Penang’s economy buzzing again

By Carolyn Hong, Malaysia Bureau Chief
Sep 10, 2011 in http://www.businesstimes.com.sg/

GEORGETOWN (Penang): On a small table in the office of Penang Chief Minister Lim Guan Eng sit half a dozen gold-coloured cats.

They were gifts, and a reminder of his much-cherished Cat principles – Competency, Accountability and Transparency.

Mr Lim, now in his fourth year leading one of Malaysia’s wealthiest states, is convinced that those principles have guided the recent revival of Penang’s fortunes.

He has much to shout about. Under the Pakatan Rakyat (PR) government, Penang received the lion’s share of foreign investments in Malaysia last year, for the first time in the country’s history. It also had the third-highest number of tourists, and raked in two-thirds of the country’s earnings in medical tourism.

‘Penang was in a graceful decline, but it’s now growing again. What has happened was the change of government. We refused to be tied down by the old conventional crony system,’ Mr Lim told The Straits Times in an interview.

Mr Lim, 50, became Penang’s chief minister after the opposition PR unexpectedly won five states in the 2008 General Election.

He touted his government’s emphasis on efficiency, pointing out that this had been acknowledged by the Malaysian Auditor-General’s Report and anti- graft organisation Transparency International.

‘We went back to the basics. We are running a government that is clean and efficient, and investors have seen the changes… and they like it,’ he said.

On the streets of Penang, the revitalisation is palpable. Its heritage enclave, covering a wide swathe of state capital Georgetown, is buzzing with life, with many decrepit shophouses now refurbished to their former beauty.

The Penaga Hotel, restored by famed Malaysian architect Hijjas Kasturi, has opened its doors to the well-heeled. Two old British department stores – Whiteaways and Logan – have gleaming coats of fresh paint, and have reopened as chic outlets.

Penang is drawing visitors by the hundreds of thousands, and its streets are often gridlocked with cars and tourists. The island’s property prices have soared to the level of Kuala Lumpur’s.

It is a lot cleaner too, and crime fell by 27 per cent last year.

But it is not just anecdotal evidence that points to Penang’s renewed success. Economic data tells the same story. The state drew RM12.2 billion (S$4.9 billion) in foreign direct investments last year, and its economy grew 7.9 per cent, compared with 7.2 per cent for the entire country.

Datuk Toh Kin Woon, a senior research fellow at the Socio-Economic and Environmental Research Institute, a state think-tank, said: ‘The sources of growth are sustaining their momentum, and overall, the picture is good.’

Penang’s recent success is a vindication for PR, often dismissed by the ruling Barisan Nasional as too inexperienced to rule, as well as for Mr Lim himself.

The son of opposition veteran Lim Kit Siang, he was detained for 18 months under the Internal Security Act during a crackdown in 1987, and jailed a year in 1998 for publishing a statement deemed to be false in a statutory rape case involving former Malacca chief minister Rahim Tamby Chik.

Mr Lim, an economics graduate from Monash University in Australia and a qualified accountant, said he wants Penang to be as competitive as Singapore, and has gone many times to the Republic to woo Singaporean investors.

He said he has also approached Singapore’s Housing Board to help build public housing in land-scarce Penang.

‘We want to learn from the masters,’ he added.

The state has allocated 81ha on the western side of the island to build up to 20,000 units of public housing.

Singaporeans, too, are being drawn to Penang’s shine: They invested RM4 billion last year in factories and businesses there, and consistently make up one of its largest proportions of visitors.

The turnaround comes after a tough decade for Penang. Its boom had been driven, since the 1970s, by the influx of electronics companies like Intel, which set up their assembly plants in its free trade zone.

But in the last 10 years, the island had lost its draw as a manufacturing hub, with foreign investors flocking to the cheaper destinations of China and Vietnam.

Tourism also waned, as its inner city areas became dilapidated and hollowed out after its residents were forced out by soaring costs following the repeal of rent controls in 2000.

The tourism revival began in 2008, when Georgetown was recognised by Unesco as a World Heritage Site. That was the same year that Mr Lim took office. Tourists started to return, and investors flooded the city, refurbishing heritage shophouses, turning them into stylish cafes, hotels and shops.

Its manufacturing revival, analysts say, came around the same time as costs began rising in China, especially in its coastal cities.

Penang was led by Gerakan chief Koh Tsu Koon from 1990 till he lost his seat in 2008. Tan Sri Koh has derided Mr Lim for unfairly taking credit for the successes that were due to the solid foundations laid by his administration.

The influx of investments has benefited the entire northern Malaysia, comprising the states of Perlis, Kedah, Penang and Perak, according to the federal Northern Corridor Economic Region chief executive Redza Rafiq.

Analysts and manufacturers say Mr Lim did not simply arrive at the right time. The boom, they say, was helped along by his new government’s policies.

Political analyst Andrew Aeria, a Penangite working at Universiti Malaysia Sarawak, noted that Penang’s success must be seen in the context of the solid base built over the last 20 to 30 years.

‘But at the same time, I think the Democratic Action Party-run state government is much better than the previous one, and this helps a lot,’ he said.

Mr Lim’s philosophy is simple: ‘We offer value for money.’

He said Penang cannot compete on costs, and does not want to be a sweatshop, anyway. It emphasises speed and efficiency, he explained, for instance by allowing investors to build their factories with conditional approval to speed up the process.

‘We are always on call,’ he said, recalling how he sorted out work permits for a large multinational while campaigning in the Sarawak state election in April. ‘This sort of news spreads, so we get a good reputation.’

Mr Lee Kah Choon, who heads the state’s investment agency InvestPenang, said once a deal is struck, it is usually implemented within 12 months.

The state has also begun moving into the higher end of the manufacturing process, such as product development, as it seeks to distance itself from the low-cost models.

‘We are focused only on investments that we want, and industries that are high-tech and knowledge-intensive,’ said Mr Lim. Priority sectors include those involving medical devices, aerospace, renewable energy and the higher end of electronics.

Companies like Flextronics International, a large electronics manufacturer, have begun to use Penang as a launchpad for products such as the parts for the world’s fastest central processing unit, said Mr Manny Marimuthu, Flextronics’ senior vice- president of finance in Asia.

He said its subsidiary Vista Point Technologies developed 85 per cent of its products locally.

As troubles in the global economy threaten future foreign investments, Penang has prepared itself to take up the slack by commissioning RM8 billion worth of infrastructure works.

Mr Lim is hopeful that the state’s renewed optimism and vibe will survive the storm.