The Malaysian Experience

It is often said that at independence in 1957, Malaysia was at par economically with Nigeria. Now Malaysia is an economic and industrial giant while Nigeria has deteriorated. In this interview, Tun Musa bin Hitam, the former deputy prime minister of Malaysia, tells Hichem Ben Yaïche how Malaysia did it. There are important lessons for Africa.

Q: What is the secret of the Malaysian success?

A: Well, in the first place, when we achieved independence from the British, those who became leaders were technocrats who trained under the British and they learned about management and administration. Number two, they had the support of the population. They won elections. Number three, they were themselves very development-oriented in their thinking. I think they were responsible leaders because they realised that you achieve independence to develop society at large.

Many developing countries fought for independence, they got independence and power, but the leaders immediately forgot about why they fought for independence, they ruled for themselves. I am very happy to tell you that this has not happened in Malaysia. At the time of independence, we were the number one producer and exporter of rubber in the world, and number two producer of tin, and from those two resources we made a lot of money. You may remember the Korean War (1950-53).

They needed a lot of rubber and tin, which shot the price of rubber up. We used that income for development.

When we got independence, we went for development; we planned for the long term. The results of that planning can be seen today; we made progress step by step, and diversified the economic base instead of depending only on rubber and tin. We started growing other crops, such as palm oil, which is now our main crop. We call it “oil power” and oil power is giving us a lot of money. We also went for cocoa plantations big-time, for the production of chocolate. We also broadened our agricultural base to cover other crops as well. That was the first move.

Second, we developed our industries. At first, the industries were to provide jobs for the people. Then, we opened up for both foreign and domestic investment. A lot of foreign investors came. We said: “Come to us, open your factories, give jobs to our people.” The salaries were low, but it was better than having no jobs. Our people got the jobs. So they were able to support themselves. That was the second stage.

The third stage was that we became more selective. Instead of anybody coming to produce anything – toothbrushes, toothpicks, etc – we said no, we want to go higher; we will produce high-end products ourselves. We’ve got rubber, we have tin, we have palm oil, we have cocoa. Why shouldn’t we process them ourselves? We invested in the processing of these raw materials. So the third stage was to have resource-based industries, and we asked investors to invest in this area.

Q:It was strategic planning, wasn’t it?

A: Yes. First, we had five-year plans, and we implemented them diligently. Five years, five years, five years at a time. We had the money for the plans, and we trained our people, the civil service was trained and was able to run the programmes. We have one of the best systems for collecting taxes. I will tell you [this] because many developing countries do not collect taxes.

The richer the country, the less taxes they collect for development. Here the British introduced a very efficient tax system.Nobody can escape it. We have strong enforcement of the tax regime.

Q:Many companies hate paying tax, they fly away from countries where the tax regime is stiff. How did you solve this problem?

A: Very simple, in order to attract foreign investors to Malaysia, we exempted them from paying taxes for the first 10 years. We wanted them to come here as our priority was providing jobs to the people. That was number one. Number two was to process our raw materials into high-end products. Number three was to develop ourselves.

I led the first investment missions to Eu-ain, all over – and the investors came. We have a lot of investors here who came because initially there were no taxes for them   for the first 10 years. We gave them all sorts of incentives and we left them alone.

Q:What lessons have you learned from the financial crises of the past few decades, especially the ones in Asia? How did you cope?

A: Well, in Asia, the first crisis was started in Thailand. The earthquake started there.

We handled it. Malaysia handled it in its own way. Before the crisis, we were told by the world – banks, countries – to open our market. But when the crisis happened, we closed the market. We were criticized by everybody, but when everybody looked at our history of crisis management, we were the only ones who did it right, that’s how we survived it. We imposed capital control. We were not afraid. Everybody, the whole world, including the banks and the Europeans said no, no, no. We were the only one to impose capital control and we of the control. Then, we went for internally integrated development. We have the money again. We are happy because the money is still there. The other thing I forgot to tell you – we are also one of the few oil and gas producing countries in south Asia.

We had made a lot of money from oil and gas and used the money wisely for internal development. So we were a bit insulated from the crisis, that’s how we survived.Now we are better at managing these crises, because we are mentally ready, we have enough experience. We are laughing at the West: “Okay, you told us what to do. You did it, we did not follow it, we survived it, and you did not. You messed up.”