#//OECD BETTER POLICIES FOR BETTER LIVES

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1 OECD Investment Policy Reviews: Malaysia 2013 #//OECD BETTER POLICIES FOR BETTER LIVES

2 Table of contents Preface by Dato' Sri Mustapa Mohamed, Minister of International Trade and Industry, Malaysia 11 Preface by Angel Gurria, Secretary-General, OECD 13 Acronyms and abbreviations 15 Executive summary 19 Assessment and recommendations 23 Progress and policy challenges 24 Key recommendations 33 Notes 39 Bibliography 40 Chapter 1. Investment trends 41 FDI trends in Malaysia in a long-term perspective 42 Malaysia now faces increasing competition from the rest of ASEAN in attracting foreign investment 43 FDI in Malaysia by country and by sector 46 Chapter 2. Investment policy: Towards greater openness 53 Investment policy reform: stability and change Notes 74 Bibliography 74 Chapter 3. Property rights and Investor protection 77 Effective land ownership registration 78 Notes 100 Bibliography 101 Annex 3.AI. Main features of Malaysia's investment agreements Annex 3.A2. Investment agreements concluded by Malaysia 118 Chapter 4. Investment promotion and facilitation 121 Role of business in government policy 124 Promotion of outward investment 126 MIDA: Malaysia's investment promotion agency 127 Government measures to improve the business climate 131 OECD INVESTMENT POUCY REVIEWS: MALAYSIA 2013 OECD

3 Malaysia's Investment attraction strategy: the central role ofincentives 136 Policies to promote Malaysian SMEs 142 SME-MNE linkages policies and practices 145 Skills shortages and mismatch 148 Malaysia's international initiatives to build Investment promotion expertise 155 Notes 155 Bibliography 155 Chapter 5. Corporate governance 159 Main features of Malaysia's corporate governance framework 161 Voluntaiy corporate governance initiatives and training 165 Shareholder rights in Malaysia 168 Governance of government-linked companies 177 Bibliography 183 Chapter 6. Policies for promoting responsible business conduct 185 Government vs business roles and responsibilities in promoting RBC 187 Government's initiatives to promote RBC in Malaysia 187 Financial and non-financial disclosure 194 Malaysia's intergovernmental co-operation to promote international RBC principles 199 Notes 202 Bibliography 203 Chapter 7. Financial sector development 205 Malaysia's gradual opening of its banking sector 208 The Financial Sector Master Plan: a comprehensive 10-year plan for the financial sector 211 Capital markets in Malaysia 219 The asset management industry 223 Notes 226 Bibliography 230 Chapter 8. Infrastructure development 233 Overview of Malaysia's infrastructure system 234 Telecommunications 242 Electricity 244 Transport 248 Water and sanitation 251 Notes 254 Bibliography OECD INVESTMENT POL1CY REVIEWS'. MALAYSIA 2013 OECD 2013

4 Chapter 9. Investment framework in support of green growth 257 Green growth in Malaysia: Challenges and opportunities 258 Malaysia's commitment to green growth 261 Regulatory and policy framework for Investment in priority areas for green growth 266 Incentives for green Investment 269 Other sources of finance in support of green Investment 273 Capacity to design and implement green Investment policies 279 Policies to promote environmental^ responsible business conduct and to raise awareness 279 Tables Notes 282 Bibliography FDI stock in Malaysia by country, Cross-border M&As involving Malaysian firms as targets, FDI stock in Malaysia by sector, Stock of Malaysian FDI abroad, by country and by region, Cross-border M&As involving Malaysian firms as acquirers, Stock of Malaysian FDI abroad by sector, Major Malaysian acquisitions abroad, Major liberalisation measures affecting Investment, Equity restrictions in financial services OFDI Instruments offered by EXIM Bank MIDA's Client Charter results, manufacturing licences (2011) Definition of SMEs in Malaysia Malaysia's National Qualification Framework Major laws and regulations affecting corporate governance Corporate governance enforcing agencies in Malaysia NEAC Proposed divestment strategies for non-strategic GLCs Stock of outward FDI (2011) Share of GLCs in the financial sector Malaysia's infrastructure competitiveness PSP in Malaysia and the Region Overview of GLCs in the infrastructure sector in Malaysia Summary of environmental legislation and policies for green growth Green investment incentives in Malaysia Subsidy by type of fossil fuel in Malaysia 271 OECD INVESTMENT POUCY REVIEWS: MALAYSIA 2013 OECD

5 9.4. Total project cost and green technology (GT) total cost for Green Technology-certified applications (as of April 2012) Figures 1.1. Long-term trends in FDI in Malaysia Malaysian share of the total FDI stock in ASEAN, FDI reported by Malaysia and by OECD countries into Malaysia FDI stock in Malaysia by principal countries/regions, Foreign investment in the manufacturing sector Inflows and outflows of direct investment, Liberalisation of FDI restrictions in Malaysia and Indonesia over time OECD FDI Regulatory Restrictiveness Index, selected countries, OECD FDI Regulatory Restrictiveness Index, Key Service Sectors GLCs participation in the economy of selected countries Ease of Döing Business Improvements in Malaysia, PEMUDAH task forces Fiscal incentives in Malaysia Skill composition in Malaysia vs regional competitors Corporate governance reform timeline in Malaysia ( ) Government Linked Companies in Malaysia Main Public and Private RBC initiatives in Malaysia Ranking of dimensions according to RBC Performance in Malaysian PLCs (2007) Firm level RBC disclosure and practice (sample of 200 companies, 2007) (A) Composition of domestic financing (% of GDP); (B) Non-performing loans and capital adequacy ratio (A) Landscape of financial institutions in Malaysia ( ); (B) Commercial banks return on average assets vs. cost to income ratio (A) Share of total global sukuk market (B) Outstanding sukuk and debt securities (A) Composition of Domestic Financing (% of total); (B) Corporate and Government Bonds Outstanding (A) Market capitalisation of listed companies (% of GDP); (B) Stocks traded, turnover ratio (A) Funds raised by the private sector in the capital market; (B) Financial system assets ( ) Private investment in Malaysia's infrastructure sectors, OECD INVESTMENT POLICY REVIEWS: MALAYSIA 2013 OECD 2013