MALAYSIA USING WORLD BANK'S DOING BUSINESS REPORT AS

UNCLAS SECTION 01 OF 02 KUALA LUMPUR 001642

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SUBJECT: MALAYSIA USING WORLD BANK'S DOING BUSINESS REPORT AS
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1. (U) Summary: Last spring Prime Minister Abdullah expressed
concern about Malaysia's weakening competitiveness and established
Pemudah, a public-private committee mandated to suggest ways the
government could reduce red tape and increase transparency. Pumudah
is using the World Bank "Doing Business" report as its blueprint,
and its goal is to raise Malaysia into a top ten country ranking by

2010. This year, Malaysia moved up just one notch in the World
Bank's "Doing Business 2008" report, from 25th place to 24th among
178 countries, but if the GOM continues to carry out procedural
reforms identified by Permudah and World Bank staff, its ranking in
the coming years should continue to improve. At a recent Government
hosted a half-day seminar on what Malaysia could do to improve its
competitiveness, World Bank staff identified simple approaches to
cutting opportunities for corruption by, among other things, cutting
the time it took to process business licensing and registration
requests. Pemudah already has addressed some of these and to date,
the time required for transferring property, paying taxes,
processing expatriate work visas, and clearing customs has been
reduced. This high-level attention on improving the country's
business climate is a step in the right direction, but private
sector economists note that deeper reform is needed, particularly
with regard to Malaysia's race-based preferences which are the heart
of inefficiencies contained in the government's New Economic Policy.
End summary.

The Report
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2. (U) This past spring, Prime Minister Abdullah told the press he
was concerned about Malaysia's low rankings in some categories of
the Doing Business 2007 report and established PEMUDAH, a committee
of government and private sector leaders with a mission to identify
and evaluate bureaucratic impediments to conducting business in
Malaysia and to make recommendations to the PM on how to address
them. More information about the reform committee is available at
www.pemudah.gov.my. The World Bank's fifth annual "Doing Business"
Report, released on September 26, presents quantitative indicators
on business regulations and the protection of property rights that
can be compared across countries and over time. The purpose of the
report is to establish a competitive framework that encourages
reform and to demonstrate direct links between reforms and economic
growth. Malaysia ranks 24th among 178 countries this year, up one
notch from last year.




GOM HOSTS "DOING BUSINESS" SEMINAR
--------------


3. (U) On October 31, the Government of Malaysia hosted a briefing
on the World Bank's "Doing Business 2008" results, presented by
Justin Yap, World Bank Regulatory Economist for Finance & Private
Sector Development, and Sylvia Solf, World Bank Private Sector
Development Specialist. About 200 people attended including
representatives from the Malaysian Government.

HOW MALAYSIA FARES
--------------


4. (U) Malaysia's best rankings were in ease of getting credit and
protecting investors, where it ranked third and fourth respectively.
Its worst rankings were in enforcing contracts and dealing with
licenses, where it ranked 63rd and 105th. Yap pointed out that
building a warehouse in Malaysia required 25 different procedures
which took, on average, 285 days at a cost of 10 per cent of per
capita income. Eleven separate agencies were involved, involving
multiple on-site inspections.


7. (U) Countries ranking in the top ten for this indicator generally
had three things in common: they required few pre-approvals, few
on-site inspections, and a single agency handled all necessary
approvals. Yap pointed out that each step in the regulatory process
was yet another opportunity for corruption, in addition to the drag
of over-regulation on the business community.


8. (U) Malaysia ranks 67th in registering property, which requires
five separate procedures and takes 144 days. Several members of the
audience stated that this was too optimistic - that in fact it took
much longer.

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HOW TO IMPROVE
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9. (U) Solf presented a number of reforms the government could do to
improve its rank, none of which would require a change in the law.
As it turns out, PEMUDAH already is working on some of these
initiatives. To improve its ranking in the ease of starting a
business, Solf suggested an electronic database for company names,
which would enable simple name changes and a single identity check,
along with low, flat registration fees. PEMUDAH is in the process
of getting just such a system into place. Previously, starting a
business required name registration with multiple agencies, each of
which took days or weeks to make sure no other company already was
using that name.



11. (U) For ease of registering property, Solf recommended that
Malaysia adopt a flat stamp duty fee which would eliminate the need
for time-consuming valuation visits. In addition, efficiency should
be improved in the land registry and stamp duty offices. PEMUDAH
convinced the GOM to contract out its valuation visits to the
private sector, saving time in the property registration process.
According to PEMUDAH's webite, processing stamp duty for land
transfers has been reduced from a range of 16 to 62 days to a
current range of 2 to 16 days. Nine separate procedures, all of
which were done manually, have been reduced to six; five of these
can be done online.


12. (U) For dealing with licenses, Solf recommended that a single
agency be authorized to grant planning and building permits, and
that on-site inspections be coordinated jointly or, better yet,
contracted out to the private sector. Another of Solf's
recommendations was that companies should be given the option of
paying taxes annually instead of monthly, and paying electronically.
Malaysia currently ranks 56th in ease of paying taxes, which
requires 35 payments per year and takes 166 hours.


OTHERS MORE SKEPTICAL
--------------


14. (SBU) Econ Counselor Matt Matthews and ECONOFF met with Lim Teck
Ghee, retired World Bank Social Scientist and former head of a local
think tank. Lim was skeptical about the seriousness of the GOM's
promises of economic reform. Lim described PEMUDAH's
accomplishments as minor reforms taking place "around the edges" of
Malaysia's bureaucracy, but said that until the GOM is prepared to
move beyond the racial preference policies contained in the New
Economic Policy (NEP),there will be no real changes, he said.
(Note: Lim was not involved in the preparation of the Doing Business
report during his tenure at the World Bank.)



COMMENT:

16 (U) Malaysia's successes in cutting the red tape for businesses
represent a step forward for the economy, and the PEMUDAH committee
is proving to be an effective catalyst for change. It is an
especially positive sign that the GOM is willing to host a
discussion highlighting its own bureaucratic barriers. Improvements
effected to date only scratch the surface of the reforms needed to
unleash the full potential of the Malaysian economy -- reforms for
which there is no realistic hope in the near term. Still, the fact
that economic reform is on the agenda of the PM bodes marginally
better for Malaysia's future.