competitors will catch up and we will not be able to keep our leading position in energy efficiency, mobility and security. It’s as simple as that. Our R&D efforts are linked to these business fields. We stay close to the market and customers to know the requirements, and to define our product and technology roadmaps. Our R&D effort in Malaysia takes place at both sites and focuses on manufacturing methodologies and processes as well as test engineering for front-end and backend activities.

advanced electronics interview

challening the brain drain Is retaining sufficient numbers of trained Malaysians a challenge for you? It is indeed a challenge for us to get the experienced people we need and to keep them. We are not alone in that; many companies find it a problem. We have had some success in countering the problem, however. When we started up the factory six years ago, we hired several hundred people from other companies with certain knowhow. Then over the past six years, we have added fresh graduates. Most of our experienced people are still with us. Combined with the hiring of fresh talent straight from universities, we are able to nurture our people through dedicated training programmes. Many of our staff have been on training courses in Europe that lasted for several months. We work closely with Malaysian universities on skill development in order to better prepare the selected fresh graduates when they join Infineon and the semiconductor and electronics market. On the other hand, we become more and more attractive even for very experienced talents from the electronics industry and from abroad due to our high technology environment and our constant expansion and growth. We just announced the building of ‘Kulim Fab II’ and started construction in August 2011. Do you lose a lot of people to Singapore? Singapore is one of the challenges faced by wafer factories in Malaysia. There are three main wafer factories in Malaysia; two in Kulim and one in East Malaysia. Singapore has 12 factories, all of which need skilled people. They attract overseas talents with higher salaries. For young engineers,

To be a major player in our

focused market segments, we have to continuously innovate and develop new technologies, processes and products sometimes the temptation of doubling their salary is too great. Likewise, we have come to realise that senior staff with children of school age also prefer Singapore for its education system. Nonetheless, we are having some success in attracting overseas Malaysians to return home to work. Recently, we were in Singapore to conduct walk-in interviews. The Malaysian government had announced some tax advantages for Malaysians coming back to their home country, and we thought this was a great opportunity. We were quite surprised by the number of people who showed up. We managed to hire several highly experienced people.

You supply chips to the automotive industry. What are your views on what’s happening within that sector today? Infineon is currently recognised as the number two supplier of automotive semiconductors worldwide after being unseated from number one by the successful merger of Renesas and NEC. It’s a challenge for us to be the market leader again, but we have a growth strategy. Electronic applications in new cars are increasing year on year. Features that were confined to luxury cars are now increasingly found in mainstream ones. That is especially true with safety features, which require lots of chips. Infineon is a key supplier of these components, so we believe that is a strong growth area for us. We are also strong in the hybrid vehicles market and have a leading role in development of electric vehicle solutions. We sell our chips to virtually all the major component manufacturers in this sector. I don’t think you will find a single hybrid car without an Infineon chip in it.

“

The

semiconductor business fits perfectly with the ETP, both in terms of building up the country’s technological base and in raising average earnings

”

Infineon is looking to further expand in its facility in Kulim High Tech Park. Can you tell us a little bit more about this investment? We are well on track. Since we announced additional the 1.7 billion ringgit investment in 2009, we have invested about 900 million ringgit, with the remaining 800 million to be invested in the following three years. The investment is going into mainly tools and infrastructure for business expansion. It is important to note that a significant amount of the investment, and also operating expenses, benefits the Malaysian market. Except tools — most of what we need is sourced domestically. Apart from the Kulim I expansion, we started construction of the Kulim II shell as mentioned before to fulfil increased demand, particularly in the automotive and energy efficiency sectors. the drive towards higher incomes What is your view on the government’s Economic Transformation Programme? Will Infineon be part of it? The semiconductor business fits perfectly with the ETP, both in terms of building up the country’s technological base and in raising average earnings. Due to the high education level of our staff, with more than 50% degree holders, the average income already exceeds today the government targets for 2020. And given that we need more engineers for the increasing requirements with regards to complexity and manufacturing competency, we expect to exceed that by far in the coming years. We are very much on board with the whole ETP and expect Infineon to continue to take a full part in the transformation process.

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transport & logistics

overview transport & logistics

Propelling the economy As the government steers Malaysia towards becoming a high income economy, a wave of major transport projects are happening across the country

TAKING THE MASS RAPID TRANSPORTATION SYSTEM TO THE NEXT LEVEL Malaysia’s Economic Transformation Programme (ETP) is designed to propel the country’s economy into a high-income economy. The programme is expected to lift Malaysia’s Gross National Income (GNI) to US$523 billion by 2020 and raise per capita income to US$15,000. In the past decade, Malaysia, along with other countries in Asia Pacific, has been witnessing a significant amount of investment and increasing interest in mass rapid transportation infrastructure development. Road and rail infrastructure play a key role in promoting and sustaining economic growth as well as intraregional trade. In the next five years, transportation infrastructure — road, rail, aviation and seaports — investment in Malaysia is expected to reach more than US$15 billion. The evolution of trade has brought enormous transport-intensive growth. The macroeconomic growth strategies and companies’ efforts to benefit from the lowest prices through geographic dispersion in the global supply chains has led to fast growth of transport volumes within Malaysia and between major trading partners. As a result of this, there has been significant spending in the expansion of highways, seaports, international airports and other transport hubs in the country. The Malaysian government has recently identified mass rapid transportation (MRT) as an economic entry point project within the Greater Kuala Lumpur/Klang Valley National Key Economic Area (NKEA) under the ETP. The main reason is to help people commute faster to work, improve social aspects, have timely connectivity to various other modes of transportation, as well as unlocking the value of other assets such as commercial properties around the MRT. The Performance Management & Delivery Unit (Pemandu), a unit under the Prime Minister’s Department, said in its website that the MRT

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transport & logistics overview

is integral to the success of the Greater Kuala Lumpur/NKEA, which in turn is a key catalyst for the ETP overall. Pemandu’s objective is to oversee the implementation and assess progress of the ETP and Government Transformation Programme. Pemandu said that the MRT will be a key driver to support the public transport modal share from 12% currently to 50%. Connectivity to transportation hubs and connectivity within the area is critical for urban growth and improved productivity, it added. This new means of travel will alleviate congestion and increase accessibility to, from and also within the city. Most importantly it will contribute directly to Malaysia’s Gross National Income aspirations. As Malaysia’s largest ever infrastructure project, during its peak it will employ about 130,000 people with a significant multiplier impact on associated industries, Pemandu said. Malaysia’s Economic Growth Malaysia is transforming its economy from a manufacturing base and trading nation to a more

diversified economy encompassing a servicebased sector and promoting its domestic medium enterprises to go regional. The government has taken a bold move to liberalise as many as 27 subsectors which include healthcare, social services, tourism services, transport services, the legal profession, computer, education and business services, which will bring much needed investment and talent into the country. To ensure continuous economic growth, transportation policy needs to be devised and implemented towards supporting economic growth and employment by prioritising the availability of resources for the renewal and upgrades of transport systems. In 2010, the World Trade Organization ranked Malaysia in the top 30 exporters of services. Therefore, the services sector will be the new growth sector of the economy. Transformation of the Mass Rapid Transportation System The intermodal transportation hub developed at Kuala Lumpur Sentral serves as the heart of the

Strengths

weaknesses

■ Huge projects to spur the entire urban development

■ High cost to maintain and operate railway systems and infrastructure ■ Commuters still prefer personal transport ■ Segment is not liberalised to attract private operators

landscape and improve the country’s economy ■ Mass rapid transit systems have the lowest CO2 emissions and are considered as green people movers ■ Rail has proven to be safe, as it has the lowest number of accidents and deaths compared with roads

opportunities ■ Growth in rail infrastructure projects to have a spill-over effect on other sectors ■ Creation of new green jobs and segments in construction and services ■ MRT project to attract new FDIs and spur domestic investments

In the next five years, transportation infrastructure — road, rail, aviation and seaports — investment in Malaysia is expected to reach more than US$15 billion

threats ■ Risk

of delay may cause cost over-runs in rail project delivery due to land acquisition and other external factors ■ Lack of rail professionals to work on massive rail infrastructure projects ■ Delay

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overview transport & logistics

1. DRIVERS FOR MASS RAPID TRANSPORTATION INFRASTRUCTURE INVESTMENTS IN MALAYSIA

Significance

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o iti

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Primary Drivers

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sin

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Secondary Drivers Source: Frost & Sullivan

integration of the four main rail lines along with main lines consist of commuter rail services, the light rail and the airport express line. The completion of the 51,100,433 Integrated Transport Terminal serves to optimise the services of the inter-states express buses. The setting up of the Land Public Transport Commission (SPAD) in 2010 serves the goal of 34,700,000 ensuring that the people have access to reliable, efficient, integrated and safe public transport. 22,108,305 SPAD will also be working on a transport master plan to ensure a comprehensive, integrated and sustainable infrastructure development for Malaysia’s public transport. The government of Malaysia continues to play a 2,626,121 1,507,519 vital role in innovating the transportation’s process. Ampang KLIA Express Transit KTMB Commuter ItLRThasKL Monorail introduced muchKLIAinnovation within the Source: Frosteconomy. & Sullivan transportation sector to spur the domestic While at the international level, they collaborated with key players in identifying global challenges and addressing them. Malaysia also participated in the sharing of experience and knowledge across borders with neighbouring countries to address those issues collectively. An innovation-friendly policy framework with the economic policies can constitute a significant share of mobility policy.

3. STATISTICS: PASSENGERS RIDERSHIP FOR RAIL IN KUALA LUMPUR FOR four 2010 the public buses services. The 60

56,806,835

55 50 Bln passengers

45 40 35 30 25 20 15 10 5 0

Kelana Jaya LRT

Economic Transformation Programme: Greater Kuala Lumpur Under the Economic Transformation Programme, the government has announced a mass rapid transit (MRT) project, expected to be the largest infrastructure project in Malaysia. The MRT project is expected to spread across 141km of three new corridors and will be integrated with existing rail systems such as the KTM Komuter, monorail and light rail transit. The project will be 66% funded by the private sector. A high-speed railway running

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at 300kmh (186mph) to link the new Greater Kuala Lumpur and Singapore has also been proposed. Kuala Lumpur is an attractive destination for urban rail investors for its metro rail segment and commuter rail line. This is driven by factors such as growth in urban rail users, potential urban rail projects, along with scope for new property development projects, investment in infrastructure and initiatives from the government to improve mass rapid transportation infrastructure. Such is the importance of passenger and freight transport for enabling economic growth, supporting individual well-being, and providing access to markets for labour, goods and services. The new mode of urban mobility system can alleviate congestion and increase accessibility to, from and also within the city while contributing directly to the country’s Gross National Income. The rapid transportation infrastructure project is aiming to employ more than 100,000 people during its construction stages and has great multiplier impact on the construction industries. the Mass Rapid Transportation resurgence contribution to a higher income economy for Malaysia The number of projects for mass rapid transportation (urban passengers, rail and public buses) development in Kuala Lumpur (and Malaysia in general, see fig.2) has steadily increased over the past five years. From a mere US$350 million in 2005, the city is expected to witness investment worth more than US$12 billion by 2020. Notable mass rapid transportation projects include the Klang Valley MRT (see fig.4), the LRT line extension, new rolling stock for KTMB’s main electrification lines, Kuala Lumpur’s new four-car monorail, environmentally friendly public buses and the introduction of the Rapid Bus Express Transit (BET). With all these developments, the Malaysian government plans to increase the usage of public transportation to 25% by 2012 from an estimated 13% in 2010. Kuala Lumpur has also been witnessing a steady rise in urban passenger ridership for rail and buses services since 2005. Ridership for urban rail and public transportation in Kuala Lumpur is expected to grow 28.7% to 220 million annually in 2020, as compared with an estimated 171 million annually in 2010. A new intra-city commuter train (ICCT) with a network of 100km servicing Iskandar Malaysia, located in the southern state of Johor, has been proposed to serve all the major suburbs in the economic growth corridor. Iskandar Malaysia is three times the size of neighbouring country Singapore and is expected to attract new investments of up to US$30 billion over the next five years with completion of key infrastructure, education and tourism hubs. Singapore is expected to be the biggest investor

transport & logistics overview

in the development project. With the warming up of bilateral ties between Malaysia and Singapore, both countries are undertaking moves to improve connectivity by opening a Rapid Transit System link from Singapore to Johor Bahru by 2018. The proposed KL-Singapore rail line is a very critical and landmark link that needs to be established through high-speed rail. This is a cross-border link that has already been leveraged by other modes of transport such as air (notably low cost carriers) and road to ensure better choices of connectivity, thus improving the ability of organisations to interact and leverage the benefits of a regional entrepot (Singapore). With the next decade seeing the growth of the services sector, high-speed rail connectivity can greatly help organisations in Greater KL establish larger offices with a competent workforce, who can commute more effectively to markets such as Singapore to derive business and economic benefits. In effect, Greater KL will transform into a service sector hub with this model (if high-speed rail connectivity is available towards the northern and southern directions), creating a sustainable economic profile for the city. Almost all high-speed rail networks have also been promoted as a tourist experience and consequently are a must-see attraction in the city. Examples like the Shanghai Maglev, Taipei high speed rail and Japan’s Bullet Train have all helped support this agenda. The connectivity option in any mega city has certainly influenced property values due to the ability of residents to save time commuting. MAJOR GROWTH DRIVERS AND CHALLENGES FOR A MASS RAPID TRANSPORTATION SYSTEM’S SUCCESS IN GREATER KUALA LUMPUR Growth drivers contributing to the new mass rapid transportation projects include urbanisation, government initiatives and economic and services sector growth (see fig.1). New mass rapid transportation projects are likely to create more jobs in the construction sector.

2. List of urban mass rapid transportation projects across Malaysia Rail Infrastructure Rail Project Mainline Construction and Electrification Double Track of Northern Peninsular Malaysia (Padang Besar to Ipoh), 330km Mainline Construction and Electrification Double Track of Southern Peninsular Malaysia (Gemas to Johor Bahru), 250km Light Rail Transit Extension of both LRT line Ampang and Kelana Jaya for the Light Rail Transit, with 30km line added Monorail New fleet of 12 unit four-car train monorail for Kuala Lumpur MRT New 51km Klang Valley Mass Rapid Transit Airport Express Extension of Airport Rail Express to new low cost carrier airport Intercity Rail Transit An intercity rail transit with 100km rail line to connect state of Johor’s Iskandar Development Region suburbs Rapid Transit System A dedicated rail link connecting the state of Johor to Singapore by 2018 Source: Frost & Sullivan

Constant advancement in rail technology The continued advancement in urban rail technology not only facilitates better inter-operability with other modes and existing rail networks, but also ensures prompt development of the required infrastructure to solve a city’s rapidly rising congestion problems. Project funding availability The availability of infrastructure funding from domestic and international financial institutions is a crucial driver in realising a strong revenue model to sustain operations and maintenance. Project funding for the Asia Pacific region in the past decade for infrastructure development has increased multi-fold.

GROWTH TRENDS/MARKET DRIVERS Private sector involvement The importance of the private sector is increasing and their consortia are driving the outcome of projects. Thus the private sector is able to initiate a strong business case for commercial and technical success in urban rail projects. THE GOVERNMENT’S URBANISATION PLANS Governments across Asia Pacific countries, including Malaysia, have strong urbanisation plans to employ urban rail systems as strategic transport modes to solve congestion issues. A combination of urban rail, buses, taxis and elevated walkways form part of the government’s urbanisation plans and is expected to drive market growth.

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Primary Drivers

Secondary Drivers

overview transport & logistics Source: Frost & Sullivan

3. STATISTICS: PASSENGERS RIDERSHIP FOR RAIL IN KUALA LUMPUR FOR 2010 60

56,806,835

51,100,433

50 Bln passengers

45 40 34,700,000

35 30 25

22,108,305

20 15 10 5 0

1,507,519 Kelana Jaya LRT Ampang LRT

KL Monorail

KLIA Express

2,626,121 KLIA Transit KTMB Commuter

Source: Frost & Sullivan

With efficient mobility for the people, new investment would naturally pour in, along with the right talent mix, to make Greater Kuala Lumpur a world class metropolitan megacity

Macro-economic factors The growing economies in Asia Pacific countries, including Malaysia, has resulted in a rapid surge in demand for transporting people faster and more reliably than other modes — to blue chip commercial areas as well as educational premises. This is likely to facilitate an active market with strong ridership for urban rail transportation (see fig.3). Challenges MODERNISE URBAN RAIL INTO THE PREFERRED MODE OF PUBLIC TRANSPORT Making urban rail a modern and preferred mode of public transportation, replacing passenger cars with equal, if not higher, comfort and convenience, is a major challenge to most Asia Pacific countries, including Malaysia, especially with private vehicles getting cheaper and easier to own over the past decade. INTEGRATION WITH OTHER MODES OF TRANSPORTATION Integration of the urban rail transportation with other modes like buses, taxis and other rail systems is a challenge as most of these other systems have been existent for decades — merging them with a new and advanced plan as well as transportation system requires careful planning and execution. 4. Key Details About Klang Valley Mass Rapid Transit MRT Line 1 (Sungai Buloh — Kajang ) Line Length 51km with 35 stations Service Area Sungai Buloh — Kota Damansara — Kuala Lumpur — Cheras — Kajang Rolling Stock Four-car rolling stock Operator RapidKL Owner Prasarana Negara Berhad Source: Frost & Sullivan

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PRESENCE OF ALTERNATE MODES OF TRANSPORTATION Urban rail faces intense competition from toll roads and highways with immaculate connectivity and quality. The challenge thus is in changing the mindset of the car drivers to switch to urban rail as a form of reliable urban transport with minimum greenhouse gas emissions. CONCLUSION — THE GREATER VISION FOR SUSTAINABLE MOBILITY SOLUTIONS In any transformation, it is about achieving the next level of modernisation and positive optimisation of the entire infrastructure, the system, the regulatory and all stakeholders. In going forward with contributing towards a green economy, the mass rapid transportation system augurs well for the country since the public buses and urban rail technology are recognised as having the lowest CO2 emissions. The advancement in hybrid technology has also made them very viable to operate in the central business districts. Another plus factor is that the mass rapid transit system has a good safety record as well as very low accident rates. The task of moving large numbers of people over a wide network of cities in a sustainable manner mandates the realisation of such a mass rapid transportation vision. In order to be more environmentally friendly, urban rail rapid transportation operators are beginning to adopt green practices in their operations and maintenance. They include efficient usage of electricity with the installation of energy-saving light emitting diode (LED) lighting, platform screen doors that control climate within stations, rain water harvested to clean the trains, using natural skylights to cut down on artificial lights, retro-fitting stations with photovoltaic cells for renewable energy, regenerative braking for trains and installing infrared sensor escalators that save energy. Hence the demand from the general public for mass rapid transportation, along with the expansion of aviation, has continued to make transportation a key part of the transformation of Greater Kuala Lumpur. With efficient mobility for the people, new investment would naturally pour in, along with the right talent mix, to make Greater Kuala Lumpur a world class metropolitan megacity. Ultimately, a successful mixture of the right talent coupled with an efficient work environment will propel Malaysia to become a high-income nation. Malaysia will stand to gain as it develops its rail network to connect with various seaports and airports around the country. The movement of goods will be made much easier and the whole country can be inter-connected via various channels of transportation — rail, road, sea and air.

transport & logisticsâ&#x20AC;&#x192; overview

Logistics providers benefit from growth A rapidly growing economy, the creation of 3.3 million more jobs and a shift to a service-based economy are all good news for Malaysiaâ&#x20AC;&#x2122;s logistics industry. If logistics service providers can match the pace of transformation, there is great potential

Introduction Logistics excellence plays an important role in the economic development of the manufacturing industry in Malaysia by helping to maintain the cost competitiveness of its business operations. It also helps to enhance the countryâ&#x20AC;&#x2122;s progress in industrialisation and international trade. Since the 1990s, Malaysia has undergone a spectacular transformation. The Malaysian economy was experiencing booming growth due to the inflow of foreign direct investment in the manufacturing sectors, especially in the semiconductors industry. With the inflow of FDI (see fig.1), the Malaysian economy experienced a structural change from a commodity-producing nation to a manufacturer of industrial products. The Economic Transformation Programme (ETP) announced by the government is focused on transforming Malaysia into a high income economy by 2020. The initiatives to shift towards a servicebased economy, which will create more than 3.3 million new jobs, will definitely benefit the logistics industry. The emphasis on the private sector and localisation will assist the growth of national logistics service providers. The national logistics service providers will need to increase their capability and focus on investing in the training of local talents in order to be more competitive in the future. The ETP also emphasises human capital, which is focusing on training local talents and encouraging the return of professional logistics practitioners from other countries in this region. The success of implementing such initiatives can definitely reduce the scarcity of a professional workforce in the Malaysian logistics industry. Transportation and logistics sector revenue, potential and growth The transformation of the Malaysian economy from an agriculture-based economy to an export-oriented

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overview transport & logistics

1,002.7

Tonnes, Thousands

268 www.internationalinvestor.com 800

1028.2

937.5

918.1 809.1

600 400

5.0%

-4.6%

-6.5%

-5.0% -13.7%

1,000.0

RM Billion

20 15

800.0 600.0

400.0

5 0

200.0 22.2

29.5

24.1

5.0

2006

2007

2008

2009

Foreign Direct Investment

17.1

18.5

1,067.4 1

2010 2011(f) Jan-Sept

2006

Total External Trade

Source: DOSM Analysis: Frost & Sullivan

15 50.0 400.0 0 10200.0

10.5%

12.0%

12.0% 10.0% 8.0% 6.0%

2. TOTAL MALAYSIA E 2006 - 2011 1,400.0 1,200.0

4.0% 2.0%

108.5 121.0 135.5 153.0 172.0 196.5 0 2010(e) 2011(f) 2012(f) 2013(f) 2014(f) 2015(f) 1,067.4 1,106.3 1,185.1 988.2 1,160.7 1,276.8

Source: DOSM Analysis: Frost & Sullivan

4. TOTAL CARGO VOLUME BY SEA, 2006 - 2011

Tonnes, RM BillionMillions

12.3% 3. TRANSPORTATION SIZE, 11.4% & LOGISTICS MARKET 2010 500 - 2015

400.0 400 350.0 300 300.0

5.4%

10.5%

11.5%

12.0%

200 250.0 200.0 100 150.0 0 100.0

12.9%

13.1%

13.6%

393.7

414.9

390.5

2006

2007

2008

2009

16.0% 5.0% 14.0% 0 12.0%

438.8

493.6

2010(e) 2011(f)

50.0

121.0 135.5 153.0 172.0 196.5 Throughput108.5 Growth 0 (e) Estimate2010(e) (f) Forecast 2011(f) 2012(f) 2013(f) 2014(f) 2015(f)

8.0% -10.0% 6.0% -15.0% 4.0%

1,050.6

1,002.7

800

937.5

918.1 809.1

12.0%

1028.2

-4.6%

25 20 15

37.8%

7. SHARE OF TOTAL A AIRPORT 2010 (e) 80 5.

SHARE73.0% OF CARGO (e)

2010 70 60 40 50 35 40 30 30 25 20 20 10 15 0 10 5 0

15.9

KLIA

37.8%

Penang 22.0%

Port Klang Penang port

7. SHARE OF TOTAL A AIRPORT 2010 (e) 80

10.0% 5.0%

22.0%

Port Klang Penang port

15.0%

600

Growth (%) Growth (%)

60 1,000

5. SHARE OF CARGO 2010 (e)

2.0%

AIRPORT 2010 (e) 6. TOTAL CARGO VOLUME BY AIR 2006 - 2011 70

2006

Total External Trade

to 10.0% 1,000 1,050.6 1028.2 40 1,002.7 grow at a compound annual growth rate (CAGR) of 937.5 15.0% 600 918.1 12.5% 12.3% 5.0% 35 800 12.6% to reach11.4% RM196.5 billion 809.1 in 2015 (see fig.3). 10.0% 500 0 600 investment-friendly environment created 30The 5.4% 25 400 -4.6% 5.0% by the Malaysian government will also-5.0% boost -6.5% 400 20 0 300 -13.7% subsectors of the logistics industry such as -10.0% 200 15 import-export forwarding, shipping and airfreight -5.0% 10 200 -15.0% 0 -5.9% related businesses. 2006 2007 2008 2009 2010(e) 2011(f) 5 -10.0% 100 37.8% 22.0% 9.2% 6.6% 6.4% 6.3% 11.8% 0Malaysia’s total cargo volumes are493.6 expected to Freight 353.6Growth 393.7 414.9 390.5 438.8 -15.0% 0 increase 12.4% to Port 498.4 million tonnes 2011 as (e) Estimate (f) Forecast 2006 2007 2008 2010(e) 2011(f)in Port Klang Tanjung2009 Pelepas Bintulu Port Penang port SabahSource: Porttonnes Johor Port Others compared to 443.4 million in 2010 (see fig.4). DOSM Analysis: Frost & Sullivan Throughput Growth Source: MOT Analysis: Frost & Sullivan Sea-freight most popular mode of transport for (e) Estimate is (f) the Forecast cargos in Malaysia, handling thanFrost 95%& of total Source: more MOT Analysis: Sullivan volumes 2010. 7. SHAREinOF TOTAL AIR CARGO BY INTERNATIONAL 13.5%

1,067.4 1

6. TOTAL CARGO VOLUME BY AIR 2006 - 2011 5.1,200 SHARE OF CARGO THROUGHPUT BY SEAPORT, 15.0% 13.5% 12.0% 2010 (e) 4.The Malaysian logistics industry is forecast TOTAL CARGO VOLUME BY SEA, 2006 - 2011

73.0%

200.0

Source: MOTGrowth Analysis: Frost & Sullivan Transportation and logistics market (e) Estimate (f) Forecast Source: Frost & Sullivan

1,200

600.0

10.0%

-5.0% 10.0%

-5.9%

353.6

15.0%

Growth (%) (%) Growth

12.5%

800.0

400.0

0 5 Transportation and logistics market Growth 2007 2008 2009 2010 2011(f) 2006 22.2Forecast 29.5 24.1 5.0 17.1 18.5 (e) Estimate (f) 0 Total External2006 Trade 2007 & Sullivan 2008 2009 Source: 2011(f) 2010 Frost Jan-Sept Foreign Direct Investment Source: DOSM Analysis: Frost & Sullivan

600

1,000.0

RM Billion

300.0 1,200.0 30 250.0 1,000.0 200.0 25 800.0 150.0 20 600.0 100.0

11.5%

Growth (%)

RM Billion RM Billion RM Billion

3. TRANSPORTATION & LOGISTICS MARKET SIZE, 2010 - 2015 2. TOTAL MALAYSIA EXTERNAL TRADE VALUE, 2006 - 2011 400.0 16.0% 1. TOTAL MALAYSIA FOREIGN DIRECT INVESTMENT (FDI), 13.6% 2006 - 2011 350.0 14.0% 13.1% 12.9% 1,400.0

10.0%

1,200.0

es, Thousands

1,050.6

15.0%

1,400.0

70 rowth (%)

Growth (%)

1,000

12.0%

Growth (%)

13.5%

1,200

2. TOTAL MALAYSIA E 2006 - 2011

1. TOTAL MALAYSIA FOREIGN DIRECT INVESTMENT (FDI), 2006 - 2011

Tonnes, Tonnes, Millions Thousands

Growth (%)

RM Billion

Tonnes, Millions

RM Billion

The Malaysian logistics industry is forecast to grow at a compound annual growth rate (CAGR) of 12.6% to reach RM196.5 billion in 2015

economy was mainly driven by high technology industry. This has spurred the growth of trade, both internal and external, and increased the country’s involvement in the global supply chain and thus the development of the logistics industry. Through the implementation of the ETP, the Malaysian government is expected to jump-start the green technology segment and encourage alternative energy use. The government is encouraging the manufacturing of green products such as solar panels. Logistics service providers should be well prepared to transport green or renewable products as these segments could be the growth in the near future. By developing its strength in halal logistics, Malaysia can build on its uniqueness and competitive advantage against neighbouring countries such as 1. TOTAL MALAYSIA FOREIGN DIRECT INVESTMENT (FDI), Singapore, 2006 - 2011Thailand and Indonesia. Internationally, the highly recognised halal certification system in 30 Malaysia has given the country an advantage to develop 25 and position itself as the regional halal logistics hub. On the other hand, the recently approved MS2400 20 Halalan-Toyyiban standards have ensured that halal 15 practices have been incorporated across different 10 logistics functions such as transportation and 5 warehousing. This standard has effectively addressed 22.2 29.5 24.1 5.0 17.1 18.5 0 the non-compliance halal issues in logistics practices 2007 2008 2009 2010 2011(f) 2006 which can further promote Malaysia Jan-Sept as a halal logistics Foreign Direct Investment hub in the Southeast Asia region. Source: DOSM Analysis: Frost & Sullivan Logistics service providers have focused on leveraging their capabilities with the use of 3. TRANSPORTATION & LOGISTICS MARKET SIZE, technologies. 2010 - 2015 Visibility technologies such as tracking and 400.0 tracing systems and warehouse management 16.0% systems areas13.6% for logistics 350.0 have been key focus 14.0% 13.1% 12.9% 12.0% 11.5% service to further improve their efficiency 300.0 providers 12.0% 10.5% and 250.0 capability. 10.0% 200.0 8.0% and Frost & Sullivan, a business research 150.0 6.0% consulting firm estimates that the Malaysian 100.0 logistics industry will grow 11.5% to RM121 4.0% billion 50.0 2.0% in 2011 as 108.5 compared to RM108.5 121.0 135.5 153.0 172.0billion 196.5 in 2010, 0 0 2011(f) 2012(f) 2013(f) 2014(f) external 2015(f) supported 2010(e) by the country’s strong trade and logistics market andTransportation stable economic outlook. Growth External trade for (e) Estimate (f) Forecast Malaysia is expected to increase 10% year-on-year Source: Frost & Sullivan to RM1.28 trillion in 2011 as compared to RM1.16 trillion in 2010 (see fig.2). TOTALtechnology CARGO VOLUME SEA, 2006 - 2011 projects 4.High andBYcapital intensive under and 15.0% 600 the 10th Malaysian Plan 12.5% Economic 12.3% 11.4% Transformation Programme (ETP) are expected 10.0% 500 to create opportunities 5.4% for the nation’s logistics 5.0% 400 market. Foreign direct investments are likely to 300 flow into the electronics & electrical, oil 0& gas, healthcare and solar-related industries. -5.0% 200 In100 2010, the third -5.9% party logistics market -10.0% (transportation, and 438.8 courier 353.6 393.7storage 414.9 390.5 493.6 services) -15.0% 0 was valued billion, 2006 at 2007RM27.5 2008 2009 2010(e)while 2011(f) in-house logistics in the Malaysian Throughputcosts/spending Growth (e) Estimate—(f)manufacturing, Forecast economy mining, agriculture, Source: MOT Analysis: Frost & Sullivan telecommunications, construction, energy, finance, trade and government services — were valued at 6. TOTAL CARGO VOLUME BY AIR 2006 - 2011 RM81 billion.

60 50 40

73.0%

transport & logistics overview

Strengths

weaknesses

■ Government support on logistics related development

■ Lack of professional logistics practitioners to support the growth of the logistics industry ■ Fragmented nature of Malaysia’s logistics industry, which comprises a high number of logistics-related business entities ■ Lack of high standards in security measurement and enforcement to ensure the security of cargo movement and storage ■ Lack of emphasis on high-end, value-added logistics service, especially from national logistics service providers

■ Strategic advantage derived from geographic location ■ National logistics service providers focus on improving

supply chain efficiency and service quality

opportunities

threats

■ Influx

of FDI will boost the growth of the manufacturing industry, which provides huge business opportunities for the logistics industry ■ Strong growth potential in niche business segments, such as logistics services in the solar industry and halal logistics ■ Growth of total external trade provides a conducive environment for the logistics industry to grow

■ Strong competition to become regional logistics hub from neighbouring countries such as Singapore, Indonesia and Thailand ■ Increased cargo crime and supply chain risk throughout Asia has created stronger pressure on an already weak cargo security system — this will further decrease logistics end users’ confidence in the Malaysian logistics industry

Cargo volume by sea is expected to grow 12.5% to 493.7 million tonnes in 2011. Port Klang, Malaysia’s busiest container port, contributed 37.8% of total sea throughput in 2010 while Port of Tanjung Pelepas contributed 22% (see fig.5). Cargo volume by air is likely to grow 12% to 1.03 million tonnes in 2011 as compared to 918,100 tonnes (see fig.6). Meanwhile, cargo volume by rail is expected to increase 3.7% to 5.5 million tonnes in 2011.

coding systems and GPS or vehicle tracking systems — in the near future. For third party logistics service providers to be successful in Malaysia, they need to be able to offer diverse logistics services with wellbuilt infrastructure and competitive pricing. Logistics end-users surveyed said the reasons that prompted them to engage with more than one logistics service provider or change logistics service provider were due to limited service offering, increase in cost and limited geographical coverage. Logistics end-users are looking for comprehensive value-added services with focus on long-term relationship with their logistics service providers. End-users value flexibility and value additions in their services without additional costs and are likely to move away from ad-hoc services. Logistics service providers should also expand their range of services and focus on quality to attract more clients. Green logistics practices and the development of halal logistics are likely to help Malaysia to transform itself into a regional logistics hub in the future. Logistics service providers in Malaysia are focused on promoting environment-friendly policies and supporting green supply chain practices. Some of the logistics providers have invested in building green warehouses. The warehouses are built in a way to fully optimise the usage of natural light, with advanced air circulation to maintain a constant warehouse temperature and systematic rain harvesting systems. Green energy promotion by the Malaysian government, such as the initiative of the feedin tariff scheme, will encourage the usage of

Market Trends Classic outsourcing activities such as transportation, freight forwarding and warehousing were the most sought after logistics activities in Malaysia in 2010. Value-added services such as packing and labelling, reverse logistics, quality assurance and control, and information management are the top logistics functions outsourced in Malaysia in 2010. Currently, the use of technology in the logistics industry is mainly focused on warehousing, bar coding and transportation management systems. The adoption of visibility tools such as RFID (radiofrequency identification), smart labelling systems and GPS (global positioning systems) or vehicle tracking systems is still at its infancy stage with an average of 35% using the technologies. Based on a survey conducted by Frost & Sullivan in 2010, logistics end-users in FMCG, automotive, retail, pharmaceutical, consumer goods and the hi-tech electronics sector said they had plans to increase the usage of technology — especially in visibility tools such as RFID or smart labelling, bar

www.internationalinvestor.com 269

100.0 50.0 0

4.0% 108.5

121.0

135.5

153.0

172.0

196.5

2010(e) 2011(f) 2012(f) 2013(f) 2014(f) 2015(f)

overview transportTransportation & logistics and logistics market

2.0% 0

Growth

(e) Estimate (f) Forecast Source: Frost & Sullivan

5. SHARE OF CARGO THROUGHPUT BY SEAPORT, 2010 (e)

4. TOTAL CARGO VOLUME BY SEA, 2006 - 2011 600

12.3%

11.4%

12.5%

10.0% 5.4%

400

5.0% 0

300

-5.0%

200

35 Growth (%)

500 Tonnes, Millions

15.0%

-10.0%

353.6

393.7

414.9

390.5

2006

2007

2008

2009

438.8

493.6

2010(e) 2011(f)

-15.0%

6. TOTAL CARGO VOLUME BY AIR 2006 - 2011

Growth (%)

Tonnes, Thousands

sustainable energy (solar energy). The installation 13.5% 15.0% 1,200 12.0% of solar panels by logistics service providers at their 10.0% 1,000 1,050.6 warehouses will be possible when the1028.2 feed-in tariff 1,002.7 937.5 918.1 scheme 5.0% 800 is implemented. 809.1 Under the feed-in tariff scheme proposed,0 power 600 utilities are required to purchase renewable energy -4.6% -6.5% -5.0% 400 at a fixed premium price-13.7% for a specific duration. -10.0% Rates200paid to power providers depend on a number -15.0%and 0 of factors, such as the kind of technology used 2006 2007 2008 2009 2010(e) 2011(f) the size of installations. Challenges Source: DOSM Analysis: Frost & Sullivan Key challenges faced by the logistics industry in Malaysia include the fragmented nature of the logistics market itself, which has led to stiff price competition among logistics service providers, especially in the express parcel and document delivery segment. The lack of professional training for logistics personnel has led to the scarcity of professional logistics practitioners. Safety and security of the supply chain is still an issue in Malaysia, especially at the regulatory, enforcement, audit and accreditation level. Customers are mainly concerned about containerised shipments which, once sealed, are usually moved from point-to-point through various modes with minimum inspection. The logistics industry is also expected to consolidate due to the fragmented nature of the sector. Major logistics service providers are likely to increase their market share by mergers and acquisitions. The fragmented nature of the industry and unhealthy price wars has also led to inconsistency in the quality of logistics services in Malaysia. Logistics players need to keep pace with global developments and provide more complete and integrated logistics services to their customers. Malaysian ports need to be linked globally via mergers and acquisition, strategic partnership and outward investments in order to enable sustainability of operations and expand market share in international trade. This will enhance Malaysia’s shipping capacity and the country’s participation in the transport business.

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37.8%

22.0%

Port Klang Penang port Source: MOT Analysis: Frost & Sullivan

Freight Growth (e) Estimate (f) Forecast

20 10

Throughput Growth (e) Estimate (f) Forecast

The fragmented nature of the industry and unhealthy price wars has led to inconsistency in the quality of logistics services in Malaysia

25 15

-5.9%

100

9.2%

6.6%

6.4%

6.3%

11.8%

Port Tanjung Pelepas Bintulu Port Johor Port Sabah Port Others Source: MOT Analysis: Frost & Sullivan

7. SHARE OF TOTAL AIR CARGO BY INTERNATIONAL

AIRPORT Malaysia’s freight forwarding companies also 2010 (e) need to venture into higher value-added services 80 of70 freight73.0% forwarding including warehousing and distribution services. Currently, Malaysian companies 60 50 mostly involved in the lower-end services of are 40 customs clearance while foreign-owned companies 30 are offering high-end, value-added services. 20 15.9% In the rail transport services, Malaysia needs an 10 3.0% 2.8% efficient multimodal transport and 2.1% modal3.1% shift from 0 road to rail transport to reduce congestion in ports KLIA thePenang KotaThe Kinabalu Subang and ease pressureKuching onOthers roads. country needs to expand its double-track rail lines to increase Source: MOT Analysis: Frost & Sullivan the capacity and operational effectiveness. The development of efficient terminal facilities will also promote the evolution of multimodal transportation of goods. Halal Logistics Malaysia’s halal logistics sector is expected to increase in tandem with the growth of the halal food industry. The halal food industry is a lucrative business due to the huge number of Muslims in the world (currently 1.79 billion). In Malaysia there are approximately 17.5 million Muslims, accounting for 60.4% of the total population. Halal is an Arabic word meaning lawful. It refers to things or actions permitted by Shariah law without punishment imposed on the doer. It is usually used to describe something that a Muslim is permitted to engage in, e.g. eat, drink or use. The opposite of halal is haram, which is Arabic for unlawful or prohibited. Halal logistics is the process of managing products throughout the supply chain in accordance to the halal standard. The increase of halal food exports can further boost logistics growth in Malaysia as there will be a need for freight forwarding and transportation services. The halal food industry requires highly sophisticated and strictly controlled logistics operations to prevent the cross-contamination of products during storage and distribution. Dedicated logistics infrastructures and manageable halal logistics operations are crucial for any logistics service providers keen to venture into the halal industry.

-5.9%

-10.0%

100 0

353.6

393.7

414.9

390.5

2006

2007

2008

2009

438.8

493.6

2010(e) 2011(f)

10 5

-15.0%

Throughput Growth (e) Estimate (f) Forecast

6. TOTAL CARGO VOLUME BY AIR 2006 - 2011

Tonnes, Thousands

1,050.6

1,002.7

12.0%

1028.2

937.5

918.1 809.1

15.0% 10.0% 5.0% 0

600 -4.6%

400

-6.5%

-5.0% -13.7%

200

Growth (%)

13.5%

1,200

800

-10.0% -15.0%

0 2006

2007

22.0%

Port Klang Penang port Source: MOT Analysis: Frost & Sullivan

1,000

37.8%

2008

2009

2010(e) 2011(f)

Freight Growth (e) Estimate (f) Forecast Source: DOSM Analysis: Frost & Sullivan

Logistics service providers need to equip themselves with the ability to fulfil the halal requirements, besides maintaining the high efficiency and effectiveness of their operations to reduce the logistics costs for clients. The concept of halal is associated with food products which are of high quality in terms of cleanliness, sanitation and compliance with religious requirements. Malaysia has the potential to become a global halal hub, supported by the MS2400 Halalan-Toyyiban standards that ensure all halal practices are incorporated across difference logistics functions. The country’s halal certification is also globally recognised. Frost & Sullivan estimates that halal logistics is worth about US$1.9 billion in the Malaysian halal food industry. The halal food industry requires good supply chain management and operations that are highly efficient at a low cost without compromising the halal status of the products. Local logistics service providers should tap the growth opportunities available in the market. Currently there are four halal-certified logistics service providers — Kontena Nasional, MISC Integrated Logistics (MILS), Century Logistics and Cold Chain Network (CCN). Malaysia has also set up a corporation dedicated to the halal sector, the Halal Industry Development Corporation, to position the country as the global support centre for all halal-standard products and services. There are a lot of opportunities for local logistics service providers in Malaysia considering the potential of the global halal food market,

9.2%

6.6%

6.4%

6.3%

11.8%

transport & logistics overview Port Tanjung Pelepas Bintulu Port Sabah Port

Johor Port

Others

Source: MOT Analysis: Frost & Sullivan

valued at about US$1.2 trillion in 2010. Given 7. SHARE OF TOTAL AIR CARGO BY INTERNATIONAL Malaysia’s strong halal brand recognition and AIRPORT 2010 (e) halal logistics standards, local logistics service 80 73.0% providers should tap into the growth opportunities 70 in60the halal sector. 50 Malaysia could potentially become the regional 40 halal hub in Asia considering that Asian countries 30 contribute about 64% of the global halal food 20 15.9% expenditures, valued at about US$770 billion. 10 2.8% 3.1% 2.1% Malaysia’s halal food 3.0% industry is valued at about 0 US$15.7 billion in 2010. Penang Kuching Kota Kinabalu Subang TheKLIAMalaysian halal sector is an important Others contribution to the country’s export revenues. Source: MOT Analysis: Frost & Sullivan Malaysia exported a total of RM3.94 billion worth of halal-processed food in 2008 to the Organization of Islamic Conference (OIC) countries. International Investor together with our Knowledge Partner, Frost & Sullivan believes that local logistics service providers should create awareness with current manufacturers and retailers to use halal compliant logistics services to penetrate into the majority Muslim community in Malaysia. The halal-certified logistics service providers in Malaysia have the capabilities to manage halal and non-halal products properly to avoid crosscontamination during transportation and storage. The halal-certified logistics service providers would have dedicated warehouses or containers for halal products. Conclusion — Let’s take a step forward… Malaysian logistics service providers should focus on developing and expanding the range of services offered to compete with international logistics service providers. They should also focus on logistics technologies that can increase their competitiveness advantages. Malaysian logistics firms should also consider providing a one-stop logistics solution for their customers as compared with sporadic services and catering to just ad hoc logistics services requests. The logistics industry is also expected to consolidate due to the fragmented nature of the sector. Major logistics service providers are likely to increase their market share by mergers and acquisitions. The fragmented nature of the industry and unhealthy price wars also led to inconsistency of the quality of logistics services in Malaysia.

There are a lot of opportunities for local logistics service providers in Malaysia considering the potential of the global halal food market, valued at about US$1.2 trillion in 2010

8. logistics in malaysia going forward Current Next Step ■ Focus on basic logistics services ■ Expand range of services Service Provided Business Processes ■ Transactional with ad hoc logistics services request ■ One stop logistics solution ■ Offer sporadic services ■ Focus on infrastructure managements system such ■ Emphasis on visibility tools Technology Usage as WMS and TMS ■ Fragmented with high number of small organisations ■ Industry consolidation Market Composition Source: Frost & Sullivan

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AZRAN OSMAN RANI AIR ASIA X

Chief Executive Officer

I went to Stanford University in the US to do an undergraduate degree in electrical engineering, and a masters in engineering and economics. I joined the consultancy firm Booz Allen in Singapore in the early 1990s and then moved to work for McKinsey in Kuala Lumpur, Singapore and Korea where I co-led its Southeast Asia corporate finance and strategy practice. I joined the Malaysian satellite broadcaster Astro in 2003 where I ran the business development side. As senior director of business development, I oversaw the launch of Astro’s international joint ventures across Southeast Asia, India and China. I had oversight management responsibility for a portfolio in excess of US$300 million invested in these businesses. In 2007 I was appointed CEO of Air Asia X, leading the start-up team which developed the business plan and raised the start-up capital. My background, especially working on joint ventures with Astra, has given me valuable experience in start-ups. I see myself essentially as a corporate entrepreneur: coming up with an idea, formulating how to translate it into reality and then executing the necessary deals to raise the funds, obtain licences and assembling the management team. In addition to my day to day work with Air Asia X, I try to put something back into the wider community. I also try to take time to speak to organisations such as the World Islamic Economic Forum as a Young Leader. I also represented Malaysia as one of Asia Society’s 2009 Asia 21 Delegates. MOTIVATION

I am motivated by two things that are related. One is the idea of discovering something new and making it happen; in our case putting together an new model of air travel which can bring people together more cheaply than before. The second thing is growing teams and people. The two are obviously intimately related.

LESSONS IN BUSINESS

I think today we live in an age of turbulence and uncertainty. Gone are the days where you could move at a steady, sedate pace and have a five-year strategic plan. We are now moving to a situation almost where strategy is irrelevant. What you need to be is nimble and flexible so you can respond immediately to events. You need to recognise that today it is not about making the right decisions all the time, but making six or seven right decisions out of ten because you will never get everything right.

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INternational investor: How would you best describe your business? azran osman rani: Air Asia X is a low-cost carrier that specialises in flying long-haul distances, and by that we mean with big, white-body planes flying beyond a four-hour radius. The idea for low-cost carriers up until now has been that they only fly small planes regionally. What is unique about Asia and perhaps the reason why the opportunity is going to start here rather than Europe and America is the sheer geographic spread of the Asia Pacific region. In Europe you can take a short-haul flight from London all the way to Athens in a little less than four hours; but here, if you were to confine yourself to that narrow-bodied plane’s range, you cannot reach North Asia and you cannot reach the Middle East and Australia. The massive opportunity for us is in connecting Southeast Asia with these equally big markets all around us. What are the economics of your plan? First, we have to have a dramatically lower unit cost. In 2010 we were at 2.8 US cents per available seat kilometre. Most low-cost carriers are at the 3 to 4 cents mark. The long-haul carriers, the big global brands — Emirates, Qantas, BA — are closer to the 9-10 US cents range, so our operating level is less than half of that. That is what has allowed us to break through and create new markets. The other part of it is that although you can be the lowest cost operator, you have to be able to create new markets rather than just incrementally capturing existing market share from existing players. If you go down that route, you are not growing the market significantly; you are just going to be fighting for existing customers. We want to do something different entirely and create a new market. How are you able to get costs down so much further than competitors? Most of the big, famous carriers run their assets at a very low rate of usage: usually about 50%. In other

interview transport & logistics

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Most of

the big, famous carriers run their assets at a very low rate of usage: usually about 50%. In other words, their planes are in the air only about 12 or 13 hours a day, because they have all been premium, full-service airlines for so long

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words, their planes are in the air only about 12 or 13 hours a day, because they have all been premium, full-service airlines for so long. They have been very dependent on first class and business class customers. Right from the start, 40 years ago, flying internationally was a glamorous experience with white linen, fine china and champagne. That is what brought the profits in. However, that meant that the infrastructure of the airlines was all focused on these particular customers. Because these customers are what I call ‘time sensitive and price insensitive’, the airlines designed their business models so that their planes flew on schedules and models to suit what their first class and business class customers wanted. With prices to match, of course. And that has always translated into planes hanging around in expensive airports at the convenience of their highend customers. So what we thought was that if you re-design the long-haul business model and cut a lot of this out, you can use the assets more intensively and lower the overall cost of flying. Long-haul budget travel then becomes possible. To put it another way, there is a group of potential customers out there which is different: it is price sensitive and time insensitive. So if we take out the idle time for the planes, and fly and set schedules to maximise utilisation rates, we can keep costs right down. As a result we have the world’s highest aircraft utilisation rates of about 17 hours per day, and we have perfected the art of getting 300 people off the plane, refuelling, restocking, getting 300 people back on and then flying back to where we started. Most of our customers are the types of people who fly once a year, even once in a lifetime; so for them, they book not because of departure times but because of price. If I’m saving £500, do I care if I have to wake up at 3am to catch the 7am flight?

completely revolutionised travel in Europe. More than half the people within Europe travel on lowcost carriers. Even business customers do. You would not have thought that possible 15 years ago. We think the same opportunity exists in the long-haul service. We have now started flying the world’s longest lowcost flight between London and Paris — the demand is there because there are people saying, ‘Hey, you know what, instead of paying £800, for £400 I can get all the way to Asia and all the way to Bali’. The other thing, which is related to the cost model, and what differentiates us from the other industry players, is focus. We decided we are going to have one type of aeroplane which basically means one type of pilot, one type of cabin crew, engineers, tools and spare parts. That obviously simplifies things and reduces costs. We effectively choose markets which fit this aircraft. We cherry pick the markets which work for us. The old, national airlines ended up adding so much more complexity to the model than was necessary. Some markets need a Boeing 747, some markets need a 777, some markets need an Airbus, so there is tremendous complexity in their model. The next phase of growth, which will be equally interesting, is that once this model is proven and investors become interested, we should be able to set up hubs. So in areas you have Air Asia X North Asia, Air Asia X North Africa or Air Asia X Europe, and then you start connecting the trunk units. So the Kuala Lumpur base with 38 planes connects Kuala Lumpur and Air Asia’s regional network all the way to the cities, but then from North Asia we feed each other. We go from there across the Pacific. Europe we can do, perhaps Lisbon and Rio, which are completely new markets that today are only served by the higher end of the spectrum.

You aren’t totally excluding the business sector from your model though? No. Due to the global financial crisis there is a lot more price sensitivity even in the business market now. We have seen a great uptake in interest from the corporate sector and we have changed our model somewhat to adjust to that. We have created a special category for corporate customers with more flexibility to change dates, for instance. We have even been the first low-cost carrier in the world to have a full, flat bed, business class seat. However, we have cut down on extras, such as upmarket business lounges in airports, to keep the price down.

aligning with malaysia’s economic future Have you become involved in the government’s Economic Transformation Programme? We have been part of that process right from the start when we got involved in the ‘industry labs’ — specifically through the tourism lab because that was one of the 12 industries that the ETP had identified as important. We were addressing question like, if Malaysia was to continue to grow its tourism sector — it is already the second-highest foreign exchange earner from Malaysia — what would it take? What would the tourism products need to be? What would be the key markets and what is our role in terms of providing that connectivity? Because you can have the best tourism sites here but if you don’t have flights, the tourists are not going to come. So we went through a very rigorous process of industry-wide participation; a fact-based data approach with external consultants to come up with the recommendations that the government wants to carry out.

the prospects for going worldwide Will you be able to roll out this model in markets outside Asia? I think it will be a global product. I think where we are today is very much like where the aviation industry was in the mid-90s; right before the whole Ryanair, EasyJet phenomenon took off, and has now

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transport & logisticsâ&#x20AC;&#x192; interview

TEH KIM POO PORT KLANG AUTHORITY Chairman

I was born and brought up in Port Klang and am the first local boy to be appointed as the Chairman of Port Klang Authority. I am also a local Assemblyman and am responsible for many of the Port workers as constituents as well as employees. About 60% of Port Klang workers are my constituents. This gives me a unique perspective on the dynamics of the port and the region. I am the founder and Managing Director of Resintech BHD, a specialist plastics manufacturer listed on the main board of Bursa Malaysia. Prior to my business career I gained a diploma in accounting from LCCI and a postgraduate diploma in marketing from CIM in the UK. I also have an MBA in strategic marketing from the University of Hull in the UK, and a PhD in business quality management and total quality management from Newport University in the USA. I was appointed as Chairman of the Port Authority in April 2011 and tasked with developing the port for the 21st century. MOTIVATION

Because I have been a successful businessman, I feel I should give something back to the society that has given me so many opportunities. It is also very important to me as a local Port Klang person. My father, in fact, was a port labourer. These roots are real motivators in my current job at the Port Authority.

LESSONS IN BUSINESS

Two things: make sure you control the financial aspect of the business; and get a team around you that is independent and not afraid to voice their opinions, instead of just following instructions blindly without analysing them. You canâ&#x20AC;&#x2122;t depend on senior management that is afraid to stand up and be counted.

INternational investor: Can you give us a brief outline of where the development of Port Klang stands at the moment? TEH KIM POO: The authority has recently taken a number of initiatives to improve the overall port infrastructure, in particular the access routes. Although the port is a modern facility, it still has to improve surrounding infrastructure. Port Klang is a significant gateway to the country and it is imperative that we look at the whole picture to achieve the highest standards, not only of an international port but a port city as well. As part of the improvement, the Authority looked at other ports around the world to get ideas about best practices. We found that most ports had tourism-related activities as part of their overall business and that was something we could implement here. We have the facilities and vision to do so. For example, we could introduce concepts such as harbour or island cruises. We expect to have such facilities in place in 2012. Currently, we operate a jetty where Indonesian passenger boats land and pick up passengers. This activity will be moved to a new passenger jetty, privately owned, called the Harbour City, leaving us with a vacant spot to build a tourist-related harbour and island cruise facility. PORT KLANG AND THE ETP Tourism is a significant part of the governmentâ&#x20AC;&#x2122;s Economic Transformation Programme. Have you a role to play in the ETP? We hope to be able to play a significant role in helping to transform the Malaysian economy through the ETP. The Authority keeps in close contact with the businesses that work with the port and they have given their full support in working with us to help move the ETP forward. Tourism, as has been outlined, will be an important development for us, and there are other initiatives we will look at putting in place to increase the economic activity of the port. The

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With the

level of trade we are getting, we forecast being up to full capacity within six years, at which point we will have to look at building an entirely new facility

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island of Pulau Ketam is nearby and has a vibrant fishing industry, along with a number of seafood restaurants. It lies within our jurisdiction and can be made more of a central part of our tourism business. These are the types of development projects we will be working on. Economic transformation is vital for the country, and infrastructure like Port Klang will be vital for its success. Tell us about the overall strategy of the port, and how do you intend to grow it? We envisage that within six years we will have to build an entirely new port. At the moment we have the West Port and North Port, both run by separate private companies. Both ports are currently expanding their capacity by building more wharfs. Yet with the level of trade we are getting, we forecast being up to full capacity within six years, at which point we will have to look at building the entirely new facility. We are, in fact, already in the process of identifying suitable sites and drawing up plans within the vicinity of the two existing ports. What is the Authority’s view on the increase in container traffic expected in the future? We expect to see strong growth in domestic Malaysian traffic as the economy grows. We also expect that facilities like Port Klang will become major regional logistics hubs. Port Klang is located in a strategic position, so the volume of traffic is certainly going to increase. A large volume of trade passes through the Straits of Malacca, which we are well suited to cater for. Many of the very large ships use our facilities because they cannot dock at some of the smaller ports in the region. This is a major part of our business. Of course, container ships are getting bigger all the time, so our expansion plans are tailored to cope with that. It is one of the key reasons why we are certain to need a third port in the near future. REGIONAL COMPETITION You have talked of expansion, but how do you intend, within that process, to add value and maintain the competitiveness of the port? The port is highly competitive on price already. We are much cheaper than Singapore, for instance. When it comes to service, although we are of world class standards there is still room for improvement and we are yet to reach our peak. However, that is changing very quickly with the pro-active measures we are putting in place. That combined with our competitive rates makes Port Klang a more attractive port of choice among the international shipping lines. We can see some positive results, as we see more lines calling at Port Klang and using it as their trans-shipment hub than ever before. We, in the port authority, act as a guiding hand to all this and work closely with our private terminal

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operators, as well as the Malaysian government, to achieve our goals and potential. We confidently expect that Port Klang will transform itself in the next stage of development and rise from its current ranking of 13th port in the world to a much higher position. Our main challenge is to become more competitive with our neighbouring ports. The businesses that choose between ports will always look at a combination of the best price, best service and commercial environment. At the moment we have the best price; we hope that going forward we will master the other two factors as well. What about the Port Klang Free Zone? That seems to be an important piece of the jigsaw. Can you tell us about that? Port Klang Free Trade Zone consists of 640 acres of land in total and has 512 business units in what we call the ‘terraced factory’. We also have four office blocks, one hotel with 130 rooms and an exhibition centre. These are all located within a free-trade zone. We invested in this zone some years ago as an important adjunct to our overall business. About half of the facilities in the zone are occupied, but we are aiming for an occupancy rate of 70% in the near future. I think if we work hard, and market ourselves well enough, then we can achieve this goal. We understand that the majority of the potential users of the free-trade zone are intra-regional. What about companies from further afield? The US and Europe, say? We have had a lot of interest from non-Asian companies. The American conglomerate Cargill, for instance, has already taken some land in the free-trade zone and is almost at the completion stage of a refinery for palm oil. They refine the oil, package it, and then re-export it. It fits into what the government hopes to achieve via the Economic Transformation Programme, in that it goes beyond Malaysia just being a producer of raw materials. The country will increasingly move towards a higher-end manufacturing economy, a value-added economy, in other words. The free-trade zone is a platform that can facilitate the transition. The Port Klang Authority runs inland ports as well. How do they fit into the wider business? We have one inland port in Iskandar in Johor. We also run one in Ipoh in the north. These form important communication links, so our sea-port customers can send their goods to these ports with ease. Or they can trans-ship goods to Port Klang itself. There is also a good rail infrastructure in place. So they form a large part of what we want to achieve: being able to offer a total, integrated network for our customers. You can see it as complementary to our desire to be a regional transport hub.

Port Klang Authority Mail Bag Service 202, Jalan Pelabuhan Utara, 42005 Port Klang, Selangor, Malaysia Tel: +603-3168 8211 Fax: +603-3168 8228 Email: onestopagency@pka.gov.my www.pka.gov.my

Maintain As The National Load Centre And To Develop As The Preferred Logistics Hub For The Region As Malaysiaâ&#x20AC;&#x2122;s principal port, Port Klang is well situated to handle your every need, be it in manufacturing, trade or logistics. Strategically positioned within the busiest sea-lane in the world, Port Klang has three state-of-the-art terminals capable of processing any type of cargo. Free zones and trade facilitation services means your ease of doing business. With an excellent multi-modal transportation network, Port Klang is linked to the entire nation. And with links to 600 ports in over 180 countries, Port Klang is also excellently connected globally. PORT KLANG, enabling you to explore whole new horizons of trading opportunities.

interviewâ&#x20AC;&#x192; transport & logistics

MIOR AHMAD BAITI BINTULU PORT

Chief Executive Officer

I was educated in Malaysia and went to university in Scotland, at HerriotWatt University, where I took a degree in Offshore Engineering. I came back to Malaysia in 1981 and joined Bintulu Port as a civil engineer. That was during the early development of the port and they were interesting and exciting times. In 1993, I was promoted to Assistant Manager in the Engineering Service Department. In 1996 I was appointed Senior Manager in the Technical Services Division. Eight years later, I became Chief Executive Officer of Bintulu Port Bhd as well as the acting CEO of Bintulu Port Holdings and Biport Bulkers. In July 2011 I was appointed Chief Executive Officer of Bintulu Port Holdings Berhad. In October 2010, I was awarded the Panglima Setia Bintang Sarawak (PSBS) by the Tuan Yang Terutama Yang di-Pertua Negeri Sarawak. Over the years I have accumulated a lot of experience and knowledge of port operations and management, both locally and internationally. My involvement in the development stage of Bintulu Port in 1981 and supervising various multimillion dollar port infrastructure projects has given me a significant level of knowledge of port project management and technical details. MOTIVATION

The port and shipping industry is a very complex, challenging and dynamic arena. One has to be very sensitive to the surrounding situation to make sure the port strategy can deliver a cost-effective and efficient service. My motivation is to accept and enjoy the challenge of doing that and in making the business vision and strategic goals of Bintulu Port become a reality. Also, my motivation is to witness firsthand the benefit our work can bring to the shareholders and stakeholders.

LESSONS IN BUSINESS

The ports and shipping industry is highly competitive today in terms of costs and services. I have been involved in this industry since 1981 and those accumulated years have been an important learning experience for me. The key to success is that you need to have a deep passion for and knowledge of what you are doing. Secondly, you need to have clear objectives and a proper action plan so that you can achieve your business plan. Certainly, you need to have those things in place before you make any strategic decision.

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INternational investor: Can you outline the operations and history of Bintulu Port? mior ahmad baiti: Bintulu Port is one of the most modern and efficient multi-purpose ports in Southeast Asia. The port commenced operations in January 1983 and over the years it has handled a growing volume and variety of general cargos, containerised cargos, palm oil products, liquid and dry bulk cargos. Since its commencement of operations, the port has enhanced its operational capabilities considerably to provide greater capacity and capability to meet the need of the port user, comprising a dedicated container terminal, a multi-purpose terminal, a palm oil terminal and other dedicated terminals to handle liquid, dry and break-bulk cargo. Our facilities are equipped with the latest types of port equipment and other supporting facilities, similar to those available at other world-class ports. Bintulu Port is the only export gateway for liquid natural gas (LNG) produced from the Central Luconia Field and is currently the second-largest LNG export terminal in the world after Qatar Gas. The port covers an area of 320 hectares and serves a fast-expanding hinterland that includes the economic development region under the Bintulu Development Authority as well as the outlying regions in the resource-rich states of Sarawak and Sabah. The port was incorporated in December 1992 with the establishment of Bintulu Port Sdn Bhd (BPSB) as the licensed operator. It provides marine and port facilities to its users, and continually develops new port infrastructure. Currently, BPSB is 100 per cent owned by the public listed holding company which is Bintulu Port Holdings Berhad. The shareholders of BHB are Petronas (32.79%), Sarawak State Government (30.68%), Kumpulan Wang Amanah Pencen (9.52%) and Public (27.01%). The port also has a sister company which falls under BHB, Biport Bulkers Sdn Bhd, that operates and manages the edible oils bulking installation. We also provide a wide range of port services and facilities to cater for the various type of

transport & logistics interview

cargo. The LNG sector accounted for the majority of our cargo tonnage last year, with 57% out of a total tonnage of 40.62 million. Bintulu Port has a total capacity to handle 60 million tonnes per annum. On average we handle 21 vessels per day of various types, including two LNG ships. Most of the cargo comprises resource-based products and about 90% is for export. Apart from LNG, our other major cargos are crude oil, container, palm oil, petroleum products, timber products, fertiliser, urea, project cargos and LPG (liquid petroleum gas). In 2010, we handled 251,296 TEUs of container shipping. On average, the growth rate per annum for the 10 years since year 2000 has been 23% for container throughput. We are proud to say that we are also the number one container port in East Malaysia in terms of container throughput since 2003 and we are the first port in the region that has direct MLO connection to the Far East ports through Evergreen Marine Cooperation. port expansion: it’s not just cargo What are your growth plans? We have identified certain major growth sectors that reflect what we believe is the cargo volume that can be generated in the near future. The greatest potential growth we have identified is the handling of containerised cargos, palm oil products, dry bulk cargoes and the oil and gas sector. These

cargo types have been selected due to their strong growth potential after taking into account all the environmental concerns and economic developments in the region. This strategy will see that non-LNG cargos will contribute more to Bintulu Port cargo throughput and operating revenue, thus reducing our dependency on the LNG sector. Our research has shown that there is a fundamental requirement for storage space within the port area by the fertiliser importers. We will capitalise on this opportunity to venture into warehousing services. The provision of warehousing within the port area will assist us in generating our forecasted handling volume of dry bulk cargo, especially bulk fertiliser, and hopefully propel us to become the main distribution hub of fertiliser for this region. Secondly, with the opening and expansion of oil and gas fields within Sabah and Sarawak waters, we see great opportunities in the provision of oil and gas related activities. Thirdly, Bintulu Port will also facilitate the logistics and cargo movement for the SCORE (Sarawak Corridor of Renewable Energy) Development Corridor. This can be done by Bintulu Port working closely with the potential investors in providing various transportation options and logistic services to cater for the importing of raw material and export of finished product from the

“

With the

opening and expansion of oil and gas fields within Sabah and Sarawak waters, we see great opportunities in the provision of oil and gas related activities

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sources to final destinations. The most promising is the provision of barging services between Bintulu Port and the upcoming Samalaju Port.

The

expansion and development of Malaysian ports to serve various development corridors in the country will be vital, and that is where I think we can contribute

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What challenges do you expect in the near future? One major challenge is the overall economic growth of the region, which is something we feel very involved in. Our own strategy for growth is undertaken not only to meet our vision and mission, but also to contribute to the economic development of the region. The vision of the port is to be a ‘World Class LNG Port and The Port of BIMPEAGA’. The growth strategy to achieve this vision is that the port should focus on providing sufficient modern port infrastructure to users; deliver services efficiency; continuously enhance its ITC systems for better business and operational conduct; enhance our shipping connectivity and lastly develop of new business. These are our main challenges. You could summarise by saying that our overall challenge is to continuously stay competitive in the industries we service, and face the rising cost of operations. Ports and shipping nowadays is rather competitive. There are many ports within the region that aspire to become trans-shipment venues and we are basically sharing the same market with them. The diversion of cargo to a certain port will depend on the ability of a port to attract shipping lines and offer efficient services with good facilities. The rising cost of fuel has also started a chain reaction affecting the increase in costs of other aspects of the business. We as a port operator will strive to provide high quality, efficient services to our customers as part of an ongoing effort to retain and attract existing and new business. The provision of new facilities and equipment is reviewed from time to time. We want to deliver sufficient infrastructure and capacity to serve customers. We will improve our service to give customers the shortest turnaround time and high productivity when they call at Bintulu Port. Tell us something about the upcoming Free Commercial Zone. The government approved the creation of the Free Commercial Zone (FCZ) at Bintulu Port in February 2011 and presently we are awaiting final gazette area approval. We are also in the process of developing the standard operating procedures, documentation regulation and setting up of our FCZ Department. We will implement various initiatives to market the free zone to potential users. The FCZ will widen the services offering to attract customers to consolidate and distribute their cargo through Bintulu Port. In particular, the FCZ will facilitate the implementation of strategic initiatives to grow volume for the container, fertiliser, break-bulk sector and new business opportunities related to the oil and gas industry.

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How will Bintulu Port help the Economic Transformation Programme? The development of a high-quality transport infrastructure will be an extremely important aspect of the country’s economic growth in the coming years. The expansion and development of Malaysian ports to serve various development corridors in the country will be vital, and that is where we can contribute. The Sarawak Corridor of Renewable Energy (SCORE) Development Corridor needs a port to service it, and Bintulu can fulfil that role. In fact, we have always positioned ourselves to serve the SCORE Corridor through the various initiatives that we have identified and undertaken. The development of the port infrastructure will be planned accordingly to serve the anticipated cargo generated by the industries identified within SCORE. For example, Samalaju Port is to serve industries, particularly Samalaju Industrial Park, located some 60km from Bintulu Port. Bintulu Port Holding Berhad has been given the task to build, own and operate the Samalaju Port on some 450 hectares of land earmarked by the state government. The port is expected to be in operation in 2015. Bintulu Port will also facilitate the logistics and cargo movement for SCORE. In conclusion, Bintulu Port will contribute to the success of ETP in Sarawak by providing infrastructure, services and facilities related to logistics and shipping. What are your regional ambitions, and what could the regional ambitions of the country become? I think that Malaysia can certainly become a major regional transportation hub. PTP has successfully attracted major giant shipping lines to call there and their facilities and services are ultra-modern and comparable to, if not better than, PSA. Port Klang has been designated as the National Load Centre and the operator has managed to attract a huge volume of trans-shipment containers from Indonesia, Thailand and all the way from the Indian Subcontinent. Major ports such as Penang and Kuantan have increased their operational capacities and are on the verge of expansion to provide better and more efficient services to their customers. The Malaysian port operators are clearly seriousness about attracting cargo as can be seen by their supply-driven approach to providing terminal facilities and services. In the specifically East Malaysian context, Bintulu Port is positioning itself to become the load centre for this region. We are confident we can become the load centre for East Malaysia due to our modern facilities, our wide range of port services, our excellent customer-oriented services, and our intensive shipping connectivity. Currently, 40% of our container throughput is trans-shipment containers which originated from Sabah, Sarawak, Kalimantan and Brunei. All in all, Malaysia is very well positioned to become a regional transportation hub in terms of the sea traffic through its ports.

transport & logistics interview

BJARNE FOLDAGER MAERSK LINE

Managing Director, Malaysia, Singapore and Brunei

I was born and bred in Denmark, and educated there. I have had the opportunity to work for more than 20 years in the transport industry for the same company, AP Moller — Maersk. For the past couple of years I have worked in the part of company called Maersk Line, specifically focusing on container transport. During the past 20 years I have gained experience in different parts of the shipping industry, such as tankers, chemicals and natural gas, ship management, global lease agreements, fleet management, chartering of container ships and operations. Apart from experiencing different parts of the business, I have also worked extensively in several countries. I worked in New York and then in Singapore for almost two years. My current role is to look after Maersk Line’s business for Malaysia, Singapore and Brunei. I took over as Managing Director in Malaysia in January 2011, so I am relatively new to the job and the region. I didn’t expect to be with the company for such a long time when I first started, but I am happy that I have been. It has definitely been a great learning experience so far! MOTIVATION

I can look myself in the mirror in the morning before I go to work, and I know we are doing something good. I am motivated if I think I have made a difference, that what I do has an impact and means something to somebody.

LESSONS IN BUSINESS

If you take your foot away from the pedal just for a very short period of time you realise that people are overtaking you. I came across this quote the other day that I like, and I think there is a lot of truth in it. It says, ‘If you think you have everything under control, then you are simply not changing fast enough.’

INternational investor: Maersk has made significant changes to the way it operates recently. Can you outline them for us? BJARNE FOLDAGER: In 2005 we acquired one of our big competitors, P&O Nedlloyd, which is one of the largest container lines in the world. We were merging the two organisations, and we experienced some pains in that integration. The integration itself went relatively well, but with the size of the company that we created, we realised that our systems and structures were not suitable for such a big company. We had the blessing of getting into some operational distress ahead of September 2008, so we began our road to competitiveness and already started to look at how our structure was organised back in 2007. I think we felt that when the crisis hit in September 2008, we probably had a head start on our competition. As part of that we decided to create a cluster which comprised Singapore, Malaysia and Brunei. It was also part of the reason why we recovered relatively quickly compared with our competitors back in 2010. Is Maersk managing to grow the business in these difficult times? I think we have had some success in using our strengths after the streamlining process to go out and show customers and the market that we are ready to grow, and to see if we can help our customers to grow. We have actually succeeded in taking some market share over the past year. The way we have done it is not necessarily through going out with aggressive pricing and undercutting the market. It is more focusing on what our differentiators are in the marketplace. We have zoomed in on three differentiators that have helped us in that process to gain some market share. The first of the differentiators is we want to be easy to do business with. The shipping industry is still, to some extent, old-fashioned. However, we have an ambition that booking a container ship should be as easy as buying a book from amazon.

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interview transport & logistics

“

Malaysia

is right between two of the biggest markets, India and China, but also on the main trade lanes going to Africa, Europe, the United States and Latin America. There is a need to develop the ports because container traffic is increasing fast, and I expect it will continue to grow

”

The second part is reliability. We want to be the most reliable container transport company in the world. Our target is to have a minimum of 95% of all containers arriving on time, which means on the day that we have told the customer it will arrive. Only about 50% of containers arrive on time across the whole of the container industry today. We think we can do significantly better than that with our newly launched Daily Maersk, Maersk Line’s new service on the Asia–North Europe trade lane which will dramatically change the way shipping is done. It offers a daily cut-off at the same time every day, seven days a week, and always with the exact same transportation time. Containerised cargo will now be delivered with unprecedented frequency and reliability. Our figures for Malaysia are 83% arriving on time, so although we are well ahead of our competitors, we have room for improvement. The third differentiating factor is our environmental performance. We want to have a better performance than the industry average. The key measurement is the CO2 emissions per container transported. Shipping has to be part of solving the CO2 challenge globally. We can also see that it is our customers who are demanding increasing transparency in CO2 emissions across our supply chain. We are quite an important part of our customers’ supply chain — for some of the big multinational companies — and we work very closely with them in establishing where the CO2 is in their supply chain. You have been in the post here in Malaysia for about a year now. What have you learned so far, and what challenges have you identified? Government policies such as the Economic Transformation Programme are bringing a lot of opportunities for companies like ours. I would identify two main challenges: first, the availability of talent. How do we develop the talent of the people in Malaysia, and how do we retain them once they are educated? In our business it is difficult to find good people and keep them. My impression is that many people don’t return to Malaysia after they go abroad. It is extremely valuable that people go abroad for studies, but it would be even more valuable if people came back and used the knowledge that they have obtained overseas. The other challenge is very particular to our industry. It is to do with infrastructure development. My observation of the various aspects of physical infrastructure in Malaysia is that there is a great deal of excellent infrastructure, but it is not always connected together well. There are good airports, some fantastic seaports, the roads are some of the most developed in the whole of Southeast Asia, but there is often a lack of integration. I think what Malaysia would benefit from doing is to carry out an integrated project and say, ‘We have the Economic Transformation Programme. Now, we

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know it is going to increase consumption and, thereby, it is also going to increase transportation needs. So how do we develop that infrastructure to cater for that over the next five, ten or 12 years?’ How do you see this market developing in terms of the growth of container traffic within the region? Malaysia is quite strategically positioned, right in the centre of Southeast Asia. It is right between two of the biggest markets, India and China, but also on the main trade lanes going to Africa, Europe, the United States and Latin America. That is a pretty good geographical position. There is a need to develop the ports because container traffic is increasing fast, and I expect it will continue to grow. Perhaps it is not going to be steady at 8, 9 or 10% every year, but some years the container traffic may increase by 15% and some years by 5%. I think Port of Tanjung Pelepas and Port Klang will continue to develop and expand. From the meetings I have had with the management of the ports at Penang and Kuantan, I understand they also have quite interesting development plans. Hopefully, they will succeed with them and continue to grow the seaports in Malaysia. I understand the Asia-Africa trade is increasingly important to you, as is the Malaysian commodity business. Can you tell us a more about how you are developing in these areas? The commodities area from Malaysia to Africa has been quite a success story for Malaysia. The export of particular commodities such as palm oil to Africa has seen tremendous growth here with the increased palm oil price. The African market is a strategic focus for Maersk, not only in Malaysia but also for other countries in Asia. We have ordered special vessels that are specially built for the trade between Asia and Africa. The first ships have been delivered already last year, and they are the biggest ships that can call on the ports in West Africa at the moment. We are trying to lift that trade to a completely new level, so we can give a better service to our customers with direct calls, and the right products available from Malaysia to, among others, West African ports. Does Maersk have a role in the Economic Transformation Programme? I hope we can play a role as a facilitator of economic growth in the country. Due to the nature of our business, Maersk Line will not be building any factories or making any big investments here, but we can facilitate economic development by contributing to international trade. With our global network of services, we can also facilitate imports and exports. We can also transport what is needed to establish some of the industrial parks focused on developing service industries.

transport & logistics interview

MICHAEL TIO PKT LOGISTICS GROUP

Group Chief Executive and Managing Director

I was educated up to secondary level in Malaysia, and then went to the UK to study — first at Macclesfield College, in Cheshire, then at the University of Hull. While I was in the UK I began trading in used cars; buying them in the UK and shipping them to Malaysia at a profit. It was a valuable period in terms of teaching me a lot about business and, equally importantly, logistics. Shipping cars half way around the world takes a lot of skill and concentration. I was only 19 so it was a steep learning curve indeed. I found myself travelling all across Britain, sometimes 500 kilometres just to get one car. I seemed to spend most of my time travelling. After Hull, I moved to London to study for a masters degree at the University of Reading, where I continued my car dealing business. For the next four years I divided my time between Malaysia and the UK, still dealing in secondhand cars. In 1996 my father asked me to return home to work in the family business — it was like doing my National Service! It was a good time to leave because the used car market was becoming saturated. At the time, the family business was solely involved in customs brokerage. When I joined I began to look at the logistics side of things. I spent two years just re-organising the business, because in order to do logistics well, you need a lot of different divisions which we didn’t have: tracking, warehousing, freight forwarding and so forth. Over the years we have become heavily involved in the automotive logistics business. I have been with the company ever since. MOTIVATION

LESSONS IN BUSINESS

Growing the business and creating a happy team. Money is important to get a person to work, but if they work in an atmosphere where they are not happy there is no point in being at work. Seeing your work as purposeful, but also enjoyable, is a bit motivator. Integrity is everything. You must walk the talk; you cannot promise something to someone if you cannot do it. You can lie to people once, but you cannot lie to them forever, so I always keep to my word and say that when we tell people that we will do it, we do it.

INternational investor: Can you give us an outline of the company? michael tio: We have grown very quickly in the past 15 years since I returned from the UK. Our turnover in 1996 was about 3 million ringgit; just over a decade later it was around 200 million. That was the first period of growth for us. In that time, we had become almost entirely focussed on automotive logistics. By then we were at about 95% automotive, 5% other things. I realised that was too imbalanced, but given the significant automotive contracts we had secured — Hyundai and Kia — it became inevitable. So today we do a lot of business with Korea. We have diversified somewhat since 2007, winning contracts with first-tier vendors in the automotive industry so that we are not so heavily dependent on the fortunes of the Korean car industry. In addition, on the back of our success with the Koreans, we won contracts with BMW, Peugeot, Skoda and Taichung. Recently, we secured Volvo and the Chinese manufacturer ChangAn. As we speak, we are the only company in Malaysia that has this sort of extensive structure in the automotive logistics business. What is your growth strategy? It’s quite straightforward in one way. I want us to become a billion ringgit company. I first planned to achieve that by 2013, but the global economic turbulence has got in our way somewhat, so I’ve put our target back to 2015. The market is out there, we just need to get hold of it. My growth strategy in this market is, of course, that we introduce new, preferably high-value, products every year. We have a vision, called Vision 60/40, which is to diversify our revenue in the near term so that 60% is auto, and 40% non-auto. The non-auto aspect will be based on the fast-moving consumer goods (FMCG) sector, solar energy logistics and freight management

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interview transport & logistics

“

What is your

growth strategy? It’s quite straightforward. I want us to become a billion ringgit company

”

for our customers. We are also partnering a ports company to provide logistics services there. That is not an exhaustive list of where we are going, but it gives an idea of how much we want to move forward and diversify.

advanced warehouse management system. We are also in the process of attracting a number of talented people back to Malaysia to work for us. Apart from anything else, we are offering them good salaries.

how to work with the etp How do you see business for logistics growing in Malaysia under the upcoming Economic Transformation Programme? In terms of PKT, our development plans mesh together with the government’s plans for the whole industry. Like us, the designers of the ETP want the industry to move towards high-value, high-income work. That is clearly where the industry and country as a whole must go. An example of that is a new venture we have started in green technology. We call it Energy Logistics. It is mainly concentrated on the logistics of the solar energy business, which is becoming an increasingly significant part of the energy market in Malaysia. At the moment, the solar energy business is still seen as part of the overall energy sector — oil, gas and solar. However, I think it will become much bigger and will be seen as a separate business, much like automotive today. I can foresee a time when Malaysia is the second most important manufacturer of solar panels in the world after China or Germany, and I want PKT to be right there from the start. As I have outlined, the FMCG market is going to become increasingly important for us as well. It is a three billion ringgit business, but most of it is carried out by foreign multinationals; there is very little in the way of domestic logistics serving the market. Again, I think that PKT could become a significant player in the area of FMCG. If we capture 15% of that three billion ringgit market, added to our existing automotive work, we will have achieved our billion-ringgit-company target. As I mentioned, in the end I would like us to balance out at 60% automotive, 40% FMCG and other goods.

Do you position PKT as a green logistics provider? Certainly. Our new factories are built along green lines. For example, we recycle the water and use natural lighting and ventilation where possible. We focus very carefully on our overall energy usage. I foresee the day when all logistics companies in Malaysia will have to be ‘green certified’, otherwise you won’t get the business; not least from Europe and America where environmental issues are increasingly important to multinationals. It will work to our advantage as well, though. If we use a lot of energy, we will end up costing our customers more. By going green we can become more efficient. We want to improve our efficiency in all sorts of areas, in fact. Our newest warehouse is FM Global Compliance, for example. FM means Factory Mutual, which is an insurance company that gives out certification for fire safety. We have probably the safest facility in Malaysia today, with sprinklers on every rack, high-standard fire-proof materials and so on. What does that mean in terms of efficiency? It means the insurance premiums for our customers are lower. So the fact that we have achieved FM Compliance is now saving them money directly. We constantly want to think in terms of these advancements in efficiency and customer service.

What are the challenges involved in achieving all this? Investment. Historically, the domestic logistics companies have not invested enough. We all need to be putting more money into infrastructure, ITC and manpower. We need to take proactive steps to entice expatriate Malaysians back from Hong Kong, Singapore and elsewhere, to work in the industry back home and really strengthen it. I decided that since PKT is already profitable in the automotive industry and we want to penetrate the FMCG market, that’s what we’re going to do: invest. Heavily. For example, we have recently signed a deal with the Singaporean company ECnet to get an

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expansion is the way forward PKT aims to be a regional global player in the total logistics multi-global transport solutions industry. Tell us about your growth strategy, your targets and market share. One aspect of our future is definitely to expand our business further throughout the Southeast Asian region. I think we are already on that path. We are getting increasingly involved in ports logistics, for instance. That positions us well for regional expansion. In addition, our bedrock abilities are ready. We have the full spectrum of logistics services in place; we have huge economies of scale, moving about 60,000 TUs of containers each year to all ASEAN countries, for example. As part of our automotive business, we have what we call our ASEAN 30 vision, where we hope to have 30% of our auto business coming from ASEAN countries. We already have automotive business interests in Indonesia, Thailand, Vietnam and Taiwan. We move containers from Korea to the whole of Southeast Asia, from India to the whole of Southeast Asia and then from Europe to the whole of Southeast Asia. It’s the way forward for us.

transport & logistics interview

SHAHRIL MOKHTAR SYARIKAT PRASARANA

Group Managing Director

I started my career in 1984 with a job at Maybank for four years. I left to take up a position at PricewaterhouseCoopers; I worked there for two years on the consulting side, which gave me invaluable experience in a different area to the financial services industry. The next move came in 1990, when I went to work for British American Tobacco. I had a very short stay with British American Tobacco, because after about eight months I was asked by the government to go into Malaysia Airlines to help restructure the airline. That was a big stepping-stone for me: I really learned how to restructure a business. That was where my journey into the world of public transport really started. I was there for four years under the parent company, Penerbangan Malaysia Berhad, and then I moved to RapidKL in 2006. After four years in RapidKL, during which I learned about how public transport works in detail, I was seconded to the Ministry of Transport to help the government develop its plans for the overall system. I was attached to the Economic Planning Unit (EPU) for five months to help set up the Land Public Transport Commission. Once it was up and running, I was asked to join Prasarana, to become the Group Managing Director. MOTIVATION

LESSONS IN BUSINESS

To make Prasarana a world-class organisation. People may laugh at the idea of a public transport company being world class, but if Malaysia Airlines can do it, why can’t we? That motives me. Always be forward planning; always try and be far-sighted; always be focused on your customers’ needs and desires. Finally, pay attention to the human capital you have within your organisation, the ordinary workers: they are the people who get the job done for you.

INternational investor: How would you best describe the way Prasarana is today? SHAHRIL MOKHTAR: Syarikat Prasarana Berhad or in short, Prasarana, is 100% owned by the Malaysian Ministry of Finance. It was set up in 1998 to build up the public transport infrastructure of the country. We facilitate, undertake and expedite the public transport infrastructure projects approved by the government. We have various subsidiaries. We have RapidKL, which runs the Ampang LRT line, Kelana Jaya LRT line, and also RapidKL bus. We have about 5,000 employees in Klang Valley. On top of that, we have another subsidiary called KL Star Rail which runs the monorail in Kuala Lumpur. We have about 350 buses running in the north, in Penang. Last but not least — this is not really public transport; it just landed in our lap! — we now run the cable car in Langkawi Island. These are the major subsidiaries that we have, and soon we will have MRT, which we expect to be in operation in about five years’ time. Prasarana is undergoing a profound period of transition. Can you outline for us what this will mean for the organisation? When I took over the organisation, I believed that this company needed to be transformed. We had been much too dependent on government grants to stay financially sustainable. That cannot be the way for us to move forward. We must develop alternative revenue streams. In general, we want to move towards a more proactive way of conducting our business. We want to import more business discipline to our work. What does that mean? It means, as well as developing these other revenue streams, becoming much more thoughtful about the needs of our customers, the ordinary users of the transport network. Sometimes, let’s be honest, people look down on public transport. Yet in the end, I want people to look at Prasarana in the same way they look at the airline industry. A business that provides high quality transport

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“

We cannot

develop if we only ever rely on revenues from fares and government subsidies. We need to look elsewhere. We have, as it happens, potential revenue areas that we can exploit

”

solutions to the public. I would add one other thing though: we cannot develop if we only ever rely on revenues from fares and government subsidies. We need to look elsewhere. We have, as it happens, potential revenue areas that we can exploit. Do you mean the extensive land banks that you hold? Yes, but we will also be looking at other revenue opportunities such as advertising and working with telecoms companies. At the moment, we do indeed own significant land banks, in particular along our LRT lines. What we intend to do is either develop these on our own, or as part of joint ventures with other property companies. Any revenues we get we will plough back into the operations of the company. The same goes for our advertising plans and our interest in working with telcos. Obviously, advertisers can place their ads on our infrastructure, and that will bring us in a significant revenue stream. Equally, we are talking to telecoms companies with a view to placing their systems within our infrastructure. We could be a ‘wired up’ transport network within a very few years, providing a great service for our customers. mrt: backbone of the etp? Tell us about the Mass Rapid Transit development. It is obviously a big project for you. Prasarana handed over the project to a separate company, MRT Co, in late 2011. We will be the operator of the system when it comes into service through a subsidiary. That should begin in 2017. The first line, Sungai Buloh to Kajang, is going to be 51 kilometres long, with 42 kilometres of elevated track and 9.5km underground. It will have 31 stations: 24 elevated and seven underground. The Land Public Transport Commission is the supervising agency, and MMC Gamuda has been appointed by the government to become the project delivery partner to work with us to deliver the project. It will provide substantial connectivity between economic and social areas and is set to become one of the Economic Entry Projects for the government’s Economic Transformation Programme. You might be wondering with this line whether it will be integrated with other modes of transportation. It will indeed be integrated with Kelana Jaya LRT line and KTM Komuter, at KL Sentral, and also Pasar Seni stations. They will also be integrated with Ampang LRT line at Maluri Station, and last but not least, with monorail at Bukit Bintang station. It is going to be a fully integrated rail system. We expect the MRT line to be the backbone of the railway network in the whole Klang Valley. We expect to be providing 130,000 jobs during the construction phase and to contribute between 3-4 billion ringgits to the country’s GNI per annum. So it will be a big contribution to the country’s economic

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transformation. If there was an iconic project which has ETP stamped all over it, then it is the MRT. In terms of being an entry-point-project which also has a massive multiplier effect, it stands alone. What’s next? You are heavily involved in the MRT, but is there anything else in the pipeline? There are a few things brewing. One big project we are looking at is extending our two main MRT lines by about 17km each. The current line which you see down there is going to be extended from Kelana Jaya to Putra Heights, which as I say will amount to 17km. Then the Ampang line will, we hope, also be extended by another 17km. We hope this will be completed by 2014, when it will be in revenue service. One thing we have started to do is to install a new automatic fare collection system at our Ampang line. With the integrated ticketing system which uses a new MyRapidPass and tokens for single journeys, LRT commuters would have the comfort of using a single ticket for the entire journey despite needing to change lines. After the integration of the two LRT lines, the programme would continue with the AFC integration of the RapidKL Monorail in the first quarter of 2012 before extending the whole system to cover RapidKL bus services by the second quarter of 2012. the importance of the capital markets You announced an intention to sell five billion Islamic bonds in 2012, to help finance the expansion of the two rail lines we have just talked about. Can you explain why you have gone to the capital markets? We looked at a number of financing options, but decided that going to the capital markets would be the best way of moving forward on our key projects. Of course, we also work closely with the banks and with the government, but we felt there were certain key benefits in going down the capital markets route. First, there is an element of brand building involved in the issue: we want to get our name known as a significant transport organisation. Second, if we want to expand even further, bank, revenue and government financing will not be enough, so it is worth our getting into the capital markets now. Do you have a regional, or even global, ambition? We are certainly looking at the possibility of exporting the expertise we have gained in Malaysia throughout the region if the appropriate projects come up. Of course, my immediate aim is to make things happen in the homeland, but once our big projects are up and running, the idea is to go out into the region. We will have structured a great business within a few years, and there is no reason why we could not leverage that experience into infrastructure projects in other countries. Even outside the Southeast Asian area, who knows?

construction & real estate

overviewâ&#x20AC;&#x192; construction & real estate

Going green Supported by committed government initiatives, green building technologies are expected to be at the heart of the countryâ&#x20AC;&#x2122;s young and growing building market over the coming years â&#x20AC;&#x201D; and Malaysia is keen to add foreign investment and technical expertise to the mix

In 2010, Frost & Sullivan, a business research and consulting firm analysed that the market size for building construction and engineering in Malaysia reached US$4.226 billion, a marginal increase over the poor performance in 2009. The building construction and engineering market includes construction services (design and architecture), building materials (raw materials for buildings, mechanical and electrical equipment) and building management services (building automation management and facilities management). It is expected that the overall construction market will be elevated in growth with the current 10th Malaysia Plan (2011-2015), whereby development expenditure by the government is expected to be close to US$67.8 billion. More participation is anticipated from the private sector and investors in public projects such as the construction and management of schools, hospitals and other community infrastructure. Opportunities in Building Technologies Market Size of Building Construction and Engineering The market size for building construction and engineering in Malaysia is likely to grow at a compound annual growth rate (CAGR) of 6% to reach US$7.341 billion by 2020 (see fig.1). In 2010, non-residential buildings such as commercial buildings, government buildings and industrial buildings accounted for about 48.7% of the total building construction and engineering market. Residential buildings that include single dwellings and multi dwellings claimed the remaining 51.3% of market share (see fig.2). Frost & Sullivan finds that the residential building segment is likely to remain dominant over the non-residential segment until 2020. Frost & Sullivan estimates that 25 to 30% of the total Malaysian building construction and engineering market is accounted for by green elements in 2010; US$1.056 billion to US$1.276

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construction & real estateâ&#x20AC;&#x192; overview

billion is the estimated market size for green building construction and engineering. By 2020, Malaysia aims for 70% of the total market to be accounted for by green construction services, green materials, plus building management and solutions that promote environmental sustainability. Driving Forces Socio-economic growth in Malaysia is a direct catalyst for the growth of the building construction and engineering market. Under the Economic Transformation Programme (ETP), sustainable economic development and growth is strategised. The underlying mission of ETP is to boost economic growth in Malaysia and this is supported by changing demographics such as an annual population growth of about 2%, migration and urbanisation. This dynamism is resulting in the need for expansion of residential buildings as well as business and commercial zones. In addition, the ETP is expected to foster growth in the tourism and healthcare markets in Malaysia. Multi-millions of dollars of tourism projects are likely to be implemented in the countryâ&#x20AC;&#x2122;s tourist hotspots such as Langkawi and Sabah. Apart from the promotion of eco-tourism and agro-tourism that warrant the construction of new buildings such as hotels, resorts and other relevant facilities, healthcare tourism is also on the rise in Malaysia. The demand for new and refurbished hospitals is essential for this purpose. The conceptualisation of green buildings is anticipated to be the backbone of Malaysiaâ&#x20AC;&#x2122;s building construction and engineering activities in forthcoming years. Energy efficiency has been a concern for building professionals, especially when considering rising energy costs, and there are existing fundamental guidelines to address energy usage in buildings that have been around for the past decade or more. Recently, socio-economic awareness has focused on the importance of sustainable building, especially among academic and professional associations, with

the launch of the new green building tool called the Green Building Index (GBI). The government has also issued a strong sign of commitment to the green sector through offered incentives such as the Green Technology Financing Scheme (GTFS) which is also a key driver for green building sector expansion. In the 2010 budget announcement by the government, tax incentives for buildings with GBI certificates was introduced. GBI tax incentive, stamp duty exemption and US$467 million funding under the National Green Technology Fund are among the key factors driving the green building segment and the advancement of the building construction market in Malaysia. Market Trends Overview of Opportunities Although considered a young market, the Malaysian building construction market is often expressed as a highly competitive one. Most leading contractors, architects, building material suppliers and other major building services providers are headquartered in and around Klang Valley, the centre of economic activity in Malaysia. The market is led by publiclisted and local contractors and developers, and these companies are aggressively expanding their businesses outside Kuala Lumpur and the Klang Valley, and in international markets. Foreign participation is encouraged via partnerships in areas where local expertise may be scarce, such as technologies in green building and prefabrication practice. With the introduction and launch of GBI, Malaysia is now on the green roadmap, with streamlined assessment of environmental impacts of buildings in the future. Additionally, there is likely to be provisions for updated guidelines for new building construction. Further development on GBI is also foreseen to take place in forthcoming years and this augers well for green technologists in the fields of energy efficiency, indoor environment quality, site management, materials and water efficiency.

By 2020, Malaysia aims for 70% of the total market to be accounted for by green construction services, green materials, plus building management and solutions that promote environmental sustainability

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51.3% 0

overview construction & real estate

Non-residential Buildings

Residential Buildings Source: Frost & Sullivan

Green Technologies Adoption As per the New Economic Model (NEM) announced in 2010, Malaysia aspires to be a leader in the Green Revolution. The building industry is identified as one of the key sectors to embrace leadership roles in green technology development and adoption. Frost & Sullivan has identified a few key areas within the building technologies sector that are likely to be the main focus areas for investment and business opportunities with regards to green technologies adoption and practices. ■ Green Design Principles — Architects and engineers involved in the construction of build-up areas of more than 4,000 square metres may need to comply with green design principles.

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Market Size ($ Million)

1. EVOLUTION OF BUILDING CONSTRUCTION AND ENGINEERING MARKETS IN MALAYSIA, 2010-2020 8000 7000 6000 5000 4000 3000 2000 1000 0

Building Management Building Materials Building Construction Services

2010

2011

Source: Frost & Sullivan

2. MARKET SHARE OF BUILDING CONSTRUCTION AND ENGINEERING MARKET IN MALAYSIA BY BUILDING SEGMENT, 2010 48.7% 51.3% 0

Non-residential Buildings

Residential Buildings Source: Frost & Sullivan

■ Water Efficiency in Buildings — Water efficient 1. EVOLUTION OF BUILDING CONSTRUCTION AND products and MARKETS technologies to be 2010-2020 used in both new ENGINEERING IN MALAYSIA, and old buildings to reduce the ecological impact of 8000 water scarcity and wastage. 7000 ■ Building Management Systems — This involves 6000 the 5000 adoption of management systems in buildings Building Management 4000 Building Materials for energy savings in accordance with the Malaysian Building Construction Services 3000 Standards (MS). 2000 1000 ■ Renewable Energy Components — The 0 2010 2011of cost-effective and reliable increased adoption Source: Frost & Sullivan renewable energy technologies is anticipated, such as solar panels. ■ Energy Efficient Equipment — This includes green lighting products (such as LED), energy-saving HVAC systems and their equipment control systems. Market Size ($ Million)

The building industry is identified as one of the key sectors to embrace leadership roles in green technology development and adoption

The value chain of building construction and engineering is teamed up by hosts of technology and service providers, from contractors and architects to equipment suppliers and building management experts. The booming building activities have positive effects on supporting building markets such as facilities management (FM), lighting, building automation systems (BAS), and heating, ventilation and air conditioning (HVAC). The FM market in Malaysia registered a growth of 15% in market size in 2010. This is attributed to the increasing awareness of the benefits of FM among building owners. Most of the demand comes from the non-residential sector, accounting for about 60% of total demand. The FM market is gradually evolving into Integrated Facilities Management (IFM), and the market is currently dominated by foreign IFM providers. However, this trend is changing with increasing numbers of local participants in Malaysia. As smart buildings are gradually gaining importance and popularity in the building construction market, this creates potential for growth in the Malaysian BAS market. While the market is witnessing an increase in contributions by BAS suppliers, it is currently dominated by international system integrators. With further proliferation of smart or intelligent buildings, and national energy savings campaigns, the BAS market is likely to see more opportunities. It is inevitable that the adoption of green practices in modern buildings will spur the growth of energyefficient lighting and HVAC. Besides private initiatives in Malaysia, government agencies are increasingly relying on energy-efficient lighting fixtures such as fluorescent fittings (T5), light emitting diode (LED) fittings and metal halide floodlights. The demand for HVAC systems is consistently encouraging from both new construction and retrofit projects of buildings. The energy-efficiency principle is currently being applied in modern air conditioning units, with more improvements to be anticipated by both end-users and technology providers.

Regulatory and Institutional Set-up Some of the key set-ups relevant to the building construction and engineering market in Malaysia are briefly described as follows. ■ Department of Public Works (JKR) — JKR is the technical arm of the Ministry of Public Works tasked with ensuring all government construction projects are built with the highest quality and oversees the cost and technical details of each project. JKR also oversees all construction projects from the private sector to ensure compliance with construction specifications. ■ Construction Industry Development Board (CIDB) — CIDB is the advisory board of the federal government on all issues regarding the construction industry. It provides the strategies and mechanism for the development of the industry and conducts research and development of the construction industry. It also provides the guidelines for use in construction activities. ■ Malaysian Institute of Architects (PAM) — Its main

construction & real estate overview

Strengths

weaknesses

■ Government

■ Too many parties involved — Stakeholders are confused about the agencies, ministries or other relevant authorities involved in green initiatives in the buildings sector ■ Insufficient skilled workforce — More architects and engineers are needed to meet future demand ■ Lack of construction integration experts — There is a need for single solution providers in the space of advanced green technologies for buildings, as opposed to multiple market participants in building construction and engineering markets

support — Continuous government support to implement green initiatives such as the launch of the Green Building Index (GBI) ■ Growing building market — Compared to many other countries in Asia Pacific, Malaysia has a relatively young market age in building construction ■ Existing infrastructure — The country has quality supporting infrastructure such as logistics, transportation and information technology (IT) in the development of engineering and building technologies such as green building applications

opportunities ■ Green building materials — There is a strong presence

of local companies supplying technologically advanced building construction materials and equipment ■ Green services — The capabilities of contractors and property developers in green adoption can be further enhanced

function is to promote the study and practice of architecture in Malaysia. PAM’s main activities include training for member architects in its aim to improve the quality and skills of local architects with current building trends and development. ■ Green Building Index Sdn Bhd (GBI Organisation) — Green Building Index Sdn Bhd was incorporated as a wholly-owned subsidiary of PAM and the Association of Certified Engineers (ACEM) to administrate GBI accreditation and training of GBI facilitators and certifiers in Malaysia. ■ Construction Industry Master Plan 2006-2015 — The CIMP is a comprehensive plan, charting the strategic position and future direction of the Malaysian construction industry for a period of years. It was developed through a joint roundtable among leaders of organisations and companies directly involved in the building industry. ■ MS1525:2007 Code of Practice — This is referred to for the purpose of designing energy-efficient buildings that may include the application of renewable energy in new and existing non-residential buildings. Other Challenges and Success Factors Most investors and stakeholders in the building construction and engineering market are emphasising that construction of new buildings be green in Malaysia, but the focus on existing buildings is somewhat low. True potential of the market may not be fully tapped because existing or older buildings are perceived as difficult to be retrofit with green features and may not be truly compliant for GBI certification. Unless a clear and strong mechanism to promote the greening of older buildings is introduced, the potential for

threats ■ Non-standardised rating tool — Nationwide adoption of GBI is not apparent, and subject to various interpretations by companies and building owners ■ Economic recession — The market echoes strongly to the overall economic condition of the country, and it is among the first to be affected in every economic recession

green building construction may remain untapped. Investors with the best solutions for this challenge will likely create a major breakthrough in the market. Technology advancements in construction methodology, planning and equipment used need more support due to lack of financial readiness or technology know-how. Therefore, Malaysia welcomes foreign investments and contributions on this matter. In comparison with construction companies from developed countries such as South Korea, Japan and Germany, local players may lack the capacity to provide total solutions, including financing packages and state-of-art equipment. Hence, partnerships with foreign experts are common, and investors with niche solutions and innovation have the competitive edge. Concluding Remarks Sustainable building is a relatively new concept in Malaysia and it will take some time before significant results can be accounted. This creates a vast space for investors to focus on their businesses in selected areas. In terms of energy consumption, this is a key factor in the success of carbon emission reductions in the building sector. Nonetheless, this is very much dependent on available technologies such as advanced lighting and building insulation which are usually costly in comparison with conventional equipment. The future of the building construction and engineering market is likely to be propelled with a proper structure of tax incentives and reliefs, reduced or elimination of tariff on imported green building materials, technology shifts and transfers, greater applications on renewable energy sources in buildings, and construction of green townships.

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A.K. Nathan EVERSENDAI CORPORATION Group Managing Director

I ventured into construction by chance. I am not an engineer. I was educated in India up to pre-university level, but due to financial constraints I discontinued my studies. Upon my return to Malaysia, I joined a printing firm to work as an assistant printer with the intention of establishing my own printing press, as I had the desire to be an entrepreneur. However, when someone suggested I should move into sales, I jumped at the chance. I joined an insurance firm as a salesman and worked there for a couple of years. In 1982, I had the opportunity to work on the Dayabumi project — executing temporary structural steel platform works. I realised then that structural steel construction was for me and I eventually formed Eversendai in 1984. Today, we have about 7,000 employees on the payroll and we have executed projects in Malaysia, Singapore, the Philippines, Hong Kong, Thailand, Indonesia, India and in the Gulf region. In the Gulf, our base is in Dubai and we have done work in Abu Dhabi, Oman, Qatar, Saudi Arabia and Bahrain. These are the countries where we have spread our wings. At present, the main head office is in Kuala Lumpur. In the beginning, I learned the trade hands-on from my staff and Japanese clients’ staff during the course of executing the given projects. This is where I acquired the knowledge and the expertise to develop my company from scratch. MOTIVATION

My biggest motivations are my staff and living up to my commitments to my clients — that is what drives the business forward. Some of my staff have been with me for 25 years and we are very much a family with a unique work culture. I would also say that I am not motivated by money but I am very much motivated by achievement.

LESSONS IN BUSINESS

Avoid making silly mistakes. Do not undertake work at a very tight price when in desperate situations and do not take on projects for clients who do not fulfil their obligation in terms of payment. That is the most important lesson one has to learn: pick the right project and the right client who will pay.

INternational investor: Could you give us a brief overview of Eversendai? A.K. NATHAN: Eversendai is an established international contractor executing structural steel and connecting design, engineering, fabrication and erection works with innovative construction methodology for highly complex structures. We have fabrication plants in Malaysia, Dubai, Sharjah, Qatar and India, which is under construction. We execute mechanical erection works for power plant and concrete structures for high-rise buildings. Eversendai always delivers its projects on time without compromising on safety and quality. Our first major project was in 1983 when we built the Proton Saga factory in Malaysia. We are one of the beneficiaries of the Malaysian ‘Look East’ policy, where in the early 1980s there were quite a number of Japanese companies encouraged to come to Malaysia. While working with the Nippon Steel Corporation, I was able to incorporate the Japanese work culture. I was so amazed with their attitude and the way they go about doing work, I have incorporated it a lot. There are three things which I learned while working with them. The first is not to compromise on safety. The second is not to compromise on the quality of workmanship. The third is always getting the job done on time, and keep up with the commitment. Right from the inception of Eversendai, I have always emphasised to my staff, day in and day out, those three philosophies. That has helped to develop and grow the company. For the past 27 years, I have never delayed a single project. All of the jobs have been completed on time, sometimes even ahead of time, because I always emphasise safety, quality and on-time completion. Can you tell us about the activities of Eversendai outside of Malaysia? We have done very well internationally. In fact, I have never had to go around knocking on doors

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construction & real estate interview

to get work; we have always been approached. I think our reputation for getting projects done on time has recommended us to clients. Once we have completed a project within a country, we stay put if it seems like there are interesting future projects there. There are countries where we have ventured where we have not continued to do business, such as the Philippines, Hong Kong, Thailand and Indonesia, because I did not see much future in those places. Going to Dubai I would say was a big turning point in my life. We executed the Burj Al Arab Hotel way back in 1996, which is a wonderful project, a highly complex structure. After completing the job, we were able to embark on the Emirates Towers and when the Dubai construction boom took off, we rode the wave. business beyond malaysia’s borders If it is possible to divide it up, how large is your domestic business and how large is your international market? Malaysia contributes about 5% of the overall turnover, so it is a very small percentage. Eversendai’s major contribution is from work in the Gulf, although India is now slowly picking up. We get about 10% of our turnover from Indian projects. However, I still consider the Gulf region to be our main market. It makes a much bigger contribution in terms of turnover and profit than elsewhere. You recently won 371 million ringgit worth of contracts for projects in India and the Middle East. Can you tell us about them? There is certainly a lot of opportunity for growth in those markets. At present, our concentration is very much on Abu Dhabi, Qatar and Saudi Arabia. We have also recently picked up a job in Oman, at the Salalah Airport, which we have concluded as far as the structural steel is concerned. In Qatar we are working on an Islamic centre. In India, we are working on the Oberoi development, which will be two towers of 80 and 50 stories. We are the structural contractor for Samsung, a company with which we established a relationship way back at the time of the Petronas

I think the ETP is an excellent

programme that Prime Minister Datuk Seri Najib has set in motion. Malaysia needs a boost Towers. Subsequently, we worked with them on the Burj Khalifa. Samsung has now ventured into India and is taking off in a big way — this is its first project. It is because of our long-established relationship and the fact that we have a presence

in India that we are able to combine our efforts together with Samsung to execute this job. One market which is noticeable by its absence is China in all of this. What is your take on China? I do not believe that Eversendai will ever go and work in China. It is a market where one must understand and be able to manage the local Chinese, which I do not think I shall be able to deal with. I would rather work where I can handle it, rather than somewhere where I would have great difficulties. In any case, there are plenty of other markets which provide great opportunities. India is a market that has not yet grown in a big way yet. It is evolving and developing and will take off in time in a very big way, because it needs to expand and develop. India cannot hold back its growth. The middle-class category has grown on a large scale and they need to expand and update their infrastructure. I see a huge amount of growth opportunities in India.

“

There are

three things which I learned from the Japanese: don’t compromise on safety, don’t compromise on the quality of workmanship, and always get the job done on time

”

You recently completed an IPO. What were your reasons behind that move? First let me say that I did not need to list the company, as it was fundamentally very strong, financially very healthy, with a very good asset base which we have created over the past couple of years. So my reason was that I felt it was the right time to take Eversendai to the next level in terms of growth. This year our target is to hit one billion turnover and we shall achieve that. My son and my top staff also have the aspiration to see the company as a listed entity. By being a listed entity, it positions us much better and gives an option to the staff to own stock in the company. It was very well received — seven times over-subscribed in fact. Within five years, my target is to grow Eversendai to be a three billion turnover company. construction’s role in economic progress What does the Economic Transformation Programme mean to you and how will Eversendai contribute to its success? I think the ETP is an excellent programme that Prime Minister Datuk Seri Najib has set in motion. Malaysia needs a boost to revive the overall economics of the country. For our part, construction is a key parameter that is used in measuring the growth of a country. I hope that the ETP will have a major effect on the construction sector, because in the past few years nothing great was happening in that area in Malaysia. So the MRT and the Warisan project, as well as some of the projects that have been mooted by Petronas, will all create a huge amount of opportunity for Eversendai in a big way. With our exposure, experience and expertise, we shall be able to contribute to the overall ETP, I am sure of it.

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JEFFREY NG SUNWAY REIT MANAGEMENT SDN BHD (AS MANAGER OF SUNWAY REAL ESTATE INVESTMENT TRUST)

Executive Director and Chief Executive Officer

I am an accountant by profession with more than 30 years of extensive finance, corporate planning and executive management experience in the property and hospitality businesses. I am currently the Executive Director and CEO of Sunway REIT Management Sdn Bhd. I graduated with a Bachelor of Economics from Monash University, Melbourne, Australia and am a member of the Institute of Chartered Accountants Australia (ICAA) and the Malaysian Institute of Certified Public Accountants (MICPA). I was conferred a Fellowship by the Malaysian Institute of Directors and accorded the ‘Entrepreneur of the Year’ by the Malaysia Australia Business Council (MABC) in 2003. I have also held various executive positions, including President and Patron of the Malaysia Real Estate and Housing Developers Association (REHDA), Chairman of the REHDA Federal Territories (Kuala Lumpur) branch, ViceChairman of MABC, board member of the Construction Industry Development Board (CIDB), Vice-President and Secretary-General of the International Real Estate Federation (FIABCI) Malaysian Chapter. I was also previously VicePresident of the Malaysian Association of Hotel Owners (MAHO), Chapter Chairman of the Young Presidents Organisation (YPO) Malaysia Chapter and the Managing Director of Asia Pacific Land Berhad. MOTIVATION

My greatest motivation in life is to do the best in whatever I do with limited resources, and to leverage on different platforms to help achieve goals that will make a difference to others. I am also motivated to lead my teams to help achieve results collectively. I believe strongly that everyone has their own strengths and it is my role as a leader to leverage on those strengths to help the teams achieve the same goals.

LESSONS IN BUSINESS

I have learnt through various business cycles that you need to be transparent and ethical. In good times you have to be opportunistic. During difficult times, you need to manage the issues through honest communication with stakeholders. When you can overcome the obstacles during challenging times, you will bounce back even stronger and better.

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International investor: When it was issued, the Sunway REIT was the largest IPO in Malaysia to date. Can you describe the Trust for us, and tell us what makes it distinctive? JEFFREY NG: First of all, it is worth pointing out that when we listed Sunway REIT, it had all the attributes needed to appeal to investors, including global institutional investors. When the IPO was announced, potential investors immediately viewed us as the premier Malaysian REIT — and a significant one in the Asian region as a whole. If you look just at 2010, we ended the year as the third-largest REIT listing in the entire Southeast Asia region, while it was still the largest REIT IPO in Malaysia’s corporate history as at 31 January 2012. The listing of the Sunway Real Estate Investment Trust (Sunway REIT) on the Main Market of Bursa Malaysia Securities Berhad on 8 July 2010, with eight of the Sunway City Berhad’s prime assets, marked a historically significant occasion for the Sunway Group and the Malaysia Real Estate Investment Trust (M-REIT), as the listing put M-REIT back on the international investors’ radar. As at 31 January 2012, Sunway REIT dominated the M-REIT market with a total asset value of RM4.45 billion, the largest market capitalisation of RM3.47 billion, and the biggest free float of RM1.51 billion. Sunway REIT’s daily trading volume averaged at 2.3 million units since IPO providing decent liquidity to investors. Sunway REIT is distinctive from the other M-REIT players as it became the first Malaysia REIT to subject its IPO to a price adjustment mechanism; this enabled the trust to acquire properties at a price based on market principles, including demand for units. The green-shoe option that had functioned as a stabilisation mechanism during the first month’s stabilising period was also introduced as a recent practice for large IPO exercises, to avoid distorting the market during listing. The hotel master lease agreements were benchmarked against top regional hospitality

construction & real estate interview

REITs and up to 50% of the management fees are payable in Sunway REIT units, so as to align the interest of the Manager of Sunway REIT with those of other unit-holders. Besides the large asset size and having the largest market capitalisation, investors recognise the merits of Sunway REIT in terms of asset maturity, strategic locations of the assets, quality of the assets, good liquidity and free floats, an experienced board and management team, good corporate governance structures and systems. We managed to have a good start, but more importantly we intend to ride on this positive momentum and drive Sunway REIT to achieve greater heights in the future. Did you intentionally model yourself on those Singapore-based funds? For benchmarking purposes, yes we did. For example we could have designed the Sunway REIT to include just one ‘jewel in the crown’ — the Sunway Pyramid, which was valued at approximately RM2.3 billion at that time. That would probably have made the offer possible to sell to most investors, but we knew we had to include more to enable a more sustainable portfolio in the long run. We decided to build an initial portfolio of eight major assets, bringing the total value up to around RM3.7 billion. We believe this initial portfolio will appeal to even more investors. We want to show the market that we intend to be a serious REIT player in the long run. Are you interested in attracting foreign buyers? We target all types of investors, especially serious long term investors, and of course including foreign investors. We would like to see a broad base of investors that will help add value to our portfolio. We would also like to spread the Sunway REIT story to a wider global market. We are a Malaysian REIT that is focusing on Malaysia in the medium term but would like to tap the global investment market to help us grow the portfolio in the long run. We raised a total of approximately RM1.5 billion cash from the IPO, with RM674 million coming from foreign institutional investors. It is very heartening to see that foreign investors are coming in to the local capital market and we hope to see this trend continue in the future. I think foreign investors are attracted by the fact that Malaysia has proved itself to be relatively insulated from global turbulence in recent times. Please outline your growth strategy for the fund. At present we have a solid range of assets; that is the bedrock of our expansion strategy. Apart from the Sunway Pyramid shopping mall, we have the Sunway Carnival shopping mall, the Sunway Resort Hotel and Spa, the Pyramid Tower Hotel, the Sunway Hotel Seberang Jaya and two office towers in Greater Kuala Lumpur. So you could say we have enough to be going on with!

However, we also have a three-fold growth plan apart from that: growth by acquisition, by organic expansion and by capital management strategies. In terms of acquisition, we have a well-known property developer as sponsor so we have a clear sense of where we might go in terms of new assets from them. We are not only looking at projects from the sponsor’s pipeline assets, though. We will be very aggressive in pursuing anything external that fits into our strategy. That acquisition of external assets will be between half a billion and a billion ringgit. Our balance sheet is healthy enough to sustain that sort of acquisition strategy and we are one of the very few REITs which is able to deal in those high-value assets. We had successfully acquired Sunway Putra Place which was put on public auction on 30 March 2011. It is a free-hold integrated shopping, hotel and office development in Kuala Lumpur with access to four major public transportation hubs. We have since registered Putra Place with the Kuala Lumpur Land Registry on 19 April 2011. That sort of opportunistic buy is consistent with our acquisition growth strategy. Today our portfolio asset base has been enlarged from approximately RM3.7 billion to RM4.5 billion. Our five to seven year plan is to double our asset value to at least RM7 billion; with the recent acquisition of Putra Place, we are moving in the right direction to achieve that target.

“

The dynamic

consumerism story will continue to drive retail sales strongly over the coming years. If you add on a very healthy tourism sector, it makes sense to be a retail focused REIT

”

What sort of asset mix do you envisage settling on? One major decision is that we want to remain focused in retail. Today, about 70% of the Sunway REIT is made up of retail assets. Five years from today we foresee that proportion of retail assets to be at least 60% of the enlarged porfolio. The dynamic consumerism story will continue to drive retail sales strongly over the coming years. If you add on a very healthy tourism sector, it makes sense to be a retail focused REIT. We want potential investors to see our story as not just a strong REIT, but one which will grow organically alongside Malaysia’s overall economic growth and development. In that respect, the government’s Economic Transformation Programme fits right in with our own view of how the country’s economy will develop in the long run. Sunway has a presence in China, India, Australia and other markets. Do you plan any foreign property acquisitions for the Trust? In the medium term we will focus on growing our assets in Malaysia as we still see a lot of opportunities in this growing economy. At present, Sunway REIT has presence in Greater Kuala Lumpur, Ipoh and on the mainland of Penang. We don’t have a presence down south in Johor, we don’t have anything up north in Penang Island, and neither are we present in East Malaysia. So expanding domestically is a primary focus for us in the medium term. Ultimately,

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Sunway Integrated Resort City

“

Improved

transport links that are planned under the Greater Kuala Lumpur Mass Rail Transport programme will help stimulate the growth of the suburbs of Greater Kuala Lumpur. That should mean more property development opportunities

”

we endeavour to have a portfolio that includes properties in all the major cities in the country. We will continue to leverage our skills and network to grow our portfolio locally to an even stronger platform before we explore international assets. Are you looking at commercial space as an investment opportunity? We have strategically planned our portfolio to be retail focused and will continue to do so as we believe that we can add more value to these asset classes. Perhaps we would look at a property which is a special case — a captive market or a mixed use development, say — but other than that, acquisition of stand-alone commercial assets is not a priority for us right now as we continue to grow our portfolio. What was your experience of working with Bursa Malaysia on the issue? They were great. I knew from past experiences that Bursa Malaysia and the Securities Commission will do everything they can to help list entities like Sunway REIT to help boost the capital market in Malaysia. They are focused on what they can do and how they can expedite faster approvals to help facilitate the listing process based on our time frame. It was a positive experience, as the approving authorities are pushing the process along and are effectively saying to you: go out and grow! What sort of effect do you think the government’s Economic Transformation Programme will have on real estate investment? The first thing to notice is that when average incomes double, disposable income will rise as well. As I mentioned earlier, we think that the retail asset class will be enormously important going forward, precisely because of this rise in income levels, in addition to changing lifestyles of the newer generation, improving tourism and acceleration of urbanisation. Things like shopping malls, if properly managed and located in strategic locations, will remain a highly valuable asset class for years to come. The government’s Economic Transformation Programme is very beneficial to all businesses, including our REIT business model.

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The other big change that I think will affect us more immediately will be the expansion of the Greater Kuala Lumpur area. The improved transport links that are planned under the Greater Kuala Lumpur Mass Rail Transport programme, for example, will help stimulate the growth of the suburbs of Greater Kuala Lumpur. That should mean more property development opportunities, including in the all-important retail sector. Suburbs need shopping facilities that will cater to the local catchment area, as well as other external catchment markets if they have some unique selling points, and that may be where we will find new opportunities. We also feel that mixed developments augur well for REIT players who have the successful management track record and capabilities to add value. What sort of investor mix do you envisage having in the future? At the moment, our investor base is predominantly institutional investors which constitute 94% of the total units issued. So our retail investor base is currently relatively small. Going forward, I still foresee Sunway REIT to be more institution focused but we will continuously create awareness and educate retail investors in the long run. Sunway REIT will remain attractive to all types of long term investors who seek steady growth, as we consistently execute our own strategies effectively over time. I expect our current institutional investors to grow together with Sunway REIT and I also expect Sunway REIT to be a highly attractive proposition for new investors who want to share our growth story. We believe we can deliver between 10 and 15% per annum of total return to investors over the long term as we actively manage our portfolio. We aim to deliver distribution growth of at least 5% p.a while capital appreciation in unit price will make up the remaining of the growth target. We have the track record of providing solid financial performance in the overall business to make that a reality, so I think we would remain competitive in comparison to other investments with the similar type of prudent risk profile.

construction & real estate interview

RAYMOND CHAN BOON SIEW SAGAJUTA

Managing Director

I received my schooling in Malaysia, and then went to the US to take a degree in business administration from Western Michigan University. After graduating, I entered the construction industry in 1995. During my 15 years in the industry I have carried out a number of successful projects including the development of Mutiara Idaman, Mutiara Heights and Desa Acacia in Penang; and Ujana Kingfisher Park and Warisan Square, in Kota Kinabalu. The Mutiara Idaman and Mutiara Heights properties alone comprise 2,300 apartment units. The Ujana Kingfisher Park property comprises 548 units of various landed homes. In addition to these residential projects, I noticed that there was a huge need, a demand in fact, for commercial complexes. Most of the existing complexes in Kota Kinabalu at that point were pretty old and tired. They needed some fresh injections of commercial retails. We decide that it would be a great idea to do a one-stop shopping centre. We called it ‘1 Borneo’. Size is important in these developments. You have to make it large so as to stimulate people’s imaginations. The sheer size becomes a ‘pull factor’. In the end, it was 1.5 million square feet. We made sure we had a good range of components in it to enure it would work, including some leading brands. We have four hotels anchoring it, including Novotel which has 263 rooms. We also have the Grand Borneo Hotel which has 338 rooms; Tune Hotel and Courtyard Hotel are there as well. Finally, we are planning to build 1 Borneo Sea World which will be about 30,000 square feet. I am very grateful to have had such success, and equally to have been recognised for it. In 2007, I was given the Outstanding Young Person of 2007 award by the Junior Chamber International Kota Kinabalu. Later, I was honoured with the Outstanding Young Malaysia Award 2008 in the category of Business, Economic and/or Entrepreneurial Accomplishment. Apart from 1 Borneo, I am also heading up the development of 1 Sulaman Kota Kinabalu residential and commercial properties, the soon-to-be-launched 1 Gateway, Klang and 1 Likas Kota Kinabalu. I enjoy my career enormously and love these big challenges. MOTIVATION

The passion to create something. In my case, an iconic development, unheard of in Sabah. I am also motivated by having a challenge. What we are engaged in at the moment is certainly that.

LESSONS IN BUSINESS

You must be hands-on. If you are not hands-on, you cannot drive the business to the next level. It is also vital to learn the skills you need from top to bottom.

INternational investor: Do you have any plans to replicate the Sabah development elsewhere in the region? RAYMOND CHAN BOON SIEW: There is certainly an appetite for this sort of high-quality development elsewhere in the Southeast Asian region. It is something we look at carefully, as we believe we have the capacity and talent to put together really impressive developments wherever they are needed. We have identified some exciting developments in Bangladesh and China, but we keep our eyes peeled for suitable projects wherever they may arise. As with the Sabah development, we would look to build developments in suburban areas and probably not in urban areas. Urban developments require much more work in terms of pre-construction studies and planning. We can do that, of course, but I think there is much more intrinsic value to be created in out-of-town developments. As to Malaysia itself, there are enough traditional-style malls already. What would be the point in us adding to them? People are simply getting more sophisticated, and we try and be as close to their aspirations as possible. That means providing a more sophisticated retail mix than people are used to. The ‘street mall’ concept, for instance, where we try and bring elements of a vibrant, traditional market indoors, is proving hugely popular. How will you be able achieve that in the Malaysian climate? The street mall concept does not mean that it has to be open; it can still be enclosed. You can still have a comfortable shopping experience. You just design the layout and the retail spaces differently. It cannot be too big, though, because then you are back to the mega-mall style which we think is increasingly being seen as old fashioned. Of course, it has to be sizeable enough to attract people. It will probably still have some anchors to pull in the crowd, and it will have to have a strong food and beverage offering as well

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“

Infrastructure

development is going to be a next big step for us. We are in the midst of finalising a gaspowered power plant project. It’s relatively small — just 100 megawatt — but we believe it is a good start for us

”

because people still need to eat and dine. We think carefully about these designs, trying to match them to people’s aspirations and desires as much as possible. the importance of retail links You have been dubbed a white knight, for taking over abandoned projects. We understand that you may have plans to revive more projects, especially in KL and Selangor. Can you tell us something about those plans and about further expansion? We are happy to try and turn around projects that are in difficulty, but only if they have some commercial content. If they are only residential, we are not interested. We are generally able to revive such projects because we have strong links with the retailers, so we can put together strong retail packages in a convincing manner, and that is the key for any revival. Without it, people won’t come. You can look at in terms of software versus hardware. The hardware is the physical space. The software is the retailers and the network that convinces people to come in. As long as you get that clear in your mind as a developer, you can achieve some really impressive outcomes when taking on projects that are perhaps in difficulty. Sagajuta has been successful in funding its projects without leaning on bank funding. How have you been able to do this and withstand the challenges of the recent economic downturn? We try to structure our projects such that we avoid any need to approach the banks for serious funding. There are a few ways we can achieve this. Concentrating on retail space, as we do, is helpful in itself because there are generally higher profit margins on offer, so that is one thing. Another thing that helps us avoid bank lending is choosing carefully the type and size of development we get involved in. We prefer to do relatively compact projects, less than 28-30 acres is an optimum size for us. We can achieve pretty fast turnaround on them, unlike the really big developments, which means we can achieve good cash flow, and we can pass on the resultant capital appreciation to our investors. Shopping malls obviously require a surrounding infrastructure. Are you involved in that side of the development business? Infrastructure development is going to be a next big step for us. As you say, it is essential for a good shopping development, so it makes sense for us to pay attention to how well it’s done. Right now, we are in the midst of finalising a gas-powered power plant project. It’s relatively small — just 100 megawatt — but we believe it is a good start for us. Hopefully it is just the beginning of a number of other infrastructure projects we will be involved in developing in the future. We expect all of them to be privately funded.

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doing business in sabah: pros and cons Tell us about the biggest challenges in developing business in Sabah? What do you think of the state’s attitude to business? We have found that Sabah tends to be more proactive in its approach to business compared with Peninsula. It’s interesting that the ‘remote’ states seem to be more efficient in this regard than the ones that are deemed to be more advanced. Perhaps it’s because they have fewer people and departments involved in approving projects. I think that the government of the state of Sabah has proven itself to be very adept at facilitating business. However, it is not only that they are pro business. They also seem to understand how business works as well. If you don’t understand business, if you are only doing things from a policy standpoint, it can be hard to move things forward because you are not in basic sympathy with business concerns and goals. It is a testament to how good the Sabah administration has been that the central government is driving all sorts of different firms to the region. You have spoken of the positive aspects of doing business in Sabah. Are there any challenges or problems on the horizon? One thing that may have to be looked at closely is a potential lack of manpower. I think the regulations relating to labour movement are too stringent at the moment. If the Sabah government wants infrastructure development to take place on a timely basis, it has to accept that manpower has to be able to move around the country to accommodate it. If the current regulations continue to hamper the movement of labour, there will come a point at which things begin to grind to a halt. And that can’t be good for anyone. Do you have any investment plans for other economic corridors? We are currently heavily involved in a new venture for Malaysia as a whole: converting biomass, predominantly oil palm waste, into paper products — something known as ‘green tag’. It is going to be the most sought-after product after water and fuel. It is a 10-billion ringgit job. You mentioned that all your projects are privately financed. Where are your main investors from? They are from the local market. Every market right now is so micro it is quite hard to attract a lot of investors. Everyone is facing problems and a large number of funds are being repatriated. Even German insurance funds. We cannot rely on foreign funds to come in and take a big stake. They will probably come in here and there, but they do not guarantee that they will stay permanently. So eventually it is the local market that will sustain businesses like ours, because they won’t run away.

construction & real estate interview

WAN ABDULLAH WAN IBRAHIM UEM LAND HOLDINGS BERHAD

Managing Director and Chief Executive Officer

I acquired a degree in business studies, majoring in accounting at Bolton University in the United Kingdom. At first I wanted to go into chartered accounting, but it didn’t suit me. From then on, 1984 until now, with the exception of four years in finance, I have worked in property development. I joined UEM Land Holdings in 2006 as Managing Director and Chief Executive Officer. Prior to UEM Land, I have had the opportunity of working with other property developers including United Malayan Land Berhad, Kumpulan Guthrie Berhad and the Emkay Group of companies. The past six years at UEM Land have been challenging indeed. We have been successful in the degearing exercise in 2006 that resulted in the reduction of UEM Land Group’s gearing levels from 17.38 times to 0.48 times. On 18 November 2008, UEM Land was listed on the Main Board of Bursa Malaysia. We also resolved the company’s rights issues in 2010, raising RM971.3 million from this exercise. Meanwhile, we have been actively involved with the development of Nusajaya, the key driver of Iskandar Malaysia. In a short period of about six years, Nusajaya, which was once just 24,000 acres of massive undeveloped greenfield, is now being transformed into the largest urban integrated development in Southeast Asia. Our next significant milestone was the acquisition of Sunrise Berhad, which was completed in February 2011. This strategic move was part of UEM Land’s plan to further diversify its land bank and leverage on the renowned expertise, human capital and brand of Sunrise. This in turn automatically increased its presence in prime areas of central Kuala Lumpur, including the exclusive Mont’Kiara enclave, Dutamas, Seri Kembangan as well as Vancouver, Canada.

INternational investor: UEM Land’s Nusajaya development is close to Singapore. Do you want to create something that is complementary to Singapore, or something that will compete? WAN ABDULLAH WAN IBRAHIM: We want to be complementary to Singapore. There would be no point in us competing. We have our own skill-sets, our own areas of expertise. Given that we will not survive on local demand alone, it makes sense for us to try and attract people from Singapore and beyond. One example is tourism. Universal Studios has an urban park in Singapore catering mainly to teenagers and young adults. In Nusajaya we are constructing a Legoland aimed at younger children. It will complement the Universal leisure facility in Singapore. We also have an indoor theme park that will be operated by Hit Entertainment and Sanrio. Hit Entertainment is from the UK and Sanrio is from Japan. It will feature cartoon characters like Bob the Builder, Hello Kitty and other children’s favourites. That is another example of complementation. Another example is that although both Singapore and we have biotechnology initiatives, Singapore’s is more to do with health biotech whereas we are focusing more on industrial biotech and the agricultural sector. Our biotechnology park is called Bio-XCell and it sits in our industrial park, SiLC (Southern Industrial & Logistics Clusters). The park as a whole is doing very well and, significantly, a lot of the industrialists there are from Singapore. Is it only Singaporeans you hope to attract, or do you foresee Nusajaya reaching out further? We foresee Nusajaya becoming a regional city. It has all the potential to become one. The announcement of the Iskandar Malaysia Special Economic Zone at the end of 2006 was a big help. Arising from that economic zone, through an act of Parliament the government created the Iskandar Regional Development Authority to look into the areas of promotion, processing and how to bring in Foreign

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We want to

be complementary to Singapore. There would be no point in us competing. We have our own skill-sets, our own areas of expertise

”

Direct Investment to the area. That has helped us in putting up Nusajaya as a viable investment area to companies from outside of Malaysia. It is important to note that, unlike Singapore, where space is at a premium, we have lots of it. That can make a big difference in attracting foreign companies. In addition, although Nusajaya is only minutes away from Singapore, our property prices are just a fraction of prices in Singapore — the price differential is another big draw for investors. all change in iskandar malaysia Can you explain why Iskandar Malaysia a good place to do business? First, it is a special economic zone declared by the government. Second, we have UEM Land as a major stakeholder. That means we can rely on having large pieces of land to develop. Third, Khazanah is involved in Iskandar Malaysia. Of course their investment takes us everywhere in all sectors, but so far, in the Iskandar Malaysia development zone, we are very fortunate that we have a force like Khazanah to oversee, to recommend, to overview, to even handle us, to crack the whip! That makes a big difference. What is next for Iskandar Malaysia? To list just a few: the Coastal Highway will be operational in 2012; the EduCity project will see its first campus set up, with a second and third campus developed in 2012; at Puteri Harbour, the waterfront development, the indoor theme park and the first hotel will be ready; Legoland opens its doors in September 2012; the leisure mall

We foresee Nusajaya becoming a

regional city — it has the potential

will be open by that time as well; Bio-XCell, the first Malaysian biotechnology park, will be fully operational by 2012; Marlborough College, the sixstar UK-based educational institution, will be ready to open its doors. There are others that I have not listed, but which are just as important. The key point is that everything that we have been planning for the past five-and-a-half years is coming to fruition by the end of 2012. It is very exciting to see things come together like this. Is there evidence that there is sufficient nonMalaysian demand for what you have on offer? Certainly. For example, in real estate, approximately 50% of buyers of residential units in our East Ledang project are foreign. This proves that there is significant demand from outside Malaysia. For Horizon Hills, a golf development with a significant amount of residential property, 50% are also foreign. We aim to attract five categories of foreigners to

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buy into our residential schemes. Singaporeans who have businesses in Johor. They move in and out of the country fairly frequently, spending a few nights in Malaysia while returning to Singapore perhaps during weekends. Then there are the Singaporeans who buy weekend homes, because the prices are competitive compared with what they have in Singapore. There are the expatriates who have developed a liking for Asian culture, and wouldn’t mind settling down in this region. They want to be near Singapore, but Singapore’s prices are too high so Nusajaya is an attractive offering for them. Then there are Malaysians who are working in Singapore. Some of them have permanent residency, so eventually one day they will want to come back to their mother country. The fifth and last category is people from East Asia as a whole who frequently come to Singapore for a number of reasons: for the night life, for gambling, for healthcare, for their children’s education, for financial and banking services. For these people, who do business in Singapore regularly, the option of a home in Nusajaya is certainly very tempting. The price is right for them, the quality of life is good, and we are close to Singapore. Explain the reasons behind your listing on the Bursa in 2008? How has it helped your operations? In actual fact, UEM Land was listed before then. It was called Renong. Renong was de-listed after the Asian financial crisis because of debts, and renamed UEM Land. After all the reorganisation and reconstruction of the various companies under the UEM Group umbrella we addressed our balance sheet and decided it was the right time for us to re-enter the Bursa. Khazanah National needed a property flagship. Their target by 2015 is to have five companies that can be classified as regional or global champions — the property sector is one of the areas, so the desire of Khazanah is to build UEM Land into a regional, if not global, property company. In doing so, we need to have access to public funds, and hence the listing. growth: a global strategy Can you tell us about your regional and global ambitions? What is the future for UEM Land? We are already located overseas to a certain extent. We have a good project in Canada, in Vancouver, which has been pretty much sold off already. Then we have lands in Durban, South Africa. We hope to start that development very soon. We are very interested in looking at key areas such as India, of course. We think India is very promising. We have seen that some Malaysian companies already have their presence there. We don’t mind being a late entry. I think we can learn from them. So we see that in order for us to meet our earnings numbers, we have to go global.

construction & real estate interview

STEWART LABROOY AXIS REIT

Chief Executive Officer

I am a mechanical engineer by training. I also took a postgraduate business degree in the UK before coming back to Malaysia. I went into industry for nearly 20 years when I came back to Malaysia. That anchored my background in industry. I used to be in design and development, mostly in the white goods and brown goods sector. Then I worked for a paint company for five years and I headed up the Yilton Dry Particle Division here in Malaysia for five years, before going into property development. Engineering and finance sit quite closely together: engineers are basically problem solvers. We tend to look for solutions to issues and we are very good with numbers. Our clients, because we are an industrial Reit, come from that background with which I am so familiar. That plays very well to my strengths. When I talk to my clients, I speak their language, having come from that industry. I can talk to them about things such as space, storage issues, power issues, loading issues. I can translate that into a product which I can offer them at a competitive price. I started at Axis Reit 1995, so it is now nearly 16 years that I have been in the property side of the business, primarily with the holding company. MOTIVATION

What motivates me is working in an industry which I enjoy. I think that if you don’t enjoy what you do then you may as well forget it and pack your bags; if you are only there for a salary then there isn’t much point.

LESSONS IN BUSINESS

Always try to find new ways of doing business. I am a big adopter of early technologies — I like to look at doing things better. If you always try to innovate, you will stay ahead of the game.

INternational investor: Can you give us a brief overview of Axis Reit? STEWART LABROOY: We opened for business in 1989 with one main project, and on a build and lease found it profitable. We then moved into further projects, teamed up with three or four core investors and started building to hold — we became an investment holding company. So over that period of time we were actually behaving like a private Reit — we had all the data there lined up, we had our own spreadsheets, we had a very clear analysis on income. Everything else was ready to roll. The financial crisis hit us in ’98 — everyone was affected, but we actually rode through, primarily because we were so well-positioned with our buildings and our clients. We were multinationals. Also don’t forget that the Asian financial crisis was very much a localised issue — it didn’t affect Europe, and many of our multinational clients were European or American based, so they were not that badly affected; they could continue to support us. That meant that we rode through the storm. Coming out of it, we identified that we were hitting limits with the banks on single lender limits and trying to grow our business; so when the Reit legislation appeared on the horizon we jumped at the fact that we could take up private Reit status and share our business model with the market at large. How would you best describe the Reit operations in terms of asset class selection today? I think that we have managed to get a good blend of assets into our Reit. We are always very focused on making the risk as low as possible. We do a tremendous amount of risk analysis in our business. We try to mitigate it as much as possible when we are buying. Sometimes we do take measured bets on the market. A good example of that is when we bought the Nestlé House next to the Hilton Hotel in PJ. We knew

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Over the

past ten years, the one area that has been totally ignored has been logistics. No one has been building and there is now a huge constraint in supply in the market. We are sitting in the sweet spot

”

that Nestlé wouldn’t stay there for long, we knew that they would probably quit the building, but it was a very old building, it was 30 years old and we wanted basically to have an opportunity to enhance it. So when Nestlé left, we shut it down for six months and we rebuilt it. We then put it back on the market and its value has gone up by 25 to 30%. The rental is up 30% and it is going to go to 100% occupancy. It is now a modern corporate office. We are very pleased with the results. It shows that we are not just a static manager, but that we are dynamic in what we do. We are constantly re-evaluating the portfolio to see how we can squeeze value out of it and bring better returns for our shareholders. In December 2008, the Reit was successfully reclassified as Sharia compliant. Can you tell us a little bit more about why you did this and what benefits it has brought Axis Reit? It was a defence ploy, primarily. We stared seeing the markets become wobbly towards the end of 2007. We analysed our portfolio and concluded that if the Americans ran out of cash, it would be important to be able to access Middle Eastern funds. By repositioning ourselves as Sharia compliant we would open ourselves to two sources of capital: conventional as well as Islamic, whereas before we were only into one. Also, because Malaysia was becoming a very well positioned Islamic financial centre for the region, it made a great deal of sense to provide the country with a product into which they could invest — both types of investors, the Sharia investors as well as the conventional. We still have a very large conventional investment group with us and what has happened is that we now have a large number of Sharia funds which are actually buying into our stock. We listed as Sharia compliant on 8 December 2008. At the end of December the world collapsed — including our share price: we fell all the way down to below IPO, but within six months we were back to NAV. The curve was quite remarkable — we just bounced back. Within six months we were back and we were raising capital again. Expanding the portfolio Could you tell us about your growth plans? Currently, people are very wary of office assets: there is a great deal of stock on the embark, there are many empty towers. We are not in that space, we are not in KL — we have particularly stayed out of Kuala Lumpur. The three main office towers that we have — Quattro West, Crystal Plaza and Menara Access — are currently fully leased out with a very strong tenant base. We don’t have any immediate plans to add any more office space to our portfolio. We recently bought an asset in Cyberjaya which is more of an IT-based building. We bought it for a very attractive price and we are going to refurbish

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it, reposition it. Other assets that we are focusing on are logistics, where we see a huge growth. Over the past ten years, the one area that has been totally ignored has been logistics. No one has been building and there is now a huge constraint in supply in the market. We are sitting in the sweet spot. Assets we bought some time ago are now really rocketing in value and we are seeing a huge upside in the value of what we have on the ground. What are the biggest challenges you are facing and how you are addressing them? Inflation is going to be the biggest challenge that we face in the next few years. I think that it is here and among us and it is going to be reflected in high borrowing costs. We have locked many of our funds in already but it will involve a great deal of very careful financial management. Capital management is another thing that we really focus on very much. It is constantly on the agenda. We see where we are with interest rates. We look at the crystal ball and we try to see where we should be; what kind of rates we can live with, how we can best raise the standard of our buildings so that we can get more rent to mitigate increases and, therefore, keep our distributions to unit holders rising every year. So it is a constant focus that we take: managing the capital, the product and the tenants. These are the three main challenges of the business. However, land and buildings have always been a natural inflation hedge. Going global How do you view the Malaysian real estate market today? We would like to see it more internationalised than it is at the moment. It should be and it is not. That is primarily because we don’t allow the international real estate companies to operate in Malaysia and this is something that we have been trying very hard to amend. I think that eventually we will probably see some success here. Unless you have international coverage of the real estate market, you don’t really appear in any international publications. You are not covered very extensively — you get a very small mention and people overlook you. However, there is a great story to tell. When I speak at industry forums, they are very surprised when I tell them that — unlike countries such as Vietnam, Thailand or the Philippines — foreigners can own 100% of freehold assets. There are only one or two other countries in Asia where you can do that. It is also a very stable environment to do business in, with a solid legal system. There are very clear ownership rules, there are very strong financial markets. But still Malaysia is not sufficiently on international radar screens. That is the big challenge that we need to address.

construction & real estate interview

ADAM RADLAN ADAM MAJU ASSETS

Managing Director

My background is in the advertising industry. I moved into property development later on. I believe that the two industries actually share some characteristics. Both are about creating lifestyles and concepts. I found it an easy transition to make. I set up Maju Assets in 2010, but prior to that there were other property companies in Maju Holdings. One was ASM Development, where I started in the business. The hardest part of moving over to property development was understanding the business — the processes and the procedures. Once I had learned them, I found it very comfortable. Maju Holdings has subsidiary companies: Perwaja, a steel company, and Ipmuda, a building materials supply chain company. We then have Maju Assets which covers property development. In addition there is Maju Expressway which is the highway connecting Kuala Lumpur to Putrajaya. We have other businesses such as hotels, the office block Maju Tower, a shopping mall called Maju Junction and an engineering arm that is also under Maju Holdings. MOTIVATION

LESSONS IN BUSINESS

I am motivated by the change we can make in people’s lives — and the positive changes we could make to society. Of course, there is also the potential to make a great deal of money. Everybody is motivated by that. I have a mentor who taught me a great deal about business: my Chairman, Tan Sri Abu Sahid. One of the things he always drilled into my head was not to fall in love with your business. Another thing he said was to make a lot of friends — you never know when you need a friend.

INternational investor: Malaysia has become famous in recent years for impressive construction projects. The Petronas Towers, for instance, have become famous the world over. Can you tell us whether you think the economy can sustain big building projects in these difficult economic times? adam radlan adam: Yes, I believe that the economy can sustain big building projects: these projects are being built with mostly foreign funds and Malaysia is still one of the cheapest countries in the developing world, particularly with regard to property prices and government policies. So there is no doubt in my mind that these kinds of projects can be achieved, especially if these buildings are going to be new landmarks in the country. We have a lot of plans for new infrastructure in Malaysia and because of these factors I think that we can proceed quite successfully with these projects. Could you describe the funding arrangements for your projects? Our projects are funded from multiple sources. From our experience with the projects that we have launched, we get a fair interest from the foreign investment community and the same from our local investors. There is a good balance between the two. As far as foreign direct investment (FDI) is concerned, people still love to come to Malaysia; first of all because of the stability of the society, secondly because of price — I think that we are still the cheapest among the Asian countries — and lastly government policies: they are relaxing the rules on foreigners owning properties here. Even given the economic instability around the world, there are still investors who want to invest, no matter what the economic situation is around the world. They have to invest and they need to find a place where it is cheaper to do so.

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“

Malaysia

is still one of the cheapest countries in the developing world, particularly with regard to property prices and government policies. So there is no doubt in my mind that big building projects can be achieved

”

Do you work to an overall breakdown between large commercial, small commercial and residential construction? Yes, we do work on overall breakdown. How we arrive at the mix largely depends on how we forecast market demand. It can also be based on how many purpose-built building sales we secure. In such cases the other developments surrounding the purpose-built buildings would be those that would complement each other in terms of sustainability of the overall development. To give you an example, in Klang Valley, with our land size of between 15 and 20 acres, we have always come up with an integrated development that has residential, commercial, office and probably some hotels and retail outlets as well. This kind of development works in KL because right now this is the kind of development that the people want. They want to have everything there on their doorsteps. However, the mix changes depending on the location and size of plot of course.

America or in the UK and we could still work with him or her quite comfortably through emails and through conference calls. The question is whether the Malaysians who live abroad want to actually contribute to the economy of Malaysia no matter where they are. If they are there and they are not interested in working with Malaysia then there is no point — but you do not have to be here to be able to contribute to the country; you can be anywhere else.

a Boost to the property market What is your opinion of the recent reforms the government has made in the legislation of the property sector? One of the most significant reforms the government has implemented is in giving 100% loans for houses costing under 200,000 ringgits. Previously, the cutoff point was 35,000 ringgits, which was far too low. This is attracting newcomers to the housing market. I think it will encourage more minimum wage workers to own their own houses, which will be a positive step forward in social terms as well as being a boost for the property sector.

You are planning to launch a 4 billion ringgits development in Johor. Could you please tell us more about that? Our development in Johor comprises 1,200 acres of land in a very good location. There is great potential to develop the site into a mixed, luxury development. The centrepiece of the project will be a high-quality, 18-hole golf course, designed by Greg Norman. The reasoning behind the development is that we want to tap into the growth of the Johor corridor. We would naturally also like to capture the international market, the Singaporean market and the Indonesian market, as well as the domestic market, and that is the idea behind the whole development.

Tell us about your overseas projects. We do receive a great deal of proposals for projects, particularly from Sri Lanka, Saudi Arabia and China. We are at the stage of assessing a lot of these types of projects, but we do not see Maju Assets going abroad any time soon, because we have generous land banks in Malaysia that we will concentrate on first. We will undoubtedly carry out projects abroad in the future, but not quite yet. It has been sometimes said that many talented Malaysians end up going abroad to work, leaving the country with a shortage of talented people. Do you find this a problem? In our experience in the property sector, we do not really feel the ‘brain drain’. The property industry is a very globalised sector today. We have people working with us from all over the world, and based in lots of different places. For example, the master planner on one of our developments is Italian and lives in Spain and we have no problem working with him via voice conferencing, emailing and so on. Equally, it could be that a Malaysian lives in

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future developments Which projects would you like to be part of? The Greater Klang Valley project is very exciting. One of the developments is the new financial centre which is just across the road from us. There are 200 hectares of land there. Of course, as a developer there is also Kampung Baru, which is a redevelopment of a huge piece of land in KL. So those are the developments that we would probably wish to participate in the future.

We mentioned foreign investment earlier. Are there any challenges in attracting investors into the company in these difficult times? We are not too worried about gaining and retaining the market’s interest in our projects. We tend to be quite conservative in how we go about things. We develop the concept very carefully before we go out there and try to sell it. Detailed planning is at the heart of everything we do. So far, it has worked very well and we have never had any trouble in securing funds. Have you ever considered listing the company? Not really. It is much easier not to be listed because then you can be creative. There is a strong trend in Malaysia for listed companies to be taken back into private ownership. More developers are going private now. You only list the company if you need the funds. In our case, where we don’t need the funds, I don’t see any reason why we should go down the listing route.

education

education overview

The Backbone of the Country Malaysia has had a strong tradition of educational provision since before independence. Since then, the sector has evolved but retained its commitment to inclusiveness and excellence

Malaysia is in the middle of one of the most profound transformations in its history — changing itself into a hi-tech, high-income country in a relatively short number of years. None of this will be possible without a solid basis of skills and knowledge. The education system is being required to face up to this challenge and provide quality education not just in regional terms, but internationally as well. In fact, Malaysia has the potential to be Asia’s educational powerhouse. Whether it will manage this challenge is yet to be proven, but promising signs are already there. Larger numbers of students than ever before are emerging from the country’s schools and universities, and the flexibility required of a modern education system is increasingly apparent. Outline of the education system The Malaysian education system comes under the authority of two government ministries: the Ministry of Education (Kementerian Pelajaran) and the Ministry of Higher Education (Kementerian Pengajian Tinggi). The former body oversees the pre-school, primary school, secondary school and post-secondary school systems. The latter body looks after the tertiary sector. Although the federal government has overall control of the education system, each state has its own education department which co-ordinates education matters within its borders. Education is free to all Malaysians through the public school system, although the country also maintains a vibrant private sector. Primary education is compulsory and standardised tests are a central feature of the system. Prior to the advent of the British colonial era, most schooling in the Malay States was carried out by Islamic schools. Secular schooling began to be introduced gradually throughout the colonial era. Many of the earliest schools in Malaysia were founded in the Straits Settlements of Penang, Melaka and

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overviewâ&#x20AC;&#x192; education

Education was viewed as a central part of the New Economic Policy, which began in 1971. Since then, education has served the twin goals of economic growth and social development

Singapore. The oldest English-language school in Malaya is the Penang Free School, founded in 1816, followed by Malacca High School and the Anglo Chinese School, Klang. Many Englishlanguage schools are considered to be prestigious. From the beginning of the era of secular education, there was an issue with conflicting teaching in English and Malay. Prior to independence in 1957 and for some years afterwards, most instruction in Malaysian schools was done in English due to the legacy of colonialism. Since virtually all secondary schooling was carried out in English, many Malay-speaking children who had been educated at primary level in that language found themselves at a disadvantage when transitioning to the secondary level. A number of education reports were produced in the 1950s to address this anomaly. The one finally adopted was the 1956 Razak Report. It set out a structure in which primary education would take place in Malaya, English, Chinese and Tamil, with Malay and English at the secondary level. A uniform national curriculum was also announced. The report effectively set out two important roles for the Malaysian education system: to help the economic development of the country and to bind the nation together by facilitating ethnic integration. Education was thus viewed as a central part of the New Economic Policy, which began in 1971. Since then, Malaysian education has served the twin goals of economic growth and social development. Extra-curricular activities are compulsory at secondary level. All pupils have to carry out two non-school activities such as performing arts, sports and games. From English to Malay instruction Almost immediately after independence many Malaysians began to argue that education should primarily be conducted in the Malay language. The Razak Report called for joint teaching in

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English and Malay at the secondary level, but throughout the 1970s a national language policy began to change instruction from English to Malay at the primary and secondary levels. The language change was made gradually, starting from the first year of primary school. The change was completed by the end of 1982. All schools admit pupils regardless of racial or language background. Both Malay and English are compulsory subjects and a national curriculum is used in all schools. In 2003, the government ordered that science and maths would be taught solely in English. Some educationalists objected to this move and the policy was reversed in 2009. Mixed language teaching of science and maths is set to be reintroduced from 2012. There has been some resistance to this move, with some parents and teachers arguing that standards of English proficiency will slip. Others, including Tamil and Chinese minorities, have welcomed the move back to vernacular language teaching in these subjects. As yet there is no firm evidence of the impact of the change. English, however, remains an important part of the Malaysian schools system, and other foreign languages, such as Arabic, French and Japanese, are gaining in popularity. At the pre-school level, which is non-obligatory but often starts at the age of three, there is no formal, prescribed curriculum. Teachers nonetheless must be properly accredited and undertake a course of instruction before being allowed to teach. After pre-school, pupils enter the mandatory primary system, which consists of six years of education starting at the age of seven and finishing at 12 years old. Students in national schools are required to go through a standardised test called the Primary School Evaluation (Ujian Pencapaian Sekolah Rendah) before graduating from primary education. After five years of secondary education, pupils take the Sijil Pelajaran Malaysia (Malaysian

overview education

Elementary students, Kota Bharu

The creation of a highly educated workforce is key to the desire to raise the country to high-income status by 2020

Certificate of Education) at the end of their secondary school career. This is similar to the British GCSE exam as it currently stands. Some students carry on to study for the Sijil Tinggi Persekolahan Malaysia (Malaysian Higher School Certificate of Education), which is designed to prepare them for entry into university. A number of other matriculation tracks are available for students, often determined on Bumiputera status. University education Malaysia has ten local public universities, six private ones, an increasing number of international campuses and more than 500 Public Higher Educational Institutions. PHEIs are nongovernment institutions and are totally financed by the private sector. They are open to every individual in the country and offer postgraduate and undergraduate studies. It is obligatory for private educational institutions to register or enlist with the Ministry of Education. An important development in Malaysia’s higher education system in the past few years has been a gradual reorientation towards the needs of business and industry. Prior to 2004 all lecturers were required to have a postgraduate degree in the relevant subject. That requirement was removed in 2004 and the Higher Education Ministry announced a new policy wherein industry specialists could teach at universities without the previously required postgraduate qualification. A number of Malaysia universities have set up business spin-off divisions tasked with taking potentially commercially viable ideas and helping them get to market. The Malaysian tertiary education sector is set to play an important role in the transformation of the country under the Economic Transformation Programme. The creation of a highly educated workforce is key to the desire to raise the country to high-income status by 2020. One important

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aspect of this is the introduction of a number of foreign university campuses into the country in recent years, and a number of joint ventures between Malaysian universities and foreign colleges. Nottingham University from the United Kingdom, for example, has set up a division of its respected business school in the country. Australia’s Monash University opened the doors of its Malaysian campus in Selangor in 1998 and currently has more than 5,000 students. Most recently, Newcastle University and Southampton University from the UK are setting up in Johor. Joint ventures include a partnership between SEGi University College and Scotland’s University of Abertay Dundee, and De Montfort University and Twintech Institute of Technology. From the United States, the Massachusetts Institute of Technology has teamed up with a Malaysian body to create Asia’s first Institute for Supply-Chain Innovation. John Hopkins University is expected to set up a medical school. Becoming a hub These moves demonstrate another key ambition of the Malaysian education system: to become a regional educational hub. Many Malaysians — and parents and students from the wider Southeast Asian region — value foreign, often Englishlanguage, schooling. Malaysia now plays host to a number of international schools, which offer pupils from around the region the opportunity to study under a foreign curriculum and educational ethos. Johor itself is host to ‘Educity’, a specialised education complex with foreign participants at the forefront. The development reflects Malaysia’s grand strategy to become a centre for Western education. The country wants to meet the strong demand among Asia’s new middle classes for English-language schooling. It also worries about its brain drain (over 300,000 university-educated Malaysians work abroad).

education overview

Strengths

weaknesses

■ Strong

■ Uncertainty over language of instruction going forward: recent backing away from science and maths teaching solely in English ■ Remaining divisions between ethnic groups still not overcome in the education sector ■ Can the government guarantee increasing levels of investment in the sector and/or attract more private sector investment?

history of education provision dating back over 200 years ■ Deeply embedded English-language teaching can help make the Malaysian economy globally competitive ■ Strong government commitment to education, in particular to ‘hard’ subjects such as science, maths and engineering

opportunities ■ Possibility of Malaysia becoming a regional hub for high-quality education provision in Southeast Asia ■ Malaysia can attract even more prestigious foreign schools and universities to open facilities in the country ■ Malaysian universities can increase the size and scope of their commercial spin-off arms, thus cementing their relationships with the private sector

Having watched Asian children flock west to British and American schools, the government decided a few years ago to try to reverse the trend. It has campaigned to persuade Western schools and colleges to come and set up branch campuses. The Malaysian proposition to Asian parents is simple: come to these famous schools and universities in our country and get the same degrees and qualifications as in Britain or America for half the price. It isn’t just American and British educational institutions that are locating in Malaysia. The Netherlands Maritime Institute of Technology is already in Educity. Asia is the world’s largest education market and Malaysia believes it has a golden opportunity to capitalise on that fact. Its English-language legacy is considered to be a head start in attracting both foreign educational institutions and Asian students. The government has borne most of the development costs for foreign universities and schools. In return, these institutions are teaching what the government believes are valuable subjects and qualifications. Southampton University, for instance, is only offering degrees in engineering – another example of how education in Malaysia is being geared towards economic progress. Reversing the brain drain ‘For Malaysia to stand success in its journey to high income, it will need to develop, attract and retain talent,’ stated a recent report by the World Bank. ‘Brain drain does not appear to square with this objective: Malaysia needs talent, but talent seems to be leaving,’ added the report. The Malaysian authorities have been aware of this problem for some years now and have taken steps to reverse it. A ‘brain gain’

threats ■ Significant competition in attracting students from the region by other countries in Southeast Asia ■ Unable to arrest and reverse brain drain due to sluggish reform efforts and wider economic weakness ■ Entrenched bureaucracy might inhibit reform efforts

project was initiated in 1995 by the Mahathir administration, for example. It was intended to attract 5,000 scientists and academics annually. In recent years, a non-governmental organisation, Talent Corp, has been set up to reverse the Malaysian brain drain. In 2011 it attracted 450 talented Malaysian back home. The presence in the country of a high-quality education system is central to this process. Early in 2012 the Deputy Prime Minister, Tan Sri Muhyiddin Yassin, announced that a consultation process on Malaysian education would begin, with participants drawn from all areas of the sector, and including all interested stakeholders. The goal is to produce a strategic plan for education for the years up to 2020, to match the Economic Transformation Programme already in place. A number of consultation sessions will be held, including round tables and town hall meetings, to include as many interested parties as possible. The overall plan is to cement Malaysian education as the backbone of the country, and a vital economic and social driver, for the coming years. It is expected to report in late 2012. One over-arching challenge puts every other aspect of the education debate into sharp contrast and makes the current strategic re-design imperative: the challenge of demographics. According to United Nations research, Malaysia will experience the third-highest increase in its working age population between 2010 and 2035, at just below 40%. Only Egypt and the Philippines will do better. Such an increase in potential workers is immeasurably valuable for economic growth, but only if they can become highly educated and productive. All of the debates about Malaysia’s future education system must acknowledge this huge challenge, or fail.

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interview education

Sharifah hapsah UNIVERSITI KEBANGSAAN MALAYSIA (UKM) Vice-Chancellor

My mother was very influential for me. She was a natural entrepreneur. Even as a child I could see that. Although we were a relatively well-off family, she always had the knack of turning things into money. She was the first Malay woman to start a restaurant in Kuala Lumpur — a Malay restaurant, and it was successful. I admired her passion and determination to face all odds in the relatively conservative society of her time. Another key influence has been my medical training. It taught me to be very systematic in collecting data before making decisions. I did my first degree in medicine at the University of Malaya. I worked for a while and then I decided I wanted to join academia. I joined UKM because it was a new university, a new medical school and I like something where I can start new things, not just continue the same old ways of doing things. I joined the Department of Physiology where I researched exercise physiology, particularly with regard to its effect on hypertension. Then subsequently I got involved in medical education: understanding how doctors continue to learn, and helping medical students develop lifelong learning skills. I became Vice Chancellor in 2006. That continuing education aspect has become very important in my work as Vice Chancellor. It has helped me to look at the development of education itself: what policies and strategies should be put in place if the country is going to progress and if education is going to be a vital part of it. MOTIVATION

It is the challenge that every day you must do something new; every day there must be a change. Otherwise we stagnate. We have to set targets for this university to transform itself into a university that is equal to other good research universities. I have put in place a Transformation Plan, and the motivation for me is to see how we are progressing according to the performance indicators in all the areas that we have identified as being critical.

LESSONS IN BUSINESS

You must know what your business is. If I think education is my business, then I must know what education entails. You need to be able to stand up and talk to your professors with authority but with respect. My background in medical education helps.

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INternational investor: UKM was established in May 1970 and it has evolved into one of the leading universities of the region. Study is centred around the Malay language. How has UKM been able to attract international students, which is obviously a priority, and what kind of strategies have you applied to do that? SHarifah HAPSAH: UKM was established out of the aspiration of the ordinary people to have a university that would use Malay, and that would promote Malay as a language of academia. It is truly a people’s university. In the beginning it was more about using Malay as a medium of instruction, but when I became Vice Chancellor I was determined that Malay should be a language of knowledge, not just a medium of instruction. It should have academic gravitas. That is a much bigger task than just teaching in Malay. It means more than developing terminology, scientific or otherwise, at a higher education level. It means creating both academic and economic value in using Malay at that level. One way of creating academic value is to ensure the high quality of the journals that we publish in Malay. We have five now, the largest number for any Malaysian university, that are indexed in leading international databases such as Scopus and ISI Web of Science. We publish in Malay, but also have an abstract in English. The crucial thing about being indexed is that the articles will be cited in international research publications. Citations are important for researchers and they see value in publishing in Malay. I think we are succeeding because we are getting international citations for these articles. It seems like you want to create equilibrium between Malay and English. Is that correct? Yes, because we want to internationalise the university as well as the Malay language. The university Senate debated long and hard and in the end agreed on a 50/50 proportion in the use of Malay and English. Some faculties may use

education interview

more English, some faculties more Malay, but overall it will be 50/50. We have to do this if we value internationalisation and we want to recruit international students and faculty. You can’t expect international faculty to come here and speak Malay. So everyone has to understand that to be a global university, we need to be realistic. INTERNATIONALISING THE UNIVERSITY You mention that you would like the university to have a higher international profile. Can you tell us a bit more about that? Alongside the national focus — the Malay language and national identity agenda, for instance — we are also heavily investing in the idea of being an international university. That is where we develop an internationalisation plan and we benchmark internationally. We seek centres of excellence, we promote ourselves internationally as credible authorities on areas of knowledge through our publications, through our networks, through attending and presenting at conferences, and having research and educational collaboration with international partners. We are specific in our focus when we partner foreign institutions. For example, one key friend is the Stevens Institute of Technology in the US, which is very successful in commercialising their research — something we are very keen on doing ourselves. We partner them in bringing technology to the marketplace. Effective international partnerships are key to our future success on the global stage. ECONOMIC TRANSFORMATION: UNIVERSITIES MUST PLAY A ROLE How is UKM contributing to the country’s overarching Economic Transformation Programme (ETP)? Does higher education have a role to play in the proposed transformation? An absolutely central aspect of growing today’s economy is innovation. To develop, Malaysia will need plenty of innovative minds and ideas. That is where we come in, through education, research and commercialisation. However, we also need to be aware of the whole system in which innovation thrives and form creative linkages with all stakeholders: government, industry and communities. We need to always create new social and economic value for them in any of the things that we do — we come up with new educational and research products or new services, new business ideas, new models of developments or even new organisational structures for the innovation economy. ENTREPRENEURSHIP IN THE UNIVERSITIES Do you try and imbue your students with business sense? Indeed we do. Entrepreneurship is very important for the innovation economy, particularly in taking

research ideas and technology to the marketplace. We need to develop entrepreneurial skill sets in both undergraduate and postgraduate students early on in their courses. They must not be thinking, ‘I want to go out and be salaried’ — they must be thinking, ‘I want to go out and create my own job, my own company.’ We have set up the ‘Centre for SME Development’ (CESMED), which works with the faculties to implement undergraduate entrepreneurship modules. It isn’t just for science and technology based subjects but also applies for social sciences and Islamic studies. The students who are already doing business studies become resource persons for their friends in other disciplines. We also have a centre called The Centre for Collaborative Innovation which assists researchers to in bringing their technology to the marketplace. In other words, the educational process must support pathways to wealth creation for all the people in the university.

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Students

must not be thinking, ‘I want to go out and be salaried’ — they must be thinking, ‘I want to go out and create my own job, my own company’

”

improving research: MORE POSTGRADUATES, MORE INNOVATION Are you making any structural changes to the student body? We are moving towards a 50/50 ratio of undergraduates to postgraduate, by cutting down on the former and increasing the latter. By 2015 our student body will be roughly 15,000 postgrads. We want to increase the number of postgraduates because these are the people who will be trained to research at a high level of inquiry, generate technological innovations and take them to the marketplace. Our PhDs will therefore have to go through a training component called ‘academic entrepreneurship’. How is Universiti Kebangsaan Malaysia involved in developing green technology? We have several research groups that are working on green technology — solar and fuel cell energy for example. We have quite a number of patents for solar energy already. I have set up a green technology innovation park where our PhD students work on their research as well as test and develop their technology. It is very interesting to see how they keep on improving their products. We demonstrate a variety of industry-ready ideas in the park, such as the ultra-low-energy house, different designs of solar panels and different kinds of solar-powered dryers which can be used to dry things from carpets to fruits and fish. We also apply technology outside the campus. In Semporna Island we installed a solar-powered drier to dry fish. These are the sorts of real-world, economically attractive, modern, hitech things I like to see us promote. I think it is the future for the university.

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interview education

DZULKIFLI ABDUL RAZAK UNIVERSITI SAINS MALAYSIA (USM) Vice-Chancellor

I was asked to be the fifth Vice Chancellor of the university in the year 2000 — it is my 11th year here now. I am also the Vice President of the International Association of Universities, which is based in Paris, and affiliated to Unesco. MOTIVATION

We have a diverse range of talented people here at the university, so just interacting with them is very motivating to me. I like to create vibrant teams from the people around me and to motivate them in turn to do a great job. I am very driven by new ideas, and changing things for the better by challenging the current status quo and assumptions. We bounce ideas off each other all the time at USM.

LESSONS IN BUSINESS

High-quality and sincere people are essential for all organisations. You have to assemble a good team to achieve anything of significance. I meet a large range of people from many different walks of life. I have found it important to exchange ideas with them and to create a ‘big picture’ for the university and for Malaysia as a whole. It is one of the real lessons of education that if you can’t do that, you need to learn how.

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INternational investor: Can you comment on the university’s transformation plans in the coming years? DZULKIFLI ABDUL RAZAK: At the Universiti Sains Malaysia we have spent a lot of time and energy in thinking about how we want the university to develop in the coming years. We live in a culture now where an institution cannot stand still if it wants to thrive. People quite correctly talk of ‘the knowledge economy’, but we have to think seriously about how that translates into the arena of higher education. Malaysia itself is on track to become a more hitech economy, so we at the university must also play our part in this transformation. Over the past few years we have held a series of consultation exercises and round tables to plan our future. In 2005 we held a scenario-planning workshop to try and determine where we wanted to be by the year 2015. The workshop came up with a number of scenarios, all of which were examined closely. The one we chose, though, was what we called The Sustainable-led University. We also called it the ‘garden scenario’. We consciously produced a new metaphor to shape our thinking, because we thought that the metaphor of the university at the time was more like a factory. We wanted to move away from the model of the university as an institution that just churns people out. We want to re-shape USM as an institution that nurtures and shapes people as rounded and caring individuals. That is why we picked another metaphor to emphasise that everybody has an opportunity to grow and be nurtured — there is a whole underlying philosophy built around it. What it means is how do you sustain a garden? Whether the particular garden is a university, a country or an economy does not matter if the underlying philosophy is met and fulfilled.

education interview

How does that translate into specific plans or expansion objectives? One key goal is to re-shape USM into predominantly a postgraduate institution that is imbued strongly in humanistic values and ideals. At the moment, the university has about 29,000 students. Out of that we have 8,000 postgraduate students, and 3,000 are international students from around 60 countries. This presents an excellent opportunity to understand and appreciate the human values and ideals that we talked about cutting across various cultures and civilisation. By the year 2020 that number will probably double, so we are talking about 15,000-20,000 postgraduates and the opportunity to spread and advocate this message is very significant. In line with this is another important goal for us to turn USM into what we call a ‘global campus’. We aim to work with a number of other universities around the world — to build a community that understands and lives by common and universal human values and ideals. We envisage that there would be a shared facility that all the foreign universities can work in, alongside USM staff and students, as well as the larger community. It could offer joint degrees, using expertise not only from

Malaysia, but also from the other countries. This model is quite different from the model that you see now where foreign educational institutions come in and build branch campuses in Malaysia — but by and large remain aloof from the cultural norms of Malaysia. The global campus will be a shared campus, with a shared global mission from an international mix of students. We have been working hard on it to sell the idea and concept to potential partners. IS TRADITIONAL EDUCATION WORKING? What are your views on the early education system as a feeder for the higher education market? Is it working as it should? I don’t think so. There is a mishmash of provision, and also a misalignment with the needs of the universities. Overall, you could say that there is too much teaching and not enough learning. What I mean by that is Malaysian schools are still too focused on learning by rote and passing examinations. There is little self-discovery. Though it has its own benefits of course, but it also has the drawback of producing quite rigid thinking styles among students. That is bad for the university system which needs flexible and

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We have

spent a lot of time and energy in thinking about how we want the university to develop in the coming years. We live in a culture now where an institution cannot stand still if it wants to thrive

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interview education

creative thinking. In fact, we prefer to use the word ‘nurturing’ rather than ‘teaching’. We want to encourage our students to think for themselves, rather than having ideas fed to them by the system. This is what I mean by the mismatch and the misalignment, because by the time they get to the university they are not able to think creatively and learn in the way we want them to. In fact, we are now looking into whether we can build our own USM affiliate schools as its own feeder. making THE UNIVERSITY stand out How do you differentiate yourselves in what is likely to become an increasingly competitive marketplace for higher education? We are in Penang and Penang has its own ecosystem, its own cosmopolitan population and a different industry base. That already gives us a differentiation. We are also the second-oldest university in the country and we are almost wholly science based — about 70% of our courses are in that area except for the School of Social Science and Humanities. We think the sustainability model also differentiates us. Each part of our work, and the research we produce, has to be focused on sustainability and the impact it has on the wider world. For example, some of our academics are carrying out research into the major tropical diseases that still afflict mankind and which are still big killers of the poor in particular. So we are heavily committed to coming up with solutions. Another area that we have been nurturing — so that we can be at the leading edge — is genomic research, which has a very good potential to create a new wealth of ideas that are useful to help the poor worldwide. This is what, we at USM, mean by sustainability: research that has had an immediate relevance to the needs of the people and humanity, not just the environment per se. sustainable links WITH THE PRIVATE SECTOR USM provides consultancy testing and advisory services to industry. These services come within the ambit of Usains Holdings, the university’s commercial arm. How is its business growing and how is it helping USM? When we created Usains more than ten years ago we saw it as a straightforward way of generating business and income for the university. Now that philosophy has changed a little bit. We are more selective in choosing the partners that want to work with us. In other words, the sustainability agenda has been placed at the heart of our consultancy business. We emphasise to the people coming to us that we offer good sustainable solutions rather than just technological solutions per se — although

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there are still many of those we can offer within the university. One example perhaps is when we design new materials for construction. When the School of Housing, Building and Planning designs them, they will make sure that these materials are green and sustainable, as well as affordable. We will attract different kinds of clientele that think sustainably as part and parcel of their business. Does this new paradigm pose a problem with getting funding? There may be a short-term issue as prospective partners adapt to what sustainability is all about. However, we are also trying to redefine what we mean by return on investment. Some might not generate as much revenue as another forms of technology, but if you define return on investment in terms of the social impact of a form of technology, then it is a worthwhile thing to do. The value we produce is as much in terms of in saving lives as generating money. If you can enter ‘lives saved’ into your return-on-investment calculations, then I think the way you view your situation changes dramatically. It is a different kind of funding mechanism because it comes from international agencies rather than commercial entities, but we think it still works. AT ARMS LENGTH FROM the ETP Are you getting involved with the government’s Economic Transformation Programme? My belief is that the universities need to be separate from and independent of the government and other commercial interests as a disinterested party. Of course we don’t have a problem with the Economic Transformation Programme, but if the universities are not self-sufficient and independent, then they do very little for the country. This isn’t to say we don’t have a very deep commitment to engagement with the wider society. The social engagement activities of the university are extremely important to us. Although we talk about global ambitions, they cannot be such that we neglect local issues and local problems. Our role is to help raise the living standards of the population, and I think it is our duty, as intellectuals as well as institutions, to do so. In that sense we are part of the ETP. However, the real transformation that we must carry out is knowledge transformation and the underlying change for the coming decades. We can, for instance, always think about developing appropriate technology for people to use because it is affordable and relevant. It comes back to the sustainability argument supported by the same set of human values and ideals. It is sustainability which is not just applicable on the global stage, but also in your back yard.

education interview

ZAINI BIN UJANG UNIVERSITI TEKNOLOGI MALAYSIA (UTM) Vice-Chancellor and President

I was initially educated in Malaysia and studied for my chemical engineering undergraduate degree at UTM, graduating in 1988. Being Vice-Chancellor since 2008 is like coming home. I understand and enjoy the place! After graduating, I went to the University of Newcastle, and then to Harvard Business School. I think that has given me both a national and an international perspective on how higher education functions. After coming back to Malaysia in 1996 from my PhD, I was attached to the office of the Minister of Education, who was then PM Dato’ Seri Najib Razak, and put in charge of the development of private universities. I remained there for two years. When I started my career in the Ministry, there were only 11 universities in the country. Now we have 65, comprising 21 public universities and 44 private ones. That gives you some idea of how quickly the sector has expanded. Suffice to say, with a strong background in engineering, I also have exposure in policy making, and I value highly my role now as the Vice-Chancellor and feel extremely privileged to be able to steer UTM to greater heights. Today, along with my role at UTM, I retain several national commitments. I am Chairman of the Environmental Quality Council of Malaysia. I have also spent four years serving as Commissioner of National Water Services in Malaysia and Chair Proton Technology Advisory Council, which consists of professors from the University of Cambridge, Imperial College London, Meiji University and Stanford International Research Institute. MOTIVATION

I want to make a meaningful and impactful contribution to society, and that has been my aspiration throughout my career. One way I can do that is by empowering people to be the best they can be by thinking beyond conventional wisdom; through mindset change and innovative thinking.

LESSONS IN BUSINESS

People should be treated on merit. But, equally, what you get is what you give, so in order to be heard and recognised, you have to build up a strong standing in life and business.

INternational investor: UTM it is one of the top Malaysian universities and has the ability to attract international students from around the world. What are your particular strengths? zaini bin ujang: One important thing to note is that we are the oldest university in the country. We started out in 1904 as a technical college in Kuala Lumpur. The University of Malaya started life in 1905, so we existed one year earlier! We have more than 150,000 graduates already in the marketplace, making contributions to Malaysia’s industry, infrastructure as well as professional development, finance and government throughout the country at the highest levels. We can name them from the Minister of Works to the Director General of Department of Works, from business leaders to top consultants, from top professors to accomplished entrepreneurs. We have a particularly strong showing in the technical areas of the country; we are, after all, a premier university in engineering and technology, rated in the top 200 of world university ranking in the field. If the country wants to become a highincome, hi-tech economy by 2020, then UTM will play a big part in that progression because of our technological strengths. And that is one of the key reasons why we attract so many international students, now numbering 4,100. Most of our international students come to Malaysia not to learn languages, not to learn social science, not to learn economics. They are here because they want to benefit from the Malaysian experience in the sort of technological development a country needs to put in place if it is to transform itself into a high-income economy. We have a unique perspective, as a country, on how to grow, so to speak, from low-end to highend innovative technology, from developing to developed nation. We are, as a university, uniquely capable of inculcating those lessons in technological development to our students, foreign and domestic.

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If the country

wants to become a high-income, hi-tech economy by 2020, then UTM will play a big part in that progression because of our technological strengths. And that is one of the key reasons why we attract so many international students

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Most of our international students are, indeed, not only from those developing countries but also from European and Northern American nations. We are able to help them develop a unique skill-set centred on the whole ecosystem necessary to progress through various technology development issues, to help their countries make the development journey. expansion into foreign markets What are your plans in terms of taking what is a very successful brand further, and establishing campuses overseas? Brand positioning is very important to us. Taking the brand into global markets is crucial and valuable to attract international students to UTM, because it increases the competition and therefore the calibre of our student body. At present we have UTM offices in Tokyo, Doha, Madinah and in Boston, at MIT. Staff and students from UTM go to these, and other, universities to study and to develop themselves. We are not necessarily physically in these places in terms of running academic programmes. What we have is a presence there in terms of research attachment and in terms of collaboration. In 2011 we finalised a contract with Imperial College London to set up a similar programme and the Rector of Imperial visited us in August to sign a 10 million ringgit research collaboration agreement. At the same time we finalised our programme with MIT last week. We are sending ten staff there for a period of five years. We are also involved with the Stanford Research Institute in America and we are in discussions with Oxford to set up something similar. These collaborative programmes both help our students and staff and help to increase the prestige of the UTM brand. One of the things I decided to concentrate on when I became Vice-Chancellor was to go down this route. Would you call yourselves primarily a graduate university? Well, we certainly want to have a strong graduate presence, and to become a preeminent graduatefocused university in Malaysia. At the moment we have 10,888 postgraduate students from a total student population of 23,000. It is worth noting that our number of PhD students has grown remarkably from a mere 200 in 2000 to 3,400 in 2011. We have an active and substantial undergraduate body as well. As I said earlier, we attract a lot of students from other countries, the majority of which tend to be graduates. Overall, we aim to be Malaysia’s principal graduate university, and I think we are there already. It is worth mentioning that UTM currently has the highest number of postgraduates in science, technology and engineering in the region.

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Can you tell us something about how UTM is supporting the Economic Transformation Programme and what unique contributions it can make to the development of the country? It is an important and ambitious journey the country is on, and we support it fully. I think there are a number of things we can do to contribute to the ETP. One thing is that we can produce the sort of highly knowledgeable and innovative human capital the country will need if it is to transform into a developed economy. Businesses do not run themselves, and we need a work-force of welleducated and dynamic people. Another aspect of Malaysia’s development is that the country needs to reduce its dependence on foreign technology and start producing its own. Our university has contributed 25% of all patent filing in the country for the past two years. We are at the forefront of the creation of new technology for Malaysia. Again, such technology will be crucial if the country is to progress. Yet another thing we can contribute is the development of intellectual property. Much of, say, Bill Gates’s wealth is based on intangible intellectual property rights. That is the hallmark of a highly developed country, and UTM can help Malaysia get to that level. The Prime Minister recently said that, ‘The future economic model [of the country] will be based on intangible assets’. What do we mean by intangible? Well, as I say, it is such things as high-quality human resources, technology and intellectual property. UTM is the main generator of intellectual property in the country at the moment. We won intellectual property awards in the country three times in a period of five years in 2006, 2009 and 2010. For the ETP to work, it needs institutions like ours to power it. a relationship with private business Is UTM interested in external investors? If so, how has that panned out recently? We have significant and on-going relationships with external investors. We are, for example, one of the biggest property developers in the country today, and that has meant we have entered into arrangements with construction investors to build such things as residential blocks on campus. In other areas, we are in talks with KD Healthcare to develop a public-private hospital. Then there is the strong relationship we have with Proton cars. They invest heavily in UTM and we work closely with them to produce quite a number of innovative patents each year. All in all, I would say that a relationship with private business and industry is at the heart of what we do. In fact, we stress the importance of entrepreneurial and innovative thinking among our staff and students in everything they do here at the university.

health

overview health

Medical tourism accelerates Malaysia’s healthcare system is moving up the world rankings and the private sector is rapidly growing. A major driver going forward will be the fast-growing worldwide economy in medical tourism, which Malaysia is well positioned to capture a healthy proportion of

Background and Introduction Malaysians have good access to a wide range of medical services through a nationwide network of hospitals and clinics. The public sector is heavily subsidised, as the government is determined to maintain services at affordable and accessible levels. Although the public sector provides a full spectrum of medical services, the focus is increasingly shifting towards prevention, disease control and rehabilitative services rather than curative services. The rapidly growing private sector offers mainly curative and rehabilitative services, and is financed on a non-subsidised, fee-for-service basis paid for out of pocket by consumers or through health insurance plans. As household incomes increase, both public and private healthcare services have expanded very rapidly to cope with increasing demand for more and better quality services. Healthcare expenditure in Malaysia is expected to increase at a CAGR of about 12.3% from 2006 to 2014 and is estimated to reach approximately US$16.9 billion by 2014 (see fig.1). Malaysia enjoys a broad range of healthcare services, provided by a blend of government hospitals and clinics combined with private general practitioners (GPs) and hospitals. The public sector offers basic services at very low cost, aimed at providing universal and equitable access to healthcare. Based on the ranking of healthcare systems from the United Nations Development Programme’s Human Development Index in 2009, Malaysia was ranked 57th in 2010, up from 66th in 2009, out of 191 countries for its performance in overall healthcare. The EIU forecasts Malaysia’s expenditure on healthcare to be 4.8% of GDP in 2015, which is relatively higher compared with other countries in the region (see fig.2). The World Health Organisation (WHO) has recommended that governments in developing nations should invest 5% of GDP in their healthcare systems, and Malaysia is close to this

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health overview

The Medical Tourism Market: Global and Regional Overview The medical tourism industry is going through a dynamic shift across the world. From patients seeking elective cosmetic procedures to complex cancer treatments, the market is emerging and growing at a tremendous pace. Countries on every continent are pursuing medical tourism. Nonetheless, as the world began to emerge from the global recession in 2010, Asia Pacific emerged as the fastest region in the world for this growing industry with a year-onyear increase of more than 25%. The global recession certainly had an impact on the industry but it is now again growing globally at 20% to 30% a year and is projected to do so

R CAPITA HEALTHCARE EXPENDITURE (US$), 2007 – 2015 (FORECAST) 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0

2007(a)

2008(a)

Japan

2009(a) Indonesia

2010(a) Malaysia

2011(e)

2012(f)

Singapore

Per capita Healthcare Expenditure (US$)

2013(f) Thailand

2014(f) UK

2015(f) USA

Source: OECD Databank

through to 2015. With this projected growth, the global medical tourism market is expected to reach US$172.8 billion by 2015. In Asia Pacific (APAC), Thailand, which is renowned for its strong hospitality culture and elective treatments, is the clear leader among the nations competing for this lucrative business (see fig.4). Collectively, Thailand, India and Singapore hold almost 90% of the APAC market. Malaysia, however, is proving to be a strong competitor in the market. The total number of medical tourist arrivals in the country reached 425,500 in 2009, while the total revenue climbed to US$95.2 million. Growth shows no sign of slowing down as analysts have projected that revenue from medical tourism will grow at 16% towards 2015, pushing medical tourism revenues to more than US$285 million. Globally, several forces are driving the growth of medical tourism. Some key drivers include:

Growth shows no sign of slowing down as analysts have projected that revenue from medical tourism will grow at 16% towards 2015

Healthcare costs and waiting times for non-elective procedures Skyrocketing healthcare costs (especially in Western developed nations) compel patients (even 1. TOTAL HEALTHCARE EXPENDITURE (MALAYSIA), 2006-2014 (FORECAST) Total Healthcare Spending (US$ Bn)

target. Per capita healthcare expenditure in 2010 was US$366, the second highest in the ASEAN region (see fig.3). To offset the rising costs of healthcare that would require an increase in national budget allocation, the Malaysian government is promoting greater participation of the private sector in the provision of all levels of healthcare services. This is being done through public-private partnerships, where private hospitals are being outsourced to provide certain services as part of the public system based on reimbursements. The rapidly growing private healthcare system, fuelled over the past ten years by the rise of employer-paid private insurance benefits and rising per-capita income, is expected to drive the growth in healthcare expenditure over the next decade. Malaysia’s healthcare revenues have largely been from domestic consumption, and some measure of exports from medical devices, pharmaceuticals and the medical consumables industries. However, medium and long-term strategies in the areas of (i) medical tourism, (ii) medical education and (iii) pharmaceutical and biotech exports will form future economic growth engines in the healthcare sector.

16.9

16 .3% R 12 CAG

14 12 9.6

10 8

8.0

14.8 13.3 11.9

10.3 8.7

6.7

6 4 2 0

2006(a) 2007(a) 2008(a) 2009(a) 2010(a) 2011(e) 2012(f) 2013(f) 2014(f)

Year Source: Frost & Sullivan

2. HEALTHCARE EXPENDITURE AS % OF GDP (INDONESIA, MALAYSIA, SINGAPORE, THAILAND, UK, USA), 2007 – 2015 (FORECAST) www.internationalinvestor.com 321 50

Total Healt

5,000 4,000

overview health

6 4 2 0

3,000

2006(a) 2007(a) 2008(a) 2009(a) 2010(a) 2011(e) 2012(f) 2013(f) 2014(f)

Year

2,000

Source: Frost & Sullivan

those with health insurance, as coverage may be limited) to look outside their country for medical 2007(a) 2008(a) 2009(a) 2010(a) 2011(e) 2012(f) 2013(f) 2014(f) 2015(f) treatment. JCI accredited hospitals in Asia provide Japan Indonesia Malaysia Singapore Thailand UK USA services at international standards at prices that Per capita Healthcare Expenditure (US$) Source: OECD are sometimes half of what it would cost in Databank the US. Some countries have extraordinary waiting times for a procedure, especially in the public sector, and the costs in the private sector are prohibitively high. Patients in need of more urgent care then pursue medical treatment in alternative countries 7. SOURCES OF MEDICAL TOURISM IN ASIA at a considerably lower cost. 0

Top reasons for choosing Asia Cost An average of US$15,000 is saved per procedure in destinations in Asia compared with US, with low waiting times Quality Healthcare Destinations in Asia are known for their state-of-the-art facilities and large number of accredited hospitals Convenience Especially for tourists in Asia, travel time and distance are not a limitation, allowing for follow-up and repeated treatments Government programmes Tourism boards of Asian countries like Malaysia and Singapore promote services to global medical travellers Availability of Alternate Therapy Asia provides a mix of Western and alternative healing techniques (e.g. acupuncture, ayurveda, etc.)

Rise of cosmetic surgery and elective procedures 40% of European medical The growing trend of elective and cosmetic tourists travel to Asia procedures, which are often paid out-of-pocket, 33% visit North America of medical from has opened up a completely32% new arenatourists of ‘medical the Middle East travel to Asia holidays’. For consumers from Western countries, 58% visit North America this is an attractive proposition where they combine an elective (usually cosmetic) procedure with a holiday in Asia. ■

Australasia

2010 % Growth

25.0

Eastern Europe

Latin America

North America 8,000

0 7,000

Western Europe 3,000

4,000

5,000

6,000

7,000

8,000

Regional market size 2010 US$ milion

5,000 Note: Size of the bubble denotes the share of the global market in 2010

Source: Euromonitor

4,000 3,000 2,000 1,000 0

2007(a)

2008(a)

Japan

3.3

3.4

4.0

4.3

2.2

6.7

16.2

9.5

9.6

9.7

9.8

9.9

3.3

4.1

4.2

4.3

3.3 4.0

3.3 4.1

4.5

4.4

4.5

4.6

4.7

4.8

2.0

2.8

6.8

7.0

7.2

7.3

7.5

7.7

7.8

7.9

2007(a) 2008(a) 2009(a) 2010(a) 2011(e) 2012(f) 2013(f) 2014(f) 2015(f) Year Japan Indonesia Malaysia Singapore Thailand UK USA

Source: EIU

2009(a) Indonesia

2010(a) Malaysia

2011(e)

2012(f)

Singapore

Per capita Healthcare Expenditure (US$)

concierge services, which have enabled patients 4. APAC MEDICAL TOURIST VOLUME, 2007 – 2010 and consumers to easily access hospitals in any part of1,750,000 the world; these companies provide a door-todoor service, from pick-up in their home country to 1,500,000 hospital and stay arrangements in the destination 1,250,000 country, to return back. This is making the process of1,000,000 medical travel easily accessible to the larger global population. 750,000 500,000 Disposable income Increasing disposable income among the growing 250,000 middle class in developing countries enables and 0 encourages to seek better healthcare services South them Korea Philippines Malaysia Singapore India Thiland ’10-12 out CAGR of their countries. 29.7% 24.7% 15.0% 9.0% 19.0% 25.0%

2008

2009

2010

1. TOTAL HEALTHCARE (MALAYSIA), Developments andEXPENDITURE Opportunities with 2006-2014 (FORECAST) Source: Frost & Sullivan Analysis Medical Tourism in Malaysia 18 16.9 Medical tourism is becoming increasingly important 16 14.8 to both Malaysia’s travel and% healthcare industries, .3 R 12second 13.3 and14 has become the largest foreign CAG 11.9 12 exchange earner for the10.3country over the past 9.6 10 8.7 the growth of the industry decade. To further drive 8.0 8 6.7 as a foreign exchange earner, the government is 6 taking steps to incentivise private hospitals to 4 expand and raise their standards. It was announced 2 by the Malaysian Health Ministry in May 2011 that 0 hospitals would receive 100%2011(e) tax2012(f) exemptions 2006(a) 2007(a) 2008(a) 2009(a) 2010(a) 2013(f) 2014(f) for the construction of newYearhospitals, as well as for Frost &This Sullivan expansion or upgrade of existing Source: facilities. is a step in supporting Malaysian hospitals to be on the 2. HEALTHCARE EXPENDITURE AS % OF GDP cutting edgeMALAYSIA, of medical technology. (INDONESIA, SINGAPORE, THAILAND, UK, USA), – 2015 (FORECAST) 2007 However, one of the major challenges to patients engaging in medical tourism is concern 50 about the quality of care in a foreign country. Patients are not sure how to interpret local awards Total Healthcare Spending (US$ Bn)

Middle East and Africa

2,000

9.4

16.2

2007

9,000

1,000

9.2

16.2

16.0

■

15.0

(5.0) 0 6,000

16.0

16.2

16.3

■

20.0

5.0

16.1

■

3. PER CAPITA HEALTHCARE EXPENDITURE (US$), 2007 – 2015 (FORECAST) 10,000 10.0

■

Concierge services Entrepreneurs have recognised the business opportunity surrounding the facilitation of medical Asia-Pacific tourism. Businesses now provide medical tourism

30.0

■

45% of North American Technology and high quality healthcare medical tourists travel to Asia facilities 93% of Asian medical tourists prefer intra-Asia travel For patients travelling from less developed countries, expertise, more advanced facilities or technology and better quality of care motivates them to seek Source: Frost & Sullivan treatment abroad. A McKinsey & Company 2008 report emphasises that 40% of medical travellers seek advanced technology, 32% seek better healthcare, 15% seek faster 5. REGIONAL MEDICAL TOURISM SPENDING, 2010 medical services and 9% seek lower costs as their primary consideration. 40.0 35.0

2. HEALTHCARE EXPENDITURE AS % OF GDP (INDONESIA, MALAYSIA, SINGAPORE, THAILAND, UK, USA), 2007 – 2015 (FORECAST)

Healthcare Expenditure (% of GDP)

1,000

2013(f) Thailand

2014(f) UK

2015(f) USA

Source: OECD Databank

322 www.internationalinvestor.com 7. SOURCES OF MEDICAL TOURISM IN ASIA Top reasons for choosing Asia Cost

Expenditure (% of GDP)

16.0

16.1

16.0

16.2

16.3

9.5

9.6

9.7

9.8

9.9

health overview

Strengths

weaknesses

■ Pricing in Malaysia is more affordable than Singapore

■ Sited manpower shortages may inhibit a private hospital’s ability to deliver desired luxury services to patients ■ Malaysia is sited to grow at 16% annually until 2015 while the medical tourism market is projected to grow at 20-30% annually over the same period. Therefore, it may not be taking full advantages in line with market growth

or Thailand, appealing to cost-conscious consumers ■ MOH’s plan to improve the doctor to patient ratio to 1:400 by 2020 means improved access for foreigners ■ Overall packaging in terms of services, resorts and hospitality services provide strong value-add propositions

opportunities ■ Fast growth in the APAC medical tourism market (25% in 2010) as the global economy recovered greatly increases Malaysia’s growth opportunity with patient’s considering the region for care ■ Furthering the growth of a tourism hub like Penang serves to generate further interest in the country for medical services ■ The importation of foreign clinicians may ease concerns of some medical tourists ■ Costs of healthcare services in the West and other developed nations lead patients to seek services outside of their countries. Additionally, Malaysia may serve as an attractive destination for medical tourists from the Middle East

or other accolades that a hospital receives. JCI International Accreditation is a step that has been taken by many medical institutions seeking to attract foreigners. As an accreditation system routed in the US, its quality standards often act as a reassurance to foreign patients. Hospitals in countries around the region are also ensuring they have JCI accreditation. Malaysian hospitals need to aim for this as well. Other major drivers for the Malaysian medical tourism industry are: Efforts to increase the quality of hospitals and specialists The government is pushing for all private hospitals to receive accreditation through the MSQH by the end of 2011 and ensure quality control through the Private Healthcare Facilities and Services Act. This initiative helps reinforce the quality available in the private sector to consumers, as quality is one of the key issues in choice of hospital. Other than the quality of the hospital, quality of specialists is another important driver. The Ministry of Health has set a five-year goal of increasing cardiothoracic surgeons, urologists and neurosurgeons. A larger supply of these clinicians will ensure quality and timely access for foreign patients eager to have procedures performed. The Malaysian Medical Association and the Ministry of Health plan to review current medical regulations that limit the entry of

threats ■ Compared to Singapore, Malaysia is seen as less safe which may act as a barrier for some patients ■ Emerging medical tourism markets like Korea and Taiwan are growing as fast as Malaysia and have significant measures to appeal to foreigners ■ Malaysia currently has nine JCI accredited medical facilities, significantly less than Thailand (22) or Singapore (18) ■ Has yet to carve out a niche in any specific areas of excellence

foreign medical practitioners and the adoption of advanced medical practices. The relaxation of regulatory rulings will liberalise healthcare manpower supply and bring in more expertise to support the healthcare service industry. Cost effectiveness in comparison with other countries in the region Malaysia is one of the most cost-effective options in the region. For comparison sake, a similar procedure benchmarked with the US as 100% costs 25-30% of that in Malaysia, 30-35% in Thailand and 35-50% in Singapore. Costs associated with travel like accommodation, transport and daily expenses are considerably lower in Malaysia compared with Singapore, and comparable to that in Thailand. Developments across the region also put Malaysia in a favourable position, as Singapore residents were allowed to utilise savings held in their national medical savings scheme hospitalisation and day surgeries at two hospitals in Malaysia as of March 2010. Promotion of Malaysia as a holiday destination As a tourism destination, Malaysia has much to offer with its beaches, luxury hotels and high standards in the service industry. It is an attractive option for consumers seeking to combine elective procedures with a holiday. The Healthcare Travel Council promotes 35 private hospitals for medical

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■

58% visit North America 0

overview health 45% of North American medical tourists travel to Asia ■ 93% of Asian medical tourists prefer intra-Asia travel

6.7

6.8

7.0

7.2

7.3

7.5

7.7

7.8

7.9

2007(a) 2008(a) 2009(a) 2010(a) 2011(e) 2012(f) 2013(f) 2014(f) 2015(f) Year Indonesia Malaysia Singapore Thailand UK USA

Japan

like Malaysia and Singapore promote services to global medical travellers Availability of Alternate Therapy Asia provides a mix of Western and alternative healing techniques (e.g. acupuncture, ayurveda, etc.)

4. APAC MEDICAL TOURIST VOLUME, 2007 – 2010

5. REGIONAL MEDICAL TOURISM SPENDING, 2010

1,750,000

40.0

1,500,000

35.0

1,250,000

30.0

Source: Frost & Sullivan

1,000,000

2010 % Growth

750,000 500,000 250,000 0 ’10-12 CAGR

urope

Australasia

Asia-Pacific

25.0

South Korea Philippines Malaysia Singapore

29.7%

24.7%

2007

2008

15.0%

9.0% 2009

India

Thiland

19.0%

25.0%

2010

Source: Frost & Sullivan Analysis

20.0

Eastern Europe

Latin America 15.0 Middle East and Africa

10.0 5.0

North America

0 (5.0) 0

Western Europe 1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Regional market size 2010 US$ milion

ope 7,000

8,000

market in 2010

e: Euromonitor

Increased governmental support and its relative price competitiveness for medical treatment is likely to drive Malaysia’s capability in becoming one of the key centres of excellence for medical tourism in the region

tourism, and has an important role to play in attracting patients to Malaysian private hospitals.

Note: Size of the bubble denotes the share of the global market in 2010

Areas of Opportunity The Malaysian Government has stated its intention to nurture the following healthcare services: ■ Healthcare screening and the preventive wellness market ■ Cardiothoracic surgery ■ Hand and microsurgery ■ Post-treatment services such as physiotherapy Underpinned by the clinical benefits of reduced post-operative pain, lower risks of complication and shorter recovery times, Minimally Invasive Surgery (MIS) has created a revolution in various surgical disciplines over the past two decades. Driven by the more favourable outcomes and the growing local and foreign demand for costefficient healthcare, day surgery centres in hospitals offering MIS procedures over a variety of disciplines are a strong area of opportunity. For elective procedures, wellness resorts are an attraction to foreign patients. EPP projects are currently targeting wellness resorts in Penang, Selangor and Ipoh. These EPPs will require private

investments and funding of around RM1.7 billion. The proposed wellness resorts will result in an additional RM2.7 billion GNI annually by 2020 and create nearly 212,500 jobs in the retail sector, resulting in further economic growth. Among all states in Malaysia, Penang is one of the most developed when it comes to medical tourism. Approximately 70% of Malaysia’s medical tourism revenue in 2010 was from Penang. With EPP projects taking place there, the region is positioning itself to become Malaysia’s medical tourism hub. Recovering from the impact of the financial turmoil in 2009, the global medical tourism industry has shown a positive glimpse of recovery (see fig. 5) and key nations, such as Singapore, Thailand, Malaysia and India are likely to experience double digit growth in market revenue towards 2015.

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93% of Asian medical touri prefer intra-Asia travel

Source: Frost & Su

Source: EIU

■

010

■

Source: Euromonitor

Conclusion Malaysian healthcare is at a crossroads due to its population growth, current healthcare infrastructure and initiatives by the government to move ahead in this sector. The country is a rapidly growing economy in medical tourism and rising as a respected leader in the healthcare community. Facing strong regional competition, increased governmental support through the NEP and its relative price competitiveness for medical treatment is likely to drive Malaysia’s capability in becoming one of the key centres of excellence for medical tourism in the region. Malaysia should focus on promoting key areas of strength and advantage to set itself apart from the competition, as well as aim for international quality benchmarks. As a country, it is well positioned to put itself forward as a strong competitor in the region for medical tourism.

health interview

YAHYA BABA MALAYSIAN HEALTH PROMOTION BOARD (MySihat) Chief Executive Officer

I am a medical doctor by training, but I am more of a public health specialist on the preventative side of medicine. I graduated from the National University of Malaysia, and I got my masters in Public Health at the University of Malaya. Then I obtained my second masters in Health Policy, Planning and Financing (MSc HPPF) from the London School of Hygiene and Tropical Medicine, with specialisation in the related fields of health economics, health policy and healthcare management — there was also a particular focus on international health systems. Initially, I was posted to the Planning & Development Division, Ministry of Health, but later I was appointed as the Director of the Ministry of Health’s Health Education Division after completing my second masters program. I was the Director of Klang Hospital, the biggest and busiest hospital in Malaysia, after which I became Director of the Institute of Public Health, Malaysia. Throughout my career I have been exposed to and faced with so many wonderful experiences and challenges in the health-related field. And now, after being asked by the Ministry, I have been CEO of the Malaysian Health Promotion Board (MySihat) since July 2009.

INternational investor: Could you please give us an outline of your company? yahya baba: Malaysia today has a comparatively high standard of health as the result of long and well-established health and medical services. However, there has been growing concern over the cost of medical healthcare that is rising every year and outpaces the general inflation rate. Yet, the cost of healthcare in Malaysia remains one of the cheapest in the region, as the government subsidises it. The Ministry of Health has indicated that the situation will evolve and is considering a national health insurance plan. Another way to save on healthcare expenses is to engage with the local population. The Malaysian government has been actively promoting healthy lifestyles, with prevention campaigns in the community. The Malaysian Health Promotion Board (MySihat), a statutory body under the Ministry of Health, was established to set and develop the health promotion agenda across different sectors and settings, particularly with the participation of non-governmental organisations (NGOs). Would you say that MySihat is still in its infancy? Yes I would. When I joined the board in 2009 there were issues of concern to all parties, such as the Ministry of Finance, which questioned whether the board was able to spend the allocations effectively. The NGOs think that MySihat is cautious and inefficient in disbursing the grants to them, as the board didn’t accept some of their project papers. However, things have changed now; we are moving forward. In fact, what we call the ‘happiness problem’ — the problem of a rich man who can’t think of how to spend his money — has gone. We have started to spend wisely and effectively. We issued 39 grants in 2008 and 42 in 2009. The following year we saw an explosion of grants to 183. In the first four months of 2011 we issued 137 grants and 236 applications for grants

www.internationalinvestor.com 325

interview health

“

People

asked why culture matters in health promotion. It is very simple. We can use cultural activities to get our healthy living messages across

”

were approved. We could say there has been a quantum leap in the approval of grants. These grants are in the forms of financial assistance to support NGOs to run health promotion programs and activities. Our role is not merely to give grants; we empower local communities and local NGOs to actively participate in healthy lifestyles. It is what we call community engagement or community empowerment. When I was in the Health Education Division, healthy lifestyle promotional campaigns and activities were carried out solely by the departments. We came to realise that we couldn’t sustain it without the full involvement of the communities. So our obligation from now on, in MySihat, is to take it forward by means of full participation of the local communities.

PREVENTION IS BETTER THAN CURE How does MySihat fit into the Malaysian healthcare system? We are somewhat different from the main type of activity the Ministry of Health carries out. The Ministry is mainly involved in developing and promoting treatments and cures. We are more on the preventative and promotional side of the healthcare sector. Of course, bigger components of the budget are given over for the curative side and for the hospitals. You can see the budget given for the hospitals’ development. However, if we can create wellness in the wider community then we can prevent more people going to the hospital in the first place. This is what we are doing. So our target is to make sure that most Malaysians are healthy, and that more people become active.

EMPOWERING THE NGO SECTOR IS KEY What are your interactions with NGOs and how important are they to your work? Our priority is mainly on health promotion agendas across different settings and sectors, with the active participation of NGOs as our partners to carry out health promotion programmes and activities. Therefore, it is important that we build a close relationship with Malaysian NGOs. However, our NGOs are not like developed countries where the NGOs tend to be very organised and matured. Here, in Malaysia, many NGOs — I don’t say all — are lacking the capacity and the capabilities to do health promotion activities. Most of them perhaps are in rural areas. What we want to do is to empower them to carry out more health promotion and disease prevention activities. These are the key ways we can get our message across.

What other organisations and stakeholders do you work with? Currently, we collaborate with a prominent youth organisation, the Malaysian Youth Council, to develop a module for youngsters’ healthy lifestyle programmes and activities. We developed a partnership with the Ministry of Information Culture and Communications in promoting health through cultural activities. We also work with the private sector such as LimKokWing University Malaysia. They are helping us to develop our corporate videos. We are also working with local media, Berita Harian, one of the biggest local newspapers in Malaysia to promote what we call 10,000 Steps-A-Day throughout the country. The 10,000 Steps-A-Day campaign is intended to empower the people to improve their health by walking more and reducing their intake of unhealthy food. We started the programme in July 2011. Thus, we work with not only government sectors, but private and corporate sectors as well.

Please tell us more about the different programmes of MySihat. We divide our programmes into five categories. The first is health promotion activities. The second is sports and recreation activities. The third is cultural activities. People asked why culture matters in health promotion. It is very simple. We can use cultural activities to get our healthy living messages across, for example, theatre. We can make it so the script includes messages on healthy living, we can use songs and music. They can be tailored towards public health messages as well. The public ends up being taught a lot without realising it. The fourth one is what we call ‘capacity building’ — if the NGOs want to organise a symposium, workshop or conference which is related to health, they can apply for a grant from us. Similarly, if they want to put a training programme on, they can get a grant from us. The fifth one is research related to health promotion.

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WORKING WITH INTERNATIONAL PARTNERS You have international partners in Thailand, Austria, Switzerland, Australia, Singapore, Canada, India and Oman. Tell us a little more about these partnerships and how the Malaysian Health Promotion Board is benefiting from them. We are now a very active member of the International Network of Health Promotion Foundations (INHPF). We were in Vienna for the annual meeting in 2009. In 2010 we went to Geneva. We even hosted the meeting in June 2011. I think this sort of international networking has benefited us enormously. We have established contacts and networks with many health promotion organisations in countries such as Australia, Switzerland, the Netherlands and Germany, and we have learned a lot from tapping into their expertise. We work closely with the World Health Organisation (WHO) in advancing smoke-free

healthâ&#x20AC;&#x192; interview

initiatives and jointly supported the smoke-free zone initiative in Malaysia. As a result, Melaka has become the first state in Malaysia to declare a smoke-free zone. We participated in the ASEAN Secretariat focal point for tobacco control, and they recognised the work that we had done in implementing the WHO Framework Convention on Tobacco Control. The globalising of what we do is an important element because not only does it bring experts in, but it also allows us to explore our own ideas with international partners as well, which then obviously benefits Malaysia at large. GOOD HEALTH IS KEY FOR THE ETP How is the Malaysian Health Promotion Board placed to contribute to the development of the Economic Transformation Programme? It is very important for us to contribute to the development of the ETP. We look forward to transforming the way people think about how their health affects their ability to perform their routine jobs. In other words, by improving the health status, the economic status will improve as well. I was in Penang recently, and I could see that through our activities the community is now becoming much more active. The way people think about health is totally different to five or ten years ago. Hopefully through capacity building, the

NGOs and community will carry out more health promotion activities. As a result, Malaysians will become more healthy and active. I think we could contribute in the development of the ETP, as MySihat plays its role in ensuring a healthy population that may contribute substantially to economic growth in the country. You have a transformative role, then? Yes. With the activities we carry out, and also with the networking with the NGOs in local communities, we hope that the communities can indeed be transformed. There is a lot of transformation we will bring. We hope we can act as a catalyst that will encourage a change and improve the quality of life for the whole society. For instance, we have a problem with smoking. We hope that with our efforts we can change this. Then when the problem of smoking is reduced, a lot of respiratory problems will reduce, and a lot of diseases related to smoking will be reduced. The government is spending about 3 billion ringgits in relation to smoking. Now if we can reduce the problem of smoking, we can definitely benefit from the 3 billion ringgits. It is therefore clear that good public health will be crucial for the success of any economic transformation process. That is where we come in.

Together for health

The Board understands the need to generate health promotion initiatives through prudent and carefully nurtured partnership and alliances. It is our aim to establish alliances where both partners are deeply committed to a long-term relationship. The Board supports its partners in every aspect in providing assistance towards promotional programmes and activities that are related to health promotion and healthy lifestyle. Malaysian Health Promotion Board (MySihat) Level 9,11 & 12, Menara Prisma, Tel: +603-8888 7700 26 Boulevard, Persiaran Perdana, Presint 3, Fax: +603-8888 7400 www.internationalinvestor.com 327 Pusat Pentadbiran Kerajaan Persekutuan, Web: www.mysihat.gov.my 62675 Putrajaya Malaysia

interview health

SITI SA’DIAH SHEIKH BAKIR KPJ HEALTHCARE Managing Director

I graduated in economics from University Malaya in 1974, and that same year I joined Johor Corporation, KPJ Healthcare Berhad’s ultimate holding company. One of my first tasks was to carry out a feasibility study on setting up the first private hospital in Johor Bahru. The region was undergoing rapid industrialisation and needed many facilities and services, including medical services. In addition, there was a large number of foreign investors coming into Johor, so a private facility was ideal. Construction began in the late 1970s, with the doors opening to the public in 1981. The response was overwhelming, so we knew we had made the correct decision. The turning point in my career started when I was appointed Managing Director of KPJ Healthcare Berhad in 1993. Throughout my career I have provided strategic direction and transformational leadership to now more than 8,000 staff and, together with 800 medical specialists, we serve more than 2 million patients each year. KPJ has grown from one hospital in 1981 into Malaysia’s market leader today, with more than 20 hospitals at home and two in Indonesia. KPJ has achieved more than RM1 billion in turnover since 2007, and has been among the Top 100 Companies on Bursa Malaysia since 2009. To date, KPJ’s market capitalisation is more than RM2 billion (from RM1.4 billion in 2009) and revenue was RM1.6 billion as at 31 December 2010. I am passionate about bringing KPJ to ever greater heights, and growth is driven by three key thrusts — capacity building, human capital and innovation. These are strongly supported by five core values — safety, courtesy, integrity, professionalism and continuous improvement. MOTIVATION

LESSONS IN BUSINESS

As a leader, I am driven by the team’s outstanding performance. Past success is a real motivator. Our company has done well, and I am grateful for our successes today — that spurs me on to work harder and create even more value. These achievements also inspire me to spread this value to an evergrowing number of patients, shareholders and staff. Keep an eye on your competitors. You cannot be complacent, but if you manage your resources well, success will follow. I also emphasise innovation and creativity, encouraging team members to acquire knowledge and make revolutionary changes whenever necessary. I believe in undertaking a calculated rocking of the boat — instead of becoming too easily satisfied in stagnant waters.

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INternational investor: Can you describe your business model? Does it differ from other healthcare providers in Malaysia? SITI SA’DIAH SHEIKH BAKIR: We have two key differences. Firstly, KPJ’s business model is unique as it is integrated, which provides the group with a strong competitive advantage. This centralised structure is coordinated at the organisation’s very core (HQ), based on a pragmatic and innovative approach. It creates a foundation for cohesiveness and seamless value creation on several fronts — primarily corporate and clinical compliance, a unified brand and strong teamwork, as well as shared values and culture. Secondly, KPJ is a focused service provider, managed by an experienced management team. When we started, our competitors in the healthcare market seemed to be divided into those which were doctor-driven, and those that were more property and purely business driven. KPJ decided then that we needed to reach a harmonious equilibrium and cohesiveness between the medical aspect and the business perspective. In KPJ hospitals, the doctors’ suites are only rented out and not sold to them, but they come to us to work on a full residential basis. This enables our hospitals to have centralised services, billing and collection. After 30 years, it remains a successful and relevant business model and indeed is being followed by others. You recently signed a joint venture to develop a specialist hospital in Kangar. What does this tell us about your expansion plans in Malaysia? KPJ’s main focus has always been to grow the business and our primary market has always been Malaysia. To achieve this objective, there are three broad strategies. The first is mergers and acquisitions (M&A), which enables us to strengthen our market share more rapidly. It is also a cost and resource efficient strategy for the group. The second strategy is smart partnerships, which create substantial added value and mutual benefit

interview health

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We expect

health tourism to continue to grow in importance and we expend quite a bit of energy marketing ourselves and the country abroad. Malaysia is increasingly being seen as a healthcare hub

”

for both KPJ and our respective partners. This includes our partnership with Yayasan Islam Perlis (YIPs) for the hospital in Kangar. The third thrust is to build new hospitals. How important is the health tourism sector economically? Please elaborate on the role it will play in Malaysia’s future? Heath tourism is very important for the economy, and Malaysia has proven itself very capable in the field. A NuWire Survey in 2008 has found that Malaysia is the third most preferred destination for healthcare tourism. Malaysia offers competitive costs, regulated professional medical charges, well-trained medical consultants and national stability. I have frequently called for all private healthcare providers to work together, to move Malaysia from the current third placing upwards, thus making Malaysia the medical hub of Asia and the world. Thirty-five hospitals in Malaysia have been earmarked to promote health travel under the Healthcare NKEA — 11 of them are KPJ hospitals. All KPJ hospitals conduct aggressive internal and external marketing initiatives — eg through programmes spearheaded by MIDA, MATRADE and the Malaysian Health Travel Corporation (MHTC). KPJ also contributes to industry-wide programmes under the Association of Private Hospitals of Malaysia (APHM), apart from carrying out the group’s own branding, positioning and marketing exercises. In what way does KPJ fit into the country’s Economic Transformation Programme? Healthcare, as one of the National Key Economic Areas (NKEAs) of the Economic Transformation Programme (ETP), is highly important for the economic development of the country. Healthcare aspires to generate RM35 billion incremental GNI contributions to reach RM50 billion by 2020. The Healthcare NKEA also has a target to welcome 1 million health travellers and conduct 1,000 clinical trials, all of which will result in more than 180,000 new jobs. KPJ remains dedicated to growing and adding value to the business. Five of our hospitals — KPJ Klang Specialist Hospital, Sabah Medical Centre, Pasir Gudang Specialist Hospital, KPJ Pahang Specialist Hospital and Dato’ Onn International Specialist Hospital — were announced on 10 November 2011 by the Prime Minister as part of the 13 new ETP projects. The total investment is RM763 million and it is anticipated to create more than 3,100 jobs by 2020. This will contribute to Malaysia’s aspirations to be a hub for healthcare excellence. KPJ recently took up a 51% stake in Jeta Gardens — a retirement village in Queensland, Australia — with plans to further develop it, as well as to gain valuable management experience for us to replicate in Malaysia.

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Your education arm was awarded the University College status in 2011. Why do you invest in education and is this an area you’d like to expand? We are, of course, principally in the business of providing healthcare services; but the educational aspects of the sector have also been central to our operations for a long time now. When we first started our education arm in the early 1990s, there was a huge shortage of nurses and paramedics in the country. At first, it was seen as a way for us to become selfsufficient in the development of well-trained nursing staff, but since then it has transformed into a big business opportunity in its own right and now KPJ’s nurses and paramedics are marketable worldwide. Having built an outstanding track record until today, the KPJ College’s main campus is now located in Nilai, Negeri Sembilan, with branches in Johor and Penang. KPJ College was upgraded into a university college (KPJ International University College) in July 2011. We were also given the approval to set up KPJ’s own medical school in two years’ time. Our major advantage is the availability of a network of modern, specialist hospitals that provide the hands-on opportunities for students during their practical sessions. Have you had interest from foreign investors? Are they important for you to grow the business? Foreign investors have identified the healthcare industry in Asia as a major contributor to the region’s emerging markets, with immense growth potential. Over time, the healthcare business has also proven its resilience, even during periods of economic uncertainty. These two criteria have further added to KPJ’s attractiveness in terms of better returns for foreign investors. KPJ has made efforts to promote greater awareness in Europe, America and the Middle East, including investment roadshows together with Bursa Malaysia and financial analysts. These showcase our strengths and growth potential for the long term. For the past two years KPJ has received continuous attention from investors and this has resulted in the movement of foreign ownership of KPJ’s equity ranges between 10 and 12%, with a continuous increase in the shareholders’ mix. It is important for us to ensure their continuous interest in KPJ, as this will provide a bigger demand for equity ownership as well. Another investment vehicle that is linked to KPJ is the Al-’Aqar REIT. In 2005, the Securities Commission approved the creation of the Al-’Aqar REIT and KPJ became the first company to launch an Islamic healthcare REIT in the world. Proceeds from the injection of KPJ Hospitals into Al-’Aqar unlocks the assets’ value, significantly improves KPJ’s cash flow as well as our gearing ratio, which in turn enables us to expand at a faster pace. I think we are very well set for sustained growth now. I’m excited about the future.

healthâ&#x20AC;&#x192; interview

CHAN KOK EWE ISLAND HOSPITAL

Director and Advisor

I graduated from university in medicine, qualifying as a medical doctor. After working as a doctor I decided to broaden my horizons. First, I spent some time as a medical researcher. I worked on developing a vaccine made from snake venom. Next I spent some time teaching. Again, I wanted to move on and see more of the world, so I accepted a job as regional medical consultant for a travel company. That involved my giving medical advice to companies and serving on a number of boards. That gave me invaluable experience of how business works. Finally, I helped to found the Island Hospital, Penang. That was 15 years ago and I have been here ever since. Apart from my role at the hospital, I am involved in a number of NGOs and am the Chairman of the Penang Hospice Society. I am also the founder and Chairman of the Penang Health Association. MOTIVATION

I am very motivated by ideas and by learning. In fact, I try to learn something new every day. I want to stay ahead of the curve. I get a big rush from implementing great ideas into the business.

LESSONS IN BUSINESS

We ought to look at our business lives in this way: it is not how much you get or how much you give but how much you leave behind. Your legacy is what is important, not your millions.

INternational investor: Tell us a bit more about healthcare tourism as a sector in Malaysia. Why is it growing and what makes it so attractive? chan kok ewe: It is very simple: we are very cost effective and we have very high quality hospitals. Penang is, of course, the main region for health tourism in the country. In percentage terms, we attract about 70% of the total. Malacca takes about 15% and KL the remainder. Why Penang? Because we have developed such a concentration of expertise. We have facilities here that equal a lot of developed countries. We are fortunate to have a competitive currency at the moment as well. That makes healthcare here relatively cheap compared with a lot of other countries. Initially, the health tourism sector attracted a lot of Indonesians, partly because of the cultural similarities, partly because we offered higher quality healthcare at the time. But the pattern has changed in recent years. We now get Europeans, Australians, Japanese and Americans. Tell us a little about the Penang Health Association and what the reasoning behind it is. It stems from a conscious decision among Penang healthcare providers to come together as a corporate body to promote Penang as a healthcare destination. Industries often donâ&#x20AC;&#x2122;t think strategically as a group. Of course they compete, as they should do, but there is a virtue in coming together to promote the whole industry and region. The sector has been growing strongly in recent years. What levels of growth are you expecting this year and into 2012? As you say, we have achieved great levels of growth and we expect to continue to do that, certainly. In fact, we are feeling some pressure at the moment because the demand is so high across the whole healthcare sector. We are forecasting 15% growth over the next three or four years. The market for

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The market

for healthcare tourism can be one of the big drivers of the Malaysian economy going forward. That is why it is seen as a serious part of the whole Economic Transformation Programme

”

healthcare tourism can be one of the big drivers of the Malaysian economy going forward. That is why it is seen as a serious part of the whole Economic Transformation Programme. Not only is the desire for healthcare strong and constant — people will always get sick — it increases because so many new techniques become available. If we in Malaysia, and in Penang in particular, can keep up with the game, I think the possibilities are endless. new investors: room for foreign providers Are there any obstacles in the way of new providers coming into Penang and setting up? How hard is it for them? There are no obstacles in the way of new providers at all. In fact, the country is seeing some foreign medical providers coming in. The government recently signed a deal to bring Johns Hopkins School of Medicine to the country, to the so-called ‘Medical City’. In the case of Johns Hopkins, I am not sure what they can bring that we do not have already, if I am honest. I am not against them by any means, but what can they do differently? The Malaysian healthcare business focuses on the 95% of ‘common complaints’ and not necessarily the 5% of high-end expertise. Of course, it has to be understood that setting up a healthcare facility is not a case of merely building a facility. This is a people-centred business, and you have to have the right team in place to succeed. So perhaps that in itself is a barrier: being able to get the human resource structure right. That is where the challenge lies. What are the challenges this business is facing either within Penang or Malaysia as a whole? Healthcare is a complex area, as you can appreciate. As I mentioned earlier, it is not just a case of building a facility and buying some machinery. You need a highly educated and talented workforce. You also need very hi-tech systems, but also the ability to run them. Take our computer systems. One specific challenge is that we have to continually update our computer software. We work in a fast-moving environment, and we must keep completely up to date. A lot of hospital administrators think it is money spent on nothing, but they are wrong. If you plant a seed today and you don’t water it, you don’t put fertilisers on it, when tomorrow comes, forget it, you won’t have any more the leaves, so we have to continuously upgrade. Our e-systems are the background for an efficient health business. Do you actually target any particular countries in terms of healthcare tourism? Are the markets of China and India, for example, going to be key for you going forward? We certainly do. Obviously, a lot of our business comes from countries within the Southeast

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Asian region. But China and India are going to be increasingly important markets for us in the future. Markets further afield are important as well. Healthcare is a big issue in America, for instance, and is very expensive That is where we could really benefit. If an American patient can come to Malaysia to get an operation done for US$75,000 that would cost his insurance provider US$150,000 in the US, that is a real opportunity for us. There are obstacles to be overcome, of course. We would have to be aware of the highly litigious nature of the US system, for example. But I think there are huge opportunities there. One thing we could look at is to package healthcare with tourism. A patient could come to Malaysia for two weeks, spend one week on his treatment, and another on holiday. It is a nice place to visit after all. It may work out cheaper for his health insurer even then. THE STATE AND PRIVATE HEALTHCARE Is the government sufficiently supportive of the healthcare sector? Overall it is supportive. As I mentioned, healthcare is an important part of Malaysia’s Economic Transformation Programme. The potential for the sector to bring in high levels of foreign cash is attractive to the government. Having said all that, I do think there is some way to go before the government sees things eye-to-eye with the healthcare industry. The government runs its own state hospitals and that can cause conflict. Overall, though, I believe that the sector has a great future ahead of it. There is such a high level of opportunities to attract business from around the region and around the world that we would be foolish not to support it as much as we are able.

health interview

RAJA AZLAN SHAH RAJA AZWA SIME DARBY HEALTHCARE GROUP Managing Director

I come from a very diverse background. My mother is Australian, from a working class family in Perth; my late father was Malaysian with roots in Kelantan royalty, one of the states of Malaysia. I went to the University of Sheffield in the UK and did a degree in accounting and financial management. After graduating in 1993 I came back to Malaysia and worked as an external auditor for five years at Arthur Anderson. It was there that I secured my professional qualification from the Malaysian Institute of Certified Public Accountants. After that I went into investment banking for six years with CIMB. I joined Sime Darby Group in 2005 as Group Head of Corporate Finance. In that role, I worked with the Group Chief Executive and the Head of Strategy in originating, evaluating and structuring deals. Then in early 2010, I became the Group Head of Strategy & Business Development. I was in that position for about seven months prior to my posting to the Healthcare Division. It has been a very enriching experience because of the transition from a functional leader to a business leader and from a strategic advisory role to an operations role. MOTIVATION

LESSONS IN BUSINESS

The most important thing to me is alignment with the Creator. God is the truth, most gracious and most merciful and is my motivation. This helps me to communicate and bond with the people that I lead and in turn motivate them to create a better future. In Sime Darby Healthcare, we have many long serving employees, who work very diligently to grow the company. I aspire to be the leader that leads them to grow both personally and professionally, creating opportunities for improvement in their lives. In business you need to ‘take the bull by the horns’. You need to apply common sense, have a handle on the strategic and operational details. You need to get into the hearts and minds of the people in order to lead them effectively and drive the right kind of culture. By driving basic principles and values, we aim to achieve strong leadership and a culture of integrity, accountability and excellence.

INternational investor: How does Sime Darby Healthcare fit into the wider group? RAJA AZLAN SHAH RAJA AZWA: Sime Darby Healthcare is the smallest division of the Sime Darby Group. Today it accounts for just 1% of the group’s profits and assets. The Sime Darby Group has shareholders funds of about 24 billion ringgit, and net profits of 3.6 billion. Sime Darby Healthcare is the smallest within the group, contributing a profit before interest and tax (PBIT) of 26 million ringgit. In the past the Healthcare division was parked under other divisions. However, recently the group has recognised the potential of the division and stated its intention to make Healthcare a core business, given the attractive industry prospects driven by growing affluence in the region, an ageing population, rising spending on healthcare and an increase in complex or non-communicable diseases. In the years to come, the Healthcare division will strive be a leader in the provision of quality and affordable healthcare to patients both locally and internationally. We want to be seen as a reputable brand delivering a comprehensive range of healthcare services. You recently announced the intention to invest about 280 million ringgits in two hospitals in the Klang Valley. Can you give us an overview of those projects and how they fit into your strategic plans? Sime Darby Medical Centre Ara Damansara (SDMC AD) opened for business on 12 January 2012 and we hope to open SDMC ParkCity hospital by the end of this year. With that we will have three big hospitals in operation. SDMC Ara Damansara will be a 220-bed specialist hospital dedicated to the management and treatment of heart, brain, spine and joint diseases, while the core specialities of the 300-bed SDMC ParkCity are women’s and children’s healthcare with a focus on breast care, child development and treatment of chronic diseases such as diabetes. We really need the extra capacity because demand for healthcare services is growing rapidly

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When

you put India, Indonesia, Thailand, Singapore and South Korea together with us, then Malaysia only accounts for about 3% of the health tourism pie. This shows us the opportunity that exists for Malaysia

”

in Malaysia. Private healthcare has grown at an annual rate of 12% over the past 7 years. Sime Darby Medical Centre Subang Jaya is operating above 90% occupancy on weekdays. We are short of space, but with the new hospitals we will be able to expand our services and centres of excellence and increase our bed capacity to more than 900 beds. We are looking at existing as well as new markets in the region to develop more focused speciality services as part of our continuous expansion plan. A defining aspect of our new hospitals will be our competitive differentiator — the degree to which care, compassion and warmth are integrated with advanced healthcare. As a JCI accredited healthcare provider in Malaysia, we’ll build on the strong brand equity and loyalty as well as the professional experience garnered over the years. healthcare and economic transformation A lot of these developments are taking place in the context of the Economic Transformation Programme. What do they say about your commitment to and participation in the ETP? I think that the programme set out by the government is very good for the country and for the healthcare sector. First of all they have identified a few key pillars for the strategic development and growth of the industry, of which one of the most important is health tourism. In this regard, Malaysia has a great deal of room to grow. We are situated between Singapore, Indonesia and Thailand, which can be huge potential sources of health tourism for us. Yet at the moment we are not doing justice in this area. When you put India, Indonesia, Thailand, Singapore and South Korea together with us, then Malaysia only accounts for about 3% of the health tourism pie. This shows us the opportunity that exists for Malaysia. Over the next two years, Sime Darby would have invested 300 million ringgit to set up two hospitals in the Klang Valley. This will, in the long term, add another 520 beds to the capacity required under Entry Point Project (EPP) 4. Our participation in the ETP will also help to create more jobs and wealth that would benefit the economy. Sime Darby Healthcare chose to participate in the ETP because: ■ We want to contribute to the nation’s aspiration to become the regional healthcare hub. ■ Enhanced tax incentives for healthcare service providers who offer services to foreign health tourists. This is critical in helping us achieve reasonable investment returns, particularly due to the capitalintensive nature of healthcare investment. However, we need to be very coordinated with other players and government agencies in our effort to stimulate medical travel to Malaysia, particularly in regards to: 1. Strategic alliances that will refer health tourists to our hospitals. 2. Niche marketing of differentiated services that will enhance Malaysia’s competitiveness.

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Can you see yourselves entering into strategic partnerships with other healthcare providers from around the world? At the moment our focus is to complete our current domestic projects, which will be completed by 2013. We are keen on strategic partnerships as a means of accelerating our growth, especially regionally. We are also in the midst of further developing our education business, which currently provides education in the areas of nursing and allied health sciences. malaysia’s human capital Tell us a little more about your nursing and health sciences college. Is it indicative of the fact that at the moment there is an issue around sufficient talent in Malaysia? There is indeed a shortage at the moment of quality nurses and that shortage will persist beyond 2020. There has been a proliferation of new colleges offering nursing courses but there are issues in terms of the quality. There is also an overall shortage of quality health sciences staff — for example, physiotherapists and pharmacists. Being a healthcare operator, we are in a very good position to synergise between the healthcare education component and the healthcare service component, while providing high quality healthcare related education. We have been in the business of training our own people since 1995, but it was only in 2008 that we made a conscious decision to make this into a separate business. Serving the broader market, we have grown from about 500 students in 2008 to 1,300 today. We aim to grow that further. Apart from strategic partnerships, do you have any plans for regional expansion? We are working on the idea. In fact our mission is to be the gold standard healthcare provider for the Asia-Pacific region. Sime Darby Healthcare has earned a place at the forefront of the local and regional healthcare industry with a strong reputation built over the years. Our strengths are reflected in our use of science and compassion to enhance patient-centric care. We take all measures to deliver excellence in various aspects of healthcare, which include better outcomes, unrivalled expertise, professional experience, revolutionary technology and international quality. Our foreign patients can be rest assured that our clinical outcomes are on a par with that of our counterparts in developed countries. With a business model that will be benchmarked with regional key medical tourism hospital players, Sime Darby Healthcare certainly hopes to see expansion throughout the region over the next three to five years, starting with Malaysia and Indonesia. We shall continue to seek and evaluate any opportunities — both on the home front as well as regionally — which will enhance and complement our existing services and facilities.

consultancy & advisory

interview consultancy & advisory

ABDUL RAUF RASHID ERNST & YOUNG — MALAYSIA Country Managing Partner

I graduated with an accounting and economics degree from the University of Southampton in the United Kingdom in 1991. After graduating, I completed my professional qualification at a Big Six (as they were then) accounting firm and returned to Malaysia in 1995 to join Arthur Andersen, where I was made partner in 2001. In 2008, I was made Head of Assurance and was appointed Country Managing Partner of Ernst & Young Malaysia in April 2011. I am also the head of Islamic Financial Services at Ernst & Young Malaysia. I have been in professional practice for more than 20 years, providing various types of assurance and advisory services to large international, government-linked and local clients in various industries, in particular the financial markets. I am an associate of the Institute of Chartered Accountants England and Wales (ICAEW) and a member of the Malaysian Institute of Accountants (MIA) as well as the Malaysian Institute of Certified Public Accountants (MICPA). MOTIVATION

I was attracted to auditing because I knew that it would give me insights into the running of many different types of businesses.

LESSONS IN BUSINESS

There is no substitute for hard work. You can be a genius, you can be at the right place at the right time, but you still need to be willing to put in the hours.

INternational investor: How does Ernst & Young differentiate itself from the rest of the Big Four firms in Malaysia? ABDUL RAUF RASHID: One of the key things about Ernst & Young anywhere around the world is our focus on people. We build and foster a leading people culture in our organisation. We invest in being the most inclusive organisation, having the most robust learning and development framework, and offering the most engaging environment in which to build a career. To us, ‘talent management’ is about making sure our people can perform at their best by being fulfilled in their roles, professionally and personally. And being ranked No.1 of ‘Malaysia’s 100 Leading Graduate Employers 2010’ is, I believe, a testament that we’re doing the right thing. We also extend this people culture into the client sphere as well. I place great emphasis on ‘people engagement’ with clients. Most people perceive auditors to be these stern people who come round and point out what you’ve done wrong, and what you should do or not do, but there is also a human side. To me, engagement and relationships are extremely important from the start of the process to the end. Another factor that differentiates Ernst & Young is that we are recognised as the most globally integrated professional services organisation — in our mindset, actions and structure. We also have the leading brand and reputation with entrepreneurs all over the world. All the above are strengths that we have cultivated for years and that have served us extremely well. malaysia’s islamic finance aspirations Malaysia is keen to position itself as a market leader in Islamic finance. It is an area you are heavily involved in. What are the challenges that the country faces in the area? Over the years, Malaysia has built a talent pool of professionals and practitioners who are knowledgeable and experienced in Islamic finance. Furthermore, the country has gone through a few economic ups and

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downs, which have further honed the experience and knowledge of these Islamic finance professionals. This is definitely one of our key strengths. The challenge now is to take it one step further. Malaysia is a small market compared with the Islamic countries of the world. It has a population of 28 million people out of 1.5 billion Muslims worldwide. The largest Islamic funds are not here; they are in the Middle Eastern countries. The opportunity is there for Malaysia, but the challenge is about attracting those funds into this part of the world. Only then can we say we are the region’s Islamic finance hub. Unfortunately, some of the talent we have built over the years since 1983/4, when the Islamic Banking Act and Takaful Act were introduced, has shifted somewhat to the Middle East because of the perceived opportunities there. A challenge now is to attract these talents back into the country. Another challenge is to grow Malaysian banks to such a size that they can compete in the Islamic finance market regionally. As long as they are only providing Islamic finance in Malaysia, they are not going to be big enough. The likes of Maybank and CIMB have regional ambitions and it is a good sign for Malaysian Islamic finance aspirations. Malaysia could become a key hub for Islamic finance, though? Indeed it could. The government encourages mega Islamic banks to locate here, which is a good strategy towards achieving that. You have the likes of Kuwait Finance House, Al Rajhi Bank and a few others, which are strong, highly capitalised Islamic banks coming into the country. They are trying to build a position in the region using Malaysia as a hub. Another point worth noting is that we shouldn’t look at Bahrain as a competitor in this regard. We should be looking at Bahrain as our partner and I believe we are. Bahrain is the hub in the Gulf Cooperation Council (GCC) countries. We can naturally be a hub in Asia because of our wealth of knowledge and experience in Islamic finance compared with any other economy in this part of the world. How does Ernst & Young fit into all this? Ernst & Young has a network of Islamic finance professionals around the world, with the largest number in Bahrain, because at the moment, the business opportunities for professionals like us are there. What we have done is to connect our Islamic finance teams around the world — Bahrain, Kuala Lumpur, Luxembourg, London, New York and Hong Kong — to leverage on each other’s strengths. This group is our ‘International Islamic Finance Think Tank’. It is made up of the various partners in charge of Islamic finance around the world. We compare and share our knowledge and resources when the need arises. In this manner, we pursue a partnership route rather than compete with each other.

What are your views on the government’s Economic Transformation Programme? We in Ernst & Young fully support the Economic Transformation Programme (ETP) because of three key reasons. Firstly, we have major issues with talent retention in Malaysia. When (hopefully, no longer ‘if’) the ETP is successful, we will be a high-income society. With that, we as a country would be able to offer more attractive salaries compared with the present and compared with the countries to which we are now losing our young and experienced talents. This retention is critical to our accounting profession and, of course, the country as a whole. Secondly, with a vibrant economy, firms like ours will thrive and prosper. If the ETP does not deliver, our country will slip further down the regional economic ladder. Thirdly and most importantly, we in Ernst & Young want to be relevant in our country that we serve. As the Country Managing Partner for Malaysia, I can truly say that all our Malaysian partners have a stake in this country. We are all Malaysians (no foreign partners) and we have children who we also want to stay and succeed in this land. We are heartened with the way PEMANDU is driving and programme-managing the ETP implementation. We have assisted many clients in their execution and from our experience, we view PEMANDU’s role as critical for success.

“

The strength

of Malaysia as a destination for FDIs lies in the quality of the professionals that we have here

”

competition for Overseas money What are the prospects for foreign direct investment (FDI) into Malaysia? In the past, our attractiveness to foreign direct investors has always been based on the fact that we are a competitive, low-cost country. Unfortunately or fortunately, this is no longer the case. Many other countries have overtaken us and we are not that big anyway as far as labour force is concerned compared with the likes of China and Indonesia. As an example, textile companies were once common in Malaysia. Yet we have reached a point whereby textile production is no longer economical locally because China and Indonesia are able to do it more competitively. So when it comes to FDIs, the key now is to define what exactly is our niche. I believe our niche is in more sophisticated businesses and industries, based on the talent pool we have. One example is the recent growth in data service centres. Why is that? Because we are able to produce a lot of accountants who can work in data service centres for big organisations around the world. That kind of service-based economy is available to Malaysia if we do things right. The strength of Malaysia as a destination for FDIs lies in the quality of the professionals that we have here. So it is important for us to figure out how to make sure that the talent remains in the country. If we can maintain a high-end talent pool, we can become a hub for regional FDIs.

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GOPAL R FROST & SULLIVAN

VP and Country Head, Malaysia

I am originally from India. I was born in Kerala. I was educated to postgraduate level in Indian universities. After graduating, I went to work in Mumbai. My main interest at that time was infrastructure finance and I worked in that capacity for one of the leading industrial development banks in the country. I left to go and work for Frost & Sullivan, where I set up the Economic Research and Analysis team. We researched how the country’s economic fundamentals — interest rates, GDP — impacted on industry. Subsequently I moved to Malaysia to work on automotive research and consulting. During that time I worked on an automotive logistics project, which exposed me to logistics in general which became my speciality. I was then involved with Caterpillar Logistics for close to two years, managing their commercial business for Southeast Asia. I then moved back to Frost & Sullivan, where I established the transportation and logistics practice. I am based in Malaysia, but my role is to help drive the business all over the Asia Pacific region for Transportation & Logistics Practice, as well as manage Malaysian operations of Frost & Sullivan. MOTIVATION

LESSONS IN BUSINESS

The diversity of the consultancy business motivates me. The sheer range of disciplines and projects you are exposed to is very exciting and fulfilling. Also highly motivating to me is the need to get up to speed on a topic very quickly. Within two hours of walking into a company, I should know what the basic challenge is or I’m not doing my job properly. The most important lesson is how you interact with people. Secondly, there are only a certain number of things that you can do in the time that you have — eight hours, 12 hours, whatever you have. So it is critical to choose the right tasks to spend time on.

INternational investor: Tell us about the trajectory of Frost & Sullivan in Malaysia, and where the business stands today. gopal r: Frost & Sullivan has been in Malaysia for close to 12 years now. We had a modest start with just five or six employees. Today we are closer to about 150 people supporting not just the Malaysian, but also the regional business. When the office started, our focus was mainly on helping our local clients, but as both the practice and the Malaysian economy have developed and expanded, we now work more on a regional basis, and also with international clients interested in developing a footprint in the country. Over this journey we have transformed from being a Malaysian office into a regional office. Equally, the shape of the practice has evolved. When we began, we concentrated on a few central capacities, like telecoms and healthcare. As time has passed we have developed a full suite of services and are able to address issues across all the key vertical industries that Frost & Sullivan focuses on. How has Malaysian business and industry developed in your time in the country? One of the most noticeable changes has been that over the past five or six years, domestic Malaysian companies have started to become more regionally focused. Even if they are not present across the whole of Southeast Asia, they are present in two or three countries. This has been a big transformation, and one we see continuing. In fact, I would argue that in the next few years, many Malaysian companies will increasingly be seen not as Malaysian at all, but essentially ASEAN businesses. Are Malaysian companies beginning to look at China and India as potential markets? As Malaysian companies are still in the process of gaining a foothold in the immediate vicinity, China and India are a step further at the moment. They are highly complex places to do business and not

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easy to enter. In China there is a lot of government support for industries, which makes it difficult to compete with Chinese companies. It can be difficult to de-code or comprehend Chinese pricing. Having said that, there could be some niche segments that Malaysian companies can play a role in: for example, infrastructure development or the generation of renewable energy. To a certain extent, Malaysian companies have taken a lead in these areas. The comparative advantage for Malaysian companies still lies in developing within the region. Malaysia is looked upon as a pioneer by other economies in the region in driving initiatives towards developing the higher income economy. malaysia’s competitive edge Why are Malaysian businesses competitive? The service sector has the potential to compete very strongly with comparative countries, and even globally. We have the infrastructure, the systems and the people. Our workforce is still very competitive in terms of payroll costs. Add to that the great mix of cultures we have and it’s a strong package. Over the past four or five years, it has become easier to bring in foreign talent, which means it has become easier to tap into other markets in the region. For example, you can bring in a Vietnamese speaking person to get into Vietnam. What sets Malaysia apart as a regional destination? One attraction is the legal system, which is, of course, in large part based on English common law. It is easy for foreign investors to understand and to deal with. Also attractive is that the cost base in the country is still relatively low compared with a lot of other Southeast Asian countries. The country’s infrastructure is getting better all the time, in particular the IT infrastructure. The 12 National Key Economic Areas under the government’s ETP (Economic Transformation Programme) also create policies and incentives that attract foreign companies. How can the government’s Economic Transformation Programme help the country? The ETP is mainly to do with the private sector not the government. It is about transforming Malaysian industries and making them more competitive in whichever way the market or that particular industry would dictate. It is not about the government trying to instil specifics into the market. It is about developing the knowledge base for those industries so that those industries become competitive. Having said that, I think the selection of the 12 Key Economic Areas is a good idea. It is like a well-hedged portfolio of stocks. There are 12 different stocks and various initiatives within them that are being concentrated on. The government’s overall aim is to double national income by 2020, so if each of those areas generates 3 to 5% annual

growth over that period, the country will achieve its goal. Even if they fall short by 1 or 2%, we won’t be far off from the 2020 goal. It is a very realistic plan, because it is not just based on one dimension alone — it is based on multiple dimensions, multiple industries — so even if you think that some industries have a seasonal nature, there are other industries to off-set that. It is a good program. What are going to be the biggest hurdles that ETP will face? The possibility of bottlenecks. It is all very well coming up with great ideas, but if they are not driven through and implemented fully and in a timely manner, then the whole process will obviously stall. The ideas need to be presented in such a way that they are picked up by the private sector. How is Malaysia doing in generating and retaining its human capital? Over the past five or six years, it has become much easier to attract and retain foreign talent. For example, simple things are more flexible, such as the duration of work permits. This makes a big difference in allowing companies to develop their businesses. Also key has been extending tax incentives to attract talented Malaysians back home. We believe it is working. I know of some Malaysian companies who have attracted talent from countries like Hong Kong and even Singapore. Of course you have to pay more than if you were to find a similar profile of a person within the country, but the fact is that they are bringing in international expertise. This is boosting the regional strategies of businesses, allowing them to compete in the Southeast Asian region.

“

I would

argue that in the next few years, many Malaysian companies will increasingly be seen not as Malaysian at all, but essentially ASEAN businesses

”

logistics: an evolving sector What business opportunities does the transport and logistics sector represent in Malaysia? The transportation and logistics industry as a proportion of Malaysian GDP only accounts for about 4%. In Singapore and Hong Kong it is nearer ten. An extra 6% is a large figure in this context. If we do things right, the Malaysian logistics and transportation sector can grow substantially. I am optimistic. Historically it has grown at a substantial rate of 8 to 9%. Going forward we anticipate the growth to be about 10 to 11% because there is an increasing tendency among international companies to use Malaysia as a shipment hub, not just for air cargo. Domestic logistics companies are still in the process of evolving themselves from being mainly Malaysian companies into regional providers. At the moment, many are still using foreign partners throughout the region, but that is changing fast. In the next five years, if domestic companies prioritise their Southeast Asian markets appropriately, they can grow much faster than the multinational logistics companies.

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TOO HING YEAP SHOOK LIN & BOK

Chief Executive Partner

I was born in Perak, Malaysia and studied law at the University of Singapore. I chose to return home to Malaysia after my graduation and read in the chambers of Shook Lin & Bok. I liked it there and stayed on. So you could say I am a ‘lifer’ with the firm. I started practice as a litigation lawyer and was made a partner in 1977. I started the Banking and Finance Litigation Department of the firm more than 20 years ago. Shook Lin & Bok is one of the very few firms in the country with such a specialised unit (currently comprising 24 lawyers), which wholly focuses on litigation work involving banks and financial institutions. MOTIVATION

We do a lot of training of our young lawyers, so I am very motivated by the opportunity to groom the next generation and to shape them. The firm can impress on them the kind of positive values we want in a legal professional. Developing human capital is extremely important for us.

LESSONS IN BUSINESS

You must develop and maintain professional integrity above all else. In the heat of battle, things move fast and there is often a great deal at stake. We have to put our clients at the forefront of everything that we do but there is a line that cannot be crossed. Shook Lin & Bok will always be able to tell you where that line is, however difficult the situation may be.

INternational investor: For those who are not familiar with the firm, please can you tell us a little more about Shook Lin & Bok and its practice in Malaysia? TOO HING YEAP: Shook Lin & Bok is a commercial law firm. We have a long history, going back nearly a century. Shook Lin & Bok was founded in Kuala Lumpur in 1918 and later had a branch in Singapore, which was then part of Malaysia. After the separation of Singapore from Malaysia, the two firms became separate and distinct, although the shared name remains. We have 27 partners and 63 legal associates in the firm. We have departments which handle the litigation and the non-litigation aspects of commercial law in our practice. Among our departments are a corporate, conveyancing and banking department, an Islamic finance and banking division, an arbitration department, the banking and finance litigation department, a general litigation department, an insurance law department, a department that handles labour law. We also have a major IP (intellectual property) and IT section. We are therefore virtually a fullservice law firm. The only area we don’t practice is criminal law. Is there a particular segment of your business that has proved to be notably important in Malaysia in recent years? In the past few years there has been a growing focus on Islamic banking and financing. That has been a very clear trend for about ten years now. A lot of this has been driven by the government, which took a clear decision some years ago to capitalise on this growing area of financial services. It has become an important goal to try and make Malaysia into a major, if not the major, Islamic finance hub in not only the region but in the world. I think there is a real chance of that coming about. We have definitely seen it

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emerge as a strong component of our business as a result. We have had to come up to speed pretty quickly in terms of developing the necessary knowledge base and skill sets to handle matters in this area. I expect Islamic finance to grow even more in the years to come as more and more companies turn to Shariah-compliant financial instruments for their financial needs. We have a very positive attitude towards this whole drive and want to be at the heart of it. competition for foreign capital The government has made big strides in streamlining the economy in terms of taxation and regulations. Are there any areas that you would like to see further reformed in the future? The government increasingly understands what it needs to do to attract foreign investors into the country. In the past, though, a strong criticism has always been that the tax regime has not been as competitive as some of Malaysia’s competitor countries in the region. They have tackled that to a certain extent but perhaps there are still some reforms that could make a difference. We live in a competitive neighbourhood and tax differentials make a big difference to foreign investors. Indonesia, for example, has gone down the route

of offering tax holidays to companies from certain desirable sectors interested in investing in the country. I think that could be a direction that the Malaysian authorities could think about going in. Indonesia, after all, is one of the main competitors for capital inflows. Another concern that has often been expressed is that the quality of the labour force in the country is maybe not as good as it could be. It could be better, and I think the government needs to focus a bit on this too. High quality education is crucial, as is keeping hold of skilled people once they are in the workforce. We lose too many talented people abroad. What advantages do you think Malaysia has as a place to do business? I can see that we have significant advantages as a previous colony of the United Kingdom. In my own field, for example, we were left a highly competent legal system, based on English common law. We were also left with a properly functioning civil service, which has been very important for the development of the country. And, of course, there is the legacy of the English language which is vital if you are going to connect to the global community. The fact that English is so widely spoken makes Malaysia a highly attractive place

“

A strong

criticism has always been that the tax regime has not been as competitive as some of Malaysia’s competitor countries in the region. They have tackled that to a certain extent, but perhaps there are still some reforms that could make a difference

”

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to do business. I am not saying that our national language is not important. It is extremely important for identification of who we are. However, English is the language of commerce whether we like it or not. I have been in practice for 40-odd years, and it has been the main language of commerce all that time. I donâ&#x20AC;&#x2122;t think the world will change the global language it uses any time soon. Mandarin might perhaps one day supersede English, but at the moment Malaysia has a significant leg-up thanks to its widespread use of English. the chinese question Where are the opportunities for Malaysian companies expanding into China? And for Chinese companies in Malaysia? There is definitely a trend for Chinese companies to come to Malaysia looking for resources. They are heavily involved in buying assets such as plantations, for instance. The Chinese economy is growing so rapidly, it is resource-hungry, so we have seen significant activity from Chinese purchasers of Malaysian assets. As far as Malaysian companies going into China is concerned, it is certainly an important and attractive market, but

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it remains a difficult one to deal in. We do what we can to help them. If you had to identify two or three main challenges facing companies that Shook Lin & Bok could help with, what would they be? One area we can help with is in assisting companies engage productively with a number of government departments. Companies constantly have to seek information, apply for permits, and make contact with officials and ministers. We do a lot of work helping to deal with the red tape, getting the necessary permits or approvals and obtaining the required information. Another big area of work we are involved in is in helping foreign investors find local partners and work with them productively. We have been around for 94 years, so we obviously have a large client base and network of connections. That is something we can bring to the table to help our foreign investor clients. We know exactly the nature of their business and what they are interested in, and if there are serious investors or foreigners coming in then it is just a matter of sounding the local counterparts out.

consultancy & advisory interview

LEONG WAI HONG SKRINE Partner

I read law at the National University of Singapore. After graduating I worked for three years in one of the major law firms there, but in 1992 I decided to come back and work in KL to be nearer my family and to be back home. The university education in Singapore and my three working years there gave me a solid professional grounding. I made a good network of friends during my years in Singapore. So, even when I came back, they were very supportive, and referred a lot of cases. In fact, this morning I just received an email from another classmate! So the clientele is tremendous because of that. The single most important thing for my practice here is my Singapore base. Skrine began business in 1963 as Bannon & Bailey. A group of partners decided to leave to form a new firm, which was called Skrine & Co (after the founder, John Skrine). I began my life at Skrine as an associate, became a partner in 1997, was made Chairman of the Executive Committee in 2009 and Head of Dispute Resolution in 2011.

MOTIVATION

LESSONS IN BUSINESS

I am a litigator. I am also a chess player from school days. As you know, as a chess player you can’t wait for your opponent to make a move so that you can make your counter move and sort of finish the game. Litigation is similar to chess: we make a move, they respond. So the intellectual aspect of the work is highly motivating for me. Honesty and integrity above all things. Without that, your good name evaporates. When we go to court and appear in front of a judge, the judge must be able to tell himself that this is a Skrine lawyer, his submission will be thorough, credible and honest. That reputation takes years to build up.

INternational investor: How does Skrine differentiate itself from all the other law firms in Malaysia? LEONG WAI HONG: One main differentiating point is our pedigree. As I mentioned, we go back quite a long way in Malaysia and have a strong track record. We have a whole line of distinguished partners who have worked in the firm over the years. For example, one of our previous partners is the former Prime Minister of Malaysia, Tun Hussein bin Dato’ Onn. Some of his children and grandchildren chambered with us. Another thing that differentiates us is our desire to form strong partnerships with our clients. We provide quite a lot of extracurricular activities for our staff as well as for our clients. The major one we now provide is the dragon boat race. Every year, we participate in the dragon boat races in Penang and in Putrajaya and we have now started a Skrine regatta for the clients. We invite them to row and there is a charity objective at the end. Can you tell us about the capital markets work you do? Do you expect that to grow and what are your ambitions? The business is definitely growing here and our firm has been building an increasingly strong presence in the capital markets. My corporate partners are very strong in their technical skills, which is why our clients come to us, because they are very hands-on, highly experienced. The Islamic part of our capital markets business is growing as well. We have two partners who handle this area of the law and an Islamic banking team. For example, we recently did some work for one of our key clients, HSBC, on an Islamic loans-related matter. I think the Islamic capital markets area is growing because of the emphasis put on it by the Malaysian government. The government is projecting the country as a leader in the growth of this area. This is one of the aspects of law

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“

It can be

very tough for law firms because everything has speeded up. Under the former Chief Justice, a concerted effort has been made to clear a big backlog of court cases that had built up

”

which I believe will help liberalise the Malaysian legal market in general, because the Malaysian government is working to liberalise the legal market for overseas funds. We expect our own participation to grow alongside this liberalisation. the challenge of liberalisation Competition from non-Malaysian law firms will in all likelihood increase in this area as a result of this liberalisation. How do you feel you are positioned to be able to compete? As a law firm, Skrine is a member of two well-known international legal alliances called Lex Mundi and PRAC. In numerous jurisdictions in the world, there is only one firm selected to be a member of these bodies, and the selection is based on your ability to carry out high-quality legal work. Every few years, they revisit you to see whether you deserve to have membership or not. We have been members of these two organisations for quite a number of years. With our membership, I believe we can compete with international law firms if they come into the market. How do your various division fit together? Apart from Islamic finance, are there ones that will be more important for your business to grow in the future? The firm is divided into three broad areas: dispute resolution, corporate and intellectual property. Within these three areas, there are many practice areas of law that we specialise in. The key to our success and added value is the synergy of the three divisions. In fact, our partners were nominated in six categories in 2011, and because there were so many of us nominated, we have again won the Who’s Who Legal for 2011 for the fourth consecutive year. So our strength is represented in all areas of the law. We are a full service firm, so I would not pick out any particular division or area as more important for our future than any other. You mention on your website that you strive to be a legal consultancy with a global perspective. What do you mean by that and how does it manifest itself? Malaysia receives a lot of foreign investment and invariably many of these companies and organisations use international law firms as their main lawyers. They often contact Skrine to ask us to assist in the transactions as Malaysian counsel. Through our alliances in the two organisations I just told you about — Lex Mundi and PRAC — we receive many referrals, which is why we can give advice on a global basis. Our close relationships with leading law firms in Lex Mundi and PRAC provide us access to first-class advice outside Malaysia. Thus we have a quasiglobal presence.

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dispute resolution in malaysia All your divisions are important to you, but Skrine is well known for dispute resolution. Why is that? Asialaw Profiles and Who’s Who of Business Lawyers recognise that we have a formidable dispute resolution team. We have nearly 50 years of experience in dispute resolution. Some of our senior partners have more than 30 years experience and we believe in training and mentoring to pass this knowledge and expertise on to our younger partners and lawyers. This way the division grows organically and synergistically, with several tiers of experience from senior counsel to junior counsel working together with our associates and pupils. Our strong pupillage programme also helps in selecting talent best suited to the rigours of litigation. How difficult is dispute resolution in Malaysia? It can be very tough for law firms because everything has speeded up. Under the former Chief of Justice, who has just retired in 2011, a concerted effort has been made to clear a big backlog of court cases that had built up. In the old days, it would take several years for a case to be litigated and completed. Now it takes less than a year. It is a good thing, but it means that there are more pressures on lawyers; we have to work harder. One interesting thing related to this is that the former Chief Justice has started what are called the ‘new commercial courts’ to speed the whole process up and make it more efficient. He has invited private practitioners to be judges in these new commercial courts. They are meant to finish hearing a commercial dispute in less than a year. They began operating in 2010 and have had a big effect on dispute resolution cases. The backlog has been cleared. What else has been done within the judicial system in your opinion? I think the whole culture has been improved a lot, partly thanks to changes such as the new courts I mentioned. The work ethic in the courts has improved, for instance. More judges have been created and as a result more cases are being heard. Courts have been provided with much improved IT systems such as recording facilities and e-filing of court documents. All of this has resulted in the faster resolution of commercial disputes. There are even moves towards certain aspects of case management being done through IT from the lawyer’s office, without the lawyer having to leave the office to attend court just for a five or ten-minute conference with the judge. This is happening from the lowest tier courts all the way up to the appellate courts.

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What are Skrine’s ambitions to become more of a regional player in Asia? Perhaps even working in China which is a vast market? Or do the legal systems differ too much for that to be practical? It is still very difficult for Malaysian firms to venture into China. It needs a lot of investment and time to do that because it is such a different market, and so much larger of course. A few European and American firms have entered the Chinese legal market, but not all of them are making money. However, we do find that we are losing lawyers to the foreign firms working in China, as well as those working in Singapore. Likewise, the Singapore law firms are losing their lawyers to firms operating in China. However, as I mentioned earlier, we get a lot of referral work from around the region and from multinationals.

where all the Malaysian out-of-town lawyers would principally think of working in Kuala Lumpur. Now they think of Singapore, Hong Kong and China. The mindset of young lawyers has changed; it isn’t an issue for them to work overseas.

holding on to the best talents Is retaining manpower a problem? Yes, it is a challenge for us. We find that we are becoming a good training ground for young lawyers, as I mentioned earlier. However, young lawyers are now highly mobile, especially in Malaysia. If they are, let us say, from Penang or from Johor Bahru, there is no difference to them in working in Kuala Lumpur or in Singapore — it is just a flight away either way — or even in China. Gone are the days

that some of them will remain because of family reasons, and because Malaysia is, after all, home for them. Also, Skrine is a pretty good place to work. I would just mention here that we won the ALB Employers of Choice Award for 2011, so we provide a conducive environment for people to work who want to be near their families. Of course, after a few years, many young professionals want to come back to Malaysia to start families, or to be nearer to existing ones.

How do you combat that? We try to improve our pay but it is difficult for us to match what they are being offered in places like Singapore in view of the exchange rate. There are a few things we can do, however. We hope

The mindset of young lawyers has

changed; it isn’t an issue for them to work overseas

SKRINE

Your Trusted Legal Partner Since 1963

Malaysian Law Firm for the Years 2008, 2009, 2010 & 2011, Who’s Who Legal Awards Areas of Practice Banking and Finance, Capital Markets, Competition Law, Construction and Engineering, Corporate and Commercial, Dispute Resolution, Employment, Environment, Information Technology, Intellectual Property, International Trade, Islamic Finance, Mining and Mineral Resources, Oil and Gas, Real Estate, Tax, Trusts, Estates and Charities.

Heads of Divisions Corporate

Dispute Resolution

Intellectual Property

Theresa Chong

Leong Wai Hong

Lee Tatt Boon

tc@skrine.com

lwh@skrine.com

ltb@skrine.com

Unit 50-8-1, 8th Floor, Wisma UOA Damansara, 50 Jalan Dungun, Damansara Heights, 50490 Kuala Lumpur, Malaysia. T: +603 2081 3999 F: +603 2094 3211 E: skrine@skrine.com W: www.skrine.com

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JOHAN RASLAN PwC, MALAYSIA

Executive Chairman

My mother is British and my father is Malaysian. I therefore have diversity built-in. My youth and my working life have been spent in Malaysia and the United Kingdom. I went to school in both countries, and went to university in the UK. After graduating I worked as a chartered accountant in London for ten years. I came back to Malaysia in 1992 and joined PwC. My professional background is in audit, but in progressing up through the firm I have done a wide range of things and have had experience in most areas of the business. I took over as Executive Chairman in 2004. I set up PwC’s Malaysian financial services practice nearly 20 years ago. I have made it a priority to be engaged in structures outside PwC. I am a member of the Malaysian Institute of Accountants. I am also the current President of the Malaysian Institute of Certified Public Accountants and the Kuala Lumpur Business Club. I am a director of Putrajaya Corporation. I am also a board member of the civil servants’ pension fund, or the KWAP, and perhaps most importantly, I am the immediate past Chairman of the Institute of Corporate Responsibility in Malaysia (ICRM), which is a network of firms and companies, half foreign and half Malaysian, which is interested in sustainability issues, the environment and the community. The ICRM has now been merged with the Business Council for Responsibility and Sustainability Malaysia. I am an Eisenhower Fellow. Finally, I am also the immediate past Chairman of the Financial Reporting Foundation, the body which oversees the work of the Malaysian Accounting Standards Board. MOTIVATION

I want to make a difference, both personally and in terms of the business. I am motivated by the idea that I could, through my working life, make a difference to society. A lot of the things we do at PwC involve opening ourselves up to the outside world to try to offer something above and beyond the basic business. That’s a big motivator.

LESSONS IN BUSINESS

It is a good thing to have a high degree of ‘headline skills’, but without integrity you will fail. I have seen well-qualified accountants, bankers, businessmen and other professionals, who have all the hard skills and qualifications, but when they lose their way ethically, their legacy is built on sand and can be destroyed.

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International investor: The government has set a goal for Malaysia to become a high-income country by 2020. What is your view of that ambition? JOHAN RASLAN: It is a great ambition, and we certainly produce the right calibre of talent to make it happen. But there is still a problem in terms of retaining that talent. Salaries are still low relative to other countries, particularly places like Singapore and Australia. We see the phenomenon of young Malaysians going abroad to study and not coming back. I myself had to take a big pay cut on coming back to Malaysia after working in London for 10 years. A lot of people are not prepared to do that. Added to that is the fact that nowadays kids are very global. They grow up and watch the same TV programmes as young people across the globe, and it becomes easy for them to think of living and working in a foreign country. Entrepreneurial skills need to be kept in the country as well. It is not just that we might be missing a chief accountant in a company who is now living overseas or a lawyer or an engineer. Entrepreneurial and innovative inventiveness is also needed — perhaps more needed than salarymen and professionals like me. An individual who invents something, or starts up a company, and instead of doing it here decides to go abroad because the conditions are more conducive — that sort of person needs to be incentivised to remain in Malaysia. The government’s Economic Transformation Programme (ETP) has the potential to be a very good thing in terms of turning all this around and establishing an environment which is much more attractive to our talented sons and daughters. But the country will also have to continue to develop a high-performance civil service, infrastructure, enforcement agencies and a lot of other basic things. And high standards of integrity and governance are needed in all these.

consultancy & advisory interview

Has PwC become involved in the process? Some of our staff have been involved in the ‘lab’ part of the NKEA (National Key Economic Areas) process, and have come away very impressed with how much the people at PEMANDU (Performance Management and Delivery Unit) and elsewhere have set about harnessing the talent available in the private sector. So far the rigour has been good. PEMANDU appointed PwC to do Agreed-Upon Procedures on some of its reporting. how to maintain human capital You mentioned the importance of retaining talent. Do you think the Economic Transformation Programme is sufficiently aware of this need? There are some good signs that the government is taking this very seriously. The Prime Minister’s office has established TalentCorp, which is explicitly in the business of developing and retaining talented individuals. TalentCorp is also key to attracting talented Malaysian expats back from abroad. We hope it will do very well. It shows that the government has taken account of years of advice from business. The business community has been saying for a long time now that we need to up our game when it comes to talent. Attracting new blood to the country is important too, so I’m not just talking about Malaysians. You have to make it attractive but also you have to make it easy — make it a good experience to come to Malaysia, to set up your businesses or embark on your career. It may initially impact on Malaysians in terms of increased competition for jobs, but so long as the numbers are not overwhelming I believe this will be good for the quality of the people we have. Malaysians will benefit. Are there any aspects of the ETP that you consider key for your own industry? Within the ETP there is a proposal that anybody in Malaysia who calls themselves an accountant will have to have a professional qualification. Normally

Business towers

you have a degree to start off with, but then you would need a professional qualification, for instance from MICPA of which I am President, ICAEW, ACCA or CPA Australia. These post-graduate qualifications are really what makes a professional accountant. We fully support the ETP’s desire to increase the professionalism of accountants in the country. luring overseas finance How can Malaysia become more competitive in terms of attracting foreign direct investment? A lot comes down to confidence in the country. As a country we need to maintain consistency, so that an investor can see that what is being offered today isn’t going to be taken away tomorrow. We need stability and transparency; a highly competent state sector; good corporate governance — in other words, an upgrading of both the public and the private sectors. I think in the past perhaps the country has tried one or the other but not both at the same time. If we get this right, foreign investors will come. making a difference A subject you have spoken of in the past is corporate social responsibility (CSR). Why do you think it is so important? We call it Corporate Responsibility, or CR. It is part of good governance. In the UK and other developed economies it has been important for a number of years now, and I think it is part and parcel of a company trying to make a difference, trying to do the right thing for the world they operate in. As I said earlier, making a difference is fundamentally what motivates me in terms of my own business life, and I think that is becoming more important to businesses throughout the economy here. The government has been instrumental in pushing the CR agenda forward. The Stock Exchange, the Securities Commission, and also the institutional investors such as Khazanah (the government’s investment holding arm) have all been keen on keeping this idea of business responsibility at the forefront of people’s minds. There are many reasons these institutions have come to believe it is essential. If your company and the people in your company are trying to make a difference, trying to do the right thing in the community, individuals within the company are going to find it very hard to do the wrong thing when it comes to their day to day business. I think it also makes a difference to the view that potential foreign investors into Malaysia might have of the country and the business community. The investor gets a better idea about the values of a company when they see it engage strongly in good practices with regard to the environment, health and safety, the marketplace, the workplace and the community.

“

An individual

who invents something, or starts up a company, and instead of doing it here decides to go abroad because the conditions are more conducive — that sort of person needs to be incentivised to remain in Malaysia

”

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hotel listings

hotel listings malaysia 2012

HOTEL LISTINGS International Investor’s pick of top places to stay on business in Malaysia

1. HOTEL ISTANA 73 Jalan Raja Chulan 50200 Kuala Lumpur T : (60 3) 2141 9988 F : (60 3) 2144 0111 E : general@hotelistana.com.my

515 well-appointed guestrooms and suites designed to suit every individual’s personal and corporate needs Set in the Kuala Lumpur City Centre complex, Hotel Istana is a 5-minute walk from shopping at Bukit Bintang, Pavilion, and a 10-minute walk from the iconic Petronas Twin Towers. It is also near the Kuala Lumpur Convention Centre and Aquaria KLCC.

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2. PARKROYAL SERVICES SUITES 1 Jalan Nagasari Kuala Lumpur 50200 T: (60 3) 2084 1000 F: (60 3) 2084 1010

287 suites Feel right at home in KL’s prime business, shopping and entertainment centre when you stay at PARKROYAL Serviced Suites Kuala Lumpur. Stroll to nearby city attractions or enjoy exclusive access to our Residents’ Lounge, gym, rooftop pool and Business Centre. PARKROYAL Serviced Suites offer you dedicated amenities, services and so much more.

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hotel listings malaysia 2012

3. GRAND MILLENNIUM

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4 Jalan Conlay Bukit Bintang 50450 Kuala Lumpur T: (60 3) 2170 8888 F: (60 3) 2170 8662

Step into Grand Millennium Kuala Lumpur hotel in Malaysia, located in the heart of Jalan Bukit Bintang. One of Kuala Lumpur luxury five star hotel, located on the right side of Bintang Walk.

Situated in the city center, this luxury hotel is close to National Museum, Kuala Lumpur Bird Park, and Lake Gardens. Also nearby are Petaling Street and Malaysian Houses of Parliament.

As one of the Kuala Lumpur hotels nestled amidst lush gardens in the heart of the city, the newly renovated Shangri-La Hotel, Kuala Lumpur sits just 45 min. from the international airport and just moments from key business and shopping areas.

Prince Hotel & Residence Kuala Lumpur is a Luxurious International 5 Star Hotel and Residence located in the heart of Kuala Lumpur in the Golden Triangle. It is located within minutes from the city’s best shopping, dining and entertainment.

7. RIZT CARLTON

8. MANDARIN ORIENTAL

9. JW MARRIOTT HOTEL

10. ASCOTT

168, Jalan Imbi 55100 Kuala Lumpur T: (60 3) 2142 8000 F: (60 3) 2143 8080

Kuala Lumpur City Centre 50088 Kuala Lumpur T: (60 3) 2380 8888 E: mokul-sales@mohg.com

183 Jalan Bukit Bintang 55100 Kuala Lumpur T: (60 3) 2715 9000 F: (60 3) 2715 7000

9 Jalan Pinang 50450 Kuala Lumpur Tel: (60 3) 2142 6868 Fax: (60 3) 2142 9888

250 guestrooms and suites

643 guestrooms

561 guestrooms

221 guestrooms

Located downtown in the Golden Triangle business district, guests at this distinctive five-star luxury hotel in Kuala Lumpur can enjoy convenient access to upscale shopping, dining and entertainment. Home to the magnificent Petronas Twin Towers (a 10 minute walk from the Hotel via an air-conditioned walkway), Kuala Lumpur is also rich in culture and traditions.

Mandarin Oriental, Kuala Lumpur offers guests the luxury of a superb spa and leisure facilities in the city centre. With our prime location between the flowering gardens of Kuala Lumpur City Centre Park and the soaring heights of the Petronas Twin Towers, our hotel also has the most impressive views in the city.

The 29-storey, 561-room hotel is located in the heart of the exciting ‘Golden Triangle’, the city’s prime business and shopping district and is adjoining to the prestigious Starhill Gallery. It is also strategically located on ‘Bintang Walk’, the lively and vibrant shopping strip where shopping centres house upscale brands, a vast variety of restaurants and entertainment outlets.

Tailored to meet your every need, the services and facilities of these hotel apartments in Kuala Lumpur are luxurious, extensive and personalised. They complement the elegance and sophistication of the spacious residences. You can indulge in the exclusive lifestyle of Ascott Kuala Lumpur’s serviced apartments while enjoying the culture of this dynamic city.

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