Tuesday, August 16 2022 | ASIA TODAY INTERNATIONAL - Reporting the Business that Matters in Asia
Financial, human capital in flight from Malaysia
MALAYSIANS at large feel a heightened sense of insec-urity because of the rise in Islamic fundamentalism and some of the actions of their Government . . .
A distracting sideshow is taking place in Kuala Lumpur in an unseemly war of words between the Prime Minister, Najib Razak, and former leader, Mahathir Mohamad.
The verbal boxing match has been going on since last year, when Mahathir, who was Prime Minister for 22 years, first stepped into the ring to deliver bruising punches to the integrity of Najib.
Mahathir is seeking to unseat Najib from the Prime Minister’s office, alleging that he is unfit to continue to run the country.
Those who understand Malaysian politics believe Mahathir wants to replace Najib with the Deputy Prime Minister, Muhyiddin Yassin. But Muhyiddin is reported to be planning to retire. If that is true, there is no other obvious candidate who would be able to take over — even if Mahathir succeeded in hounding Najib from office.
Mahathir has focussed on the troubled Government-owned company, 1Malaysian Development Berhad (1MDB), described as Najib’s pet project and owned by the Malaysian Finance Ministry, to discredit Najib personally. In a recent blog, he raised 29 questions about the indebted and controversial company.
Many critics of the Government have raised questions about 1MDB but, like Mahathir, have been unable to get answers.
Among a long list of issues, they question the investment choices of 1MDB, the size of its debt (US$12 billion), and why some US$2.25 billion of its funds is parked in a Cayman Island entity.
Najib has denied any wrongdoing and has instead vigorously defended his record. As an example, in his recent address to the Invest Malaysia 2015 seminar, Najib cited international accolades as an endorsement of his Government.
Najib pointed out that Bloomberg has rated Malaysia the world’s 5th most promising emerging market for 2015 — the only ASEAN country in its top 10 — and that the Berlin-based Transparency International’s 2015 Index of Economic Freedom ranks Malaysia the 31st freest economy among 178 countries.
While Najib and Maharthir cross swords, either in public or, in the case of Mahathir, through his personal blog, they are helping exacerbate a sense of instability in Malaysia’s political system.
Foreign investors can be convinced to look beyond day-to-day politics. To them, the mud-slinging is no different to what they see in other democratic systems.
But ask the minority races — the ethnic Chinese and Indians, and some of the Malay elite — and they will likely tell you that they despair for Malaysia. Politically, they fear that things are lurching from bad to worse.
The Malaysian Chinese and Indians have long felt discriminated against — since Malaysia implemented its Bumiputra policy four decades ago to give priority to the indigenous Malay population in education and business. Ever since, the better-educated Chinese and Indians, who have the means and wherewithal, have voted with their feet. Sources in Malaysia say there has been a clear flight of capital to safer jurisdictions in recent years.
Ethnic Chinese are selling out their businesses, or are being taken over, by Bumiputra companies. Some of Malaysia’s best-known ethnic Chinese entrepreneurs have shifted the bulk of their business operations to Singapore or Hong Kong and beyond.
Those who follow Malaysian politics claim this is because they are being “squeezed out” by Bumiputras.
An example is the large Malaysian property group, SP Setia, founded by Liew Kee Sin 30 years ago. In a hostile takeover, Permodalan Nasional Bhd (PNB), a leading Malaysian asset manager, took over SP Setia in 2011. Top executives, including Liew, have left SP Setia – some apparently prematurely despite an agreement to stay on to steer the company forward.
Liew is now with Eco World Investment Co, which is rapidly diversifying out of Malaysia into offshore markets, including Australia. Last year, Eco World agreed to acquire a 75 per cent stake in three London residential projects that will be valued at 2.2 billion pounds (U$3.3 billion) when completed.
Quite apart from Government-sanctioned discrimination, Malaysians at large feel a heightened sense of insecurity because of the rise in Islamic fundamentalism and some of the actions of the Malaysian Government.
It is unnerving for non-Muslims and moderate Muslims when the Islamists are pushing to introduce what is known as hudud — corporal and capital punishment, including stoning to death for adultery, as laid down in Islamic law. Islamists from an Opposition party want hudud introduced in Kelantan State in the northeast, the stronghold of the Pan Malaysian Islamic Party since it first won power there in 1990.
The push for hudud has come at a time when Malaysia, like the rest of the world, is wrestling with the threat of ISIS, and stiffening the country’s Sedition Act. The problem, it seems, is that the Act is now being used to also silence Opposition figures and activists.
(The most notable case is the arrest of Nurul Izzah, eldest daughter of jailed Opposition leader, Anwar Ibrahim, charged with sedition after reading in Parliament parts of a speech by her father criticising his jailing.
The reality is that Malaysia faces a deepening threat from ISIS. Last year, the Deputy Chief of Malaysia’s police counter-terrorism division, Ayob Khan Mydin, told the news-agency AFP that 19 suspected militants had been arrested from April-June of that year for formulating plans to bomb pubs, discos and a Malaysian brewery owned by Carlsberg.
Ayob Khan told AFP the group, all Malaysians, had visions of establishing a hardline Southeast Asian Islamic caliphate spanning Malaysia, Indonesia, Thailand, the Philippines and Singapore, and planned to travel to Syria to learn from ISIS.
There is also the issue of personal safety, according to residents of the Malaysian capital, Kuala Lumpur, where the crime rate is rising. The finger is being pointed at the two million or so illegal migrants and the conservatively-estimated 2.3 million foreign workers in Kuala Lumpur, mostly from the Indian subcontinent and Indonesia.
So is it a wonder that Malaysia is suffering a capital flight disproportionate to the size of its economy?
According to the Washington-based, non-profit, research and advisory organisation, Global Financial Integrity, which analyses illicit financial flows, RM1.38 trillion (US$394.87 billion) in illicit capital left Malaysia between 2003 and 2012. During the same period, outflows from much bigger economies – Indonesia, Thailand and the Philippines – were US$187.8 million, US$171 million and US$93 billion, respectively.
At US$1,646 per capita, Malaysia’s illicit capital outflow is the highest in the world, according to the GFI report.
The flight of financial and human capital is likely to continue while Malaysia’s political system remains unstable.
* Florence Chong is editor of ATI Magazine.