Malaysia: The emerging light of the Far East.

Malaysia: The emerging light of the Far East. - Malaysia has a go-go Prime Minister enjoying an unassailable political position and a zeal for developed country status. It is getting there fast, reports Sid Astbury.

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Last Updated: 31 Aug 2010

Malaysia has a go-go Prime Minister enjoying an unassailable political position and a zeal for developed country status. It is getting there fast, reports Sid Astbury.

The country that produces the fastest-selling car to enter the British market is a lot like its nifty Proton Saga: small, reliable and easy to get to know. English is the common language of Malaysia's 18 million people, a rainbow coalition consisting of 60% Malay, 30% Chinese and 9% Indian. Achieving developed country status by 2020 is their common goal.

Analysts say that if the Government of Prime Minister Mahathir Mohamad can stick to the development blueprints contained in a just announced US$37 billion five-year spending plan, Malaysia is set to pip current favourite Thailand to become Asia's next newly industrialised country (NIC), joining current little dragons Taiwan, Korea, Hong Kong and Singapore.

In some ways Malaysia has a head start over Thailand. Its roads and ports and other infrastructure are better, so US$37 billion of development spending will go further. Also, population density is half that of its larger northern neighbour. Unlike Thailand, Malaysia has oil and gas, shipments of which account for around 11% of export revenues. Petroleum has helped Malaysia to diversify its export base away from commodities. Though producer of 60% of the world's palm oil and one quarter of its rubber, commodities together with oil and gas now make up just one third of exports. Manufacturing is the diadem in Malaysia's crown, growing at 11.5% a year and expected to reach 32.4% of gross domestic product by 1995. Shipments of manufactured goods, about half of them from the electronics sector, are rising at 16.7% a year and should account for 75% of exports by 1995, when the current five-year spending plan will have run its course.

A number of patterns have coalesced to make Malaysia one of the hottest sites for offshore manufacturing. On the day that former medical doctor Mahathir Mohamad took office in 1981 he stunned his countrymen with a lengthy prescription for the country's ills. Civil servants were obliged to clock in and out, and to wear name tags - the easier for the public to report misconduct. The heavy industry sector needed a jolt too, so Mahathir fixed on the made-in-Malaysia car project that resulted in the first Proton Saga rolling off made-in-Japan production lines in 1985. Some 300,000 Sagas have now been sold, 25,000 of them to customers in Britain, and the national car has taken an astonishing 61% share of the local market.

Mahathir, whose abrasive nature and hyperactive disposition set him apart in a Malay milieu where confrontation is avoided and the pace of life is leisurely, has made the past 10 years the most exciting period since independence from Britain 34 years ago. His countrymen have thanked him for it with landslide victories for the National Front coalition in general elections in 1982, 1986 and 1990, placing him in an unassailable position.

Mahathir used his strong position at home to snap traditional ties with the former colonial power, insisting that Malaysians looked to Japan for inspiration and investment. In 1981, relations with Britain reached a low point after tuition fees were raised for the 15,000 Malaysians (the single largest national contingent) and all of the other foreign students studying in Britain. The "buy British last" policy which Mahathir instituted in retaliation ended resoundingly in 1988 when Malaysia signed a $1.6 billion contract for British-made defence equipment. The spat was over.

Mahathir pushed through the investment incentive package that was to set Malaysia on a course of rapid industrialisation. He put in place the usual carrots like tax holidays and accelerated depreciation, and in 1987 allowed foreigners to own as much as 100% of the equity in manufacturing firms, provided that at least half of the output was exported. First in were American electronics companies, which by the end of the 1980s had helped to make Malaysia the world's largest exporter of semiconductors and, after Japan and the United States, its third biggest producer. Then came the Japanese, who last year were replaced as top investor by the Taiwanese. Britain ranks sixth.

Whereas US investment has centred on semiconductors, the Japanese have helped to move Malaysia into the manufacture of electric and electronic products. Through Matsushita, it will soon become the world's leading exporter of air conditioners. Mahathir also instituted the New Economic Policy, a programme to help Malays increase their stake in an economy dominated by the Chinese. Until this year, when the notion of targets was abandoned, the aim was for Malays to own 30% of corporate wealth.

Many foreign investors are free of the obligation to divest equity shares to Malays; those that are not say that they can live with the NEP and its new interpretation, where stress is placed on economic growth led by the private sector rather than on the redistribution of wealth. Conscious of the misgivings of foreign investors over the NEP, Mahathir promised that "we are not going to destroy the economy because of any ideological commitment ... we are not going to do anything to scare away investors".

Among the other concerns of the managerial classes - or, at least, of the economists among them - is Malaysia's worsening balance of payments position and the effect of a $37 billion spending programme on the rate of inflation. It hit 4.2% last year and is expected to clock in at 5% in 1991. According to Political and Economic Risk Consultancy Ltd of Hong Kong: "The deterioration in the balance of payments could present a major stumbling block to the economy, as strong imports coupled with lacklustre exports lead to a wider current account deficit." Planners, though, are confident that the current account, expected to reach a deficit of US$2.8 billion in 1991, will return to a surplus by 1995.

(Sid Astbury is the Press Association correspondent for Malaysia.)

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