Sweeping changes to boost growth

New Straits Times, 1 July 2009

KUALA LUMPUR: Malaysia has eased investment rules, including one on Bumiputera equity ownership, in a major move to attract foreign investments amid a slowing economy.

Prime Minister Datuk Seri Najib Razak said he was scrapping a rule that requires companies seeking a public listing to reserve 30 per cent of its stock for Bumiputeras.

Besides that, he raised the foreign ownership limit on unit trust companies and brokerages, and vastly reduced the powers of the Foreign Investment Committee (FIC), a body that had closely monitored the 30 per cent ownership rule in Malaysia.

The FIC has “outlived its usefulness”, Najib said, adding that its approval would no longer be required for property transactions, except for those where Bumiputeras are the sellers.
He said all these changes were ecessary to transform Malaysia into a high-income nation within the decade.

“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 ... or we risk losing growth momentum in our economies and vibrancy in our markets,” he said in his keynote address at the Invest Malaysia conference here yesterday.

Making the transition to a high income economy has become his key priority and he will continue to “modify or eliminate policies that inhibit growth”, he added.

“I am convinced that failure or hesitation to act now will have long-term ramifications for the nation.”

The measures to boost foreign investment come as Malaysia faces its first economic contraction in a decade.

The government expects the economy to fall by as much as five per cent this year as exports slow amid the global recession.

On Malaysian companies seeking a listing on Bursa Malaysia, he noted that they would previously had to sell a 30 per cent stake to Bumiputeras and also ensure a quarter of the shares were held by public investors.

From now on, however, with the 30 per cent rule scrapped, companies only need to offer half of the public spread to Bumiputera investors.

This effectively means that Bumiputeras will hold at least 12.5 per cent in initial public offerings.

“I think this is a good, bold move. It should bolster market sentiment and in the mid- to long term, small investment banks will benefit from doing more fundraising exercises,” said Chris Eng, head of research at OSK Investment Bank, of the new move.

Najib stressed that he remained committed towards enhancing economic participation by Bumiputeras.

“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.”

He said the new policies were designed to be a win-win situation for all and that no one should feel marginalised.

“It is a tricky balancing act, but it’s do-able.”

He also said that as at June 19, projects worth RM9 billion had been awarded under the government’s RM67 billion stimulus packages, of which RM3 billion had been paid.