Abuses of the NEP: Impact on investment and brain drain

I refer to Dr Gairuzazmi`s long Letter entitled ``Don’t blame the NEP `` that appeared in the NST on Sept 5,2011.

His conclusion that I quote herewith -- ``Yes , the NEP has been abused and has its weaknesses , but to blame the NEP for the brain drain or the drop in Investment , is empirically wrong `` . However I respectfully submit that he cannot be right , based on the following grounds !

Firstly let me kindly ask the scholar to answer this simple question -Why would many major domestic and foreign investors or even Malaysian brain- drain migrants , want to invest or work in Malaysia , when there are Nep abuses and other major weaknesses ?

Would investors prefer to accept these Nep abuses and the 30 % Equity requirements , when they can instead easily invest in more attractive business environments in Asean and the wider world of greater opportunities elsewhere ?

I agree with Dr Gairuzazmi that Malaysia did as well as our neighbours , in our economic growth and investments during the period 1970 – 1990. But this happened when we were much more attractive than our neighbours` economic potential , except Singapore . Now these very neighbours have improved considerably and have become more competitive than us in many fields. They also have comparative advantages over us in not having NEP constrains and abuses .These , remnants of abuse have continued well after 1990 , to the detriment of our nation !

In any case why should we compare our overall performance with our less developed neighbours ? Actually we should compare ourselves with the more advanced countries like South Korea, Taiwan , Hong Kong and even Singapore , especially in terms of socio economic progress and good governance .We should not be complacent but should aim for higher standards .

Dr Gairuzami honestly admits, that the World Bank Malaysia Economic Monitor in April stated that ``Malaysia is the only country in the region with a decrease in FDI to Gross Fixed Capital Formation Ratio of 18.9% for 2006 -2008 and only 12.4 % for 1994-1996 !`` These are undeniably significant and correct empirical facts and not just rhetoric ! it could be argued reasonably that this Investment decline could have been much less , if not for the NEP and its abuses .

In fact it is this very Investment Decline that I wrote about in my earlier letters . Indeed the NEP Abuses have definitely contributed to this serious investment decline, as ONE of many factors . To be fair , I have never ever said that the Nep abuses were the ONLY factor that caused this investment decline and brain drain in our country ! Critics should not resort to spinning and labeling which has now become an unhealthy vogue .

It is also important to remember that there has been considerable domestic capital and investment outflows as well .In a new study by Prof Athokorala and Wagle of the Australian National University , they state that ,``in recent years the outflow of FDI from Malaysia has consistently surpassed inflow of FDI, a pattern not seen in the other major South East Asian countries`` Is this not a reflection of Investment confidence in our country ?

So what is wrong in my alert that we have suffered from the losses of both domestic and foreign of investment - partially due to the NEP abuses ?

Yet unfortunately some people choose to continue to ignore that NEP Abuses have damaged our economic growth and prospects . Worse still some even claim that the NEP Abuses have not adversely affected our domestic and foreign investment and brain drain - at all !

So, why don’t the academics and politicians concerned , institute a a professionally organized Poll or Study among our Domestic and Foreign Investors and some of the nearly One Million Malaysians who have migrated abroad , Then we can all confirm the real truth ?

Regarding the serious Brain Drain, I am concerned with Dr Ghairuzazmi’s argument that , `` the brain drain has not had a significant detrimental effect in reducing the stock of the educated work force`` ,Why not ask the important employers in Malaysia who know the facts better. Most of them will tell you how difficult it is to get really competent English speaking staff , to manage and run their businesses and factories . We cannot afford to be out of touch with reality on the ground and continue to lose out to our compatitors . .

We have to appreciate that Foreign Investors need to search for highly qualified staff to match their scarce capital resources , particularly for their sophisticated globally competitive industries . If they cannot get the right staff here , the investors will take their capital elsewhere , as many major local and foreign businessmen in Malaysia have already been doing .

Hence my appeal is for all who care to please discuss and analyse the NEP and its abuses and their impact on the economy and society objectively . It would then be obvious that although the NEP has been intrinsically good , its abuses have been causing damage to the investment climate and the country as a whole . Thus the rising NEP abuses have inter alia to take considerable blame, for the many uncertainties facing Malaysia today .

Although FDI’s have picked up in the first 6 months of this year and the Malaysia’s Global Competitive Index has improved , the question still remains whether we can sustain this latest FDI recovery, reduce capital outflow and our brain drain . Since Malaysia is a blessed country in terms of our rich natural resources and our positive racial and religious diversity , we could still be a Model Multiracial and Multi- religious Country in many ways . But we have to overcome these NEP abuses and other problems , and to seek much higher standards of governance

I believe that we can overcome our manifold challenges and move forward as one united and progressive nation, if we can be more realistic , fair and open minded in our analysis , planning and implementation, for the benefit of all Malaysians and our Future.

- Tan Sri Ramon Navaratnam is the chairman of the Centre for Public Policy Studies and past president of Transparency International Malaysia