Malaysia – Proton saga, IDR and bilateral ties

Updated On: Apr 03, 2007

It is another tough week for Prime Minister Abdullah Badawi with former premier Mahathir resuming his attacks after a lull of some months.

Mahathir has returned to the offensive, criticizing the Badawi administration for relaxing the investment laws in the Johor Iskandar Development Region (IDR). The massive project- the Iskandar Development Region - has been touted to be one of Malaysia’s new growth drivers. The Badawi administration had announced a series of measures to attract investments into the project, including relaxing the need for having 30% bumiputera equity in six project sectors and doing away with the need to employ a certain number of Malays in companies.

Mahathir gave a speech to 300 supporters in Kulai, a rural hamlet in Johor, attacking the project, and accusing Badawi of economic mismanagement, weakness and corruption. He charged Badawi for surrendering parts of Malaysia’s sovereignty by allowing foreign investors free reign in Johor. Mahathir argued that Malays were still too weak to compete against foreign developers and companies and Malays would be “enslaved again.”

In contrast, the Malaysian High Commissioner to Singapore, N Parameswaran said in an interview with the Malaysian newspaper, The Star, on Sunday, that, “I think before we talk about marketing the IDR, we must create conditions on the Malaysian side that make the project an attractive one for Singaporeans.” He also suggested other initiatives to encourage investment specifically from Singapore. For instance, there could be a travel card similar to that available from the Singaporegovernment, which would make frequent travel between Singapore and Johor more convenient. Malaysian government officials should also not be too strict with Singaporeans, giving the impression that Singaporeans are specially targeted.

Another issue that has kept PM Badawi busy was the ongoing talks with foreign car manufacturers over the future of Proton. Proton has been trying to find a strategic tie-up with a foreign suitor to arrest its declining competitiveness and domestic market share. Prime Minister Badawi said on Monday (2 April) that talks between Proton and General Motors were still being conducted at the official level. The week before, Badwi had said that Malaysia was only talking to Volkswagen. Proton has supposedly been in talks with Volkswagen since 2004. Peugot had pulled out of the talks in early March. Two local firms DRB-Hicom and Naza Group have expressed interest in Proton but the Malaysian government seems keener on a foreign marriage than a local one.

Proton has missed several self-declared deadlines to find a suitable tie-up. The most recent deadline was the end of March 2007. Last November, it declared that it would announce a partner by January 2007. The urgency of the talks is evident from the third consecutive loss of 281.45 million ringgit, compared with a net profit of 86.51 million ringgit a year earlier. The President of the Proton Edar Dealers’ Association, President Wan Ahmad Sepwan Wan Abdul Rahman also warned that continuing decline of Proton’s sales may force 70% of Proton’s car sales and service dealers to bankruptcy.

Ironically both the Proton and Johor projects were legacies from Mahathir. Mahathir had also been the first prime minister to relax the affirmative action policies. In 1986, he allowed foreigners to own 100% of businesses provided that they were set up for manufacturing exports. This exemption is still currently in place. Mahathir had also relaxed the bumiputera requirements for the Multi-Media Super Corridor (MSC), allowing MSC companies to enjoy 10 years of tax exemption on income, no bumiputera equity requirement, unrestricted employment of foreign knowledge workers and the freedom to source capital internationally. Mahathir’s outburst not only marked his return to Badawi-bashing after a five month break but also his willingness to rouse racial tensions in his personal grudge against Badawi.

However his outburst may have backfired as some MPs found his remarks suggesting that Johor Malays are weak and incapable of competing with others in the IDR “insulting”.

Other than this domestic politicking that might dampen Singaporean investors from investing in IDR, Malaysia’s external relations with its other neighbours, Indonesiaand Thailand, are also troubled. 

In recent spat with Indonesia over the Ambalat region, Deputy Prime Minister and Defense Minister Seri Najib Razak denied that he had apologized for an alleged violation of Indonesian waters in the Ambalat region by a Royal Malaysian Navy vessel. The Ambalat area is one of the areas disputed by Malaysia and Indonesia. Indonesian Minister Juwono Sudarsono said to the Indonesian media on Wednesday (28 March) that Malaysia had conveyed an apology at an Informal Retreat of Defense Ministers of ASEAN.

However, Najib has denied giving an apology, telling reporters after an Umno supreme council meeting on 29 March, “Whatever it is, it didn't happen. I myself did not apologise to the Indonesian minister of defence.” Nonetheless, Najib added, “…. there's no reason why issues like the Ambalat can't be discussed between the two countries which enjoy such good relations.”

Malaysia’s relations with Thailand is also fraught with tension. The head of the Thai Council for National Security, Sonthi Boonyaratkalin claimed that a group of militants with weapons recently caught in southern Thailand were Malaysians because they had Malaysian currency on them. Badawi dismissed the claim saying that, “'They could be Thai nationals. It is only that they had Malaysian currency with them when they were arrested. Maybe they wanted to enter Malaysia.”

All these domestic and bilateral issues will continue to “bug” PM Badawi, and how he and his administration handle them will be up to scrutiny by his political rivals out to score brownie points as rumours of a general election loom. (2 April 2007)


Mahathir Could Do More For Johor Project (Business Times Singapore, 2 April 2007)

Malaysian Premier To Meet Proton Officials on Tie-Up With Volkswagen (Kyodo, 2 April 2007)

Malays Won’t Lose Out With Johor Project, Says Khairy (Straits Times, 2 April 2007)

Malaysian PM To Meet Volkswagen Over Proton (Agence France Presse, 2 April 2007)

Needed: Louder Welcome From Johor’s CM (Today, 2 April 2007)

Update 2- Malaysia Says Still Talking to GM On Proton (Reuters News, 1 April 2007)

Iskandar Not a Sell-Out To Foreigners (New Sunday Times, 1 April 2007)

Depleting Sale May Put Proton Dealers Out of Business (Bernama, 31 March 2007)

Dr M Blasts Abdullah Over IDR Rules (Business Times Singapore, 30 March 2007)

Malaysia Could Be Enslaved Again: Mahathir (Straits Times, 30 March 2007)

Najib: No apology made over alleged border violations (New Straits Times, 30 March 2007)

Malaysian Minister Denies He Apologised Over Intrusions in Ambalat (Antara, 30 March 2007)