International Investor Malaysian Economic Transformation Report 2013 by International Investor

ECONOMIC TRANSFORMATION PROGRAMME MALAYSIA 2013

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contents ECONOMIC TRANSFORMATION PROGRAMME 2013

INTERNATIONAL INVESTOR WOULD LIKE TO THANK ITS KNOWLEDGE PARTNERS:

on what will be the impact of the Economic Transformation Programme on the business environment.

5 MEET THE BUSINESS LEADERS 6 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. 9 EXECUTIVE SUMMARY 10 OVERVIEW: ECONOMY Malaysia has achieved strong growth and deep transformation in the last few decades. Now that transformation has to be taken to the next level. What does the economy need to achieve in the run-up to 2020?

Malaysian Industrial Development Authority

13 ROUNDTABLE: ECONOMIC TRANSFORMATION The roundtable debate brings together leaders from government and the private sector to discuss the progress that has been made in Malaysia’s Economic Transformation Programme. How have investors responded to opportunities? How are they facing the challenges?

42 BUSINESS LEADERS: NORIPAH KAMSO, CIMB 44 ANUAR TAIB, SHELL MALAYSIA 45 DHARMESH MALHOTRA, NOKIA SIEMENS NETWORKS 34

32 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. 34 BUSINESS LEADERS: NAJIB RAZAK, PRIME MINISTER OF MALAYSIA Starting with Malaysia’s Premier, these interviews provide valuable market intelligence and an understanding of the opinions and business philosophy of those who are shaping the economy.

46 AZRAN OSMAN RANI, AIR ASIA X 47 TEH KIM POO, PORT KLANG AUTHORITY 48 GOPAL R, FROST & SULLIVAN 49 JOHAN RASLAN, PwC MALAYSIA 50 SHARIFAH HAPSAH, UKM 52 SITI SA’DIAH SHEIKH BAKIR, KPJ HEALTHCARE 55 FOCUS: MEDICAL TOURISM Malaysia’s healthcare system is moving up the world rankings and the private sector is rapidly growing. It is a key feature of the ETP and its major driver going forward will be the fast-growing worldwide economy in medical tourism. 58 KEY FINDINGS AND CONCLUSIONS

35 MUSTAPA MOHAMED, MINISTER OF INTERNATIONAL TRADE AND INDUSTRY 37 IDRIS JALA, PEMANDU 38 TAJUDDIN ATAN, BURSA MALAYSIA 39 MUKHTAR HUSSAIN, HSBC MALAYSIA 40 FORUM: IMPACT OF THE ETP International Investor polls a cross section of Malaysia’s top executives

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economic transformation business leaders

Meet the business leaders International Investor speaks to the people whose strategy and opinion are shaping Malaysia’s economy and driving the ETP

Najib Razak Prime Minister of Malaysia

Jeffrey Ng Chief Executive Officer Sunway Reit

Hugh Thompson Chairman Exxonmobil Malaysia

Teh Kim Poo Chairman Port Klang Authority

Mustapa Mohamed Minister of International Trade and Industry

P’ng Soo Hong Managing Director First Solar

Noripah Kamso Chief Executive Officer, CIMBPrincipal Islamic Asset Management

Gopal R VP and Country Head Malaysia Frost & Sullivan

Idris Jala Chief Executive Officer, PEMANDU Prime Minister’s Office

Zamzamzairani Isa Group Chief Executive Officer Telekom Malaysia

Anuar Taib Chairman Shell Malaysia

Johan Raslan Executive Officer PwC Malaysia

Tajuddin Atan Chief Executive Officer Bursa Malaysia

Osman Morad Managing Director and CEO Standard Chartered

Dharmesh Malhotra Head, Asia South Nokia Siemens Networks

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

Mukhtar Hussain Chief Executive Officer HSBC Malaysia

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

Azran Osman Rani Chief Executive Officer Air Asia X

Siti Sa’diah Sheikh Bakir Managing Director KPJ Healthcare

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at a glanceâ&#x20AC;&#x192; economic transformation

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

Sungai Siput

Kuala Dungun

Kuantan

Kuala Lumpur

Bintulu

Sibu

Melaka

Jurong

Kuching

Indonesia

Indonesia J a v a

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S e a

economic transformationâ&#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 DB 2013 Rank DB 2012 Rank Change

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

54 42 -12 96 116 +20 28 27 -1 33 62 +29 1 1 No change 4 4 No change 15 25 +10 11 12 +1 33 31 -2 49 48 -1 Source: Doing Business Database, World Bank

Starting a Business

Celebes Sea

Indicator Malaysia Procedures (number) 3 Time (days) 6 Cost (% of income per capita) 15.1 Paid-in Min. Capital 0.0 2 (% of income per capita)

East Asia OECD & Pacific 7 5 37 12 22.4 4.5 0.11 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

Japan

Taiwan, China

Regional Average (East Asia & Pacific)

86 91

China 1

183 Source: Doing Business Database, World Bank

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at a glance economic transformation

RANK ON THE STRENGTH OF INVESTOR PROTECTION INDEX

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

Taiwan, China

Korea, Rep.

Hong Kong SAR, China

Malaysia

Thailand 50

Malaysia

13 17

Japan

Thailand

Regional Average (East Asia & Pacific)

94 107

Japan 1

Korea, Rep.

79 97

China 183

Rank

Regional Average (East Asia & Pacific) 151

China

Taiwan, China

Source: Doing Business Database, World Bank

RANK ON THE EASE OF ENFORCING CONTRACTS Korea, Rep.

Hong Kong SAR, China

Korea, Rep.

China

Source: Doing Business Database, World Bank

RANK ON THE EASE OF PAYING TAXES

Hong Kong SAR, China

Thailand

Malaysia

Japan

Regional Average (East Asia & Pacific)

Taiwan, China

Thailand

Regional Average (East Asia & Pacific)

Taiwan, China 1

100 120

Japan

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

Thailand

Taiwan, China

Korea, Rep.

China 63

Japan Regional Average (East Asia & Pacific)

Taiwan, China

87 113

Malaysia 1

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

Malaysia

Rank

106

Regional Average (East Asia & Pacific)

76 1

China

Regional Average (East Asia & Pacific)

Thailand

China

183

Rank

Source: Doing Business Database, World Bank

Taiwan, China

183

Rank

Source: Doing Business Database, World Bank

Hong Kong SAR, China

183

Rank

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 2013 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 2013 database.

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economic transformation introduction

EXECUTIVE SUMMARY Malaysia’s Economic Transformation Programme is discussed by leading political and business figures. Some of the key issues facing the country are examined

In 2010 Malaysia set out upon a ten-year period of economic transformation. Led by the government, it was intended to involve all sectors of Malaysian society, but principally was aimed at galvanising the private sector. This roundtable brings together involved members of the government and senior business people who are taking a serious interest in the process. A number of central topics are covered: ■ Focus. The government has decided to concentrate it efforts on a limited number of economic areas and industries — the National Key Economic Areas. These are seen as catalysts for the wider economy. Also included in the Programme are ‘entry point projects’. The relevant authorities have identified 133 key industrial, infrastructural and economic projects that are to act as specific boosters for a wider economic transformation. More will be added in the years up to 2020. ■ Strict measurement. A decision was taken at the start of the ETP to strictly measure its outcomes. Three Key Performance Indicators were chosen: Gross National Income (leading to a GNI figure per head of $15,000 by 2020); increasing levels of investment (an increase of 1.4 trillion ringgit by 2020); and an increase in employment of 3.3 million jobs by 2020. A series of key government committees will oversee the Economic Transformation Programme. ■ Private sector involvement. There is a need for the government to work in close co-ordination with the private sector. Indeed, the private sector must carry out the majority of the work of economic transformation. ■ A reformation of government. Running in tandem with the economic transformation of the country will be a transformation of the way the government carries out its business. Excessive bureaucracy and red tape must be cleared away. ■ Involvement of ordinary Malaysians. The Transformation is not just the preserve of big business and big government. Transformation of

the lives of ordinary Malaysians is at the heart of the process. ■ Transformation of the education system. The participants agree that Malaysian education needs to be improved, with particular emphasis on training future entrepreneurs and on the teaching of English. ■ Globalisation. In a global world, Malaysia needs to work on those industries and skill-sets that will allow it to compete in a ruthlessly competitive world. Certain key industries are at the forefront of this, including health care tourism and Islamic finance. ■ Brain drain. Malaysia suffers from not always being able to retain its talented people. Educated in Malaysia, they move abroad for better paying jobs. All parties to the debate agree the urgent need to address this problem. Education and an increase in the attractiveness (including salary levels) of domestic employment are key. ■ Deepening the Islamic finance market. Malaysia is well placed to become one of the leading centres for Islamic finance — if not the leading location globally. The country has in the last few years been in the forefront of innovate designs of Islamic financial products. If this rate of change can be maintained, the country stands a good chance of being the pre-eminent centre for Islamic finance in the years to come. Legislative changes need to be made to bring this about, but that is well within the remit of the government to achieve. ■ The ‘generation gap’. Up-coming generations have a lot to teach the senior executives in Malaysian industry. A high-tech world is now upon us, and the younger generations usually understand it more than their elders. A level of serious attention is now being paid in Malaysia to these and other topics as part of the Economic Transformation Programme now upon the country. The following debate is important in gathering a number of key individuals who will shape the coming years for the country.

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overview economic transformation

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. 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. 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 highincome 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 — it is targeted to increase from the current 54% contribution to 65% in 2020. 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 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

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grew 500.3% to reach US$8.58 billion (compared with US$1.43 billion the previous year). According to international credit rating agencies, 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 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. 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. 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 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

economic transformation overview

Key Economic Indicators, 2006-2012 2006 2007 2008 2009

2010f 2011f

Real GDP (% change) 5.8 6.5 4.7 -1.7 6.0 GNI per capita (% change) 9.6 10.5 11.9 -7.8 10.8 GNI per capita ($) 5,701 6 ,724 7,760 6,764 8,256 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 Current account balance (% of GDP) 17.2 16.0 18.1 16.8 14.6 Narrow net external debt (% of CAR*) -22.0 -30.0 -18.8 -22.4 -23.4 *Capital adequacy requirement

replaced by palm oil as Malaysia’s leading agricultural export. Forestry: Malaysia enjoys one of the highest percentages of forested land among developing countries — more than 59% (19.42 million hectares) of its land area is under forest. The tree cover increases to more than 76% (25.90 million hectares) if crops such as rubber, oil palm, cocoa and coconut are taken into consideration. The rapid expansion of the timber industry, particularly after the 1960s, has brought about a serious erosion problem in the country’s forest resources. However, in line with the government’s commitment to protect the environment and the ecological system, forestry resources are being managed on a sustainable basis and accordingly the rate of tree felling has been on the decline. Cultivation of high-value trees like teak and other trees for pulp and paper are also encouraged. Mineral: Tin and petroleum are the two main mineral resources of significance in the Malaysian economy. It was only in 1972 that petroleum and natural gas took over from tin as the mainstay of the mineral extraction sector. Meanwhile, the contribution by tin has declined. Petroleum and natural gas discoveries in oil fields off Sabah, Sarawak and Terengganu have contributed much to the Malaysian economy. Other minerals of some importance or significance include copper, bauxite, iron-ore and coal, together with industrial minerals like clay, kaolin, silica, limestone, barite, phosphates and dimension stones such as granite as well as marble blocks and slabs.

6.1 8.0 9,610 77.9 13.5 -23.7 Source: EPU

DEVELOPED HARD INFRASTRUCTURE Network of Highways: Peninsular Malaysia’s network of well-maintained highways is a boon to industries. These highways link major growth centres to seaports and airports throughout the peninsula and provide an efficient means of transportation for goods. To complement these highways, a Kuala Lumpur-BangkokKuala Lumpur containerised service known as the ASEAN Rail Express (ARX) has been initiated, with the aim of expanding it to become the Trans-Asia Rail Link that will include Singapore, Vietnam, Cambodia, Laos and Myanmar before ending up in Kunming, China. 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-MAWE, APCN, China-US, Japanese-US, Measat and Intelsat. To support the increasing demand for bandwidth, medium and highend 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 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 Hi-Tech Park in the northern state of Kedah which cater to technologyintensive 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

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overview economic transformation

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 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 highincome 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.

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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 highincome nation by 2020. 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 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.

economic transformation 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 economic transformation

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.

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Idris Jala Chief Executive Officer PEMANDU Prime Minister’s Office

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.

economic transformationâ&#x20AC;&#x192; 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

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.

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economic transformation roundtable

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

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

Mustapa Mohamed Minister of International Trade and Industry

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

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roundtable economic transformation

Idris Jala Chief Executive Officer PEMANDU Prime Minister’s Office

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

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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. 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.

economic transformation roundtable

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.

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

Abdul Wahid Omar President & CEO Maybank

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.

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roundtable economic transformation

Rauf Rashid Country Managing Partner Ernst & Young Malaysia

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

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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

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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roundtable economic transformation

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

economic transformation 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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roundtable economic transformation

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.

roundtable economic transformation

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

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

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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. 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

economic transformation roundtable

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. 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

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?

Mukhtar Hussain Chief Executive Officer HSBC Bank Malaysia

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

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roundtable economic transformation

Yong Poh Kon Managing Director Royal Selangor International

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

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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

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

economic transformation roundtable

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. 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

Healthcare has the potential to be a real world-beater for Malaysia. We have the skills and the passion to do it 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

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.

Siti Sa’diah Sheikh Bakir Managing Director KPJ Healthcare

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

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roundtable economic transformation

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

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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

economic transformation roundtable

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

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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business intelligence economic transformation

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.

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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

economic transformation business intelligence

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.

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 1

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.

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“

We will not

only immeasurably improve the standard of living of all Malaysians, we will also redefine Malaysia’s position on the global stage

”

NAJIB RAZAK

Prime Minister of Malaysia INTERNATIONAL INVESTOR: If you were to select two main challenges to the country over the next decade, what would they be? NAJIB RAZAK: Economic recovery and building longterm prosperity. We can say that the first of these has been achieved, as the economy grew 7.2% in 2011. 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. 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

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are focusing more and more on them. Malaysia benefits from a unique link with both countries. 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. This heritage, of course, puts us in a very favourable position when dealing with these countries, but as India, China and Malaysia all 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 2011, we 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 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. 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 an ambitious agenda, but it is also one we can achieve. That confidence is 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.

economic transformation business leaders

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.

MUSTAPA MOHAMED Minister of International Trade and Industry

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. 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 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,

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%). 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 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 Singapore. 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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Malaysia will also pursue opportunities in the fast-growing markets of West Asia, Central Asia and Eastern Europe

”

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:

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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

”

(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 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 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 medium-term 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.

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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 ■ Computer and related services ■ Social services ■ Transport services ■ Sporting and other recreational services ■ Business services ■ Rental/leasing services without operators ■ Supporting and auxiliary services 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. 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.

economic transformation business leaders

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.

IDRIS JALA

PRIME MINISTER’S OFFICE

Chief Executive Officer, PEMANDU INternational investor: The Economic Transformation Programme is a long-term project for change in Malaysia. What distinguishes it from similar government programmes? IDRIS JALA: The first thing is the cohesion and determination within the government, from the Prime Minister downwards. We want the ETP to be a major legacy for Malaysia and to make significant changes to the country’s prosperity. The second differentiating factor is our determination to work closely with the private sector. 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 for the reform process. We want to be able to tap into 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 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 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 specified industries to sit down with us over a period of time 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

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 higher salaries. How do you deal with ‘brain drain’? We created the Talent Corporation. It has two main tasks: make sure that we retain Malaysians where we can, 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 self-reliant on the domestic workforce. All high-income nations need some injection of foreign talent. I would predict that Kuala Lumpur will become a more cosmopolitan city by the year 2020, because we expect more multinationals to come to the country and have KL as their hub. They will naturally bring a lot of their own staff with them. They will add value and we will welcome them. 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 high-income nation, that in itself will allow us to be able to attract and keep the best talent. 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.

“

We want the ETP to be a major legacy for Malaysia and to make significant changes to the country’s prosperity

”

FAST TRACK DECISION-MAKING You say that NKEAs will have dedicated focus from the Prime Minister and there will be fasttrack decision-making to resolve disputes and bottlenecks. 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.

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business leaders economic transformation

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 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.

“

Malaysia

TAJUDDIN ATAN

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

”

BURSA MALAYSIA

Chief Executive Officer 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. We are 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 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

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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. 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 keynote speech. We also held similar roadshows in Hong Kong and Shanghai. We went to London in 2010. 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.

economic transformation business leaders

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.

MUKHTAR HUSSAIN HSBC MALAYSIA

Chief Executive Officer 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 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

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 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. 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 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 those are extremely important and emphasise how much government-to-government contact is crucial in stimulating investment flows.

“

We have a world class markets business here which is able to meet the foreign exchange demands that come through

”

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forum economic transformation

Impact of the ETP

What will be the impact of the Economic Transformation Programme on the business environment?

JEFFREY NG

P’NG SOO HONG

ZAMZAMZAIRANI ISA

Chief Executive Officer

Managing Director

Group Chief Executive Officer

SUNWAY REIT

The government’s Economic Transformation Programme is beneficial to all businesses, including our REIT business model. When average incomes double, disposable income will rise as well. 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, improving tourism and acceleration of urbanisation.Things like shopping malls, if properly managed and strategically located, will remain a highly valuable asset class. The other big change 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, will help stimulate the growth of the suburbs of the capital. That should mean more property development opportunities, including in the retail sector. Suburbs need shopping facilities that will cater to the local catchment area and other external catchment markets if they have some unique selling points. We also feel that mixed developments augur well for REIT players who have the successful management track record and capabilities to add value.

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FIRST SOLAR

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. 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. For instance, we need to take care of our human resources and improve the education system. We need to take more active measures to attract back home those Malaysians who have gone abroad to work.

TELEKOM MALAYSIA

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. 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. 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. Providing a really good, well priced, technology outsourcing service to Malaysian business is probably the main way we can help transform the nation.

economic transformation forum

OSMAN MORAD

STANDARD CHARTERED

ZAINI BIN UJANG

Managing Director and CEO

UNIVERSITI TEKNOLOGI MALAYSIA (UTM)

The financial sector as a whole will play an important part in the transformation of the Malaysian economy, and we are at the heart of that. 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 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. 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.

It is an important journey the country is on, and we support it fully. We can produce the sort of highly knowledgeable and innovative human capital the country needs. Businesses do not run themselves, and we need a workforce of well-educated and dynamic people. 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. 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’. UTM is the main generator of intellectual property in the country. 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.

Vice-Chancellor and President

HUGH THOMPSON EXXONMOBIL MALAYSIA Chairman

We were 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. Without the faith we have in the government we would not be so comfortable investing these sums of money. ExxonMobil is a large company with operations in over 200 countries. 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. Malaysia has embarked on an ambitious programme of economic and social development. However, a country cannot grow without 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.

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business leaders economic transformation

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.

“

During this

crisis Shariah investing offers comparable risk returns or even better returns than conventional investment

”

NORIPAH KAMSO

CIMB-PRINCIPAL ISLAMIC ASSET MANAGEMENT Chief Executive Officer

INternational investor: How is CIMB-Principal Islamic weathering the current volatile global economic situation? What are your biggest challenges and how are you addressing them? NORIPAH KAMSO: Having pioneered an investment management business in the midst of a severe global financial crisis, the company has developed flexibility in reviewing its business plan. This experience has helped us to recover quickly and to adapt to market changes by employing pragmatic efforts to develop the business. 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. Secondly, we demonstrated during this crisis that Shariah investing offers comparable risk returns or even better returns than conventional investment. Thirdly, CIMB-Principal Islamic took advantage of the Eurozone crisis, which resulted in more pipelines for global sukuks. The bulk of the sukuks are issued by 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).

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INVESTMENT THEMES AND EXPANSION 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. 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%. Currently, there’s a global demand for dividend yield or regular income, more stable less volatile capital-protected investment products. CIMB-Principal Islamic already has a strong global presence, so how do you intend to grow the global business? 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. We are growing the global business through three business models: 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,

economic transformation business leaders

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. 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 the coming years? Having established close to three years track record on global capabilities for institutional mandates — with the track records being opaque to the public and institutional investors — we will focus 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 strategic intent of using Dublin as the global platform for UCITS for Irish equity funds. The UCITS

platform provides a regulatory framework that is 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 highnet 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. It also enables the fund to be available in multiple major currencies. CIMBPrincipal 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 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 strategy that these institutional investors will appoint CIMB-Principal Islamic as their investment manager for any of these capabilities for their institutional mandates.

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business leaders economic transformation

sharing contracts for EOR projects offshore in Sarawak and Sabah. This is a tremendously positive development for Shell Malaysia and further consolidates Malaysia as a heartland for Shell. 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. We are also in the early stage of developing a couple of other deepwater projects.

“

The ETP

ANUAR TAIB

signals to us that the government is listening to industry, and it is prepared to provide a better environment for us to invest in

”

SHELL

Chairman, Shell Malaysia INternational investor: How will the oil and gas sector evolve in the Malaysian economy in the coming years? anuar taib: The oil and gas industry has become an ever more pronounced driver of the economy. A dip, or a rise, in crude exports can materially impact Malaysia where the energy industry is a significant contributor to the economy. The sector is fairly well matured now. The Malaysian 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 develop new capabilities. It will also require all players in the 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. Is deepwater exploration becoming more crucial for your business? In building our future in Malaysia, we focus on 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

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A LARGE SHARE IN THE ETP Shell Malaysia has invested approximately 5.1 billion ringgit in 2011 alone in Economic Transformation Programme-related projects. What does the ETP mean to you? The ETP signals to us that the government is listening to industry, and it is prepared to provide a better environment for us to invest in. We believe we can put more effort into exploration, the development of marginal and more difficult fields. 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. What challenges do you think the ETP will face? The real challenge will probably be 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 human capital. 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, and rigs 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. The oil and gas industry offers opportunities for high-precision, 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.

economic transformation business leaders

DHARMESH MALHOTRA NOKIA SIEMENS NETWORKS Head, Asia South

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. 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. 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 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.

“

We have the capability to upgrade the network from the current speed of roughly 14mbps up to 42mbps and simultaneously prepare for LTE

”

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.

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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?

“

We have seen

a great uptake in interest from the corporate sector and we have changed our model somewhat to adjust to that

”

AIR ASIA X

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.

INternational investor: How are you able to get costs down so much further than competitors? Azran Osman Rani: 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. 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 time sensitive and price insensitive, the airlines designed their business models to suit what their first class and business class customers wanted. And that has always translated into planes hanging around in expensive airports at the convenience of their high-end 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. Longhaul 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,

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 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. 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.

AZRAN OSMAN RANI Chief Executive Officer

46 www.internationalinvestor.com

economic transformation business leaders

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. A large volume of trade passes through the Straits of Malacca, which we are well suited to cater for. Large ships use our facilities because they cannot dock at some of the smaller ports in the region. Of course, container ships are getting bigger all the time, so our expansion plans are tailored to cope with that.

TEH KIM POO

PORT KLANG AUTHORITY Chairman

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 taken some initiatives to improve the overall port infrastructure, in particular the access routes. Port Klang is a 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. The Authority looked at other ports 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. 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. 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.

REGIONAL COMPETITION How do you intend to add value and maintain the competitiveness of the port? The port is highly competitive on price already. 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. 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 and work closely with our private terminal operators, as well as the Malaysian government, to achieve our goals. 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. 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.

“

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

”

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.

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business leaders economic transformation

Malaysian companies can play a role in: for example, infrastructure development or the generation of renewable energy. 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 and benefits from a great mix of cultures. Over the past 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.

“

The service

sector has the potential to compete very strongly with comparative countries, and even globally

”

GOPAL R

FROST & SULLIVAN

VP and Country Head Malaysia 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 six employees. Today we are about 150 people supporting not just the Malaysian, but also the regional business. When the office started, our focus was on helping our local clients, but as both the practice and the Malaysian economy have developed, we now work more on a regional basis, and also with international clients interested in developing a footprint in the country. Equally, the shape of the practice has evolved. When we began, we concentrated on a few central capacities. Now we 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? 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. 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 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

48 www.internationalinvestor.com

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. Having said that, I think the selection of the 12 Key Economic Areas is a good idea. 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 so even if you think that some industries have a seasonal nature, there are other industries to off-set that. How is Malaysia doing in generating and retaining its human capital? Over the past six years, it has become easier to attract foreign talent; simple things are more flexible, such as the duration of work permits. Also key has been extending tax incentives to attract talented Malaysians back home. Some Malaysian companies have attracted talent from countries like Hong Kong and Singapore. This is boosting the regional strategies of businesses, allowing them to compete in the Southeast Asian region.

economic transformation business leaders

enforcement agencies and a lot of other basic things. And high standards of integrity and governance are needed in all these. 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.

JOHAN RASLAN PwC MALAYSIA

Executive Officer 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 a problem in terms of retaining that talent. Salaries are 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. Added to that is the fact that nowadays kids are very global. It became 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 salary men 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 more attractive to our talented sons and daughters. But the country will also have to continue to develop a high-performance civil service, infrastructure,

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. 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 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 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.

“

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

”

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.

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business leaders economic transformation

has to understand that to be a global university, we need to be realistic.

“

SHARIFAH HAPSAH

We need

to develop entrepreneurial skill sets in both undergraduate and postgraduate students early on in their courses

”

UNIVERSITI KEBANGSAAN MALAYSIA (UKM) Vice-Chancellor

INternational investor: UKM Study is centred around the Malay language. How has UKM been able to attract international students and what kind of strategies have you applied? SHARIFAH HAPSAH: UKM was established out of the aspiration of the ordinary people to have a university that would promote Malay as a language of academia. 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. 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. 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. We have to do this if we want to recruit international students and faculty. You can’t expect international faculty to come here and speak Malay. So everyone

50 www.internationalinvestor.com

ENTREPRENEURSHIP IN THE UNIVERSITIES Do you try and imbue your students with business sense? 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. 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. 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 UKM 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. 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, hi-tech things I like to see us promote. I think it is the future for the university.

business leaders economic transformation

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.

“

Malaysia

SITI SA’DIAH SHEIKH BAKIR

offers competitive costs, regulated professional medical charges, welltrained medical consultants and national stability

”

KPJ HEALTHCARE

Managing Director 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. 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. How important is the health tourism sector economically? Please elaborate on the role it will play in Malaysia’s future? 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

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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. 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. 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.

economic transformation focus

focus: Medical tourism 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

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. 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. 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 target. Per capita healthcare expenditure in 2010 was US$366, the second highest in the ASEAN region. 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

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economic transformation focus

Strengths ■ Pricing in Malaysia is more affordable than Singapore 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 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

weaknesses 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 ■ Sited

■ Fast

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. 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 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

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

hospitality culture and elective treatments, is the clear leader among the nations competing for this lucrative business. 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: Healthcare costs and waiting times for non-elective procedures Skyrocketing healthcare costs (especially in Western developed nations) compel patients (even those with health insurance, as coverage may be limited) to look outside their country for medical treatment. JCI accredited hospitals in Asia provide services at international standards at prices that are sometimes half of what it would cost in 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 at a considerably lower cost.

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Total Healt

5,000 4,000

focus economic transformation

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

Rise of cosmetic surgery and elective procedures 2007(a) 2008(a) 2009(a) 2010(a) 2011(e) 2012(f) 2013(f) 2014(f) 2015(f) The growing trend of elective and cosmetic Japan Indonesia Malaysia Singapore Thailand UK USA procedures, which are often paid out-of-pocket, Per capita Healthcare Expenditure (US$) Databank has opened up a completely new Source: arenaOECD of ‘medical holidays’. For consumers from Western countries, this is an attractive proposition where they combine an elective (usually cosmetic) procedure with a holiday in Asia.

7. SOURCES OF MEDICAL TOURISM IN ASIA 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.)

Technology and high quality healthcare facilities For patients travelling from less developed countries, expertise, more advanced facilities or technology 40% of European medical and better quality of care motivates them to seek tourists travel to Asia treatment abroad. A McKinsey Company 2008 33% visit&North America tourists from report emphasises that 40%32%ofof medical medical travellers the Middle travel tobetter Asia seek advanced technology, 32%Eastseek 58% visit North America healthcare, 15% seek faster medical services and 9% seek lower costs as their primary consideration. ■

■

2010 % Growth

25.0 20.0 Latin America

16.0

16.1

9.2

9.4

16.3

16.0

16.2

9.5

9.6

9.7

9.8

9.9

3.3

4.0

4.1

4.2

4.3

3.3

3.4

4.0

4.3 2.2

4.5

4.4

4.5

4.6

4.7

4.8

2.0

2.8

6.7

6.8

7.0

7.2

7.3

7.5

7.7

7.8

7.9

4.3

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

■

APAC MEDICAL TOURIST VOLUME, 2007–2010 1,750,000 1,500,000 1,250,000 1,000,000 750,000 500,000

Disposable income Increasing disposable income among the growing Asia-Pacific middle class in developing countries enables and encourages them to seek better healthcare services out of their Eastern countries. Europe

15.0

Developments and Opportunities with Medical Tourism in Malaysia Medical tourism is becoming increasingly important 5.0 North America to both Malaysia’s travel and healthcare industries, 0 and has become the second largest foreign exchange Western Europe earner for the country over the past decade. To (5.0) 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 further drive Regional market size 2010 US$ milionthe growth of the industry as a foreign exchange earner, government is taking steps to Note: Size of the bubble denotes the share of the global market the in 2010 incentivise private hospitals to expand and raise Source: Euromonitor their standards. It was announced by the Malaysian Health Ministry in May 2011 that hospitals would receive 100% tax exemptions for the construction of new hospitals, as well as for expansion or upgrade of existing facilities. This is a step in supporting Malaysian hospitals to be on the cutting edge of medical technology. However, one of the major challenges to patients engaging in medical tourism is concern about the quality of care in a foreign country. Patients are 10.0

■

Australasia

30.0

■

Concierge services 45% of North American Entrepreneurs have recognised the business medical tourists travel to Asia opportunity surrounding the 93% facilitation of tourists medical of Asian medical prefer intra-Asia traveltourism tourism. Businesses now provide medical concierge services, which have enabled patients and consumers to easily access hospitals in any part Source: Frost & Sullivan of the world; these companies provide a door-todoor service, from pick-up in their home country to hospital and stay arrangements in the destination country, to 2010 return back. This is making the process 5. REGIONAL MEDICAL TOURISM SPENDING, of medical travel easily accessible to the larger 40.0 global population. 35.0

HEALTHCARE EXPENDITURE AS % OF GDP (INDONESIA, MALAYSIA, SINGAPORE, THAILAND, UK, USA), 2007–2015 (FORECAST)

Healthcare Expenditure (% of GDP)

1,000

250,000 0

’10-12 CAGR

South Korea Philippines Malaysia Singapore

29.7% 2007

24.7% 2008

15.0%

9.0% 2009

India

19.0%

Thiland

25.0%

2010

Source: Frost & Sullivan Analysis

Middle East and Africa

56 www.internationalinvestor.com

not sure how to interpret local awards 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

economic transformation focus

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 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 tourism, and has an important role to play in attracting patients to Malaysian private hospitals. 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 cost-efficient 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 and key nations, such as Singapore, Thailand, Malaysia and India are likely to experience double digit growth in market revenue towards 2015. 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.

www.internationalinvestor.com 57

analysis economic transformation

KEY FINDINGS AND CONCLUSIONS A period of fast change in Malaysia brings together captains of industry and senior members of government. Can they reach solid conclusions?

The real heavy lifting in Malaysia must come from the private sector and the people themselves

Malaysia is undergoing a period of profound transformation. That cliché is applied to most countries at most times, but when it comes to Malaysia today, it happens to be true. Within living memory the country was a Western nation’s colonial possession. Today it is proudly independent. It has made significant advances since independence, but has yet to attain the sort of income levels and social capital of the developed world. That is now being addressed, with some energy. Countries and economies that do not pull together are unlikely to make any headway — economically or socially — in this modern world. That is what this roundtable is all about: government, business and civil society working together to enact the profound economic transformation Malaysia needs. The goal of 2020 The central focus of this debate is the Malaysian government’s Economic Transformation Programme, started in September 2010 and due to culminate in 2020. The plan is to dramatically improve the country’s economic profile, from being a middlescale country in economic terms today, to being a high-income nation by 2020. There is no doubt among the participants that this will take both profound governmental action, and a willingness on the part of the private sector to do more than just play along. Business and industry must put all their energy behind the state’s plans and assumptions. Among the participants in this roundtable, there is broad enthusiasm for the programme and a desire to swing particularly important industries behind it. Yet there is also reasonable scepticism as to what extent governments can wish such transformations into being. More than one member of the panel expresses doubts about implementation. There are too many memories of countries attempting to ‘instruct their economies’ in their growth patterns, and then of course failing dismally to meet their targets. History appears to show us that (outside

58 www.internationalinvestor.com

perhaps times of war) the state simply cannot command economic indicators to perform as they might wish. Bureaucracy gets in the way; vested interests occlude clear thinking. The businessmen in the following pages are not shy of asking sharp questions of government: how will it work? Mechanisms Inevitably, given the nature of the Economic Transformation Programme, the question of mechanisms comes up in the debate. The Programme emanates initially from the government, so concerns over bureaucracy are legitimate. There is no doubting the government’s commitment to economic transformation. There is a clear understanding throughout the country that the impetus for this process must come from the highest reaches of government. So far it has. Prime Minister Dato’ Sri Mohd Najib has set the transformation programme as his highest goal — a commitment shared by virtually all political parties. The transformation process is essentially taking two parts: a transformation of the way the government goes about its work (the GTP, or Government Transformation Programme) and a wholesale transformation of the economy (the Economic Transformation Programme). Given the connections between any country’s economic life and its governmental and social infrastructure, this is clearly necessary. Malaysians themselves have often been the sternest critics of how sclerotic some of the state institutions can be. All of the participants in this roundtable are aware of how debilitating the thickets of bureaucracy can be. Part of the transformation of the country must surely include a wholesale clearing away of this red tape. The participants in the debate realise that a strong impetus towards clearing away national inefficiencies has come from the Malaysian people themselves. As is highlighted in the roundtable, a central part of the GTP, was a wide-spread

economic transformation analysis

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

TRADE GROWTH (MALAYSIA), 1981-2011

■

Business sectors During the debate, Sandip Das of telecoms giant Maxis notes that the very fact that so many senior business people are involved right from the start of the ETP will mean that it will ‘stand the test of time’. Moreover, the gap between merely conceiving of a grand idea and its implementation will be bridged. It is certainly true that more Malaysian businesses and business sector representatives are involved in the Programme than ever before. ‘Gone are the days both here and everywhere else in the world,’ says Senator Dato’ Sri Idris Jala, ‘when government can create successful businesses on its own’. The country enjoys a number of strong business sectors today. There are significant players in the

Exports Growth (%)

Investment/GDP (%)

INVESTMENTS TRENDS (MALAYSIA), 1981-2011 45 consultation effort among the people of Malaysia. 40 True35 to the down-to-earth, clear-minded nature of 30 populaces, the results were clear: sort out crime most 25 and20corruption; get the country’s basic infrastructure 15 sorted out; solve urban public transportation 10 1981 1991 2001 2011 problems; help low-income households and improve education. The process is, as Rauf notes, Source:Rashid Frost & Sullivan ‘something that is crucial to all of us as citizens of Investment Stagnation the countryas—a percentage we are allof stakeholders.’ Investment GDP stagnated at 25% since to lower government productivity 2000, Theleading Malaysian has put structures annual growth to .2020 will of require in Achieving place the to 6% facilitate therateETP Two the main investment to grow by more than 12% over the next five years implementation agencies — Pemuda and PEMANDU — are working closely together in pushing ETP forward, as is also mentioned in the debate. The fact that these relatively young agencies seem to embody a radically new outlook, and seem equally to be keen above all else to outcomes and easy co-operation at the heart of their work bodes well. Yet it is worth stressing once again that the real heavy lifting in Malaysia must come from the private sector and the people themselves. That basic fact is why discussions such as this are so important. Idris Jala during the debate says, in fact, that fully 90 per cent of the country’s economic transformation must come from the private sector.

Source: Frost & Sullivan

telecommunications market — a key expansionary 20 field15 throughout Southeast Asia for the cleverest 10 operators. Healthcare, too, is a potentially big 5 0 foreign currency earner for the nation. Providing high-5 quality medial services for a potentially huge market -10 1981 1991 2011 on Malaysia’s doorstep, not to 2001 mention healthcare tourism from the West, is more than possible. Source: Frost & Sullivan Another industry which is unrivalled in its Exports Volatility potential is Islamic banking and finance. Malaysia Exports dependency reliance on industrial markets the leading centre for hasHigh the potential to become Concentration on few product groups such as electronics, oil, this burgeoning industry. At the moment, although gas and agricultural products Malaysian institutions are capturing much of the business, much still goes through a number of key Gulf states such as Dubai. The potential of Islamic finance in Malaysia is huge. The further development of these sectors and others are vitally important for the country’s progress. To take just one interesting statistic alluded to in the following debate: research has shown that for every extra 10 mobile phones per 100 head of population, gross domestic product goes up by 0.6 per cent. In today’s fast-moving telecoms environment, the spread of smartphones and tablets — already happening at a dizzying rate in Malaysia — will doubtless bear that figure out. Also imperative for Malaysia’s on-going develepment will be a high-quality business infrastructure. The Malaysian legal system is good, having inherited a basic English Common Law structure and overlaid it with a 21st century Sharia system. The country’s financial infrastrucutre needs developing, though, according to Mukhtar Hussain of HSBC. He notes that Malaysia’s venture capital industry is not strong enough. Start-up companies are still starved of seed capital, he says. Innovative Islamic structures might be a way to plug this gap, but it is something that needs work. ■ ■ ■

Talk to almost any senior business person or government official in the country and they will express concerns over whether Malaysia is doing enough to train and retain its talent

Human capital The issue of human capital is a major one in Malaysia and naturally features strongly in the roundtable.

www.internationalinvestor.com 59

1981-1990

analysis economic

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

1991-2000

2001-2010

2011-2020

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

TRADE GROWTH (MALAYSIA), 1981-2011 Exports Growth (%)

Investment/GDP (%)

INVESTMENTS TRENDS (MALAYSIA), 1981-2011 50 45 40 35 30 25 20 15 10 1981

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

If commentators are correct and the economic life of the globe is shifting inexorably to Asia, then Malaysia must be poised to take advantage of this

Talk to almost any senior business person or government official in the country and they will express concerns over whether Malaysia is doing enough to train and retain its talent. Individuals like Professor Shahabudin of Universiti Kebangsaan Malaysia, taking part in the debate here, are at the forefront of getting this right. There is an increased focus among most Malaysian institutions of learning on links with the wider economy. The professor herself says that she is in the business of ‘the creation and encouragement of future entrepreneurs’. That is necessary certainly, but keeping this talent in the country is equally important. That new — or re-newed — focus on training talent to operate in a modern, dynamic economy, is shared by most institutions of higher learning in Malaysia today. What is perhaps novel is the deepening partnership between universities and business that has emerged over the past few years and is reflected here. There are still challenges in the education sphere. As one of the participants points out, some 40 per cent of children do not have the basic grounding of pre-school; and much of the country’s education provision, especially outside the metropolitan areas, is not up to the required standards. The government appears to be aware of this and is implementing a number of remedial and improving schemes to up the standard of early education. As for Malaysian big business itself, opinions are less clear cut. Most understand the need to address the talent issue at source — our participants here in this roundtable know that there is no substitute for excellence in education — but many also hold the pragmatic view that much depends on offering employees good enough remuneration so that they feel no need to move abroad to get a higher salary. ‘Talent can be bought’ says one participant. Indeed, Malaysian businesspeople realise that they operate in a competitive global market for talent. Tied to the issues of human capital and the education issue is the speaking of English. Mentioned

60 www.internationalinvestor.com

Source: Frost & Sullivan

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

in the debate is the importance of the necessity of high levels of competence in written and spoken English if Malaysia is to be plugged in to the global economy. Fortunately, partly to do with the country’s history, English is widely spoken. This gives Malaysia a head start in its efforts at globalisation. Pressures towards preserving indigenous languages are unlikely to arrest this move towards widespread English usage. A question that faces the Malaysian business community, though, is how too make itself more regionally and globally competitive. It is not an easy task in today’s hyper-competitive world. But one thing that stands globally out is the clearly divergent economic trends of Southeast Asia and the West. Western nations are undergoing their worst economic crisis at least since the Great Depression, possibly further back than that. So far at least, Southeast Asian countries have avoided this catastrophe. Malaysia itself has so far felt little of the effects of the downturn. If commentators are correct and the economic life of the globe is shifting inexorably to Asia, then Malaysia must be poised to take advantage of this. Certainly, the businesses represented here are all aware of the opportunity and are working to project themselves abroad. Royal Selangor, for instance, has focused in recent years on expanding outside Malaysia, opening outlets in Australia, Canada, Britain and China. Will it work? As Idris Jala points out, the signs so far are good. Investment under the programme is high; jobs are being created; projects are being founded at a rapid rate. Malaysia is so far on target to achieve its goal of being a high-income nation by 2020. Its own efforts are paying off, and the global economic climate, with economic life moving inexorably eastwards, is helping too. Senior figures from politics and business, such as the people taking part in this debate, must maintain their efforts and Malaysia may well be a profoundly changed country in the near future.

CMY