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Chapter

Tutorial answers 5 & 6

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Q1

Define the term Foreign Direct Investments.

FDI is the amount invested by a foreign enterprise, in a

local industry

The investing company may make its overseas investment

in a number of ways - either by:

1.

Setting up a subsidiary in the foreign country,

2.

Acquiring shares of an overseas company

3.

A merger or joint venture.

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Q2

Briefly explain the TWO forms of FDIs

Portfolio investment foreigner acquires shares

without controlling rights.

A Malaysian investor buys share in Singaporean

firm (non controlling shares)

Direct investment - foreigner acquires > 10%

shares with controlling rights.

Example Laureate International Universities

buys over INTI.

Nottingham University Malaysia

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Q3

Explain the positive effect of FDI in Malaysia

i.

Technology transfer: modern technology and

management improvement, increased technical
efficiency & promote R&D.

ii.

Bridge gap between savings and investments to boost

exports.

iii.

Foreign exchange reserve increase due to inflow of

funds.

iv.

Training by foreign firms help develop Malaysian

human capital.

v.

Profit generated from FDI contributes to corporate tax

revenue.
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Q3

Explain the positive effect of FDI in Malaysia

v. Increase employment opportunity.

vi.New firms lead to setting up of supporting
industries that are required by the set up of
factories and bring prosperity to the local
population.

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Q4

Explain the negative effect of FDI in Malaysia

i.

Foreigner exploit & flout environmental laws due to

weak enforcement of laws to pollute. Environmental
laws are less stringent in Malaysia.

ii.

Global capitalists imperialism.

iii.

Cultural friction that may even harm international

diplomacy.

iv.

Various incentives and infrastructure spending to

attract FDI are from public fund (either through
government borrowing or tax).

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Q5 Success of the MSC

1

Phase I (1996-2000)
Target milestones
One Corridor

A 15 x 50 km2 corridor ranging from KLCC to KLIA, including

Cyberjaya and Putrajaya was created

50 world class local

companies

742 companies, including 10 strong performers and 50 foreign

and local MNCs were awarded MSC status

Launch 7 flagship
applications

All 7 flagship applications were launched before the end of

Phase I

World leading framework of Comprehensive set of cyberlaws were enacted. However,

cyberlaws
cyberlaws targeted at increasing e-commerce adoption such as
the Personal Data Protection Act are still pending
Cyberjaya as world-leading Investments in Cyberjaya were focused on physical
intelligent city with
infrastructure while the development of social infrastructure
balanced and
was not at the same pace
environmentally-sensitive
development
plan
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Phase II (2004-2010)
Target milestones

Achievements to-date

Web of corridors

3,750 MSC Malaysia status including 250 By end 2007, 1,482 MSC status companies were
MSC Malaysia global companies
operational while 428 were inactive. Of the
operational companies, 17 are Strong Performers
and 84 are MNCs

Enhance current flagships and introduce Flagship applications that were launched have
new ones to improve national
yet to realize their full potential. Besides new
competitiveness
projects to improve the e-Government service
delivery, there have been no new flagships

Leadership towards harmonized global ICT-related laws (especially IP-protection rights)

framework of cyberlaws
have yet to be adequately enforced

7 Cybercities and 8 Cybercentres (KL, Perak,

Johor and Melaka) have been rolled out while
the eastern and southern corridors are still
undergoing development

Enhance local ICT industry and catalyse By end 2007, MSC Malaysia had approximately
competitive cluster of potential world 1,100 local companies (including 17 Strong
class local companies
Performers), with a total GDP contribution of
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approximately 0.6% in 2007
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Q6

The Government transfers ownership rights from the

public to the private liquidating (selling) of state-owned
enterprises (SOEs) or assets to firms in the private
sector.

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Q7

Explain FOUR (4) reasons for privatization in Malaysia.

1.

To relieve the Governments financial burden allowing

the redeployment of resources to essential areas such
as basic health, education, family welfare.
The government is able to raise substantial revenues from
privatization leading to savings in public operating and
capital costs.

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2.

Reasons for Privatization

Savings- Avoid budget deficit which
may be to linked to further high
interest rates.
Proceeds from sale of government
assets.
Reduction of government employees

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Q7

Explain FOUR (4) reasons for privatization in Malaysia.

3. Economic growth as government resources are

efficiently allocated
The government provides essential services such as
legislation, national policies, security and infrastructure.

Government is inefficient in productivity enterprise

and so privatization allows government to concentrate
in public sector

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Q7

Explain FOUR (4) reasons for privatization in Malaysia.

4. To meet the New Economy Policy(NEP) in the case of

Malaysia as economic growth
i.

Eradicates poverty.

ii.

Facilitates the restructuring of the economy, giving job

opportunities to all Malaysian.

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Q8 Privatization
1.

Sale by Equity

Sale by Equity - selling shares on the stock market.

Used when capital markets are more developed and

there is lower income inequality.

Examples MAS, Telecom, Tenaga

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Methods of privatization
2.Lease of Assets

Fixed capital are undertaken by the government but

a private firm operates the facility. The government
receives annual lease payments in return during the
concession period.

The private company (or consortium of companies)

receives the right to collect revenues associated with an
existing asset in exchange for an upfront fee to the
governmental entity.

Ports in Malaysia e.g. Klang, Penang

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Methods of privatization
3. Management contracts

The operational control of an enterprise by contract in a

separate enterprise which performs the necessary managerial
functions in return for a fee.

It is outsourcing of the management function of the state

owned enterprise to the private sector.

The Langkawi Water Project covering the group of islands is

under a 25-year management contract signed in 1996

Malaysia e-Government.

Processing student visa application & work permits

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Methods of privatization
5. Concessions
Fixed

and operating expenditures are

incurred by the private sector.

Types

of concessions are:

1. Build

Operate Own (BOO)

2. Build

Operate Transfer (BOT)

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Methods of privatization

Build Operate (BOO)

The assets are owned by the private company.

The private company will Build, Operate and Own

the project.

Therefore the private company gets the benefits of

any residual value of the project.

A BOO scheme involves large amounts of finance

and long payback period.

Examples Paka & Pasir Gudang Power Plant, Lumut

Power Plant
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Methods of privatization

Build Operate Transfer (BOT)

The private entity receives a concession from the

public sector to finance, design, construct, and
operate a facility stated in the concession
contract.

Asset are transferred back to the government at the

end of the concession period.

The private company incurs operating and

maintenance expenses in the project and recover its
investment from the revenues generated by the
project.

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Methods of privatization

Build Operate Transfer (BOT)

The host government is the initiator of the

infrastructure project.

The government provides support for the project

in some form. E.g. provision of the land / changes
in the laws & finance.

Examples LRT 1 STAR, KL Monorail, LRT 2 - Putra

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Major Setback for Privatization in Malaysia:

1.

Government still retain majority share holding. No

complete transfer of ownership or management
power to private entities.

2.

Losses by privatized companies. A number of

privatized companies (still existing) suffering
continues losses. This has prompted Government
to take back some of the privatized companies.
E.g LRT -1, Indah Water, KL Monorail. This proves
that not all privatized companies can survive.

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