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Where's the pearl? (Chart 11) Posted by: Kah Seng on Fri, 25 June 2004 00:27:29 (457 Reads)


Where's the pearl? (Chart 11)

11. Penang Approved Projects Getting Smaller

The number of Penang's approved manufacturing projects (line chart) has risen from 1999 to 2003. But that is the wrong number to look at: Average project size (pink bars) is getting much smaller by the year in terms of investment value. The previous chart showed that total approved investment value has also fallen.

Adjusted for devaluation, average project value in 2003 of RM14 million was equivalent to RM10 million pre-devaluation value (assuming 20% ultimately ringgit costs), similar to 1994's approved project size, smaller than 1987's average size.

Signs of desperation?

The large number of approved projects at diminished size reflects recent government desperation to approve whatever proposals that came along. There is likely an accompanying fall in the quality, technology-intensiveness, and salary to come with these projects, compared to the previous decade.

  • Why are the investment projects getting smaller in average size?
  • Why are domestic investors not investing more?
  • Why does Penang fail to attract more FDI with larger projects, or at least maintain the scale of mid-1990's?

Local investors crippled by devaluation for the long term

Capital control and currency devaluation imposed in 1998 protected the weak cronies, but spoiled the healthy manufacturers in more than one way:

  • Even efficient producers have become complacent and inefficient
  • Investment upgrades are now prohibitively expensive for owners of ringgit-based capital
  • Due to a quirk in historical cost accounting, all pre-1998 investments appeared cheaper than today's replacement costs. Currency devaluation has inflated revenues in ringgit terms, but depreciated cost of pre-1998 assets are low.
  • Companies and entrepreneurs are fooled into overstating their profit, over-paying income taxes and dividends, reducing their retained profit in US$ term. They are left with little equity and cash relative to their replacement or upgrade requirement.
  • This gave a medium-term boost to government tax revenues, but long-term damage to the capability to upgrade investment. Forget about higher tech and research facilities.
  • This phenomenon is most relevant to profitable, capital intensive factories, which started to use up its tax holidays. This multitude of distortions are poorly recognized and only currently being played out 5-10 years after the devaluation took place.

FDI distrust since capital control

Despite their diplomatic word mincing on ringgit devaluation and capital control, Foreign Director Investors show their true feeling about these closed-minded policies by keeping their money not where their mouth is, but where their hearts are - out of Malaysia.

As long as foreign-based direct investors cannot find a trustworthy regulatory authority and efficient governance in Malaysia, then China, India, Indonesia, Thailand, who are half as good in governance but 1/4 as cheap will always lure away Foreign Direct Investments.

Don't these problems require a state leadership more independent and assertive to speak up on federal policies that kill off FDI?

Next chart: Total jobs to be created from approved projects are falling, so is new investment per worker.

Click the below for more charts and articles on Penang:

Introduction: Penang's Problem is Governance and Politics

  1. Penang GDP per Capita Now 12% Below National Average
  2. Choked: Above-Average Car/Motorcycle per Capita, Below-Average Taxis
  3. Penang Choked: Car/Motorcycle Density Doubled Population Weight in Nation
  4. Penang Suffocated: Aircraft Arrivals Down Long-Term
  5. Suffocated: Air Passengers Stagnated and Down
  6. Penang's Hotel Occupancies Down
  7. What Pearl? International Tourists Down Sharply Before SARS
  8. What Pearl? Relying On Less Lucrative Domestic Tourists
  9. Penang Stucked: Slow Shift To Tertiary Sector
  10. Penang's Sputtering Engine: Approved Manufacturing Projects In Decline
  11. Penang Approved Projects Getting Smaller
  12. Fewer Potential Jobs for Penang, Less Capital Intensive Per Worker
  13. Penang One of the Worst States In Malaysia For Approved Projects

CONCLUSION ... The Only Solution For Penang is Local Election

Sources: Charts, rearrangements, and analysis are based on data in SERI's Penang Statistics March 2004, http://www.seri.com.my/penangstatistics/march-2004.PDF (391KB). Dec 1999 and Jul 2001 issues provided the older GDP sector and tourism data. For more SERI publications, see http://www.seri.com.my/publications.htm. There is a list of useful articles at http://www.seri.com.my/listing%20by%20article.htm.

Cheah Kah Seng, 10 May 2004




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