Tengku Zafrul on raising the bar for Malaysian industries - MIDA | Malaysian Investment Development Authority
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Tengku Zafrul on raising the bar for Malaysian industries

Tengku Zafrul on raising the bar for Malaysian industries

20 Jun 2024

In December 2022, Tengku Datuk Seri Zafrul Abdul Aziz was appointed as the minister of international trade and industry under the administration of Datuk Seri Anwar Ibrahim, the third prime minister to name him in the cabinet line-up after Datuk Seri Ismail Sabri Yaakob and Tan Sri Muhyiddin Yassin. (The ministry has since been renamed the Ministry of Investment, Trade and Industry, or Miti.)

Zafrul replaced Datuk Seri Mohamed Azmin Ali, who served as senior minister of the economic cluster and as minister of international trade and industry from 2020 to 2022, before he was defeated in the 15th general election.

The former banker embarked on his ministerial journey on March 9, 2020, when he was appointed as finance minister in Muhyiddin’s cabinet, and was reappointed to the same post on Aug 27, 2021, under Ismail Sabri’s administration.

Prior to his government appointment, Zafrul was the group CEO and executive director of CIMB Group Holdings Bhd.

The following is an excerpt from The Edge’s exclusive interview with him.

The Edge: It’s been a year and a half since you became Miti minister. While Malaysia’s efforts to bring in foreign investors appear to be paying off, going by the slew of investment announcements involving big names and significant sums since the beginning of 2023, how difficult has it been for you to attract FDI (foreign direct investment)?

Tengku Datuk Seri Zafrul Abdul Aziz: It’s not easy. But in a way, I must say it’s easier than before, thanks to [the] supply chain realignment. The Russia-Ukraine war has increased the cost of doing business in Europe, US companies and European firms are looking at de-risking as they adopt the China-plus-one strategy. Even Taiwan companies are doing so due to geopolitical tension and natural disasters. So, geopolitics has really helped Asean. I can’t claim all the credit.

Most people whom we spoke to say the National Semiconductor Strategy (NSS) is a spot-on road map that provides a clear direction. How will Miti ensure that the NSS isn’t just another “feel-good” road map, but one that leads to tangible results and meaningful progress?

We have to build one step at a time and phase by phase. Advanced packaging is already quite complex. But we have the edge already because our outsourced semiconductor assembly and test (OSAT) sector is quite strong. So, our next step should be modernising OSAT and going into advanced packaging, which is a high-value activity.

The NSS highlights advanced packaging and integrated circuit (IC) design. Do we want to attract wafer fab investments?

We want; of course, we want. But we cannot afford it right now. I am aware that financially, we are not ready. But I think we shouldn’t give up. First, we need to show the spillover effect of building wafer fabs. Right now, we feel that we should move step by step, and we should prioritise IC design and advanced packaging.

Given that Science, Technology, Engineering and Mathematics (STEM) education has been perceived as too hard or too boring, while there is a common misperception that Technical and Vocational Education and Training (TVET) is “second class” and does not promise a good future, how do you think Malaysia can nurture 60,000 high-skilled local engineers under the NSS?

We have to be aspirational. We have to challenge them (other ministries), but at the same time, we have to give them strength. Yes, 60,000 is a stretch. It is a stretch. But now that I put out the numbers, suddenly they all come up with all sorts of ideas to achieve it. Now, the Ministry of Education has committed to 30,000. They said they can do it.

Beyond the semiconductor space, Malaysia has been attracting multinational corporations (MNCs) such as Amazon Web Services (AWS), Google and Microsoft to set up data centres and cloud infrastructure here. However, sceptics say this would consume a lot of energy and may not bring positive economic impact to our country. What’s your view on that?

Data centre, on its own, is like a highway. Yes, its direct employment is low, but there are some spillover effects of having data centres. So, we need to look at it as an enabler for FDI. Without data centres, many MNCs may not come here.

Apart from data centres, which other areas of infrastructure should we improve on?

If you look at Malaysia, about 80% of our exports is manufacturing. And 40%, which is half of that 80%, is electrical and electronics (E&E). The problem with us is that we export through Singapore a lot. That’s why the Penang International Airport (PIA) is so important, and we need to expand it. Actually, to be objective, we need a Kulim cargo airport. I am not talking about passenger airports. When FedEx was here, they complained to us that our PIA cannot accommodate their cargo planes, which are mostly Boeing 777 aircraft. All their clients in Penang and Kulim need the Triple Seven. Otherwise, they would be wasting their time going down to Singapore.

Do you see Malaysia as still pretty neutral in terms of our stance on geopolitics?

Business-wise, we have taken a very neutral stance. I mean, South China Sea, we have taken a firm stance — not open for negotiation, right? And then with the US, we have taken a strong stance that we remain neutral.

But business and politics are closely linked. Will Malaysia’s stance on supporting Gaza and Palestine affect our relationship with the US?

If that’s true, then why are Microsoft, Google and AWS coming here? So, it’s not true.

Certain quarters question the economic benefits of getting investments from China, as the Chinese firms seem to be exporting everything, including people, building materials, machinery and equipment, to Malaysia.

Yes, that was the problem. I think they have stopped the people’s part. In the East Coast Rail Link, they even brought their own chefs. If you look at all the American companies here, their CEOs are mostly Malaysian. Do you notice that? Whereas the Chinese and Japanese, perhaps it’s because of Asian culture, they still want their own people. The Western side is more open to local leadership.

So, what kind of Chinese investments do we get now?

Chemical and petrochemical. They’re working mostly with Petronas. And then the electrical appliances companies, they are building some of their parts here.

What is the status of the Automotive High-Technology Valley project in Tanjung Malim, Perak?

Last year, it was announced that Zhejiang Geely Holding Group Co Ltd would invest US$10 billion. They’ve started already and they’ve spent about a billion plus. They are waiting for land purchases to be completed. They’re negotiating with the state. It’s moving and it’s on track.

How do you balance out between giving MNCs incentives and not affecting Malaysia’s economic value?

That’s why we have to be firm. Sometimes, it’s painful, and we have to call their bluff. Sometimes we have to think, where would they go if they don’t come to Malaysia?

But are you not afraid that by doing this, it is actually reducing our competitiveness?

That’s why we have to choose the right sectors. Certain sectors need our help more. The biggest noises might come from small and medium enterprises (SMEs). Our SMEs are the most inefficient and the least productive in the region. Even Vietnam and Thailand have overtaken us in terms of productivity because of our lack of investment in automation and our easy access to cheap foreign labour.

But not anymore, right?

It’s still three million (of foreign labour). They need to toughen up.

What about SMEs’ access to capital?

Yes, it is an issue for them. That’s why in the end they borrow money from the banks. They mortgage their buildings and shophouses. Of course, the banks are also at fault. Sometimes, they want to lend on the back of assets, not on future cash flow. So, that also has to change.

The government is working on a scheme to give guarantees for banks to lend to SMEs. We are still finalising the amount. It could be 10% or 20%. So, let’s say it’s 20%. The first 20% of loss, the government would share with the bank.

The banks would still take 80% so that they would assess the risks. But if the government could absorb that 20%, we feel that at least there is an alignment and the banks’ risk appetite will be higher, knowing that for every RM1 they were to lose, 20 sen will be shared by the government.

For a long time, Malaysia has been striving to catch up. As the Miti minister, do you feel somehow unusual now that many Asian countries are envying Malaysia for attracting significant FDI from around the world?

The problem with capitalism is that the impact of FDI and economic growth does not filter down to the people. They just cannot see the benefits. The filtering is only to a certain group, so that gap is getting bigger. Therefore, the government has to intervene by policy to bring this growth to be more equitable, to be more inclusive. But everybody must also understand that when we talk about the higher cost of living, it is a global problem. How do you explain that? It’s very difficult.

Salaries do not go up, and our ringgit is weak.

In absolute terms, the weak currency benefits the country right now. Because we export more than we import. But the exporters represent only a minority of the population. Our palm oil producers are happy. Their cost is in ringgit, but they export in dollars. Semiconductors are the same. Our oil and gas industry is making record profit. But again, how many per cent of the economy do they represent? We, as a government, have to somehow distribute that back through subsidies and intervention. 

Source: The Edge Malaysia