Malaysia scraps ethnic equity rule in some sectors

By Tuesday April 21st, 2009 No Comments

Malaysia’s government said it has scrapped a 30 percent requirement for ethnic Malay ownership of investments in some service sectors as it tries to boost the country’s flagging economy.

The move Wednesday marks a dilution of the country’s politically sensitive affirmative action program, which aims to uplift Malays who are a majority but lag economically.

Prime Minister Najib Razak said full foreign ownership will now be allowed in 27 areas spanning health and social services, tourism, transport, business and computer-related services.

Analysts hailed the opening of the services sector as a positive move but said the liberalization should be expanded to cover key services sectors such as banking and telecommunications. The Malay ownership rule still applies in these sectors.

“It is a good start but it will be more beneficial for the economy if key services sector such as finance are also opened up,” said Wan Suhaimi Saidi, economist with Kenanga Investment Bank.

The services sector contributed 55 percent of gross domestic product last year, and the government hopes to raise this to 60 percent, Najib told a news conference.

Malaysia’s exports have been hit by the meltdown in global demand and the government says the economy will shrink 1 percent this year in its worst case scenario.

“Liberalization of this sector will provide the impetus to enhance its contribution to economic growth,” Najib said. “It will boost investment and make the services sector more competitive.”

He said he will announce details for liberalization of the financial sector next week.

Critics say the decades-old New Economic Policy hinders investment and has largely benefited well-connected elite Malays rather than the poor. But the government has been unwilling to scrap it for fear of alienating the Malays who form the main constituency of the ruling party.

It has, however, allowed 100 percent foreign ownership in the manufacturing sector, a key pillar of the economy.

Najib said the move was in line with Malaysia’s commitment to open up its services sector under a regional agreement of the Association of Southeast Asian Nations.

He stressed that liberalizing the sector would not adversely affect the domestic services industry. The sector accounts for 57 percent of total employment in Malaysia.

“With the liberalization of the services sector, the government expects greater inflow of investments,” he said.

The government plans to progressively open other sectors, said Najib, without giving any details.

Last year, approved investments in services reached 50.1 billion ringgit ($13.7 billion), exceeding the official target of 45.8 billion ringgit ($12.6 billion). But foreign investments were only 11 percent of the total figure.

As part of measures to make Malaysia an international financial center, Najib said the legal profession will also be liberalized to allow up to five top international law firms with expertise in Islamic finance to offer services in this field.

Copyright 2009 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed

Source : Forbes

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