Towards A Competitive Malaysia #122
Chapter 18: Beacon for the Malay World
Economic and Other Integrations
Unifying the language and integrating the media markets would be a prelude to greater economic and other integrations of the Malay world. Transacting business between Selangor and Sulawesi should be as easy as between Perak and Penang. Imagine if a product made in Malaysia could be sold anywhere in Indonesia and the rest of the archipelago! The economy of scale and the consequent economic efficiency would be enormous.
It would take tremendous efforts to integrate standards, regulations, and technical specifications. Details like electrical voltages and shipping systems would have to be standardized, and a host of other regulations streamlined. Even such simple items as the definition of the net weight of a consumer product varies in the region.
Such integration and streamlining would best be achieved through the momentum of market forces, with the respective governments acting merely as facilitators. The state should not control or mandate changes from above. That would not work as we saw with the earlier attempt at integrating the two languages. With the bureaucrats in charge for the past 50 years, there was no progress and the two languages continued on their divergent paths.
Current discussions on creating a common ASEAN market are premature and over ambitious; the disparities are just too wide. That stated, there would be a far greater likelihood of success if it were to be focused initially to the three ASEAN states that have much in common: Indonesia, Malaysia, and Brunei (IMB). Agreements would more easily be reachable; their leaders speak the same language and have the same cultural mindset. Once that is achieved and successful, by sheer momentum the other nations would want to join in. The EU started with only the major Western European states like France, Germany, and Italy. Once successful and its value established, the others were eager to join.
Economic integration of IMB would also be easier as their economies are at different stages. Brunei is commodity (oil) based, Malaysia more advanced, while Indonesia’s competitive advantage is its nearly unlimited supply of cheap labor. The Indonesians may be unskilled, but as the Chinese and Mexicans have shown, these unskilled and lowly educated workers are trainable. China is attractive to investors in part because of its cheap labor and huge domestic market. Combined, IMB would offer comparable attractions. In addition, unlike China, IMB has abundant domestic energy sources, a huge bonus. China, India, and Japan are hostage to Middle East politics.
The three states could also develop a common tourism industry comparable to the Caribbean. Like the Caribbean, the Malay Archipelago has huge and readily accessible affluent markets: Australia, Europe, and Japan. Right now only Singapore is taking advantage of the area’s tourist attractions, with Singapore Airlines effectively using the entire region as its advertising theme.
The most effective route to greater economic integration would be through stimulating trade within IMB by streamlining travel, transportation, and other rules. I would begin with easing travel between the countries by dispensing with passports or visas for its citizens. Then open up the skies with the airlines of IMB being able to fly wherever they want within IMB. Let the market determine the route patterns. It would make better sense for Sumatrans to fly through KLIA than Jakarta.
It would greatly stimulate the aviation industry in IMB if they were to also open up their markets to the world. Meaning, any airline could fly freely within the three countries if that airline’s host nation would offer the same rights to the airlines of IMB. That would be a huge incentive for the major aviation market countries to open up their skies to IMB airlines. The targets would be United States, EU, and Japan; the biggest and most lucrative. There is minimal value in having “open sky” agreement with the likes of Singapore. If Malaysia were to develop its Johore airport and make it competitive (cheaper, better, and with more convenient connections and services), even Singaporeans would bypass Changi. Singapore’s restricting Malaysian Air Asia’s access is indicative of the island’s vulnerability.
At present, if there were to be a common IMB aviation market, only Malaysia Airlines could effectively exploit it. Garuda (Indonesian) and Brunei Airways are not ready for the world stage. To sell such a concept to Indonesia and Brunei, the “Malaysia” in Malaysia Airlines should merely be a name and not indicative of any relationship to Malaysia or its government. Meaning, Malaysian must be willing to sell ownership stake in the company to other investors, including governments in the region and the world.
Treating the whole area as one fully integrated market could also revolutionize the maritime industry. Port Klang would be a more sensible transshipment center than Jakarta to serve Sumatra. There could be one good port in East Malaysia or Eastern Indonesia to serve that part of the region. If Malaysia and Indonesia were to improve their ports, Singapore would be reduced to being a transshipment center for the likes of only Papua New Guinea.
Land transportation between Brunei, Malaysia, and Indonesia could be greatly increased with a Trans Borneo highway. That would open up the vast rich interior to economic ventures as well increase the flow of goods and services between the three countries.
The third route to greater integration would be through streamlining the financial sector, in particular, banking. The ultimate objective would be a common currency along the model of the Euro. Executing financial transactions between Malacca and Makassar should be as easy as between Malacca and Muar If I can readily access my California bank account from Boston on the East coast, Honolulu across the Pacific, and Toronto to the north, then surely I could do the same with my Malaysian account from anywhere in the Malay Archipelago. The flow of people, goods, and services within IMB should be as free as possible, with minimal bureaucratic and other encumbrances. That would facilitate the exchange of ideas, and in turn lead to greater integration.
There are huge but not insurmountable obstacles. Take the financial sector; not many Malaysians would trust their savings to Indonesian banking regulators. They are corrupt, inefficient, and have done a lousy job regulating the industry and gaining the citizens’ and investors’ trust. Nor have Indonesian regulators maintained the integrity of their currency. Malaysia has done only slightly better. Perversely, only by linking the rinngit to the dollar could Malaysia reassure the market in the aftermath of the 1997 economic crisis.
As the market has little confidence in local regulators, there must be a rigid and externally imposed discipline, either by linking local currencies to a major one (US dollar or Euro), or to precious metals. Malaysia recently touted the gold dinar and silver durham, the traditional currencies of ancient Arab traders. There are limitations to this scheme, but the greatest benefit would be in guaranteeing the integrity of local currencies and boosting investors’ confidence. I would also integrate other components of the financial sector. Presently, the KL and Jakarta stock markets are minor players; combined and efficiently run, they could easily have a major global presence.
A big obstacle to such integrations is the lack of local management expertise. One quick way to overcome this is to liberalize the market. Imagine if major international brokers and investment bankers were allowed in; they would quickly bring in an infusion of talent, skills, and expertise.
Other sectors lending themselves to greater integration would be plantations and natural resources, in particular oil and gas. Indonesia is well suited for such labor-intensive activities as plantations. Malaysian companies already own many of the large plantations there. Malaysia has considerable research and extension expertise in plantations that could be shared with Indonesia. Combined, Malaysia and Indonesia would then be the major suppliers of these primary commodities.
Brunei is a major oil producer but does not have the expertise or might to negotiate effectively with the multinational oil corporations. IMB could combine their negotiating powers and expertise to develop the adjacent oil fields. Together they could drive a hard bargain with the major oil companies. The three countries could also jointly undertake upstream and downstream activities. There is no reason for each to have their own little refineries when they could combine their efforts and have one mega and super efficient plant and jointly market the products. The three states could undertake joint explorations and share the profits instead of expending their time fighting for drilling rights and then diluting their bargaining power with the multinational companies. The oilfields off Sarawak, Brunei and Kalimantan belong to the same geologic unit anyway; it would make great sense to integrate the operations and convert the whole area into one giant petrochemical complex.
If Indonesia and Malaysia, with or without Brunei, could integrate some sectors of their economies, that success could later be replicated in other areas. Success builds upon success, and before long we would have a common market of over a quarter billion people. The sheer economic momentum would attract other nations in the region to join in. IMB would then be in the commanding position to set the standards. It could mandate that labels and instructions on products be in Malay (which by now would be the same language as Bahasa Indonesia); likewise, all foods would have to be halal (kosher). There would be no difficulty in having producers and retailers complying with such requirements; the market would demand it. Currently Malaysia has difficulty enforcing such regulations because of its small market.
There is minimal cooperation between Indonesia, Malaysia and Brunei today even in areas of definable common interests, as in controlling pollution and maritime safety. There is excessive insularity and not enough regional strategic thinking among IMB leaders. They view themselves more as competitors, less as partners.
Next: Facilitating Integration
Economic and Other Integrations
Unifying the language and integrating the media markets would be a prelude to greater economic and other integrations of the Malay world. Transacting business between Selangor and Sulawesi should be as easy as between Perak and Penang. Imagine if a product made in Malaysia could be sold anywhere in Indonesia and the rest of the archipelago! The economy of scale and the consequent economic efficiency would be enormous.
It would take tremendous efforts to integrate standards, regulations, and technical specifications. Details like electrical voltages and shipping systems would have to be standardized, and a host of other regulations streamlined. Even such simple items as the definition of the net weight of a consumer product varies in the region.
Such integration and streamlining would best be achieved through the momentum of market forces, with the respective governments acting merely as facilitators. The state should not control or mandate changes from above. That would not work as we saw with the earlier attempt at integrating the two languages. With the bureaucrats in charge for the past 50 years, there was no progress and the two languages continued on their divergent paths.
Current discussions on creating a common ASEAN market are premature and over ambitious; the disparities are just too wide. That stated, there would be a far greater likelihood of success if it were to be focused initially to the three ASEAN states that have much in common: Indonesia, Malaysia, and Brunei (IMB). Agreements would more easily be reachable; their leaders speak the same language and have the same cultural mindset. Once that is achieved and successful, by sheer momentum the other nations would want to join in. The EU started with only the major Western European states like France, Germany, and Italy. Once successful and its value established, the others were eager to join.
Economic integration of IMB would also be easier as their economies are at different stages. Brunei is commodity (oil) based, Malaysia more advanced, while Indonesia’s competitive advantage is its nearly unlimited supply of cheap labor. The Indonesians may be unskilled, but as the Chinese and Mexicans have shown, these unskilled and lowly educated workers are trainable. China is attractive to investors in part because of its cheap labor and huge domestic market. Combined, IMB would offer comparable attractions. In addition, unlike China, IMB has abundant domestic energy sources, a huge bonus. China, India, and Japan are hostage to Middle East politics.
The three states could also develop a common tourism industry comparable to the Caribbean. Like the Caribbean, the Malay Archipelago has huge and readily accessible affluent markets: Australia, Europe, and Japan. Right now only Singapore is taking advantage of the area’s tourist attractions, with Singapore Airlines effectively using the entire region as its advertising theme.
The most effective route to greater economic integration would be through stimulating trade within IMB by streamlining travel, transportation, and other rules. I would begin with easing travel between the countries by dispensing with passports or visas for its citizens. Then open up the skies with the airlines of IMB being able to fly wherever they want within IMB. Let the market determine the route patterns. It would make better sense for Sumatrans to fly through KLIA than Jakarta.
It would greatly stimulate the aviation industry in IMB if they were to also open up their markets to the world. Meaning, any airline could fly freely within the three countries if that airline’s host nation would offer the same rights to the airlines of IMB. That would be a huge incentive for the major aviation market countries to open up their skies to IMB airlines. The targets would be United States, EU, and Japan; the biggest and most lucrative. There is minimal value in having “open sky” agreement with the likes of Singapore. If Malaysia were to develop its Johore airport and make it competitive (cheaper, better, and with more convenient connections and services), even Singaporeans would bypass Changi. Singapore’s restricting Malaysian Air Asia’s access is indicative of the island’s vulnerability.
At present, if there were to be a common IMB aviation market, only Malaysia Airlines could effectively exploit it. Garuda (Indonesian) and Brunei Airways are not ready for the world stage. To sell such a concept to Indonesia and Brunei, the “Malaysia” in Malaysia Airlines should merely be a name and not indicative of any relationship to Malaysia or its government. Meaning, Malaysian must be willing to sell ownership stake in the company to other investors, including governments in the region and the world.
Treating the whole area as one fully integrated market could also revolutionize the maritime industry. Port Klang would be a more sensible transshipment center than Jakarta to serve Sumatra. There could be one good port in East Malaysia or Eastern Indonesia to serve that part of the region. If Malaysia and Indonesia were to improve their ports, Singapore would be reduced to being a transshipment center for the likes of only Papua New Guinea.
Land transportation between Brunei, Malaysia, and Indonesia could be greatly increased with a Trans Borneo highway. That would open up the vast rich interior to economic ventures as well increase the flow of goods and services between the three countries.
The third route to greater integration would be through streamlining the financial sector, in particular, banking. The ultimate objective would be a common currency along the model of the Euro. Executing financial transactions between Malacca and Makassar should be as easy as between Malacca and Muar If I can readily access my California bank account from Boston on the East coast, Honolulu across the Pacific, and Toronto to the north, then surely I could do the same with my Malaysian account from anywhere in the Malay Archipelago. The flow of people, goods, and services within IMB should be as free as possible, with minimal bureaucratic and other encumbrances. That would facilitate the exchange of ideas, and in turn lead to greater integration.
There are huge but not insurmountable obstacles. Take the financial sector; not many Malaysians would trust their savings to Indonesian banking regulators. They are corrupt, inefficient, and have done a lousy job regulating the industry and gaining the citizens’ and investors’ trust. Nor have Indonesian regulators maintained the integrity of their currency. Malaysia has done only slightly better. Perversely, only by linking the rinngit to the dollar could Malaysia reassure the market in the aftermath of the 1997 economic crisis.
As the market has little confidence in local regulators, there must be a rigid and externally imposed discipline, either by linking local currencies to a major one (US dollar or Euro), or to precious metals. Malaysia recently touted the gold dinar and silver durham, the traditional currencies of ancient Arab traders. There are limitations to this scheme, but the greatest benefit would be in guaranteeing the integrity of local currencies and boosting investors’ confidence. I would also integrate other components of the financial sector. Presently, the KL and Jakarta stock markets are minor players; combined and efficiently run, they could easily have a major global presence.
A big obstacle to such integrations is the lack of local management expertise. One quick way to overcome this is to liberalize the market. Imagine if major international brokers and investment bankers were allowed in; they would quickly bring in an infusion of talent, skills, and expertise.
Other sectors lending themselves to greater integration would be plantations and natural resources, in particular oil and gas. Indonesia is well suited for such labor-intensive activities as plantations. Malaysian companies already own many of the large plantations there. Malaysia has considerable research and extension expertise in plantations that could be shared with Indonesia. Combined, Malaysia and Indonesia would then be the major suppliers of these primary commodities.
Brunei is a major oil producer but does not have the expertise or might to negotiate effectively with the multinational oil corporations. IMB could combine their negotiating powers and expertise to develop the adjacent oil fields. Together they could drive a hard bargain with the major oil companies. The three countries could also jointly undertake upstream and downstream activities. There is no reason for each to have their own little refineries when they could combine their efforts and have one mega and super efficient plant and jointly market the products. The three states could undertake joint explorations and share the profits instead of expending their time fighting for drilling rights and then diluting their bargaining power with the multinational companies. The oilfields off Sarawak, Brunei and Kalimantan belong to the same geologic unit anyway; it would make great sense to integrate the operations and convert the whole area into one giant petrochemical complex.
If Indonesia and Malaysia, with or without Brunei, could integrate some sectors of their economies, that success could later be replicated in other areas. Success builds upon success, and before long we would have a common market of over a quarter billion people. The sheer economic momentum would attract other nations in the region to join in. IMB would then be in the commanding position to set the standards. It could mandate that labels and instructions on products be in Malay (which by now would be the same language as Bahasa Indonesia); likewise, all foods would have to be halal (kosher). There would be no difficulty in having producers and retailers complying with such requirements; the market would demand it. Currently Malaysia has difficulty enforcing such regulations because of its small market.
There is minimal cooperation between Indonesia, Malaysia and Brunei today even in areas of definable common interests, as in controlling pollution and maritime safety. There is excessive insularity and not enough regional strategic thinking among IMB leaders. They view themselves more as competitors, less as partners.
Next: Facilitating Integration
posted by M. Bakri Musa | 12:49 PM
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