'Business sentiment on the slide'

KUALA LUMPUR: Too much religious rhetoric and narrative of a potential regressive government takeover by political parties are hurting business sentiment in Malaysia, industry observers said.

Malaysian International Chamber Of Commerce & Industry (MICCI) said investors and businesses evaluate their expansions and investment based on a stable government and policies, the rule of law, availability of talents, lack of bureaucracy and positive public sector governance.

"We are positive about the new government and how opposing parties can cooperate in terms of national interest.

"However, on the negative side, we see a continuous government takeover narrative, a relatively weak coalition with looming state elections, which prevents an overwhelming positiveness among the business communities," an MICCI spokesperson told the New Straits Times.

"There is the elephant in the room of the opposition parties coming into power with their lack of track record of promoting a conducive business environment and the old order of kleptocracy," the spokesperson added.

He said in attempts to fend off detractors, the present government must introduce more "feel-good" policies for the betterment of the business community, which is the lifeline to the rakyat's livelihood.

On the government's policies in creating a favourable business environment in Malaysia, MICCI noted that the Ministry of Investment, Trade and Industry and Malaysian Investment Development Authority (MIDA) have been working hard in providing and championing a conducive business environment.

"However, we see more feel-good policies that are more political in nature than being a win-win situation with the business community. For example, the minimum wage policy, 45 work hours and the Imbalance Cost Pass-Through (ICPT) policy by the national electricity provider Tenaga Nasional Bhd.

"These could be done in a staggered way for the industry to adapt. Wages can also be performance-linked," the spokesperson said.

The Department of Statistics Malaysia's (DoSM) recent latest business tendency statistics showed Malaysian businesses remain optimistic about the business condition in the first quarter (Q1) of 2023, with the confidence indicator improving to 3.6 per cent from 3.2 per cent in the fourth quarter (Q4) of 2022.

The report noted that services, wholesale and retail trade and industry sectors remain optimistic about future business conditions.

However, the domestic construction sector remained pessimistic, with a confidence indicator of -18.5 per cent for Q1 2023 against -29.2 per cent in Q4 2022.

MARC Ratings Bhd chief economist Dr Ray Choy Swee Yew said consumer and business confidence has declined due to consecutive rate hikes, rising living costs, a weak ringgit and volatile global market conditions.

He said businesses remain concerned with the outcome of the upcoming state elections in the third quarter of this year since it may affect government spending and shape the direction of policies.

The government's push for fiscal consolidation could also imply higher tax requirements for corporations, Choy added.

"Businesses are maintaining a cautious yet adaptive approach. While the decline in exports in May 2023 narrowed, we note April was particularly weak at -17.6 per cent year-on-year (YoY), which suggests overall data is in contraction.

"Purchasing managers' surveys also indicate that manufacturing employers have started to slow the pace of hiring in tandem with the decline in capacity utilisation," Choy said.

He noted that some of the challenges being faced in Malaysia are the need for more scaling up of technology adoption and to nurture a skilled workforce.

Choy said technology has advanced rapidly but present education systems must catch up.

The ongoing brain drain of Malaysian talent to other countries with higher exchange rates and pay levels is also an issue.

"Furthermore, economic growth has become challenging, given the higher cost of funds, the global economic slowdown and cautious sentiment.

"In addition, the global minimum tax regime requires companies operating in multiple jurisdictions to top up taxes to 15 per cent, which will see companies setting aside funds and implementing systems to cope with additional tax requirements," he said.

When asked how confident corporate companies in Malaysia are about making long-term investments and establishing a presence here, Choy said benefiting from a strategic location in the global supply chain and low price levels, Malaysia continues to have some advantages as an investment destination.

"Nonetheless, business leaders continue to raise concerns over policy continuity and political stability as key decision factors in their regulatory environment analysis," he added.

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