The Federation of Malaysian Manufacturers (FMM) has identified and made several proposals it believes to be critical for the economic health of the nation.

These proposals will be discussed at the Finance Ministry 2010 Dialogue meetings with leading members of the economic sector.

New issues

A. Together Building Resilience, Revitalising Growth

The global economic and financial crisis is an opportunity to review and strengthen Malaysia's economic foundations to make it more resilient and efficient as well as to sustain growth.

These targets can be met by providing an environment that is conducive for the efficient flow of trade, investment and technology and enhancing the capacity of the various economic sectors.

In light of the 6.2 percent contraction in the Gross Domestic Product (GDP) growth in the first quarter of 2009 and the mark down in GDP growth for 2009 to between -4 percent and -5 percent compared with the earlier estimate of -1 percent to 1 percent, it is essential for the government to introduce key measures to further stimulate and restore growth.

Promotion of local investment and consumption must be intensified especially among SMEs. Likewise, trade promotion measures should be accelerated to restore strength in the weakened export market and earnings.

electronic factory worker 231208 For Malaysia to fully recover from the crisis, we must be able to attract growth enhancing and stable capital flow in trade and investment.

In this respect, a more liberal and investment friendly environment would enhance Malaysia's attractiveness as an investment destination.

The government should continue to expand and accelerate liberalisation of the economy, business and investment environment. FMM, therefore, welcomes the government's announcement to liberalise the services and financial sectors.

The FMM also welcomes the Prime Minister's statement on May 29, this year that the government has not ruled out the possibility of another stimulus package.

Strengthening the science and technology knowledge base is also essential. Human capital development is another key factor.

Reducing structural constraints

Strengthening and liberalising economic infrastructures such as energy supply, physical infrastructure etc are other essential components. Longstanding structural constraints in policies and implementation must be addressed to secure investor confidence.

FMM's recommendation

1. There should be a thorough and exhaustive study from all aspects to assess the real state of affairs in the country's economic development, taking into consideration developments worldwide. An Independent Special Committee should be appointed to review the study findings and propose recommendations in consultation with the business sector.

2. Rules and regulations hampering liberalisation should be addressed quickly, including speeding up the mindset change in the civil service to ensure a more level playing field, with fair, open and transparent decision making.

factory in bayan lepas penang 060208 3. Liberalisation should be further expanded in the energy sector in the supply and distribution of electricity and other energy resources such as natural gas to end users, especially to industrial consumers. Supply and distribution must be liberalised also to promote competition in pricing to consumers in a market with many suppliers.

4. The Foreign Investment Committee (FIC) is a major longstanding structural constraint. The FMM agrees that the FIC should only monitor foreign investment transactions in sectors of national interest namely, power generation and distribution, defence related activities, management of ports and airports, broadcasting, telecommunications (fixed/mobile) and printed media, water treatment and distribution, and the banking and financial institutions.

The emphasis should be on large scale operations like airports or telecommunications companies.

Immediate to short term measures include the following:

Energy prices

Energy prices must be competitive and equitable and supply assured to investors, especially those in high-value add sectors. Natural gas users who co-generate should be supported with lower fuel prices than other industry users to reward their efficiency and conserving energy resources. Specifically, the following proposals are submitted:

i. TNB to extend off-peak hours, currently from 10 pm up to 8 am. Off-peak hours should start at 7 pm up to 8 am. Extend discounts for off-peak tariffs up to 40percent to encourage production during off-peak hours.

ii. Waive maximum demand penalty for new companies i.e. operating less than five years. With significant reduction in production during the economic downturn, there would be lower electricity consumption, i.e. below declared maximum demand.

The penalty is RM8.50 for every kilowatt hour of unfulfilled declared maximum demand.

factory workers sweatshops 090107 clothing iii. Concurrently, for companies already in operations for more than five years, the tariff charge for maximum demand should be reduced by between 10 percent and 20 percent.

The tariff for maximum demand under E2 tariff - Medium Voltage is RM30.80 per kilowatt hour; for E3 tariff - High Voltage, the charge is RM29.60 per kilowatt hour.

iv. TNB should consider a single off-peak tariff for weekends, Saturday and Sunday for companies operating 24/7 a week.

v. Review Special Industrial Tariff:

o To encourage energy efficiency

o Review criteria that energy cost must be at least 5 percent of total production cost

o Reward those that meet power factor.

vi. Reducing current TNB charges of RM28/kW for standby demand and top-up charges which range between RM19.50 to RM24.40/kW.

Thailand does not impose standby and top-up on co-generators, who only pay demand charge based on usage. The qualifying efficiency is 45 percent.

Foreign workers policy

i. Policy and procedure changes should be pre-announced and implemented on a gradual basis according to a set timeframe and at appropriate times - not when economic conditions are difficult and industries are struggling to survive.

ii. Levy policy must be standard across ALL sectors. Setting different levy rates for different sectors could be exploited. Foreign workers brought in officially for the lower levy sector could be deployed illegally as contract / temporary workers to the higher levy sector.

iii. The operations of outsourcing companies should be terminated to address indiscriminate recruitment and oversupply.

iv. Levies collected should be ploughed back to help businesses finance mechanisation such as investments in automation/mechanisation, to set up childcare centres to attract higher female labour force participation.

khong guan biscuit factory in johor 161008 c. Expanding trade opportunities

i. The government should aggressively pursue and expedite on-going free trade agreements such as the Malaysia-US Free Trade Agreement.

ii. Provide an allocation for national trade associations to organise trade missions and fairs to cover the high costs of organising such events. These includes management fees charged by foreign counterparts for organising business matching meetings, advertisements in overseas publications / media, rental of hall and facilities for business matching and hosting or networking sessions, logistics costs, etc.

iii. Intensify export promotion activities by increasing the allocation to agencies like MATRADE and increasing their budget to invite more overseas buying missions to come to Malaysia.

iv. The Government should ensure that imported finished products should be subjected to Malaysian standards and in the absence of Malaysian standards, international standards. Unless mandatory standards are applied across the board on all products, imposing standards on local manufactured products only would render locally manufactured products less competitive compared to imported products.

d. Providing more impetus for development of machinery and equipment industry

To further spur the development of the machinery and equipment industry, especially the indigenous capacity, component parts required in the manufacture of these equipment should be exempted from import duty.

New investments, products and technology in machinery and equipment would be in line with Malaysia's National Mission to move the economy up the value chain and in tandem with the Third Industrial Master Plan's thrust to accelerate the transition into higher value added activities and products.

Part 2 will appear tomorrow.

TAN SRI DATUK MUSTAFA MANSUR is president, Federation of Malaysian Manufacturers.