Liberalisation of 27 Services Sub-Sectors – Hardly Anything Impressive

I was interviewed by Astro Awani yesterday on the government’s decision to liberalise 27 sub-sectors in the services sector. These sub-sectors covered health and social services, tourism services, transport services, business services and computer and related services. For full details of the sub-sectors, visit here.

On the same panel were Pasir Mas MP Ibrahim Ali and Syed Akhbar Ali. Ibrahim was sceptical about the move claiming that previous equity requirement did not deter the flow of foreign investment into the country. He said the government/UMNO did not consult its members before announcing the move. He claimed that the Bumiputera companies cannot compete with foreign competitors in the sub-sectors.

Syed Ali was cautious and claimed that some of the sub-sectors are ready for opening up but not others. He identified 4-5 star hotels as ready to compete with other foreign entries.

I said that some of the initial reactions are too emotional and knee-jerk. Some of these sectors are already quite open even before the liberalisation. Take computer and related services as an example, this sub-sector is already quite liberalised since the implementation of MSC status. A number of local and foreign companies providing computer and related services are MSC status companies.

Health and social services liberalisation is quite limited and does not include wholesale liberalisation of all health related services including private hospitals. Here, again the Bumi interest is still intact and protected. Health services is a sensitive area. Many activists have spoken against the full privatisation of this sub-sector arguing that the access to an affordable and good medical care is a fundamental human right.

The liberalisation of tourism services does not appear to have positive impact on the local companies – mostly not 4 to 5 star rated. Most of the 4 to 5 star operators are controlled by big local and foreign conglomerates. Liberalisation of this sub-sector especially those F&B outlets with working capital lower than RM1 million is very crucial to ensure that we encourage more Malaysians to help promote local restaurants and franchises.

Moreover, the liberalisation of inbound travel is quite meaningless. Syed gave a weak argument that the liberalisation of this sector will open up the market to serious competition from outside e.g. Japan. In actual fact, foreign travel agencies have been working with our local partners for ages. We know our market better. Again, there is very little upside here since not many local travel agencies are focusing on inbound travel.

The liberalisation of transport sub-sector is similarly limited and narrow. Hence, the logistics sub-sector is still not opening up to the equity restriction.

On business services, this helps foreign investors more than our local companies. Originally, those foreign investors were given exemptions as regional distribution centres and international procurement centres by MIDA. Consulting business had opened up more than 5 years back as our compliant to the WTO requirements.

But predictably, politicians such as Ibrahim Ali is blaming the government for not protecting the socio-economic interest of the Malay community. I rebutted him by asking the community to focus on output and innovation instead of equity shareholding. If the community can create better output and be creative, it is not difficult for them to do better than now.

Ibrahim’s analogy of the past 30 years is dated and unprogressive. It is time to look at improving the capacity of the Malay-Bumi community than to insist on quota and protection. Ibrahim said other countries are moving towards protectionism including the US. This is a false statement. Obama’s administration has abandoned its “Buy American” products and services call fearing trade wars with China, Europe, Canada and South America.

Again, Najib has merely announced a liberation of the Bumi equity requirement without mentioning a coordinated liberalisation of government’s procurement policy which favours Bumi companies. So, Ibrahim is clearly jumping the gun. Without the real liberalisation of the government’s procurement policy there is little benefit to be gained for other non-Bumi local companies.

The devil is in the details. I hope more Malaysians can help to scrutinize any policy announcement more intimately.

Above are reasons of not being overly enthusiastic of the liberalisation announcement. I hope the PM’s backroom boys do not commit the same mistake like Abdullah’s. Give us real reforms and not sugar-coated rhetoric.

But as usual, a number of parties, analysts and stakeholders are trumpeting compliments of the PM’s move.

Malaysians must really change our mindset. We need to be more sophisticated and demand the best from our policy makers. Do not just blame the politicians. We get what we deserved.

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