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Conducive environment for investments and business

The following were FMM proposals to the Ministry of Finance for the 2012 Budget and Ministry of International Trade and Industry for the MITI Annual Dialogue 2011:

  1. Equity requirements must be addressed and fully liberalized. Government Linked Companies (GLCs) are still insisting on New Economic Policy (NEP) Bumiputera equity requirements. Eg Petronas and TNB still insist on Bumiputera equity in their licensing and tender processes respectively.

    Although 30% Bumiputera equity requirements are no longer imposed on new investments, manufacturing companies formed before the 1985 amendments to the Industrial Coordination Act are still subject to the requirements. FMM has been informed that exemptions could be given on case – by – case basis upon application to MITI. Such an approach is not business friendly and unfair to longstanding investors who have and continue to contribute towards the country’s industrial development.

  2. Relevance of Industrial Coordination Act (ICA). The ICA was introduced to co-ordinate orderly industrial development by controlling the capacity and range of items manufactured. The control on capacity and range is to avoid over–competition in a particular sector so that local industries are given time to gain critical mass and competitive strength. In today’s open and competitive environment, particularly with the liberalization of investments and trade through the various bilateral and regional free trade agreements, including formation of the ASEAN Economic Community, the ICA is no longer relevant.

    Instead, the ICA’s restrictions on capacity and market entry are anti – competitive and in conflict with Malaysia’s newly introduced Competition Act 2010. 

    The ICA has become a burden to expansion as its threshold keeps businesses small in order to remain outside the Act and to avoid licensing requirements as well as conditions including equity conditions. Instead of consolidating business strength, the ICA causes fragmentation when growing businesses expand by setting up new companies to avoid coming under the purview of the Act. The ICA has outlived its usefulness and no longer brings any benefit to the manufacturing sector and the economy in general.

  3. Overall governance. There is lack of credibility and low confidence in the governance structure and key institutions, specifically over the independence of judiciary, the effectiveness as well as independence of the police and the MACC. The positive perception gained from commendable efforts in expediting the hearing of commercial cases through new Commercial Courts could be further reinforced by restoring confidence in the independence of the judiciary.

    There is a dire need to address negative perceptions such as negative politics, religious extremism, cronyism, corruption and the integrity of key institutions.  De-politicise the economy, education, religion and race to strengthen inclusiveness and competitiveness based on merits. Need to improve on Malaysia’s public relations and image.

  4. Reduce crowding out of investments by speeding up divestment of GLCs and improving competition in the economy and a more level playing field. Divestment should be expedited in industries where GLCs had been the pioneers and the market or sector has since matured with the entry of many other private sector operators. Expediting divestment in these industries ensures better competition with a more level playing field.

  5. Equal opportunities and inclusiveness. There must be genuine appreciation of Malaysian talents of all ethnicity by giving equal opportunities based on merits and to get rid of negative perception of racial and religious discrimination. According to the World Bank’s Malaysia Economic Monitor, April 2011, around 60% of Malaysian talent working abroad have cited career prospects and social injustice as reasons for brain drain in Malaysia.

  6. Imposition of indiscriminate charges on manufacturers. Any policy changes and introduction of new requirements that affects the cost of doing business must be discussed with the industry prior to implementation. A recent example is the mandatory medical insurance on foreign workers which was introduced by the Ministry of Health (MOH) with effect from January 1, 2011 and implemented without consultation with all relevant stakeholders. Objections and concerns of the industry have been ignored by the Ministry. In the meantime, the industry is compelled to comply failing which they would be in dire manpower problems. In further aggravation, the FMM had not been able to meet YB MOH Minister directly on this issue. In this respect, MOH has not been responsive and open with the industry.

  7. Ease monopolistic structures especially in commodity pricing, which also have inflationary pressures on the economy. For instance, Bernas’ monopoly over the rice supply market has kept the price of rice high in Malaysia although worldwide there has been a reduction in prices by as much as 50%. Economic transformation should also remove monopolistic pricing. This is essential as monopolistic practices will worsen inflation, with commodity prices increasing worldwide.

Submitted on April 29, 2011

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