The economy, unemployment and what spooks the investors

University graduates make up 55% of those not gainfully employed.

The lack of local and foreign investment is one reason for the scarcity of jobs and high unemployment rates in the country. The impact of the Covid-19 pandemic will result in more being unemployed by 2021, adding to economic uncertainty in the country. To create new jobs there need to be investments in the country – both from local and foreign investors.

The country’s unemployment rate of 5.3% in May compared with 3.9% in March was the highest rate in 30 years since it dropped to 5.7% in 1989. Every year, over 290,000 students graduate from institutions of higher learning. These graduates make up 55% of those who are not gainfully employed in the country.

The country’s overall unemployment rate rose to its highest point this year to reach 5.3% in May, with the number of jobless Malaysians also reaching a high of 826,100 that month, an increase of 6% from 778,800 in April, according to the latest official statistics.

The hard truth is that there aren’t enough opportunities in the public and private sectors for these graduates to be employed and the number of unemployed graduates continues to increase each year, amidst a shaky economy.

To ensure that there are enough opportunities in the job sector, the government has no choice but to lure local and foreign investments in the country besides stimulating the economy and increasing fiscal measures to ensure existing businesses and industries can maintain their employment level without further retrenching, or cause people to leave the workforce.

There is no political clarity

The situation may further worsen when there is no political clarity, and there is a lack of prudent fiscal measures and transparency, and also the perception of investors that corruption has soiled the image of the country. What more when politicians are more focussed on politicking rather than seeing the country rejuvenate its economy. The country’s political uncertainty since the beginning of this year is making investors more apprehensive of the situation.

Foreign funds continue to flow out from Malaysia’s equities, with year-to-date outflow of RM21.65 billion.

Unfortunately, investors are shying away from the country for several other reasons other than the world-wide Covid-19 epidemic. Political developments in the country in recent months have given rise to a heightened sense of ambiguity.

This has been attributed to investors having the perception that the political situation is not safe and stable when the ruling coalition does not have a comfortable majority for now.

Added to that, there have been never-ending political harangues going on in the country even to the extent of politicians perpetuating politics of race and religion to achieve their political goals when this is not the norm in any other Asean country. This jeremiad is causing jittery feelings among potential investors.

Investors may thus have the impression that investing in the country may not be worthwhile in the long run. This has resulted in them looking at other more politically stable Asean countries to invest in, especially Vietnam and Cambodia.

Politicking seems to take priority

Above and beyond, the issue that is causing qualms to investors is the many political appointments to the government-linked companies (GLCs). This measure to the government may be done for political expediency but it does not bode well where investment is concerned. It is putting the country in a more adverse state in the aspect of perception.

Political appointments to the board of directors of GLCs have a negative impact on investors. Their perception is that it is not going to lead to transparency and corporate integrity in the country.

Political appointments in the GLCs have probably flattened Malaysia’s position in the corporate governance rating and has in a way made Malaysia less attractive in terms of investment. Foreign investors will certainly pore over the state of transparency and corporate governance when investing in markets.

Even if they are not major shareholders it’s a norm for investors to discern the structure of the GLC boards first before acquiring a stake, as they would want to ascertain that the stake is safe and that the boards will act in their best interests without any political interpolation.

If they see there are politicians heading companies or are among the board of directors, the issue of perception regarding the interests of who will be protected first will arise.

In fact, political appointments have long been a practice in the country. When politicians who have no business acumen handle businesses, unquestionably there will be negative perceptions over their competence.

To give confidence to investors there has to be political clarity in the country. In other words, there has to be a stable government. There should not be any tolerance of corruption. It would be more sensible if the appointment of board members into national and state GLCs is professionally executed, and not based on their political affiliations. This would give more confidence to foreign investors. With investments come more job opportunities.

Markets are influenced by the political state of affairs of a country.

Regrettably, as for now, there is no political certainty in the country and politicking seems to take priority over economic needs.

 

Moaz Nair is an FMT reader.

The views expressed are those of the author and do not necessarily reflect those of FMT.