Using the soaring rhetoric of nation-building on a grand scale, Malaysian prime minister Najib Razak recently snipped a ribbon to inaugurate construction of a 28-hectare site in Kuala Lumpur destined to be a new financial centre.
Never mind that the capital already has a thriving business district, home to Bursa Malaysia and scores of domestic and foreign banks.
The new “Tun Razak Exchange” – named after Najib’s father, a former Malaysian prime minister – is to be even bigger, representing “the future of Malaysia as the catalyst for economic and financial growth” and position the country as “a nucleus of global talent.”
Its developer, a state-owned investment agency called 1Malaysia Development is overseeing the $8 billion (US) project, set to rise within walking distance of the Petronas Twin Towers.
With much of the world economy experiencing anemic growth at best, it is hard to believe that any country would contemplate a project on this scale.
Yet Malaysia’s economy is enjoying a gravity-defying boom that is confounding skeptics. Second quarter gross domestic product figures out this week showed the economy grew by 5.4 per cent, way above consensus expectations of 4.6 per cent, and the 4.9 per cent recorded – after an upward revision – for the previous quarter.
That was due to big-ticket government spending, lending to business by well-capitalised banks, and robust consumer demand, fuelled by pay rises for civil servants and cash handouts that have even seen taxi drivers receive vouchers for free replacement tires.
Malaysia’s stock market has been among the best performers in the world, buoyed by big flotations including Felda, a state-controlled palm oil producer, which was the second-largest initial public offering after Facebook when it raised over $2 billion last month.
Bankers are cashing in with a parade of further IPOs expected within months, including Karex Industries, a Malaysian company that makes condoms.
Much of the impetus behind the growth comes from an “economic transformation programme” initiated by Najib when he came to power in 2009. This involves dozens of government-backed projects designed to boost per capita income to $15,500 by 2020, from $9,600 last year and lift Malaysia out of its “middle-income trap.”
Christian de Guzman, an analyst at rating agency Moody’s, admits he was skeptical about the programme’s ability to spur private sector development when it was launched. But he is more convinced now. “The proof of the pudding is in the eating but so far they are on track. In aggregate there are just so many things going on [in the economy],” he says.
Not only has Malaysia experienced strong domestic demand offsetting its vulnerability to weakening demand for its exports – much of them electronics destined for Europe; it has also benefited from deeper ties with economies in Asia.
Moody’s says that in 2006 the US was Malaysia’s largest trading partner, absorbing 18.8 per cent of its exports, while Asia Pacific accounted for 60 per cent. By last year the US share had dwindled to 8.3 per cent while Asia Pacific jumped to 69 per cent.
Malaysia’s healthy economy – and the resulting “feelgood” factor – stands in contrast to growing anxiety among Malaysia’s neighbours in south-east Asia as the global downturn has tarnished their economies.
Analysts point out one nagging concern for Malaysia: rising household debt, caused by rapid growth in credit card usage.
Growth could yet be tripped up by domestic politics too. Najib has been playing a cat-and-mouse game with the opposition, led by veteran leader Anwar Ibrahim, over when to call an election, which must occur by April.
When that comes, it is expected to be the closest for decades, raising the spectre of political uncertainty for investors.
However few are concerned about such uncertainty just yet, as the transformation programme takes root. The central bank is forecasting full-year growth is likely to be at the upper end of its 4 to 5 per cent forecast.
Rahul Bajoria, analyst at Barclays, says: “We expect momentum to remain underpinned as the project-based nature of these investments means that it is unlikely to be halted abruptly.”