OBG talks to Mohd Ali Rustam, Chief Minister of Melaka

Interview: Mohd Ali Rustam

How do you see Melaka’s policies for economic diversification, and what specific areas will be emphasised in the coming years?

MOHD ALI RUSTAM: Although significant reform is under way, Melaka’s core economic drivers will remain in the areas of industry and tourism, with these two sectors accounting for approximately 80% of GDP. In 2011 RM4.1bn ($1.3bn) in investments were brought in. A substantial amount of these funds were categorically targeted towards green technology, small and medium-sized enterprises and biotech firms. The individual industrial parks in the state play a large role in attracting these investments. With the existing 11 industrial zones accounting for 1780 ha, many companies have been expanding their operations here in recent years.

Despite being the third-smallest state in Malaysia, Melaka is still twice the size of Singapore, leaving significant room for industrial and commercial expansion. In order to maximise land utilisation, it is essential that a heavy emphasis be put on high-tech industries. With a total of 32 colleges and 10 universities, we have the facilities to make certain the proper human capital is in place to meet the demands of highly skilled industrial activity. Furthermore, being that nearly one-third of Melaka’s landmass is reserved for a water catchment area and other environmental purposes, it is imperative to ensure that each investment adds high value to the state’s economic ecosystem.

What sets Melaka’s development plan apart from the other states in Malaysia?

RUSTAM: In 2010 Melaka fulfilled the benchmarks used by the Organisation for Economic Cooperation and Development to be officially declared an advanced state. The state’s income gap is comparatively quite low with the average being 1:1.27, while the countrywide average stands at 1:1.99. The state also has exceptionally sound public infrastructure with water, health clinics, and telecommunications all fully accessible to rural areas and villages. The next step will be to reach city-state status. Green technology will play a major role in this respect. We have formed an in-state council to enhance Melaka’s ongoing green initiatives. The federal government’s target to reduce carbon emissions 40% by 2020 will complement Melaka’s objectives.

Melaka has attracted a number of investments in solar panel manufacturing in recent years. On an industrial level, many firms see efficiencies in importing solar cells from lower-cost production centres in ASEAN, and then assembling them in Malaysia for export. Also under way is a 9-sq-km sustainable carbon-free city, which will be primarily powered by solar energy, and will attract over $30bn in investments. Melaka already has three solar farms that sell electricity to the national grid. In the future, we see a significant opportunity for the federal government to allow residences to access solar power directly from the grid system.

How can Melaka improve its status as a major tourism destination within the country?

RUSTAM: The tourism industry currently has a major multiplier effect on the country’s economic wealth.

However, with the current average tourist expenditure only $100, there remains significant room for improvement. Of the 12m tourist arrivals that Melaka received in 2011, only 25% were foreigners. With these annual arrivals expected to grow rapidly in the coming years, we foresee a sizeable shortage of hotel rooms, particularly in the four- and five-star segment. Recent studies show the market will be able to absorb another 12,000 rooms. Newly introduced investment tax allowances and income tax exemptions are proving successful in attracting more international brands, especially to the Melaka Tourism Development Belt, an area earmarked as a major tourism development corridor. We see great potential for increased tourist arrivals from Indonesia, China and India, as well as other ASEAN region countries. Furthermore, there are discussions under way to have a double-track rail between Kuala Lumpur and Johor Bahru with a connection in Melaka.