The government today announced measures to liberalise the economy as it heads into recession, winding back a decades-old policy of positive discrimination for bumiputera.

Prime Minister Najib Abduk Razak scrapped a rule requiring initial public offerings to reserve 30 percent of stock for Malaysian Malays, and dumped regulatory approval for foreign property purchases.

invest malaysia conference 300609 najib"The new policies will make our economy more vibrant. I think it will put us high up on the radar to attract foreign direct investment and equity," Najib said.

Economists hailed the liberalisation moves, which come after the government warned the economy could contract by as much as 5.0 percent this year.

"Given the sharp drop in foreign direct investments, this move will put Malaysia in a favourable position to attract FDIs and sustain domestic investments which have been in the doldrums since the 1998 Asian financial crisis," said Yeah Kim Leng, chief economist with RAM Holdings.

The government removed the requirement for regulatory approval by the Foreign Investment Committee (FIC) on property transactions, except those that dilute interests of bumiputera - a term for Malays and indigenous people.

Foreign investors will also no longer have to obtain approval for acquisitions and mergers.

"As for FIC, we can say it no longer exists," Najib told reporters, adding it was "no longer an effective instrument to support growth."

"The scope and function of the FIC have been substantially rationalised. FIC's scope now involves far fewer transactions, far fewer rules and far fewer conditions," Najib said.

We want to be fair for all

The FIC was part of Malaysia's affirmative action plan known as the New Economic Policy (NEP), a controversial scheme to raise the economic standing of ethnic Malays who dominate the population of the multicultural nation.

Critics say the policy has suppressed growth and that it has mostly benefitted Malay entrepreneurs, while failing to address poverty among the community.

When the NEP was introduced bumiputeras had only 2.4 percent ownership in Malaysian companies. Najib said that figure has now grown to 19.4 percent and voiced confidence there would not be any political backlash to his reform plan.

"We want to be fair to all communities. No one must feel marginalised or disincentivised. It is a tricky balancing act. It is do-able," he said.

Some of the key changes

  • Guidelines on the acquisition of equity stakes, mergers and takeovers have been repealed with immediate effect, without any new guideline in its place;
  • There is a change in the requirements of bumiputera equity for companies seeking listing. Previously a company seeking listing was required to satisfy a public spread requirement of 25 percent and 30 percent bumiputera equity condition, but the equity condition is subsumed within the public spread requirement with 50 percent of public shareholding spread to bumiputera investors.
  • Post-listing fund-raising exercises will no longer be subjected to any equity condition.
  • FIC approval for property transactions will now be required where it involves a dilution of bumiputera or government interests for properties valued at RM20 million and above. All other property transactions, including those between foreigners and non-bumi will no longer required FIC approval.
  • Setting up a new investment institution, called Ekuiti Nasional Berhad (Ekuinas), in order to promote the participation of bumiputeras;
  • Redefining the roles of government-linked companies to play a complementary role to the private sector and to avoid detriment of private sector competition;
  • Ownership in the wholesale segment of the fund management industry will be liberalised to allow 100 percent foreign ownership for qualified and leading fund management companies to establish operation in Malaysia;
  • For unit trust segments, the foreign shareholding limit will be raised from 49 percent to 70 percent;
  • Foreign ownership shareholding limits in existing stock broking companies will be increased from 49 percent to 70 percent;
  • Bank Negara and the Security Commission will review all visa applications for the financial services industry and capital market industries.

- AFP