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Abdullah’s pet projects and outstanding challenges

Updated On: Mar 27, 2007

Malaysian PM Abdullah has gone on full gear to promote his two pet projects - the Iskandar Development Region (IDR) and the political Islamic Hadhari.   

The Abdullah’s administration has just released a series of incentives to attract foreign investors to the South Johor’s 2,217 sq-km Iskandar Development Region (IDR), located right at the tip of Singapore. Other than the usual tax perks, more controversially and, perhaps in more revolutionary terms, the measures include exemptions from the country's race-based laws on company ownership and employment regulations.

IDR will become the first area in the country open to foreigners without the usual restrictions imposed by the Foreign Investment Committee in six sectors: creative industries, education, logistics, tourism, financial advisory and consulting and health care. 'This will be the first incentive package announced for the IDR,' Datuk Seri Abdullah said when launching the Invest Malaysia Conference 2007. Companies in these six sectors will be exempted will not be bound by restrictions on property ownership, the need to have 30 per cent bumiputera equity ownership, and minimum Malay employment in the workplace.

In addition, these companies can also source capital internationally, employ foreign workers as they need, exempt from corporate tax for 10 years for activities within the zone and outside Malaysia (provided they begin operations by 2015).   Financial consultants in the IDR that advise clients within the zone and outside Malaysia will not pay tax on those activities, and will also be exempt from withholding tax on royalty and technical fee payments to non-residents for 10 years. The IDR poses a clear and present competition to Singapore; it is two-and-a-half times the size of Singapore and aims to attract US$105 billion (S$163 billion) in investments and create 800,000 jobs over 20 years.

The other Abdullah pet project is his much-vaunted principle of maintaining peace and security in the name of fardu kifayah or an obligation that has to be fulfilled by a community in accordance with the principles of "Islam Hadhari" (Civilisational Islam). Abdullah argued that Islam encouraged an individual to assume the occupation of a policeman because the obligations called for the maintenance of peace in the country. "And, when an individual chooses to become a policeman and assumes the responsibility that goes with the job, it becomes `fardu ain' (an obligation) for him to carry out the responsibility".

When the Police Inspector-General Musa Hassan handed over to the prime minister the Islam Hadhari blueprint for the Royal Malaysia Police, the PM said peace could be maintained with policing and therefore the call was equivalent to that in Islam. Peace could bring about development and establish a civilised nation with a people of high integrity, he reiterated.

While the economic IDR and political Islamic Hadhari are being pushed forward, the controversy that the IDR poses to the preferential Bumiputra policy may combine with other outstanding economic challenges in Malaysia to augment opposition to the administration. One of these challenges is the enduring issue of Proton’s existence. Proton Holdings Bhd's shareholders are still in negotiations with Volkswagen AG (VW) and General Motors (GM) on possible strategic alliances.

"We've already stated that an alliance strategy is quite key for the company. Peugeot has withdrawn (its interest). For VW and GM, the process is still ongoing," Khazanah Nasional Bhd managing director Datuk Azman Mokhtar said. Khazanah owns 43% share in Proton. "We're not looking at just foreign buyers. I think to be fair, we're looking at all manners of interest, including local ones," he told the media. Proton is particularly politically sensitive because of its status as a pet project of former PM Mahathir who has cited this company’s survival as his continuing bone to pick with the current PM Abdullah.

The other lingering unresolved economic issue is the free trade agreement (FTA) talks between the United States and Malaysia. The talks which were scheduled for completion in early 2007 were delayed by a change in Malaysia’s lead negotiator and Malaysia’s reluctance to open up its government procurement market to moreUS companies. Earlier on, it was also complicated by other political issues such as Malaysian-Iranian commercial exchanges. Opponents of Abdullah’s policies and projects will no doubt harp on some these issues as signs of weakness of the current administration.   (26 March 2007)

Sources:

Exciting times ahead for investors (Star, 25 March 2007)

Malaysia and US to talk next month on elusive FTA (Star, 25 March 2007)

Malaysia and US to talk next month on elusive FTA (Star, 25 March 2007)

Johor investor perks unlikely to create Malay backlash (Straits Times, 23 March 2007)

KL throws Johor project wide open to foreigners (Straits Times, 23 March 2007)

Task Of Policing A Nation's Obligation, Says PM (Bernama, 15 March 2007)