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Thorny ties – recent developments in Malaysia- Singapore economic relations

Updated On: Sep 01, 2006

Fears that the ongoing political row between Mahathir and Badawi would cast a shadow over Singapore- Malaysia bilateral relations were raised when recently Khairy, Badawi’s son-in-law, played both racist and nationalist cards in fending off Mahathir’s attacks. Fortunately, this week’s business seminar on Malaysiabrought some positive spin to the increasing business and economic ties between the two countries.

The annual “Seminar on Business Opportunities in Malaysia” closed this week in Singapore, with both Ministers of Trade, Rafidah Aziz and Lim Hng Kiang highlighting the need for greater collaboration. Although both Rafidah and Lim acknowledged that there was some degree of competition between Singapore and Johor, they agreed that there were many sectors in which both sides could cooperate. Lim also pointed out that in 2005, half of Singapore’s $1.3 billion investment inMalaysia went to Johor. With the South Johor Economic region being a key focus of the Ninth Malaysia Plan, there is greater political pressure on the Badawi administration to showcase Johor’s economic attractiveness. The seminar has been held annually since 1986 and is intended to update Singapore companies on the business climate in Malaysia.

The annual Seminar closed one day after Malaysia’s Khazanah bought over a 31% controlling stake in Pantai Holdings from Singapore’s Parkway. Pantai Holdings owned seven private hospitals and some profitable government concessions that it obtained under Malaysia’s affirmative action policy. Parkway’s acquisition of Pantai in 2005 became a political issue after Mahathir criticised Badawi for allowing a foreign entity to take over a company benefiting from the bumiputra policy. Khazanah’s entry helped to cool the political heat on the Badawi administration. More significantly, Khazanah allowed Parkway to hold stakes in Pantai Irama, a new joint venture set up to control Pantai’s assets. This represented a change from the previous use of Khazanah to block foreign ownership under the Mahathir administration. 

However, one possible casualty of the Badawi-Mahathir problems is the link-up between the stock exchanges of Malaysia-Singapore. The link between Singapore Exchange and Bursa Malaysia was supposed to have been completed at the end of 2005 but has been delayed. While the technical difficulties have certainly played a part in the delay, many observers claimed that the political row between Badawi and Mahathir was the main reason.  A source, familiar with the project was quoted in the Financial Times as saying, “It’s a sensitive time in Malaysia.” Earlier this month, Bursa Malaysia had also announced that it would introduce US dollar-based crude palm oil derivative contracts to compete with a similar offering in Singapore. This announcement came after Bursa declined to licence its palm oil prices to Singapore Exchange. The Financial Times quoted a source saying this refusal to licence palm oil prices to Singapore by Bursa “was a strong signal that Bursa Malaysia is backing away from co-operating” with Singapore Exchange “because of the political controversy.”

There has been an increase in acquisitions of high-profile businesses on both sides of the causeway since Badawi took over as Prime Minister. In particular, there seems to be more tolerance of the acquisition of Malaysian companies by Singaporean ones. The taking of stakes in Telekom Malaysia and Alliance Bank by Singapore’s Temasek was a sign of the liberal business environment under Badawi. This also contrasted with the previous failure of the Singtel’s attempted acquisition of Time Engineering. Given that a more liberal investment is a key stepping stone towards the formation of the ASEAN Economic Community, the current Badawi administration seems to be heading in the right direction.

Sources:

Khazanah- Parkway Deal Shows More Open Policy (The Straits Times, 30 August 2006)

KL Politics Could Derail SGX-Link With Bursa (The Straits Times, 30 August 2006)

Johor-Singapore a Winning Pair for Investors: Hng Kiang (The Business Times [Singapore], 30 August 2006)

Rafidah Urges Singapore Firms to Step Up Malaysia Investments (The Straits Times, 30 August 2006)

SJER Provides Ample Opportunities For Investment, Says Rafidah (Malaysia Economic News, 29 August 2006)

Khazanah To Take Control of Pantai (The Business Times [Malaysia], 29 August 2006)

Parkway Surrenders Control of Pantai (The Straits Times, 29 August 2006)

SGX-Bursa Malaysia Link Suffers Stock Exchange (Financial Times, 29 August 2006)

Cover Story: Politics Has No Business Here (The Edge Malaysia, 21 August 2006)

It’s Best to Leave the Parkway-Pantai Deal Alone (The Business Times, 21 August 2006)