Attracting the right investments

To become more developed we must not give away our precious resources too cheaply and must go for greater productivity

WE have to become much more circumspect and discriminating about the type of investments we want to attract into the country and take into account the stage of development we are at and the type of benefit the investments will give us.

No longer must we say yes to investments just because they are large or because they offer lots of employment. Often, they can offer both but can be of little economic or other benefit on closer examination.

Next, we must move away from our preoccupation with manufacturing. Yes, manufacturing is big but it is the type of manufacturing that we should be concerned with and whether manufacturing comes with other attendant value-added components such as research and development.

The services industry is already the biggest component of the economy, accounting for close to 60% of the value added. And it is one of the fastest growing sectors of the economy.

Looking ahead: Women work on an assembly line at a factory of Proview Technology in Wuhan, China. There was a time when low-level assembly of chips provided quick employment for a burgeoning workforce in Malaysia but the value-add and electronics' contribution to the economy is probably less than palm oil's. — AP

It is only natural that we should be looking at services for much more growth in value-added than in mere manufacturing. Besides, the potential for value-added here and greater knock-on effects to other sectors of the economy is much larger.

If we make major inroads in terms of attracting new tourist arrivals by inviting and promoting investments in tourism projects, for instance, or attracting world-class universities to set up operations here, the economic benefits are likely to be much larger than if we set up a specialised, capital intensive, foreign-owned narrow manufacturing operation.

Similarly, setting up operations for outsourcing, which we have done with some degree of success, will likely give opportunities for more and more of our graduates that our universities are churning out in greater and greater numbers.

On the flip side, we have to ensure that they are well-trained and this will be helped by the on-going investments in education, which not only gain us foreign exchange when other countries send their students here but saves us forex when our own students use local facilities in favour of foreign ones.

Services is clearly the way to go and in time our economy will become even more dependent on that, but for many of our government arms, including state governments, the mindset is still fixated on manufacturing.

If we take electronics as an example, there was a time when low-level assembly of chips provided quick employment for a burgeoning workforce. While there has been some transformation to higher value-added activities, that's been slow.

We talk of electronics as a major contributor to the economy but that is only in terms of exports without subtracting the imports of components. Take that out and calculate the value-add and electronics' contribution to the economy is probably less than palm oil's.

We should no longer be in the business of attracting investments, and especially manufacturing investments, that produce very low value-added and use cheap labour.

We want higher value-added activities and more productive investments but that does not necessarily mean high capital intensity, where investments are high but employment low . It depends on how much benefit eventually flows down to the people and the country.

We should not be impressed by the numbers when assessing investments. It's not the amount of capital that counts but what and how it helps us. If it does not fit in with our needs and aspirations, then out it goes. It's as simple as that.

Then and only then will we attract the right investments.

■ Independent consultant and writer P Gunasegaram (t.p.guna@gmail.com) never saw the logic in granting foreign investors tax breaks, especially when some of them merely paid the tax saved to their home countries anyway.

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