Industrial Co-Ordination Act short-falls

(Speech by the Parliamentary Leader, DAP Secretary-General and Member of Parliament for Petalibg, Lim Kit Siang, in the Dewan Rakyat on the Industrial Co-ordination Act (Amendment) Bill 1979 on June 21, 1979)

Industrial Co-Ordination Act – the cause of $6,224 million short-falls of domestic private investment under Third Malaysia Plan

On December 12 last year, my colleague, the MP for Seremban and DAP National Chairman, Dr. Chen Man Hin, sought to move a private member’s bill to repeal the Industrial Co-ordination Act as “the investment climate, already clouded by a world recession, has worsened because of the ICA.”

The DAP bid was defeated, with the Deputy Minister of Trade and Industry, Datuk Law Sip Hon, painting a rosy picture of expanding investment in Malaysia.

The DAP’s contention, however, was vindicated three months later by the Mid-Term Review of the Third Malaysia Plan, which was tabled in the March meeting of Parliament this year.

The Mid-Term Review of the Third Malaysia Plan revealed a gaping shortfall of domestic private investment for the Third Malaysia Plan to the tune of $6,224 million. Under the original Third Malaysia Plan projections, domestic private investment under the Third Malaysia Plan period was expected to reach $16,460 million in 1980. The Mid-Term Review however has revised this downwards by a hefty $6,224 million, reducing it to $10,236 million.

I am surprised that yesterday, in a written reply to the DAP MP for Bukit Bendera, Sdr. Peter Paul Dason, the Finance Minister, Tengku Razaleigh, tried to deny the undeniable in disputing that there had been this downward revision of $6 billion for domestic private investment under the Mid Term Review of the Third Malaysia Plan. I would ask the Finance Minister, Tengku Razaleigh, to refer to Table 8-1 in the Mid-Term Review on “Malaysia: Estimated Private Investment and its Financing 1976-80” where he would find the figures I quoted above. I am surprised that the Finance Minister is not aware of this $6 billion downward revision of domestic private investment.

To make up for this short-fall in domestic private investment, the Government has decided under the Mid-Term Review of the Third Malaysia Plan, to increase public sector financing of investment in private sector by $4,271 million, bringing the total of government investment in the private sector to a total of $10,616 million – which is more than the domestic private investment of $10,236 million.

The government has been able to increase government expenditure in private investment because of the bonanza from Malaysia’s oil production, which nest year, 1980, is expected to become Malaysia’s No. 1 foreign exchange earner – outranking rubber. Oil, however, is a depleting resource, and it is arguable whether the government’s use of oil revenues for this purpose is justifiable.

Also to partly off-set this short-fall in domestic private investment, the Government has in the Mid-Term Review revised upwards the projected targets for foreign private investment from the original $3,650 million to $6,669 million – an increase of $3,019 million. Hence the sending of ever bigger and bigger investment promotion missions abroad to attract foreign capital- with not much visible results.

It would have been more productive for the Government to concentrate on making good the $6,224 million short-fall on domestic private investment by generating and mobilising investible local private funds, and to find out why the Government has failed to mobilise a very highly liquid money market.

Thus, although the total private investment is supposed to have been revised upwards under the Mid-Term Review to $27,521 million as compared to the original Third Malaysia Plan figure of $26,545 million, this is brought about through the massive injection of government funds from oil money, and after taken into account a shortfall of domestic private investment of $6,224 million.

When the Third Malaysia Plan was launched in 1976, the Government announced that private investment would provide the major source of capital formation during the 1976-1980 period the in contrast to the experience in the Second Malaysia Plan when the main role was played by public investment. The Third Malaysia Plan has clearly failed in this respect, where the Government had to publicly finance, through MARA, UDA, Pernas, Petronas, MISC and MAS, etc, private investment to a sum which is even bigger than domestic private investment, creating a situation where government private investment is even more than genuine local private investment.

I submit that the Industrial Co-ordination Act is the single biggest cause for the $6,224 million short-fall of domestic private investment projections under the Third Malaysia Plan, the single biggest cause for creating the loss of confidence among domestic Malaysian investors. If local Malaysian investors harbour grave doubts about the investment climate in the country, then it is putting the cart before the horse to try to woo foreign investors, when local investors should first be won over and wood. This also throws into doubt the revised Mid-Term Review target of $6,669 million for foreign private investment could be achieved.

Investment climate in Malaysia and South East Asia

In 1975, when Vietnam was re-united with the fall of Saigon, investment climate in South East Asia was bleak because of the prevalence of the question as to which country in South East Asia was going to fall as the next domino. Although this phase has passed, the latest developments in Indo-China, arising from the amending Vietnamese refugee exodus and the consequent destabilising effects on the ASEAN countries as part of the larger, long-term Vietnam design in cohoot with Soviet Union, has again clouded the investment climate of Malaysia and the ASEAN region.

Apart from these external factors, the Government should also realise that there is a crisis of confidence causing the shortfall of domestic private investment, arising from the government’s nation-building policies. there is an urgent need for the Government to take a new deep look at the nation building policies being pursued in the country, whether at the political, economic, educational, social or cultural-field, for it is the entire spectrum of life’s experiences which determine’s one outlook and attitudes and perceptions about the future.

The government should be sensitive to the legitimate aspirations of all races and classes which make up Malaysia, and should never be tempted to label critics and dissenters of the government’s policies as ‘anti-national- or ‘disloyal’ – for this throws up the fundamental question of the basis and nature of nation building in Malaysia.

If is for this reason that I have grave doubts that the present batch of amendments to the Industrial Co-ordination Act could resolve the basic problem of lack of confidence which has caused the gaping short-fall of $6,224 million in domestic private investment.

In this connection, I would like to ask the Minister of Trade and Industry whether in formulating the present batch of amendments to the ICA the Government has taken into account the grievances and representations against the ICA made b the Associated Chinese Chambers of Commerce and Industry of Malaysia at its Malaysian Chinese Economic Conference in April 1978?

The ACCI, in a Report prepared by the Malaysian Chinese Economic Conference Organising Committee, declared that it accepted the rationale behind the NEP and were prepared to play an active role together with others in building a fair and progressive nation in which peace and prosperity would be shared by all. However, the ACCI stressed that the NEP was based on the premise of an expanding ‘economic cake’.

The ACCI called for the repeal of the ICA because the Act had many ‘constraints in investment’.

I want in particular to know whether the following five-point objections of the ACCI to the ICA had been given due consideration by the Government, as contained in the Report of the Malaysian Chinese Economic Conference Organising Committee of the ACCI:

“13. The Industrial Co-ordination Act is now applied. Under this legislation existing industries have to apply for manufacturing licences in addition to their trade licences. Though licences are supposed to be automatically granted, such licences under the TCA have 12 common conditions attached. These are 1. Location; 2. Equity; 3. Employment Structure; 4. Distribution; 5. Professional Services; 6. Companies going Public; 7. Board of Directors; 8. Machinery; 9. Pollution Control; 10. Agreement; 11. Compliance with other Laws; 12. Use of local materials. There are further 17 additional conditions for relevant industries. Each of the conditions itself has a host of regulations and specifications. Any contravention of any of the dozens of regulations or specifications under one or more of the common conditions can result in the cancellation or suspension of a manufacturer’s licence.

“14. Chinese enterprises with more than $250,000 share-holders funds are required to have a work force of at least 50% bumiputras. This raises employment prospects difficulties for the Chinese in addition to practical problems. The Chinese are unable to find similar employment opportunities in the public sector, the local authorities and statutory bodies and national corporations. The consequences of these diminishing employment opportunities are therefore serious.

“15. When a piece of land is acquired for industry, one of the conditions on the land title is invariably the employment of bumiputras in the industry for which the land is intended. This ranges from 25% – 50% of the total labour force. Where industrial lands are lease-hold, the renewal of the leave is subject to a number of conditions, again the employment of Bumiputras in the factories on the leasehold land can range from 25% – 40% of the labour force. For the Chinese whose factories were built on such leasehold lands in long extablish industrial areas, there is little choice but to comply with these new conditions when the lease has to be renewed. In the relation to employment conditions, some Chinese businesses have, where the Bumiputra labour supply is available, employed more than 50% Bumiputra workers in the spirit of co-operation. However, where the Bumiputra labour supply is scarce, it is impracticable and unfair to make the conditions inflexible.

“16. Under the ICA, manufacturing enterprises with more than $500,000 shareholder funds may be required to divest at least 30% of their equity to Bumiputras. A feeling of injustice can arise if this is imposed only on profitable ventures. This feeling is further enhanced by the absence of similar imposition on Bumiputra enterprises to part 30% of their equity to the others.

“17.Another condition in the manufacturing licence under the ICA is to have at least 30% of the locally manufactured product to be allocated for distribution by Bumiputra firms whose selection must be made in consultation with the Government. This means that the existing Chinese dealers will have to be deprived of 30% of their market thus giving rise to a sense of deprivation among the existing Chinese distributors.”

This brings us to one of the fundamental issues, namely, that the NEP pledge that in its implementation “no particular group experiences any loss of feels any sense of deprivation” appears over the years to have been overlooked of forgotten.

In higher education, for instance, between 1976 to 1978, the first three years of the Third Malaysia Plan, the number of Malaysian Chinese students in the five local universities actually decreased from 5,373 to 5,292. This is a breach of the cardinal tenet in the NEP that “no particular group experiences any loss or feels any sense of deprivation.”

This is also perceived in the industrial and economic field, and it is time for a Commission to be established to determine whether the NEP pledge that in it implementation “no particular group experiences any loss or feels any sense of deprivation” has been overlooked, ignored or forgotten, as an important strategy to restore confidence in the implementation of the NEP and the investment as a whole.

Call for Repeal of Industrial Co-ordination Act, or Suspension for a Conference of interested parties to draft a new Act

It is to be regretted that the second batch of amendments to ICA has been brought to Parliament without proper consultation and discussion with the interested parties and interest groups. This was the basic problem of the ICA when it was suddenly thrust on Parliament in 1975 and in double quick time, made into law with the Barisan majority, despite DAP objections.

As the present batch of amendments would not be able to resolve the basic problem of restoring local investor confidence, the wisest thing to do is to repeal the ICA. Alternative the ICA should be suspended, and a conference of interested parties and groups be held with the Government to draft a new Art which would take into account the legitimate complaints and rights of all groups in the country, so that the plentiful private funds in the country could be unlocked for the development of the country.