World News

Malaysia set to ease race-based ownership rules

KUALA LUMPUR (Reuters) - Malaysia is set to ease ownership rules that are the cornerstone of its decades-old, race-based economic policy favouring ethnic Malays so that companies can raise more money on the stock market.

The move, announced by Najib Razak, the country’s prime minister in waiting, comes during a global economic slowdown and after Malaysia’s main stock market fell almost 40 percent this year, dampening investors’ appetite for shares.

It also inches government policy closer to that of the more economically liberal opposition that wants the whole panoply of race-based education, housing, employment and company ownership rules to be abolished.

“It is a relatively bold move coming from him (Najib),” said Tricia Yeoh at the Centre for Public Policy Studies.

“I think he is a pragmatic man who delivers on things needed for (economic) efficiency.”

Najib said non-Malays would be able to buy shares not subscribed to by ethnic Malays in a move political and economic analysts said showed he was ready to take tough decisions to boost the economy and rebuild the ailing ruling coalition.

The issue is very sensitive in a Southeast Asian country of 27 million people where 60 percent of the population is ethnic Malay and there are also substantial ethnic Chinese and Indian minorities.

Malaysia’s entire political system is based on race. The main ruling party, the United Malays National Organisation (UMNO), represents the interests of the majority but needs the support of ethnic Chinese and Indian parties to remain in power.

Those smaller parties were hammered in elections in March when the governing Barisan Nasional coalition lost its two-thirds parliamentary majority for the first time since Malaysia became independent 51 years ago.

“Najib aims to bring back non-Malay voters,” said Manokaran Mottain, economist at Aminvestment Bank.

Recent calls from the second biggest party in the Barisan Nasional coalition, the Malaysian Chinese Association, for the ownership rules to be relaxed were denounced by top UMNO politicians as “playing up racial and religious sentiments”.

“This (Najib’s move) is positive for the market in the long term, as obviously the rule shouldn’t have been there in the first place, but it was,” said Kelvin Miranda, a Singapore-based fund manager with Blufire Asset Management.

Last week, Najib said he would remove restrictions on foreign investors owning 100 percent of some service companies, another liberalising economic move.


More foreign investors might be encouraged to enter the stock market after the capital flight seen this year.

In the second quarter, following the March elections and as the global economic crisis deepened, 24 billion Malaysian ringgit ($6.7 billion) was withdrawn by foreign investors from Malaysian stock, bond and money markets.

As well as rebuilding a coalition that stumbled to its worst-ever election result in March, Najib will have to deal with a deepening economic malaise.

Investment bank RHB is forecasting Malaysia’s economic growth at just 1.5 percent in 2009, far below the government’s projection of 3.5 percent. If RHB’s projection turns out to be correct, that would be the slowest economic growth since 2001.

Malaysia’s position has slid in terms of its ability to attract foreign investment relative to its neighbours.

Foreigners invested a total of $53.58 billion in the country in 2006, little changed from 2000, while investment in neighbouring Thailand has more than doubled to $68 billion over the same time period, according to United Nations data.

Additional reporting by Faisal Aziz and Jalil Hamid