Assalamualaikum Warahmatullahi Wabarakatuh.
Bismillahi Rahmani Rahim.
I am indeed blessed by Allah S.W.T. to be given the opportunity to deliver this address to such a distinguished audience this morning. On behalf of the Malaysian delegation, I wish to thank the government of Kuwait, and in particular High Highness the Crown Prince of Kuwait, for the warm welcome that has been accorded us since we arrived here. His Highness the Crown Prince is a most generous and kind host, and I would like to take this opportunity to express my deep appreciation to His Highness for receiving me and some members of my delegation yesterday. I would also like to thank His Highness the Prime Minister of Kuwait for meeting with me earlier this morning.
I wish to thank His Excellency Mustaffa Jassim Al-Shamali, the Finance Minister and Chairman of Kuwait Investment Authority for holding this event and for giving us the opportunity to share with you our thoughts on how we can strengthen trade and investment ties between our two countries. My remarks will touch on the virtues and merits of Islamic finance in these times of uncertainty.
Global Financial Turmoil
2. What started as turbulence in segments of the US subprime mortgage market has become a global financial crisis which now poses serious threats to global economic growth. It began following a prolonged period of excessive risk-talking activity in an environment of low risk premia, loosening of credit underwriting standards in housing mortgages and proliferation of complex structured financial instruments that masked excessive risk build-up. Complacency in the area of governance compounded the problem as financial institutions accumulated high levels of leverage and depended on non-traditional wholesale funding.
3. The turning point occurred in 2007 when house prices in the US fell and mortgage delinquencies by subprime borrowers rose rapidly, with large spillover effects on the financial markets. Beginning with the financial institutions and, their special investment vehicles, the problem spread to other market participants. The global financial system has been severely weakened by mounting losses on impaired and illiquid assets, uncertainly regarding the availability and cost of funding, as well as unwillingness to extend new credit to the wider segments of the economy. Market confidence dwindled, leading to the collapse of key financial institutions, which in turn necessitated wide-scale public intervention and cross-border cooperation to support a more orderly deleveraging process while minimizing the potential risk to global economic growth.
4. While Malaysia has not been spared the effects of the financial crisis that is engulfing the world, we are confident that we will be able to withstand the impact of the turmoil. Our economic fundamentals remain strong. In 2007, the Malaysian economy achieved a growth rate of 6.3%, the highest in the past three years. This growth has also been achieved with relative price stability, high savings rate at 38 percent of GDP and strong external balance with international reserves in excess of USD100 billion. The Malaysian economy is expected to grow at between 5 to 6% in 2008.
5. Since the Asian financial crisis a decade ago, the Malaysian government has taken steps to enhance the country’s economic resilience, deepen its financial markets and strengthen its financial system. The supervisory and regulatory framework of the financial system has been significantly improved with extensive institutional reforms including a stronger capital base, strengthened corporate governance and improved risk management practices. These efforts have enhanced the ability and capacity of the Malaysian financial system to adjust to adverse developments and shocks.
6. In addition, our pattern of trade and economic structure has evolved over several decades to become a highly diversified one, with rising contributions from new activities in the services sector and increased contribution from resource-based industries. The macro economic stability, reinforced by the long term development plans, pro-business policies, developed physical infrastructure, conducive business environment and trained labour force, have contributed to the advancement in our trading and industrial sectors.
7. Malaysia is ranked among the top 20 trading nations in the world that offers a wide range of world class products. The volume of trade activities is now about two times the size of our economy with the ratio of trade to GNP being among the highest in the world. Malaysia is a major exporter of semiconductors, automatic data processing machines and telecommunications equipment. It is also currently ranked among the top ten exporters of furniture in the world. In the services sector, Malaysian companies have a significant presence in countries of the Middle East, Africa, ASEAN and South Asia, undertaking projects in the construction of roads, ports, airports, houses, commercial buildings, power generation and telecommunications.
8. Malaysia has also been an important destination for foreign direct investment for more than a hundred years. In 2007, Malaysia was ranked the 16th most attractive destination for such investment. Malaysia is also a premier destination for shared services and outsourcing activities where we are ranked as the third most attractive centre globally by AT Kearney.
9. Today, about 63% of our exports are to the Asian region, whilst our trade with the United States has been reduced significantly from about 20% in 2000 to about 12%. Efforts are being made to forge stronger trade linkages with markets in the Middle East and other OIC member countries to further diversify our economic base. In recent years, trade between Asia and the Middle East, in particular the GCC countries, has been on an upward trend. While world trade has on the average expanded by 10% over the period 2001-2005, Asia’s trade with the Middle East has increased at the average rate of 24%.
Malaysia International Islamic Financial Centre
10. Malaysia launched the Malaysia International Islamic Financial Centre (MIFC) in 2008 as part of our initiative to globally integrate Malaysia within the International Islamic financial community, and to position the country as an international Islamic financial centre. Since then, significant progress has been made. The Islamic financial system in Malaysia today comprises the Islamic banking institutions, the takaful (insurance) and re-takaful industry, and the Islamic money and capital markets. Significant progress has been achieved in particular in positioning Malaysia as a centre for the origination, distribution and trading of Islamic bonds or sukuk. The Malaysian sukuk market has now evolved into the world’s largest Islamic bond market, accounting for about 60% of the global sukuk outstanding. Malaysia is also becoming a centre for Islamic fund and wealth management services and for international Islamic banking business, as well as a centre for Islamic finance education, training, consultancy and research.
11. We in Malaysia believe there is tremendous upside potential for Islamic finance. We believe the current financial turmoil provides an opportunity for Islamic finance to position itself as a complement, if not alternative, to conventional finance by providing investors with other asset classes and markets that provide stability. The syariah principles which underlie Islamic finance has contributed towards its stability and resilience. For example, the syariah injunctions that prohibit excessive leverage and speculative financial activities have limited the exposure of Islamic funds to the meltdown of the financial system in the United States and Europe. It therefore comes as no surprise that during the current global financial turmoil, Islamic funds have seen less volatility and risk, and as a result have performed better compared with conventional funds.
12. We in Malaysia welcome financial institutions and investors to take advantage of the numerous opportunities offered under the MIFC initiatives. Malaysia is centrally located in the ASEAN region which comprises a potential market of about 570 million people and a combined GDP of more than USD1 trillion. Malaysia is well positioned to provide the linkages to support investment flows in the region. The MIFC can provide the gateway for you to seek investment opportunities in the ASEAN region which is one of the fastest growing regions in the world.
13. Over the last five years, there has been increasing interest among Middle Eastern investors in the Asian market. Kuwaiti Islamic financial institutions have already made their presence felt in Malaysia. Among these are Kuwait Finance House and the Al-Aqeelah group. To date, some of the more prominent investments in Malaysia include the USD600 million Baitak property investment fund, the Pavillion complex in Kuala Lumpur, a joint-venture property development project with Sunway City to build Sunway South Quay, and investments in the Iskandar Malaysia Region amounting to USD1.2 billion. We welcome the continued participation of Kuwaiti financial institutions and investors in Malaysia.
14. Together with me today are Dato’ Mohd. Razif (Deputy Governor of the Central Bank of Malaysia), Dato’ Jalilah Baba (Director General of the Malaysian Industrial Development Authority, MIDA), Datuk Kris Azman Abdullah (Executive Director of the Malaysian Securities Commission), Omar Merican (Chief Operating Officer of the Malaysian Bourse), Mohd Farouk (Senior Vice President of Khazanah Malaysia, the Malaysian government’s investment arm), Dato’ Azizan Rahman (Director General of the Labuan Offshore Financial Services Authority) as well as representatives from global and domestic financial institutions and fund managers who can act as your contact point in Malaysia. They will be more than happy to share with you Malaysia’s wide offerings of world-class Islamic financial products. I also invite you to engage with officials from Khazanah and MIDA who will be able to elaborate on Iskandar Malaysia and the other growth areas that offer opportunities for investments.
15. It is my sincere hope that this meeting will be blessed by Allah S.W.T. and will pave the way for greater collaboration between our business and financial communities. And I thank you for your presence here today.