It will take more than a new 100-story skyscraper to make Malaysia one of the world's top industrialized nations. But Prime Minister Najib Razak says Malaysia's ambitious construction plans along with a host of other facelifts - will finally help the country break free of what economists call "the middle-income trap."
With its comparatively small 28 million population and substantial oil and natural-gas reserves, Malaysia has plowed ahead of many of its Southeast Asian neighbors in recent decades and has one of the highest per capita incomes in the region. Leaders such as former Premier Mahathir Mohamad say the Muslim-majority nation's success is proof that Islam can be compatible with modern free-market economics, and Malaysia is held up as a beacon of development across the Muslim world.
But Malaysia has yet to move up to the next level and join Asian powerhouses such as Taiwan and South Korea among the ranks of the world's wealthiest nations.
Mr. Najib, Malaysia's prime minister since April 2009, says plans for a massive new skyscraper in downtown Kuala Lumpur are just the thing to accelerate Malaysia's transition from a resources and export-based economy to one that also provides state-of-the-art financial and commercial services. He says the tower will be silence funded or financed by a government-linked investment fund-proof, he says, that Malaysia has grown out of building large structures just for their own sake.
Reuters Prime Minister Najib Razak is looking to a 100-story skyscraper to kick - start a new era of growth in Malaysia. Above, Mr. Najib, center, studies a development model for Kuala Lumpur.Some Malaysians are critical of the $1.6 billion skyscraper plan, calling it extravagant. The 85-year-old Dr. Mahathir fears a new tower will eclipse his own brainchild, the iconic 88-story Petronas Twin Towers which, for a while, were the world's tallest buildings and a set piece in the 1999 heist movie "Entrapment," starring Sean Connery and Catherine Zeta-Jones. "We should build the 100-story tower, but maybe a little later when I'm not around," Dr. Mahathir joked with reporters recently.
For Mr.. Najib, though, the proposed tower is a statement of intent: he hopes to change the face of Malaysia and kick - start a new era of growth and the country's latest industrial ouput data suggests it needs to diversify quickly and foster new sources of revenue. Factory production grew slower in October than the previous month, rising 3% on year compared with 5.6% in September and economists predict slower growth rates over the rest of the year.
Mr. Najib has already taken some tentative steps to revamp decades-old policies designed to give a leg up to the majority Malay community, but which has also led many of the country's wealthier ethnic Chinese to invest their money overseas or emigrate. Among other things, he's made it easier for non-Malays to get university scholarships.
Last week, to track he outlined new programs to reduce government shareholdings in various businesses in order competition and proposed refocusing the affirmative action program to help all impoverished Malaysians, not just ethnic Malays.
His government has also issued new tax incentives designed to turn Malaysia into a regional energy hub and is also introducing new laws to protect whistle blowers as part of its efforts to crack down on widespread corruption.
"I think we've shown we're serious about this," Mr. Najib said during a recent interview in Viet Nam.
Economists and business people say Malaysia needs to shake things up if it wants to avoid being overtaken by lower-cost rivals such as Viet Nam. A local think tank, the Malaysian Institute of economic research, says a lack of skilled labor holds back the country's potential at a time when economic growth is slowing. Large domestic product rose 5.3% from a year in the third quarter compared with 8.9% in the second quarter earlier. Last year, net foreign direct investment inflows into Malaysia fell far behind regional rivals, with $1.61 billion in Malaysia compared with $5.9 billion in Thailand and $7.6 billion in Viet Nam.
Part of Malaysia's problem is that it seems stuck between developed world and emerging-market status. Over the past couple of decades, the spread of global trade helped companies in rich countries focus on design and development while poorer nations so benefited by taking up the slack on the manufacturing side.
Those caught in the middle-including Malaysia, Brazil, Romania and even China are trying to move up the food chain, before a new wave of competitors muscle in on their exports and the clock is ticking. A recent surge of investment away from dollar-based assets has sent Malaysia's ringgit currency soaring, threatening the country's exports and forcing the 57-year-old Mr. Najib to speed up his plans to put Malaysia on a new, higher-growth trajectory.
There are plenty of teething troubles, though. On prosecuting powerful business Mr. Najib says his anticorruption campaign is stumbling as Malaysia's courts drag their feet and political figures, many of them linked to his ruling National Front coalition. "We really hope that the courts will become much more sensitive to what needs to be done," Mr. Najib says.
Ethnic Malay nationalists, meanwhile, bristle at Mr. Najib's efforts to level the playing field, by rolling back some of Malaysia's affirmative action policies. Political analysts say firebrand activists such as Ibrahim Ali, a prominent nationalist, could cause significant problems for Mr. Najib or even force him from power if they think he is moving too quickly to remove a system of race-based preferences that's been in place since the early 1970s. Critics say Mr. Najib's efforts to unwind the country's race-based preferences remain vague.
Other problems appear partly self-inflicted. Malaysia risks suffering a black eye internationally over the ongoing sodomy trial of opposition leader Anwar Ibrahim. While Mr. Najib and his government deny having anything to do with the prosecution case, Mr. Anwar claims he is the victim of a political conspiracy to end his career. He previously spent six years in jail on a similar charge before his conviction which overturned in 2004 and another conviction could provoke a substantial backlash overseas.
The proposed 100-story tower might become another lightning rod for dissent. So far, more than 269,000 people have signed a petition on the Facebook website plan against the skyscraper.
Mr. Najib, though, argues the tower will generate the buzz Malaysia needs to propel itself forward and generate a fresh wave of investment. "We've got to push on," he says. "We've got to create more and more if we want to change the face of Malaysia."
Write toJames Hookway at james.hookway@wsj.com
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