Malaysia Relaxes Foreign Investment Rules

Malaysia relaxed a host of restrictions Tuesday on foreign investment, including a controversial rule requiring businesses to be partly owned by ethnic Malays.

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Prime Minister Najib Razak announced that listed companies will no longer be required to allocate 30 percent of their stake to Malays as part of an affirmative action program for the country's ethnic majority.

Najib said the rule was neither benefiting poor Malays nor was sustainable amid the global economic slowdown, which will force Malaysia into its first recession in a decade. The economy is expected to shrink by up to 5 percent this year.

"The world is changing quickly and we must be ready to change with it or risk being left behind," Najib told an investment conference organized by Malaysia's stock exchange.

"It is not a time for sentiment or half measures but to renew our courage and pragmatism to take the necessary bold measures to advance the national interests for the long term benefit of all Malaysians," he said.

Najib will have to walk a political tightrope by diluting the affirmative action program, which provides a host of privileges in business, education, jobs and property ownership to the Malays who form 60 percent of the country's 28 million people.

Chinese and Indian ethnic minorities have long chafed against the program, which Najib has been slowly dismantling since taking office April 3. Even many Malays have protested against the program, saying it mainly benefits the elite Malays with connections in high places.

Among other steps in the liberalization, stock brokers and unit trust management companies will be allowed 70 percent foreign ownership, up from the current level of 49 percent. Foreigners will also be allowed to own 100 percent of fund management companies, Najib said.

The liberalization moves take away many powers of the Foreign Investment Committee, an all-powerful government body that has been the bane of foreign investors.

The FIC has been derided as an impediment in Malaysia's efforts to become competitive against regional rivals such as Singapore, Indonesia and India in attracting investment by imposing various restrictions.

Foreigners will also not be required to get the FIC's approval before buying property in Malaysia, either residential or commercial.

"We can only achieve high income by creating more opportunities for growth rather than protecting our narrow turf," Najib said. "We can only achieve our social equity goals by expanding the pie."

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The removal of the 30 percent Malay ownership requirement for listed companies does not apply to "strategic industries" such as telecommunications, ports, energy and transport.

Critics have complained that the ownership rule was being abused to enrich a handful of Malay individuals or companies.

Listed companies will still be required to sell at least 25 percent of their shares to the public, and half of those public shares must be given to Malays so that ordinary people from the community get to participate in businesses.

The government also plans to set up a private equity fund with an initial capital of 500 million ringgit ($143 million) to invest in private companies and hand them over to Malay managers.

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