Elected in April 2009, Prime Minister Najib Razak and his government have cut curbs on foreign ownership and foreign direct investment in order to attract foreign capital that traditionally preferred other foreign markets. For example, among the many reforms, fund management companies may now be 100 per cent foreign-owned, and a previous 30 per cent minimum ownership condition for ethnic Malays was repealed.
The goal of the government’s ambitious 10th Malaysia Five-Year Economic Plan, which was released in June, is to reinvigorate the private sector and increase domestic production, improve the quality of the workforce, and ensure the sustainability of growth whilst protecting resources.
The focus is on fast but sustainable development in the financial services, electrical and electronics sector, but also on “green” technology, "high-value" agriculture, and tourism.
The country wants to draw the correct lessons from other Asian economies, and avoid the export-only trap. It wants to strengthen the service sector as well as boost domestic demand as potential new drivers of growth, reducing dependence on exports and manufacturing. Private consumption now represents over half of GDP, up from just over 40 per cent a decade ago.
Problems persist though. The local currency for example, the ringgit, is at a13-year high, which is reducing Malaysia’s competitive edge internationally.
The labour market also needs new laws to reflect the new situation.
Inflation also rose, albeit moderately, by 1.9 per cent in July, compared to 1.7 per cent in June, pushed by food and energy prices.
Yesterday, Malaysia’s central bank did not change interest, as some had demanded, after raising it several times in the past few months.
Many experts believe that after an initial phase of fast growth, the economy is now stabilising.