Tuesday, January 28, 2014

NAP 2014 Malaysia's First Step Towards Progressive Market Liberalisation, Says Frost And Sullivan

NAP 2014 Malaysia's First Step Towards Progressive Market Liberalisation, Says Frost And Sullivan

KUALA LUMPUR, Jan 23 (Bernama) -- The newly unveiled revised National Automotive Policy 2014 (NAP 2014) is Malaysia's first step towards a progressive market liberalisation and an attempt to find common path of liberalisation, given the political, economic and technological constraints, says Frost and Sullivan.

Kavan Mukhtyar, Asia-Pacific partner and head of the automotive and transportation practice, said the policy was a "balancing act" between the priorities of attracting new investments, developing sustainable industry competitiveness and safeguarding the interests of existing investors and stakeholders.

"The policy indicates that Malaysia has chosen the path of progressive liberalisation rather than disruptive liberalisation," he said in a statement.

Mukhtyar said the NAP 2014 has been developed with various stakeholders' goal such as making national carmakers more competitive and sustainable while attracting foreign automakers to increase investments and value addition, and use Malaysia as a regional hub for production.

He said the policy also intended to develop the capabilities of local vendors to achieve sustainable growth and export and expand the participation of Bumiputeras in the value chain.

For consumers, the policy has set a progressive car price reduction and increase safety quality, while for the government, the NAP 2014 will enable them to ensure sustainable employment growth in the automotive industry and prudent fiscal management, he said.

"The NAP 2014 seems to try and balance the strategic priorities so that the short-term interests of these various stakeholders do not converge.

"As such, it can be seen as a long-term policy framework that gives a direction to the various stakeholders rather than make a disruptive change in the industry," he said.

However, there are few challenges in implementing the policy such as the unclear incentives available in the Energy Efficient Vehicles (EEV) programme, he said.

Mukhtyar said the EEV programme imposed no investment conditions and offered a great degree of flexibility with incentives depending on automakers level of investments and localisation commitment.

"From an automaker standpoint, their commitments will depend on the extent of incentives available. So, there could be a high degree of interdependency," he said.

He said the customised incentive approach could work if a clear methodology was in place on the factors determining the extent of incentives but if the incentives are purely on a case-by-case iterative process, then it could lead to prolonged negotiations and uncertainty for the automakers.

Mukhtyar said the country also need to develop a strong ecosystem of suppliers that feeds into the EEV supply chain while ensuring the local demand for such vehicles are large enough for the investment to be economically viable.

He said the success or failure of the programme would depend on the speed and the clarity with which it was implemented.

On the local vendors, Mukhtyar said the Malaysian automotive parts industry faced several structural issues like lack of economies of scale, productivity, quality issues and overdependence on national automakers, and urgent efforts need to be made to build these capabilities in right earnest.

Muktyar said a pragmatic strategy for the government would be to focus on building the capabilities of the best among the auto part vendors.

"Consolidation of capabilities should be encouraged so that Malaysia can develop a group of globally competitive part vendors that can grow regionally," he said.

He said the capability development grants should be linked to a transparent approach to continuously monitor the progress of the vendors towards competitiveness.

On car price reduction, Muktyar said the approach of intensified market competition was driving price reduction to soft land the average price in the marketplace over the next four to five years.

He said while car prices would go through a process of gradual downward adjustment rather than sharp decline, the push to energy-efficient vehicles would also focus on bringing down the overall cost of ownership which benefitted consumers in the long run.



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