Malaysian Prime Minister Mohd Najib Abdul Razak has challenged the liquidity-rich Gulf Cooperation Council (GCC) countries, warning that they can no longer afford to ignore investment and business opportunities in Asia. Traditionally, GCC countries have looked West to invest in assets including government bonds, real estate portfolios, financial services and major corporations. Some have also indulged in so-called trophy assets. But with the direction of trade of the GCC and perhaps the MENA (Middle East and North Africa) region shifting to the East, with Saudi, Kuwaiti and Abu Dhabi oil exports mainly going to East Asia, it is only logical that foreign direct investment (FDI) flows and private placements from the Middle East should also follow. In the past, Malaysian government officials have expressed their disappointment at the slow pace of Malaysia-GCC bilateral trade and intra-Islamic trade in general, and at the near obsessive direction of GCC trade and investment in the developed countries, especially the United States, Britain and the European Union. But there are signs that Malaysian trade with the OIC countries, especially the GCC states, is flourishing. According to Malaysian International Trade and Industry Minister Mustapa Mohamed, who also attended the IDB-Malaysia Investment Forum, total trade with OIC members grew by 19.9 percent last year to RM146.18 billion, compared with the RM115.87 billion in 2010. Total exports to OIC members last year reached RM76.33 billion, while total imports amounted to RM69.85 billion respectively. Prime Minister Najib told delegates, including IDB President Dr. Ahmed Mohamed Ali, at the inaugural Malaysia-Islamic Development Bank (IDB) Group Investment Forum held in Kuala Lumpur a few days ago on the theme “Forging Strategic Business Partnerships Between Malaysia and Islamic Development Bank (IDB) Member Countries” that the Middle East will remain important in the global economy because of its vast oil reserves. “But even as it continues to meet the needs of its traditional markets in the West,” he emphasized, “it must respond also to the growing needs of a new and more confident Asia — for this is not a market that is easily ignored. Billions of dollars are being spent to modernize economies in this part of the world, millions of people are moving out of poverty and taking their place among the middle classes, and consumer spending is set to soar. All of this means tremendous investment opportunities abound in these emerging markets — and today the question is, can countries in the Middle East afford to be mere suppliers of energy to this part of the world without taking a stake in its development? Can they just sell to Asia without investing in it?” The implicit answer is a resounding “No” and the Malaysian prime minister backed up his sentiments with one compelling economic reason. While the developed economies are projected to grow for the next two years at a mere 1.1 percent to 1.7 percent respectively, the Asian Development Bank predicts that the economies of developing Asia — including China, India and the Southeast Asian countries – will expand by 6.9 percent in 2012, accelerating to 7.3 percent next year. When the ASEAN Economic Community takes off in 2015, Malaysia envisages positioning itself as the gateway to a regional market of almost 600 million people with zero tariffs for 99.4 percent of all tradable products. Premier Najib declared a novel motive for his clarion call of greater Intra-Malaysia-GCC/MENA investment and trade. “I want to suggest we look at investment not in the traditional sense, as dollars and cents, but as an instrument of change: as a means influencing social and economic outcomes.” The overarching narrative of the 20th Century, suggested Najib, was the divide between the developed and the developing worlds. Today, while the divide between the developed and non-developed world remains, the line that separates them is growing ever less distinct. “The march of progress has touched new corners of the globe, with a number of poor nations becoming less poor and not a few middle income nations joining the ranks of the rich. More and more of us have become acquainted with terms like “emerging markets” and “emerging economies”, and under-developed economies like China and India are on the rise. The talk these days is about the start of a Pacific Century – though still too often it is a term used to refer to countries on only one side of the Pacific,” he added. Perhaps most importantly, all of these observations point to one overriding thing: a systemic shift from West to East in the global distribution of economic wealth and power. “And, while it is difficult to predict how far that shift will go, it seems fair to say that it is unrelenting,” he stressed. The IDB convened the forum in association with Malaysia with the aim of informing investors from Organization of Islamic Cooperation (OIC) countries, and particularly from the Gulf region, about the vast investment, joint venture and hub opportunities in Malaysia as a premier investment destination. At the same time the forum also informed Malaysian companies and investors about opportunities in IDB member countries and the group entities and how these can play a role in facilitating private sector investment and financing, investment and political risk insurance, trade and project finance and technical assistance. Premier Najib strongly urged IDB member countries especially the GCC countries, and Islamic financial institutions to invest in the country's massive Economic Transformation Program (ETP) and to capitalize on the various incentives the government has introduced over the last few years. The ETP is projected to involve a massive RM1.4 trillion in investments, whereby 92 percent of the total funding is expected to come from the private sector. The Sukuk market especially is primed to benefit from the rollout of projects, such as the integrated urban mass rapid transit system which is said to require an overall investment in excess of RM36 billion. In respect of the highly competitive pricing for Sukuk in Malaysia, funding requirements for some if not most of these projects will likely be met through Sukuk issuance. Prime Minister Najib and Dr. Ali also signed an agreement launching the IDB's pioneering Member Country Partnership Strategy (MCPS) for Malaysia. The MCPS initiative is proving popular with member countries and aims “to identify, target, allocate, implement and evaluate its financing more efficiently in member countries”. The scheme was piloted with Turkey, Pakistan, Uganda, Indonesia and Mauritania and now encompasses over 24 member countries, which have either signed up or are in the process of doing so to the scheme. Two major pillars of the MCPS are private sector development and investment and Reverse Linkages. Reverse Linkage has evolved as a unique concept to the IDB, where MCPS countries in return share their experiences in specific areas. Malaysia, for instance, is the most advanced Islamic finance market systemically and is in a unique position to impart its knowledge and experience in regulatory, legal, accounting, capital market, consumer finance and consumer education and protection policy making. Malaysia also has experience in advanced manufacturing, infrastructure construction, human capital development, commodities and in SME financing and microfinance. According to the IDB, the MCPS for Malaysia will target private sector development and Reverse Linkages. The IDB already has a RM1 billion Local Currency Sukuk Program in place for Malaysia and has already launched the first tranche Sukuk issuance — a RM400 million Sukuk — under the Program. The IDB plans to issue another tranche — a RM500 million Sukuk — during the current year. The proceeds of the issuance may be used to finance projects in the Iskandar Johor Economic Development Area (IJEDA). In fact, Kuwait Finance House, Dubai International and Mudabala of Abu Dhabi are inaugural investors in the Iskander Johor (IJEDA). IDB chief concurred on the disappointment with the current level of intra-Islamic trade and investment. “We aren't happy with the current percentage because we feel that there is far more opportunity to grow. In a previous OIC summit, there was a directive that mentioned that we should enhance the inter-trade up to 20 percent by 2015.” He added that IDB's mission is to enhance cooperation in all fields such as trade, technology, and Islamic finance in all member countries. “Hopefully through this forum, we will see a further enhancement of that. We want to take the opportunity to appeal to Malaysia businesses to come up with their proposals to their counterparties,” he said. One sector which has a natural fit between Malaysia and the MENA region is the multi-billion dollar global halal industry business, of which Malaysia is an established market. In 2011, Malaysia's exports of halal products totaled RM35.4 billion compared with RM23.1 billion in 2010. Islamic finance is heavily involved in this sector. The Penang International Halal Industry Park for instance includes Saudi Arabia's Alrajhi Bank as a major investor. The latest such project to be launched is the Pengkalan Chepa Hala Park in Kota Baru. __
