Malaysia has benefited so much from the Foreign Direct
Investment (FDIs). The capital market grown, talents created, and
entrepreneurship flourished during those years FDIs grows in Malaysia. During
the 70s, foreign companies flocking to Malaysia because of our labour. FDIs had
poured to Malaysia as a result of our abundant and cheap labour. In fact, the
multinational companies did not only come to Malaysia, they are looking at the whole
of eastern hemisphere of the world due to economic shift in the western hemisphere
of the world. The economy in the US and the European countries during that time
are shifting from production-based economy towards a knowledge-based economy. Their labour cost
started to increase and hence, they are shifting their production arm to Asian
countries (including Malaysia) and retaining the R&D and other
value-creation activities in their home soil.
In other words, the reasons why these transnationals and
multinationals are coming to Malaysia are purely sustainable – labour. Along the
years, we have grown and certain policies are taken to further attract FDIs. We
offered grants, exemptions from taxes, customs facilitation and other fiscal
incentives. These are actually considered by those multinational companies as sides
promotions. The main reasons why these companies came and still in and to
Malaysia are purely fundamental – competitive labour cost. We are not ready in
terms of our workforce and infrastructure to fully transform to an independent
knowledge-based economy. We are still considered to be “a low labour cost
nation” (with tireless and positive effort to transform the economy). But, it
is weird to see how our approach has changed throughout the years. We are shifting
our approach from focusing on the fundamentals of the economy (labour,
entrepreneurship, capital and land) to weightening towards incentives-centric
approach. We started to think that a company will invest in Malaysia if we can
offer a better incentive than our neighbouring countries. This is indeed a
dangerous approach. Dangerous in the sense that the approach is not
sustainable. If those policy makers in Putrajaya started to believe in this
approach, our resources will be funded to fulfil this mantra, instead on
focusing on the fundamentals of the economy (the real reason why transnational
companies come to invest) such as the education sector, logistics, and the
reliability of the utility services.
Let us take Singapore as our example. Foreign companies
started to flock to Singapore during the 70s for the same reason as ours –
cheap labour. But Singaporeans are smart, they started investing heavily in the
fundamentals – education, knowledge worker, infrastructure, logistic
facilities, etc. NUS is one of the best university in Asia (and stood steadily
among the best business schools in the world). And now, their GDP per capita is
about 50k USD (as compared to Malaysia around USD 10k), one of the highest in
the world. Actually there is no rocket science in the success of Singapore, no
magic approach and no secret recipe. They just take the right approach and take
the right decision. They liberalized their immigration procedures to welcome
world class talents (just look at their football team for closest example).
They align their approach on the basis of meritocracy, promoting only the best.
They practice integrity as their daily culture. There are no secret arrangement
with the US or Israel. It is just plainly sustainable approach.
So where should we head from here?
The approach need to be changed. We should rely less on our
fiscal incentive to attract foreign investors. Focus should be given to other
areas, such as easiness of doing/starting business particularly reforms in the
public sector. Efficiencies of public sector can be main determinant of
attracting foreign investors.
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