Can Malaysia “TIGER” economy catch up? (Part I)

- Relevant to Professional Level of ACCA. I have consistently encouraged candidates to update themselves on socio-political development that invariably are linked to business-economic sentiments. Since we know “all” P-level papers are either case study based or theory-centric emphasis, to know the current development improves your maturity and approach in exams.

MUCH has been learned from the global financial crisis – capitalism is not infallible, Wall Street is not that clever, integrity is more important than intelligence – are some that come to mind. And lessons will continue for years to come. And so will reaction; central bankers haven’t gotten very far with new rules at all and the world financial architecture remains by and large the same.

Are caucasions or developed countries of the West superior in intellect and governance? The results of mismanaging its sub-primed properties, gambling speculation banking derivatives, twin trade and budget deficits certainly compels resounding answer of NO. The last remnants of colonial mindsets surely died in the global financial crisis. There is no right model of capitalism and neither can any country preach that its way is right.

Post-crisis, there are also far fewer who doubt that the 21st is indeed the Asian century. While major economies tumbled, Asia’s prospects have brightened as its two emerging economic giants – India and China – continued their rapid economic growth unabated and its other countries took the crisis largely in their stride.

Ironic as it sounds China has been capitalism’s saviour with its amazing ability to execute its stimulus package, government spending and bank lending so quickly and effectively. Its current moves to cool its economy is also being effected in a manner alien to any version of capitalism we have seen; perhaps China is not just a variant of capitalism but an alternative model in itself.

It was only 200 years ago that the West, powered by the industrial revolution, dethroned Asia economically. And now as the West continues to grapple under the weight of its past excesses, the world turns to Asia to drive global economic expansion.

Guided by Asian values of prudence and collectivism and by embracing the key pillars of Western wisdom (free-market economics, science and technology, meritocracy, pragmatism, culture of peace, rule of law and education), Asia, with the largest share of the world’s population, will soon return to have the largest share of the world economy. And if China is able to accelerate domestic consumption and improve income disparities, then it will not only become the world’s largest economy but an economic role model too.

Shift in world order
This shift in the world order has begun – the G-20 with better Asian representation has replaced the G-8 as the forum for world economic leadership, Europe’s largest bank HSBC dramatically moved its CEO back to Hong Kong, the world’s largest aluminium group, Russia-based Rusal, chose to list on the Hong Kong stock exchange and Asian firms now own some of the most established automotive brands like Jaguar and Volvo.

How do we in Asean position ourselves in this new global landscape?
Since the Asian financial crisis, Asean has grown briskly. The Asian financial crisis also forced major structural reforms, especially in banking, economic management and corporate governance practices, to bring a new resilience that tested well during the recent global financial crisis. While we can be proud of our significant progress, is it good enough?

In 1991, Asean led the foreign direct investment (FDI) race, pulling in investments of US$13.6bil compared with the BRICs with a paltry US$5.5bil. In 2008, the combination of Brazil, Russia, India and China (BRIC) attracted a mighty US$265bil in investments compared with Asean’s US$60bil. When CFOs assess their investment destinations, size of domestic markets always feature high on their selection criteria.

The contrast in capital market terms is just as glaring. The combined Asean exchanges used to dominate the Asian equity market. In 1996, they accounted for 57% of the Asia ex-Japan index, but by 2009 their share had fallen to barely 16%. Asean’s largest stock exchange, Singapore, has seen its weighting on the same index dwindle to 6.9% in 2009 from 9.5% just in 2004, while China’s rose to 26.4% from 11.3% in the corresponding period.

Seen from a different measure, the combined market capitalisation of Asean’s five largest stock exchanges in 2008 (in Indonesia, Malaysia, the Philippines, Singapore and Thailand) is barely half (US$708bil) that of the Shanghai stock exchange (US$1.43 trillion) alone. When CIOs assess their portfolio allocations, size and share of indices are invariably their starting points.

In my next article, I will explore on how to improve the macro-governance to enhance investors confidence in Malaysia.

Sources :
• Bernama, 2010, Malaysians hit as Australia tightens immigration policy
http://www.theedgemalaysia.com/political-news/159310-malaysians-hit-as-australia-tightens-immmigration-policy.html, 08 February

• Datuk Seri Nazir Razak, 2010, Speech in Thailand Management Association Top Talk on Feb 3, 2010.

• Mahani Zainal Abidin , 2010, What political and demographic challenges will face Asia Pacific? http://www.isis.org.my/attachments/559_MZA%20APC%20Sydney%2004Dec09.pdf, visited on 10th February.

• Syed Jaymal Zahiid, 2009, Budget 2010: Easy PR status for skilled expats , http://www.themalaysianinsider.com/index.php/malaysia/41250-easy-pr-status-for-skilled-expats, Oct 23

• The Reuters, 2010, Swatch Profits beat forecast, http://biz.thestar.com.my/news/story.asp?file=/2010/2/10/business/5646983&sec=business, 10th February.