POSITIONED as a strategic economic zone, Iskandar Malaysia has attracted over RM337.3 billion in investments, with 40% from foreign investors.
However, the Auditor-General’s (A-G) latest report revealed in Parliament recently regarding i2M Venture Sdn Bhd’s (i2M Ventures) failure to meet key performance indicators (KPIs) due to a lack of business opportunities and facilities raises concerns over Iskandar Malaysia’s broader economic strategy.
i2M Ventures, a special purpose vehicle under Khazanah Nasional Bhd, has struggled to meet its performance targets for the Global Business Services (GBS) Iskandar programme.
In fact, the company has incurred significant financial losses but remains operational with continued funding from Khazanah.
Universiti Malaya’s Faculty of Business and Economics senior lecturer Dr Goh Lim Thye opined that the shortfalls by i2M Ventures could lead to scepticism among potential investors about the region’s reliability, risking a decline in new investments.
Highlighting the A-G’s report, only 46.7% of targeted job positions, 41% of targeted investments and 75% of targeted investors were achieved, as of June 30, 2023.
In order to monitor progress and address potential shortcomings in this matter, Goh said it is crucial to ensure robust government oversight and accountability for the success of initiatives like those undertaken by i2M Ventures.
However, findings in the report highlighted significant gaps — which the report recommended reviewing i2M Ventures’ relevance after fulfilling commitments with GBS Iskandar investors by 2025, indicating a need for more stringent oversight and regular audits to enhance project effectiveness.
“Without such measures, Malaysia’s competitiveness, as shown by its drop in the 2024 Competitiveness Index from 27th to 34th, could be further negatively impacted, especially in areas like business legislation and labour market efficiency,” he told The Malaysian Reserve (TMR).
To restore and boost investor confidence in Iskandar Malaysia, Goh said clear communication of corrective actions taken in response to current shortcomings is vital, on the back of demonstrating a track record of successful projects and consistent performance is crucial.
For example, the Iskandar Regional Development Authority (IRDA) success stories on the Medini development, which has attracted RM20 billion in investments, he said, needs to be highlighted.
Other measures include providing incentives, ensuring ease of doing business and maintaining political and economic stability are also key factors that can reassure investors of Iskandar Malaysia’s viability as an investment destination.
On the long-term implications of continued underperformance in Iskandar Malaysia, he said it would stagnate job creation, negatively impacting the local workforce and broader economic growth.
“Iskandar Malaysia aims to create 800,000 jobs by 2025, but continued failures could result in a shortfall of up to 200,000 jobs.
“This would affect the local economy and workforce, hindering the region’s competitiveness against other economic zones,” he added.
Moreover, the audit revealed that only eight out of 30 investors met their targets between 2020 and 2022, emphasising the need for prompt action to secure Iskandar Malaysia’s long-term economic prospects.
Goh added that ongoing issues could negatively impact Malaysia’s global competitiveness rankings, which evaluate economic performance, government efficiency and business efficiency.
On the other hand, economist Dr Mohd Zulkufli Zakaria said i2M Ventures’ failure to meet its targets could harm Iskandar Malaysia’s reputation and ability to attract future investments.
“The development of Iskandar Puteri under the Johor-Singapore Economic Zone (JS-SEZ) is vital for economic integration, covering 3,500 sq km.
“Despite challenges like community displacement, the region has attracted over RM153 billion in investments, primarily from Singapore,” he told TMR.
For context, the development of Iskandar Puteri under JS-SEZ is aimed at enhancing economic integration between Johor and Singapore, transforming the region into a dynamic economic hub.
i2M Ventures was established to support the goal by promoting and managing businesses in Iskandar Puteri through the GBS Iskandar programme.
Hence, i2M Ventures’ shortfalls raised concerns about its effectiveness and relevance, potentially impacting the overall investment attractiveness and economic development of the region within the JS-SEZ framework.
For that, Mohd Zulkufli said addressing regulatory and bureaucratic issues is crucial to maintain investor confidence.
From 2006 to 2023, Iskandar Malaysia secured RM154.4 billion in investments, with RM33 billion from China as of June 2023.
He added that the plan is in its early stages, necessitating robust government systems to address potential shortcomings.
This includes proposals from Singapore, meeting international logistics standards and supporting energy, manufacturing, tourism, healthcare and education sectors.
Mohd Zulkufli also emphasised on the importance of having qualified local experts to prevent economic disparities in Malaysia.
He noted that 28% of the 15 million working population in Malaysia are skilled professionals, with foreign workers comprising 15% of the workforce, particularly in vital sectors like manufacturing, construction, healthcare and IT.
“The regional economic development might not experience a significant setback due to this shortfall from i2M Ventures, as Malaysia’s policies are accommodating in hiring foreign professionals,” he added.
Shortfall Should Not Undermine Future Prospects
On the other hand, a research firm said the shortfall from i2M Ventures should not undermine the region’s reputation and future prospects.
Other entities like the Iskandar Invest ment Bhd, Malaysian Investment Development Authority and IRDA play crucial roles in investment attraction.
Additionally, Johor Corp (JCorp) leads economic development efforts in Johor.
“These organisations collectively ensure the continued attractiveness of Iskandar Malaysia for future investments despite i2M Ventures’ shortcomings,” it said in a written statement to TMR.
Nevertheless, the research firm agreed that i2M Ventures’ performance has significantly impacted investor confidence in Iskandar Malaysia, specifically the pre-existing 12 active investors.
Which is why, it added, Khazanah as the parent company had to step in and inject cash, in effect, bailing out i2M Ventures.
As contracts and agreements have already been signed, despite the inability of i2M Ventures to fulfil its obligations does not mean that it is released thereof.
“The returns and facilities promised will have to be honoured as per the contracts and agreements,” added the research firm.
Following the incident, it said prospective investors are now more cautious about dealing with new setups by Khazanah or any new agency established by the federal government, even with guarantees.
Consequently, the range of institutional gateways or portals for investing in Iskandar Malaysia will likely narrow.
To restore and boost investor confidence in Iskandar Malaysia, the research firm suggests establishing strategic collaborations with third parties like the Malaysian Research Accelerator for Technology and Innovation and the Malaysia Digital Economy Corp, leveraging their solid track record and technical capacity.
It said instead of bilateral contractual agreements, there should be a “triangulation” strategy whereby the prospective investors will be collaborating and in partnership with two government or government-linked entities.
“It will also ensure that one government-linked entity will be accountable to the other to prevent ‘single point of failure’ and allow for any early developments or signs of problems to be detected and redressed,” the research firm added.
Additionally, establishing an investor hotline managed by the International Trade and Industry Ministry and the Finance Ministry (MoF) would provide a direct communication line for addressing complaints and whistleblowing, further enhancing investor confidence.
Concurrently, MoF Deputy Minister Lim Hui Ying on July 10 announced that Khazanah will not seek new investors for i2M Ventures but will honour existing agreements with the 12 active investors until 2027, concluding the debate on the A-G report motion in Parliament.
She said in 2020, i2M Ventures’ operations were integrated with Iskandar Investment Bhd, making it a non-operating company.
She further said Khazanah will reassess i2M Ventures’ future in 2025 after meeting current commitments.
Source: https://themalaysianreserve.com/2024/07/15/iskandar-malaysias-economic-future-at-risk-due-to-i2m-ventures-shortfalls/