Japan’s holistic package in its bid for the HSR should be followed by others

Japan offering a holistic package in its bid for the Kuala Lumpur Singapore High-Speed Rail (HSR) could be a game-changer in the way infrastructural projects are to be doled out to foreigners if the chose to participate in the development of the country.

This would be paramount as policy-makers would have to ensure the greatest benefits accrue to the economy with maximum spill-over effects.

In its HSR bid, Japan has offered technology which was first invented through the world-renowned high-speed railway system, the Shinkansen, plus total transfer of technology and local vendor development. This offering is set to benefit Malaysian and Singapore companies including small and medium enterprises. (SME”s) In addition, it is offering technologies to Malaysians and Singaporeans as well as full-fledged training for the officials, operators, and engineers of both countries so that they can start the operations by themselves from Day One. Japan is also offering a comprehensive financial package that will help the two nations reduce their financial burden in introducing the system.

In short, Japan is offering its technology, an attractive financial package and at the same time help spur local vendor development which could provide a short in the arm for the local SME’s. Malaysia has long attempted to move up the value-chain and move out of the middle-income trap but its inability to do so thus far is on account of its inability to grapple with new technologies. The need to move out of the trap requires tremendous effort on the part of the government, the private sector and a radical shift in the mindset of the people which is easier said than done. Japan’s offer of technology and training to Malaysian’s in using the technology should be made a prerequisite for investments into Malaysia as FDI’s in the past has not lead to the transfer of technology at a pace Malaysia could be comfortable. In addition, the financial package that it has offered should be seen a huge relief for the government considering the federal government debt has been on the increase to reach RM687.43 billion as at end September 2017, from RM266.72 billion in 2007.

The government has always been splitting hairs as to how to continue carrying out projects that would benefit the people and at the same time keep its debts low. Japan’s offer of a comprehensive financial package would be one way of ensuring both these objectives are met and could provide a template for future investors to follow.

Another notable contribution of the Japanese that other investors could follow is to help bolster the small and medium scale industries in through vendor development in Malaysia. It must be borne in mind that 97% of business establishments in Malaysia are SMEs, which contributed 37% to the country’s GDP, 65% to employment, and nearly 18% of the exports.

The Small and Medium Entreprises(SME) sector contribution to the country’s gross domestic product (GDP) is expected to exceed 40% and on track to achieve the target of 41% of the GDP. The SME’s problem of not having sufficient financial resources and technology could be overcome with collaboration with foreign partners such as the Japanese to help it shore up its capabilities as these SME’s would have to eventually go global.

In addition, another notable feature of the deal is that Japanese companies have agreed to offer substantial equity participation to local partners besides establishing cooperation in a variety of areas, in the event of a successful bid for the Kuala Lumpur – Singapore High-Speed Rail (HSR) project.
This is expected to open up to massive local participation in the construction of large-scale infrastructure buildings.

There are other bidders for the project that may include China, South Korea, and France and is expected that they would also come forth to offer benefits that would have the greatest multiplier effect on the Malaysian economy by way of technology, financial package or assistance that would help bolster our human capital capabilities.
Bids for the HSR, described as a game-changing joint-venture between Malaysia and Singapore, must be submitted by the middle of this year with the contract expected to be awarded by year-end.

The 350-kilometre HSR is intended to cut travel time between Kuala Lumpur and Singapore to 90 minutes and stimulate the economy of several localities along the route, and it is projected to start operations around 2026.

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