Monday, November 23, 2009

Need to restore investor confidence in IRDA

Frequent change of chief exec is alarming and must be disconcerting for potential investors

THREE chief executives in the space of three years. The attendant publicity that comes with such high-profile changes surely isn’t what Malaysia would have wished for its most ambitious development corridor.

But government officials, having earlier denied Harun Johari had resigned from the Iskandar Regional Development Authority (IRDA), confirmed last week a new man would be helming the federal statutory body next year. But whether Ismail Ibrahim – currently with the National Physical Planning Division and one of those involved in drawing up Iskandar’s comprehensive development plan – will have greater longevity at IRDA, remains to be seen.

But the frequent change in the person overseeing the project surely must be disconcerting for potential investors.

They might be prepared to shrug off talk of turf wars between federal executives under state investment agency Khazanah Nasional and parochial state officials who think they ought to be better consulted, but frequent changes at IRDA are particularly alarming since it was set up specifically to regulate and drive the project. Indeed, the government appeared to recognise that a key problem to drawing investments would be the bureaucratic red tape, and empowered IRDA to act as the conduit between potential investors and the various state and federal government agencies, and to facilitate investments as a one-stop agency.

Some measure of its success is perhaps evident in the RM46 billion (S$18.8 billion) in investments that Iskandar Investment, the project implementer, says it has obtained, half of which is from foreign investors and the balance local.

The bulk of investors are from the Middle East, Europe and Asia focusing on manufacturing, property and tourism projects. The largest investment to date is one amounting to some RM5 billion by Spain’s Acerinox SA and Japan’s Nisshin Steel to construct a stainless steel plant.

On the real estate front, Middle East companies have proposed RM4-5 billion of mixed development properties, while Khazanah is committed to funding tourism projects worth over RM1 billion.

Although Malaysia has made clear it wants to get out of its middle-income trap by getting out of low-value manufacturing where it is no longer competitive and into the services side where wages are better, it has yet to detail how it intends to effect that transformation.

In Iskandar, it has dangled long tax holiday breaks and incentives at the service sector and in the last budget, slashed the income tax rate to 15 per cent for knowledge workers.

Such giveaways might not be sufficient. As the Malaysian Institute of Economic Research says, these are only ‘icing on the cake’ as the ease of doing business matters more.

In this regard, Malaysia’s drop in Transparency International’s Corruption Perception Index by nine places to 56th position this year could do more to influence investors than huge tax breaks.

The influence of an advisory panel on Iskandar made up of eminent Johor-born personalities such as international tycoon Robert Kuok, former deputy prime minister Musa Hitam, ex-chairman of the Hong Kong Securities and Futures Commission Andrew Sheng and businessman Kishu Tirathai also appears to be of little significance.

The announcement of the panel aside, little else is known as to what ideas and recommendations have been advanced by the panel.

Because of its location next to land-scarce Singapore, Iskandar is viewed as a no brainer by many who believe its development is inevitable. Maintaining confidence in the project, however, could lead to an earlier achieving of its so-called ‘tipping point’.

In mid-year, Dubai’s Damac group withdrew from a proposed RM400 million harbour front property development. The ostensible reason cited for its pullout was the global financial crisis although some suggested the group was not entirely happy with the pace of the project.

Many shrugged off the Damac withdrawal as just another casualty of the global crisis. But the exit of another investor could set the alarm bells ringing, which is why it must now urgently restore confidence in IRDA.

Source: Business Times, 23 Nov 2009

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