I want to start off with a few things that Malaysia's economic managers have been quoted as saying:
Najib wants to make structural changes to encourage better and competitive economic growth, encourage more investments from the private sector in the local economy and implement progressive liberalisation of the services sector.
Najib says the liberalisation of the services sector, particularly in professional and logistics, will soon be announced to allow a more competitive environment in the country.
Najib says Liberalisation of the services sector will encompass professional services and logistics but will not include the banking industry.
Abdullah Badawi said that while the stimulus package announced by Najib last week was a short-term policy response, the Government believed it should also take the opportunity to address medium and long-term structural issues and formulate a strategic package to ensure rapid growth of the economy.
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Competitive economic growth
Competitiveness is a nebulous word, even between and amongst economists. Krugman thinks it should refer to productivity. Others believe that it refers to comparative advantages such as cheaper labour.
What was Najib referring to?
Pleading with FDIs to come to Malaysia by offering longer pioneer status, longer tax holidays, cheaper land cost, guaranteeing cheaper labour and so on is being competitive, too.
There is the type of competitiveness that results from Malaysian-owned goods and services providers being of a higher value and higher quality.
There's another type of competitiveness that arises from offering cheaper venue and cheaper labour and lower tax rates.
What kind of competitiveness should Malaysia aspire to?
Liberalisation of the services sector
When Najib and Muhiyyidin talks of liberalisation of the services sector particularly in professional and logistics a cold shiver runs up my spine.
All I can see are foreign lawyers, architects and engineers setting up shop in Malaysia. Mind you, they aren't interested in Malaysian clients. They'll be looking towards dominating the services needs of the FDIs in Malaysia.
Among the professions, the least affected by the liberalisation will be the accountants who have been absorbed by foreign international partnerships four decades ago. For law firms, only one or two have forayed further from Malaysian shores. There's no data on their success rate in setting up beach heads.
Competitiveness of the Malaysian logistics players
As for the logistics sector, there will be a huge influx of foreign logistics players. There'll just be a handful of Malaysian logistics players going beyond Malaysia. And, they'll experience severe competition and, I predict that they'll close shop very, very quickly.
Why liberalisation of the services sector will NOT benefit Malaysia
I want to emphasise here, very strongly, that Malaysia's economic managers are behaving like fools.
The liberalisation of the Malaysian services sector will have an adverse effect on locally-owned enterprises. The foreign service providers will swamp the entire sector. This is not a xenophobic observation but a practical one.
It is NOT that Malaysian service providers are not skilled. The reason why there will be inflow of foreign service providers and zero outflow of Malaysian service providers is very simple.
Trace the history of movements of foreign accounting firms to Malaysia, trace the movement of foreign courier companies into Malaysia, trace the inability of Malaysia's shipping companies to compete with foreign shippers and you will find the same story: The services sector follows the growth of local companies going offshore.
Mitsubishi produces Panasonic electronic goods and, loads them into lorries belonging to Integrated Logistics which is partly owned by the Japanese and, into containers belonging to Mitsui-OSK Lines and, hauled to Port Klang and, loaded onto Mitsui-OSK containers lines.
Taiwanese electronic manufacturers produces electronic goods that end up in Evergreen containers and loaded onto Evergreen Lines container ships.
A U.S. or European FDI will seek out a law firm that originates from or, have a tie-up with a law firm that originates from the U.S. or Europe. The law firm is appointed by the international headquarters.
So, I ask again, what is the edge or benefit that Malaysia is getting for Malaysian logistics providers and professionals in the liberalisation of the services sector?
And, if it is so beneficial how come the banking sector is excluded from the liberalisation?
Najib says the liberalisation of the services sector, particularly in professional and logistics, will soon be announced to allow a more competitive environment in the country.
Najib says Liberalisation of the services sector will encompass professional services and logistics but will not include the banking industry.
Abdullah Badawi said that while the stimulus package announced by Najib last week was a short-term policy response, the Government believed it should also take the opportunity to address medium and long-term structural issues and formulate a strategic package to ensure rapid growth of the economy.
________________________
Competitive economic growth
Competitiveness is a nebulous word, even between and amongst economists. Krugman thinks it should refer to productivity. Others believe that it refers to comparative advantages such as cheaper labour.
What was Najib referring to?
Pleading with FDIs to come to Malaysia by offering longer pioneer status, longer tax holidays, cheaper land cost, guaranteeing cheaper labour and so on is being competitive, too.
There is the type of competitiveness that results from Malaysian-owned goods and services providers being of a higher value and higher quality.
There's another type of competitiveness that arises from offering cheaper venue and cheaper labour and lower tax rates.
What kind of competitiveness should Malaysia aspire to?
Liberalisation of the services sector
When Najib and Muhiyyidin talks of liberalisation of the services sector particularly in professional and logistics a cold shiver runs up my spine.
All I can see are foreign lawyers, architects and engineers setting up shop in Malaysia. Mind you, they aren't interested in Malaysian clients. They'll be looking towards dominating the services needs of the FDIs in Malaysia.
Among the professions, the least affected by the liberalisation will be the accountants who have been absorbed by foreign international partnerships four decades ago. For law firms, only one or two have forayed further from Malaysian shores. There's no data on their success rate in setting up beach heads.
Competitiveness of the Malaysian logistics players
As for the logistics sector, there will be a huge influx of foreign logistics players. There'll just be a handful of Malaysian logistics players going beyond Malaysia. And, they'll experience severe competition and, I predict that they'll close shop very, very quickly.
Why liberalisation of the services sector will NOT benefit Malaysia
I want to emphasise here, very strongly, that Malaysia's economic managers are behaving like fools.
The liberalisation of the Malaysian services sector will have an adverse effect on locally-owned enterprises. The foreign service providers will swamp the entire sector. This is not a xenophobic observation but a practical one.
It is NOT that Malaysian service providers are not skilled. The reason why there will be inflow of foreign service providers and zero outflow of Malaysian service providers is very simple.
Trace the history of movements of foreign accounting firms to Malaysia, trace the movement of foreign courier companies into Malaysia, trace the inability of Malaysia's shipping companies to compete with foreign shippers and you will find the same story: The services sector follows the growth of local companies going offshore.
Mitsubishi produces Panasonic electronic goods and, loads them into lorries belonging to Integrated Logistics which is partly owned by the Japanese and, into containers belonging to Mitsui-OSK Lines and, hauled to Port Klang and, loaded onto Mitsui-OSK containers lines.
Taiwanese electronic manufacturers produces electronic goods that end up in Evergreen containers and loaded onto Evergreen Lines container ships.
A U.S. or European FDI will seek out a law firm that originates from or, have a tie-up with a law firm that originates from the U.S. or Europe. The law firm is appointed by the international headquarters.
So, I ask again, what is the edge or benefit that Malaysia is getting for Malaysian logistics providers and professionals in the liberalisation of the services sector?
And, if it is so beneficial how come the banking sector is excluded from the liberalisation?
2 comments:
A persuasive argument which will presage the representations respective services organizations will probably be making.
Given the demographic profile of local services providers, there is the additional concern of structural disruption of market share and equity holdings.
There are however some additional considerations:
- how much of local exports, for instance, are quoted on CIF vs FOB basis, but more importantly, why? in the latter case, the foreign buyer sends his own ship or plane and insures (which may also reinsure) the goods using his own agent; locals lose on the tax revenue and growth opportunities if those providers are located elsewhere;
- if the sector is not liberalized, would that still prevent the foreign companies operating locally to source from the foreign service providers under their hq-determined globally presigned contracts?
- what is the prompting for this move by the government to liberalize the services sector? was it based on some measures of demand-supply mismatch, or a need for additional tax income, or some part of an overall strategic thrust towards some other objective?
- what has been preventing the government from supporting local services providers in those sectors in which the liberalization is envisaged to apply in such manner that they would have been ready today for liberalization?
- can the liberalization program be applied, assuming it goes through, whereby advantages can be further extracted from the incoming foreign services providers which can be rechannelled to local service providers so that they can upgrade their capabilities simultaneous to increased competition? Mandatory JV, for instance, plus declining tax regime for upclimbing value-adding inputs in quantifiable and verifiable terms, plus cooperative overseas ventures wih local service providers for pieces of the market overseas in which the incoming foreign service provider has market entry. All these, for instance.
A good set of questions, walla.
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