Clarity crucial to woo investors, say analysts

 

Investors want a clear policy direction, and this can only be achieved with political stability, say analysts.

PETALING JAYA: A clear policy direction is essential to woo investors, and this is possible only with political stability, according to analysts.

They said that having such clarity would send a strong message that there will be consistency in the government’s actions, pointing out that it was an important consideration for investors looking to put their money into large-scale projects.

In that sense political stability is crucial, Benedict Weerasena, an economist with Bait Al-Amanah told FMT Business.

He said that the sooner elections are held, the better it would be to achieve stability.

“In fact, the elections should have been held earlier this year when the economy opened up after the government declared that the Covid-19 pandemic was in the transition to endemic phase,” he said.

“Now is the time to start fresh, with a new government, a new mandate,” he added.

Economist Carmelo Ferlito of the Center for Market Education (CME) said that while political stability was not the only factor that determined whether or not a country could attract investors, it was important because it gave clarity about the direction of the economy.

“The current focus on the elections is impeding a necessary debate on policy issues. At the very least, the elections would force the various parties to show their cards, to expose their manifesto for the future of Malaysia,” he told FMT Business.

The call for early elections as well as the strong objections to the proposal have gained intensity in the past few months.

At its Supreme Council meeting last Friday, Umno’s top five leaders were said to have agreed that parliament be dissolved “soon” to make way for elections this year.

Umno has been the biggest proponent for early polls, especially after they romped home strongly in the snaps polls in Melaka in November last year and in Johor in March.

Under the Federal Constitution, a general election must be held within 60 days of parliament being dissolved.

Ferlito noted that there currently existed a decision vacuum. “As a result, significant decisions are delayed,” he said.

He said the vacuum placed too much discretion in the hands of government officers with regards to investment decisions, and that their choices could be arbitrary.

The positive impact of political stability was clearly reflected in Johor early in the year.

Back then, incumbent mentri besar Hasni Mohammad expressed concern that investments in the state had dropped despite its proximity to Singapore, and he attributed the condition to his government’s single-seat majority in the state assembly.

He called for early elections to help its economy recover from the pandemic.

By the end of June, Johor topped the list of states with the highest volume of new investments.

In Melaka, investments also recorded a significant increase just three months after its polls.

In both the Johor and Melaka state elections, the Umno-led Barisan Nasional (BN) coalition achieved convincing victories.

Ferlito said that while the state polls might not have directly contributed to the increase in investments in the two states, having a clearer political scenario could have supported and strengthened the trend.

Professor of economics at Sunway University Yeah Kim Leng said regardless of the outcome of state elections, political stability and policy consistency were key priorities for investors.

“But the post-election scenario is also important given that investors also look for a government with a strong mandate, thus ensuring stability,” he told FMT Business.

“Investors will look for a government with the ability to enact structural policy changes that may inflict some short-term pain but will bring long-term sustainable gain,” he said, adding that such a government was needed to put Malaysia in a more competitive position in relation to its neighbouring countries.

The current national political situation is not good for investments because the government is fragile and investors are concerned about factionalism within the administration, Yeah said.

“Typically, when there is inconsistency in government, investors hold back,” he added. - FMT