In april last year, I have posted the index for econmic freedom 2007, tracked by The Wall Street Journal and The Heritage Foundation, Washington’s preeminent think tank. Malaysia was ranked NO. 48 in economic freedom in 2007.
How about this year. Well, an optimist will say it is almost the same, whereas a pessimist will say it has become worse.
In actual terms, we are ranked NO. 51 in economic freedom this year. In the company of Uganda (No. 52), Costa Rica (No.49). So do not laugh at countries of Africa and Central America. We are already in their company, and if we dont buck up, we may be like the African and Central AMerican countries in no time. NO joking matter!!
The top 8 places are occupied by : Hong Kong (No.1), Singapore, Ireland, Australia, USA, New Zealand, Canada, Chile . (ask yourself why are these countries always ranked top? ).The full list can be viewed here .
The Heritahe Foundation, in its FAQ, explained why economic freedom is important: ”
“Studies in previous editions of the Index confirm the tangible benefits of living in freer societies. Not only is a higher level of economic freedom clearly associated with a higher level of per capita gross domestic product (GDP), but GDP growth rates also increase as a country’s economic freedom score improves. ”
Suppose you are a foreign investor with billion to invest. What is your priority for investing? You want to earn money, but you want to earn money in an environment that gives you the most freedom with your money. You must be able to have a say in how your company is going to be run, the cost of labour must not be too high, the people in the country of your investment must be efficient and have good productivity so that the best returns can be earned. You want to have a impartial judiciary to guard your rights..meaning your money. You want to have a clean government so that you do not pay extra under the table, as corruption adds costs and time to doing business.
This index of economic freedom, which measures 10 factors, takes all these into account. For the full report on Malaysia, read here.
Malaysia fails miserably under the category : Investment freedom. We get only 40% mark for this category (40% is Fail in most countries, but according to Malaysian marking system, 40% is considered pass, any wonder why we are low down now?).
This is what the report said about this category:
Investment Freedom – 40%
Rules have been eased, but foreign investors still face such restrictions as limited voting shares, prior approval, and mandatory hiring of ethnic Malays. Investment is banned in the news media, lotteries, or security paper. Foreigners may own 100 percent of certain kinds of new companies, but most existing corporate equity requires that a 30 percent stake be Malay-owned, and foreign ownership is capped in most sectors. Certain kinds of investment are screened, though commercial operations can begin before approval. Residents and non-residents may hold foreign exchange accounts, subject in many cases to government approval. Nearly all capital transactions are prohibited, are subject to restrictions, or require government approval.
If you read the report carefully, it is because of the restriction placed… everything needs government approval, and that means red tapes, and possible avenue for corruption.
We get 50% for corruption. This is what the report said:
Freedom from Corruption – 50%
Corruption is perceived as present. Malaysia ranks 44th out of 163 countries in Transparency International’s Corruption Perceptions Index for 2006. Bribery is a criminal act, but perceptions of widespread corruption and “crony capitalism” persist.
Any wonder why the economy is half dead, progressing miserably at 5 % growth , which, if you take into account the actual inflation rate ( maybe as high as 4-5% while the official figure is only 3%), means that the economy is not growing at all.
The report also measures the net inflow of FDI. Malaysia’s FDI is stated as $996 million whereas, the same report put Singapore net FDI as $14.6 billion. Even Thailand, has $3.4 billion of net FDI. Even Indonesia has 2.2 billion worth of FDI. What happened , MITI?
If we do not buck up fast, we will be overtaken by Thailand, that is for sure. But do not be surprised that African countries may overtake us… Uganda is just one rank below us.