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Malaysia Dispatch : Also looking west

Published by PranayGupte.com on 2004-12-27

KUALA LUMPUR, Malaysia -- Just the other day, a senior official here was talking about the Indian government's quiet disclosure that it would spend $500 billion over the next five years on strengthening the infrastructure.

"That mean roads, power systems, airports, telecommunications, you name it," he said." That's a lot of contracts."

Malaysia, like its Southeast Asian neighbour and longstanding rival, Singapore, wants not just a spoonful of the contracts curry, but a large serving. But Singapore enjoys an advantage over Malaysia in that its companies not only bid for contracts, they also invest in the Indian economy. In fact, Singapore's current investment of $1.3 billion is the biggest from the 11-member Association of South East Asian Nations (Asean), dwarfing the roughly $500 million that Malaysian investors have poured into Indian companies, mostly in the technology sector.

Moreover, Singapore is expected to put an additional $2 billion into the Indian economy in 2005 alone, thereby almost doubling the total foreign direct investment of $2.9 billion that India is expected to receive from mostly Western sources and Japan next year.

But this week, with Mr. Badawi visiting India with a large business delegation in tow, the emphasis will be on how Malaysia -- perhaps more than any other Asian country -- is already an integral part of India's effort to accelerate its infrastructure development. Malaysian companies currently have nearly $2 billion worth of deals, mostly to build highways and power grids in remote areas untouched by the economic progress enjoyed by India's urban areas.

Mr. Badawi's trip -- his first as prime minister since he succeeded the mercurial Mahathir Mohammed a year ago -- is being played out against a larger backdrop of a calibration of economic diplomacy in Southeast Asia. This country of 24 million majority Malays, and minority Chinese and Indians is increasingly looking westward to India and the Middle East for both contracts and also for foreign direct investment. Mr. Badawi spent several days in Dubai before flying to India on Sunday, and many of his meetings focused on the question of more business for Malaysian companies in the dramatic growth of the emirate.

The focus on India is new. It is an acknowledgment of the Subcontinent's emergence as a major economic power, with a gross domestic product of $675 billion, and of the growing spending power of its burgeoning middle class, currently estimated at 300 million, a fourth of the country's population. It is also an acknowledgment that India, with foreign-exchange reserves at a record $135 billion and exports of more than $100 billion annually, has the cash to spend on developing its long neglected infrastructure.

Malaysians talk about India's potential to match Emerging Asia's other economic giant, China as a source of lucrative construction and other infrastructure contracts. Malaysia's annual bilateral trade with China, about $30 billion each year, is seven times that it has with India. But Prime Minister Badawi wants to diversify Malaysia's trade portfolio. While Malaysia is India's largest trading partner among Asean countries and has seen bilateral trade growing steadily -- it is expected to be $4.28 billion this year, mostly palm oil, rubber products and textiles -- it's a far way from the figure with China, $30 billion

"We recognize the emergence of China and India in the global trading environment," Mr. Badawi says. "Southeast Asia needs greater integration with these trading partners and cannot remain competitive merely by strengthening intra-regional co-operation."
Part of the reason why Malaysia is looking increasing west toward India and the oil-rich countries of the Gulf is the desire for a counterbalance to Asean's growing dependence on China. While Asean's trade annual trade of $13 billion with India accounts for only 2 percent of the grouping's total trade, its figure with China will be $110 billion this year, an increase of a whopping 40 percent over 2003.
But rather they celebrate without restraint, key Asean officials actually worry about this situation. They cite last year's outbreak of severe acute respiratory syndrome (SARS) that resulted in closing of factories in China and alarming foreign companies that are increasingly relying on their Chinese operations for speedy production of manufactured goods for markets in Europe and the United States. Asean countries -- particularly Malaysia, which has enjoyed a healthy annual growth rate of about 7 percent for the last two or three years -- worry that with China trying to cool its overheated economy in an effort to avoid a hard landing (meaning deceleration of growth rates to below 4 percent annually from China's current 10 percent), their own economic prospects would be adversely affected.
"We in Southeast Asia have no wish to become merely an adjunct to the Chinese economy," George Yeo, Singapore's trade and industry minister, told the Confederation of Indian Industry -- an influential lobby group -- during a trip to India earlier this year. "Hence, our decision to move closer to all economies that want closer links to us."
India certainly wants closer ties with Malaysia and other Asean countries. Its companies have started investing in Asian entities, including in Malaysia, where Indian sources have poured US$421 million into 122 projects in petrochemicals, textiles and textile products, food manufacturing, chemicals and chemical products, and rubber products.

The "partnership agreement pact" that India, China and Korea signed with Asean at the third India-Asean summit in Vientiane, Laos, last month will allow India could increase trade between the two sides from US$13 billion at present to US$30 billion by 2007. The trading zone that this new grouping creates will have a combined gross domestic product exceeding $2 trillion.
Malaysia sees itself as the gateway to both Asean and China. Officials here in Kuala Lumpur point out that Malaysia is strategically located within this expanded market.
So what might be a stumbling block in better trade relations between India, Malaysia and the rest of Asean? The basis of any good bilateral business isn't simply good economics and sound financial sense. Perhaps a more fundamental factor is culture. And this is where countries like Malaysia and Singapore need to offer more reassurance to the notoriously prickly Indians that despite Malay hegemony in the former and Chinese in the latter, Indians -- their professional skills, and their business -- are truly welcome.

Pranay Gupte,
Senior Writer and Global-Affairs Columnist


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