Transitional years crucial for Asean


THE next few transitional years will be very important for Asean. “We all have to reinvent the model,” said Citigroup's new chief country officer Piyush Gupta.  

“The export-driven manufacturing model that worked for us in the 80s and 90s is not going to work and we have to find others.” 

Piyush Gupta

“When you think about the redefinition and where you are headed, there are many precedents.  

“Countries in many parts of the OECD world have been through transitions of this sort. It's about looking ahead and seeing what happened in other countries and learning from their mistakes. 

“It's an opportunity that we have. I think the Malaysian Government is doing an extraordinary job of getting the balance right - the transition into a service economy and at the same time, keeping a strong footing in the tangible economy,” he told StarBiz.  

In the context of Malaysia, the three causeways of the past – Singapore, Japan and the US – are likely to be replaced by three new ones – China, India and sub-regional Indochina. 

With regard to the old causeways, a lot of foreign direct investment (FDI) into Malaysia was US-driven. Following the Plaza Accord and the strengthening of the yen, the Japanese started moving into Asia where a lot of investments wound up in Malaysia. 

“Looking at the FDI numbers over the last 20 years, most of the money came from Singapore, the US and Japan,” he noted. 

The fast rising China causeway does not pose a major concern in terms of cost differential. Costs in much of eastern China are not much lower than Malaysia, for example, the per capita income in Shanghai is within 10% of Malaysia. 

People base their production in China because of the large domestic market.  

“What we are seeing today is that a lot of Malaysians who build expertise and capabilities in providing inputs to manufacturing are invited by MNCs to also set up businesses in China. And they are also exporters.  

“So the reason why Malaysian exports to China is going at 20% to 30% per annum is because a lot of intermediary inputs are going there,” he said. 

Within the fast-growing tourism sector, a lot of Chinese are visiting Malaysia.  

“There is this whole causeway of economic activity between China and Malaysia. Our strong and growing presence in China and Malaysia can help make both sides of the causeway work.” 

The second causeway that is not well-recognised yet is India.  

“If you look at the growth in investment activity and movement of people between India and Malaysia, it is substantial. 

“A large part of the construction activity in India is driven by Malaysian corporates. Conversely, people like Ircon from India are coming to participate in Malaysia in the CPO sector.  

“There are causeway opportunities as India is in a good position to serve as technology centre both in terms of application development and outsourcing. Malaysia can ride off that as well.” 

He said the white collar outsource industry plays to Malaysia's strength as it has access to a well-educated English-speaking workforce. 

The third causeway is the sub-regional Indochina where a large part of the invesments in footwear and garments are moving to Vietnam and Cambodia.  

“A large part of the associated white collar activities including invoicing, accounting and other regional hub activities will not necessarily move. So to create those hubs and outsource white collar OHQ kind of opportunities in Malaysia is easier.” 

The other macro trend is in addition investing domestically, the bigger boys are beginning to invest overseas in the public and private sectors in power, energy, telecoms and plantations. This will broaden the economic playfield for Malaysians.” 

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