NEP and declining oil reserves - damage future economic growth and prosperity

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Time for New Economic Policy (NEP) to be abolished following criticism by European Union Ambassador to Malaysia that the NEP is discriminatory to both foreign and non-Malay investors

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Press Statement

by Lim Guan Eng

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(Petaling Jaya, Friday): The surprising frank criticisms of Europe’s top envoy to Malaysia urging urging the government to reverse the NEP because it is discriminatory and amounts to protectionism against foreign companies. In a report filed by the Associated Press yesterday.

“In unusually frank comments that ignored diplomatic niceties, Thierry Rommel openly criticized Malaysia's 37-year-old New Economic Policy, or NEP, that gives a host of privileges in jobs, education, business and other areas to ethnic Malays.

"In a dominant part of the domestic economy, there is no level playing field for foreign companies," Rommel, the ambassador and head of the European Commission Delegation to Malaysia, said in a speech to local and foreign businessmen.

Rommel said the government is using the NEP as an excuse to practice "significant protectionism of its own market," including the automotive sector, steel, consumer goods, agricultural products, services and government contracts.

Malaysia claims these are "infant" industries that need to be protected but "in reality .. it is the Malay-centered Bumiputra policy that drives protectionist policies," Rommel said.

Eric Reuter, sales and marketing director of freight forwarder ABX Logistics, said the Belgium-based company has a 51 percent Bumiputra partner and is required to work with local companies on government-related projects.

The limitations have eroded his profit margin, he said.

"We cannot be as flexible as we want to be and chances that corruption comes into play is higher. It is an interruption to the free market," Reuter told The Associated Press.

Rommel stopped short of saying the NEP should be scrapped but told reporters separately: "We (in Europe) have bitten the bullet on a number of sensitive issues, why can't you?"

He warned the NEP could "lead to problems" in free trade negotiations between the EU and the 10-member Association of Southeast Asian Nations, of which Malaysia is a key member.”

Clearly the foreign investor community see the NEP as a stumbling block and an impediment of world trade. This may have an adverse impact on foreign investment and the time has come for the NEP to be abolished following criticisms by the EU ambassador to Malaysia that the NEP is discriminatory to both foreign and non-Malay investors.

The NEP and Malaysia’s declining oil reserves that will make Malaysia a net oil importer in 5 Years will damage future economic growth and prosperity

The NEP and Malaysia’s declining oil reserves, that will turn Malaysia from an oil exporter to a net oil importer in 5 years, will damage future economic growth and prosperity. The twin impediments of the anti-competition, anti-growth and anti-trade NEP as well as declining oil reserves are huge challenges that the Malaysian government has not even begun to address.

Oil revenues make up 40% of our yearly national income. According to the 2007 Budgetary estimates by the Ministry of Finance, Malaysia revenue’s this year is estimated to be RM 134,815 million in 2007. Of this, oil and gas amounts to RM 53,730 million comprising: -

Petroleum income tax of RM 24,693 million
Crude oil export duties of RM 2,642 million
Petroleum and Gas Royalty of RM 4,395 million
Petronas Dividend of RM 22,000 million.

This does not include the taxes paid by oil related companies or companies in the oil industry, which can be quite substantial.

This oil revenue has allowed Malaysia to cushion the negative impact from mismanagement, wastage of public funds and corruption scandals that have plagued Malaysian society and would otherwise have crippled Malaysia’s economy. Without oil revenues in 5 years time, one wonders where Malaysia is going to find the RM 54 billion or fill in the 40% gap in the nation’s finances.

Without oil resources, a country’s economic growth would depend on comparative and competitive advantages. As comparative advantage has been fully utilized in all countries, economic growth is now fuelled by competitive advantages especially in producing goods and services which are of good quality and reasonable prices. As indicated by the EU Ambassador to Malayisa, the NEP has harmed instead of helped Malaysia to improve our competitive advantages.

With the advent of Malaysia being an oil importer, it is more crucial and critical that anti-competitive economic practices and policies such as the NEP must be dumped. The BN government has to put aside the political, racial and historical burdens and stop being stubborn in continuing with outdated policies if Malaysia is to progress in the market economy and globalised world of the 21^st century.

(22/6/2007)

* Lim Guan Eng, Secretary-General of DAP