The EXIM Bank of Malaysia experience
Noordin Abbas
¡¡¡¡The Malaysian government gives high priority to research
and development, technology innovation and technological infrastructure.
Medium and long-term industrial strategies have been formulated to enhance
the capacities of Malaysian firms. These include the setting up of a National
Council for Scientific Research and Development, and the formulation of
a National Action Plan for Industrial Technology Development (NAPITD).
A critical player in this national effort has been the Exim Bank of Malaysia,
which pioneered the financing of technology-based activities in the country.
This article discusses EXIM Bank's efforts to help Malaysian firms take
their expertise to neighboring countries.
¡¡¡¡The development of Malaysia in the long them will, inter alia, depend
on the increased use of technology, knowledge and skills to enhance industrial
competence and productivity, as well as to improve standards of living.
The nation's competitiveness will depend on technological innovation by
Malaysian firms and the use of technology to generate products and services.
The Malaysian Government promotes science and technology, research and
development and technological innovation. It emphasizes not only the strenghtening
of technology infrastructure but also the enhancing of demand for, and
capacity to use, technology at the firm level. This is achieved in the
following ways:
¡¡¡¡£ªImplementing appropriate policy and institutional reforms to strengthen
the S&T planning and management system;
Optimizing the utilization of skills and capital by promoting adaptation
and application of new and improved technologies, undertaking more commercially-oriented
R&D and increasing Industry's capability to innovate, design and market
domestic technologies;
¡¡¡¡£ªIncreasing investments in R&D as well as scientific and technological
education and training with a view to developing a critical mass of scientists,
engineers and researchers, fostering creativity and innovativeness in
the young, and raising the general S&T interest and awareness levels;
¡¡¡¡£ªBuilding domestic technological capability in new enabling technologies
that will yield higher economic returns. Among others, this will include
enhancing the practice of technology management and the preparation of
a national technology map to identify long-term technology development
targets;
¡¡¡¡£ªFostering stronger cooperation in R&D and technology development
among and between industries, universities and research institutes;
¡¡¡¡£ªPromoting greater private sector participation in the acquisition,
development and transfer of new and specialized technologies;
Providing an enabling environment for MNCs and local conglomerates to
invest in, expand and diversify into new high-technology industries with
greater local content and linkages;
¡¡¡¡£ªUndertaking special programs to augment technological capability among
the SMIs;
¡¡¡¡£ªProviding strategic linkages and joint ventures through international
cooperation in S&T; and
Nurturing domestic innovations and inventions in the context of changing
international requirements.
¡¡¡¡£ªFor the medium and long term, the strategic focus will be on building
up a strong competence in growth generating technologies, especially in
the field of advanced materials, IT and microelectronics, advanced manufacturing
technology, biotechnology, and energy and environ-ment related technologies.
These targeted technologies are expected to spawn new growth areas in
industry. It will be important to develop centres of excellence, with
sufficient resources to undertake future R&D activities in these advanced
technology areas.
Exim Bank of Malaysia
¡¡¡¡Since its establishment in 1995, the Exim Bank
of Malaysia has been involved in the financing of technology-based activities.
As a government-owned institution. Exim Bank's financing activities are
in line with government policy, and the financing of technology-based
projects is identified as one of the areas of priority. In early 2000,
Exim Bank's parent company, The Industrial Bank of Malaysia underwent
a name change to become The Industrial and Technological Bank of Malaysia.
When the bank was established in 1979, the financing of technology-based
industries had been one of its objectives. With the name change, the bank's
involvement in the financing of technology-based industries is given prominence.
¡¡¡¡To support the implementation of these technology-based industry strategies,
several advanced technologies are being promoted. Development in these
areas, both domestically and internationally, are expected to create new
investment opportunities for the economy as a whole, and industry in particular.
The core technologies are as follows:
¡¡¡¡£ªInformation technology and communications, such as high performance
computing, networking communications, digital imaging, multimedia, high
definition display, high density storage, software, simulation and modelling;
¡¡¡¡£ªMicro-electronics, such as sensor technology, semi-conductor materials
and microelectronics circuits, optoelectronics, avionics and advanced
semi-conductor devices;
¡¡¡¡£ªBiotechnology and life sciences, such as biotechnology materials and
processes, medical devices, and diagnostics and medical technology;
¡¡¡¡£ªAdvanced manufacturing technologies, such as flexible computer integrated
manufacturing, machine intelligence and robotics, micro and nano-fabrication,
and systems management technology; and
¡¡¡¡£ªAdvanced materials such as composites, ceramics, semi-conductor materials,
micro-electronics circuits and photonic materials, material synthesis
and processing, super conductors, high performance metals and alloys,
environment and energy related "green" materials, agora based
waste, renewable energy, portable energy and pollution minimization, remediations
and waste management.
National Council for Scientific R&D
¡¡¡¡With the objective of developing technology-based
industries, the Nation Council for Scientific Research and Development
(NCSRD) was set up by the Government in 1975 as an advisory council specifically
to oversee public sector research, so that research resources are directed
at enhancing the national development objectives. The Council advises
the Government, and specifically the Minister of Science, Technology and
the Environment, on the following:
¡¡¡¡£ªFormulating science and technology (S&T) policies;
¡¡¡¡£ªIdentifying S&T priorities;
¡¡¡¡£ªCoordinating, implementing and evaluating S&T programs;
¡¡¡¡£ªUtilizing S&T in the public and private sectors for national development;
¡¡¡¡£ªEnhancing public awareness and appreciation of S&T; and
¡¡¡¡£ªMonitoring the implementation of the recommendations of the National
Action Plan for Industrial Technology Development (NAPITD).
¡¡¡¡The Council is assisted by two committees, namely, the Standing Committee
on Science and Technology Development and Management and the Coordinating
Committee on Intensification of Research in Priority Areas (IRPA) for
its effective functioning. These two committees are further assisted by
eight Working Groups and eleven IRPA Panels.
Science & Technology Division
¡¡¡¡The NCSRD is supported by the Science and Science,
Technology and the Environment, which is the lead policy making, coordinating
and implementing agency on all matters related to science and technology.
The Division also helps strengthen the nation's technological base through
enhancement of R&D activities, promotion of science and formulation
of a comprehensive action plan for technological development. Particular
emphasis is placed on commercialization of R&D outputs in both public
and private sectors.
NAPITD
¡¡¡¡£ªThe National Action Plan for Industrial Technology
development (NAPITD) was formulated with the following objectives:
To improve the existing S&T infrastructure by providing leadership
to strengthen institutional and support infrastructure for rapid and realistic
industrial technology development.
¡¡¡¡£ªTo overcome the low level of technological appreciation, adoption and
application in the echancement of industrial development through wider
diffusion and application of technology in market-driven R&D;
¡¡¡¡£ªTo heighten awareness of, and to focus on, critical generic future
technologies by building specialized competence in key emerging technologies;
¡¡¡¡£ªTo develop the required quantity and quality of human resources to
support industrial technology capacity by strengthening the institutional
mechanism for the continuous upgrading of technology knowledge and workforce
skills; and
¡¡¡¡£ªTo provide leadership to promote social awareness and appreciation
of S&T in order to provide a conducive climate for invention, innovation
and technological advancement.
Various S&T development programs and activities under the NAPITD support
the technological development of the industrial sector, particularly the
manufacturing sector. These programs and activities are primarily to enable
Malaysia become a competitive and technologically advanced country by
the year 2020. In 1998, NAPITD focussed on ensuring widespread adoption
and adaptation of technology and increasing R&D activities that are
application-ori-ented and market-driven.
¡¡¡¡The NAPITD also focusses on skill and capacity building in new technology
areas, human resource development, and increasing public awareness and
appreciation of S&T. The main objectives of the NAPITD has been translated
into specific programs and activities, which will now be discussed.
Technology transfer
¡¡¡¡The importance of international technology transfer
in the development of technology cannot be denied. Technology transfer
is normally undertaken through formal contractual agreements between private
enterprises and technical aid programs between governments. Technology
transfer is used to establish new industries or to improve existing production
techniques. It is the larger local firms that are normally involved in
this arrangement. By importing the requisite technology, these firms will
in future have the potential to develop local R&D capabilities and
to undertake more advanced technology-based projects.
¡¡¡¡Through its financing operations, Exim Bank has witnessed how large
local companies that have experience in undertaking technology based projects,
have been able to bid successfully and undertake more technology based
projects overseas. Once these companies have established themselves in
international markets, they will be able to benefit from more opportunities
overseas.
¡¡¡¡In Malaysia, technology transfer arrangements are normally in the form
of:
¡¡¡¡£ªJoint-Venture agreements between two or more parties, involving locals
and foreigners;
¡¡¡¡£ªTechnical Assistance and Know-how Agreements where one party will provide,
for an agreed fee or royalty, technical assistance and know-how for the
manufacture of certain products by the other party.
¡¡¡¡£ªLicence Agreements where the licensor grants a licence right to the
licensee to use its patents, trademarks and other industrial intellectual
properties for the manufacture of certain products for an agreed fee or
royalty.
¡¡¡¡£ªPatent and Trademark Agreements where one party gives the right to
the other to use its patents and trademarks for the manufacture of certain
products for an agreed fee.
¡¡¡¡£ªTurnkey Contracts where a contract is awarded to one of the parties
to perform all stages, from the initial to the final stage, inclusive
of constancy, managerial, technical and other services, until the contractual
project is ready for immediate commercial production or final use; and
¡¡¡¡£ªManagement Agreements where one party provides management services
to another for a management fee.
The Technology Development and Transfer Section, which is within the Science
and Technology Division, is responsible for the following;
¡¡¡¡£ªCoordinating and monitoring implementation of the NAPITD;
¡¡¡¡£ªConducting industrial development studies for achieving medium and
long-term policy objectives in industrial technology development;
¡¡¡¡£ªInitiating mechanisms for effective management and utilization of S&T
capacity; developing incentive systems including industrial technology
infrastructure and framework and R&D; and evaluating, monitoring and
updating the country's S&T needs, capability and gaps; and
¡¡¡¡£ªProposing mechanisms for technology policy formulation, monitoring,
diffusion and transfer.
¡¡¡¡All manufacturing projects licensed under the Industrial Coordination
Act 1975 must obtain the prior written approval of the Ministry of International
Trade and Industry (MITI) before entering into any technology transfer
agreement involving foreign partners.
¡¡¡¡Agreements on transfer of technology are required to define in detail
the following;
¡¡¡¡£ªThe technological content and principal features of the technology
or process;
¡¡¡¡£ªThe anticipated production;
¡¡¡¡£ªThe quality and specification of products; and
¡¡¡¡£ªParticulars of the technical assistance and services, and the manner
in which they are to be provided.
¡¡¡¡This is done to ensure that an agreement will not impose unfair and
unjustifiable restrictions or handicaps on the local party, that it will
not be prejudicial to the national interest, and that the payment of fees
(if applicable) will be commensurate with the level of technology being
transferred.
Tables 1 and 2 show technology transfer agreements in Malaysia from 1990
to 1998 by industry groups and types.
The Exim Bank experience
¡¡¡¡Exim Bank's mission is to finance exports of Malaysian
goods and services through the provision of short to long term credit
to Malaysian exporters and investors as well as foreign buyers. Emphasis
is laid on exports of capital goods and technology based products. The
Bank's financing of technology based projects will encourage Malaysian
enterprises to expand productive capacity in technology based industries.
This is line with the Government's objective towards leading Malaysia
into a developed nation status.
¡¡¡¡In recent years, a growing number of Malaysian companies have gone abroad
bidding and winning contracts to construct power plants, highways, air
ports, palm oil mills, etc. Their success in securing contracts for such
projects clearly shows that Malaysian technology is well accepted the
internationally recognized. However, one of the obstacles faced by companies,
particularly in the export of services, is financing. In such situations,
the Bank's financing for export oriented industries comes into play.
¡¡¡¡With the Bank's support, Malaysian companies have been able to participate
overseas in technology based projects, such as independent power projects
(IPP), water supply, housing and highway construction, supply of telecommunication
exchanges, establishment of manufacturing plants, exports of ships and
plants, exports of ships and palm oil refineries. Figure 1 shows the sectors
financed by Exim Bank had participated in Papua New Guinea, Namibia, Indonesia,
Cambodia, Viet Nam, South Africa, Honduras and India.
Philippines power project
¡¡¡¡Showcase projects financed by Exim Bank include
a power generation and transmission project in the Philippines. In 1997,
Exim Bank joined an international consortium of lenders in providing a
US$ 651 million loan to a Philippine British joint venture company for
the construction and operation of a 1000 MW power generation plant as
well as the construction of a 35 km long, 230 kv voltage transmission
line in the Philippines. Exim Bank provided a direct loan of US$ 25 million
and co-guaranteed a US$ 66 millionloan with Mecib, joining other creditors
including export credit agencies (ECAs) in Germany and the US.
¡¡¡¡The dual-fuelled power plant will initially operate on condensate fuel.
A natural gas pipeline is being developed, linking the project to gas
fields in the region, for a switch to natural gas in future. The output
will be sold to a private electric company in the Philippines, under a
25 year power purchase agreement.
¡¡¡¡The project has had three upstream benefits for Malaysian businesses
and individuals, namely:
¡¡¡¡£ªEngineering, procurement and construction (EPC): The project provided
an avenue for directing a significant offshore dollar investment into
human capital development in Malaysia. Malaysian engineers and technicians,
employed at the regional office of a German based EPC contractor in Malaysia,
were exposed to sophisticated technological design and applied state of
the art software in designing plant layout and engineering structures
with mathematical precision. Structural design played a central role in
the civil, mechanical and electrical architecture of the project. The
completed designs were passed on to Malaysian sub-contractors specializing
in civil and mechanical works for construction of functional structures
based on a blueprint provided by the EPC contractor. Such functional structures
included air filters, fuel transportation, storage and feeding systems,
pressure vessels, eat exchangers, tanks and water treatment systems.
¡¡¡¡£ªLegal documentation: The development of security documents to encompass
the whole breadth of events, whether occurring by design or accident,
and the interconnecting documentation have allowed transfusion of legal
knowledge on a level little known in the past to and from the legal teams
based in Malaysia, Hong Kong and the US. This has contributed to the legal
diversity of Malaysian lawyers with special emphasis on project finance.
¡¡¡¡£ªStructural lending and guarantee: It was a maiden opportunity for Exim
Bank to learn and apply the hitherto unknown (at least in the world of
conventional lending) art of project finance, which lies in the identification
and quantification of a business risk and the creation of a security corresponding
to the nature and quantum of the said risk. In fact, the Bank gained theoretical
and practical knowledge from the exercise. A supplementary experience
arising from the project was that the Bank was able to build and enhance
its networkings both inside and outside Malaysia with financial institutions.
export credit agencies, financial, technical and legal advisors, and a
whole spectrum of interconnecting bodies and individuals interested in
the project.
Impact on Malaysian economy
¡¡¡¡In macroeconomic terms, the project has benefited
Malaysia through gross exports of goods and services totalling US$ 77
million. The net value of export of Malaysian made industrial goods are
estimated at US$ 47 million.
Thus, the impact on the Malaysian Balance of Payments is positive, valued
at least US$ 17 million or MR65 million. Valued in real economic terms,
The US $ 77 million gross exports has had the effect of mobilizing the
Malaysian workforce in the engineering, procurement and engineering of
the Malaysian chapter of the EPC Contract. In addition, the project finance
involving Malaysian financial institutions including Exim Bank, Mecib
and others, generated a further US$ 10 million in export of financial
services.
Impact on Philippine economy
¡¡¡¡The project enterprise will contribute to 17 per cent of the country's
and 21 per cent of Luzon's total electricity consumption based on the
utility's domination of the electricity distribution market in the Philippines.
Thus, measured in economic terms, the project has a catalytic factor of
adding or at least sustaining some 10 per cent of the Philippines gross
domestic product (GDP). It is also estimated that the project currently
employs some 3000 people comprising local engineers, welders and general
workers for construction on site and some 40 locals comprising mostly
engineers and technicians for operating the plant.
Security element
¡¡¡¡The project, which commenced operation in early
2000, represents one of the more successful project financing exercises
undertaken by Exim Bank. It features areas such as project sponsorship,
financing, construction and operation. Above all, it showcases a captured
market and highly structured security that guarantees the project steady
revenue stream on a pay or take basis under a power purchase agreement
with the utility and a lenders option to sell the project to the utility
under extended political and force majeure events of default.
Sea vessels for Indonesian waters
¡¡¡¡In 1997, Exim Bank approved a US$ 46.3 million
loan to two Indonesian oil freight companies for the procurement of four
new 6500 dwt tonnage sea vessels from a Malaysian shipbuilder.
Shipbuilding industry
¡¡¡¡The project provided an avenue for directing a
significant offshore dollar investment into the shipbuilding industry
in Malaysia. Malaysian engineers and draughtsmen were employed for the
purpose of designing the hull, superstructure and other parts of the ships
for a period lasting 4 months. Construction of the hull, the principal
hodywork of a ship as well as piping works, engine installation, electrical
works, carpentry and painting lasted another seven months.
¡¡¡¡The purchase of these ships exemplified the overseas buyers confidence
in a Malaysian shipyard, which had secured the contract to build the vessels
because of its ability to conform to international standards at competitive
prices. In fact, the shipyard completed construction of the new buildings
within 11 months, six months ahead of schedule. This was a far cry from
the early days of the Malaysian shipbuilding industry, when it took as
much as two years to build a ship of such tonnage. To Exim Bank, this
represented another opportunity to touch base with the shipbuilding industry
and apply a cash-flow based lending to a project while reinforcing its
ability to assess the creditworthiness of the shipowners.
Impact on Malaysian economy
¡¡¡¡In macroeconomic terms, the project has benefited
Malaysia through export of capital goods for US$14 million. The impact
on the balance of payments from a Malaysian perspective is positive, at
US$14 million or RM53 million.
Valued in real economic terms, the US$6.3 million gross exports has had
the vital effect of providing the Malaysian shipbuilding industry with
a fresh job input and further sustaining its capacity in the design engineering
and construction of ships. In addition, the project finance involving
Exim Bank is expected to bring into the country some US$ 6.3 million in
export of financial services over a 14 year period.
¡¡¡¡The project also played a significant role in bridging business ties
between Indonesia and Malaysia, thus bringing economic benefits to ASEAN
countries.
The project has a time charter that guarantees the project a steady revenue
stream on a pay or take basis under a long-term employment agreement with
the Indonesian state oil company, one of the largest in the world, and
a lender's first mortgage on the new vessels.
Construction of palm oil mills overseas
¡¡¡¡Malaysia, being the world's largest supplier
of palm oil is in a position to offer technical assistance in the palm
oil based industries such as the construction of palm oil mills. With
the assistance of Exim Bank, Malaysian companies have successfully completed
a number of palm oil mill projects overseas. As shown in Table 3. Exim
Bank has approved loans amounting to RM66 million for various palm oil
mill projects overseas. The increasing demand for construction of palm
oil mills has led to an increase in loan applications projects overseas.
Malaysian content
¡¡¡¡Utilization of Malaysian materials or local content
in these project is the form of components, machinery and equipment required
for the construction works and supply of equipment. Among the items involved
are electrical works, piping valves, pressing equipment, a fruit reception
station, threshing station, kernel recovery station and sterilization
station. The average Malaysian materials involved is about 60 per cent
of the entire quoted construction cost.
Contribution to Malaysian economy
¡¡¡¡In addition to the utilization of Malaysian materials
and equipment, the project also required technical expertise in the form
of participation of experienced Malaysian contractors, architects and
engineers. This development and construction of the palm oil mills has
resulted in the export of services as more Malaysian expertise is needed
in the successful implementation of these projects.
Conclusion
¡¡¡¡The continuing search for higher technologies
is important in ensuring Malaysia's growth as it would determine the level
of competitiveness of the country. The use of technology based operation
in the generation of goods and services should thus be adopted by Malaysian
companies. With this push towards technology, Malaysian companies would
have a better opportunity to compete not only in the domestic market but
also in the international market.
¡¡¡¡Exim Bank, which promotes the export of Malaysian goods and services,
particularly technology driven projects, has been able to support some
of these Malaysian companies overseas through its financing. One of the
observations is that Malaysian companies who are more technologically
inclined would normally be more successful when venturing overseas. The
use of technology not only benefits Malaysian companies in obtaining contracts,
but also foreign companies in the form of technology transfer.
References
1. Seventh Malaysia Plan 1996-2000, Percetaken Nasional
Malaysia Berhad, Kuala Lumpur.
2. Malaysia International Trade and Industry Report 1997/98, 1998/99,
Percetaken Nasional Malaysia Berhad, Kuala Lumpur.
3. Jomo, K. S. (1996) Industrializing Malaysia Policy, Performance, Prospects,
Routledge, London,
4. National Council for Scientific Research and Development (NCSRD), Annual
Report 1998.
5. Ministry of Science, Technology and the Environment,
http://www.mastic.gov.my
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