Foreign Direct Investment in Malaysia?

The political situation of Malaysia can have a large effect on whether or not a corporation will invest in it. The more democratic it is, the more conducive it is to foreign direct investment (FDI). The government of Malaysia is a proclaimed democracy, however, the former prime minister, Mahathir Mohamad, ran it with an autocratic hand.

Mahathir's policies on globalization and the West could be a potential red flag; he was a staunch critic of both. Even though, Malaysia is one of the most tolerant of Muslim countries. He was the picture of a strong ruler, "unafraid to take bold measures" (Wrongs). His efforts saved Malaysia from extreme economic disaster during the Asian financial crisis in the late 1990s. He has successfully combated challenges by a deputy, Anwar Ibrahim, who was tried and convicted of corruption and prostitution. In addition, supporters of Anwar were extremely militant in their protests but Mahathir intolerantly fought back, instructing police to use tear gas and water cannons to disperse the protests (Coping).

Now, after a 22 year reign, Prime Minister Mahathir will be stepping down from his position. He was Asia's longest-serving elected leader at the time of his retirement (Coping). His hand-picked predecessor, Abdullah Ahmad Badawi, will have a lot to live up to as well as much to be done to heal some of the wounds inflicted by Mahathir's autocratic ruling style. Some say that this event will give "Malaysia a chance to right some [past] wrongs" (Wrongs). These wrongs would be the damages that Mahathir has caused the political and civic institutions of Malaysia.

Overall, Mahathir's rule of Malaysia has been a beacon of political stability; he has brought his island nation into the light of the international scene. The biggest concern of many rests with the implementation of Abdullah as the new prime minister, and whether or not he will be able to continue this trend of stability. So far there is no record of his governing style, but it is said that he is rather "drab by comparison" to Mahathir (Coping). This information presents a valid apprehension in our company's consideration of the country for our purposes.

According to a study done by the Anti-Corruption Agency (ACA) Malaysia has improved 0.3 points to break the 5.0 threshold with a score of 5.2 out of a perfect score of 10 on Transparency International's (TI) Corruption Perception Index (CPI). Even though Malaysia has improved its score from 2002, it is also singled out for its exporting companies' propensity to bribe officials. TI's CPI is an important tool for our business's analysis of Malaysia's corruption because it reflects the perceptions of business people, academics and risk analysts, both resident and non-resident. It has been performed since 1995 and has become a great tool for business people and politicians alike. However, Peter Eigen acknowledges that, "[i]t is important to emphasize that the CPI, even with 133 countries, is only a snapshot" (TI CPI 2003). Last year, while still holding the post of Deputy Prime Minister, Abdullah commented on the 2002 CPI that the Malaysian government was supporting a "zero tolerance for corruption" objective (High levels).

Malaysia has a weak political opposition, which is conducive to opportunities for corruption and resistance to reform. Due to this, its government finds an easy time of pushing through corporate governance reforms. Following the 1997 financial crisis, an informed civil society has made a hard push for greater transparency and accountability (Global). It is also ranked No. 15 in the Bribe Payers Survey 2002. This is a survey that ranks nations on the propensity of domestic companies to bribe foreign governments (Bribe Survey).

International and regional organizations have also joined the efforts to affect increased transparency and accountability. The Asian Development Bank/Organization for Economic Co-operation and Development (ADB-OECD) has implemented an Anti-Corruption Plan for Asia and the Pacific. Malaysia was one of 17 out of 33 Asian-Pacific nations to sign the ADB-OECD's non-binding action plan to combat corruption. Another influential organization in this area is the World Bank and its assorted anti-corruption initiatives (Global). Malaysia has yet to sign the World Trade Organization's (WTO) Agreement on Government Procurement; this may be due to the fact that this agreement is a binding one, and it could in fact end up detrimental to the stability of its government.

Nationally, Malaysia's private sector is the product of a driven government that is influential, if not entirely owned by government officials. Many of the businesses are also privately owned as well, so that is a step in the generally acceptable direction. Malaysia is also politically strong enough to facilitate reforms in their private sector, mostly due to their strong, nearly unopposed government (Global).

Malaysia's most recent policies in response to the TI's CPI seem to be underway and if they do succeed then Malaysia will make a market, politically, for foreign direct investment. In a press release, an announcement was made by the Minister in the Prime Minister's Department, Datuk Dr. Rais Yatim that the government's goal for the nation was to be among the world's top 10 least corrupt nations, in the near future. Rais quoted, "[w]e will continue with more effective anti-corruption and enforcement activities. The ACA will work harder together with other agencies and the private sector. We could not possily be in the top 10 next year but we are nearing it now" (Least).

The goals are mighty ones, but the fact is that Malaysia is struggling to stay above the 5.0 threshold. A more established company may take them and feel that the risk is worth the possible gains, thus accepting both the faults and benefits Malaysia presents as a host country. A smaller company may act a little more apprehensive, and require more information or reassurance from the government itself. Other than that it maybe more pertinent to wait a few years, so that one can see how the political sector improves from Abdullah's policies or loses stability from them. An assigned grade of 70 is sufficient because of the high levels of perceived corruption, along with the potential loss of political stability under new leadership. However, it is still rather high, because it has been a rather stable government for the past 20 years.

1. World Development indicators from the World Bank.

2. Pacific FX Database Retrieval Output. 09 Nov 2003. http://fx.sauder.ubc.ca/cgi/fxdata>. 09 Nov 2003.

3. Department of State. "Country Commercial Guide Malaysia 2001." Oil Survey. July 2000. 09 Nov 2003. http://www.oilsurvey.com/php/link.php3?CoId=200121&chosenCategory=290005>.

4. Department of State. "Country Commercial Guide Malaysia 2002." Oil Survey. July 2001. 09 Nov 2003. http://www.oilsurvey.com/php/link.php3?CoId=200121&chosenCategory=290095>.

5. "Malaysia allows Foreign Investors more Leeway." BizAsia.com. 06/23/03. Asian Modern Business Information Center. 09 Nov 2003. http://www.bizasia.com/investment_/dvcg4/malaysia_allows_foreign.htm>.

6. "Malaysia." CIA World Fact Book. August 2003. CIA. 05 Nov 2003. http://www.odci.gov/cia/publications/factbook/geos/my.html>.