Thursday, April 05, 2012

Bloomberg On Penang

This was in Bloomberg a few months back, worth reading if you missed it.


Lim Guan Eng turned Malaysia’s second-smallest state into the nation’s biggest economic success after he bumped into two National Instruments Corp. (NATI) executives at the local airport in 2008.
Elected in March that year as Penang’s first chief minister from an opposition party in 36 years, Lim was struggling with the prospect of federal funding cuts. He convinced the managers to set up a research and production center in the state, and within two years the former British trading post was Malaysia’s top destination for foreign manufacturing investment.
“The deal was struck very quickly,” said Eugene Cheong, a director at the local unit of the Austin, Texas-based maker of industrial testing and automation equipment.
Lim’s speed in closing deals with companies from National Instruments to Robert Bosch GmbH is helping Penang achieve what every Malaysian prime minister sought since Mahathir Mohamad started his Multimedia Super Corridor technology zone in the 1990s near Kuala Lumpur: a transition from low-cost assembly to a research and development base for industries such as solar cells and life sciences.
With a general election due by early 2013, Penang’s progress highlights the challenges facing the rest of Malaysia and theNational Front government as ChinaIndonesia and Vietnamoffer investors bigger workforces while Singapore lures talent with lower taxes and easier immigration. Lim, 50, the country’s only ethnic-Chinese state leader, embodies the contrast between Penang’s business transparency and the four- decade old policies of the ruling party that favor Malays, which theWorld Bank says undermine competitiveness.

‘Been Sleeping’

“We’ve been sleeping,” said Ooi Kee Beng, Penang-born author of “Era of Transition: Malaysia after Mahathir” and a senior fellow at the Institute of Southeast Asian Studies in Singapore. “Penang now has a chance to show that if you have good governance, and if you put fairness and justice as your main qualities, free of race considerations, that is actually the way to go for Malaysia.”
In the first seven months of 2011, Penang won 3.6 billion ringgit ($1.2 billion) of approved foreign manufacturing investment, ahead of the 3.4 billion ringgit that went to Selangor, the state that surrounds the capital Kuala Lumpur, a government reportshowed last month.
It’s not the first time the state has set the pace for technology investment in Malaysia. Penang, a base for the spread of British influence in the 18th century, was the center of a manufacturing push in Malaysia’s shift from rubber and tin production in the 1970s, attracting companies including Intel Corp. (INTC) and Robert Bosch to assemble chips and build car radios.

Political Alternative

Penang’s economic resurgence may bolster the opposition alliance’s claim it can be an alternative to the National Front, which has run the country since independence from British rule in 1957. A national election may be called with 60 days’ notice at the discretion of Prime Minister Najib Razak.
“A lot of this has to do with the dynamism of the chief minister,” said Ong Kian Ming, a political analyst at UCSI University in Kuala Lumpur and columnist for the Edge newspaper.
Lim has managed to keep Penang attractive for international companies even as Najib focuses federal support on regions such as Johor and Sarawak, where his ruling coalition has among its biggest parliamentary-seat majorities.
Under Najib’s Economic Transformation Program, his government is promoting about 65.8 billion ringgit of private- sector-led projects for southern Johor state, compared with at least 375 million ringgit for Penang, according to data compiled by Bloomberg. The comparison excludes projects covering multiple states or those without a clear single location, which amounted to 34.3 billion ringgit nationwide.

Federal Support

“Investment decisions are made on the basis of need not politics,” said Tengku Sariffuddin Tengku Ahmad, a spokesman for the prime minister. “Over the last year we have invested more than 1 billion ringgit of federal funding in Penang and will continue to support their economic progress in whatever way we can,” he said in an e-mail.
Malaysia’s efforts to woo investments in recent years may have been hampered by its policy of giving preferential treatment to ethnic Malays and some indigenous groups, collectively known as Bumiputera, in government jobs, contracts, education and cheaper housing, said Ooi.
When the economy was booming along with its neighbors before the 1997-98 Asian financial crisis, the effects of the policy were less apparent, he said. When growth slowed, the race-based program became a greater damper, according to Ooi. While the nation outperformed rivals in the early and mid 1990s, it has struggled to maintain that edge since the regional crisis.

Malay Contracts

Under federal rules, government construction contracts valued below 200,000 ringgit must be given to indigenous or Malay contractors. In addition, a main goal of the affirmative action programs was to raise the Bumiputera share of corporate stock ownership to at least 30 percent.
Najib said Sept. 27 that the programs, introduced in the early 1970s to reduce poverty and narrow income disparities between different ethnic groups, are becoming more merit-based.
In an interview in his 28th floor office, where the walls are lined with paintings and sketches of Penang, some from the 19th century, Lim said the relationship between state and central government wouldn’t hold Penang back.
“We may have political differences but we are cordial and professional,” he said as he sipped ginseng tea made by his wife. “If Penang fails, Malaysia fails.”

Ambiguous Practices

To prevent corruption, Penang requires open bidding on contracts of more than 200,000 ringgit and has awarded about 125 million ringgit of jobs through competitive tenders, according to Lim.Transparency International said in a 2009 report that Penang, an island and coastal enclave linked by a 13.5-kilometer (8.4-mile) bridge, was Malaysia’s first state to implement open tenders for government contracts.
While Lim said his government awards contracts based on merit within the national guidelines, the federal government states that it has no obligation to accept the lowest offer or to give any reason for rejecting a bid. Under Malaysian federal rules, agencies are only required to invite quotations from at least five bidders for works contracts.
“In domestic tenders, preferences are provided for Bumiputera suppliers and other domestic suppliers,” the U.S. Department of State said in a March report on Malaysia’s investment climate. Implementations of the affirmative action policy “vary greatly; some practices are explicit and contained in law or regulation while others are informal, leaving much ambiguity for potential investors,” it said.

Trained Accountant

The Malaysian government says it is also pushing for greater transparency, including introducing a whistleblower protection act to fight corruption and a planned competition law next year.
“Open tender is a virtue, it’s a policy that is being pushed through federally too,” Idris Jala, a minister in the Prime Minister’s Department and chief executive officer of the government’s Performance Management and Delivery Unit, said in Singapore yesterday. “For a country to grow, to become high income, we must have competitiveness.”
Lim, who holds a Bachelor of Economics from Australia’s Monash University, says his training as an accountant helps him spot any discrepancies in state finances.
Property developers such as Ivory Properties Group Bhd. (IVORY) will benefit from the inflow of workers and expatriates to support Penang’s industries, while local electronics companies Eng Teknologi Holdings Bhd. and Globetronics Technology Bhd. (GTB) may gain from orders to supply foreign manufacturers, said Choo Swee Kee, who manages about 700 million ringgit as chief investment officer of TA Investment Management Bhd. in Kuala Lumpur.

Property Shares

Eastern & Oriental Bhd. (EAST), which is reclaiming up to 980 acres of land to build luxury homes in what it says is the island’s largest seafront development, has seen its shares soar 25 percent this year. The main FTSE Bursa Malaysia KLCI Index slid 4.5 percent during the same period.
“We have been a believer of Penang’s potential for a long time,” said Eric Chan, deputy managing director of E&O, which also owns the 126-year-old Eastern & Oriental Hotel in the island’s historic Georgetown. “China is no longer cheap and some global companies are looking to move their operations to alternative locations like Penang.”
Lim says ethnic Malays also benefit from the state’s economic growth. In the Malaysian state with the highest proportion of ethnic Chinese, at 42 percent, Malay contractors have won most of the jobs awarded by his government through the open tenders, Lim said. The Malay community doesn’t need racial quotas to succeed, he said.

Brain Drain

“We have proven that this is the way forward,” Lim said in an interview in July on Penang Hill, at an event promoting the state’s efforts to woo talent. “Malaysia has a historical opportunity for change.”
Malaysia’s racial policies spurred a brain drain of largely Chinese and Indian minorities, and limited foreign investment, Philip Schellekens, a senior economist at the World Bank, said in April. In its latest Malaysia Economic Monitor report that month, the Washington-based lender said the migration of talent out of Malaysia undermines the country’s aspiration to become a high-income nation.
“Discontent with Malaysia’s inclusiveness policies is a key factor,” the World Bank said. “Productivity and inclusiveness lie at the heart of Malaysia’s transformation programs. Implementing these forcefully will go a long way towards turning the brain drain into a gain.”

Growth Impediment

The U.S. Department of State said that Malaysia’s “complex network of preferences” to promote the acquisition of economic assets by ethnic Malays and other indigenous groups is a “significant impediment” to economic growth. The country’s affirmative-action policy is unique among Southeast Asian neighbors including Thailand, Singapore, Indonesia and the Philippines.
“It clearly slows things as many competent people leave Malaysia because of it,” said Jim Rogers, the chairman of Rogers Holdings who moved to neighboring Singapore from New Yorkin 2007. Malaysia should “abolish the policy and open the economy and society to all” to boost its competitiveness among international investors, he said in an e-mail. Proposed changes to the policy are making the country more attractive, he said.
Malaysia’s economy expanded at an average pace of 9.2 percent from 1990 through 1997, compared with the 7.1 percent for newly industrialized Asian nations as a group, International Monetary Fund data show. By contrast, Malaysia’s 5.1 percent average growth since 1999 is little more than the group’s 4.8 percent overall mean performance, according to the IMF.

Beating Singapore

Mahathir’s Multimedia Super Corridor, centered around an area in Selangor state that was carved out of oil palm plantations, offered tax breaks and relaxed rules on hiring foreigners to entice software engineers.
While Penang lured research, development and production, the MSC’s more notable successes were getting information- technology support and service centers for companies including Royal Dutch Shell Plc (RDSA) and Deutsche Post AG’s DHL division. The government later broadened the incentives to include companies that weren’t physically located in the main MSC area.
To win the investment in Penang from National Instruments, Lim had to overcome rivals from Singapore and the Philippines to Vietnam and China.

Tax Breaks

Stuttgart, Germany-based Robert Bosch will spend 520 million euros ($720 million) on a factory in Penang that will be one of its largest, employing 2,000 workers to make photovoltaic solar modules. Agilent Technologies Inc. told local media in March it was adding a life-sciences facility that undertakes research and development. Both companies have operated in Penang for about four decades, starting in the 1970s, when foreign investors used the state’s cheap labor to make low-end electronics parts.
The state can’t offer tax breaks for investors or sell bonds, both controlled by the federal government, so it plans to use revenue from local land levies to build more roads and a third bridge linking the island to its mainland territories, according to Lim, who is also secretary-general of the opposition Democratic Action Party.
Penang, bigger only than Perlis of Malaysia’s 13 states, is used to an underdog status. Foundedby Captain Francis Light in 1786 after the East India Co. took over the island from the Kedah Sultanate, Britain set it up as a trading post to break Dutch Malacca’s monopoly of the spice trade.

Paddy Fields

Intel spent $1.6 million in 1972 to set up the company’s first offshore chip assembly plant in the state amid paddy fields, employing 100 batik-clad workers. Now, it also designs semiconductor devices in the state.
Penang had 16 percent of the country’s approved foreign manufacturing investment from 2006 to March this year, government data show. The state, a tourist destination with beach resorts and a colonial-era town designated as a United Nations World Heritage site, made up 8.1 percent of Malaysia’s gross domestic product in 2009, based on constant prices.
“The change in government meant that you have reenergized this place,” said Chris Ong, who owns boutique hotels converted from heritage buildings in Penang. “The old state government was here for far too long.”
To contact the reporter on this story: Chong Pooi Koon in Kuala Lumpur atpchong17@bloomberg.net
To contact the editors responsible for this story: Barry Porter in Kuala Lumpur atbporter10@bloomberg.net; Stephanie Phang in Singapore at sphang@bloomberg.net

8 comments:

flyer168 said...

Yes indeed.

Just to share this…

Penang made the largest contribution to Malaysia's Foreign Direct Investments with RM17.7 billion between 2010-2011 - http://dapmalaysia.org/english/2012/mar12/lge/lge1562.htm

Speech by Lim Guan Eng at ACCA Accountants for Business Forum "Finance Transformation: Expert Insights on shared services and outsourcing" at G Hotel, Penang on Thursday, 22nd March 2012:

“Before I begin I would like to admit that I am a failed accountant. I graduated in economics and accounting in Australia and chose to practice as an accountant. Somehow it was more difficult for me to get a auditing position in a Big 8 accounting firm in 1984, as compared to my classmates. But I was delighted after months of failed interviews with top accounting firms, to have finally landed a position with a Big 8 firm.

However my delight was short-lived as I was unceremoniously sacked without any professional reason after less than a week when they found out who my father was. For some of you who may not know, I am the son of the DAP leader Lim Kit Siang.

Obviously I was deemed not qualified to be an accountant as I was feared to share my father's unhealthy passion for integrity, transparency, full disclosure as well as giving a true and fair view. This definitely disqualified me as an accountant with the Big 8firm as the 1980s was a time of financial hanky-panky and cover ups such as the massive Bank Bumiputra losses scandals.

Needless to say I was devastated when I found I could not get a job as an accountant. But all's well that ends well. After failing to make the cut as an accountant, I had no choice but to join politics and became the Penang Chief Minister.

I would therefore wish to congratulate all of you for making the grade as an accountant. And if you do not make it as an accountant, do not despair.

You can always be like me and hope to become the Penang Chief Minister.

I take this opportunity to thank ACCA for inviting me to speak at the Accountants for Business Forum on the topic of shared services and outsourcing as a crucial finance transformation tool.

Today's topic of discussion is high in the Penang state's agenda, especially since Penang has been recognized by United Nation Industrial Development Organisation as one of the top 10 industrial destinations in the world, with a reputation as one of the locations to watch for the next outsourcing boom. With such obvious potential, it is fitting that Penang is host to this thought-provoking forum.”

Shalom.

Remnant 888 said...

Excellent article by Bloomberg ..
Missed it but glad you picked it up for posting .. Thanks ..

Read an email that Lim Guan Eng filed a police report recently against certain faction/group for violent aggression against him. Two reporters were purported hurt in shielding LGE from ruthless behaviour of the group.
It happen after his speech during a recent anti-Lynas rally in Esplande, Penang ..

So bloody sad, why were the police not there to round up the hooligans ..? Can't say they're not aware, can they ..?

flyer168 said...

Remnant 888,

Just to share this...

George Carlin "The American Dream" – YouTube - http://www.youtube.com/watch?v=rsL6mKxtOlQ&feature=related

You be the judge.

Shalom.

ronnie said...

Can anyone shed some light on which accounting firm sacked LGE? It most probably had a lot of skeletons to hide.

zviivz said...

The brain drain phenomenon is real! A lot of my friends are not coming back and many of them have very good education from top universities around the world. Most of them left because the UMNO-led government never gave a damn about them.

Well done LGE. Get rid of racial politics. Enough is enough.

Kingsmen said...

i failed to understand why we must heap praises on politicians such as these .....to make a hero of LGE is just an overstatement ... the pressure n screws must be tighten still lest a haughty spirit goes before the fall....all in all we the people must be the beneficiaries ...politicians will always serves their own interests.

Live Long MU Fan said...

Kingsmen,
We should applaud and encourage whatever is right and good. Yes, LGE may fall. But right now, he is serving the interests of Malaysia and Penang, more than his own self-interests. Unlike many BN politicians. There are some PAS politicians who also serve nation before self. We should respect and support such people!!!

flyer168 said...

Hello,

We all have a choice...to support or otherwise.

So there is no point arguing about the negatives...

Why we need to support LGE ?

Just to share this...

“...In the last analysis, the most important elements in any man’s career must be the sum of those qualities which, in the aggregate, we speak of as character.

If he has not got it, then no law that the wit of man can devise, no administration of the law by the boldest and strongest executive, will avail to help him.

We must have the right kind of character -

character that makes a man, first of all, a good man in the home, a good father, and a good husband-that makes a man a good neighbor.

You must have that, and, then, in addition, you must have the kind of law and the kind of administration of the law which will give to those qualities in the private citizen the best possible chance for development.

The prime problem of our nation is to get the right type of good citizenship, and, to get it, we must have progress, and our public men must be genuinely progressive.”

New Nationalism Speech by Theodore Roosevelt - http://teachingamericanhistory.org/library/index.asp?document=501

You be the judge.

Shalom.