Categories
Economics Politics & government

[2888] Clearing the air around FDI definitions

There is a kerfuffle about the definition of foreign direct investment, due to the former PM Najib Razak’s messaging and the general public’s unfamiliarity of it. I strongly believe Najib actually understands the nuances of FDI but he is navigating through the somewhat complex definition to score political points with half-truths. Truly, you need to know the actual definition to play around with skillfully. After all, he was the Finance Minister for about a decade and one ought to learn something while at it, including about government policy on fund transfers and its weaknesses.

Of interest today are 3 points, given the ongoing popular public discussion, which is quite ill-informed.

One is approved FDI published by Malaysian Investment Development Agency, or MIDA.

Two is actual FDI published in the Balance of Payments documents published by the Department of Statistics

Three is “asset sale.”

I will not very delve deeply into these because the manuals are thick, arcane and I doubt more than 1,000 people in the world have read the manual from cover to cover. In Malaysia, probably fewer than 10. For instance, the Balance of Payments manual published by the International Monetary Fund, (the mouthful title is the Sixth Edition of the IMF’s Balance of Payments and International Investment Position Manual) has 351 pages with discouraging font size and spacing.

But there is a surge in public interest it in. Which I suppose, is a good opportunity to educate.

Let us start.

Approved and actual FDI

To start we need to attack both point 1 and 2 because they are easily confused despite have been frequently published and easily accessible.

Approved FDI and actual FDI are two different sets of numbers. Yet more than once, the media and even trained economists have referred to both as simply FDI without hinting its differences. The media probably does not know any better while economists are being sloppy though they likely know the difference. This is a constant source of confusion for the public (and the media) and it becomes crazy when politics is injected into it.

Approved FDI is self-explanatory. A foreign investor applies for permission to invest in Malaysia and the Malaysian authority decides whether to approve. Not all investments get approved and for example, my former employer’s request to do so was rejected for unclear reason. If approved, it will go into the approved FDI statistics published by MIDA.

The important thing is approved FDI functions as a leading indicator to actual FDI. In less complicated English, approved FDI provides the maximum limit to actual FDI. Theoretically, approved FDI is always higher than actual FDI because sometimes, a company would get its approval but later change its mind in terms of investment of value, or even investing at all.

Theoretically because sometimes, approval to invest is given for a period of time and practically too, it is difficult to invest immediately upon approval. Accounts have to be set up, the money has to be transferred, people have to hired, etc. I have been told after approval, a lot of approved FDI get realized roughly about form 1 to 3 years. But the point is, approved FDI gives us an inkling what the actual FDI would be. Example: when approved FDI in 2017 was low, so was actual FDI in 2018. When approved FDI was high in 2018, actual FDI in 2019 was also high. It is not a clean correlation due to the problem of lags, but there is a noticeable one.

There is further complication to the public understanding of FDI. MIDA publicly published approved manufacturing FDI quarterly (all-sector data annually). So without basic understanding of the metadata, confusion is easy. Indeed, the relatively complicated definitions have been used by Najib to spread half-truth about FDI.

The purposeful switching of context

Before I move on to point 3, allow me to digress and comment about the ongoing political conversation about FDI.

When assessing Najib’s post, one has to realize when he is switching the definition and context. When the government talks about 2018 approved FDI, he will switch to 2018 actual FDI and accuse the government of lying by stating actual FDI is lower than approved FDI. When the government talks about actual FDI in 2018, he would veer somewhere else to again pain the picture that the government is being dishonest.

For those unfamiliar with the numbers and context, they would say Najib was arguing based on facts. But if only they knew how context could make facts as half-truth. The best of disinformation works as such.

FDI and “asset sales”

The last point I want to make is about FDI asset sale.

The definition of FDI is hard to master fully even for working economists. But in general, it is acquisition of long-term stake in local companies (plus several other things). In the IMF manual, if I recall correctly, a purchase of share at least 10% in local company would qualify as FDI.

This is why when Mitsui buys a minority stake in the Malaysia-based IHH Healthcare, it is FDI.

This is also the reason why when Petronas sold its 50% stake in its RAPID projects in Pengerang to Saudi Aramco of Saudi Arabia, that was considered FDI too. But of course, Najib will not mention that asset sale that happened under his watch. He would call that investment, and he would be right, just like how Mitsui’s purchase is investment. Najib wants to have his cake and eat it too.

Finally, for me personally, I am not hung up on asset sale. In the end, what is important is the returns to investment, not the investment per se. A fund should maximize returns, and if it diverges from that, it has to be for a very, very good reason.

But perhaps politics is more complicated than the Balance of Payments manual. You do not a good reason, just half-truth. We are, after all, live in the age of Trump.

And for the FDI conversation, know that Najib is switching the context and manipulating public ignorance to win the credibility game.

Categories
Economics Politics & government

[2844] Evolution of corporate ownership in Malaysia

Terence Gomez is embarking on a massive project investigating quantitatively the influence of government-linked companies in the Malaysian economy. The dominance of government in business and in the economy is no mystery. What is special here is that he is analyzing the numbers more comprehensively than many had done before. He is currently focusing his research at the federal level but if I remember correctly, he plans to delve into state level bodies, looking into bodies like Kumpulan Perangsang Selangor, which are much less known than those like Khazanah Nasional.

Together with Jomo Kwame Sundaram, Gomez in 1997 wrote the go-to book — Malaysia’s Political Economy: Politics, Patronage and Profits — exploring the ownership of corporate Malaysia in the 1990s and its links to politics, namely Umno. To understand political financing during the Mahathir era, this is the book to read.

The scale of Gomez’s latest project on ownership is larger than anything available before. There have been work done on corporate ownership in Malaysia after his 1997 book but they provided only partial view of the whole story while nibbling at the edge.

Gomez in his lecture, which I attended at the University of Malaya earlier this year (and later at an event organized by the Institute for Democracy and Economic Affairs; Ideas is funding of the project) made the connection between previous ownership literature and showed how the majority ownership changed from the 1950s to the 2010s, the present time.

He is continuing the work pioneered by James Puthucheary, who back in the 1950s went through official colonial and Malayan documents to understand who owned what in the economy. Through that, he corrected the idea that the Chinese had controlled the economy when in fact it were the Europeans. Gomez mentioned Lim Mui Hui’s work as the other important literature in the 1970s tracing capital ownership in the Malayan-Malaysian economy in the early days of the New Economic Policy period.

Gomez in his lecture showed just as Puthucheary demonstrated decades ago that the British and other European bodies controlled the majority of the top Malayan companies in the 1950s. This changed in the 1960s and the 1970s when Chinese tycoons rose up in the list. By the 1980s and the 1990s, due to the implementation of the New Economic Policy and Mahathir’s industrialization drive, the list was dominated by Malay industrialists. The ownership list was also more diverse than it ever was, with Genting, Berjaya and YTL were among the biggest then.

But in the aftermath of the Asian Financial Crisis, something fundamental happened. Most of top Malaysian companies were owned by the government and no longer belonged to private individuals or groups. There were bailed out or acquired by the government through the Government-Linked Investment Companies. Gomez listed the usual seven: the Employees Provident Fund, Kumpulan Wang Persaraan, Permodalan Nasional, Lembaga Tabung Haji, the Armed Forces Fund, Khanazah Nasional and the Ministry of Finance Incorporated. Many of the Malay industrialist companies like UEM were now owned by the government.

Not all of those seven government-linked investment companies are the same. The EPF, for instance, is not strictly a government company, in the same Khazanah is. But nevertheless, the EPF does have an extremely strong presence in the Malaysian economy, in both the equity and the debt markets.

In a different talk of a more casual style, historian Khoo Kay Kim claimed the Germans controlled the Malayan economy before the First World War. Their influence diminished after their lost the war and was replaced by the Japanese during the interwar period. I have not read a proper document to ascertain the claim but I have read from various sources that Japanese companies were active in Malaya prior to the Second World War.

Gomez’s work has implications beyond economics. Control over of these government-linked corporations and entities enables political control and enhances political power, just has the Umno’s ties to various the 1980s-1990s Malay industrialists had kept the party’s machinery going. But unlike then, when those funds were private money from private companies (public companies privatized), the government today does enforce spending or procurement requirement to benefit certain parties. While Gomez did not cover 1MDB, the 1MDB corruption scandal, provides the starkest example of public resources being used directly and illegally to finance Umno’s (and even its president’s personal) requirement. The connection is starker and more corrupt now than ever before.

The evolution of corporate ownership in Malaysia simply does not inspire confidence, and the completion of Gomez’s work will truly show how big the beast has become.

Categories
Politics & government

[2841] Mahathir, reformed

The crowd shouted “Reformasi!” last night as they gathered on the edge of Dataran Merdeka to demand the release of Maria Chin.

About 20 years ago, the term was so full of anti-Mahathir context. “Not today however,” History said, smirking as she played a joke on all of us.

Having the crowd crying out reformasi on Monday evening made the atmosphere surreal. Surreal because sitting at the front facing the crowd was the former Prime Minister Mahathir Mohamad.

Reformasi! Reformasi! Reformasi!” the crowd roared.

He managed a smile and raised his hand together with the rest. I had to assess my own sanity and senses whether I actually saw or heard him shout reformasi along the protesters, possibly numbering between 500 and 1,000 people.

Hishamuddin Rais with his hat and ill-fitted clothing — released from police lock-up just a few hours earlier — joked he could hardly believe Mahathir had attended Bersih and on this night, Mahathir was sitting close to him. Hishamuddin made a mocking impression of Mahathir. Yet, he, one of Mahathir’s harshest critics from the streets from the very beginning, is convinced of the need to work with Mahathir and put the past behind. Mahathir understands the compromise Hishammuddin has made, and took the jab with a open, humbled heart.

On Saturday, when Mahathir gave a speech to a much bigger crowd under the Petronas Towers, it was evident many were still distrustful of the old man. I could see it in their faces. They looked on and listened incredulously to Mahathir as he spoke of free speech, free press and freedom of assembly. “Malaysians have short memory,” remarked a friend to me as the clouds threatened to unleash a tropical rainstorm on us.

What was a clear blue sky had turned gloomy by four or five o’clock, when Mahathir arrived to give the speech. The rain god understood the popular sentiment on Jalan Ampang.

It is hard for anybody, me included, to stomach having Mahathir pontificating about free speech, free press and freedom of assembly. This is the man along with Lee Kuan Yew who believed in the so-called Asian values, the belief that the well-being of the whole trumps individual rights. I wonder how Lee would think of his former sparring partner.

To many liberals, I can see, Mahathir simply does not have the moral authority to say things he said on that Saturday afternoon and on that Monday night. Many liberals and others who opposed Mahathir during the 1980s and the 1990s yearn for pure heroes.

I hate to break it to you but those pure heroes do not exist in these desperate hours of ours. Anwar Ibrahim is in jail and Anwar himself is imperfect. Yet, we follow him, believing the injustice brought down upon him reformed him for the better for us all.

What we have now, ironically, is Mahathir.

At this stage, those who believe Najib Razak needs to resign and be brought to justice need to invest in coalition building. That is the only way realistically available to correct the wrong the corrupt have done. It is the only way to get Malaysia to move on. Without a coalition, Najib will continue to be in power plundering public wealth and undermining public institutions that we need to get to the next level of development.

Muhyiddin Yassin on Saturday is right. We need to forget our differences for a moment, just for this moment, and work together towards a common goal for the greater good. The urban and the liberal folks need their heartland cousins to push Malaysia forward and this is where Mahathir comes in.

Muhyiddin Yassin at Bersih 5

We have done it before. We saw that in 2008 and 2013. We just need to do it again. Yes, things crumbled afterwards but you know, if at first you do not succeed, try and try again. Nobody said it would be easy.

A defeatist would not even try. He would want to read a 100-year plan before starting anything.

I would say we should cross the bridge when and if we get there. It is premature to think about all permutations and worry about the downside as if the bad outcomes are guaranteed. There is no guarantee. None. And that is why attempts at building a coalition matter. We need to try instead of resigning ourselves to certain damnation.

And to the cynics who still distrust Mahathir, I think we can safely bet that Mahathir cannot be the dictator he used to be. As I stood at the back staring at him judgmentally, somehow I felt pity for him. There was a statesman, the former strongman of Southeast Asia, sitting upfront, shrunken, old, tired, small and humbled.

Yet, he was there on Monday night.

The question should not be why he was there, or whether he should to be there?

The question instead should be, where were you?

Mahathir ate his ego for something greater. Yet, here are the liberals, worried about some kind of ideological purity, trying to parade your moral superiority while more injustice is being committed by others.

Mahathir is not the authoritarian leader we have now. The monster is in Putrajaya.

Get on the program, fucking please.

Categories
Photography Politics & government

[2840] Bersih 5, ticked

This edition of Bersih, felt less carnival-like unlike last year. Nevertheless, Bangsar still had the fun crowd, with all the banners and masks and flags and songs. I love the fight songs.

But well, the protest is not about having fun. It is about exercising political rights. And it is never really courageous to take potshots from the sides. From time to time, we hafta go down.

I had expected the worst, after all the heightened provocations and shrilling threats made by Umno men. I was prepared with salt water, some medication and legal aid contact written on a piece of paper in my bag. In the end, it proved to be unnecessary thanks to the protest organizers and the police. I m thankful in the end, the protest was peaceful.

I am glad we have learned something about right to peacefully assemble after all these years. That took a lot of work. And that alone is progress, and that should be restated time and time again to the cynics.

There are various persons currently being held by the police for merely protesting peacefully. Whatever progress we have achieved, there is still much to be done. After all, Najib Razak is still the Prime Minister, after all the wrongs he has done.

Bersih 5 on Jalan Bangsar

How was it in Bangsar?

Well, from left to right, Riza Aziz, Rosmah Mansur (obscured), Jho Taek Low and the man himself, Najib Razak.

Categories
Politics & government Society

[2831] Corrupt patriotism will eat us all

It is September 15, the eve of Malaysia Day. As I walk out of the train station into the atrium of KL Sentral, I see rows of the Malaysian flags draping down from the ceiling. Those red and white stripes are unmistakable.

The flag-flying fervor has not been as strong as it had been in the previous years. Perhaps all those third-world corruption controversies have dampened that patriotic sentiment. As it should be. Corruption the scale of 1MDB and Najib Razak should worry many, raise questions and stop us from engaging in petty excitement.

Even in its weakened form however, displays of patriotism disturb me. Here we live in an age where patriotism all around the world is increasingly provincial in nature, and that its jingoist version functions as a vehicle for racists. These racists would be fascists the moment they are given power, democratically or otherwise.

I dream of a cosmopolitan liberal society. I have never stopped believing so even as the idea gets bashed and its weaknesses get revealed by the receding tides. And that liberal ideal does not sit well with unmitigated patriotism.

The usual kind of patriotism that goes against cosmopolitan values typically targets outsiders.

But another version eats the society inside out, whenever it is unclear who the outsiders are. And in this cosmopolitan country we live in, it is never easy to differentiate between the insiders and the outsiders cleanly. It is a mixture of everything. An attempt at nativism would divide our society.

I fear, that is what Malaysian patriotism is turning into, especially when used by the corrupt in power. It turns patriotism onto us Malaysians. Anxious to preserve power despite their wrongdoings, the corrupt are trying to distract us the population from personal crime and justify their hold to power by claiming outsiders are interfering in our affairs. And increasingly, those Malaysians who disagree with the corruption of those in power are being labelled as traitors, working in cahoot with outsiders.

Near Kerinchi in Kuala Lumpur as well as other places, I have noticed yellow and black posters pasted on walls deriding those protesting against Najib Razak’s corruption as “talibarut Amerika.” It is a strong Malay term translating into spies, saboteur, stooges and anything similar. All invested in them the connotation of betrayal.

And to be a patriot is not to work with outsiders, as the narrative goes. Outsiders are out to destroy “us”, they say, as if it is “us” Malaysians whom benefited from the multibillion dollar corruption by the men and women sitting in the desolate distant Putrajaya.

The fact domestically, the corrupt are trying to save their skin and bring everything else down, is forgotten conveniently. Purposefully distraction, digression and misdirection happen to shift attention from 1MDB and Najib Razak’s corruption. Words are being inverted and subverted the way Orwell had imagined.

And so I look at the show of patriotism warily. I wonder when it would turn to people like me who would like to see the corrupt in prison instead of in Putrajaya.

I know on the other side of that corrupt patriotic wall is fascism. I will not worship that wall. Without a chisel, I will stay away.