Friday September 10, 2004

Malaysia fishing for Indian investment

By Arun Bhattacharjee

NEW DELHI - In the past decade, more than 19 trade delegations from Malaysia have visited India, including one led by the present prime minister, Abdullah Ahmad Badawi, mostly to negotiate palm-oil prices, road-construction contracts or tariff reductions on products imported from Malaysia - but never seeking serious investment. For the first time, a Malaysian delegation last week made the journey to India with the intent of wooing private investors.
Despite India's push for Malaysia to become a member of the Non-Aligned Movement (NAM) - a grouping of 115 countries representing the interests of developing nations - at the eighth NAM summit in Zimbabwe in August, and Malaysia's reciprocal effort, recommending that India be granted observer status in the Association of Southeast Asian Nations (ASEAN), relations between the two countries have witnessed more troughs than crests. Even India giving the Jawaharlal Nehru Award for international understanding to former prime minister Dr Mahathir Mohamed, who ruled Malaysia for more than 21 years, did not change the relationship for the better.
India's industry organizations feel that Malaysia's desire to take bilateral relations to the investors' level has been influenced largely by India's close relations with Singapore and the country's growing economic strength. But a senior official of the Confederation of Indian Industry (CII) says there is a lack of confidence among Indian industry about investing in Malaysia, pointing out that few ASEAN countries have made any major investments in Malaysia - although their trade relationships have improved considerably.
That is perhaps one of the reasons the delegation first went to Chennai and used the Tamil ethnic card to invite investors from southern India, where information-technology, engineering and auto-component industries have proved to be of global standard. Malaysia has a sizable Indian population, which along with the Chinese and various other ethnic groups, accounts for 50% of Malaysia's 24 million people.
Led by Tan Ah Yong, director of the Malaysian Industrial Development Authority, the nodal agency for promoting investment, the delegation asked Indians to invest directly or through joint ventures in sectors such as machine tools, plastic-injection machines, robotics and industry automation equipment, stressing that with Malaysia as a gateway, India would have access to a market of 500 million people among the 10 ASEAN member countries.
Although India's private investment in Malaysia was first made in 1968 by a premier Indian company, Godrej, government involvement increased through joint ventures in Malaysia during the 1970s and early 1980s, in the areas of palm-oil refining, power generation and supply, the development of railway tracks and civil construction, as well as a 50:50 joint venture between the Indian Oil Corp (IOC), a government-owned Fortune 500 company, and Malaysia's Petronas.
But commercial relations between the two countries touched an all-time low in 2003 when then-new Prime Minister Abdullah Badawi scrapped a US$121 million railway contract given to India's IRCON after two years of frustrated progress in building and doubling fast-railway tracks in the north of Malaysia near the border with Thailand, as part of the Trans-Asian Railway.
This has contributed to the reluctance of Indian investors to put their money into Malaysia. An Indian Industry Ministry source says that in the past decade, when India really needed foreign investment, only five of the 135 joint-venture memoranda of understanding signed by Malaysia actually took off, accounting for only 0.80% of the total number of joint ventures agreed on between 1991 and 2000, and less than 1% of the capital - mostly invested in fuel, power generation, oil refining and telecom.
In May 2000, IOC and Petronas signed an agreement to import 1.5 million tons of Malaysian "sweet crude" for $300 million, but the deal was killed by a lack of terminal facilities in Malaysia. Meanwhile, two major private companies from India are willing to sign joint ventures for oil and gas in Malaysian waters, but are not sure how much freedom they will have. An Indian diplomat earlier posted in Malaysia, who does not wish to be named, says the cost of capital in Malaysia is almost as high as 30%, because the Malaysian partner who will be holding a mandatory minimum of 30% equity, would prefer to have that 30% without investing a penny. This happened in many cases, with Taiwan suffering the most.
The most recent fiasco was a joint venture between the private arm of the India's Space Research Organization, Antrix, and Maxstar, a Malaysian private company that develops micro-satellites for Malaysia's broadcasting networks. After some initial progress, the project was axed, as Malaysia preferred another technology, in spite of the joint venture.
But a senior official of India's Investment Promotion Board says foreign investment is more often than not reciprocal, and increases with confidence. Singapore has already committed $3 billion in investment in India over the next five years, and Thailand is making moves toward New Delhi as well. Naturally, Indian industries are keen to invest in Singapore, Thailand, Indonesia and China, but not in Malaysia, in spite of its having better infrastructure support than any of its ASEAN counterparts, barring Singapore.
Indo-Malaysian trade in 2000 was $2.49 billion, of which $2.05 billion was made up of Malaysian exports to India. This figure has come down, as there are more competitors in the palm-oil segment today, which constitutes the bulk of Malaysian exports to India, besides crude petroleum and natural gas of recent origin.
On the other hand, if India really wants to enter ASEAN as a major trading partner and meet its ASEAN trade target of $30 billion from the current $10 billion by 2007, investment in the region could prove to be a sound policy. China is aiming for $100 billion in trade with ASEAN countries by the end of 2005.
Sources in the Indian Foreign Office say New Delhi expects an improvement in relations with Malaysia now that Mahathir has retired, as Abdullah Badawi is unlikely to be under the same kind of pressure that Mahathir was under to balance his relations with India against strong nationalist Malay sentiments, mostly because of his part-Indian origin.
But in spite of his grandstanding against India, Mahathir did get Malaysian air force pilots trained on MiG-29s by India, and continued to support a defense-cooperation agreement that involves training of the army, navy and air force, besides the supply of equipment and spares for its MiG fleet.

Parent site: "Focus on Malaysia"