Budget 2010 Proposals At A Glance

Budget 2010 Proposals At a Glance
By: Mansid

<<2010 Budget Speech by Prime Minister>>

2010 Budget Strategies

On Friday, 22 October 2009, Prime Minister announced 2010 Budget.

The 2010 Budget will be the foundation for the development of the new economic model and the formulation of the 10MP. The Budget focuses on three strategies, namely:

1. Driving the nation towards a high income economy;
2. Ensuring holistic and sustainable development;
3. Focusing on well-being of the rakyat.

On EDUCATION...
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> RM30 billion for primary and secondary education.

> Pre-school education to be incorporated as part of the mainstream national education system and centralised pre-schools to be set up in existing school premises.

> National scholarships to 30 creme de la creme students strictly based on merit to further their education in world renowned universities.

> National Higher Education Fund Corporation (PTPTN) loans will be converted to scholarships for students who graduate with first class honours degree or equivalent, beginning 2010.

> 50% discount on fares for long-distance services of Keretapi Tanah Melayu Berhad (KTMB) to students aged 13 and above. A complimentary 1Malaysia student discount card can be obtained from KTMB from 1 Jan, 2010.

> Netbook package, including free broadband service, to university students for RM50 per month for 2 years. Priority will be given to first year students and those from low-income families.

On TAX RELIEF...
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> Personal income tax relief increased from RM8,000 to RM9,000

> Existing personal tax relief on RM6,000 on EPF contribution and on life insurance premium increased to RM7,000. THe RM1,000 increase is solely for premiums for annuity schemes by insurance companies.

> Maximum tax rate down by 1% to 26%

On CREDIT CARD...
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> Service tax be imposed on credit cards and charge cards including those issued free of charge, at the rate of RM50 per year on the principal card; and RM25 per year on the supplementary card. Service tax will be collected on the date the card is issued, on the completion of each year or on the date of renewal.

On REAL PROPERTY GAINS TAX...
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> A tax of 5% be imposed on gains from the disposal of real property from Jan 1 2010. However, the existing tax exemption will be retained for gifts between parent and child, husband and wife, grandparent and grandchild. This exemption will also be given on disposal of a residential property once in a lifetime.

On INFORMATION TECHNOLOGY...
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> Individual taxpayers to be given tax relief on broadband subscription fee up to RM500 a year from 2010 to 2012.

> Civil servants can apply for computer loans up to a maximum of RM5,000 from the Government once in every 5 years instead of the present 3 years.

On GREEN TECHNOLOGY...
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> A fund of RM1.5 billion to be set up to provide soft loans to companies that supply and utilise green technology.

> Building owners who get Green Building Index (GBI) certificates from Oct 24 2009 until Dec 31 2014 to be given income tax exemption equivalent to the additional capital expenditure in obtaining such certificates

> Buyers purchasing buildings with GBI Certificates from developers to be given stamp duty exemption on instruments of transfer of ownership. The exemption amount is equivalent to the additional cost incurred in obtaining the GBI Certificates. This exemption is given to buyers who execute sales and purchase agreements from Oct 24 2009 until Dec 31 2014.

On IMMIGRATION...
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> The granting of Permanent Resident (PR) Status to highly talented and skilled individuals will be simplified.

> Visas will be automatically granted to working and dependent expatriate family members within 14 days. PR status will also be extended to foreign men married to Malaysian women.

On RETIREMENT...
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> 1Malaysia Retirement Scheme for self-employed and those without fixed income to be managed by EPF. Government will give 5% for every RM100.

On HEALTHCARE...
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> RM14.8 billion to manage, build, prgrade hospitals, clinics and expanding community clinic services.

> 1Malaysia community health clinics will be established in urban areas next year in shoplots within housing areas and manned by medical assistants for

basic treatment of fever, cough and flu everyday. For a start, RM10 million would be provided to set up 50 clinics.

On CRIME PREVENTION...
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> RM1 billion for police to reduce crime, including snatch thefts and robberies, and another RM1.9 billion to enhance country's border security

On CREATIVE INDUSTRY...
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The establishment of a RM200 million Creative Industry Fund to finance activities such as film and drama productions, music, animation, advertisements and local content development. The fund managed by Bank Simpanan Nasional will provide soft loans with simplified loan application procedures

On AGRICULTURE...
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> RM6 billion to ugrade and improve drainage and irrigation infrastructure in paddy fields, modernise the aquaculture industry and implement entrepreneurship training scheme for aquaculture breeders, develop food farming industry such as fruits, organic farming and hebs, develop basic infrastructure of livestock farms and for training agro-entrepreneurs

On SMEs...
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> To encourage the development of local entrepreneurs, particularly small and medium enterprises (SMEs), the Government will allocate a sum of RM350 million to SME Corp., of which RM200 million is for SME soft loans, RM100 million for capacity enhancement, while the balance is for branding and promotion. The interest rate on soft loans offered by SME Corp will be similar to rates offered by development finance institutions.

> RM538 million will be allocated for the implementation of various SME development programmes, includes RM281 million to state economic development corporations, RM200 million to Tekun (Tabung Kumpulan Usaha Niaga), and RM20 million for small-scale Malaysian-Indian entrepreneurs, which is an addition to the existing allocation of RM15 million.

> An allocation of RM57 million, among others for the purchase of business premises, provision of infrastructure outside industrial areas and Skim Kilang Bimbingan through the SME Bank.

On INFRASTRUCTURE...
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> An allocation of RM9 billion to be provided to finance infrastructure projects including road and bridge projects, water supply and sewerage services, rail facilities, airport and sea services.

On BUSINESS...
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> Business registration and issuance of Development Orders to be expedited.

> 2 new Commercial Division Courts to expedite the hearing of commercial cases and resolve them within 9 months.

> Individuals and companies are only required to use a single reference number in their dealings with Government agencies. For individuals, the initiative known as MyID, uses MyKad number, while for companies, MyCoID utilises the Companies Commission of Malaysia (CCM) business registration number.

On TOURISM...
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> A total of RM899 million to further intensify the tourism industry, particularly ecotourism, agrotourism, edutourism and health tourism.

> More initiatives to attract participants from United Kingdom, Japan, Republic of Korea, Middle East, India and China to join the Malaysia My Second Home (MM2H) programme;

> More attractive tourism products and events including KL Grand Prix Fest, National Water Festival, Rain Forest EcoChallenges and Malaysia International Golf Exhibition as well as launching a large-scale shopping mall for branded items based on the factory outlet concept

On MEDICAL TOURISM...
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> Government will enhance tax incentives for healthcare service providers who offer services to foreign health tourists.

> Income tax exemption of 50% on the value of increased exports will be increased to 100% to enable healthcare service providers to offer high quality health services and attract more health tourists.

On INSURANCE...
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> Micro insurance and takaful coverage will be expanded. With premium as low as RM20 per month, small-scale businessmen will benefit from coverage ranging from RM10,000 to RM20,000.

On STOCK MARKET...
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> Liberalise the commission-sharing arrangements between stockbrokers and remisiers in 2 stages to encourage retail participation in the stock market.

> 100% foreign equity participation allowed in corporate finance and financial planning companies compared with the present requirement of at least 30% local shareholding

On MICRO-CREDIT PROGRAM...
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> The Ar-Rahnu micro credit programme will play an important role to assist those unable to secure financing from financial institutions, to obtain business capital expeditiously by using gold as collateral.

> Syariah-compliant financial and banking institutions, such as Bank Muamalat and Bank Islam to offer the Ar-Rahnu scheme.


Source: theSun, Saturday, 24 October 2009

Malaysian Economic Outlook

Third Quarter 2009 Malaysian Economic Outlook
Executive Summary

Although it may be too early to say that the global recession has ended, numerous indicators are suggesting that the downturn is somewhat subsiding. Massive national fiscal stimuli and monetary expansions have largely aided the gradual recovery. Questions have been raised as to whether economic activities can be sustained once these measures are withdrawn.

In October 2009, the IMF anticipates that the global economy to expand by 3.1% yoy in 2010, from a 1.1% yoy decline in 2009. For 2010, the U.S. is projected to grow by 1.5% yoy, the euro zone at 0.3% yoy, Japan at 1.7% yoy, and China 9.0% yoy. The comparable yoy figures in 2009 are -2.7% (U.S), -4.2% (euro zone), -5.4% (Japan), and +8.5% (China).

Regionally, the ADB has also lifted its GDP growth forecast for developing Asia to +3.9% yoy in 2009 and +6.4% yoy in 2010. The regional economies are seen to be more resilient to the downturn than initially feared. Underpinning the region’s growth prospects is China, whose aggressive monetary easing and fiscal stimulus could accelerate the GDP growth rate to +8.2% yoy in 2009 and to +8.9% yoy in 2010.

Malaysia’s GDP registered a smaller contraction of -3.9% yoy in 2Q09 (-6.2% in 1Q09) after rebound in the external sector. Although the external sector was still weak, public spending had cushioned the economy from a deeper slide. In view of the widening fiscal deficit, the government plans to reduce its expenditure in the 2010 Budget, possibly through reduction in energy subsidies and/or tax reform. On the supply side, the services sector had turned positive in 2Q09, while the manufacturing sector reported a smaller decline.

In order to make Malaysia more attractive to foreign investors, liberalisation measures of the services sector have been announced. Effective April 2009, 27 services sub-sectors were fully liberalized to foreign investors, on the premise that Malaysia lacks expertise and local investments in many of these sub-sectors. Among the sectors opened up are computer and related services, health and social services, tourism services, transports, recreational, business services, and shipping. Moreover, on 30 June 2009 the long standing 30% bumiputra equity requirement for newly listed companies was removed, making investment conditions less restrictive. This will bring Malaysia’s financial market closer to regional benchmarks, but the impact remains to be seen since there are many factors influencing investment decisions.

Monthly indicators up to July 2009 have shown some improvement, in line with regional economies, albeit at a slower rate. In July 2009, industrial output fell by 8.4% yoy (-9.5% in June 2009), signaling recovery across all industries. This is also supported by the fact that industrial production index (IPI), which surged 7.1% mom in July 2009 (+0.3% in June 2009).

Exports contraction moderated to -19.8% yoy in Aug 09 (-22.9% in July 2009) due to better performance in crude oil, chemicals, electrical, and electronic products. On a mom basis, exports fell 2.0% (July 2009: +8.3%) after three consecutive months of gains, indicating a patchy recovery. On the other hand, imports performance deteriorated to -18.6% yoy in August 2009(-16.2% in July 2009) due to slower rate of restocking parts and components. On a mom basis, imports also sagged 6.6% (+14.0% in July 2009). Stronger growth in export relative to import led to a larger trade surplus of RM 9.57 billion (RM 7.81 billion in July 2009).

As a result of higher base effects, overall consumer price inflation fell for a third consecutive month, by 2.4% yoy in August 2009 (-2.4% in July 2009). Food prices moderated, while transport and communication decelerated further in August 2009. Core inflation declined by 4.2% yoy in August 2009 (-4.5% in July 2009) due to higher recreation, services, and culture activities. On a mom basis consumer inflation rose 0.2% in August 2009 (+0.1% in July 2009). This lends credence to MIER’s expectation of a positive inflation to re-emerge in 4Q09. On the other hand, falling prices in both local and imported materials continued to drag down producer prices by 12.8% yoy in July 2009 (-12.2% in June 2009).

The Central Bank of Malaysia has left the Overnight Policy Rate (OPR) unchanged at 2.00% for the fourth consecutive meeting since February 2009. While the economic contraction is expected to decrease from 1H09 into a slight positive growth in 4Q09, the monetary policy stance is expected to be fairly accommodative for the remainder of the year. This is also facilitated by the absence of inflationary expectations in the near term. Hence, MIER expects the OPR to be relatively unchanged at least until 2010 or when the economy recovers, both domestically and externally.

Moreover, this is also supported by the fact of the cautious sentiments as captured by the in-house Consumer Sentiment (CSI) and Business Conditions Indices (BCI). Ongoing economic uncertainties due to global financial deleveraging activities, low wage growth, and the possibility of a sudden withdrawal of economic stimuli continued to repress confidence among consumers and corporate entities. While both CSI and BCI settled above the crucial 100-point mark in 3Q09, the rate of change has decreased qoq. (CSI: 105.4 in 3Q09, 105.8 in 2Q09; BCI: 113.7 in 3Q09, 105.3 in 2Q09).

There are glimmer signs that the global downturn has stabilized somewhat, but the recovery is expected to be sluggish and uneven. The healing from the current crisis will be difficult compared to previous ones because of the synchronized nature of the downturn. It will take time and huge resources to revive the deeply entangled US financial sector while policy options are running out. The weak external sector will impede a faster recovery, and the lower commodity prices are not helping either. Banks are becoming more cautious as bad loans could rise soon, limiting the flow of funds to firms. The services sector will be the pillar of strength amidst a glum manufacturing sector. The technical recession in the 1H09 is likely to continue into 3Q09 before the economy could exit from it in the 4Q09. However, Malaysia may not regain more strength until the global economy is back on track, which is going to be at a disappointingly slow pace.

In view of improving macro indicators, and somewhat better CSI and BCI as well as the sectoral indices, MIER is revising Malaysia’s GDP growth forecast upwards for 2009 to -3.3% yoy from -4.2% earlier. In addition, the GDP growth for 2010 is also upgraded to 3.7% yoy from 2.8% previously. Downside risks are still prevalent and might perturb the road to recovery, but there are stronger positive influences that led to MIER’s upward revision.

Source: MIER, Third Quarter 2009, Malaysian Economic Outlook, October 2009

Signs of Recovery

Signs of Recovery in Domestic Demand?

Dr Zeti Akhtar Aziz, Bank Negara governor, said that Malaysia domestic demand is showing clear signs of recovery boosted by the fiscal stimulus and an accommodative monetary policy!

Nevertheless, I am not convinced enough with the above statement. It is a premature statement....

Facts and figures do not show enough evident. Let see what she reported!

According to the governor, domestic demand in the second quarter (2Q) of this year (2009) recorded a slower decline of -2.3% (as compared to -2.9% in 1Q). The positive sign was attributed to 1% expansion in public sector spending and private sector consumption which grew by 0.5% in 2Q as opposed to -0.7% in 1Q.

However, gross exports contracted further (-26.3%) in 2Q (-20% in 1Q) due to weak demand for manufactured products from major trading partners. Commodity exports also fell by 40.6% in 2Q (-23.8% in 1Q).

[Do you agree with me that external demand is so crucial to the recovery of Malaysian economy where the economies of the Malaysian trading partners such as United States and G7 countries are so weak!).

To me, the impact of the two stimulus packages totalling RM67 billion are still low. (1st package: RM7 billion was introduced in November 2008. The 2nd package: RM60 billion was introduced in March 2009).

As reported by Prime Minister, Datuk Najib Razak recently, that a total of 83,939 projects had been awarded, of which 53,076 projects valued at RM6.07 billion were under 1st stimulus package and the remainder under the 2nd package.

Datuk Najib said RM7.92 billion had been disbursed to contractors following the completion of 41,176 projects under the 1st and 2nd stimulus packages.

So, until today only 12% (RM7.92 billion as compared to RM67 billion) was spent, is it a good figure to show that the stimulus packages have given impact to the economic growth?

Any Malaysian economists want to give comments?

Mansid
Why Blog? The Purpose of Blogging

Malaysian Economic Outlook 2nd Quarter 2009

Executive Summary

The road to global recovery appears to be sluggish and uneven, facing many daunting challenges along the way. Both the World Bank and the IMF are projecting the world economy to slide into a deeper recession in 2009. In July 09, the IMF revised its global economic forecast to -1.4% in 2009 (2008:3.1%), while the global contraction in 2009 is estimated at -2.9% by the World Bank. According to the latest IMF revision, the US (2009: -2.6%) will experience a less severe recession in 2009 compared to Europe which may face a deeper one (2009 : -4.8%). The IMF projects the world economy to recover to around 2.5% growth in 2010, with the US recording a meagre 0.8% growth in 2010, slightly higher than the previous zero% growth forecast.

As the external sector tumbles, Malaysia’s GDP contracted by a steep -6.2% in 1Q09, following a stagnant 0.1% growth in 4Q08. As external demand nose dived, Malaysia’s exports dipped sharply in 1Q09, while investment was severely affected as well. Given the deteriorating global economic prospects, a second stimulus package amounting to RM60 billion (about 9% of GDP) was unveiled in March 09. Although the second package appears larger, the actual direct spending is only RM15 billion (or 25% of total) to be spent over a two-year period. The recurring concerns have been the speed and efficiency of implementation and the potential leakages. A notable point is the greater attention given to retrenched workers and unemployed graduates. With the second stimulus package, the fiscal deficit is estimated to rise to 7.6% of GDP in 2009, up markedly from 4.8% in 2008.

In a move to make Malaysia more attractive to investors, liberalization measures have been announced. Starting 22 April 2009, 27 services sub-sectors were fully liberalized to foreign investors, on the premise that Malaysia lacks expertise and local investments in many of these sub-sectors. Among the sectors opened up are computer and related services, health and social services, tourism services, transport, recreational, business services and shipping. On 30 June 2009, the long standing 30% bumiputra equity requirement for newly listed companies was removed, making investment conditions less restrictive. This will bring Malaysia’s equity market closer to regional benchmarks, but the impact remains to be seen since there are many factors influencing investments decisions.

Monthly indicators up to May 2009 are still losing momentum markedly, but the rate of decline has eased slightly in some sectors. Industrial output registered a sharp contraction in May 2009 (-11.1% year-on-year), but subsiding from a steeper fall (-17.9%) in January 2009. Exports have yet to show any stabilizing signs, nose diving by – 29.7% in May 2009, while imports dipped -27.8%. Thanks to reduction in local oil prices and slower rise in food prices, inflation has eased to 2.4% in May 2009, down from 3.9% in January 2009. Inflation will likely subside further in tandem with the softening economy.

In the wake of the deteriorating global economy and its adverse effects on domestic conditions, Bank Negara reduced the Overnight Policy Rate (OPR) by 50 basis points to 2.00% on 24 February 2009, the third time in five months. Bank Negara has slashed 1.50 percentage points from 3.50% since November 08 and cut the statutory reserve requirement (SRR) to 1.0%, effective March 2009. Bank Negara has noted that lower rates could hurt savers and those who rely on incomes from deposits. The latest policy meeting on 26 May 2009 has decided to leave the policy rate unchanged in view of the persistent effects of the crisis amid early signs of stabilization in some indicators.

Consumer and business confidence has improved in 2Q09, possibly influenced by the measures taken to support the economy. These include the fiscal stimulus packages, the historically low interest rates, and the recent liberalization measures. Both the Business Conditions Index (BCI) and the Consumer Sentiments Index (CSI) have passed the 100-point threshold that separates expansion and contraction. The BCI, which is based largely on firm-level information, has gained 44.1 points to stand at 105.2 points in 2Q09, up from 61.1 in 1Q09, indicating that business confidence has regained some strength. Likewise, the CSI has notched up 26.9 points to 105.8 points in 2Q09, up from 78.9 points in 1Q09. Despite the still sharp declines in monthly indicators, the rise in sentiments could have been propped up by the perception that recent measures would stabilize the economy.

There are glimmer signs that the global downturn has stabilized somewhat, but the recovery is expected to be sluggish and uneven. The healing from the current crisis will be difficult compared to previous ones because of the synchronized nature of the downturn. It will take time and huge resources to revive the deeply entangled US financial sector while policy options are running out. The weak external sector will impede a faster recovery, and the lower commodity prices are not helping either. Banks are becoming more cautious as bad loans could rise soon, limiting the flow of funds to firms. The services sector will be the pillar of strength amidst a glum manufacturing sector. It is certain that Malaysia’s growth will slide into a technical recession in the first half of 2009, as it takes the hit from the knock-on effects of a flagging global economy. Malaysia may not regain more strength until the global economy is back on track, which is going to be at a disappointingly slow pace.

In view of the deep declines in macro indicators, the fragile business and consumer confidence, and the still dismal sectoral indices, we have revised Malaysia’s growth forecast for 2009 downwards to -4.2%, from -2.2% earlier. If exports and FDI shrink severely, the downturn could be more damaging. We have also downgraded the 2010 growth forecast to 2.8%, from 3.3% previously, in anticipation of a gradual or a “u-shaped” global recovery.


Source: MIER,2nd Quarter 2009, Malaysian Economic Outlook
Related Link: Malaysian Economy History

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Liberalisation Najib’s New Economic Model and 1Malaysia

Keynote address by Prime Minister Datuk Seri Najib Razak at Invest Malaysia 2009 in Kuala Lumpur on June 30, 2009








Introduction

1. First of all, let me thank the organisers of Invest Malaysian 2009 for their kind invitation for me to speak at the Fifth Invest Malaysia conference. I am delighted to see such a large turnout of investors and would like to extent a warm welcome to our international visitors.

Invest Malaysia has become the most important annual forum for us to meet with international portfolio investors and showcase what we are doing. It also provides an opportunity for Malaysian public limited companies (PLCs) to engage with the investment community. We feel that this reverse road-show of bringing investors to our shores allows investors to see firsthand what we are doing and gauge for themselves the investment climate in Malaysia and complements our promotional and marketing efforts internationally.

2. As you aware, this event is typically held in March to coincide with the Grand Prix. However, recognising the imminent transition of leadership then, the organisers delayed the event by a couple of months to allow me to speak to you as prime minister.

For me, this is an important occasion to share with you my views and aspirations for Malaysia and its capital market. To the Formula One fans among you, rest assured that I have asked the organisers to revert to the original schedule for the next year!


Meeting the challenges of the global economic downturn

3. We meet today in a very challenging environment. The world has experienced unprecedented displacements and distortions to the global financial order. The global financial crisis has had severe ramifications on once revered financial institutions, led to tremendous wealth destruction and questioned the wisdom that has driven conventional thinking in finance. But what’s more damaging has been the economic cost that this financial crisis has had across the world beyond the epicentre of the financial crisis.

4. There are clearly many lessons to be learnt and reforms that will need to be put in place. Markets must be subject to stronger oversight and there must be no hesitation in making difficult policy decisions when we see early signs of excesses and irrationality start appearing on the horizon. Governance arrangements and risk management standards at the level of banks and financial firms must be strengthened. Regulation of Over The Counter (OTC) markets and some loosely regulated firms must be commensurate with the impact and role they have in today’s financial markets. Sales practices and unfettered risk-taking must be subject to adequate oversight.

5. We all now know and have felt how this financial meltdown translated into devastating consequences for the real economy, companies, jobs, people and families all around the world. Malaysia has not been spared. Therefore, my immediate priority has been to provide a decisive response to blunt the impact of the global economic downturn. We have put together two stimulus packages amounting to RM67 billion or roughly nine per cent of gross domestic product to be spent over two years. The financial package comprised comprehensive measures aimed at easing the hardship of affected individuals and businesses, stimulating aggregate demand in the short term and building the long-term capacity of the economy. We have ensured that businesses have sufficient access to financing, implemented various initiatives to provide financing to small- and medium-sized enterprises (SMEs), established mechanisms to provide guarantees to support private-sector financing and reactivated debt resolution mechanisms.

6. As of June 19, projects worth RM9 billion have been awarded under the Stimulus Package 1 and 2, of which RM3 billion has been paid. Given the step-up progressive payments to be made as these projects are rolled out, I am confident that this spending injection into the domestic economy and the related multiplier effects will help cushion the impact of the sharp external downturn and set the stage for economic recovery some time in the second half of this year.


The shift to a new economic model

7. The larger challenge before us lies not in addressing the short-term vulnerabilities and dislocations but over the long-term national competitiveness. In the last three decades, we have made great strides in poverty eradication, enhancing the living standards of Malaysians, developing world-class infrastructure and providing respectable economic growth. We have become a successful middle-income economy. But we cannot and will not be caught in the middle-income country trap. We need to make the shift to a high-income economy or we risk losing growth momentum in our economies and vibrancy in our markets. The challenge of managing such a major transition is not easy and has been made more considerable by the weakness in the global financial architecture and intensifying competitive pressures arising from dramatic changes in the global economy.

8. But let me assure you that making this transition to a high-income economy for the future of our country has become my key priority. My government’s policies and priorities will be driven by this overall objective. The concept of 1Malaysia that I have propagated is meant to get all Malaysians to work as one team in order to achieve one goal, and that is towards a developed nation by 2020. I have set in motion efforts to formulate a new economic model, which will be based on innovation, creativity and high value, to lift us into the ranks of a high-income nation within the decade. Our new economic model is intended to shift our reliance from a manufacturing base dependent on semi-skilled and low-cost labour to one that hinges on a high technology and modern services sector dependent upon skilled and highly paid workers.

9. The implementation of the new economic model will require a major and comprehensive policy overhaul in many areas, but it is pivotal for Malaysia’s future. We need to make fundamental changes in strategies as well as mindset. We will adopt a holistic approach to bring about competition in all sectors of the economy. We will systemically foster innovation as a key driver of value-add, and promote higher value add sources of growth, such as private education, health tourism, Islamic finance, ICT, information and communications technology, creative industries and biotechnology.

10. In this context, it is critical to sustain the momentum through policies that are market-friendly and that create new sources of growth in the services sector. Therefore, we will continue to modify or eliminate policies that inhibit growth. The work has already begun. We have already announced the liberalisation of 27 services sub-sectors and followed through with liberalisation measures to enhance the role of the financial sector as a key enabler and catalyst of economic growth.


The Capital market – making the strategic shift towards a growth agenda

11. Similarly, in the capital market, we have come a long way. Assisted by a structured development agenda through the Capital Market master plan, we have developed one of the most diversified and broad-based capital markets in the region. We have a deep and sizeable bond market that is the third largest in Asia benchmarked by GDP. We have one of the largest exchanges in ASEAN with the highest number of listed companies. The fund management industry is growing rapidly and we have the largest unit trust industry in ASEAN. The Islamic capital market is the largest in the world, with more then 60 per cent of global sukuk issuance out of Malaysia; the largest number of Islamic funds globally and a large number of syariah-compliant equities. Our regulatory framework is internationally benchmarked and has been assessed to be of international standards by expert external assessors. We have attracted leading international firms in broking, fund management and Islamic finance to establish operations in Malaysia.


Internationalising the capital market

12. Moving to the next phase of developing our capital markets will necessitate greater internationalisation. This is inevitable and is an integral aspect of a high-income strategy. Internationalisation of the financial services sector and the capital market will serve to expand the scope of opportunities for our country — as was evident with the resources and manufacturing sector. Liberalising ownership rules will serve to allow foreign players who wish to invest in our country and to use Malaysia as a base for their regional and international operations. Liberalisation is, therefore, inevitable, and we can only choose to manage its pace. It would be to Malaysia’s advantage to liberalise at a faster pace, as this would also allow us the flexibility to tap international opportunities earlier.

13. We also expect the wider participation of foreign players to raise the level of competition and promote innovation to drive growth at a faster pace. This would facilitate the Malaysian capital market industry to attain higher competitiveness by rapidly expanding the range of choice and quality of offerings that is available to customers. Growth will be driven by investment in technology, talent, infrastructure, research and development (R&D) and marketing to maximise long-term revenue growth and enhance market vibrancy. Our domestic players have built strong local operations. Some have even established regional presence. They should now leverage on the flexibilities granted to explore new opportunities and business models by establishing strategic partnerships and alliances to expand their global reach. I have every confidence in their ability to raise the bar and compete effectively. The pie must expand. There is no point in having a larger share of a shrinking pie.

14. This has formed the basis of some of my recent announcements on the liberalisation of the services sector, including recent measures announced for the banking sector. I am pleased, therefore, to announce a set of measures today that will have the same impact on the Malaysian capital market.


Investment Management — Fund management and unit trust segments

15. To further strengthen Malaysia’s position in the fund management and unit trust segment of the capital market value chain and to allow fund managers an additional option to establish their operations in the region, I am pleased to announce the following:

First, ownership in the wholesale segment of the fund management industry will be fully liberalised to allow 100 per cent ownership for qualified and leading fund management companies to establish operations in Malaysia.

Second, for the retail segment, the foreign shareholding limits for the unit trust management companies will be raised to 70 per cent from its current level of 49 per cent.


Stock broking segment

16. Major reforms in the stockbroking industry have already strengthened domestic players and widened the scope of their capital market activities. We have also seen greater foreign participation through the special scheme licences improve competition in the stockbroking industry, as well the global connectivity of Malaysia’s capital market. Some of our domestic stockbroking companies have expanded their operations into other countries. But there are still opportunities for domestic stockbroking companies to form new partnerships and facilitate the expansion of business domestically and internationally, as well as promote more product innovation and expand the range of skill sets and capabilities. To allow this to occur, I wish to announce that the foreign ownership shareholding limits in existing stock broking companies will be increased to 70 per cent from its current level of 49 per cent.


Encouraging more listings and addressing liquidity

17. There must be a lot more effort made to attract leading companies to list on the exchange. The government is committed to contributing its part through listing more of its entities and assets to ensure more significant listings, and to provide domestic and international investors more opportunities to invest in the Malaysian economy. We have revamped the fund-raising framework with more efficient rules, and broadened the ease of financing through the merger of the main and second boards of the exchange and re-positioning MESDAQ as a sponsor-driven market for a wide range of companies. We have also allowed for foreign listings, and I note that there are several already in the pipeline. I urge market players to take advantage of these changes by redoubling your efforts to identify quality local and foreign companies to list in Malaysia.

18. I have also asked that the issue of free-float levels and liquidity in the market be addressed immediately with a holistic review and comprehensive measures. On its part, the government and its associated entities will look for ways to contribute towards reducing some of their shareholdings and having more shares available for investors.


Safeguarding governance through effective enforcement

19. Even as we move towards a more internationalised capital market environment, we must ensure that our regulatory objectives of fair and orderly markets, transparency, financial soundness and investor protection are met. In this regard, it is even more necessary to ensure that there are high standards of ethical conduct and practice of good corporate governance. This requires that we strengthen our regime for effective enforcement against corporate crime and securities offences.

20. We will be tabling in Parliament a set of far-reaching amendments to the Capital Market Services Act (CMSA) to further strengthen the enforcement powers of the Securities Commission (SC) on corporate governance transgressions. It will empower the SC to take action against a director or officer who causes a wrongful loss to a PLC or its subsidiary to the detriment of shareholders of the PLC. It will also allow the SC to prevent the wrongful dissipation of assets of a PLC by those managing the PLC. In addition, a new offence is created to prohibit any person from influencing, coercing or misleading any person engaged in the preparation or audit of financial statements of a PLC. In addition, an independent Auditor Oversight Board will be established through the tabling of amendments to the Securities Commission Act 1993.


Attracting human capital

21. The capital market is a knowledge-intensive industry. Attracting and retaining talent is a critical aspect of the process to capture the necessary skills and social relationships to increase international participation in the Malaysian capital market. We must recognise that there is strong international competition for human capital and we must be in a position to fast-track the recruitment process for international talent. For this purpose, I am pleased to announce that Bank Negara Malaysia (BNM) and SC will review all visa applications for the financial services industry and capital market industries.


Deregulation of the Foreign Investment Committee (FIC) Guidelines

22. Malaysia has undoubtedly been a success story in what we have achieved since independence. Then, Malaysia was but a poor nation reliant on rubber and tin. By choosing a path of diversification and industrialisation, the Malaysian economy was transformed, resulting in a higher growth trajectory than what would have been possible if we remained reliant on those commodities. Over this period, Malaysia sustained rapid economic growth, averaging 6.4 per cent annually. Coupled with distributive policies, this rapid economic growth benefited all segments of the population. Poverty has now fallen to below 4 four per cent from 49 per cent in 1970.

23. This is our approach of growth with equity, the Malaysian Way. There is no issue of expropriation. Equity is achieved through a more equitable distribution of an expanding economic pie. Without strong economic growth, we cannot achieve our objective of a more balanced distribution. The introduction of growth with equity in 1971 also reflected Malaysia’s ability to take pragmatic and courageous decisions, particularly to advance the national interest at times of crisis.

24. Not unlike previous crises, I believe we are yet again at a critical juncture in our nation’s journey… failure or hesitation to act now will have long-term ramifications for the nation. The crux of the problem is that on one hand, we have clear ambitions to pursue growth with equity as we strive to achieve developed nation status. To succeed, we would need to again transform the economy onto a higher growth trajectory. Yet, on the other hand, we face major challenges to realising these ambitions, given external factors and domestic constraints to strong economic growth.

25. Against our ambitions for high growth and greater equity, we are faced with four major challenges:

>>First, what has worked before, in advancing Malaysia into a high-middle-income country, appears to be no longer effective in moving us towards developed-nation status.

Our past experience has given us valuable lessons in what has worked well and what has not, but they don’t necessarily provide us with a clear way forward;

>>Second, the competitive landscape has changed. Unlike before, we now face intense competition, particularly globally for capital, talent, knowledge and resources;

>>Third, the global economic crisis is amplifying the need to be a preferred investment destination, given that corporations are consolidating and moving operations to where it is most competitive;

>>Fourth, the intensity of competition for a smaller pool of investment necessitates removing impediments to investment, whether real or perceived, and to administer distributional policies more effectively but in a more market-friendly manner.

26. In the context of the challenges the nation faces, the guidelines of the Foreign Investment Committee (FIC) appear to have outlived their usefulness. When the FIC was first introduced in 1974, it represented a major component of the strategy for growth with equity. Today, it is no longer an effective instrument to support growth with equity. Back in the 1970s, Bumiputera equity was only 2.4 per cent. Given the very low base, it was perhaps relevant to adopt allocation-type policies to quickly redress the imbalance. Back then, it was still practicable to use such policies, given the relative lack of competition for investments.

27. Today, we face a completely different scenario. Investment policies creating regulatory uncertainty and that are not in line with international practice will only constrain our growth potential; growth that will allow our distributional objectives to be achieved. Further, the dynamism and complexity of today’s economy does not sit well with the blunt “one size fits all” approach of the FIC. With the progress achieved and enhanced capabilities of Bumiputeras today, the pursuit of sustainable equity requires a focus on effective and meaningful economic participation, not just ownership. A 30 per cent minority stake in a given company in fact does not provide an avenue for representative participation. Further, it has been shown that the lack of capital results in the 30 per cent stakes held at company level not being sustainable. Thus, an objective assessment would conclude that the FIC in its current form does not facilitate growth, nor does it effectively promote sustainable equity for the “capital-disadvantaged” Bumiputera.

28. The world is changing quickly and we must be ready to change with it or risk being left behind. If we stand still and attempt to cling on to past glories during these dynamic times, we will be swiftly overtaken by our competition, as we have overtaken others in the past. It is not a time for sentiment or half-measures, but to renew our courage and pragmatism to take the necessary bold measures to advance the national interest for the long-term benefit of all Malaysians. Pragmatism requires a focus on substance, not form. The government continues to be committed to pursue the spirit and substance of growth with equity. We are not hostage to forms or instruments, which, though they have been long associated with growth with equity, are no longer effective in substance.

29. As a major initiative to ease doing business in Malaysia and make Malaysia more attractive as an in vestment destination, I am pleased to announce a comprehensive deregulation of investment guidelines administered by the FIC. The scope and functions of the FIC have been substantially rationalised. FIC’s scope now involves far fewer transactions, far fewer rules and far fewer conditions. This is in line with the government’s focus on establishing a more conducive regulatory environment for the private sector to prosper, by facilitating robust investment activity and a more vibrant capital market.

30. The review of FIC guidelines encompasses:

>>First, acquisition of equity stakes, mergers and takeovers;

>>Second, treatment of fund-raising by listed companies; and

>>Third, acquisition of properties.

31. With immediate effect, the FIC guideline covering the acquisition of equity stakes, mergers and takeovers is repealed, without any new guideline in its place. FIC will no longer process any share transactions, nor impose equity conditions on such transactions. This represents a major rationalisation of FIC regulation. Up till yesterday, processing such transactions were the mainstay of FIC. From today, this function of FIC ends.

32. Notwithstanding this deregulation, the national interest in terms of strategic sectors will continue to be safeguarded through sector regulators. Companies in such sectors will continue to be subject to equity conditions as imposed by their respective sector regulator, such as the Energy Commission, Commercial Vehicles Licensing Board, National Water Services Commission, and Malaysian Communications and Multimedia Commission. Even for such regulated companies, the repeal of the FIC guideline enhances the regulatory environment, given that the oversight will only be by the sector regulators, who are best placed to tailor regulation according to the needs of their respective sectors.

33. The treatment of fund-raising by listed companies has also been significantly enhanced towards raising Malaysia’s attractiveness as a listing destination. Currently, companies seeking listing are required to satisfy the public shareholding spread requirement of 25 per cent based on Bursa Malaysia’s Listing Rules and also the Bumiputera equity condition based on FIC guidelines. Going forward, the public spread requirement remains and in addition, the SC will introduce a new guideline which requires companies seeking listing to offer 50 per cent of the public shareholding spread to Bumiputera investors. The Bumiputera equity condition, therefore, becomes subsumed within the public spread requirement. This reinforces the competitiveness of Bursa Malaysia as a listing destination, as promoters of companies seeking listing will no longer need to divest equity beyond that required to satisfy the public spread requirement.

34. In addition, to further ease raising funds from the capital markets, post-listing fund-raising exercises will no longer be subject to any equity condition. This deregulation will immediately support existing listed companies seeking to raise funds to undertake investments and reduce the friction cost of compliance. This new requirement to offer 50 per cent of public shareholding spread to Bumiputera applies only to Malaysian companies seeking listing on Bursa Malaysia. The current guidelines for foreign companies to seek listing without any need for compliance with any equity conditions remain, and we have seen several foreign companies successfully applying for listing in Malaysia as a result.

35. The scope of FIC with respect to property transactions will also be substantially rationalised with immediate effect. FIC approval for property transactions will now only be required where it involves a dilution of Bumiputera or government interests for properties valued at RM20 million and above. All other property transactions, including those between foreigners and non-Bumiputeras, will no longer require FIC approval. For example, a dilution of Bumiputera interests refers specifically to the instance where a property is currently majority-held by Bumiputera and as a result of a transaction ceases to be owned by a majority Bumiputera entity. Transactions no longer requiring FIC approval fall into two categories; first, any transactions involving sale by non-Bumiputera or foreign majority interests (e.g. for example, non-Bumiputera selling to foreign) and second, any transactions involving purchase by a Bumiputera-controlled entity, and this would include a Bumiputera-owned company acquiring property from another Bumiputera-owned company. This deregulation is expected to facilitate greater property transactions and investments, including acquisitions of commercial properties by foreign interests.

36. The government believes that the above easing of regulations will significantly enhance Malaysia’s value proposition as a place to do business and invest. With the comprehensive easing of FIC guidelines at the firm level, the Economic Planning Unit will re-focus its efforts towards coordinating and monitoring distributional policies at a macro level. In this respect, the government remains committed to enhancing economic participation by Bumiputeras. A new approach shall be undertaken, focused on promoting sustainable, meaningful and effective participation through genuine partnerships and meritocracy. Let me emphasise here that while the government remains fully committed to the goals of equitable growth, our approach will be to implement these goals in a market-friendly manner, given that robust and sustainable growth is a precondition for equitable distribution.

37. In line with this new approach, a new investment institution called Ekuiti Nasional Berhad (Ekuinas) will be established. Ekuinas will be set up as a private equity fund, with an initial capital of RM500 million. It is targeted that Ekuinas will subsequently be enlarged to become a RM10 billion fund. Ekuinas will focus its investments in sectors with high growth potential, in line with supporting the New Economic Model. At the same time, Ekuinas will invest jointly with private-sector funds, in order to promote genuine partnerships and a fully commercial approach. In this way, participation of Bumiputeras through Ekuinas will be premised on merit.

38. Since the 1970s, the capabilities of Bumiputera professionals have been substantially raised. The Bumiputeras of today are keen to contribute and compete to play an active role in employment, management and as vendors. It is hoped that through investment funds such as Ekuinas, the ambitions of the best and brightest Bumiputeras can be supported and nurtured.

39. The comprehensive deregulation of FIC guidelines has been formulated to strengthen Malaysia’s attractiveness as a place to do business and invest, for Malaysians and foreigners alike. A facilitative business and regulatory environment that unleashes the full potential of the private sector is required, together with a new economic model to transform the nation towards a sustainable trajectory of higher growth. Combined with a more effective distributional policy, the government is convinced the measures announced benefit all stakeholders. We are committed to drive strong economic growth, which is equitably enjoyed by all Malaysians, in line with the spirit and substance of promoting growth with equity.


GLCs and Corridor Development: Continuity and Change Anchored on Competitiveness

40. In order for Malaysia to successfully realise its ambition for developed-nation status, there will clearly be key areas in need of major change and at the same time, other areas where we are already in the right direction, which therefore will be reinforced. In this regard, our policies on government-linked companies (GLCs) and corridor development going forward will involve a judicious combination of continuity and change.

41. GLCs continue to constitute a major part of the nation’s economic structure. Thus, it is in the national interest that GLCs play their role, both in supporting the success of other companies that make up Malaysia Inc and at the same time, leading the way as successful corporations in their own right. Both roles require a continued focus on performance and competitiveness, which needs to be benchmarked not only locally but at global standards. In this context, the government is committed to ensure that the GLC Transformation Programme continues to be implemented. If anything, with greater urgency and focus. The continued drive for high performance is critical to ensure that Malaysia is able to unlock its full growth potential.

42. There are clearly key examples of GLCs that must aspire to greater heights, whether in terms of being best-in-class or emerging as future regional if not global champions. These include the likes of Petronas, MISC, Sime Darby, MAS, Axiata, CIMB, and Maybank, to name but a few. These companies must continue to pursue an increasingly international outlook in terms of market penetration and international competitiveness. The success of such Malaysian champions will help define the boundaries and reach of Malaysia Inc. in the years to come.

43. At the same time, GLCs are significant in the Malaysian context, not only in terms of their size but also with respect to the business-critical functions they provide to businesses in Malaysia, particularly services such as electricity, telecommunications, postal, airlines, airports, water and financial services. Hence, greater competitiveness and performance by such GLCs supports the competitiveness of Malaysia Inc.

44. Beyond supporting through competitive services, GLCs must also play a complementary role in the development of the Malaysian private sector, in terms of the space in which it competes. In terms of defining the role of GLCs going forward, three key principles will be applied:

First, GLCs should be focused on core activities, and therefore should proceed to dispose of non-core activities;

Second, GLCs should only operate in sectors in which GLCs as institutionally-owned entities can be competitive, and even in these sectors, GLCs should catalyse and develop the domestic ecosystem, including vendors. GLCs should divest companies operating in sectors or scale of activities best undertaken by entrepreneurs.

Third, in their respective core sectors, GLCs must compete on a level playing field with the private sector. There will be no issue of government providing assistance to GLCs by virtue of its shareholding, to the detriment of private-sector competition.

Through these principles, the government is confident that GLCs will play a complementary role with the private sector towards fully unleashing the dynamism of Malaysia Inc and enhancing the competitiveness of the country.

45. Similarly, the government’s support and drive for corridor development will continue anchored on the competitiveness intrinsic to each corridor and in terms of its activity to help drive immediate-term fiscal stimulus imperatives as well as medium- and longer-term structural change to the economy. In this regard, the development of Iskandar Malaysia, for example, will continue to be anchored on its push towards greater regional integration in a networked economy and its propensity to develop a new template for newer higher value-added service-based sectors, including in healthcare, wellness, education, leisure and tourism and logistics services.


Conclusion

46. In conclusion, if there was one message I wanted to leave with the investment community, it is that there should be no doubt that Malaysia welcomes foreign and local investors and participants. We can only achieve high income by creating more opportunities for growth, rather than protecting our narrow turf. We can only achieve our social equity goals by expanding the pie. A high-income society must be socially inclusive. It must provide incentives for those who “have a lot” and yet be fair to those who “have a little”. It must lead to high returns for companies and entrepreneurs who invest, better and higher incomes for those who are employed, and greater capability for those who require assistance to help themselves or to get help from government. Above all, a high-income society must be one where every Malaysian feels they have a place and a promising future under the Malaysian sun. It is toward this ultimate goal that I dedicate the energies and efforts of this government.

I hope, as investors, you too will continue to play your part, and walk along with us in this great Malaysian journey.


Source: New Straits Times, Wednesday, July 1, 2009
Related Link: Malaysian Economy History

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Malaysian Economy Reforms

Prime Minister Malaysia, Datuk Seri Najib Abdul Razak unveiled bold measures to further liberalise the economy, including repealing Foreign Investment Committee (FIC)guidelines that have long hampered efforts to attract foreign investors.

Highlights Of Reform

1. FIC Deregulation

Deregulation of FIC guidelines encompasses:

i) Acquisition of equity stakes, mergers and takeovers;

With immediate effect, FIC guidelines covering the acquisition of equity stakes, mergers and takeovers is repealed.

ii) Treatment of fund raising by listed companies;

>>Currently, companies going for IPO will need to meet both SC’ public spread requirement (25%) and FIC’s bumiputra equity requirement (30%).

>>With deregulation, FIC requirement is removed.

>>SC, as sector regulator will continue to impose public spread requirement.

>>SC will now impose a bumiputra equity requirement as part of public spread requirement (specifically 50% of public spread to be offered bumiputra).

>>There will no longer be any equity condition imposed post-IPO except in the case of RTO and backdoor listing.

iii) Acquisition of properties

>>FIC will only process transactions involving dilution of bumiputra interests (i.e sale of property by bumiputra to non-bumiputra) and government interests in property. Even then, FIC approval is only required for properties above RM20 million, whether bought directly or indirectly.

>>All other transactions will no longer require the approval of FIC.

>>The threshold for purchase of properties by foreigners is increased in general to RM500,000. Above the threshold, foreigners will no longer need to refer to FIC for the purchase of properties. State government however, maintain the right to impose additional conditions.

2. Fund Management Liberalisation

Ownership in the wholesale segment of the fund management industry fully liberalised to allow 100% ownership for qualified and leading fund management companies to establish operations in Malaysia. For the retail segment, the foreign shareholding limits for the unit trust management companies raised to 70% from current level of 49%.

3. Stock Brokering Liberalisation

Foreign ownership shareholding limits in existing stockbroking companies be increased to 70% from its current level of 49%.

4. Visa Application

BNM and SC will review all visa applications for the financial services industry and capital market respectively.

5. Establishing New Institution

>>Ekuiti Nasional Berhad (Ekuinas) to be established with initial capital of RM500 million, eventually to be enlarged to RM10 billion fund.

>>Ekuinas will focus its investments in high growth sectors, in line with supporting the New Economic Model.

>>Ekuinas will jointly invest with private sector, reflecting a genuine partnership and, through a fully commercial approach, will ensure meritocracy of participating bumiputras.

>>Ekuinas will complement the other existing funds.


Source: theSun, Wednesday, July 1, 2009
Related Blog: Malaysian Economy History

Malaysian Economy Contracts By 6.2%

Bank Negara Malaysia (BNM) announced that Malaysia's first quarter gross domestic product (GDP)this year (2009) contracted by 6.2% from a growth of 0.1% in the fourth quarter last year (2008) but the prognosis for improved economic conditions look brighter in the second half of the year.

Tan Sri Dr Zeti Akhtar Aziz said attributed the contraction to the deterioration in external demand following the deepening recession in advanced economies. Export demand continues to be weak and the environment is still challenging. Despite early signs of improvement, Q2 will be similar to Q1. The economy was expected to continue to contract in the second quarter.

She said however, economic conditions are expected to improve in the second half of this year supported by fiscal stimulus measures and enhancing access to financing. Malaysia is expected to see a significant improvement in the third quarter this year and a higher degree of positive growth in the fourth quarter that would continue into next year (2010).

Source: theSun, May 28, Thursday, 2009
Related Blog: Malaysian Economy History