MALAYSIA: South East Asia Review - Making it big and fast.

MALAYSIA: South East Asia Review - Making it big and fast. - Low wage rates and cheap rentals make Malaysia an investment favourite. By Sid Astbury.

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Last Updated: 31 Aug 2010

Low wage rates and cheap rentals make Malaysia an investment favourite. By Sid Astbury.

Hong Kong business people who know the region well often say Kuala Lumpur is where they want to move when China pulls the plug on the colony in 1997. This city of 1.5 million is cheaper and more vibrant than rich and stolid Singapore. But like the island republic, it has good communications and infrastructure, things that are lacking in even-cheaper and even-more-exciting Bangkok, Jakarta and Manila. The sleepy charms of the Brunei capital are lost on Hong-Kongers.

Many Hong Kong wheeler-dealers delude themselves; they would not be very happy in Kuala Lumpur. For a start, English is required of everyone doing business in Malaysia; Cantonese will not do. Second, sharp business practices get short shrift in Kuala Lumpur; they are often overlooked in Hong Kong. And, anyway, permanent residency is not on offer, to exiles from Hong Kong or anywhere else; Malaysia likes its foreign business community to be transient.

There is another requirement that would deter many looking for the New Hong Kong: that Malays hold at least a 30% stake in listed companies. Malaysia, though a lot less regulated than Singapore, is not nearly as freewheeling as Thailand, Indonesia and the Philippines. Government officials like to boast that they err on the side of caution. Currently, for example, the central bank is stopping almost everyone from borrowing offshore.

Low in people, high in trees, with a tropical climate and a multiracial culture, Malaysia is a great place for a holiday. Some 7.5 million people thought so in 1990, when arrivals rose 54% and receipts 59%. It is the third largest industry, after manufacturing and petroleum.

Clean-and-green Kuala Lumpur is immediately attractive; as are the country's other major business centres. Analysts expect that by the end of the 1990s, foreign investment will be about evenly matched in Kuala Lumpur, Penang and Johore. Currently Kuala Lumpur leads. In second place is Penang. Known in Somerset Maugham's time as the Pearl of the Orient, it is the most popular tourist destination and conference centre.

The island of Penang, off the north west coast, has the country's silicon valley. A mainly Chinese island, Penang is popular with the Chinese-speaking people of Taiwan, who became top investors in Malaysia in 1990.

Johore is on the southern tip of the peninsula, just across the causeway from Singapore. Companies fleeing Singapore's high wages and appreciating currency often set up in the first Malaysian state they come to, a relocation that often means that the many Malaysians they employ need no longer travel to work with their passports. Johore is booming.

Malaysia is booming. Its economy outperformed every other in the Asian Pacific in 1990, with growth slowing two percentage points to an estimated 8% in 1991. Government boffins say growth will slow further, to reach an annual average of 7% for the rest of the decade.

Predicting a final inflation rate of 5.5% for 1991, Kamal Salih of the Malaysian Institute of Economic Research (MIER) notes that there are "clear signs that the economy is overheating". To cool demand, the central bank has pushed up the prime lending rate, which is expected to reach 9% by early 1992. There have been measures to crimp borrowing for new cars. Foreigners have lost the right to borrow locally to buy property.

But Malaysia is still a cracking market, particularly for UK firms able to trade on the soft spot many Malaysians have for their former colonial masters. Even the often ethnocentric Dr Mahathir Mohamad, leader of his country for more than 10 years, can be nice to Britain. In 1988 he signalled the end of spat with London by signing a US$1.6 billion contract for British defence equipment.

Mahathir has governed Malaysia since independence in 1957. An energetic leader, he has a vision of Malaysia becoming a fully developed country by the year 2020. By Third World standards, it is already rich. Half of all households in Kuala Lumpur own a car. Absolute poverty has almost vanished. Economists say that the current unemployment rate, 4%, is tantamount to full employment.

Kamal Salih reckons the chronic current account deficit, around US$2.8 billion in 1991, will continue through 1992, exerting further downward pressure on the Malaysian ringgit. Ask him to name the culprit, and he will point to imports, mostly of capital goods intended to increase productive capacity in joint venture factories.

Investment is indeed surging. In the first five months of 1991, investors pumped US$7.1 billion into manufacturing projects. Analysts expect approval levels to grow less sharply during the rest of the decade, reflecting a policy that will see Malaysia rejecting offers of investment in labour-intensive industries like textiles and shoemaking. It will try and attract more foreigners into the electronics and especially the electrical goods industry.

Sid Astbury is the Press Association Correspondent for Malaysia.

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