Tuesday, 3 August 2010

10 ways of doing without FDI

A Question of Business
By P. GUNASEGARAM

A STIR of sorts has been caused by the story that foreign direct investment (FDI) into the country for 2009 fell 81% to US$1.4bil (about RM4.5bil) from US$7.3bil (RM24bil).

But really it should not. If we want higher value-added, then labour-intensive industries are not our target. This is the area which many foreign investors like because they can get tremendous cost savings by using cheap labour in places like China, Vietnam etc.

If greater value-added is what we are after, then increasingly more investments have to be made in the services area – think tourism or education for instance. That does not necessarily need foreign investment – we can use local money.

We have plenty of money in Malaysia – as much as RM250bil at last count. That’s roughly the excess of deposits over loans sitting with the banks throughout the country.

All that money and nowhere to go within the country, is our problem. The money is not chasing investments in the country. And that can mean only one thing – there is a lack of opportunity here.

The question then is what is it that is reducing business opportunities in Malaysia? Is there too much red tape? Are approvals not forthcoming? Are there too many equity strictures? Do we have sufficient workers?

FDI flows in any particular year into Malaysia pales in comparison to the amount of idle money in the system. What we have to do is to find ways to use that and we will more than mitigate the effects of reduced FDI. Here are 10 ways we can do that.

1) Shift from manufacturing to services. This is inevitable if you want to move towards higher income. Our manufacturing is low value-added. Much of it is low-end assembly. Things like tourism and education offer so much more opportunities and are already large contributors to foreign exchange savings;

2) Reduce export dependence. Old habits die hard and we must realise that we cannot continue to export ourselves out of trouble all the time. What we must do is create a market for ourselves right here. Get our consumers, who seem to have a lot of money, to spend – think restaurants, entertainment, lifestyle etc;

3) Identify and target the high growth areas. Old-style low-cost manufacturing is out. We need to identify some areas for good growth in the future and focus on this. We could easily become a quality education hub for the region for instance and benefit ourselves in the process. We could set aside areas for international universities to be set up;

4) Make incentives the same for both domestic and foreign investors. The days of giving more incentives, latitude and preference to foreign investors must end once and for all and the playing field levelled. In fact, greater encouragement and incentives must be given for the development of local enterprises based on the simple premise that we must help ourselves more;

5) Cut tariffs and taxes. Tariffs are non-competitive and cutting them increases competitiveness of all industries as they are able to source supplies and services which are the cheapest and of the best quality. Cutting taxes provides incentives for making money. Our taxes are still relatively high;

6) Do away with equity targets altogether. With bumiputra equity targets probably already met if we measure using the right techniques, there is no need to force non-bumiputra industries to continue to enter Ali Baba-style partnerships to do this, a highly inefficient process that benefits very few bumiputras in any case;

7) Cut red tape. For all the lip service made to cutting red tape over the years, this is still very much with us. As long as officialdom puts all kinds of barriers in the way of genuine enterprise, expect enterprise to be hobbled;

8) Do away with yearly renewal of licences. If you already have a licence, why renew it yearly? Why can’t it be given to you indefinitely unless you flout licence requirements? Doing away with licence approvals on a yearly basis helps cut bureaucracy;

9) Improve educational standards. We can’t emphasise this enough and the steady decline in educational standards both at schools and universities has not, so far, elicited a strong enough response from the Government which will stop the slide; and

10) Cut corruption. This insidious, widespread problem is eventually the cause for much bottleneck, inefficiency, higher costs and a downright hindrance to improving productivity at all levels. It’s incredible how little we have done to stop this scourge.

Yes, FDI has dropped and it may continue to drop. But really, that’s not the end of the world. Anyway, it’s high time we reduced dependence on FDI and did something to pump up domestic investment instead. And there are many more imaginative ways to do that.

·Managing editor P. Gunasegaram is amazed that some foreign companies are taxed by their home countries for the taxes they don’t pay here; in other words, the tax incentives given to them here goes to a foreign country instead.

1 comment:

  1. Yes, 10 right ways of doing!

    Read the Rightways Blog:

    http://rightways.wordpress.com/

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