ON MARCH 1, 2020 Tan Sri Muhyiddin Yassin was sworn in by the Yang di-Pertuan Agong as Malaysia’s 8th Prime Minister amid a chorus of “betrayal”, “double-cross”, “backdoor entry” and “treachery” among others.
On March 9 Muhyiddin announced his cabinet line-up. It is a set of old and new faces, but projecting a Malay- and Islamic-centric line-up nonetheless. This may not augur well for a multiracial Malaysia as her diversity is a comparative advantage in the eyes of investors.
Externally on the same day, international oil price collapsed to below $30 per barrel due to a supply disagreement between the Saudis and Russians. This will have serious implication on Malaysia’s revenue as our Budget 2020 is based on oil price hovering between $62 per barrel.
In the meantime, Malaysia’s Covid-19 infection cases have exceeded 100, indicating that it will get worse before it gets better. As it is, the pandemic has already wreaked havoc in the country’s tourism industry scuttling the Visit Malaysia 2020 projected revenue. If the pandemic spreads to the manufacturing sector, which is highly likely, the country’s economy will be badly impacted as more than 20% of our GDP is generated by the sector.
In a nutshell, Malaysia is possibly sailing into the perfect storm.
It is therefore a wise move by Muhyiddin to announce, as his first task after being appointed prime minister, the adoption of the economic stimulus package announced by Mahathir and the Budget 2020 tabled by former finance minister Lim Guan Eng last year. These are after all initiatives he was a party to in the old cabinet.
It is now up to the newly minted Zafrul Aziz, the country’s new non-politician finance minister to take over and implement the economic plans as soon as possible. The task ahead is a tough one though; it is very brave of him to take up this thankless job at a difficult time. We as Malaysians should give all the support he needs in tackling these challenges.
For the new finance minister, the most immediate task is to shore up the financial market’s confidence in Malaysia. The growth rate of 3.6% for Q4 2019 is the slowest in years. With all the external headwinds, it is expected that Q1 2020 will be even worse.
The picture on foreign direct investment (FDI) is not rosy either. With advantages of diversity, reflected in a well-educated workforce, good infrastructure and being located in a natural disaster-free zone should, by right, stand Malaysia in good stead to attract a sizeable share of the investment fleeing the US-China trade war. Instead, according to report from United Nations Conference on Trade and Development (UNCTAD), Singapore, Indonesia and Vietnam attracted most of these FDIs in the region.
Malaysia is also being scrutinised closely by the rating agencies. Any downgrade will impact us negatively and jack-up our cost of borrowing.
Our unstable political situation does not help either. With a knife-edge majority and a coalition of political parties based on a narrow race and religion platform, the government will be under constant threat of falling apart.
The biggest threat of all – though it is still at a manageable level of just over 3% – is unemployment. The vulnerable sectors will be the services and manufacturing sectors, the two will most likely take the brunt of the Covid-19 pandemic.
As the saying goes, when it rains, it pours. At the time of writing, Ringgit Malaysia is 4.22 to a US Dollar. While a cheap Ringgit may be good for our exporters (provided world economy remains robust and external demand remains strong), imported inflation can be a curse for Malaysians, especially the B40.
With all the headwinds, the answer to investors’ frequently asked question: “why invest in Malaysia?” is becoming increasingly difficult to address.
Dato’ Seri Lee Kah Choon is Adjunct Senior Fellow at Penang Institute and Special Investment Advisor to the Chief Minister of Penang. He is currently Chairman of Malaysia Debt Ventures, Malaysia’s leading technology financier under the Ministry of Finance, and a board member of various private companies and state government-linked corporations.