Malaysia's attempt to lure foreign money
Friday, 7 September 2007
John Burton
THE launch of big development zones to attract foreign investment to areas along Malaysia's frontiers with Singapore and Thailand has been clouded by problems with a more modest project outside Kuala Lumpur.
The trouble started when the Dubai partner granted a 15-year concession to manage and operate a new trade zone at Port Klang, the main shipping centre for the capital, suddenly pulled out amid reports of mounting debt problems. The situation is threatening to erupt into the biggest scandal for the administration of Abdullah Badawi since he took office as prime minister in 2003.
The problems surfaced last July when Dubai's Jebel Ali Free Trade Zone Authority (Jafza) decided to cancel its concession for the Port Klang project, intended to attract logistics and manufacturing businesses.
Jebel Ali had complained that state bureaucrats were hindering the zone's operations, while the government claimed the Dubai group pulled out because officials had denied it permission to become a main shareholder.
It then emerged that the state-run Port Klang Authority had amassed debts of M$4.6bn ($1.3bn, €960m, £650m) because of cost overruns. The government said it would bail out Port Klang in the form of a soft loan, to prevent its bankruptcy, and officials are suggesting they will soon start a corruption probe into the project.
Analysts say the disclosure of Port Klang's troubles raises doubts about whether the government can fulfil its promise to build and operate the two big econ-omic zones it recently announced.
One is the Iskandar Development Region to be built in the southern state of Johor and encompassing an area three times the size of neighbouring Singapore. The other is the Northern Corridor Economic Region, expected to boost investment in Penang, already a centre for foreign investment.
"There is scepticism about whether the government will be able to implement these projects and Port Klang shows why," said Chua Hak Bin, regional economist for Citigroup in Singapore.
The government is also planning other economic zones for Malaysia's east coast and Borneo. "The risk is that with so many competing corridors, the government is spreading itself too thinly," said Mr Chua.
Previous investment projects, such as the Multimedia Super Corridor near Kuala Lumpur, have been plagued by cost overruns, which critics say result from the government awarding construction contracts to state companies or businessmen with close ties to Umno, the ruling Malay political party.
There have been complaints that bureaucrats have not eased rules for foreign investors to obtain work permits, licences or customs clearance.
The IDR is also facing a nationalist backlash since its success is based partly on attracting investment from Singapore businesses. Malaysian politicians have criticised the zone's dependence on the city-state.
However, a group of Middle East investors is expected to announce today plans to spend more than $1bn to build a new city centre in the IDR.
Song Seng Wun, regional economist at CIMB-GK Research in Singapore, believes the Abdullah administration has put so much of its prestige into the IDR and Penang zones that it will seek to avoid the problems it inherited from the Port Klang project, which was begun by the previous government of Mahathir Mohamad.
........................................
FT Syndication Service
THE launch of big development zones to attract foreign investment to areas along Malaysia's frontiers with Singapore and Thailand has been clouded by problems with a more modest project outside Kuala Lumpur.
The trouble started when the Dubai partner granted a 15-year concession to manage and operate a new trade zone at Port Klang, the main shipping centre for the capital, suddenly pulled out amid reports of mounting debt problems. The situation is threatening to erupt into the biggest scandal for the administration of Abdullah Badawi since he took office as prime minister in 2003.
The problems surfaced last July when Dubai's Jebel Ali Free Trade Zone Authority (Jafza) decided to cancel its concession for the Port Klang project, intended to attract logistics and manufacturing businesses.
Jebel Ali had complained that state bureaucrats were hindering the zone's operations, while the government claimed the Dubai group pulled out because officials had denied it permission to become a main shareholder.
It then emerged that the state-run Port Klang Authority had amassed debts of M$4.6bn ($1.3bn, €960m, £650m) because of cost overruns. The government said it would bail out Port Klang in the form of a soft loan, to prevent its bankruptcy, and officials are suggesting they will soon start a corruption probe into the project.
Analysts say the disclosure of Port Klang's troubles raises doubts about whether the government can fulfil its promise to build and operate the two big econ-omic zones it recently announced.
One is the Iskandar Development Region to be built in the southern state of Johor and encompassing an area three times the size of neighbouring Singapore. The other is the Northern Corridor Economic Region, expected to boost investment in Penang, already a centre for foreign investment.
"There is scepticism about whether the government will be able to implement these projects and Port Klang shows why," said Chua Hak Bin, regional economist for Citigroup in Singapore.
The government is also planning other economic zones for Malaysia's east coast and Borneo. "The risk is that with so many competing corridors, the government is spreading itself too thinly," said Mr Chua.
Previous investment projects, such as the Multimedia Super Corridor near Kuala Lumpur, have been plagued by cost overruns, which critics say result from the government awarding construction contracts to state companies or businessmen with close ties to Umno, the ruling Malay political party.
There have been complaints that bureaucrats have not eased rules for foreign investors to obtain work permits, licences or customs clearance.
The IDR is also facing a nationalist backlash since its success is based partly on attracting investment from Singapore businesses. Malaysian politicians have criticised the zone's dependence on the city-state.
However, a group of Middle East investors is expected to announce today plans to spend more than $1bn to build a new city centre in the IDR.
Song Seng Wun, regional economist at CIMB-GK Research in Singapore, believes the Abdullah administration has put so much of its prestige into the IDR and Penang zones that it will seek to avoid the problems it inherited from the Port Klang project, which was begun by the previous government of Mahathir Mohamad.
........................................
FT Syndication Service