Malaysia is at the cross roads. In building a more sustainable economy, it needs to think out of the box to rejuvenate its existing economic order which is predominantly led by the oil and gas industry and crude and palm oil exports, among others. This is crucial if we want to raise our odds of ushering an era of unprecedented economic growth and attaining a high GDP-per capita status nation, in my view. Here’s how I think we can get there faster, with less struggle and less debts.
Whichever coalition that will govern us until 2018, leaders need to strengthen the political will to abandon piecemeal approaches but be bold to push through a series of reforms to introduce free-market policies that will accelerate financial services de-regulation to attract American, European, Japanese, Asian and Arabic investment banks, investment management firms, private banks, private equity and hedge funds to Malaysia and helped jumpstart Kuala Lumpur into one of the world’s pre-eminent financial centers.
A bold and comprehensive deregulation will attract capital and talent to work and live in Kuala Lumpur, turning the city into a internationally competitive financial hub, stimulating financial innovation and simultaneously alleviating the oversupply of office space and apartments. An energetic and dynamic financial hub in turn will attract a cluster of technology and custodian services provider, creating another fresh wave of hiring and demand for offices, accommodation, restaurants, entertainment and transportation services.
Because of a clear vision and conviction, what was previously thought of as a ludicrous idea could turn out to be the seed that revive Kuala Lumpur into a globally competitive financial hub that energizes Malaysia just like how London resuscitated Britain’s flagging fortunes in the 1980s.
In 1986, the late Margaret Thatcher pushed through a flurry of reforms, commonly dubbed “The Big Bang”, which broke up the cozy world of British bankers and brokers culture that dominated the City of London and allowed international banks from the U.S. and Europe to bring in fresh capital and talent to set up offices in London and compete on equal grounds. The effects of Big Bang were spectacular, heralding a 25-years boom in securities trading and decisively placed the City of London as a globally competitive financial center that seriously rivaled New York as a dynamic financial hub until the present day. The unprecedented boom of the financial services industry expanded beyond London, electrifying Britain out of a long-term industrial decline into a energetic, dynamic services-based economy it is today.
To begin, Kuala Lumpur’s Big Bang reforms should focus on rivaling Singapore as an offshore hub for trading Renminbi to coincide with The People’s Bank of China (PBoC) renewed vigor under President Xi Jinping and Premier Li Keqiang to push for a greater role for the Chinese currency in global trade and investment.
Recently, Singapore has taken a step closer to becoming a major offshore yuan trading hub, with the official inauguration of the Industrial and Commercial Bank of China (ICBC) as the clearing bank for Renminbi in the city state. Prior to this, the only place outside mainland China that had a renminbi clearing bank was Hong Kong, where Bank of China (Hong Kong) has been appointed by the PBoC to clear trades with the mainland market.
If we were to go down this path, Malaysia might not be the first but with bold and decisive de-regulation, cheaper costs of operations and a deep, entrepreneurial talent pool that is hungry and young, Kuala Lumpur need not re-create the wheel but innovate around it.
Currency trading aside, bold reforms centered to regain lost market share in private banking services, to be strengthened with a revamp in financial services legal framework to protect clients privacy, can simultaneously be launched. Malysians, Indonesians, Chinese, Arabs and Europeans can bank in Kuala Lumpur and continue with leisure holidays in nearby beaches, malls and tropical rainforests. Similar policies and initiatives to attract global fund management companies, private equity and hedge fund firms, especially cost-sensitive but innovative and nimble start-ups, electronic-driven brokers and numerous international investment banks that are increasingly seeking to lower their cost of operations, raise profitability and yet retain high quality of talented professionals will be introduced, promoted and implemented.
At least for now, the big banks and fund management firms are stuck with New York and London in the Western Hemisphere and Hong Kong and Singapore in the Eastern Hemisphere. Within a decade, the center of global economic gravity will shift and it looks increasingly likely that China’s economy will be larger than the United States, particularly after adjusting for Renminbi rise and the growing economies of South East Asia and India won’t be far behind.
This means a clear majority of the world’s financial activity will be transacted somewhere between the Indian and the Pacific Oceans. Kuala Lumpur is in the middle of this wide, deep ocean that is yet to be fully explored. The timing is right, the talent pool is ready, the banks and brokers are seeking alternatives and all that is left is for the nation’s leaders to truly understand what a Blue Ocean Strategy means – turning Kuala Lumpur into a dynamic international financial center against all odds.
The writer is a money manager in a local investment bank specialising in North Asia.The views expressed in this article are the author’s own and do not reflect the views of Business Circle.
Photo credit: Peter Nguyen, flickr