Falling FDIs: Penang CM must pull up his socks

Falling FDIs: Penang CM must pull up his socks

By Calvin Sankaran (FMT), Penang- I was both surprised and disappointed to read the very serious accusation by Chief Minister Lim Guan Eng that the Federal government is sabotaging foreign direct investment (FDI) coming into Penang.
Lim alleged there was a big drop in the recommendations and introductions by the Malaysian Investment Development Authority (MIDA) from 14 in 2013 to just 2 in 2014.
As such I applaud the quick response by Mustapa Mohamed in firmly refuting the charge by providing detailed statistics and explanations. I would like to provide further observations on this particular allegation as well as other misleading statements made by Lim.
As the Chief Executive of one of the most developed states in Malaysia, Lim needs to be careful when issuing statements and making allegations as these can backfire.
He must realise his statements are being read by many top business leaders and government officials regionally and around the world. Such outbursts might be misconstrued as proof of a poor relationship between the state and federal governments, which could create negative perceptions about the investment climate in Penang.
Under Lim’s watch, Penang has been rapidly losing its lustre as a top high-tech investment destination. I have been in the high-tech industry for close to three decades and I can see it for myself.
The statistics reflect Penang’s downward trend.

In 2012, Penang suffered a shocking 72% drop in investment – dropping to No. 6 from the No. 1 spot among other Malaysian states. Lim claimed then that this was an aberration due to a slowdown in global FDI and economic growth.

Penang again performed miserably in 2013 even though Malaysia as a whole received record high investments. We see no improvement in 2014 either. Still at No 6, Penang lags far behind other key states.

Investment decisions take time – up to four years. As such, many big investment wins by the former BN government were only realised in 2010 and 2011. At that time, Lim was quick to claim credit for the achievements despite playing no part in it, boasting that these were proof of the superiority of the policies and capabilities of his administration.

From denials to blame games
However when the investments started to plunge, the state government resorted first to denials and then to the blame game.

It is not difficult to understand why Penang has lost its mojo.

First, there has been an increase in retrenchments, scaling down of operations and even plant closures. Despite the CM’s statement that Penang is experiencing a shortage of workers, in reality these jobs are mostly low-paying and low-value added positions that don’t interest Malaysians.

Secondly, Penang is no longer the magnet that attracts top-tier high-tech companies. The fact that its top five investments in 2013 featured two juice and candy factories illustrates this point rather painfully.

Thirdly, high-paying technical and management jobs have completely dried up leading to many high-calibre senior professionals and fresh graduates moving to other destinations such as Kedah, KL, Johor and even Singapore.
Quick action and bold leadership needed

First and foremost, the state leadership must come up with a strategic industrial master plan. This plan should be a comprehensive document that includes the sectors the state wants to focus on and details on how this would be achieved.
This plan shouldn’t be a mere wish list but a realistic, well-thought master plan that takes into consideration the state’s strengths and weaknesses as well as the external macro factors.

Secondly, the state must be more committed about attracting investment. The CM’s numerous investment trips overseas have come to nought as they were more about politics and public relations rather than investments.

Almost all CM Lim’s visits were about delivering political speeches to overseas Malaysians, granting interviews to foreign media or talks to foreign audiences on how “successful” the CM and DAP were in managing the state.

In order to secure investment deals, Penang must cease prioritising politics over investment and come up with smarter, more targeted investment planning and missions.

Thirdly, the state must fill key positions in state agencies interfacing with investors with highly qualified and experienced professionals.
While the state has been talking up its meritocratic policies and credentials, in reality the situation on the ground is anything but.

Since 2008 many key positions were filled by politicians or persons with strong political connections. This not only affected the state’s ability to attract investments but also created much friction, mistrust and misalignment with federal agencies like MIDA.

All state officials, from the CM downwards, must also learn to collaborate rather than confront federal agencies in order to bring in FDI to Penang.

Finally, the state urgently needs to address “quality of life” issues. Rampant over-development, sky-high property prices, environmental degradation, traffic congestion, poor public transportation and crumbling infrastructure is making Penang look unattractive in the eyes of existing and potential investors.
Penang should not attempt to turn itself into another Singapore or Hong Kong though it can learn useful lessons from them. However, it seems that the state has imported the bad instead of best practices from the two.
Deploying these proposals requires strong leadership and a large dose of political will. It is certainly within the ability of CM Lim and his team to arrest this decline in Penang’s competitiveness.

The question remains whether the state government is willing to admit its mistakes, reverse its failed policies and strategies and act quickly and decisively.
Calvin Sankaran is an FMT reader


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