Will the incentives in the new Malaysian Budget succeed in increasing foreign investment and attracting foreign talent? What aspects of the Budget wou

The new Malaysian Budget contained modest reductions in public expenditures and increased taxation - property gain tax and a hint of Goods and Service tax. The budget is planned to lay a foundation for deficit reduction and prudence and to drive Malaysia towards embracing a high-income economy in 2010. It included provisions to promote selected important industries for Malaysia’s economic development.

The most appealing piece of the budget is the liberalization of foreigner participation in its economy. The government’s aim to attract foreign direct investments (FDI) by allowing equity ownership in companies and joint ventures in local projects is a positive step towards leveling the playing fields in the economy where skewed competitive situations turned away many investors. With a tweak to allow foreign investors to gain full control over corporate finance and financial planning companies set up in Malaysia, it may see a surge of capital finance activities especially in Islamic banking areas. By relaxing conditions and simplifying procedures for foreign companies to operate in Malaysia, it now looks decisively attractive to many foreign investors. The challenges, however, lie not in its policies formulation or structure but its drive and intent to see that such level playing fields are indeed flat enough to promote the intended effect of competition and innovation.

In addition to attracting companies to Malaysia, the government is also simplifying the grant of Permanent Residence status to highly skilled individuals and this will build its catchment for such talents within Malaysia. The move was made in recognition of the importance of attracting highly talented individuals from abroad to accelerate technology transfers and the nation's transformation process. Asia Pacific will be the hotbed of growth in the next decade and the aggregation of talents to key capitals are important as such talents may act as catalysts to actual growth. This is a challenge for Singapore as well and manpower policies have always to be reviewed to ensure that the channels for talent distribution to the various industries are not choked because of policy flaw or oversight.
In advancing towards a high-income economy, the government’s new approach based on innovation, creativity and high value-added initiatives will drive the economy up a different alley but the key is not in the Budget but the verve and determination for the government to see through its program in a fair-minded, balanced approach for the long term.