Datuk Seri Panglima Andrew Sheng was chairman of the Hong Kong Securities and Futures Commission between 1998 and 2005. The 51-year-old, who was born in China and migrated to Sabah with his parents, has held various posts locally and abroad in his 31 years in the financial and banking sector.
Sheng is presently a member of the board of the Qatar Financial Centre Regulatory Authority. He speaks with NELSON BENJAMIN and MEERA VIJAYAN on his advisory role at the newly set up Iskandar Regional Development Authority (IRDA)
Q: What do you think about your appointment and how will you be contributing as one of the five members of the IRDA?
A: This is a great honour for me because I think this is a very crucial project for the nation. I think this is a great opportunity for the country to push ahead with its growth plans and it will benefit the growth triangle of Malaysia, Indonesia and Singapore. Johor will be a key point in this triangle. I’ve been away from Malaysia now for the last 16-17 years. A lot of my experience has been in the United States and then Hong Kong, but I’ve been very much involved in the regional work, regional integration work. I believe I can bring some international perspective. There are, of course, people with much more experience than me, but I have some experience in finance.To me, one of the growth pillars in this strategy is finance. I have always been interested in the role of finance in Malaysia, and technology, an area which not just IRDA but the whole of Malaysia will have to move.Obviously agriculture, primary industries and manufacturing are very important, but the growth area is the service side and that is very knowledge intensive. Of course finance plays a key role. How IRDA carries that role is very crucial because that is where the value is. A lot of value creation. Get it right and you make a lot of money. Look at Hong Kong, New York, London, Singapore. In Hong Kong for example, services is 84% -85% of gross domestic product (GDP). Malaysia is 57%. I think there is a lot of potential.
Q: What are the challenges facing Iskandar Development Region (IDR)?
The real challenge I think, is the vision. I see the vision is spot on because it is about looking at the geographical positioning. If you look at the map, the southernmost tip of the Asian continent is Johor and it is six to seven hours’ flight radius and connects some 800 million people. Asean is the fastest growing region in Asia, if not the world. I think implementation is the key. Vision is great but the key is implementation. One of the lessons I learnt in Hong Kong is that implementation, reducing friction costs and making it easier to do business are all important.Reducing the barriers to business. Entry, competition, cutting the red tape is really crucial. It is also important to work with the right global partners. It is not just a Johor strategy but a national and regional strategy.And since it is about the region, it is about getting regional partners (that) in this sense, will be international partners.
Q:Is Malaysia plagued with “red tape” when it comes to doing business?
Malaysia has improved a lot, but there is also room for a lot of improvement. As I said, friction costs need to come down. There is a lot of competition with Malaysia and they are bringing these costs down very fast. It is about the speed of approvals, the ease to getting access to markets, getting people in, talent in, that would need very close cooperation with Singapore, Hong Kong, maybe Middle East, India, China, Japan, South Korea, and whoever feels that IRDA has a very crucial benefit for them. And not just benefit them, but also IRDA and the nation as a whole.
Q: Based on your experience in Hong Kong, how is it doing business there compared with Malaysia?
In Hong Kong, everything is about speed. The place is not cheap, even by international standards, but the fact that business can turn over fast and you can have crucial decisions made quickly, means the marginal cost of doing business is brought down even if the average cost of business is high.If I do three to four deals a day relative to maybe one deal, then my business will still be able to make profit with a lower margin and I think a lot of Malaysian retailers are beginning to see this. It is about scale, branding and reputation. Our natural resources, our geographical location, are irreplaceable. And Malaysia has a lot of talented people, tropical forests, the best reefs that India and China do not have. We already have a very good industrial infrastructure that we can build on. So it is about working on our comparative advantages.
Q: Are we on the right direction with the setting up of IRDA? What is the next step?
I think implementation has to be the key. Getting the plan right in the first place. I think Khazanah and the other teams in the government should be congratulated for putting it together. I think the tough part will be how to work with global and local partners in implementation. It seems very blasé to say this, but that’s the game.I think there are already plans to improve that area. I can’t comment on that because it's just been launched. I'm sure there is good determination to make that happen.
Q: How is the delivery system in Hong Kong compared with Malaysia?
Difficult to compare Hong Kong with Malaysia because Hong Kong is essentially a city economy and it is highly concentrated and very small geographically. But it has great natural advantages because of its deepwater port and it happens to be between South-East Asia and North-East Asia. So it has quite a lot of good advantages there. Also, it’s a free port and has low tax and excellent communication that I think Singapore has emulated.
Q: What other incentives should the government offer?
I think there are a lot of incentives already. It is not just about the incentives, it is really about the ability to engineer so that the cost of doing business is fast. I want to get my leading people in, my key technologists in, my key equipment in and my products out quick, on time, that is what makes crucial success.Tax incentives are useful to attract people in, but ultimately it is the bottom line.
Q: Do you think we have achieved enough?
You don’t look at a single number. I believe the potential for Malaysian growth is higher and we should be able to achieve much more mainly because I think the region is beginning to grow faster as a whole.Slow growth is because Malaysia is very well developed even relative to our neighbours except for Singapore. Even Singapore, which used to be happy with 4%-5% growth, is now achieving 7% in most recent quarter numbers. India is recording 7% to 8% and China, more than 10%, Malaysia needs to benefit from the regional growth to grow faster. There is so much liquidity in the world today looking for the right places to invest. I believe that IRDA is the right signal. European benchmark is that it should not be more than 3% of GDP, but for an emerging market like Malaysia that is growing, I think 3% to 3.5% is manageable. The debt service ratios are still relatively low. The key is not so much the deficit itself, but the base, which is the GDP. If the GDP grows faster, the deficit itself will come down. The question is not the size of the deficit, it is whether over time your GDP is growing faster and by sheer base growth the deficit will come down. If you really look at the budget strategy, it is to recognise that global growth may slow down and there is some extra spending, prime pumping. I think that is the right direction.
Q:When the South Johor development was first mooted, it was said to be similar to Shenzhen in China and Hong Kong. But Malaysia and Singapore have a lot of differences
I think there is no question that when two cities are only separated by less than a mile of water, they are bound to be complementary. At the moment, Johor Baru has 1.5 million people, Singapore has 4 million. The idea is clearly under IRDA there will be greater urbanisation and growth in the population within IRDA. The growth of Singapore will be helpful for the growth of IRDA and the growth of IRDA will be helpful to Singapore.This is not about looking only at Singapore. Clearly Singapore plays a very large part, because it is the closest high growth urban economy, but there are other advantages. It is not just Hong Kong and Shenzhen.When a city grows, the region around it also stands to grow.Not necessarily that cities next to each other agree on every subject. And this is a fact of democracy that sometimes you agree to disagree but the economics of complementarity are such that one should be able to see that it is about really enforcing growth.
Q: What do you think about the Middle East, especially Dubai? Can that complement us?
In the Middle East now, the oil producing countries have a surplus in current account of US$300bil to US$350bil. This means they will be seeking lots of investments abroad. Obviously they are pumping in a lot of money domestically, but if you have been to the Middle East, you will see that Dubai is one of the financial centres. For example, I sit on the board of the Qatar Financial Centre Regulatory Authority and Qatar is also building its financial centre. And it's all about IRDA getting the right partners from the Middle East so that when they want to invest in the region, IRDA and Malaysia would be a good partner.
Q: What do you think about the present performance of the Malaysian stock market?
As a former securities regulator, I never comment on the markets. All I can say is that there is a lot of global liquidity and in the Malaysian market. Let the market speaks for itself; that is all I can say.
Q: Could the figures be exaggerated or artificially induced?
I think there have been transformations in the securities regulations and improvement to corporate governance. There have been tremendous improvements in the last few years. I think the accounting standards in Malaysia have always been high. The auditing issues obviously will have to move exactly like everybody else. It is not just about giving the numbers, but making sure that the numbers reflect the real business.
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