Ever since Malaysia embark on its industrialization vision, attention has been devoted to attract huge amount of FDI to Malaysia and hoping that the FDI inflow could bring positive effect to GDP growth. It is through FDI that helped Malaysia transform more rapidly from an agricultural to industrious country. FDI has generally increased throughout the years in Malaysia, with some minor hiccups along the way, such as during the Asian Financial Crisis years (1997-98) and the “dotcom” burst (2000). In year 2004, FDI also faced significant decline due to competitions form lower cost manufacturing countries. Delay in application processing, slow decision making by local authorities and absentness of a one-stop centre for businessman sums up to the time-consuming bureaucracy in Malaysia. In year 2005, Malaysia’s FDI has shrunk to a miserable state to US$3.97 billion (RM14.69 billion) from US$4.62 billion (RM17.09 billion) in 2004. Malaysia used to rank fourth in the world for FDI in 1990, but was ranked 62 in year 2005. Malaysia’s sinking FDI may be attributed to erosion of competitiveness over the last eight to ten years due to raft of factors, including shortage of human capital, upward pressure on wages and increased competition from China and India.
There are many FDI determinants which include monetary based incentive policy but often ignore international relations. Two common assumptions are that “higher monetary incentives given, easier to attract FDI” and “higher FDI inflow could lead to higher economic growth”. However, the former is too shallow as “incentive” not necessary monetary-based like tax exemption or availability of cheap labour but could be relationship-based that seek long term mutual benefit rather than instant one-sided gain.
Economic Transformation Plan (ETP), the five economic corridors (Iskandar, NCER, ECER, SDC and SCORE) as well as Greater Kuala Lumpur Plan need a lot of FDI inflow. Thus, the disappointing pattern of FDI in Malaysia has drawn attentions of the government, researchers and policy makers to look into this problem and determines the key factors that can stimulate the FDI in Malaysia. Regrettably, existing research regarding the effect of international relations on FDI are still inadequate and not thoroughly, especially on conceptual studies from various possible perspectives.
Hence, Malaysia may wish to explore an “Ummah network” for Malaysia-West Asia partnership. Establishment of a relationship-based social capital networking between Malaysia and West Asia may be beneficial to all parties.
Exploring Bourdieu’s Social Capital Philosophy
When we mention the word “capital”, economist will tell us it is “machine and investment”. Human resource people will add “human” into the list. French philosopher, Pierre Bourdieu had a broader view, conceptualizing “capital” in four forms – “economic capital”, “cultural capital”, “social capital” and “symbolic capital”.
His social capital concept mainly refers to connections within and between social networks as well as connections among individuals, which coincidently similar to the conceptual of “relationship networking” or “guanxi” of the Oriental. The important role of guanxi in Chinese business and its related network known as “Bamboo network” has been widely mentioned due to increasing economic importance of China.
However, Western may see guanxi or relationship-based business deal as “cronyism” or has high tendency towards corruption. Yes, this may be true but a pure and sincere guanxi-based economy is based solely on trust upon each other, not unethical and corrupted practice. From economic reasoning, “trust” or “acquaintance” is associated with “low business risk” because the dealing parties have adequate information about each other. Low risk is a non-monetary incentive for business deal or foreign investment decision. Therefore, Malaysia’s international relations with Islamic countries of West Asia, an ummah networking could bring potentially huge win-win benefit as of the guanxi networking in the Chinese community.
Malaysia’s International Relations and FDI
In colonial era, foreign direct investment (FDI) to Malaysia mostly originated from United Kingdom (U.K). British colonial encouraged FDI in primary sector, predominantly in plantation and mining sector. British investments help developed (but also depleted) Malaysian tin mining sector and rubber planting. During early post-independent period, relationship with British through Commonwealth continued help attracting investment from United Kingdom. Nevertheless, the beginning of Mahathir’s era caused a change in Malaysia’s international relations policy from British friendly relationship to “buy British last”. The then Prime Minister launched “Look East Policy” in 1982, aiming to foster better international relations with Japan, Taiwan and South Korea. This policy was successful in term of increasing the amount of foreign investment from Japan and Taiwan, but not much from South Korea. As for Germany, the establishment of German-Malaysia Institute in 1992 might have started to foster stronger relationship between the two countries. However, the two countries relationship greatly improved in the early 2000s that also witnessed the first ever visit of the Chancellor of Germany, Gerhard Schroder to Malaysia from 11th to 13th March 2002 and the Malaysian-German Business Forum held in Munich on 18th March 2002. Accordingly, German’s FDI to Malaysia increased tremendously in 2001 and 2002 but fluctuate greatly in subsequent years. German companies have further expanded their activities in Malaysia, investing EUR 806.8 million in 29 projects in 2007.
Malaysia-West Asia International Relations
Besides building new relationships with Western and Asia Pacific countries, Malaysia also had long history of relationships with West Asian countries. In April 1965, in order to further raise the profile of Malaysia, the King had paid state visits to several West Asian countries, which include United Arab Republic (UAR) and Saudi Arabia. The bond between Malaysia and Saudi Arabia were then further improved when both countries became members of the Organisation of The Islamic Conference (OIC) in 1969. During the period 2003-2007, Turkey, Saudi Arabia, and Malaysia are three of the largest Muslim majority economies, which have shown significantly larger growth in trade with OIC member countries than with the rest of the world.
During June 2003, the visit of Turkish Prime Minister, Recep Tayyip Erdogan to Malaysia further enhances the existing relationship between both countries. Not only was the bilateral relations between both countries improved and became more active, Turkey also aimed to boost up the bilateral trade between both countries to U.S. $1 billion a year. In 2007, Turkey was ranked 6th in the top OIC trading partners of Malaysia.
Tapping the Ummah Network
“Ummah” is an Arabic word meaning “community”, “collective nation of states”, “community of the Believers” or “brotherhood of Islam”. The phrase Ummah Wahida in the Qur'an (the "One Community") refers to the entire Islamic world unified (definition through Wikipedia).
The success of Bamboo Network could be modified into beneficial Ummah network or informal partnership among countries in the Malays world, especially Muslim communities of Malaysia, Indonesia, Brunei and East Timor with its brotherhoods of Western Asia that comprises the Arab states in the Middle East, Turkey, and some Islamic Northern African countries like Egypt, Sudan, Algeria and Morocco. Nevertheless, due to economic disparity, potential FDI most possibly may come from richer countries like UAE and Saudi Arabia while countries that relatively less developed than Malaysia could be friendly investment destination to our investors.
There are certain mutual benefits in relying FDI from Ummah network rather than purely using monetary-based incentives as attraction. Firstly, social network is truly borderless in which they neither constraint by nation state boundaries nor binding agreement. It is also a misconception that informal network is constraint by certain ideology or ethnicity. For example, despite having a “Chinese businessman club” identity, Bamboo network is Chinese-centric yet not limited to Chinese diasporas only but also business associates of other races. Western investors include giant Microsoft to smaller trading business divert great effort to join the network and build strong guanxi with the Chinese, especially in China and Taiwan. Indeed, this “Chinese businessman club” does not intrinsically exist, thus so does the limitation of its membership. Nevertheless, since it is rooted in Chinese business communities since hundreds or even thousands years ago, it is not surprising that if any non-Chinese wishes to join the club, certain advantages have to be given to its “original” Chinese members as the “host” of this network.
Here, we see a big different to the capitalism system where the giant foreign investors usually emerge as winner over the host countries. This phenomenon has never been solved through WTO, which itself is commonly being blame for its biasness towards big capitalist nations such as the United States. In reality, Malaysia and Western Asian countries, be it individually or collectively, did not have the economic power to negotiate terms and conditions with global giant investors.
International relation is believed to a hidden resource, which could have great impact to economic but unfortunately, often overlooked. International relation has usually been treated as an endogenous variable in various economic modelling, in which its effect would not explicitly being captured by the model nor utilized in real world. Thus, this conceptual study on international relation between Malaysia and West Asia with possibility of establishing a virtual but powerful Ummah network could bring mutual benefit to all participating countries. In addition, Malaysia is a multi-racial society comprises of many ethnic groups, mainly Malay (predominantly, Malay are also Muslim), Chinese and Indian. Malaysia’s historical background as former colonial of British and its contemporary international association with Commonwealth, regional blocks like ASEAN and various other international bodies provide ample “hidden resources” in the form of international relation. Hence, this adds to the significant of this study where Malaysia could establish not only Ummah network, but various social capital-based partnerships for sustainable economic prosperity.
[Chinese version published at Nanyang Press, 26th May 2014. Available online at http://www.nanyang.com/node/6023743. This English version may be slightly different from the Chinese online/printed newspaper version]