A delicate investment balance

The Malaysian government has to encourage local companies to expand abroad and it also has to persuade them to put more money at home by dangling juicy-enough carrots.
 

Under the 10th Malaysia Plan (10MP), the government wants the private sector to drive the economy. This means it wants companies to invest more at home to help generate activities and eventually take the economy's steering wheel.

The government wants private investments of about RM115 billion a year, a 13 per cent growth.

The problem with this is that it puts our companies in a spot. On one hand, they have been asked to continue growing and that means looking for work or buying assets abroad.

Government-linked companies even have a schedule to start becoming regional champions, some six years after their transformation process began in 2004. On the other hand, Malaysian companies have also been asked to invest more in their own country.

How do you reconcile this? Perhaps this is why the government already has a list of projects to implement under the 10MP. There are some 52 high-impact projects worth some RM63 billion. There is a Facilitation Fund of RM20 billion, which is hoped to fuel projects that are 10 times its value or RM200 billion.

The government cannot continue to drive the economy because that would mean spending more money. Our government has been spending more than what it earns for quite some time and it needs to bring the budget deficit down. Governments also do not move as fast as the private sector, which is not good for the economy.

The private sector can do this because it understands the market economy. For example, a property developer that is developing a township will also build a shopping mall that it can rent out to other businesses because it knows the people living in the area would need it. Where there is demand, supply will come.

But companies cannot simply invest because the government wants them to. Companies must justify their investments to shareholders and this means they must be convinced that spending more money at home will generate good returns. So how can the government persuade the private sector to invest more? What kind of carrots can it dangle in front of them?

This is where its assets come into play. The government has a lot of land and some of them are in prime areas. Some that we know include the Sungai Buloh land next to Kota Damansara, the Sungai Besi land in Kuala Lumpur and another piece in town earmarked for an international financial district.

Major property developers have already made it known that they would want to have a piece of the action. The government saves on money but gains if it sells the land or if it develops them, which in turn generates more economic activities. This is why property projects are such obvious choices.

The private sector could also propose projects to the government. Indeed, some have already done so, like Gamuda Bhd and MMC Corp Bhd, with their more than RM30 billion mass rapid transit pitch.

So back to our question on how to reconcile the two opposing demands. The easy answer is the government will have to balance the two. It has to encourage local companies to expand abroad and it also has to persuade them to put more money at home by dangling juicy-enough carrots.

But balance as we can all attest to is not an easy thing to do. Sometimes you want to continue working long hours, but you also need to spend time with the kids at home and watch the Toy Story 2 DVD for the 23rd time.