MoUs are just MoUs - Business News | The Star Online

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MoUs are just MoUs


More stringent: A file picture showing two people passing by the Bank Negara building in Kuala Lumpur. In 2015 and last year, there was more money coming into Malaysia than going out which was probably due to the ringgit weakening since mid-2014 and Bank Negara being more stringent in allowing the outflow of Malaysian funds.

More stringent: A file picture showing two people passing by the Bank Negara building in Kuala Lumpur. In 2015 and last year, there was more money coming into Malaysia than going out which was probably due to the ringgit weakening since mid-2014 and Bank Negara being more stringent in allowing the outflow of Malaysian funds.

MEMORANDA of understanding (MOUs) – non-binding agreements – have not lost their charm and are making a comeback to the corporate world.

For the longest time, MoUs had been forgotten. They hardly made any impact on corporate movements and Bursa Malaysia. But of late, they seem to have made an impact, as stocks have been moving up and down based on expectations that MoUs involving significant deals would be signed.

MoUs are effectively agreements between two parties agreeing to work together in a project of common interest in the future. MoUs come with schedules for the completion of certain obligations. However, if the schedules are not met, there are no penalties incurred.

The term MoU became fashionable during the tenure of former Prime Minister Tun Dr Mahathir Mohamad.

During his official trips overseas, a sea of corporate kingpins would accompany him, signing MoU after MoU.

The best known among them was Tan Sri Amin Shah Omar Shah. He was known as the “King of MoUs”, often coming back from overseas trips with a fistful of MoUs tucked under his arm.

However, not many came to reality. Hardly any of the MoUs, especially those signed in the mid-1990s, came to fruition.

Amin Shah had a few listed companies and mainly hankered on jobs from the government. His empire collapsed in the 1998 crisis. His companies were taken over eventually or folded up, and at one stage, he was even declared a bankrupt.

Recently, Malaysian companies – both from the public and private sectors - signed no less than RM333bil worth of business deals following the visits by Prime Minister Datuk Seri Najib Tun Razak to China and India.

It kicked off with RM144bil coming from the Prime Minister’s trip to China in January this year followed by another RM158bil during his trip to India.

Last week, Malaysian companies signed RM31bil worth of deals arising from Najib’s participation in the “One Belt, One Road” forum in China.

When government officials go on overseas trade missions, the private and public sectors go along because it opens doors to meeting top government officials. MoUs are essentially agreements to work together on certain projects.

However, in most instances, whether the MoUs turn into actual investments depends very much on commercial terms and market conditions.

For instance, an MoU on the building of a Robotics Future City in Johor would largely depend on whether there is a market for companies to buy into buildings catered to such a highly-specialised facility.

An agreement on building a mega-port in Melaka and reclaiming islands in the state may seem like a play on trade and infrastructure. However, the financial viability would depend on whether there is demand for such infrastructure.

Every year, Malaysian leaders lead trade delegations to overseas markets. However, a peek into the flow of foreign capital into Malaysia does not seem to suggest that we are a major beneficiary of capital from outside the country.

Based on Bank Negara’s annual report, the foreign investment recorded by the Malaysian Investment Development Authority (Mida) between 2011 and 2016 was as low as RM20.2bil (in 2012) and as high as RM39.6bil in 2014. Last year, foreign investors put RM31.1bil into Malaysia.

The Mida numbers, which record investments in the manufacturing sector, include new money as well as re-investment from existing capital.

On a broader perspective, direct investments into Malaysia in 2015 and 2016 were at RM42bil and RM52bil, respectively, according to Bank Negara statistics. The numbers were lower in 2013 and 2014 – probably due to the stronger ringgit.

Investments flowing out of the country are also significant. Last year, it was RM34bil and in 2015, the number was RM37bil.

On a net basis, Malaysia has seen more investments flowing out of the country than coming into the country in 2013 and 2014. However, in 2015 and last year, there was more money coming in than going out.

It is probably due to the ringgit weakening since mid-2014 and Bank Negara being more stringent in allowing the outflow of Malaysian funds.

The slew of MoUs – worth collectively some RM333bil – that have been signed since January this year will take time to materialise.

How much will actually turn into real investments into Malaysia is anybody’s guess. For sure, not all will crystallise.

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