Malaysia needs to re-look its pro-Bumiputera policies if it is to attract European investors or make headway into the European Single Market, said European Commission (EC) ambassador Thierry Rommel.

He said the "moment of truth" is all the more compelling because it is the National Economic Policy (NEP) that drives Malaysia's protectionist policies and causes many of the inefficiencies that dissuade foreign investors from the country.

Speaking at a luncheon talk in Kuala Lumpur organised by the EU-Malaysia Chamber of Commerce and Industry yesterday, Rommel said among the reasons for Malaysia's poor standing as a destination for Foreign Direct Investment (FDI) is the lack of a level playing field for foreign companies "even when they are in a partnership with Bumis."

Foreign players and investors, likewise, cannot take for granted the predictable and non-discriminatory application of the rule of law as such, he added.

The public education system also has not served the need for skilled human capital, which Rommel said is "the single biggest challenge yet and one that brings us right back to the Bumiputera policy."

While the public service delivery system lacks efficiency, responsiveness, transparency and accountability, corruption as well as the questionable and unchecked practices of Malay preferential treatment also plague the business environment and economy of the country, he added.

Timely reflection

Aside from all these reasons, Rommel said, a re-look at the NEP is all the more timely now as Malaysia is at a crossroads in its economic future and relations with the EU as several international agreements and negotiations command Malaysia's attention.

Among them, the World Trade Organisation (WTO) negotiations to promote free trade and lower trade barriers requires Malaysia, as a key player among emerging economies, to be more "pro-active and result-oriented" in order to help resolve the impasse at the Doha Development Round.

To address those issues not covered by the WTO such as investment, public procurement, competition, trade in certain services, and the removal of non-tariff barriers, EU and Asean had in May agreed to negotiate for a bilateral Free Trade Agreement (FTA).

At the same time parallel negotiations with other Asean countries (except Burma) are in the final stages of signing their respective Partnership and Cooperation Agreements (PCA) which would ink the framework and content of political dialogue and cooperation with the EU.

Only Malaysia has not made any indications, since its Foreign Minister Syed Hamid Albar met EU Commissioner B Ferrero-Waldner last October, of its commitment to begin negotiations on a PCA with the EU.

The PCA, Rommel noted, encompasses issues such as human rights and fundamental freedoms, migration and human trafficking, legal affairs and cooperation, the fight against corruption, non-proliferation, terrorism, transnational crime and the role of civil society.

Short-term political risks

Linking these to FDI, he said the situation around the world demonstrates that failing to achieve these "people-centred goals" would render vulnerable economic activity and wealth.

Rommel said FDI is vulnerable to political and social tensions before bringing back the discussion to the issue of Malaysia's weak "offer" to foreign investors, the decline in both domestic and foreign direct investment, and the pervasive impact of "the Malay Agenda".

To a question from the floor, Rommel said there are short-term political risks to the government in opening up an honest and public debate on the NEP. However, the history of Europe's reforms in the textiles, steel and agricultural sectors demonstrate that the EU has made those sacrifices for the better.

He also said the 2006 Approved Permit saga showed that such a debate on the NEP was possible and had proved to have positive results.

"If we all were to continually submit to internal pressure groups and vested economic interests, who indeed are often the same, we, as policy-makers in a democracy, would fail our nation.

"Political leaders are elected to act responsibly and be far-sighted for the benefit of the nation they have been elected to lead, even if this implies taking political risks with regard to a part of the electorate which can, in any case, be managed by transparency, dialogue and education," he said.