chapter  8
21 Pages

Foreign investment laws and the role of FDI in Malaysia’s ‘new’ economic model

BySALIM FARRAR

On 30 March 2010, in the wake of a close gen eral election and the aftermath of the Global Financial Crisis, Malaysian Prime Minister Najib Abdul Razak announced a New Economic Model (NEM) for the coun try. A coun try that had once boasted average annual eco nomic growth rates of 8 per cent between 1990 and 1997, had been listed as one of the few coun tries to post an average 7 per cent growth rate over a 25-year period, and confidently announced as pira tions of achieving high-income status by 2020, was slowing down and grinding to a halt. Post-1997, annual eco nomic growth had halved, investment as a proportion of GDP dropped precipitously and the coun try was leaking foreign direct investment (FDI) to its regional competitors. Although abso lute pov erty had been prac tically eradicated, Malaysia was now stuck in a ‘middle income trap,’ with most Malaysians still occupying low-skilled jobs, 40 per cent earning less than US$15 per day and 350,000 of Malaysia’s most educated preferring to work and live overseas. The NEM was forged with the intent to jumpstart the Malaysian economy and restore (do mestic and foreign) investor confidence. Although the gov ern ment has termed this plan, the ‘New Economic Model,’ I will argue there is nothing funda mentally ‘new’ about it in terms of eco nomic and trade pol icy nor the investment legal regime in which it will be given effect. There has been (and will be) new legis la tion passed giving effect to the govern ment’s agenda, but there appear to be no funda mental departures from gov ern ment pol icy when looked at in a his tor ical continuum. This chapter will survey and discuss the most im port ant laws, pol icies and regulations which impact directly upon foreign investment. This will include a discussion of the Industrial Coordination Act 1975, which originally gave legal effect to the Malaysian Government’s affirmative action pol icies in the pivotal manufacturing sector, as well as an his tor ical overview of the deregulation and lib eralization pro cess which have taken centre-stage in more recent times and figure prominently in the NEM. Before I explain the laws underpinning Malaysia’s foreign investment regime, it is neces sary to

examine the his tor ical role of FDI and the part it has played in Malaysia’s eco nomic and social development.