Friday, October 19, 2007

Goodies for IDR But do they meet expectations?

Goodies for IDR But do they meet expectations?
Taken From The Star

16 Oct 07


WE'VE waited with bated breath for months now for the government to unveil the slew of incentive packages that would propel investors to clamour to invest their money in the Iskandar Development Region or IDR.

Yet, last week's unveiling of the goodies was perceived to be a little bit of a downer (as per most instances when expectations run high) and more so, for those whose forte isn't property development.

Truth is, the emphasis on the IDR is still very much on the hardware or the area's physical infrastructure. But what about the incentives to woo the types of companies the government would like to attract to the area?

Understandably, and given the scale of the mammoth project, there exists pessimism about the ambitious nature of the plan that aims to create a new metropolis in South Johor to rival the likes of Hong Kong and Singapore. It is no doubt, a plan that requires much foresight as it involves an interminable length of time, and lots of money, to come to fruition.

Some even opine that IDR should widen the net on its current focus on the services sector. The sub-sectors that are being emphasised include: tourism; healthcare; creative industries; education; financial advisory and consulting; and logistics.

The argument is that it is the manufacturing sector that will drive interest in IDR and help create the critical mass in terms of population and industries that are required to scale up the higher-value add sectors.

There is also a persistent concern over Malaysia's thirst for mega projects, hence the worry that the IDR may turn out to be a white elephant.

The region's success does not hinge on the world-class infrastructure that has been planned for the new metropolis. Rather, its success would depend solely on the IDR's ability to attract the critical mass that is essential for the area, encompassing 2,217 sq km, to generate lasting economic value.

This can prove to be challenging considering the fact that most of the foreign direct investments we are targeting have taken flight to Shenzen, Hangchou, Mumbai, Bangalore and more recently Vietnam.

Also, it was assumed that the first batch of incentive packages to be announced would have focused more on attracting the types of projects the Government would like to see set up in the area, rather than just more boosters in the form of income tax exemptions for property developers. For example, there were no sweeteners to attract companies to play a part in the aspirations to turn the area into a hub of core activities such as bio-tech, education and medicine.

The success rates of Cyberjaya, E-Village and BioValley should be enough to teach us that the hardware aspects do not generate economic activity.

Cyberjaya was meant to serve as a special economic zone dedicated to hi-tech-related activities, while BioValley and E-Village were dedicated to biotechnology and multimedia content creation, respectively.

Millions of ringgit have been invested in the construction and property development aspects of these projects. Yet, the fate of these projects today has everything to do with the lack of properly thought-out strategies for the actual projects that were initially envisioned for these areas.

It has been argued that it is important for the private sector to take the lead in ensuring the IDR's success. The government's role is more about setting a platform for private sector initiatives.

It's true that groups of Middle East investors have shown a keen interest in the project and recently committed to invest huge sums of money in parts of the mammoth project. This is surely an endorsement by foreign investors in the IDR.

But it's worth remembering that Mid-East investors are flush with liquidity and the avenues for investing their funds are limited.

But where there is gold, people will come.

The IDR has an even chance of success because, whatever the naysayers may say, the idea behind the region is certainly workable.

Moreover, it's heartening that these initiatives are being planned for areas in the country that are under-developed and under-populated.

Still, what people want to see is a series of milestones or real investments over and above those related to infrastructure.

More thought needs to be put into how the region should be marketed and what really are the kinds of incentives that will draw the right kinds of investors to South Johor in droves.

After all, isn't the masterplan all about creating a conducive money-making environment for investments to thrive?

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