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Bleak prospects for Penang
Tuesday March 9, 2010
IN 2005, concerned about a 16% drop in Foreign Direct Investment into Malaysia for the year 2004, Penang Chief Minister Lim Guan Eng observed, “fall in FDI for Malaysia in 2004 reflects the lack of confidence of foreign investors in the Malaysian economy”.
Lim said that “good governance as well as a corporate culture of excellence and accountability is important requirements sought by foreign investors.”
Guided by the same logic and thought process used by Lim, we also can conclude that the massive 80% decline in FDI for Penang in 2009 is a reflection and an indictment of the investor community’s view on Lim’s performance as the chief minister of Penang. This drastic drop seems to indicate that the investors view unfavourably the ability and the track record of Lim and his exco members in managing the state. It is not difficult to imagine the investors being decidedly unimpressed and underwhelmed by Lim’s penchant for rhetoric and populist slogans over well thought out and carefully crafted strategy and action plans.
Not only has the investment flow dried up but more alarmingly investors have started to flee the state. While the previous chief ministers are remembered for securing dozens of blue-chip MNCs as anchor investors, Lim has the dubious distinction of losing these premium companies. Intel and Dell are just two examples of key investors who have left Penang during the reign of Lim. The industry is abuzz with speculation of more investors planning to leave Penang.
No doubt, Lim’s administration would take pains to point out at the global economic downturn which had caused the worldwide FDI to shrink significantly in 2009. However, facts contradict this argument since Penang’s FDI decrease was not in tandem with the trend of the rest of the country or the world.
Based on The United Nations Conference on Trade and Development’s data, the global FDI suffered a 41% contraction last year. For Malaysia, the reduction was 51% for all the states. My friends in the Economic Development Board (EDB), Singapore’s main agency for investment promotion, tell me that the data are similar for the city state although the official data have not been made public yet.
For Penang the FDI plunge was an unprecedented 80% and the state also dropped to No. 5 ranking nationally, behind Sarawak, Selangor, Sabah and Johor. Even Kelantan has done better with only 52% decline.
The result would have been far worse had the data not been propped up by local investments, most of it in property development projects that attracted much controversy due to the adverse impact to quality of life, heritage and environment. One can foresee that with the state governments of Perak and Kedah demonstrating far more aggression and innovation in attracting FDI, it would not be long before these states too would overtake Penang in the national ranking.
This drastic plunge in investors’ confidence comes rather as an unpleasant surprise to many Penangites. It wasn’t too long ago that Lim was quoted in news reports as confidently declaring that his strategy of transforming Penang from “Sweat Shop” to “Smart Shop” would not only help the state survive the recession but thrive. But sadly, instead of transforming into a “Smart Shop”, Penang is in danger of facing “Close Shop”.
The reasons for such drastic decline are not hard to pinpoint. Lim’s shocking decision to turn down an RM10.2 billion high-tech FDI because he could not guarantee enough engineers has made Penang a laughing stock. Lim’s action, which has been dubbed as “the Mother of all Blunders”, has generated negative publicity, tarred the image of the state in the eyes of the investing community and fatally affected Penang’s position as a key high-tech FDI destination, perhaps permanently.
I received many “thank you” calls and emails from Singaporean friends who had no doubts that the investor in question would be warmly welcomed and grabbed up by their EDB. One of them even suggested jokingly that Lim be given a place in EDB’s “Hall of Fame” for managing to secure for Singapore such a massive FDI deal.
This state of affair augurs poorly for Penang and if these signs go unheeded, the state faces a real prospect of de-industrialisation thus resulting in a drastic drop in the standard of living and income. Unfortunately looking at the performance of the state administration, the future prospect of the state looks bleak.
Calvin Sankaran
Bukit Mertajam
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