EXECUTIVE SUMMARY
- To re-engage economically with the Indo-Pacific region, US President Biden launched the Indo-Pacific Economic Framework for Prosperity (IPEF) in May 2022, with 14 countries signing on, half of them from ASEAN.
- More of a framework for setting rules and standards than a free trade agreement, it comprises four policy pillars: trade; supply chains; clean economy; and fair economy.
- For Malaysia, IPEF could help restore market access to the US by relaxing Withhold Release Orders (WROs) that ban exports of companies facing forced labour allegations.
- Malaysia also expects that the ease and frequency with which trade sanctions are applied in the future will be better managed as a result of IPEF.
- One problem with IPEF is that, without the inclusion of China, it is of limited usefulness to countries with China-centred supply chains, like Malaysia. Worse than that, any potential benefits could be more than offset if it fuels US-China tensions and leads to actions that further disrupt supply chains and trade.
* Jayant Menon is Senior Fellow at the ISEAS – Yusof Ishak Institute. He thanks Cassey Lee, Siwage Negara and Tham Siew Yean for useful comments, without implicating them in any way.
ISEAS Perspective 2023/64, 1 August 2023
INTRODUCTION
In a bid to re-engage economically with the region, United States (US) President Biden launched the Indo-Pacific Economic Framework for Prosperity (IPEF) in Tokyo on 23 May 2022. Malaysia joined six other Association of Southeast Asian Nations (ASEAN) fellow members – Brunei Darussalam, Indonesia, the Philippines, Singapore, Thailand and Vietnam – to sign on as participating countries, together with Australia, Fiji, Japan, India, Republic of Korea, and New Zealand. These countries account for about 40 per cent of world GDP.
The much-awaited return of the US to the region as an economic partner was met with great expectations, and standards by which IPEF is to be judged have been set accordingly high, also leaving a lot of room for disappointment. Expectations may be unreasonably high because they are probably still based on the view that the US is the original guarantor of a rules-based trading order, rather than its more recent performance that has seen it undermine the World Trade Organisation’s (WTO’s) Dispute Settlement Mechanism and disregard some of its rulings, such as against the Trump tariffs on iron and steel, among other things.
This Perspective is in four parts. The next two sections provide context by first introducing IPEF and its structure before reviewing Malaysian trade policy, focussing on its free trade agreements (FTAs) and trade governance. The section after that deals with the two most important pillars for Malaysia, i.e. trade and supply chains. The discussion on these two pillars is combined because it does not make sense to separate the two from an economic point of view for a country like Malaysia, albeit that it might be from a national security or geopolitical standpoint for a country like the US. (For completeness, the pillars on clean and fair economy are discussed in the Appendix because there is little here that is likely to have material impact on Malaysian policy making.) A final section concludes.
WHAT IS IPEF?
IPEF is not an FTA or a traditional trade agreement but more of a framework for setting rules and standards. It is also a White House Initiative, and the Biden administration has indicated that it will not be submitted to Congress for approval but will be implemented in whole or in part through Executive Order (see Freeman 2022). The framework comprises four policy pillars: trade; supply chains; clean economy (energy, decarbonisation and infrastructure); and fair economy (tax and corruption). Employing a modular approach, member countries can choose which policy pillar to sign up for but have to abide by all the commitments within the selected pillar(s).
The lack of market access provisions through the exchange of concessions is greatly lamented, and calls for reconsideration to bring them back onto the negotiating agenda are frequent. IPEF is very much about market access, however, but just not in the way that it is traditionally understood. While it may not improve market access of IPEF members to the US, it will certainly affect market access of US firms to other members’ markets, because almost every other item on the agenda, from digital trade rules to environmental or labour standards, will affect competitiveness. In the same vein, Malaysia’s interpretation of market access, as will be shown, is also slightly different and IPEF could be used to serve its interests in this area.
THE MALAYSIAN TRADE POLICY CONTEXT
Malaysia is a small, open economy that has a long history of embracing free and open trade and investment policies. In fact, prior to the 1997-98 Asian Financial Crisis, Malaysia was often hailed as a model worthy of emulation by the developing world of how such liberal trade and investment policies could transform economies and avoid the middle-income trap.
Malaysia has pursued liberalisation through its participation in the WTO and through unilateral actions and FTAs. As of June 2023, Malaysia is implementing 18 FTAs (Table 1) and is negotiating five more.[1] It has bilateral FTAs with 4 IPEF member countries – Australia, India, Japan and New Zealand – and is in the process of negotiating one with two others – Republic of Korea and the US.
Table 1
Malaysia’s Trade Agreements ‘In Effect’, June 2023
Source: Asia Regional Integration Center, ADB. https://aric.adb.org/fta
Notes: The number in parentheses refers to the number of countries participating in IPEF
Despite negotiations having commenced in 2006, Malaysia does not look like ever concluding an FTA with the US, and this raises the question as to the extent IPEF can effectively substitute for the absence of such an FTA. The short answer appears to be ‘very little, if at all’. So far, the US is not providing the same treatment to IPEF members as it is to countries that it has an FTA with. A stark contrast that highlights this discrepancy arises in relation to the clean economy pillar and ‘green’ investments (more later).
The question of overall value-addition combined with the recent political and policy climate in Malaysia may also affect the appetite to aggressively pursue a new and challenging agreement like IPEF. Since 2020, Malaysia has had four Prime Ministers and three Ministers of the Ministry of International Trade and Industry (MITI). To provide context, it has had the same number of Prime Ministers and Minsters of MITI in the last 3 years as it has had in the preceding 3 decades. In short, the political and trade policy environment has been in a state of flux over recent years. This is one reason for the delay in ratifying the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which finally happened on 30 September 2022, making it only the 9th (out of 11) member to do so.
Some stability has returned with the current Anwar Ibrahim administration, with Tengku Zafrul Aziz, the former Finance Minister, in charge of MITI. The CPTPP came into effect on 29 November 2022, soon after the Anwar administration took office. The current administration has reiterated support for the CPTPP, despite some concerns from domestic lobbies, and the Minister of MITI had the following to say in January 2023: “There were obviously some issues that were raised by various groups, and we have addressed that by taking action to mitigate some of the concerns, so we are very much committed to participating in it (CPTPP).”[2]This bodes well for the current administration’s free trade credentials, and therefore for the IPEF.
TRADE AND SUPPLY CHAINS (PILLARS 1 AND 2)
As noted, pillars 1 and 2 on trade and supply chains, respectively, are the most important to Malaysia. In fact, most of Malaysia’s trade involves supply chains and separating the two does not make much economic sense for a country like Malaysia. Nevertheless, the issues covered in the trade pillar have already had a significant impact on trade relations with the US, particularly as they relate to labour and environmental standards.
Former MITI Minister Azmin Ali has indicated that Malaysia sees IPEF as providing a platform to open engagement with the US in resolving the withhold release orders (WROs) that have been imposed by US authorities on Malaysian exports (MIDA 2022). US authorities currently have six active WROs on Malaysian companies, four on rubber gloves and two on palm oil, due to allegations of forced labour. The WROs prohibit the import of products originating from companies facing forced labour allegations.
Will IPEF be able to deliver on helping address the WROs or other punitive trade measures? Two out of the six WROs have been modified in early 2023 and there is another precedent of sorts that provides room for optimism that IPEF can help. Just two weeks after IPEF was launched on 23 May 2022, the Biden administration lifted a transhipment ban that had been imposed following a complaint by a US-based solar company. Malaysia (along with Cambodia, Thailand and Vietnam) was suddenly provided with a 24-month tariff exemption in the US market for their exports of solar cells and modules. The timing suggests a possible link between the two events.
Therefore, even if IPEF does not include the exchange of market access concessions in the traditional sense, it may provide the opportunity to reverse binding restrictions and restore market access for countries like Malaysia. It may also allow Malaysia an avenue to better manage similar issues should they arise in the future.[3] The recent relaxation of WROs on two companies and the 24-month tariff exemption following the transhipment allegations on solar products suggest that this might be possible. Nevertheless, the increasing influence of the US Department of Commerce in setting the trade agenda (see Alden, 2022; 2023) has increased the weaponisation of trade policy. This needs to be checked and better managed for fear that its impacts on a growing number of non-trade related areas will cause significant disruption to countries on the receiving end.
Malaysia is keen to grow its digital economy and the rules relating to it coming from IPEF may be significant. If the IPEF negotiations on digital trade and data flows can further the agenda beyond that of other bilateral (eg. the Framework of Cooperation with Singapore), regional (CPTPP, but also ASEAN, APEC, etc.), or multilateral (WTO) initiatives, then the impact of IPEF could be transformative. Details are still sparse, but the potential is certainly there to make IPEF a significant part of Malaysia’s trade policy. The negotiations in this area are not without risk, however. With the European Union and China also pursuing their own approaches to digital governance, the possibility of a “splinternet” emerging that fractures the global system needs to be avoided.
Malaysia will also be impacted by the first tangible results of the year-long negotiations, relating to supply chain resilience. Following the meeting in Detroit on 27 May 2023, US Commerce Secretary Gina Raimondo announced “substantial progress” towards an IPEF Supply Chains Agreement, although the final text is yet to be agreed upon.
Three new structures are being created to operationalise the agreement:
- The first is the IPEF Supply Chain Council, which is supposed to better coordinate supply chain activities and help build resilience and competitiveness in certain critical sectors. The council will apparently oversee the development of “action plans” for these sectors that may help companies identify and address supply chain vulnerabilities.
- Second is an IPEF Supply Chain Response Network that is designed to give early warnings to IPEF countries of potential supply disruptions. With a new “emergency communications channel”, it is expected that IPEF members can streamline communication and coordinate a response when one or more IPEF parties faces a supply chain crisis.
- Finally, an IPEF Labor Rights Advisory Board made up of government, worker, and employee representatives is being proposed. This Board is apparently required to identify areas where certain labour rights are being violated.[4]
Although a tangible outcome such as the IPEF Supply Chain Agreement after just one year should be welcomed, the operational details are not yet available and need to be studied before any judgement on its practical use can be made. A careful study of the Press Statement on the Substantial Conclusion of IPEF Supply Chain Agreement Negotiations, posted on the US Department of Commerce official website,[5] reveals very little of substance, unfortunately. In fact, Beattie (2023) describes the announcement, which is all that is available as of July 2023, as “a mass of abstract verbiage with a tangle of subclauses festooned with adjectives and adverbs layered two or three deep.” In short, it is mostly aspirational and very thin on practical details, with what little details that are provided being so heavily qualified that they can be interpreted to suit a diverse range of interests.
What we do know, however, is that China is not a part of IPEF or this agreement, and this is a major concern to Malaysia and other ASEAN members involved in regional supply chains. This is because almost all manufacturing supply chains that involve Malaysia and other ASEAN countries are China-centred. It is with this pillar that the exclusion of China is most significant, and greatly undermines its value to a country like Malaysia. The high level of interdependence that characterises supply chains highlight the importance of including all players, especially critical ones like China. The exclusion of China is a major constraint and could undermine the usefulness of this pillar to ASEAN members of IPEF, including Malaysia.
More than being of limited use by excluding China, the supply chain agreement could actually harm Malaysia and other countries with China-centred supply chains. This is because the US expects to get IPEF members to buy into its ‘resilience and competitiveness’ framework and support its national security interests by limiting engagement and dependency on China. Arasasingham et al. (2023) argue that the US hopes the agreement will encourage other members to also start reshaping their supply chains in line with the broader US friend-shoring agenda that incentivises supply chain relocation to countries that do not pose a perceived national security threat. In exchange for this, members are being offered various capacity building and training programmes, and the possibility of greater FDI flows during an unspecified future. This is not a bargain that countries like Malaysia are likely to find beneficial.
When it comes to regional supply chains, an early warning system will only be useful if its predictions are reliable. This in turn will depend on how willing member states are to share information on a timely basis. Although supply chain networks are characterised by a high level of interdependence, countries involved can sometimes operate more as competitors than collaborators, and may not always be willing to share information on a timely basis, especially if it is considered to be sensitive or proprietary in nature.
The supply chain initiative needs to be able not only to identify emerging risks but also be able to respond to them in an effective and timely manner. All of this suggests that the details need to be examined before the initiative is hailed as a breakthrough, as some have already done.[6]
As noted earlier, embedded within the supply chains agreement is a new labour rights advisory board aimed at raising labour standards in supply chains. Labour issues were meant to be part of Pillar 1 on trade but has also found its way into Pillar 2 on supply chains and could arise in other pillars as well, further emphasising the so-called ‘worker-centric’ nature of IPEF. The extent to which this body will raise standards to protect workers as opposed to removing the cost competitiveness that developing countries have with labour supply, is yet to be seen. Suffice to say that developing countries tend to view the introduction of labour standards into trade negotiations with a high level of suspicion.
CONCLUSION
Using trade agreements to pursue non-economic ends, whether through formal FTAs or frameworks like IPEF, is neither new nor unique to the US. In fact, most trade agreements probably have more to do with international diplomacy and politics than with trade or investment. IPEF is not an exception. The outstanding trait with IPEF, however, is how much it asks of its members in return for how little it promises to provide – it is almost all stick and no carrot. This is particularly problematic since there is no mechanism to bind countries to make good on their commitments.
What Malaysia expects to derive from IPEF may differ from that of other members. For Malaysia, participation in IPEF could serve as insurance against punitive trade policy actions by the US and provide the opportunity to resolve existing trade frictions. IPEF could help restore market access by relaxing the remaining Withhold Release Orders (WROs) on four companies banning their exports to the US market. Malaysia also expects that the ease and frequency with which trade sanctions are applied in the future will be better managed as a result of IPEF.
A remaining unknown relates to digital trade. The potential exists for IPEF to be transformative for countries like Malaysia if it can deliver in this area in a way that moves the frontier while avoiding the risk of a “splinternet” emerging.
These potential benefits of IPEF need to be weighed against a worst case but highly plausible scenario where the creation of IPEF further fuels US-China tensions and leads to further retaliatory actions. This is likely if IPEF is viewed as an attempt by the US to export its national security agenda to the region. If retaliatory actions further disrupt the operations of regional supply chains, possibly causing bifurcation, then the cost to Malaysia and other ASEAN countries may be so high as to outweigh any benefits.
The problem is that the IPEF without China is, to a large extent, economically meaningless to countries like Malaysia, and potentially quite disruptive and costly. To expect that this might change would be unrealistic if a key underlying motivation of its main proponent(s) is to counter the rise of China’s influence in the region, which appears to be the case.
APPENDIX
CLEAN ECONOMY AND FAIR ECONOMY (PILLARS 3 AND 4)
For the issues covered in the pillars on clean and fair economy, Malaysia’s main policy response will be determined by either national actions and priorities or commitments to existing international agreements, rather than IPEF. For clean energy, Malaysia has updated its Nationally Determined Contribution target to reach net-zero greenhouse gas emissions by 2050. This is a major challenge[7] and IPEF could play a complementary role in helping Malaysia meet its commitments, but not with its current configuration. At the moment, IPEF will not have much of an impact unless it is upgraded to at least the standard applied in US FTAs.
The US has comprehensive FTAs in force with 20 countries, of which four are in IPEF, namely Australia, Republic of Korea, Japan and Singapore. Since Malaysia has not concluded an FTA with the US, it will not receive the same treatment as these four IPEF members or other non-IPEF countries that the US has an FTA with, and this discrepancy is at its greatest in relation to the green economy.
The Inflation Reduction Act (IRA) grants tax credits to companies if a certain percentage of the value of critical minerals in electric vehicle batteries, for instance, is extracted or processed in the US or in FTA partner countries but this does not automatically extend to IPEF members. The fact that a critical minerals agreement was signed with Japan in March 2023 as a bilateral deal that allows it to access IRA tax credits further erodes the relevance of IPEF to other members. It is this type of discrimination that is undermining the value of IPEF, in particular, and as a serious attempt to economically re-engage with the region, in general.
With respect to the pillar on fair economy, it should be noted that Malaysia is already a signatory to the Multilateral (Tax) Instrument to Prevent Base Erosion and Profit Shifting, or BEPS. There are also various governance issues relating to corruption and the performance of Government Linked Companies (GLCs) that need to be addressed, but this will mainly require national actions (Menon and Ng, 2019). Furthermore, now that Malaysia has ratified the CPTPP, there may be little that IPEF can add to the binding commitments already made to the reform agenda in this area.
REFERENCES
Edward Alden, “Why the U.S. Trade Office No Longer Runs Trade”, Foreign Policy, (7 March 2023). https://foreignpolicy.com/2023/03/07/ustr-tai-trade-biden-america-first-china-decoupling/
Edward Alden, “Biden’s ‘America First’ Policies Threaten Rift with Europe”, Foreign Policy, (5 December 2022). https://foreignpolicy.com/2022/12/05/biden-ira-chips-act-america-first-europe-eu-cars-ev-economic-policy/
Aidan Arasasingham , Emily Benson , Matthew P. Goodman , and William Alan Reinsch, “Assessing IPEF’s New Supply Chains Agreement”, CSIS, Washington, DC. (31 May 2023). https://www.csis.org/analysis/assessing-ipefs-new-supply-chains-agreement
Robert Atkinson, “Biden’s Indo-Pacific Economic Framework Is a Paradigm Shift”, Foreign Policy, (1 July 2022). https://foreignpolicy.com/2022/07/01/biden-ipef-indo-pacific-trade-economics-china/
Alan Beattie, “The US trade pledge to the Indo-Pacific is empty”, Financial Times, (8 June 2023). https://www.ft.com/content/42a87796-8228-445b-8ad5-63a5c35d5144
Mei Mei Chu, “Malaysia needs to invest $375 bln in renewables to reach 2050 climate goals – report”, Reuters, (9 March 2023). https://www.reuters.com/business/energy/malaysia-needs-invest-375-bln-renewables-reach-2050-climate-goals-report-2023-03-09
Kyle Freeman. The Indo-Pacific Economic Framework (IPEF) is Not a Free Trade Agreement, but Will Be Judged on the Same Principles, China Briefing, (1 June 2022). https://www.china-briefing.com/news/ipef-not-an-fta-will-still-be-judged-like-one-op-ed/
David Lawder, “U.S.-led Indo-Pacific talks produce deal on supply chain early warnings”, Reuters, (28 May. 2023). https://www.reuters.com/markets/asia/us-led-indo-pacific-talks-produce-deal-supply-chain-early-warnings-2023-05-27/
Malaysian Investment Development Authority (MIDA). Malaysia’s involvement in IPEF will help resolve Withhold Release Orders issues, says Azmin. (1 August 2022). https://www.mida.gov.my/mida-news/malaysias-involvement-in-ipef-will-help-resolve-withhold-release-orders-issues-says-azmin/
Jayant Menon. “Supply chains are more resilient than they appear”, East Asia Forum, (3 July 2022). https://www.eastasiaforum.org/2022/07/03/supply-chains-are-more-resilient-than-they-appear/
Jayant Menon and Thiam Hee Ng, “Do State-Owned Enterprises Crowd Out Private Investment?: Firm Level Evidence from Malaysia”, Journal of Southeast Asian Economies, Vol. 34, No. 3, (September 2017): 507-522.
ENDNOTES
For endnotes, please refer to the original pdf document.
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EXECUTIVE SUMMARY
- The Quad has rapidly emerged as a key new form of ‘minilateralism’ in Asia. It is valued by its members as a venue to signal their cooperation on regional priorities, driven by their shared perception of China as a threat to the present regional strategic balance and to their individual security interests.
- Originally focused on security cooperation, the Quad has opted to work on collaborative endeavours purported to advance regional order through public goods provision.
- In recent years, the Quad has expanded its cooperative domains and initiatives, which gives the appearance of a dynamic and fast-developing grouping. This expanding range of initiatives has yet to produce meaningful results, and their implementation lacks coordination and coherence. At the same time, the grouping seems to neglect security matters, and its existence has done little to constrain China’s behaviour.
- The Quad has potential but needs to reform its approach by developing a narrower range of activities, focusing on delivery, and ensuring coherence between its order-building ambitions and the substance of its public goods provision.
- Although the Quad’s new minilateralism was created because of the perceived shortcomings of existing ASEAN-led multilateralism, the Quad runs the risk of becoming another talking shop if it fails to focus on substantive delivery.
- In an era of great power competition, building inter-state consensus, policy coordination and cooperation has become extraordinarily difficult for both established forms of multilateralism and new types of minilateralism.
* Guest writer Nick Bisley is Dean of Humanities and Social Sciences and Professor of International Relations at La Trobe University, Melbourne, Australia.
ISEAS Perspective 2023/63, 28 July 2023
INTRODUCTION
The third Quad leaders’ summit had been expected to be a visually stunning affair at the iconic Sydney Opera House. The leaders of Australia, India, Japan and the US had planned to signal the Quad’s coming of age with an expansive agenda of cooperation. Yet, Joe Biden’s budget wrangling with House Republicans led to the cancellation of the event in Sydney and critics immediately highlighted how US domestic politics was damaging its global ambitions.[1] A compressed Quad summit was held at the sidelines of the G7 meeting in Hiroshima, which felt shorter than it took to read the various documents that were issued in its name.[2] The vision of the Quad offered at the summit, the shopping list of activities, statements and principles, are an underwhelming product for six years of much ballyhooed cooperation between four of Asia’s most important democracies. Despite its high profile, the Quad has not yet found its place as a meaningful contributor either to regional stability or order building.
The Quad is one of the most prominent examples of Asia’s ‘new minilateralism’.[3] This form is notable because such groupings tend to be exclusive and competitive, whereas the region’s longstanding multilateral forms have been inclusive in their approach to participation, and cooperative in terms of their strategic dynamic.[4] Furthermore, their creation has been prompted by a lack of confidence in the existing security architecture and they present a nascent challenge to ASEAN centrality in that architecture, and to regional cooperation more generally. The Quad has mobilised the attention of four significant regional powers and has rapidly developed a wide-ranging agenda focused primarily on the provision of international public goods. It has lofty ambitions to support and defend a broadly liberal vision of the region’s international order and has relatively swiftly developed a considerable profile.
The grouping clearly has significant potential. Yet the Quad’s ability to realise this has been hamstrung by a lack of focus, illustrated by an ever-expanding list of activities which have achieved little to date. Among a wide array of activities announced, none has made a meaningful contribution at the regional level. The Quad lacks a coherent plan to link its high-level aims to policy action that advances those goals. More pressingly, without a significant focus on substantive delivery, there is a very real risk that the Quad will become just another talking shop. This Perspective provides a critical analysis of the Quad, its strengths and limitations, and assesses its implications for the broader strategic dynamics in an increasingly contested region.
TAKING STOCK
First established in 2007, the grouping was formally referred to as the ‘Quadrilateral Security Initiative’. It brought together Australia, India, Japan and the US to coordinate activity regarding shared regional security concerns.[5] Japan’s Abe Shinzo was the group’s most visible advocate, although the idea had a strong undercurrent of American leadership, with both New Delhi and Canberra being somewhat reluctant participants. The group dissolved within 12 months, reflecting the lack of consensus among the four about the need for such a body.[6] Ten years later, the Quad was brought out of the deep freeze to work on their increasingly shared concerns about the region’s deteriorating security environment. While rarely articulated in public, the motivation for its resuscitation was a shared perception of the threat that Xi Jinping’s China presented to the strategic balance in Asia and to their individual security interests.[7] Tellingly, the group has rebranded itself as the ‘Quad’, ditching the security initiative from its formal moniker.
The Quad held its first meeting at the sidelines of the 2017 East Asia Summit (EAS) at the senior officials level.[8] This was followed by a number of meetings between officials and military officers, including a gathering of an admiral from each country at the Raisina Dialogue in New Delhi in 2018.[9] In 2021, they established the annual Leaders’ summit intended to signal the Quad’s importance through the dedication of top political time as well as to ensure an ongoing focal point to sustain momentum. US President Biden hosted the first Quad summit; the most recent, originally planned in Sydney in May 2023, was hastily rearranged to be a 45-minute gathering in Hiroshima. The foreign ministers of the Quad countries took the opportunity of 2022’s UN General Assembly in New York to convene their first annual ministerial meeting and the most recent one was held in New Delhi in March 2023.[10]
The annual leaders’ summits have become the venue at which increasingly lengthy statements are made about the purpose of the Quad and where they lay out the ways in which the four are seeking to make good on their ambitions. The first of these reads as something of a foundational document. Their vision for the grouping is impressively ambitious: the Quad aims to promote “the free, open, rules-based order, rooted in international law and undaunted by coercion, to bolster security and prosperity in the Indo-Pacific and beyond”.[11]
The Quad began life as a security-focused grouping with an emphasis on concrete areas of security and defence cooperation. Initial discussions focused on coordinating security policy, and operational aspects of their shared maritime security concerns prompted by China’s rise. Scholars and analysts had expected that the Quad would have defence and security matters at its core.[12] Since 2021, however, the Quad has ventured into broader areas of collaboration mainly related to public goods provision. It has become a body that works on a much more expansive and wide-ranging set of policy areas, and indeed those military-focused security matters are conspicuous by their absence. At the Hiroshima summit in 2023, the leaders issued a fact sheet which set out an extensive list of the Quad’s key initiatives. These are in relation to infrastructure, maritime security, climate, health, critical and emerging technologies, space and even public-private partnerships.[13] This widening-out of policy domains for cooperation has real potential but also some significant problems.
Despite the breadth of areas in which the Quad is seeking to cooperate, it does not have a substantive agenda working on economic matters beyond a number of programmes relating to infrastructure such as enhancing cooperation among their export credit agencies. There seems little appetite for taking this on in the future. Given the importance that the Quad members now put on the broader non-security contributions to order building and their emphasis on a particularly liberal vision for the region, their lack of an economic dimension is remarkable. It is doubly so given how China has been effectively using geoeconomic policies to advance its international policy goals. It is illustrative of gaps that exist between the Quad members on economic policy. It is also a function of the significant domestic problems that each member would face, especially the United States and India, were they to try to advance meaningful cooperation in economic matters along liberal lines. It also puts real limits on what they can achieve in trying to shape and defend a liberal vision for the region.
The Quad has put its label on a series of perfectly laudable and reasonable programmes that while worthy, are not really going to make a difference to the larger ambitions to protect a stable, rules-based liberal regional order in the face of the challenge presented by ambitious authoritarian powers. Take for example the Quad STEM Fellowship which allows scholars in various science and engineering fields to spend time in the US. The aim is to develop “a network of science and technology experts committed to advancing innovation and collaboration in the private, public, and academic sectors, in their own nations and among Quad countries.”[14] It is run by Schmidt Futures, a philanthropic initiative of one of Google’s founders. It is clearly a worthy programme but when set against the aims of defending the international rules-based order in Asia, it seems an initiative on the wrong scale and time horizon.
Even in initiatives linked to maritime security such as the Indo-Pacific Partnership for Maritime Domain Awareness, the grouping has so far delivered very little. There are three small pilot programmes whose contributions are not well known and the slowness with which the programme has developed provides little confidence that it can achieve the ambitions of improving maritime domain awareness in a maritime region as vast as the Indo-Pacific. Certainly, if the grouping could enhance the ability of states across the region, and not just the Quad members, to deal with maritime security issues such as illegal unreported and unregulated fishing, then it would be a real contribution.[15] As yet, however, there’s not much to show for six years of problem-focused cooperation between four of the region’s most significant maritime powers.
The decision to move away from a security-first focus was in part prompted by the recognition that regional order is multi-dimensional and that a full-spectrum programme of collaboration was needed to deliver on the grouping’s aims; to defend a liberal order requires a good deal more than better coordination of naval capabilities and intelligence sharing. It was also an attempt to manage the regional consequences of creating a new and potentially influential grouping intended to limit China’s influence and contain its ambitions. The four did not want to be seen to be unnecessarily provoking confrontation. This desire to emphasise reassurance over deterrence seems to have two larger problems. Most obviously, the Quad’s attempts to advance the broader public goods elements have been unimpressive thus far. The issue areas are patchy and uneven, they lack coordination, and a coherent vision for its contribution is difficult to discern. The other problem is that the Quad seems to have taken its eyes off security matters. While it is entirely correct to recognise that regional security interests are wide-ranging and multi-dimensional, it is critical that the hard power elements are not neglected altogether. Some analysts have argued for this to be rectified in the lead up to the 2023 summit,[16] yet it seems to no avail. Equally, there are reports that there is some frustration amongst the group, emanating most strongly from Washington, about the lack of focus on these matters; but these have not flared into public view as yet.
Despite this, the Quad remains significant for its members and for the region. One obvious area in which it makes a difference is the way that it structures the bureaucracies of the four states and improves their capacity to work together. One of the reasons why the Quad has found it difficult so far to deliver on its ambitions is the lack of experience working with one another in these new areas. The regularity of the meetings and interactions is going to increase this capacity over time. For some members, most notably Australia and Japan, the Quad also acts as a useful focal point for their bureaucracies to sustain focus on India. Improving ties to the world’s most populous democracy has been a priority stated by Australian governments for over a decade, but one that Canberra has found difficult to sustain due to capacity constraints within the various ministries. The Quad provides a key focal point for the Australian bureaucracy not only to work on the programme of collaboration between the four but also to sustain cooperative engagement with interlocutors in New Delhi in their bilateral ties. It also offers a way in which Tokyo and Canberra can exert leadership in a large and complex region where their geopolitical clout is decidedly second-tier.
The Quad has proven to be adept at moving from stasis to being a high-profile example of the new minilateralism. Yet, judged against its ambition to work “for a region that is peaceful and prosperous, stable and secure and respectful of sovereignty”,[17] the Quad so far has done very little. It is a textbook example of attempting to do order building or strategic policy through press releases and leaders’ vision statements. Unless changes are made, the ability of the Quad to realise its ambitions in a highly contested geopolitical space will ultimately be limited.
IMPLICATIONS FOR SOUTHEAST ASIA
From a Southeast Asian perspective, the Quad represents a potential challenge to ASEAN and its interest in remaining at the centre of regional security cooperation. Given the strategic and economic weight of its four members and the Quad’s promise of concrete cooperation on security matters, one can see why supporters of ASEAN centrality might have been concerned. The speed with which the Quad moved from the sidelines of the EAS to high-profile leaders’ summits may have been a source of some trepidation. The contrast between the Quad as a nimble start-up and the slow and tired incumbent ASEAN was striking.
The Quad has taken pains in recent years to speak at great length about the importance of ASEAN centrality and the Southeast Asian grouping more broadly.[18] The members take almost every opportunity to emphasise that their grouping is fully compatible with ASEAN institutions, norms and practices. Yet, the stark reality remains that multilateralism, understood as a broader practice in which groups of states get together to coordinate policy settings, is in poor shape in the region. The Quad’s re-creation reflected its members’ lack of confidence in the ability of Asia’s security architecture that had been created in the 1990s and early 2000s.[19] ASEAN had been a critical player in creating many aspects of the network of multilateral structures and processes, such as the EAS and ASEAN Regional Forum (ARF). But these structures and processes did not provide the assurance that the Quad members felt was needed in the face of a deteriorating regional security environment. They thus opted to re-animate the entity that had been established a decade earlier.
The new minilateralism was created because of the perceived shortcomings of the existing regional forms of multilateralism. Yet, the contested geopolitical dynamics and the diverging interests at play in this large and complex region means that building consensus and achieving policy coordination and cooperation to address critical issues are extraordinarily difficult, even within a small grouping of self-styled ‘like-minded’ states such as the Quad. The visible gaps that exist between its members in relation to Russia’s invasion of Ukraine is a clear reminder of the challenges involved in aligning the interests of the four countries. While they have found it relatively straightforward to build a consensus about the challenge China poses, forging a shared view about broader ranging issues at the international level is much more difficult and will likely continue to bedevil efforts to drive a more substantive agenda.
The logic of the Quad opting to focus their efforts on public goods for collaborative endeavour was sound. It showed an understanding of the complex nature of security as well as a degree of diplomatic caution. It was also about finding areas that are politically more straightforward to cooperate. It is always easier to collaborate on relatively less controversial matters such as export credit agencies and education exchange than high matters of state and national security. Equally, public goods have clear spill-over effects. For example, delivering high-quality outcomes in relation to maritime domain awareness can benefit countries across the region and align their interests with those of the Quad members. But what we have seen play out is that geopolitics and rivalry are making the business of cooperation much harder than it was before. Indeed, beyond the shared security concerns about China, the four do not have especially well aligned complementarities in areas of functional cooperation or public goods provision.
Critically, the Quad is compounding the problem by diverting resources away from cooperation in the existing collaborative structures.[20] The logic of free trade that informed the multilateral trading system created after 1945 was that the widest possible base was needed to provide benefits at the scale that would provide incentives for states to participate. That same basic logic – that collaboration needs to be on the widest base possible – remains critical to advancing a collaborative agenda today. But the intrusion of geopolitics is fracturing that base. On top of this, exclusive forms of collaboration, which are in turn suffused with geopolitics, further limit the breadth of interaction and thus the benefits which it can create. Finally, if the purpose of the Quad is to constrain China’s behaviour, there seems to be little evidence that Beijing is responding with heightened moderation in its approach to regional order.
CONCLUSION
The Quad’s progress, beyond that of profile, has been unimpressive, having little of substance to show for more than half a decade of cooperation beyond an ever-growing shopping list of activities that are of marginal consequences to the regional ambitions of the four countries. But considerable potential remains in the structure in which four liberal democracies work together to provide much needed international public goods at a time of heightened competition, nationalism and a zero-sum logic at work.
Considerable work needs to be done before that potential can be realised. Most obviously, the Quad needs a much clearer and sharper sense of purpose. The rousing rhetoric of order building is appealing, especially at leaders’ gatherings, but there needs to be a clearer and more systematic link between the Quad’s higher-level ambitions and what exactly they will do together to advance those goals. At the moment, the activities are a grab-bag of things that might in some indirect way contribute to orderly relations in the region and benefit other states. But they have little overall coherence and no clear line between what they are trying to achieve and the larger ambitions of order protection and construction. Most obviously, the Quad needs to make a clear decision about whether or not it is a security grouping, or one focused on public goods. At the moment, it seems to have defaulted into a grouping that pursues public goods as an indirect and circuitous path to some vaguely conceived security goals. A much clearer sense as to just what kind of grouping they are trying to be would go a long way to developing a priority of work programmes that are coherent in advancing a collective agenda. Presently, the public goods are too diffuse and lack a larger strategic plan, and coordination among the Quad members in the delivery has been underwhelming.
Equally, the Quad needs to change how it is trying to advance public goods. The experience of institution building in the early 2000s can be instructive. Regional groupings like the ARF and EAS burnt through their political capital by taking on too expansive an agenda and delivering too little. The Quad, wittingly or not, risks repeating that mistake. It needs to begin by paring back the number of things it is working on and focusing more resources, time and energy on a smaller number of meaningful public goods programmes. These can then build momentum and confidence in the cooperative endeavour and have non-members see the benefits that the Quad can create for the region more generally. Unless or until substantive cooperative outcomes begin to be delivered and in which others take note and see a benefit, the Quad is unlikely to generate either public goods or indirect security benefits. If it continues on its current path, it is likely to end up being little more than a photo opportunity and glad-handing amongst dignitaries. This would be a tragedy given the deep levels of support that liberally oriented regional order needs now and in the coming years.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
EXECUTIVE SUMMARY
- The Just Energy Transition Partnership (JETP) agreement between Vietnam and the International Partnership Group was announced in December 2022. As a general agreement on advancing a just energy transition for climate change mitigation, it outlines some concrete steps for implementing the energy transition but is legally non-binding.
- Vietnam’s power sector needs to transition away from its heavy reliance on coal if it is to meet its net-zero-emission goal by 2050.
- Vietnam’s energy transition is currently hampered by inadequate legal regulations, insufficient capacity of the relevant Vietnamese authorities, lengthy decision-making processes, a lack of cooperation between relevant authorities and a lack of financial investment.
- Although the JETP agreement has the potential to address the lack of investment and capacity, unless the Vietnamese government speeds up decision-making processes and enhances cooperation among its ministries, the implementation of the agreement and other energy-related policies will be delayed.
- The “just” aspect in the JETP might be achieved with regard to the reskilling of workers and the advancing of decent jobs. However, it will not be “just” in the sense of involving non-governmental organisations and the media in the making of energy policies, as Vietnam’s increasingly oppressive political context makes it difficult for civil society actors to participate in the process.
* Julia Behrens is a post-doc fellow at the University of Bielefeld, Germany. Before that, she led the project on Climate and Energy in Asia at the Friedrich-Ebert-Stiftung, based in Hanoi.
ISEAS Perspective 2023/62, 27 July 2023
INTRODUCTION
Vietnam has an electrification rate of nearly 100 per cent,[1] largely due to its rapid economic growth precipitating a ten-fold increase in energy demand over the past two decades.[2] The country is highly dependent on coal for energy, with the share of coal in the country’s electricity production increasing by about 11 per cent annually between 2011 and 2021,[3] making it the fastest growing coal consumer within ASEAN. By 2018, coal had become Vietnam’s largest source of electricity, followed by hydropower, with the installed coal power capacity increasing four-fold from 2010 to 2020. In 2022, the total installed power capacity of the country reached nearly 77,800 MW, of which 26.4 per cent were renewable energy sources (excluding hydropower).[4] Hydropower accounted for another 29 per cent of the energy mix, while fossil fuels (coal and gas) made up around 44 per cent.[5] About 72 per cent of Vietnam’s coal use is for electricity production. Under a business-as-usual scenario, emissions from the energy sector are projected to account for 74 per cent of Vietnam’s total emissions by 2030, making it the largest climate change mitigation sector in the country.
Since 2019, Vietnam has seen a surge in renewable energy usage, with its newly installed solar power and wind power capacity reaching 20,000 MW in just three years between 2019 and 2021.[6] Such a shift towards renewable energy could bring various benefits, such as improved public health, job creation, and forest protection.[7] Additionally, since Vietnam is one of the countries that are most vulnerable to climate change challenges,[8] the urgent transition to renewable energy as a mitigation measure must be taken. This is laid out in the Power Development Plan VIII (PDP8), which was adopted in May 2023 after a two-year delay.[9] It guides the development of the country’s power sector for the period 2021-2030, with a vision to 2050, formulating goals for energy development and tasking different government authorities with the practical steps and responsibilities needed.
So far, there have been a multitude of international partnerships and projects put in place to drive the global energy transition towards renewable energy,[10] and many of these have been awaiting the PDP8 for implementation and progress. In December 2022, the International Partnership Group (IPG) and Vietnam announced their Just Energy Transition Partnership (JETP).[11] Despite the country’s commitment made at the COP26 summit to peak emissions by 2030 and reach net-zero emissions by 2050, Vietnam’s renewable energy boom from 2019-2021 has seen a decline, while its implementation of energy transition policies has faced challenges, with the delayed release of PDP8 being a case in point. With the JETP and the now approved PDP8, will Vietnam finally be able to advance its implementation of energy transition initiatives? This article explores what the JETP means for Vietnam’s energy transition and how effectively the partnership lives up to its promises, especially regarding the “just” aspect of the agreement.
WHAT IS JETP?
The JETP model was introduced by the G7 countries and the European Union (EU) as a financing tool to implement their climate commitments to the Global South. Through this tool, G7 and EU members aim to promote energy transition in developing countries, emphasising inclusiveness and worker protection based on the International Labour Organization’s (ILO) framework on just transition.[12] These targeted countries are typically those that already emit high levels of CO2 and are projected to have an increased energy demand in the future as well as potential for renewable energy. They should also have demonstrated political commitment to an energy transition.[13] The JETPs are an important contribution to fulfilling the G7’s goal of supporting climate mitigation and adaptation in the Global South, although they focus on private investment and loans rather than grants. In addition, they can be seen as a way to create markets for technology exports and to exert strategic influence on other countries’ power sectors. The first deal with South Africa was announced in 2021, followed by the second with Indonesia and the third with Vietnam in 2022. Negotiations are currently underway for new agreements with India and Senegal.[14]
The JETP agreement with Vietnam aims to reduce emissions from coal-fired power plants by limiting peak capacity to 30.2 GW by 2030, down from the 37 GW previously planned by the Vietnamese government. This would mean that coal would account for 20 per cent of the power mix, compared to the current level of approximately a third.[15] Despite projected growth in GDP and power demand, coal power capacity would only be allowed to expand slightly from its current capacity of 24.6 GW.[16] Renewable energy sources, on the other hand, are expected to rise to 47 per cent of total electricity generation by 2030 and 72 per cent by 2050. To reach these goals, the agreement provides a structure of loans and grants worth USD7.5 billion, which is expected to be matched by an additional USD7.5 billion in private investment. PDP8 underlines that the Vietnamese government will only be able to reach the formulated goals if its JETP partners live up to their commitments. The agreement also allows for the use of carbon capture and storage technologies as a way to reach emissions reduction targets.[17]
Concrete steps to achieve the above goals are not stated in the agreement. The agreement is also not legally binding and uses rather soft language, often relying on words such as “should”.[18] By November 2023, Vietnam must adopt a Resource Mobilization Plan in order to decide on the implementation, funding and strategy for the JETP.
THE CHALLENGES OF A “JUST” ENERGY TRANSITION
The JETP concept emphasises the importance of justice and recognising the energy transition as not only a technical process but also a social one that requires the active inclusion of workers, affected communities, and other vulnerable groups. It also stresses the importance of creating a supportive structure for those affected by the coal phase-out, such as through reskilling programmes and educational opportunities. The reskilling programme is crucial in order to prevent unemployment and develop skilled jobs. Model projects for reskilling already exist and are funded by international development cooperation, but so far these are very small in scale and limited to a few selected colleges (cao đẳng). Workers’ consultations are likely to be conducted through trade unions, which are ultimately controlled by the Communist Party of Vietnam (CPV). This provides access to workers but will likely be limited and structured in a top-down manner.
Another emphasis in the agreement, also underlined by PDP8, is on the affordability and access to energy, which must not be negatively impacted by the energy transition. In addition to affordability, there must be a “just” approach to land use which does not harm agriculture and aquaculture production, particularly for communities in areas where renewable energy sources are to be developed. Economic inclusion through energy access and a sensible and equitable approach to land rights are both essential for the CPV and its legitimacy.
More problematic is the agreement’s provision that for the transition to be just and equitable, “regular consultation is required, including with media, NGOs and other stakeholders so as to ensure a broad social consensus.”[19] In recent years, energy transition has become an issue of interest to non-government organisations (NGO) in Vietnam, including local ones. However, since the January 2022 arrest of Nguy Thi Khanh, the most vocal and renowned advocate for renewables within the local NGO community, and her conviction for alleged tax evasion, NGOs have become increasingly wary of publicly expressing their opinions. This is despite Khanh’s release in May 2023. Administrative procedures for NGOs have become more stringent, too, particularly in terms of obtaining permits for implementation of projects. Against this backdrop, the only public statement on Vietnam’s JETP by a local organisation has been the press release of the Vietnam Initiative for Energy Transition (VIET), a local independent think tank.[20] Other organisations have not yet dared to comment publicly on the agreement, both out of caution and due to the lack of information on the matter from the government. Media reports have also been scarce. The hope of the IPG to press for an inclusive, participative process for the JETP in Vietnam, therefore, seems unrealistic and the justice aspect of the JETP hence limited. Community consultation might be the only way to ensure some basic inclusivity and transparency in the process.
OTHER CHALLENGES
Vietnam’s energy policy is overseen by the Ministry of Industry and Trade (MOIT), and the main instrument of energy development policy is power development plans (PDP). The seventh PDP (PDP7) expired in 2020, and PDP8 was approved in May 2023 after extended delays. PDP8 recognises the power sector’s importance for sustainable development, with a focus on economic, social and security policy, as well as meeting environmental concerns through commitments to renewable energy and “new energy” such as green hydrogen.[21] The specific goals for renewable energy are wide and conditional, and rely on the JETP to come through. If JETP is implemented successfully, a 47 per cent share of renewable energy by 2030 and around 70 per cent by 2050 could be reached. PDP8 emphasises newly-installed power capacity by 2030 with wind, rooftop solar for self-consumption, hydropower, and liquefied natural gas (LNG). PDP8 also explicitly refers to the JETP and calls it an “important solution” for the energy transition.[22] Consequently, PDP8 has strengthened the JETP on paper, signalling political will for the energy transition. Nevertheless, to promote the sustainable development of renewable energy, further steps, such as a renewable energy law and a reliable pricing mechanism, are still needed.
Central to the success of the energy transition is an extension of the grid capacity that has been unable to keep up with the rapid increase in renewable capacities. This has resulted in the decision by Vietnam Electricity (EVN), the only off-taker in Vietnam’s electricity market, to implement curtailment, causing many renewable energy projects, both big and small, to lose around 40 per cent of their output and suffer devastating financial losses.[23] To address this issue, the JETP agreement has included investment and research into grid transformation, which could result in improved technical standards and grid infrastructure to accommodate a larger renewable energy capacity. Despite the complexity of this task, it is nevertheless feasible if all actors involved cooperate effectively and the legal framework reduces bureaucratic restrictions for this large-scale infrastructure project.[24]
For the energy transition to move forward, a clear political signal from the CPV leadership is necessary to prioritise its implementation and accelerate the bureaucratic processes in approving investments for projects. Moreover, the government needs to ensure cooperation between all relevant authorities, such as the MOIT and the Ministry of Natural Resources and Environment (MONRE). While MOIT is tasked with energy development and PDP8, MONRE is in charge of JETP. So far, cooperation has been lacking. For example, no MONRE representatives have participated in meetings of the Vietnam Energy Partnership Group chaired by MOIT and the World Bank to discuss the implementation of the energy transition with international and local partners. A strong signal from the top leadership demonstrating support for PDP8 and JETP can also help address the lack of capacity within the executive system and officials’ hesitancy to make decisions.
These two latter issues arise primarily from the CPV’s current anti-corruption campaign, which is considered the most comprehensive anti-corruption effort in the history of the party.[25] The campaign has resulted in the removal of President Nguyen Xuan Phuc and two deputy prime ministers in early 2023. Before that, Dinh La Thang became the first Politburo member to receive a 30-year prison sentence. Additionally, 7,500 party members have faced criminal investigations since 2021.[26] The campaign has made public servants and decision-makers, including those in state-owned enterprises, highly risk-averse and reluctant to make decisions or approve projects for fear of being caught up in the campaign. At the same time, 40,000 public employees have resigned since 2020,[27] further weakening the capacity of the bureaucracy. To some extent, the campaign has therefore impeded the energy transition, which requires the prompt approval of infrastructure projects and the active participation of capable policy makers and bureaucrats.
The MOIT and MONRE are only two players in the complex game of energy transition. Behind them lie a myriad of vested interests, ranging from coal-producing provinces in the North to the provinces in the Central and the South with the highest potential for renewable energy. While around two-thirds of coal-fired power plants are owned by state-owned enterprises, these enterprises hold only a small share of renewable energy sources like solar (four per cent) and wind (one per cent) in 2021.[28] Private investments from G7 countries also often come with their own agenda, such as creating new opportunities for the export of their technology and expertise. In order to ensure a just transition, it is essential to recognise and understand the divergent interests involved in the energy transition and the obstacles that must be overcome.
Another issue that makes the reliance on coal entrenched is political decision-makers’ perception that coal is the more stable and dependable power source.[29] This is because CPV leaders fear potential social unrest should electricity prices rise during the energy transition.[30] Maintaining social stability is essential to the CPV’s political security, and ultimately its rule. This is also the reason why the MOIT has avoided introducing carbon taxes and other similar measures,[31] despite research indicating citizens would be willing to pay more for electricity, and the fact that off-grid solar power projects could reduce electricity prices since they could replace gasoline generators in remote areas.[32]
CONCLUSION
Vietnam’s JETP offers international expertise and financing options to facilitate the country’s energy transition. However, it cannot address some key barriers to making this transition successful, such as the lack of political will, bureaucratic inertia, and dilemmas on how to deal with vested interests both inside and outside the country. The “just” aspect of the JETP can act as an incentive for the MOIT to consult with workers and affected communities, but it is important to acknowledge the possibility that the JETP may never meet the IPG’s definition of justice, and the participative process may always be limited to what the CPV allows. NGOs and the media will unlikely be able to meaningfully engage in the process. Ultimately, a successful JETP depends on political conditions, and while PDP8 is a step in the right direction, more action is needed.
There is also a risk that the JETP signed with Vietnam, with its limited approach to justice, could set a lower standard for IPG’s negotiations with other countries. Moreover, the potential issue of JETP financing structures not meeting the standards of just climate finance, in light of the historic responsibilities of industrialised countries, must be duly recognised and addressed. Therefore, close observation of all JETP agreements in the future is necessary.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
EXECUTIVE SUMMARY
- The upcoming state elections in Malaysia represent a referendum on the first eight months of Prime Minister Anwar Ibrahim’s ‘Unity Government’.
- The industrial state of Selangor will be the first real test whether the pact between Anwar’s Pakatan Harapan (PH) coalition and his Unity Government partner coalition Barisan Nasional (BN), can get support from voters.
- Based on the track record of the incumbent state administration and early polling numbers, Selangor is Pakatan Harapan’s to lose. Nonetheless, political undercurrents in Malaysia show that Perikatan Nasional may have the momentum.
- This Perspective lays out three scenarios for how the Selangor state election could transpire. Although Pakatan Harapan is favoured to retain Selangor, there is a path to power for Perikatan Nasional that hinge on certain levels of voter turnout and vote transferability.
- Only a modest shift in Malay support can sweep Pakatan Harapan from power in Selangor. Much will depend on the campaign swinging undecided voters in a contest that will affect the configuration of Malaysian politics.
*Khairy Jamaluddin is Visiting Senior Fellow at ISEAS – Yusof Ishak Institute. Previously, he served as Minister at Malaysia’s ministries of Youth and Sports, Science and Technology, and Health. He was also the Coordinating Minister for the Covid-19 Immunisation Programme. He was a three-term Member of Parliament and former Leader of UMNO Youth.
ISEAS Perspective 2023/61, 27 July 2023
INTRODUCTION
The campaigning in Malaysia’s six state elections is set to begin with the political temperature at boiling point. Both main coalitions frame the polls as a contest of national significance. For the opposition Perikatan Nasional (PN) coalition, the polls will not just be an opportunity for them to strengthen their grip on the three states in which they are incumbent governments – Kedah, Terengganu and Kelantan – but it also sets the stage for them to potentially capture Selangor. This state, led by Anwar Ibrahim’s Pakatan Harapan (PH) coalition, is Malaysia’s most economically developed and politically significant state.
For Anwar and his large ‘Unity Government’ coalition, these state elections are also being viewed as a national bellwether. They know that while a disastrous outing will not immediately threaten the government, it can inflict a serious blow. What could ensue is a prime minister becoming more cautious, less reformist and constantly questioning the commitment of the 19 parties that ostensibly have given him their support.
They will also be concerned that a rout in the northern and eastern states presently administered by one of PN’s component parties, the Islamist Parti Islam Se-Malaysia (PAS), will signal Anwar’s inability to gain significant support among Malay voters, something PH had already failed to do in the general election. Anwar had then turned to BN’s biggest faction, the United Malays National Organisation (UMNO), which still maintains a strong political base in the rural and suburban Malay-majority seats despite suffering its worst-ever general election result last year.
This formula now faces its biggest test, especially in Selangor. With urban seats encircling the national capital Kuala Lumpur to rural agricultural wards in the north, Selangor presents an ethnically diverse polity, but one with 39 of 56 seats having a majority of Malay voters. What happens in Selangor during these polls could set a voting trend that may continue until the next general election.
NATIONAL REFERENDUM PLAYED OUT IN THE STATES
PN has cast these elections as an early referendum on Anwar and the makeshift government he assembled following a hung parliament after last year’s general election.
The Anwar-led government formed in the wake of the November 2023 general election cobbled together his PH coalition with a raft of coalitions and parties from Sabah and Sarawak, and, most contentiously, PH’s long-time foe Barisan Nasional (BN). Although Anwar has maintained a relatively high approval rating, there is mounting dissatisfaction with the federal government’s economic management for lacking direction and substance.[1] This has been exacerbated by the Malaysian Ringgit being one of the worst-performing currencies[2] in Southeast Asia, contributing to imported inflation and increased outflows from the stock exchange.
In addition to these economic woes, Anwar’s government also finds itself constantly on the defensive dealing with Malaysia’s own ‘culture war’. As written previously by the author, Anwar has resisted betraying his multiracial and progressive base by playing with identity politics, in particular the ‘3Rs’ of race, religion and royalty.[3] This has seen him constantly being outflanked by PN who regularly weave identity politics into their speeches and policy platforms. Anwar’s cause is not helped by his coalition partner, the Chinese-dominated Democratic Action Party (DAP), failing to change the widely held, but rather misplaced, perception in the Malay community that it is anti-Malay and anti-Islam.
With the need for the Unity Government to rally its base and shore up Malay votes, what began as an unlikely union has now developed into, for the state polls at least, a pre-electoral pact in which PH and BN will work together, avoid putting candidates against one another and even campaign on the same manifesto and platform. This could well be a precursor to a similar arrangement between PH and BN for the general election, something UMNO president Zahid Hamidi hinted at during a Unity Government convention in May.[4]
Zahid continues to be a divisive and unpopular figure who could bring Anwar down with him if he falls.[5] With 47 charges of criminal breach of trust, corruption and money laundering hanging over him, Zahid’s status as deputy prime minister makes it easy for opponents to pillory Anwar’s agenda for good governance. Despite this, the prime minister has recently doubled down on Zahid and UMNO as his preferred partner to battle PN for the Malay votes.[6]
What Anwar and Zahid are both basically hoping for is that electorally one plus one equals two. Their ideal scenario is for two things to happen. First, for voters who chose PH or BN in last year’s general election to maintain that choice. Second, for there to be perfect transferability of votes between PH and BN. What that means is that since PH and BN have agreed to a pact for the state polls, they will avoid putting candidates against each other in every seat. They will then hope that where PH fields a candidate, all BN votes will be transferred to PH and vice versa. If there is perfect transferability, one PH vote plus one BN vote will result in two votes for the pact.
If there is perfect transferability, the PH-BN arrangement will be a formidable force and will ensure the PH-administered states of Penang, Selangor and Negeri Sembilan will be retained by comfortable margins.[7]
Of greatest interest and consequence will be the transferability of Malay voters. This is because Malay votes were the most contested during the general election compared to non-Malay votes which overwhelmingly went to PH. If there is no perfect transferability and there is a significant shift of BN voters to PN, there could be scenarios in which Selangor is a highly contested state.
THE CASE OF SELANGOR
The Unity Government’s Assets
Malaysia’s economically most developed state, along with the Federal Territory of Kuala Lumpur contained within it, is Selangor. It has been administered by PH since 2008.[8] That coalition comfortably retained the state in the 2013 and 2018 state elections which were held concurrently with the general elections. Out of 56 seats in the state assembly, PH has 45 seats (Parti Keadilan Rakyat [PKR] – 19, DAP – 15 and AMANAH – 6), commanding a two-thirds majority on its own. Since the formation of the Unity Government, BN now aligns itself with PH in Selangor and has pledged the support of its five seats. PN has five seats made up of Bersatu’s four and PAS’ single seat. The remaining seats are held by Pejuang (3), Parti Bangsa Malaysia (2) and Warisan (1).
Selangor has been led by Amirudin Shari who became the menteri besar in 2018. Although Amirudin is seen as a protegé to his predecessor as Selangor menteri besar Azmin Ali, he has since forged his own political trajectory. He stayed in PKR and did not follow Azmin when the latter defected during the Sheraton Move that brought down the PH government in 2020.
At 43, Amirudin is young, dynamic and enjoys strong approval ratings in Selangor. A recent survey conducted on Malay voters in Selangor (a demographic segment crucial to the outcome of the polls) showed that 71 per cent of respondents approved his performance as head of the state administration and 75 per cent said they want him named as menteri besar should PH emerge with the most seats after the state election.[9] Anwar has also moved quickly to quash any speculation of another candidate for menteri besar by naming Amirudin as his coalition’s candidate for leading the state should they prevail in the election.[10]
The state administration has also released a comprehensive report card of its achievements over the last five years covering a wide range of public services from healthcare to housing, transport and entrepreneurship.[11] Some of these initiatives began before Amirudin’s tenure, but are now seen very much as PH successes regardless of the person heading the state party. This has led to a pervasive feeling among PH supporters in Selangor that the state is now a stronghold in which opposing parties have struggled to make a dent in the last three elections.
Indeed, if the results of the general election are used as a proxy for what could happen during the state election, it will once again mean a comfortable win for PH. Taking the votes cast at the parliamentary level during the general election and simply apportioning it according to the state wards will see PH winning 40, PN getting 14 and BN taking 2 seats.
Therefore, the state election is very much for PH to lose. Selangor is now seen in Malaysian political consciousness as a PH fortress where their leader enjoys strong support for his stewardship of the state. A simple extrapolation of the general election results shows PH in a pole position for the state election.
Countercurrents favouring PN
However, just as we cannot assume perfect transferability of votes between PH and BN, we must not also assume that voters will vote the same way they did during the general election. Much has transpired in Malaysian politics over the last eight months and while surveys may show a high level of support for certain parties and individuals, there are strong undercurrents that may surface over the next two weeks as the campaign heats up.[12]
First, there is the UMNO factor. The state elections will determine if UMNO, led by Zahid, is an asset or a liability for Anwar. As explained above, Anwar wants to use UMNO as a partner to win Malay votes he was unable to get during the general election. Yet, UMNO continues to be seen as a shadow of the grand old party that dominated the Malay political ground for decades. UMNO is likely to get far fewer seats to contest compared to PKR and DAP in Selangor, and presently suffers from weak leadership at the state level. Should there be significant frustration among Malay voters at UMNO’s lack of reform, and should this result in vote transfers, PH-BN’s margin of victory could be affected.
Second, as mentioned above, Selangor voters will not just choose their state government based on the track record of the present menteri besar, but also use the ballot to express their feelings on national issues and the federal government. Anwar has attempted to assuage these fears in recent days by touting high-profile investments through a virtual meeting with the entrepreneur Elon Musk of Tesla, Inc. and by announcing Chinese automaker Geely’s expansion plans in Malaysia.[13]
Although Anwar’s administration has continued and even enhanced pre-existing measures to cushion cost-of-living challenges such as cash transfers and price control, and even subsidised food menus, there is a sense that eight months in, economic management is adrift with Anwar struggling to juggle being both prime minister and finance minister. In order to counteract this, Anwar’s government is preparing both an ‘economic narrative document’ which has been launched today and the tabling the Midterm Review of the 12th Malaysia Plan in October to demonstrate concrete programmes that can correct course for the Malaysian economy.
Third, coming into government after many years in opposition (apart from 22 months during the first PH government), some ministers have had difficulties managing expectations. This is the case especially with regards to positions they took when in opposition and where they now have trouble performing as a result of their populist or political compromises. Videos of former opposition leaders and now ministers promising higher minimum wages and lower petrol prices or abolishing draconian laws are still used as campaign fodder by the opposition. While some voters understand that these promises are now unrealistic, others have chosen to hold these ministers to account.
The fourth issue is how identity politics and the culture war will play out in the state election. Last week saw the arrest and arraignment of PAS’s election director and incumbent Kedah menteri besar, Muhammad Sanusi Md Nor, under the Sedition act for allegedly insulting the Sultan of Selangor. In recent months, Sanusi has emerged as a consequential and controversial figure for PN and PAS. His plain-speaking bravado and, at times, reckless abandon in taking on Anwar politically has significantly enhanced his image and following. It is likely that the action taken against him will boost sympathy for him and support for PAS in their strongholds. What remains to be seen is how it will play out in Selangor whose monarch was the subject of the alleged insult, especially in the Malay community.
Some critics have also pointed out that action against other potentially inflammatory 3R speeches, in particular one made by DAP chairman Lim Guan Eng, raising the spectre of a green wave coming to destroy non-Muslim places of worship have yet to be taken.
Sensing the disquiet in the highly contested Malay ground, DAP has crafted a narrative to ensure a high turnout at the state polls, in particular in Selangor and Penang. Along with Guan Eng’s scaremongering tactics, his father and DAP veteran Lim Kit Siang has even resorted to saying that the country is “teetering on the edge of another May 13, 1969 riot,” a reference to Malaysia’s most deadly communal conflict.[14]
Anwar has also tried to stave off the challenge PN brings to identity politics by allowing authorities to move quickly against Sanusi, therefore demonstrating his commitment to defend the Malay Rulers. He has also declared recently that Malaysia is not a secular state – at least in the laïcité sense – in an attempt to dismiss attacks that he is too liberal on religion. While these moves help in correcting the perception that Anwar is weak on 3R issues, the question is whether it is enough for him to win Malay support, and whether that will be at the expense of his natural support base, which tends to be more liberal on social issues.
With these broader observations and their implications in the battle for Selangor, what emerges are conflicting views rather than a consensus. Two separate surveys conducted by entities aligned to opposing sides show how difficult it is to gauge voter sentiment in Selangor. Institut Darul Ehsan, an independent think tank with links to the incumbent state government, recently released results from their survey of Malay voters in Selangor showing PH-BN commanding 46.7 per cent support compared to 27.2 per cent for PN, a result that would secure victory for PH-BN.[15]
Conversely, a recent paper written by, among others, a former aide of PN chairman, Muhyiddin Yassin, refers to a separate survey that suggests “no significant vote transferability” between PH and BN, a situation that could pave the way for a PN victory in Selangor.[16] With such divergent analyses going into the campaign period, various different scenarios are presented below to forecast likely outcomes in Selangor.
SCENARIOS
These qualitative observations present us with a few scenarios that could unfold, including one that shows a path to power for PN in Selangor. The state assembly has 56 seats, and 29 are therefore needed for any coalition to secure a majority.
Scenario One: This is a best-case scenario for PH-BN where there is a high turnout for both Malay and non-Malay voters of 81 per cent. In this scenario, PH retains its 95 per cent vote share among non-Malays while most of their Malay supporters transfer their support to BN candidates and BN supporters do likewise and transfer most of their votes to PH candidates. PH-BN would secure 52 per cent of Malay votes, which is a realistic assumption based on what PH received during the general election. The result would be PH-BN: 55 and PN: 1 in the state assembly.
Scenario Two: This is an average outcome for PH-BN and one most likely to happen if the campaign momentum turns for PN. The assumption for this scenario is that non-Malay turnout will be 55 per cent, similar to their overall turnout for the state election in Johor over a year ago now. While these elections were held during the pandemic and may represent a low baseline, they nonetheless represent the most recent state polls independent of those conducted concurrently with the general election. PH-BN will nevertheless secure 85 per cent of these votes. Malay voter turnout is modeled at 81 per cent with PH-BN getting 37 per cent due to a significant transferability of Malay votes from BN to PN instead of PH. This scenario will still see PH-BN prevailing in 34 seats compared to PN’s 22 seats.
Scenario Three: This is PN’s path to capturing Selangor. Non-Malay turnout and vote share will be the same as the second scenario above, as will the Malay voter turnout. But in this scenario, the PH-BN vote share among the Malays further drops only slightly to 32 per cent. In this case, PH-BN will win 27 seats and PN will win Selangor with 29 seats. What this suggest is that only a modest shift in Malay support by five per cent compared to the previous scenario is needed to see PH-BN lose Selangor.
CONCLUSION
These scenarios have been chosen to demonstrate that while Selangor appears to be a state where PH-BN should emerge as winners, a PN victory is not entirely impossible. Much will, of course, depend on the campaign to see if non-Malays can be convinced to turn out in large numbers and if Malays continue to give Anwar and his coalition and their partners the overwhelming support he desires.
Should BN fail to win any seats in Selangor and only muster a handful of seats in the other states, UMNO will have to consider some serious changes to both their leadership and strategy. Having suffered their biggest electoral loss during the general election, a poor outcome during these state elections will reinforce the electorate’s message that UMNO, at present, is unelectable. Yet, Zahid’s consolidation of the party through a purge earlier this year and by rewarding loyalists with various appointments suggests that UMNO will likely shrug off a potentially dismal result and pretend that all is well.
Anwar, on the other hand, will be forced to think long and hard about his partnership with UMNO. If UMNO turns out to be a liability during these state elections, will he want to commit himself to future electoral pacts with UMNO and BN? Or will he treat UMNO and BN as a temporary partner to ensure the longevity of his ‘Unity Government’ until the end of this parliamentary term and then decide on alternative potential configurations that will not include UMNO and BN? Much rides on what happens in the next two weeks.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
EXECUTIVE SUMMARY
- Netflix recently found itself having to entertain requests to censor three shows after Vietnamese authorities deemed their content unacceptable and “hurting the feelings of the people.” This raises the question of how much this rhetoric genuinely reflects the views of the general population.
- Vietnam’s ongoing efforts aimed at safeguarding national prestige in the digital sphere have resulted in the introduction of new regulations that could expose the online streaming industry to heightened censorship. Against that backdrop, it appears that Netflix’s future may be at stake if the streaming platform refuses to go along with the Vietnamese government’s censorship demands.
- An examination of three instances of censorship of Netflix shows indicates that the popular public sentiments that Vietnamese authorities cited to justify their censorship decisions were predominantly confined to an echo chamber, consisting mainly of pro-regime Facebook pages and state-controlled news outlets that actively promote government-sanctioned narratives.
- The censorship overreach and the manipulation of public opinion employed to sanitise the regime’s image in the digital sphere risk being counter-productive. These moves could end up casting the Vietnamese government in a bad light, revealing its hypersensitivity, insecurity and double standards.
* Dien Nguyen An Luong is Visiting Fellow of the Media, Technology and Society Programme at the ISEAS – Yusof Ishak Institute. A journalist with significant experience as managing editor at Vietnam’s top newsrooms, his work has also appeared in the New York Times, the Washington Post, the Guardian, South China Morning Post, and other publications.
ISEAS Perspective 2023/60, 26 July 2023
INTRODUCTION
A British docuseries, a South Korean television drama, and an Australian spy drama. Netflix has recently been forced to remove these shows altogether from its programme lineup in Vietnam in response to the authorities flagging them for having content deemed unacceptable. This development highlights the heightened censorship the American streaming giant has faced in Vietnam.
In April 2023, Netflix removed the first episode of the docuseries MH370: The Plane That Disappeared from its service in Vietnam.[1] Vietnamese authorities pilloried the three-episode show, stating that it contained “inaccurate and unsubstantiated” information regarding Vietnam’s search-and-rescue efforts for flight MH370, the Malaysia Airlines plane that vanished in 2014 en route from Kuala Lumpur to Beijing with 239 people onboard.[2] In October 2022, Little Women, a K-drama about three sisters living in modern-day South Korea, was pulled from Netflix after the authorities claimed it distorted Vietnam War history.[3] In June 2021, Vietnam demanded the removal of the Australian spy drama Pine Gap for featuring a map depicting Beijing’s unilaterally declared “nine-dash line” that represents its expansive maritime claims in the South China Sea.[4]
Vietnamese authorities have consistently defended their censorship decisions by stating that the content in these programmes provoked public outrage.[5] Using discourse analysis, this paper examines how much that rationale genuinely reflects the sentiments of the public at large. It explores how the Vietnamese government leverages popular public sentiments to justify its censorship of these Netflix shows, with the ultimate aim of safeguarding the regime’s image in the digital space.
PROTECT NATIONAL PRESTIGE ON THE DIGITAL FRONT
Over the past 25 years, the curbing of anti-state content has shaped the way Vietnamese authorities deployed various online censorship strategies, while also dictating how a raft of laws and regulations on Internet controls were formulated and enforced.[6] In Hanoi’s perspective, anti-state content is what potentially can undermine national prestige, besmirch the reputation of the ruling Communist party, and slander and defame Vietnamese leaders.[7] Dangling access to a lucrative market of nearly 100 million people, Vietnamese authorities have become increasingly adept at exploiting their economic leverage to strong-arm big tech companies into erasing content flagged as anti-state.[8] (Facebook boasts nearly 70 million users in Vietnam while YouTube has 63 million users and TikTok around 50 million).[9] On the other side of the spectrum, enticed by the lure of the Vietnamese market, major digital content platforms have exhibited a growing inclination to accommodate the Vietnamese government’s censorship demands,[10] citing the need to adhere to local laws in the countries where they operate. Based on the latest data disclosed by Vietnam’s Ministry of Information and Communications, Facebook complied with government requests and deleted 2,549 posts during the first six months of this year; similarly, YouTube removed 6,101 videos, and TikTok took down 415 links.[11] The ministry has claimed that the compliance rates by Facebook and YouTube both exceed 90% while according to its transparency report, TikTok’s was lower, at 74.4%.[12] Since 2017, the transparency reports of Facebook and YouTube have also revealed that a majority of the restricted or removed items were related to “government criticism”[13] or “oppose the Communist Party and the Government of Vietnam.”[14]
Constant government efforts aimed at safeguarding national prestige in the digital sphere have led to the implementation of new regulations that may subject the online streaming industry to increased censorship. Since January 2023, a Vietnamese government decree has imposed penalties and bans on movies, including those available for online streaming.[15] The offenses – such as undermining national interests, eroding cultural values, or corrupting morality – are vaguely defined, leaving them subject to broad interpretation and arbitrary enforcement. This dynamic portends a bumpy road ahead for Netflix, which is geared up to become the first major American tech firm to set up shop in Vietnam.[16] It appears that Netflix’s future may be at stake if the streaming platform refuses the Vietnamese government’s demands to censor content. But finding a way to accommodate those requests has proven to be challenging in a country where an unpredictable censorship system makes it difficult to determine what content would be considered unacceptable.[17]
DRIVEN BY PUBLIC OPINION – OR DRIVING IT?
This section examines three recent cases of Vietnam’s censorship of Netflix shows by analysing public sentiments on them on Facebook, the country’s most popular social media platform. In all three instances, a strikingly similar pattern emerged: Vietnamese authorities justified their requests for censorship by invoking the notion of “hurting the feelings of the people.” This rationale was either directly mentioned in their statements or conveyed through reports in state-controlled news outlets.[18] The section explores two questions. Firstly, to what extent does this “hurt feelings” rhetoric actually reflect prevailing public opinion? And secondly, to what degree was there government manipulation involved in influencing this narrative?
The section examines the relevant content of 90 public Facebook pages and 10 state-affiliated news outlets and portals. These are divided into three categories:
- Category I – Pro-government pages: 30 self-proclaimed patriotic pages that explicitly adopt a pro-government stance. Amassing a strong base of followers between 21,000 and 236,000, these pro-government Facebook pages have been highly engaged in flagging content deemed detrimental to the reputation of the Vietnamese party-state. They actively shape nationalist storylines and peddle them across the cybersphere.
- Category II – Mainstream media: 10 state-controlled news outlets and portals. They are the mouthpiece of the party-state (the Government News Portal, Vietnam News Agency, Vietnam Television, and Voice of Vietnam), influential news outlets (Tuoi Tre, Thanh Nien, VietNamNet and Lao Dong) and most-read online news sites (VnExpress and Zing News).
- Category III – Neutral pages: 60 Facebook pages that engage in discussions about movies, entertainment, and garden-variety subjects, excluding politics. These groups have also built up a strong base of tens of thousands of followers.
MH370: The Plane That Disappeared
Judging by the official rhetoric, the Vietnamese government’s vehement objection to the MH370: The Plane That Disappeared docuseries was pinned down to a single line in the first episode. In this line, a family member of a missing Chinese passenger desperately pleaded for her country’s intervention: “We hope the Chinese government can quickly send a search-and-rescue team, as the Vietnamese [government] doesn’t seem to have much ability.” The Vietnamese government asserted that the show sparked “public outrage.” But it is hard to comprehend why the Vietnamese public would bristle at just a single line quoting a plea made by an ordinary citizen in a desperate situation.
In fact, an analysis of public sentiments suggests that the online backlash against the MH370 docuseries was largely confined to a bubble of state media outlets and pro-government Facebook groups. As shown in Figure 1, the topic elicited few mentions on Facebook (33) from 1 March to 30 April 2023. The most substantial spikes in discussion aligned with the official narrative and revolved around three key timeframes: First, on 10 March, Tifosi, a vocal pro-government Facebook page, flagged the perceived problematic content of the docuseries.[19] About a month later, on 6 April, Vietnam’s foreign ministry spokesperson officially requested that Netflix rectify and remove “inaccurate information” related to the country’s search efforts in the show. And on 13 April, Netflix gutted the first episode.
FIGURE 1. ONLINE DISCUSSION ON THE MH370 DOCUSERIES
(Source: ISEAS data)
The mainstream media stuck to the official line that panned the docuseries for doing a great disservice to Vietnam’s efforts during the rescue mission. Pro-government Facebook pages not only amplified such criticism but also delved into further discrediting the show by excoriating its promotion of “conspiracy theories” that stand on empirically thin ice. Intriguingly, these pages specifically pointed out that one of such conspiracy theories was floated by Florence de Changy, a French journalist who authored a book on the MH370 incident.[20] According to pro-government Facebook pages, de Changy has speculated that the MH370 plane was deliberately shot down over the South China Sea by the US military to prevent undisclosed cargo from reaching China. These pages accused de Changy of continuing to allude to that theory in episode 2 of the docuseries and of implying that Vietnam had played a role in it.
State media outlets and pro-government Facebook pages played a dominant role in flagging the issue, shaping the narrative and propagating it in cyberspace. In contrast, the neutral Facebook pages analysed for this section did not touch upon this subject at all. The topic also elicited low public engagement online. Out of the 90 Facebook pages and 10 state-controlled news outlets and portals examined for this section, another content analysis was conducted specifically on 10 actors identified as the most active in promoting the relevant narrative. The examination finds that nine of them were pro-regime Facebook pages, while the remaining one was the Facebook page of the Government News Portal. Of a total of 3,589 posts churned out on various topics by those 10 Facebook pages between 1 March and 30 April 2023, the Government News Portal and Tifosi were responsible for producing solely three unique posts related to the MH370 docuseries. The other pages merely picked up, aggregated, and amplified those narratives. No post made it into the list of the top 100 most engaged content, ranked 148th,[21] 224th [22] and 349th.[23] In response to those posts, Internet users were generally supportive. But notably, their opinions closely aligned with, and often mirrored, the main thrust of the propagated narratives.
Little Women
The censorship of Little Women appeared to hinge on several lines in episode eight of the 12-part series, which featured a war veteran bragging about how South Korean troops slaughtered their Vietnamese counterparts. “In our best battles, the kill-to-death ratio for Korean troops was 20:1. That’s 20 Viet Cong killed for one Korean soldier dead,” the veteran said, referring to the communist-led army and guerrilla force supported largely by North Vietnam during the war. He added that the ratio was even higher among his country’s most skilled soldiers. Vietnamese authorities stated that the K-drama “distorted” the events of the war; but it appears that it was axed because the lines, in Hanoi’s perspective, callously reopened the wounds of the conflict.[24]
As Figure 2 shows, the topic garnered a relatively similar level of attention as the MH370 docuseries case, with a dismal number of mentions (40). The most conspicuous peaks in online discussion on the topic also correlated with the government’s official narrative and revolved around two key developments: First, on 4 October, the Vietnamese government officially demanded that Netflix remove the entire show. Two days later, the platform honored the request.
FIGURE 2. ONLINE DISCUSSION ON THE LITTLE WOMEN DRAMA
(Source: ISEAS data)
The mainstream media simply quoted the Vietnamese government’s general statement that Little Women was removed due to its distortion of the history of the Vietnam War, without providing further details. But in picking up and amplifying the narrative initiated by Tifosi, other pro-government Facebook pages went the extra mile to recall the atrocities perpetrated by South Korean soldiers during the Vietnam War, a topic leaders from both countries have shunned in the face of burgeoning bilateral ties.[25] Of note, online discussions on this topic also took place on neutral Facebook pages, where Vietnamese netizens expressed criticism of the show for the lines related to the war in a more moderate manner. But intriguingly, a similar portion of other Internet users opined that the Vietnamese government was making a fuss just over several lines in a show featuring South Korea’s contemporary society.
It is important to note that such discussions only gained momentum after Thanh Nien, an influential state newspaper, flagged the perceived controversial line[26] and Tifosi then fanned the flames.[27] At the end of the day, it was still state-run news outlets and pro-government Facebook groups that were most active in flagging the topic, shaping the narrative and trending it in cyberspace. Another content analysis was carried out on the 10 actors most active in peddling the official narrative. Among them was the Facebook page of the Government News Portal; the other nine were pro-regime Facebook pages. Out of more than 2,020 posts covering various subjects by those 10 Facebook pages from September 1 to October 31, 2022, Tifosi, the Government News Portal, Hoc vien phong chong phan dong (Anti-reactionary Academy), and Don Vi Tac Chien Dien Tu (Comrade Commissar) generated a total of six original posts specifically focused on the topic; the other pages just compiled, adopted and magnified the narratives. Only one of these posts managed to secure a spot among the top 100 most engaged content, ranked 8th.[28] The other posts were ranked 149th [29], 194th [30], 316th [31], 449th [32] and 1059th.[33]
Pine Gap
The move to censor Pine Gap became even more puzzling when considering the circumstances. While Vietnamese authorities claimed that the show “angered and hurt the feelings of the entire people of Vietnam”, there was hardly any discussion about it on social media, even among pro-government Facebook pages, let alone enough to trigger an online backlash. State-run news outlets only started covering the case after Vietnam’s Authority of Broadcasting and Electronic Information requested the removal of the show, with which Netflix ultimately complied.
To be sure, few actions are as sensitive and likely to provoke public discontent in Vietnam as those that validate China’s maritime claims.[34] Case in point: in July 2023, Vietnam banned the release of the highly anticipated Barbie movie, allegedly because of a scene that featured the nine-dash line.[35] There has been no compelling evidence to substantiate this claim by Vietnamese censors, however.[36] On the other hand, the Philippines conducted a “meticulous review” and concluded that the movie does not portray the nine-dash line on the world map, leading them to decide against banning its screening in that country.[37] But still, the ban on Barbie in Vietnam has not triggered any significant public backlash. In fact, a significant portion of Vietnamese netizens threw strong support behind the decision.[38] Seen in such a light, the Vietnamese public would have likely objected to the display of the nine-dash line in Pine Gap had they been given the opportunity to see it. It is more probable, however, that only a limited number of ordinary Vietnamese individuals, much less the “entire population”, had actually watched the show before the authorities intervened and censored it preemptively. In fact, when it was taken down in June 2021, Pine Gap had not even cracked the list of the top 10 most popular shows in Vietnam.[39]
Key takeaways
As shown in those three case studies, what Vietnamese authorities claimed as popular public sentiments to justify their censorship decisions was in fact confined to an echo chamber, primarily comprising of pro-regime Facebook pages and state-controlled news outlets that were highly proactive in propagating government-sanctioned narratives. This means that such sentiments expressed online were unlikely to reflect the prevailing public opinion. As Truong (2022) has argued, there has been a growing reluctance in the Vietnamese public to openly express their political views online, particularly due to the presence of staunch defense-security figures within the Politburo, the country’s supreme decision-making body.[40] Meanwhile, Vietnam’s state-sponsored cyber troops have become more skilled in manipulating public sentiments online.[41] Previous research done by ISEAS also indicated that popular backing for the Vietnamese government’s positions on certain issues may have been artificially inflated through posts from pro-government Facebook pages.[42]
IMAGE SANITISED OR TAINTED?
It is indeed perplexing why Vietnamese censors reacted strongly to just a single line in the MH370 docuseries, as the country was internationally recognised for its efforts in the search and rescue mission for the missing flight.[43] Given that the docuseries has also been released to poor reviews[44], such censorship only revealed the underlying insecurity of Vietnamese authorities when confronted with narratives that were perceived to be tainting the regime’s reputation. The removal of Little Women appears to be a hypocritical action; the Vietnamese government has never formally requested for an official apology or reparations from South Korea for its wartime atrocities.[45] This display of toughness seems to be a mere facade in light of the actual historical context. It was also puzzling as to why Vietnamese authorities resorted to engineering a popular backlash to justify their censorship of Pine Gap. Vietnam has made it crystal clear that companies operating within its borders must adhere to the laws prohibiting content that undermines the nation’s maritime sovereignty in the South China Sea.[46] Foreign companies also know full well that this is a line they must never cross while in Vietnam.[47] In light of this, the manufacturing of public opinion to buttress the Vietnamese government’s censorship request was just unnecessary.
The fixation on sanitising the regime’s image on the digital front has increasingly dictated Vietnam’s Internet controls. But the censorship overreach and the engineering of public opinion employed to achieve this goal, as examined in the three case studies above, are likely to prove counter-productive and only serve to lay bare the regime’s hypersensitivity, insecurity and double standards.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
EXECUTIVE SUMMARY
- The UMNO presidency has always been considered a very powerful position. As the Grand Old Party that held power continuously for 61 years, UMNO was regarded as one of the most successful parties in the world, with mass membership, territorial coverage, and a grassroots machinery that was second to none. Its President was always the Prime Minister, and had unrivalled access to state resources, making the presidency the most watched and coveted position in Malaysia.
- Despite never occupying the Prime Minister position like his predecessors, and being forced to take unprecedented garden leave due to internal pressure, Zahid nevertheless successfully bolstered the power of the UMNO presidency further.
- Zahid Hamidi used his presidency to consolidate power within the party by: (1) Changing the constitution to postpone party elections, effectively lengthening the maximum term from 3 years to 5 years permanently; (2) Passing an unprecedented no-contest motion for the top two positions of President and Deputy President; (3) Unceremoniously sacking and suspending high-profile dissenters in the party.
- These three structural decisions undertaken by Zahid Hamidi virtually shut off opportunities for dissent and are likely to disincentivise reforms, rejuvenation and change within UMNO, which may exacerbate its decline in electoral popularity.
- These changes, however, are unlikely to be reversed as they give the UMNO president extensive powers, especially in selecting general and state election candidates, securing a longer tenure, and suppressing internal opposition.
*James Chai is Visiting Fellow at ISEAS – Yusof Ishak Institute and a columnist at MalaysiaKini and Sin Chew Daily.
ISEAS Perspective 2023/59, 25 July 2023
INTRODUCTION
Throughout its unbroken 61-year rule, the United Malays National Organisation (UMNO) was regarded as one of the most successful political parties in the world.[1] The party’s presidency was the most watched position and its sweeping power was the ‘most striking feature of UMNO’s organisational structure’.[2] Much of this was owed to the fact that the presidency and prime ministership were seen as one, where the former was held together ‘through a system of patronage and disguised coercion’.[3]
The first Prime Minister cum UMNO President, Tunku Abdul Rahman Putra, deployed a highly personalised style of leadership; he held meetings of the Supreme Council (“SC”, see Annex A for the full structure today) at his residence, selecting election candidates, state premiers and leaders without resistance. His successor, Tun Abdul Razak Hussein, reorganised the party structure to be even more intimately tied to the government[4] by creating full-time ministry-like bureaus in UMNO and implementing policies following ‘the wishes and desires of UMNO’.[5] The party’s longest-serving President, Mahathir Mohamad, turned the centralisation process up a notch by maximally using the party-state apparatus for packing (placing loyalists in top party and government posts), rigging (manipulating procedures to curb the opposition), and circumventing (channelling government resources to loyalists), thus ensuring UMNO’s dominance against all odds.[6]
On 30 June 2018, Zahid Hamidi became the first UMNO President to run the party without holding the highest executive office of Prime Minister, within what used to be the ‘matrix of autocracy’.[7] Two days earlier, the anti-corruption agency had frozen UMNO headquarters’ bank accounts, regarded as a critical lifeline for the oldest and largest party,[8] after it had just suffered its worst electoral defeat in the 14th general election that year.[9] The party would go on to experience by-election defeats, high-profile defections,[10] external pressures for dissolution, and criminal charges being filed against its top leaders.[11]
Half a decade later, despite his party holding only 26 seats in Parliament—its lowest in history—Zahid Hamidi was able to reverse its party’s fortunes by acquiring executive power through securing the second-highest position, that of Deputy Prime Minister, for himself, besides securing five other ministerial and six deputy ministerial positions for the party. Within UMNO, Zahid Hamidi’s control as President is now the strongest it has ever been; he has entrenched his loyalists widely and deeply, from the highest leadership council to the lowest party branches.
Regarded as a shrewd political operator,[12] Zahid Hamidi’s ability to ‘snatch victory from the fringes of defeat’ is remarkable.[13] He used his time as the first non-Prime Minister UMNO President to centralise power further in the hands of the presidency. This paper will analyse the three decisions he made as UMNO President that were most consequential to the party structure:
a) Constitutional change to postpone party elections, effectively lengthening the maximum term from 3 years to 5 years permanently;
b) Passing a motion of no-contest for the top 2 posts;
c) High-profile sacking and suspensions of rebel party members.
In each section, this paper will consider the background and implications of the given ‘reform’ before concluding with an overall outlook for UMNO.
Before Zahid Hamidi came to power, UMNO was already a highly centralised organisation. As the party’s supreme leader (“pemimpin utama”), the President carries the prerogatives of selection. An UMNO President can appoint dozens of leaders at the highest decision-making council besides holding the final say on disciplinary matters and choosing candidates for the party to contest in general and state elections.[14] Through the years, such incumbency advantages have also grown. In 1971, the Liaison Committee replaced the State Liaison Committee (and its earlier form, State Executive Committee)[15] to limit state-level power in favour of the President and his council.[16] Mahathir Mohamad (1981-2003) lengthened the presidency by an optional 18 months, and created barriers to challenges to the presidency by modifying rules and procedures.[17] This resulted in the presidency staying unchallenged for decades.
Notwithstanding, Zahid Hamidi’s presidency started at a point of weakness. He was forced to compete and debate against two candidates—the first time since 1988. Although he won by a reasonable margin,[18] substantial opposition within UMNO forced him to take an unprecedented garden leave, amidst an unceasing call for him to step down.[19] To add to his travails, Zahid Hamidi was charged with 87 criminal counts relating to corruption[20]—the highest in the country—adding urgency for him to exercise any leverage he could to avoid final defeat.
Studying Zahid’s comeback from vulnerability to invincibility, therefore, is also a study of the awesome tools at the UMNO President’s disposal. The structural changes that Zahid undertook were merely the final steps of consolidation started long ago by his predecessors.
A. Postponing party elections to 6 months after general elections
Ironically, the most consequential structural decision for UMNO was also the easiest to pass. At the extraordinary general meeting held on 15 May 2022, attended by 2,586 delegates,[21] the party passed a constitutional amendment that allowed party elections to be postponed to six months after general elections.
Before the amendment, party elections had to be held every 3 years, with an option of an 18-month delay. Any postponement beyond this would attract investigations from the Registrar of Societies (RoS),[22] that carry the prerogative of suspension and deregistration.[23]
The main reason for postponement was tactical: for the party to focus its strength on the next general election without a party election for fear that the latter would threaten party unity.[24] There was also a procedural reason, and this regarded UMNO’s future requests for postponement and the fear that these risked being rejected, now that the Home Ministry was no longer controlled by the party.
At that time, UMNO SC members were keen to retain their positions, especially as the window for the next general elections being held was closing. Zahid Hamidi’s faction’s success in painting his opponents as ‘traitors’, or a fifth column, also disincentivised many from objecting to the postponement or challenging for the highest leadership positions.[25]
While a constitutional amendment requires two-thirds approval by eligible attendees of the Special General Assembly,[26] achieving that was not really difficult in practice. In fact, constitutional amendments are occasionally passed in large batches, mixed with substantive and procedural changes, typically reflecting the desires of the President.[27]
The implications of this amendment were severely underestimated. Running out the clock under the amended provision now enables elected officers to stay for a maximum of 66 months—nearly doubling the default term limit of 36 months—as seen in Table 1. The maximum term period under the pre-amended provision was 54 months, which was still a whole year less than the maximum term period post-amendment.
Table 1: Before-and-after comparison of the maximum term period for UMNO office bearers after the passing of the 2021 constitutional amendment [28]
| Default term limit | Optional period of extension | Maximum term period | |
| Pre-2022 amendment | 36 months[29] | 18 months | 54 months |
| Post-2022 amendment | 60 months | 6 months | 66 months |
Significant term period amendments had only happened twice in UMNO’s history. In 1971, UMNO under the presidency of Tun Razak amended the constitution to extend the term period for Supreme Council positions from one year to three years.[30] Mahathir Mohamad, in December 1998, passed an amendment to allow an 18-month extension, a provision that was retained at an extraordinary general assembly in 2000. Be that as it may, Zahid Hamidi’s latest update to the term period stands as one of the most consequential in UMNO history.
The most important effect is that it entrenches incumbency advantage by guaranteeing general and state election candidate selection powers for the President. With the amendment, an UMNO President does not need to prove himself in a party election between general elections like before. In other words, if Zahid Hamidi is the President for the 2023-2028 term, he shall also be guaranteed the candidate selection rights, precluding any possibility for an alternative person to take his place in a party election and subsume that right. This situation now significantly curtails dissent against the President and his team, jeopardising any dissident’s candidacy in the upcoming election.
Chances for a large-scale dissent movement similar to that led by Khairy Jamaluddin in 2021 calling for early party elections to determine the leadership going into the next general election are miniscule now. Dropping local warlords not aligned with the President, like Annuar Musa, Shahidan Kassim, Tajuddin Rahman, and Zahidi Abidin, prior to the 2022 general elections proved that dissent within UMNO can be politically costly.[31] The amendment significantly increases the political cost for dissent.[32] The ‘feelers and soundings’ of grassroots that guided early UMNO Presidents will matter less now.[33]
Even if party dissent happens after the general elections, it is highly unlikely to succeed. The short six-month window between the general election (“GE”) and the party election is insufficient to mobilise dissenters to overthrow the leadership, save for a severe violation on the President’s part. A President who fills the candidacy list with his loyalists in a general election will likely return with more capital if they become part of government or the legislative body, making a post-GE overthrow harder. The pre-GE candidate selection process can be used as an anticipatory tool to stamp out potential future threats in the party long before the party election is held.
To a smaller degree, the amendment also disincentivises reform and performance by elected party officers who enjoy the security of tenure. In a virtually guaranteed 5-year term, elected members are likely to take it easy and only pick up on their work when party election approaches.[34] Rejuvenation, reforms and course correction are less likely now since the party has severed midterm party elections which would have continued to serve as a vital feedback loop.[35]
Although the 60-month term remains optional and the previous default 36-month term remains on paper, the option will likely be exercised. The provision can always be interpreted in line with the President’s desire for maximum time in power.[36] Moreover, ever since the first 18-month delay was allowed under Mahathir, all UMNO Presidents have used it, even reforming Presidents like Abdullah Badawi and Najib Abdul Razak.[37]
On a balance of probabilities, it can be argued that the effective term period for UMNO office bearers have now been extended to 66 months; it is this that will deter performance and reform efforts.
B. No-contest motion for top 2 posts in UMNO
Despite Zahid Hamidi’s apparent willingness to open up the top two posts—President and Deputy President—for contest before 2023,[38] a delegate motion of no-contest for these posts was passed on 14 January 2023. This was the first time a no-contest was passed through a delegate motion at the General Assembly (or “PAU”). Before that, no-contests were secured as an SC advice or resolution, and/or through structural engineering, such as using the innovative bonus and quota system.[39] While the top two posts were rarely contested in the past—the last two presidential contests were 31 years apart, in 1987 and 2018—they were still a technical possibility. This delegate motion shuts that out, creating a ‘disguised autocracy’ by limiting the voters’ freedom of choice.[40]
At that time, Zahid Hamidi did not follow the practice of bringing the no-contest motion to the SC and announcing an advice or resolution after; this was because there was no guarantee he would succeed in barring contests. If he failed, there was no guarantee that he would win the contests since opposition was building up following UMNO’s worst-ever electoral performance two months earlier. Resorting to an unprecedented method of deploying a delegate-led no-contest motion,[41] while ‘sneaky’,[42] was the surest way of closing off contests.
Generally, no-contest at the top gives a ‘false sense of security and popularity’ to the leaders.[43] Leaving open a technical possibility of contests is important in a Malay party because it could be used as a signal to the leaders to step down from their positions if they had overstayed their usefulness.[44]
Former prime minister and UMNO Vice President Ismail Sabri argued that the no-contest motion was invalid because it had violated Article 9.3 of the UMNO Constitution (UC) which states that the top leadership positions ‘shall’ be elected every three years.[45] In other words, even if the motion was tabled as an SC motion at PAU after discussions and debates, it would not be valid since the UC demands that contests must be a technical possibility. Past court cases relating to the interpretation of ‘shall’ and ‘may’ showed that the overall intention and consequences of the interpretation matters more than the exact wording.[46] Since UMNO is set up as a party with a democratic process of elections, it could only be interpreted that an election ‘shall’ be had for the highest posts.
In fact, a leaked official letter showed that the RoS found the no-contest motion in violation of Article 9.3 which necessitates corrective measures.[47] Subsequently, the Home Minister on 7 March 2023 exempted UMNO from the effects of Section 13 of the Societies Act 1966 which governs the cancellation and suspension of societies.[48] Curiously, this decision referenced Section 70 of the same Act, which stipulates the Minister’s discretion to exempt compliance with the same Act. These unusual interventions underscore the case that UMNO’s no-contest motion amounted to a legal infraction.[49]
It is likely that the Home Ministry’s exemption is a one-off matter, and is unlikely to be made a practice in future UMNO party elections. However, the upshot remains the same, that is UMNO as a party has reverted back to its norm of not opening up the top two positions for contests. A delegate motion was a last resort to limit brewing dissent. Now with a loyalist-dominated SC, future no-contest advice or resolutions will likely pass, and the backing of the candidate selection powers from the party election postponement should secure the no-contest by default.
As no-contests persist as a norm, the status quo will likely remain. While contesting lower positions is still possible, the top two no-contest practice creates a chilling effect for members to fall in line.[50]
C. High-profile sacking and suspensions of party members
Almost two weeks after the no-contest motion was passed, UMNO announced that a few high-profile party leaders, including Khairy Jamaluddin, Hishammuddin Hussein and Shahril Hamdan, were being sacked and suspended respectively from the party, shown in Table 2.[51]
Table 2: List of high-profile sackings and suspensions on 27 January 2023.
| No. | Member Name | Last held party leadership position | Disciplinary outcome |
| 1 | Khairy Jamaluddin | UMNO Youth Chief | Sacked |
| 2 | Noh Omar | Supreme Council member | Sacked[52] |
| 3 | Hishammuddin Hussein | Vice President | Suspended for 6 years |
| 4 | Shahril Sufian Hamdan | UMNO Information Chief and Deputy Youth Chief | Suspended for 6 years |
| 5 | Maulizan Bujang | Johor State Executive Committee member and Tebrau Division Chief | Suspended for 6 years |
| 6 | Mohd Salim Mohd Shariff | Jempol Division Chief | Suspended for 6 years |
NB: Other than Khairy and Noh Omar, 42 other members were also sacked.
According to Article 20.4 of the UC, the Disciplinary Board (or Lembaga Disiplin, “LD”) must listen to and be satisfied with the presence of a violation before deciding on the punishment(s) to be meted, if any. Article 20.5 of the UC also states that every layer of the party must report to their respective disciplinary units before submitting the case to the LD. The proper due process requires that the LD then make a recommendation to the management meeting, before the SC ultimately decides. On a balance of probabilities, there was no disciplinary report or investigations on these members before the final decision was made.
The case of Shahril Hamdan’s suspension is instructive of the overall sacking and suspension process during this period. Unlike Khairy Jamaluddin or Hishammuddin Hussein, whose public statements and manoeuvres could be classified as violations of the broad obligations of members (Article 6 of UC), however tenuous, it was much more difficult to penalise Shahril Hamdan for a disciplinary transgression. Shahril was part of Zahid Hamidi’s apparatus prior to his suspension, having served as the party’s Deputy Youth Chief and Information Chief. Indeed, in the letter that was passed indirectly to Shahril via WhatsApp a few days later, there was only a reference to the UC clause being violated,[53] without specifics on which actions were found to violate those clauses. This was a clear violation of due process, an essential component to natural justice, as ‘no man should be condemned unheard’.[54]
Without a clear delineation of the transgressions, it is impossible to assess if the punishments have been proportionate.[55] Proportionality is an emerging natural justice doctrine in Malaysia, whereby its violation would render the punishment ultra vires (beyond legal authority prescribed). Taken in total, it can be argued that the sackings and suspensions were private decisions made by the President without due process, based on an LD report that was not seen by the leaders or the victims involved, and that might not exist at all.
ZAHID HAMIDI’S LASTING LEGACY AND THE OUTLOOK FOR UMNO
Deprived of executive premiership, Zahid Hamidi started his UMNO presidency as the most disadvantaged President in the party’s history. He did not have the state largesse to keep his supporters loyal or the executive apparatus to eliminate enemies like his predecessors had had. However, he maximally deployed this disadvantage to elicit party sympathy, filling his speeches and public statements with commissive and self-victimisation claims.[56] He painted himself as a selfless party-first leader (“I do not want any positions in the Cabinet”),[57] drawing attention to his unique absence of power as UMNO President (“Sorry I am only an UMNO President who doesn’t hold power”),[58] and contrasting his loyalty by demonising opponents as self-centred, power-hungry traitors (calling opponents “Seeking Livelihood Cluster” or Kluster Cari Makan, and “Afraid of Losing Power Cluster” or “Kluster Takut Bos Hilang Kuasa”).[59]
This worked well with sympathetic party members, who remembered him for taking responsibility in leading the party when UMNO was at its lowest point, even though they acknowledged the contrary view outsiders share.[60]
As a non-Prime Minister UMNO President, Zahid Hamidi focused on consolidating power within the party and fully exploited every tool he had, creating far-reaching changes to the structure of the party.
Cumulatively, the three major decisions discussed in this paper virtually shut off any reasonable opportunity for dissent. Hypothetically, even if a popular leader with substantial grassroots backing were to stage a democratic overthrow of Zahid, like Khairy Jamaluddin tried to do in 2018, that option is closed now. This is not only because a no-contest for the top two posts is further entrenched in the norm, but also that dissent, however reasonable, is dramatically less likely now given the guaranteed candidate selection powers held by the UMNO President. Even if a hypothetical rebel succeeds in shaking up the party by mobilising widespread dissent, the arbitrary and personal exercise of sacking and suspension by the UMNO President could immediately uproot any challenge. Save for the President’s goodwill, it is highly unlikely for democratic contests to occur organically in UMNO’s new structure.
At the time of writing, two UMNO members, together with a coalition colleague, have filed for a judicial review against UMNO, the Home Minister, RoS, and the Malaysian government for exempting the no-contest motion from compliance. They seek an order to quash the Home Minister’s exemption, besides seeking a declaration that the posts should be open for contest, among others.[61] However, even if the case has merits, there may be procedural challenges that may defeat such suits.[62] First, Article 20.7 of the UC allows the party to terminate a member’s party membership upon bringing any party decision to court, which may result in the UMNO members losing the necessary locus standi to proceed. Second, the judge may not entertain the challenge, considering it non-justiciable for reasons of the UMNO decision being a private law, laches (period lapsed), or requiring the members to exhaust all domestic party-based remedies.
UMNO is expected to become an increasingly reactionary party, as reforms will be less likely to materialise without internal dissent. Each President and his appointee’s tenure will be longer, which makes reforms less urgent, as party office bearers now have reduced accountability to their members. These structural decisions by Zahid Hamidi are also unlikely to be reversed in the medium-term as every President holding the position will likely want to retain the chief benefit of selecting general election candidates and securing a longer tenure. If there are any reforms at all, these will depend on the personalities holding the presidency, and this necessarily makes UMNO a personality-driven party, where the highest successes and failures are an extension of the President.
Since many Malaysian voters, especially youths, have avoided voting for UMNO because of Zahid Hamidi, it is sensible to assume that the decline in electoral power will continue at an accelerated pace.
In the past, experts argued that the UMNO Presidency was strong because of its merger with the role of the Prime Minister. What Zahid Hamidi has shown, however, is that the UMNO presidency on its own is powerful even without the executive power; he has wielded every tool at his disposal and made his position unchallengeable, even by the best opponents. Zahid has been successful in converting his disadvantage into an advantage, but whether he can reverse UMNO’s decline remains to be seen.
ANNEX A
UMNO Supreme Council Structure[63]
NB: Appointments are the sole prerogative of the President.
ENDNOTES
For endnotes, please refer to the original pdf document.
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EXECUTIVE SUMMARY
- Thailand is among the ASEAN countries that have seen the most rapid growth in digital infrastructure and e-commerce since the COVID-19 pandemic.
- In a 2022 study conducted by the Asian Development Bank, Thailand was among just eight countries in the Asia-Pacific region that have implemented comprehensive legislation governing digital trade.
- In the absence of a multilateral agreement, Thailand, like many other countries, is leveraging its participation in FTAs to shape global rules for digital trade; but this approach requires significant administrative resources and can lead to regulatory fragmentation and increased business costs.
- Alternatively, the standalone Digital Economy Partnership Agreement (DEPA) is emerging as a key consensus-building platform towards a multilateral digital economy regime that Thailand may consider joining.
* Antonio Postigo is Associate Fellow at ISEAS – Yusof Ishak Institute, Singapore, Visiting Fellow at the Department of International Development, London School of Economics and Political Science (LSE), London, United Kingdom, and Senior Research Fellow at the Barcelona Institute of International Studies (IBEI), Barcelona, Spain.
ISEAS Perspective 2023/58, 24 July 2023
INTRODUCTION
The world economy is increasingly dependent on the cross-border flow of digital information. Data can serve as inputs to a final product, function as final products themselves, or facilitate the production and/or trade of other goods. Between 2007 and 2017, the flow of data increased by more than 20 times.[1] The COVID-19 pandemic has accelerated the digital transformation of many economies and boosted digital trade. At the same time, the rapid digitalisation of the global economy has prompted national governments to introduce new legislation, often leading to increased regulatory fragmentation and barriers to digital trade.[2]
While there is no single definition of digital trade, the comprehensive definition proposed by the OECD as “digitally enabled or digitally ordered cross-border transactions in goods and services that can be delivered digitally or physically”[3] has gained widespread acceptance. While electronic commerce (e-commerce) is the most commonly reported component of digital trade because it is the easiest to assess, it is just one element on the broader digital trade landscape.[4] Estimates suggest that a 20% increase in the size of the digital sector from the 2020 baseline would result in a 5.4% global output increase and a 6.1% increase in Asia’s gross domestic product by 2025.[5] Similarly, a 10% increase in digital connectivity can boost trade in goods and services by 4% and 3%, respectively.[6]
Since the onset of the COVID-19 pandemic in March 2020, there has been a surge in digitalisation accompanied by an increase in legislation related to digital trade. However, many developing countries either lack entirely or have insufficient digital trade legislation.[7] At the same time, certain domestic regulations can create barriers to digital trade, including:[8] a) Forced data localisation: While data localisation measures can enhance data privacy, consumer protection, and cybersecurity, they can also limit firms’ access to global networks[9]; b) Customs duties on electronic transmissions: In 1998, WTO members agreed to a moratorium on tariffs for electronic transmissions (see below), which requires periodic renewal;[10] and c) Inconsistency and lack of interoperability between national regulations.
To assess the restrictiveness of domestic regulations on digital trade, several indexes have been developed. The United Nations Economic and Social Commission for Asia and the Pacific (UN-ESCAP) has created the Regional Digital Trade Integration Index (RDTII), which measures regulatory measures affecting digital trade integration.[11] Additionally, the Organisation for Economic Co-operation and Development (OECD) has compiled the Computer Services Trade Restrictiveness (STRI) and Digital Services Trade Restrictiveness (DSTRI) indexes, which quantify regulatory barriers impacting trade in services, including digitally-enabled services.[12]
THE DIGITAL ECONOMY IN THAILAND
In 2021, e-commerce alone in ASEAN was valued at US$170 billion in gross merchandise value and is projected to reach US$360 billion by 2025 and US$1 trillion by 2030.[13] Thailand is one of the countries in ASEAN and Asia that witnessed the fastest growth in digital infrastructure and accessibility, a trend that has been further accelerated by the COVID-19 pandemic (Table 1).
Thailand boasts the second-largest penetration of e-consumers in ASEAN, at 48 million internet users and 9 million new digital consumers since the start of the pandemic until mid-2021. Notably, 67% of these users are located outside the Bangkok area. In 2021, the internet economy in Thailand reached US$30 billion in global merchandise value, marking a 51% increase compared to 2020, and is expected to reach US$57 billion by 2025. Thai e-commerce alone accounted for US$21 billion in 2021, ranking 19th globally in terms of value.[14]
Table 1: Selected digital indicators in Thailand
* Population between 16 and 64 years old.
Abbreviation: The PDPA = Personal Data Protection Act
Sources: Bangkok Post 2 July 2021; 3 September 2021; and 27 August 2022;
Thailand Digital Outlook 2022 (https://tdo.onde.go.th/)
The digitalisation wave has also transformed numerous service sectors in Thailand, with most notable advancements observed in financial services. Foreign investment in digital services has surged, particularly in e-commerce, fintech, e-health, and online education. This growth has been driven by increased Internet and mobile phone penetration, as well as the improvement of logistics and e-payment systems.[15] In terms of e-commerce transactions, 50% are business-to-consumer (B2C), followed by business-to-business (B2B) at 27%, and business-to-government (B2G) at 23%.[16] One-third of B2B e-commerce transactions are in the food and service sector, with manufacturing at 16% and retail and wholesale at 15%.
In 2016, Thailand introduced the Thailand 4.0 Strategy, aiming to transition the country to developed status through an industrial transformation in ten key sectors, including digital industries, and position Thailand as ASEAN’s innovation and knowledge-based digital hub.[17] Similar to traditional industries like automotive, electronics, petrochemicals, and heavy industries, Thailand has prioritised digital transformation in the Eastern Economic Corridor (EEC), which accounted for 60% of total FDI inflows in 2021.[18]
Furthermore, in recent years, Thailand has implemented several projects to promote and strengthen the digital economy and digital transformation across various dimensions.
First, in the e-commerce ecosystem, the Department of International Trade Promotion (DITP) at the Ministry of Commerce established Thaitrade.com in 2011. Thaitrade.com serves as a B2B electronic marketplace connecting over 25,000 Thai exporting firms, particularly small and medium enterprises (SMEs), with international importers.[19]
Second, to bolster digital infrastructure, Thailand initiated the construction within the EEC of the Digital Park Thailand in late 2021.[20]This public-private partnership aims to promote the development of digital infrastructure, enhance digital connectivity and aspires for the Park to become an ASEAN hub for digital innovation by attracting high technology and digital industries. [21]
Third, to facilitate trade, encompassing both digitally enabled and digitally delivered goods as well as traditional goods and services, Thailand launched the pilot stage of the National Digital Trade Platform (NDTP) in September 2022.[22] The NDTP will serve as the centralised point for communication and electronic document delivery between trading partners.[23] The NDTP is linked with Thai facilities such as the National Single Window and will be integrated with similar digital platforms in other countries.[24]
DOMESTIC REGULATIONS ON DIGITAL TRADE
In 2016, Thailand launched the Office of the National Digital Economy and Society Commission to draft national policies for the digital economy and society. A year later, a Digital Economy Promotion Agency was created to facilitate the growth of digital industries and promote the use of digital technologies. Both have been later integrated into the Ministry of Digital Economy and Society, which was established in October 2016 as a replacement for the Ministry of Information and Communication Technology.[25] The Digital Development for Economy and Society Act (2017) established the legal framework for the digital development of both the economy and society in Thailand.[26] It also created a Digital Economy and Society Development Fund to finance future digital economy and social development plans.
In the past five years, Thailand has introduced a substantial number of new regulations concerning the digital economy.[27] According to a recent ADB report,[28] Thailand is one of only eight countries among the 49 surveyed in the Asia-Pacific region which has implemented digital trade legislation. The current Thai regulatory framework on digital trade encompasses various dimensions, including electronic transactions, consumer protection, privacy, data protection, cybercrime, and the adoption of the United Nations Commission on International Trade Law (UNCITRAL) model law on e-commerce.[29].
The Electronic Transactions Act (2019) established the legal equivalence of electronic records and signatures with paper records and handwriting signatures.[30] All digital businesses in Thailand are required to register under the Commercial Registration Act.[31] The Personal Data Protection Act (PDPA) issued in June 2022, outlines the obligations for both overseas and domestic e-commerce businesses regarding the collection and use of personal data.[32] In December 2022, Thailand issued the Decree on Digital Platforms, which establishes the obligations of digital platform providers.[33]
Of note, the PDPA does not require data localisation, and Thailand has lower tariffs and non-tariff barriers on information and communication technology (ICT) goods compared to the Asia-Pacific average.[34] However, Thailand imposes stricter restrictions on foreign investments and the operations of telecommunication businesses, as well as on online sales and transactions. Consequently, Thailand’s score on the UN-ESCAP’s RDTII is higher (indicating more digital trade restricting policies) than the ASEAN and Asia-Pacific averages.[35] Thailand also receives higher scores (more restrictive) in both OECD’s indexes, with the fourth-highest DSTRI and second-highest STRI in ASEAN.
INTERNATIONAL GOVERNANCE OF THE DIGITAL ECONOMY
A plurilateral negotiating platform at the WTO, the Joint Initiative on Electronic Commerce (JIEC), was established in 2017 to build consensus on trade-related aspects of electronic commerce.[36] Progress among the current 86 JIEC members has been most notable in the following areas: online consumer protection, electronic signatures, spam, open government data, electronic contracts, transparency, paperless commerce, and open Internet access.[37]
The Asia-Pacific Economic Cooperation (APEC) has launched discussions among interested members on trade facilitation and data privacy and on making the WTO moratorium on electronic transmissions permanent.[38] Despite these efforts, variations in national regulatory frameworks and the absence of multilateral rules and standards governing digital trade and data-driven markets can create what some authors refer to as a “digital noodle bowl”, which entails additional costs for businesses.[39]
While a multilateral digital trade agreement materialises, countries are relying on regional and bilateral free trade agreements (FTAs) as well as ad hoc digital economy agreements as the main mechanisms to establish international rules on digital trade. As of May 2023, there were 356 free trade agreements (FTAs) in force, with over half of them implemented in the last decade incorporating provisions related to digital trade.[40]
However, analyses of digital trade provisions in FTAs reveal a fragmented landscape, with three primary templates for digital chapters emerging in FTAs: those led by China, the European Union (EU), and the United States (US).[41] Digital trade provisions in Chinese FTAs tend to be less comprehensive and focus on facilitation and e-commerce; provision in the EU’s and the US’ FTAs are broader and deeper, and while the EU’s FTAs emphasise personal data protection, the US’ FTAs stress non-discrimination of digital products provisions. [42]
Although digital trade chapters have been included in many recent FTAs, the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) distinguish themselves through their extensive geographic reach and comprehensive provisions on digital trade rules.[43] RCEP’s liberalisation in traditional goods trade and other trade-related issues is less comprehensive and deep than the CPTPP.[44] The digital trade in the RCEP overlaps with that of the CPTPP in areas such as paperless commerce, electronic signatures, and online consumer protection. However, the RCEP, which is shaped by the digital trade framework of its members, especially ASEAN and China, allows for greater flexibility in restricting data flows if it is deemed necessary to achieve legitimate public policy objectives or protect security interests. In contrast, the CPTPP, building upon the initial membership of the US in its predecessor (the Trans-Pacific Partnership, TPP), incorporates the US model of digital trade provisions in FTAs, including non-discrimination of digital products, prohibition of source code access, prohibition of localisation requirements, and prohibition of cross-border data transfer restrictions, thereby emphasising open data flows.[45]
In December 2021, ASEAN implemented the ASEAN Agreement on E-Commerce, which closely aligns with the digital chapter in the RCEP covering various digital trade rules on cross-border trade facilitation, electronic payments, internet neutrality, personal data, and consumer protection.[46] Also, like the RCEP, the agreement does not include provisions on non-discrimination of digital products or restrictions on source code requirements.
Among the FTAs that ASEAN has already implemented with Australia/New Zealand, China, Hong Kong, India, Japan and South Korea, only the first FTA (AANZFTA) has been upgraded to include a digital chapter.[47] The e-commerce chapter in the AANZFTA, which could serve as a model for other ASEAN’s FTAs, covers various digital trade issues such as transparency, consumer protection, online personal data protection, authentication, certification, electronic signatures, and paperless trade administration. However, it does not include applicability of WTO rules (e.g., digital service supply), non-discriminatory treatment of digital products, or the moratorium on tariffs on digital products.
Thailand participates in the WTO’s JSIEC but, like other countries, has leveraged its engagement in FTAs to shape global rules and standards for digital trade. It has implemented six bilateral FTAs and is a party to eight regional agreements, namely ASEAN, the six ASEAN-centred FTAs, and the RCEP (Table 2).[48]
Among the bilateral FTAs, only the Thailand-Australia (TAFTA) and Thailand-New Zealand (NZTCEP) FTAs contain digital provisions, albeit that they are fairly generic.[49] Both FTAs include provisions on consumer protection, online personal data, paperless trade administration, customs facilitation, applicability of WTO rules to e-commerce, and a pledge to follow UNCITRAL’s model law. Unlike the NZTCEP, TAFTA also includes provisions on authentication, certification, electronic signatures, the applicability of trade rules to digital services, and a moratorium on tariffs on digital products.[50]
All members of ASEAN are part of the RCEP, but only Brunei Darussalam, Malaysia, Singapore, and Vietnam are members of the CPTPP (Table 2). While the Thai government has expressed interest in the CPTPP, it has not yet joined due to strong opposition from civil society organisations.[51]
Table 2: Digital provisions in the FTAs and digital agreements participated by Thailand and other ASEAN countries
Abbreviations: AANZFTA: ASEAN-Australia-New Zealand FTA; EU: The European
Union; GCC: Gulf Cooperation Council; US: The United States of America
Sources: Honey (2021); ADB (2022); Corning (2023); WTO-JIEC (undated)
Beyond FTAs, some countries are negotiating standalone bilateral or plurilateral digital economy agreements. For example, the US and Japan have signed an agreement on digital trade.[52] Singapore has taken a leading role in establishing international rules and standards for the digital economy and has bilateral digital partnerships with Australia (2020), the United Kingdom (2022), the European Union (2023), and South Korea (2023). But it is the Digital Economy Partnership Agreement (DEPA) signed by Singapore with Chile and New Zealand in 2020 that has garnered the greatest attention.
Unlike other digital agreements, DEPA is an “open agreement” that allows for the inclusion of additional countries.[53] South Korea, Canada, and China have initiated negotiations to join DEPA, potentially giving the agreement the necessary critical mass to become a consensus-building platform in the harmonisation or convergence toward a multilateral digital economy regime. In May 2022, Singapore extended an invitation to Thailand to join DEPA, and both countries have signed a memorandum of understanding (MoU) covering several key issues of the digital economy.[54] However, Thailand is still to decide whether it will join DEPA or not.
Another distinctive feature of DEPA is its modular approach. DEPA is organised into 16 modules, each addressing specific aspects of the digital economy. This allows for future revisions as the digital economy evolves and new issues arise. It also offers flexibility, allowing countries to join DEPA in its entirety or incorporate specific modules into their domestic policies or other trade negotiations.[55]
While DEPA and other bilateral digital agreements do not address traditional issues like cross-border services, financial services, and intellectual property included in FTAs, they offer greater coverage in terms of the digital economy.[56] DEPA and Singapore’s bilateral digital partnerships align with the CPTPP digital trade template, encompassing provisions on data flows, data localisation, electronic transactions, and non-discrimination of digital products. However, its scope extends beyond digital trade, aiming to cover the entire value chain and various aspects of the digital economy, like open government data, internet access, competition, fintech and e-invoicing.
EXPLORING THAILAND’S FUTURE CHOICES IN DIGITAL ECONOMY GOVERNANCE
While FTAs and standalone digital agreements have made important strides in building an international digital trade regime, there is still a pressing need for substantial progress at the multilateral level through the JIEC. An agreement facilitated by the WTO offers distinct advantages.
Firstly, it can better accommodate the “special and differential treatment” for developing and least developed countries compared to FTAs. Secondly, it enables the integration of rules for digital trade with those governing traditional goods, services, and intellectual property rights. Most importantly, it ensures interoperability and prevents fragmentation within the digital trade system. However, the institutional gridlock within the WTO hampers negotiations and makes it unlikely for any digital trade agreement to be reached quickly.[57]
In this scenario, Thailand faces the decision of whether to upgrade its existing FTAs to include digital trade rules, join the CPTPP with its more comprehensive digital chapter compared with RCEP, or join DEPA.
Upgrading existing FTAs to include digital trade rules with specific partners allows for the customisation of digital trade provisions based on bilateral or regional needs. This approach will require significant administrative resources and contribute to increased regulatory fragmentation and higher costs of doing business.
Joining the CPTPP would grant Thailand access to a more comprehensive digital chapter, compared to the RCEP. However, it would also require Thailand to meet a broader and more extensive set of requirements in other trade-related areas and could limit the policy space to implement certain developmental strategies.
Finally, and due to the evolving nature of the digital economy, a standalone and adaptable digital agreement such as DEPA can more adequately and rapidly address the barriers encountered by businesses better than FTAs. Although DEPA’s membership is still small, several major economies have expressed interest in joining it.
The existing MoU and the range of cooperative efforts in the digital economy between Singapore and Thailand have the potential to generate momentum for Thailand’s membership in DEPA. Early membership will also provide Thailand with the opportunity to actively participate in shaping the agenda of the agreement.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
EXECUTIVE SUMMARY
- By the end of 2023, there will be 271 interim regional heads who are appointed rather than elected, accounting for more than half of the regional leadership posts throughout Indonesia.
- The legal basis of the interim leader appointment process has been contentious and subject to challenge, especially when some of the appointees have a substantial term in office before the next election, or when they execute significant policy changes.
- Critics argue that handpicked interim leaders are beholden to those who have appointed them and would use the advantages of incumbency to promote central government interests, and unfairly favour some stakeholders over others in the 2024 elections.
- The phenomenon of appointed interim leaders has intertwined with renewed questioning by political parties and elites of the legitimacy and future of regional elections with senior government ministers, among others, proposing a return to the political appointment of regional leaders and the ending of democratic elections.
* Ian Wilson is Senior Lecturer, Politics and Security Studies, Co-Director (interim) of the Indo-Pacific Research Centre, at Murdoch University, Australia, and Visiting Fellow at ISEAS – Yusof Ishak Institute.
ISEAS Perspective 2023/57, 19 July 2023
INTRODUCTION
In July 2022, Ahmad Marzuki, recently retired commander of the Iskandar Muda military command, was appointed interim governor of Aceh. Aceh had just emerged in 2005 out of decades of armed conflict, and its post-peace-accord politics had been dominated by Partai Aceh, a local party established by former Free Aceh Movement rebels. The selection of a non-Acehnese military man to that position was therefore surprising. Marzuki was not popularly elected,[1] and was in fact appointed by the Minister of Home Affairs, Tito, from three names proposed by Aceh’s regional parliament. The significance of the Minister’s preferred choice was not lost on many, with one Aceh Party parliamentarian commenting that “Jakarta has chosen a Jakarta person to sort out Aceh; what kind of message do you think that sends?”.[2]
By the end of 2023, there will be as many as 271 interim regional leaders throughout Indonesia, representing over half the total number of provinces, regencies and cities in the country. These interim appointees will be in office until after regional elections in November 2024, and throughout presidential and legislative elections scheduled for February that year.
The legislative basis for the appointment of interim regional leaders is Article 201 of the 2016 Electoral Law (UU No. 10), which stipulates that all regional elections (Pilkada) be held simultaneously in November 2024. This means that elected terms ending prior to 2024 will result in vacant positions. Rather than holding by-elections to fill these vacancies, the law specifies that these be filled by interim appointments.
BORN OF A LEGISLATIVE COUP
To understand the broader implications of the appointment of interim leaders for the 2024 election, it is important to first situate it within the context of the recent history of legislative and political challenges to the status of regional elections.
The 2016 Pilkada law, upon which interim appointments are based, emerged out of a tumultuous period during which regional elections were momentarily ended via what amounted to a legislative coup. In September 2014, five months after presidential and legislative elections were won by Jokowi and the PDI-P, the Koalisi Merah Putih, the six-party coalition known to have backed the losing presidential candidate Prabowo Subianto, used the final moments of its parliamentary majority to pass the Regional Elections law (UU Pilkada).[3] Central to the legislation was the replacement of direct elections with the appointment of regional leaders by parliament. It coalesced the antipathy held by many parties to the unpredictability and the attendant costs and risks of popular elections, together with entrenched ideological opposition towards liberal and participatory democracy.[4]
The argument against popular elections was that they created ‘division’, sowed discord, encouraged corruption and conflicted with the Pancasila, echoing New Order era characterisations of the unsuitability of electoral democracy in the Indonesian context. Outside of the party coalition, support for the change also came from Nahdlatul Ulama, whose leadership stated that regional and legislative elections “wrecked the spirit of Indonesia”.[5]
The 2014 legislation was short-lived, however. Responding to public outcry, outgoing president Yudhoyono overturned it via two presidential decrees in his last weeks in office, and reinstated direct regional elections.[6] This reversal was passed in early 2015 by a DPR now dominated by the PDI-P after the 2015 regional elections; this was however recognised to be insufficient in the long term. The law underwent further revisions in 2016, and again in 2020. Through this process, a majority consensus developed among parliamentary factions that Pilkada should be held in 2024, cancelling all other elections scheduled for 2022 and 2023, and thus producing the need for interim regional leaders.[7]
NOT JUST ANOTHER CARETAKER
Caretaker administrations are a common and largely uncontentious part of many electoral systems. Generally, interim administrations operate with limited executive authority and mandate during short periods before elections or post-election, or in moments of political crisis. Indonesia’s interim leaders, however, differ in several ways.
One is the length of the appointment. The first interim leaders took office in early 2022, over 34 months prior to regional elections scheduled for November 2024. This constitutes over half of a full elected term. Regional Government Law 23, 2014, stipulates, however that interim leaders should not be in office longer than one year.[8] Subsequently, interim leaders are subject to performance reviews after 12-months with the possibility of a further extension. The review process for governors has been conducted by the Home Affairs Ministry with performance ostensibly assessed against three sets of criteria: evidence of improvements to public services; achieving progress on development indicators via the use of regional budgets; and maintaining public order.[9] Others include facilitating ease of investment, and tackling inflation and unemployment.[10] There is a clear expectation that interim leaders will use their time in office to actively govern and make significant changes in line with national government priorities ‘unburdened by political interest’, rather than operate in a caretaker mode or continue the policies of their predecessors.[11]
To do so, and in contrast to many caretaker administrations, Indonesia’s interim regional leaders enjoy wide-ranging executive power. Governmental regulations from 2008 suggest some significant limits, such as prohibiting the replacing of government officials, retracting of permits, and instigating of policies that conflict with those of the central government or the previous administration.[12] There was, however, an important caveat, i.e. “except with the permission of the Minister of Home Affairs”.[13] In late 2022 the Home Affairs Minister issued a ministerial circular effectively granting interim leaders the authority to remove and replace government officials. In practice, new policy directions have also not faced censure as long as these have been assessed by the Ministry to be in keeping with national government priorities.[14] This Ministry-mandated authority has to date been variably deployed, from replacement of officials appointed by previous administrations and significant policy shifts. Be that as it may, without a political mandate granted by a constituency, interim leaders are highly susceptible to pressure from regional parliaments, but even more so the Ministry of Home Affairs, which remains their appointer, performance assessor and, in effect, political master.[15]
This has been evident in Jakarta, where the interim governor is Heru Budi Hartono, a former mayor of North Jakarta and head of the Presidential Secretariat, who was handpicked for the role by President Jokowi.[16] Since coming to office in October 2022, Heru has disbanded the Accelerated Development Team (TGUPP) that advised the governor, overhauled the directorship of the Jakarta-government owned property, infrastructure and utilities company Jakarta Property (Jakpro), replaced the Regional Secretary, and appointed a long-term critic of the previous administration of Anies Baswedan as commissioner of the government-owned Light Rail Transit Corporation (PT LRT).[17] Several signature policies carried out by Baswedan, such as widening pedestrian sidewalks, have also been reversed.[18] Also, the close consultation with urban poor groups and their advocates which characterised the previous administration has come to an abrupt halt.[19]
With Baswedan now a 2024 presidential candidate seeking to campaign on his policy achievements as governor of Jakarta, Heru, and by extension the Minister of Home Affairs, have been accused of politically weaponising his time in office.[20] Praised by the PDI-P for continuing the policies of Jokowi and Ahok, he has now been touted as one of the party’s preferred candidates for governor in 2024.[21] There is currently no legal impediment to interim leaders running in the 2024 elections. Handpicked by the national government, interim leaders who run will enjoy the significant strategic and resource advantages stemming from incumbency.
APPOINTMENT PROBLEMS
Perhaps unsurprisingly, the process of interim leader appointment has been highly contentious. The 2016 election law upon which interim leadership is based is scant on substantive details. It was not until April 2023, after the appointment of over 150 interim leaders and significant sustained pressure, that the Ministry of Home Affairs issued a Ministerial Regulation that nominally outlined an appointment procedure.[22]
The earlier absence of a clear or transparent process and opportunities for public input has resulted in accusations of political manipulation, with the legislative basis of interim appointments being subjected to repeated legal challenges.[23] In February 2022, five citizens requested a judicial review of Article 201 of the 2016 Electoral Law (UU Pilkada). In May of the same year, the Urban Poor Network (Jaringan Rakyat Miskin Kota, or JRMK) launched a constitutional challenge arguing that the appointment of interim leaders amounted to a “coup d’etat” that denied members of the network their constitutional right to representation, while the Regent of Mandailing Natal, North Sumatera, contested the constitutionality of the 2016 legislation on the grounds that it reduced his elected term from five to four years.[24] In all three cases, the constitutional court concluded that interim appointments are constitutionally valid. In its judicial review ruling, however, the court did request that the government legislate a technical process of appointment broadly guided by principles that were “democratic’, transparent, and accountable”.[25]
Despite this, and despite a damning report by the National Ombudsman that labelled the appointment process as marred by maladministration, the Ministry of Home Affairs remained steadfastly recalcitrant.[26] Minister Karnavian has instead engaged in a counter-polemic insisting that an appointment process involving any kind of voting process or public participation was ‘impractical’, and that a more pragmatic “filtering of aspirations” which was, according to the Minister, fundamentally “democratic in nature” was used instead.[27]
This ‘filtering’ has required regional parliaments forwarding the names of three potential candidates to the Home Affairs Ministry for consideration.[28] These are then evaluated by the Home Affairs Minister in coordination with other Ministries, and with the approval of the President.[29] Even here, however, the role of the DPRD has been routinely sidelined, and numerous appointments have been made by the Ministry outside of DPRD recommendations.[30] In other instances, Ministry-appointed governors have forwarded names of candidates for Bupati without consulting the DPRD.[31] This has generated some disquiet. In the case of Jayapura, the DPRD responded to the imposition of interim-Bupati by questioning the central government’s commitment to Papua’s special autonomy.[32]
Indonesia Corruption Watch (ICW) has argued that the wider pattern of interim appointments indicates that a key criterion in the process is “closeness” to the central government.[33] As can been seen in Table 1, most governors appointed in 2022 came from state ministries. The structural relationship is one of deference to the priorities and interests of central government, rather than those of the local and regional constituencies, be it the economic importance of mining and sand exports in the case of Bangka Belitung, or political security in the case of West Papua and Aceh.[34]
Table 1: Interim governors appointed in 2022
| Province | Name | Position | Institution |
| Aceh | Achmad Marzuki | Special Staff | Ministry of Home Affairs |
| South Papua | Apolo Safanpo | Special Staff | Ministry of Home Affairs |
| Central Papua | Ribka Haluk | Special Staff | Ministry of Home Affairs |
| West Sulawesi | Akmal Malik | Director-General of Regional Autonomy | Ministry of Home Affairs |
| Banten | Al Muktabar | Banten Regional Secretary | Regional Secretariat |
| Jakarta | Heru Budi Hartono | Head of Presidential Secretariat | State Secretariat |
| Bangka Belitung | Ridwan Djamaluddin | Director-General of Minerals and Coal | Ministry of Energy and Mineral Resources |
| Gorontalo | Hamka Hendra Noer | Special Staff | Ministry of Youth and Sport |
| West Papua | Paulus Waterpauw | Lieutenant-General | Police |
| Highland Papua | Nikolaus Kondomo | Special Staff | Attorney General |
IMPLICATIONS FOR THE 2024 ELECTIONS
There are two broad sets of implications that the phenomenon of interim regional leaders has for the 2024 elections.
The first is that interim leaders will go into election campaign periods with a national government-backed incumbency that will likely influence policy decisions and resource allocations. With close structural, if not personal, relationships to state ministries and the president, interim leaders can ‘campaign by stealth’ for or against presidential, legislative, or regional candidates, such as in the case of Jakarta.
Sustained resistance to the establishing of clear and transparent appointment processes on the part of the Ministry of Home Affairs and reliance on the Ministry’s own executive authority have however undermined its rhetoric about these being bastions of political neutrality. This has been further evidenced by patterns of appointment and by the prevalence of close ties to central government, together with the likelihood that some interim leaders will run for elected office in 2024. The latter challenges the idea that these are in fact caretaker administrations. This bullish approach is not without risks; it strains the relationship between some regional parliaments and the central government, resulting in questions about the fragile future of regional autonomy, together with public backlash over the imposition of non-local unelected candidates and policy change enacted without a public mandate.[35]
The second regards the broader implications for the long-term future of regional elections.[36]Despite the failure of Prabowo’s Koalisi Merah Putih in 2014, more political parties have since come to the table to question one of the most significant democratic reforms of the post-1998 period.
In February 2023, for example, Muhaimin Iskandar, the Chair of PKB and Deputy Chair of the DPR and a touted vice-presidential candidate, proposed ending elections for governor.[37] The Chair of the People’s Consultative Assembly (MPR), Bambang Soesatyo, reiterated the view that governors were “representatives of central government in the regions”, and as such should not be popularly elected, reigniting older debates over the status of provinces either as administrative units or as representative entities.[38]
The Indonesian Solidarity Party (PSI), a self-defined ‘youth’ party and a vocal supporter of President Jokowi, went even further, calling for a return to the New Order practice of direct presidential appointment of governors, arguably already in partial effect, given the interim governors, and the governance of Indonesia’s new capital, Nusantara.[39] Heralded by President Jokowi as a model for ‘a new Indonesia’, Nusantara will not have an elected leader, the equivalent of the current capital’s governor will be replaced by a chairman appointed directly by the president.[40]
The PDI-P, who opposed the 2014 legislative coup, has since developed a preference for more party and parliamentary power to be exercised over the appointment processes. Party leaders have been labelling direct regional head elections as “transactional” and “mired in nepotism and money politics”.[41] This shift is undoubtedly intertwined with their own political consolidation as the largest parliamentary faction, and with them holding the presidency.[42] This view was recently reiterated in an unsuccessful party-led Constitutional Court challenge of the 2017 electoral law, during which it was requested that the court impose a return to a closed-list voting-system, away from the current open-list approach. A key argument presented for this is that it is the party, and not the voting public, that was best suited to choose capable and appropriate leaders.[43]
CONCLUSION
In the face of this, perhaps the main defence for the continuation of direct regional elections is its public popularity, which has remained consistently high since its introduction in 2005. A survey conducted by Political Weather Station (PWS) in January 2023, for example, found that 80.9% were opposed to ending elections for regional leaders, including those for governor. This mirrors results from a survey done by Lingkaran Survei Indonesia (LSI) eight years earlier of supporters of the Koalisi Merah Putih Coalition, which found that 81.5% of these were in favour of direct elections.[44] Despite its well-known weaknesses and limitations, many Indonesians still consider direct elections an important vehicle for popular agency.
With the 2024 presidential and legislative elections only months away, the spectre of political interference in the process together with a significantly weakened capacity for civil oversight is looming large in public discourse.[45] This was highlighted in June following comments by President Jokowi that he was actively cawe-cawe or ‘meddling’ in the 2024 elections, to “ensure a smooth transition of power”.[46] The politics involved in the appointment of interim leaders has arguably been a case of systemic cawe-cawe.
It establishes a non-democratic norm for executive leadership appointment that is rationalised via appeals to efficiency, anti-corruption, and the ‘depoliticising’ of political power, and provides opportunities for the use of unelected incumbency to thwart electoral rivals. Interim leaders, in this respect, look something akin to a trial run for possible post-2024 scenarios in which there may be renewed legislative efforts to end elections for regional leadership positions.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
EXECUTIVE SUMMARY
- The Malaysian government’s aspirations to nurture startups and unicorns can be traced back to the establishment of its Multimedia Super Corridor (MSC) in 1996.
- This was to be accomplished through the establishment of incubators and accelerators and the provision of early-phase funding in a decentralised manner to meet the needs of startups from the inception of ideas to their development and subsequent commercialisation and expansion.
- There is uncertainty whether the government funding of startups has been effective, given the lack of proper assessment of incubator and accelerator performance. It is also far from clear whether the progress and current status of the startups are commensurate with the money spent.
- Assessments of incubator and accelerator performance in other countries have shown a critical reliance on good data. The UK’s experience, for example, points to the need to make data sharing obligatory for incubators and accelerators that have received or are receiving public funding.
- Designing an assessment framework which can be applied across different incubators and accelerators, however, requires the identification of appropriate performance metrics that should be used.
- While it may be expected that incubators, accelerators and funders should assess their own impact, in reality they often do not have the time nor the resources to do so. Hence there is scope for independent researchers to play a vital role in this regard, but this can only be done if data is shared with them. The data-driven insights gained from such assessments would be invaluable for the improvement of future programmes and funding processes.
* Tham Siew Yean is Visiting Senior Fellow at the ISEAS – Yusof Ishak Institute and Professor Emeritus, Universiti Kebangsaan Malaysia.
ISEAS Perspective 2023/56, 18 July 2023
INTRODUCTION
Startups are pursued as potential new drivers of growth through their innovativeness and use of new technologies, in the belief that these can open new markets for new products and services and generate new employment for the country. For these reasons, Malaysia has been pursuing startup development since the inception of the Multimedia Super Corridor (MSC). MSC was established in 1996 as a testbed to spur the country’s information, communication, and technology (ICT) development. The MSC programme accorded tax advantages for MSC-designated firms which were initially to be located within Cyberjaya in the hope that it would grow into an ICT cluster.
To spur innovation, three incubators have been established. They are: MSC Central Incubator (MCI), which is in Cyberjaya itself; Technology Park Malaysia (TPM) Incubator, which is situated within the TPM Science Park vicinity, and Universiti Putra Malaysia-Malaysian Technology Development Corporation (UPM-MTDC) Incubator, which is operated within the UPM main campus in Serdang.[1] These incubators provide physical space and some resources for early-phase startups that are in the product development phase and do not have a developed business model. Funding was subsequently provided when Cradle was incorporated under the Ministry of Finance Malaysia (MOF) in 2003 to fund potential and high-calibre tech start-ups. via its investment programs, which includes commercialisation support, coaching and other value-added services for entrepreneurial development. Over time, more incubator and accelerator programmes were added alongside greater funding from the government, as more ministries and agencies joined in the race to produce startups.
Startup ambitions were later consolidated into Malaysia’s Digital Economy Blueprint, which was launched in February 2021. The Blueprint targeted 5000 startups and two unicorns by 2025, subsequently raised to five unicorns.[2] A Roadmap (or Malaysian Startup Ecosystem Roadmap (SUPER), 2021-2030) to achieve this was launched in November 2021.[3] SUPER is housed with the Ministry of Science, Technology, and Innovation (MOSTI). MOSTI defines a startup as “a technology or innovation enabled business at an early stage, with a scalable business model and a high growth strategy.” In 2022, Malaysia had 3,363 start-ups and one unicorn, namely Carsome, which is an integrated used-car platform. But there are no historical data as to how much this number has grown since the inception of the MSC in 1996.
Over time, other incubator programmes were introduced, including in public universities. Accelerator programmes for speeding up the growth of existing companies that already had a minimum viable product (MVP) via dedicated mentoring, networking, and financial support, were also added. There is also funding outside of these programmes. This is to meet the desired exponential growth in untested ideas and products. This paper traces the development of government-funded incubators and accelerator programmes and startup funding in the country. It also identifies the key challenges these government-supported programmes and funding structure face.
PROFILING INCUBATORS AND ACCELERATORS
According to SUPER, there are 28 accelerators/incubators backed either by the government or the private sector. At the federal level, the three key ministries running accelerator programmes are the Ministry of Science, Technology, and Innovation (MOSTI), the Ministry of Communications and Digital (MCD) and the Ministry of Entrepreneurship Development and Co-operatives (MEDAC), with funding from the Ministry of Finance (MOF) (Figure 1 and Appendix 1 for details).
Figure 1. Key Ministries, Programmes and Funding for Startups in Malaysia, 2023.
Note: Figure does not represent size of programmes or funding.
Source: Author
These programmes share several key features. They have specific objectives, albeit these tend to evolve over time due to changing policy priorities. For example, the pivot from ICT to all-things-digital took place when Multimedia Development Corporation (MDC), which was established to oversee the development of the MSC, was rebranded to Malaysia Digital Economy Corporation (MDEC) in 2016. MDEC’s accelerator programmes thereafter started to focus on digital startups.[4]
While the programmes may differ in sectoral focus, there can be overlaps. The bioeconomy accelerator programme,[5] for example, focuses on bio-based startups in the agriculture, industrial and health sectors. Likewise, MRANTI Park also focuses on agriculture, health and bioscience, in addition to drone technology and IR4.0.[6]
The programmes cover startup development from pre-seed to seed, and from early-stage to commercialisation stages. However, World Bank’s identification of funding gaps has spurred a reorientation towards early-stage startups, leading MOSTI to launch MYStartup Pre-Accelerator programme in 2022.[7] MYStartup Pre-Accelerator focuses on pre-seed and early-stage start-ups, providing guidance and coaching to help them unlock their value and potential.
Collaborations are common across institutions while public-private partnerships in accelerator programmes have also increased over time. This can be observed in many MDEC programmes, which have included partnering state level programmes and with private accelerators as well.
In view of the looming 2025 deadline, targeted programmes have been launched to stimulate the birth of unicorns. This includes the launch of the 100 Soonicorns programme in 2022, where soonicorns are defined to be unicorns in the making.[8] The programme aims to identify 100 soonicorns, out of which 20 will be selected for tailored learning, mentoring, regulatory assistance, and funding from investors which include government agencies as well. In 2023, MDEC launched another new mentoring programme, called the Founders Center of Excellence’ (FOX) Program, which targets high growth tech companies with potential to become unicorns or achieve an IPO by 2025.[9]
Research universities and government research institutes also host incubator programmes in collaboration with Malaysian Technology Development Corporation (MTDC), although two of the oldest research universities, namely University Malaya and Universiti Sains Malaysia have opted to do so independently or with different collaborators. There are also private incubators such as MAD (Make-a-Difference) incubator,[10] which aims to work with bigger private universities like Help University. Unfortunately, there is no list of private incubators available and start-ups may encounter difficulties seeking out these incubators.
There are also special channels for Bumiputeras such as Teraju’s programme to support Bumiputera startups, which ran from 2014 to 2021.[11] SME Corp also has several programmes for Bumiputeras. Since these programmes are also dependent on government funding, some of them have been terminated when their funds dried up or when new allocations have new priorities. For example, the Business Accelerator Program of SME Corp is currently closed.
At least three states have publicly announced their respective accelerator programmes, with the Selangor programme being the oldest. The Penang state government is collaborating with private players, while Sarawak’s is driven by Digital Sarawak.
Petronas, a government-linked company, has also launched an accelerator programme which has five focus areas related to the interests of the company. These are naturally tied to future areas that can impact the direction of the company, such as sustainability concerns, the future of chemicals and materials, and the future of energy and mobility.
Private accelerators also exist but the exact number is not known. Six of the best-known work collaboratively with MDEC, namely WatchTower and Friends, Scaleup Malaysia, 1337 Venture Accelerator, PwC, Nexea and Sunway ILabs Super Accelerator. Global Accelerator Programs such as the one hosted by Alibaba are also available in Malaysia.[12] Notable among the private accelerators is the collaboration between Carsome, Malaysia’s first unicorn that was minted in 2021, and SunwayiLabs, a private accelerator, to run a programme that focuses on funding, supporting and scaling up startups that potentially disrupt the automobile ecosystem.[13]
KEY CHALLENGES
Programme Assessment
The outcome of all these government incubators and accelerator programmes, when reported publicly, is usually in the form of the number of participants of an event or the number of startups who completed the programme. Cradle, which has been running incubator and accelerator programmes since its inception, was reported to have approved 486 projects totalling RM191.94 million, from 2011 to 2020.[14] Cradle commissioned a study in collaboration with Help University in 2017 to study the impact of Cradle programmes on the economy.[15] The study, which has not been released to the public, reported that in 2018, Cradle’s initiatives had contributed US$838 million (RM3.4 billion) to the country’s Gross Domestic Product (GDP) and created 80,600 full-time jobs. A total of US$321 million (RM1.3 billion) in private and foreign funding was attracted into the Malaysian technology ecosystem during the eight-year period. The number of startups that dropped out or continued to grow after participating in the programme was, however, not reported.
Data are sparse if available at all, on the subsequent development of the startups that have participated in any of these programmes. In particular, university incubators are usually assessed for publication purposes. For example, Ng et.al. (2019)[16] compared Malaysia’s University Incubators (UI) with Taiwan’s and found that Malaysia’s UI are not only younger but also lacking in institutional culture, socio-technical networks, and financial and human capital, making them less effective than Taiwan’s. Importantly, since the promotion of academic staff is tied to publication, they are much less ncentivized to search for startup opportunities through these incubation programmes; efforts to commercialise university research therefore remain elusive.[17]
MOSTI’s MyStartup first Annual Report 2022 may pave the way for a new way of reporting as it provides some details on the programmes conducted under this platform.[18] These programmes are outlined with some data on participation in terms of the number of applicants and the number selected, and some testimonials and illustrative success stories. Testimonies, while valuable, cannot substitute for a survey on user perception of the value of the programmes or an appraisal on whether the support provided has indeed enhanced the longer-term survival and growth prospects of startups. Such an appraisal can provide invaluable feedback for improving programmes. There is, however, scarce information on whether the numerous programmes have been assessed for improvements, not to mention that on the metrics used.
In particular, there is no comparison between government-supported startup survival and the long-term development of private incubator and accelerator-supported startups, based on specific outcome measures. Further comparison with non-supported startup development is essential if one is to understand the value and influence of government incubator and accelerator programmes.
Funding beyond incubator and accelerator programs
Besides funding incubator and accelerator programmes, there is also funding available that is not tied to these programmes (Figure 1). This is because mega-size funding is critical for scaling up the development and success of startups. Grab, for example, was founded in Malaysia by Malaysians and received initial funding support from Cradle. But when it grew bigger, much more funding was needed for it to grow exponentially and Grab was apparently unable to access this funding in Malaysia. It was subsequently persuaded by a Singapore venture capitalist to move its headquarters to Singapore in 2014 and it was later listed on NASDAQ in 2021.[19] In contrast, Carsome, Malaysia’s unicorn, stayed on in Malaysia and could grow to its present scale after managing to obtain funding from a partnership between Gobi, a private venture capital company, and Malaysia Venture Capital Management (MAVCAP), in 2016.[20]
Hence, beyond the funding provided through incubation and acceleration programmes, additional funding is available. This is also not centralised and is instead distributed across different ministries and agencies, which diffuses the amount available for each startup. The funds are mainly in the form of grants, loans, and incentives. There is also peer-to-peer funding (P2P) funding (or borrowing directly from individuals) and equity crowdfunding, which is the collecting of smaller sums of money from a larger number of investors, organised by one of these agencies. In particular, there are also several government-owned firms that aim to provide venture capital. MAVCAP was established in 2001 under the MOF, with the mandate of developing the venture capital sector, and it is one of the largest VC firms in Malaysia. It operates under the purview of MOSTI. The government has also increased its efforts to bring in private venture capital through partnership with the government, for high risks investments. Specifically, the Ministry of Finance (MOF), apart from providing funding for programmes and other funding agencies, established Penjana Kapital in 2020 with a RM600 million investment fund to promote public-private partnership; it is a matching fund-of-funds programme wherein funds raised by foreign and private local investors are matched 1:1.
In 2022, Securities Commission Malaysia showed that government agencies contributed 36.01% of the country’s venture capital, followed by sovereign wealth funds (27.7%), while corporate investors contributed 22.68%,[21] indicating a continued dependency on government and government-linked funding. The private venture capital market is still considered underdeveloped. In part, Malaysia is relatively less attractive because its domestic market is relatively small and scaling up requires firms to have a global mindset from the start and to be able to tap on the regional market, which in turn depends on their access to funding. Carsome for example, relied on several rounds of funding to expand from Malaysia to Indonesia, Thailand, and Singapore. The regional market, on the other hand, is difficult to penetrate due to the prevalence of non-tariff measures, especially in terms of standards used, imposed in each country.[22]
The availability of numerous funds does not necessarily imply that they are easily accessed as there is little accountability on the use of these funds or their effectiveness. Instead, Malaysia startups continue to face funding problems; World Bank (2022)[23] found that in proportion to its GDP share, Malaysia’s VC activity is relatively low, indicating that it is performing below its potential in this respect. In addition, Malaysia’s average deal size for seed funding is comparatively low as compared to its regional peers, indicative of a lack of high-quality investment opportunities.
CONCLUSION
Malaysia’s aspirations to nurture startups and unicorns can be traced as far back as to the establishment of the MSC in 1996. The government has since established numerous incubators and accelerators to facilitate the growth of these firms, with the participation of different ministries, agencies, and government-linked companies. Funds have likewise been provided each year in a similarly decentralised manner to meet the funding needs of startups from inception of ideas to growth and subsequent commercialisation and expansion. However, the lack of proper assessment of incubator and accelerator performance and of the effectiveness of government funding lends uncertainty as to whether the current stage of development of startups is commensurate with the money spent.
Assessments of incubator and accelerator performance in other countries have shown good data is needed. The databank on startups in Malaysia is poor and spread across several Ministries and agencies. It is important to take a leaf from the UK study[24] where it is suggested that data sharing should be made obligatory for incubators and accelerators that have received or are receiving public fundings.[25]
Designing an assessment framework and working across different incubators and accelerators require identifying a set of appropriate performance metrics to be used. It is crucial that Malaysia moves away from simplistic performance metrics such as number of participants, number who selected for attending the programmes and number who graduated from programmes.
The performance measures must be meaningful in the short-term as benchmarked against the activities and results of the programmes. It should also measure the sustainability of the startup. Likewise, assessing the impact of funding should focus on meaningful metrics that can measure performance outcomes attributable to funding received. Identifying the appropriate performance measures and collecting the relevant data are a crucial step forward.
It may be that incubators, accelerators and funders should assess their own impact, but more often than not, they do not have the time or the resources to do so. It is important therefore for data to be shared with independent researchers. Data-driven insights can be gained from this for the improvement of future programmes and funding processes.
Appendix 1. Federal and State Incubators and Accelerators, 2023
| Ministry and agency | Programs |
| MOSTI | |
| CRADLE | MyStartup (pre-accelerator program) https://www.mystartup.gov.my/accelerator |
| MRANTI | Global Accelerator Program https://mranti.my/global-accelerator-programme MRANTI Impact Challenge Accelerator Program https://mranti.my/solutions/scaling-up-market-ready/mranti-impact-challenge-accelerator-mica |
| Bioeconomy Corporation | Bio-Based Accelerator Program https://www.bioeconomycorporation.my/industry-development/bio-based-accelerator-programme/overview/ |
| MCD | |
| MDEC | SME Digital Accelerator Program https://mdec.my/digital-economy-initiatives/for-the-industry/sme-digital-accelerator GAIN (seven accelerator partners, which are either state or private programs) https://mdec.my/gain/accelerator-programs Malaysia Tech Entrepreneur Program (MTEP), https://mdec.my/about-mdec/digital-economy 100 Soonicorns Program https://www.kkd.gov.my/en/public/news/23065-100-soonicorns-launched-to-expand-unicorn-club-in-malaysia FOX program https://www.digitalnewsasia.com/startups/malaysias-unicorn-target-centres-around-mdecs-fox |
| MEDAC | |
| SMECorp | PRESTIGE https://www.smecorp.gov.my/index.php/en/programmes1/2015-12-21-09-53-14/prestige |
| Teraju (for Bumiputeras only) | SUPERB (2014 -2021) https://superb.teraju.gov.my/home https://vulcanpost.com/766347/teraju-superb-2021-bumiputera-startup-accelerator/ |
| With Malaysian Technology Development Corporation (MTDC) | I4.0 Accelerator Programs https://mytap.com.my/program_TAP-SME.php |
| Seven Public Universities; four with MTDC | https://www.mtdc.com.my/technology-centre/ USM: Centre for Innovation and Consultation (CIA) in collaboration with Western Digital https://innovations.usm.my/ https://www.nst.com.my/news/nation/2021/01/657929/western-digital-usm-unveil-centre-innovation-and-automation University of Malaya Centre of Innovation & Enterprise (UMCIE) https://umcie.um.edu.my/our-location |
| Selangor state | Selangor Accelerator Program (5th cohort) https://www.sidec.com.my/sap2022/ |
| Penang state | Penang Startup Accelerator Program (together with private) https://pydc.com.my/en/psap/ |
| Sarawak | |
| Sarawak Digital Economy Corporation (SDEC)) | Digital Village Accelerator https://diva.sarawak.digital/ |
| Tabung Ekonomi Gagasan Anak Sarawak (TEGAS) | https://dayakdaily.com/tegas-to-groom-5-startups-in-its-startup-lab-accelerator-programme/ |
| Petronas | Future Tech Accelerator Program https://www.petronas.com/ventures/futuretech-accelerator/ |
Source: Compiled by author
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |
EXECUTIVE SUMMARY
- China is ASEAN’s largest trading partner and is viewed as the most influential economic power in Southeast Asia, according to recent State of Southeast Asia Survey reports. Especially for Laos, China’s investments through the Belt and Road Initiative have been significant.
- The large scale of China’s investments in Laos, especially in infrastructure projects such as the China-Laos railway, hydropower dams, and special economic zones (SEZ), have not only increased China’s influence in Laos but also fed Laotian dependence on China.
- However, a closer examination of Laos’ foreign policy, political priorities, and trade reveals that Laos can be “even-handed” or independent when it comes to international relations and is, in fact, able to strike a balance between its neighbours (particularly Vietnam and Thailand) and other major powers.
- The State of Southeast Asia 2023 Survey Report has indicated that China’s influence in Laos may be significant, but it is, in fact, slowly waning. The Lowy Institute Asia Power Index has also indicated that China’s influence in Laos does not exceed that of other neighbouring countries. An increasingly assertive China and the deepening of US-China rivalry have placed greater pressure on Laos to move towards neutrality and to increase its reliance on ASEAN member states and other middle powers.
* Joanne Lin is Co-coordinator of the ASEAN Studies Centre at ISEAS – Yusof Ishak Institute, and Lead Researcher (Political-Security) at the Centre.
ISEAS Perspective 2023/55, 17 July 2023
INTRODUCTION
Since the revival of its influence in Southeast Asia in the early 1990s,[1] China has become an important economic investor and development partner for the region, especially for Laos and Cambodia.[2] China has retained its position as ASEAN’s largest trading partner[3] since 2009, and ASEAN has become China’s largest trading partner since 2021.[4] For Cambodia and Laos, China constitutes the largest source of foreign direct investment outside of ASEAN.[5] As such, China has been viewed as the most influential economic power in Southeast Asia, according to recent State of Southeast Asia Survey reports.[6]
Due to Laos’ limited developmental options,[7] it has benefited significantly from China’s investment. This is particularly through the Belt and Road Initiative (BRI) which is perceived to help regional countries achieve faster development.[8]
The scale of China’s investment in Laos, especially in infrastructure such as the China-Laos railway, hydropower dams, and special economic zones (SEZ), has resulted in an increase in China’s influence in both tangible and intangible ways.[9] The growing dependence of Laos on China has led academics and media to sometimes frame Laos as a “vassal” or “satellite” state to China, unable to think and act independently.
However, a closer examination of Laos’ foreign policy, political priorities, and trade (away from the lenses of major power rivalries) reveals that Laos can be “even-handed” or independent when it comes to international relations, and is able to strike a balance between its neighbours (particularly Vietnam and Thailand) and other major powers.[10] There are also indications that Laos has sought to diversify its foreign relationships (including in development assistance) beyond China.
The State of Southeast Asia 2023 Survey Report [11] has shown that China’s influence in Laos may be significant but it is nevertheless slowly waning. An increasingly assertive China and the deepening of US-China rivalry have placed greater pressure upon Laos to move towards neutrality and to increase its reliance on ASEAN member states, or middle powers such as the European Union (EU), Australia, Japan, and South Korea.
The Lowy Institute Asia Power Index[12] has also indicated that China’s influence on Laos is not the greatest where trade, investment, diplomacy, media (and social media), defence, and even UN voting alignments are concerned.
This Perspective will examine the changing perception of Laotians about China, and how Laos is more neutral than media reports and academic analyses generally claim.
THE STATE OF SOUTHEAST ASIA SURVEY FINDINGS[13]
(Note: The survey’s methodology has not changed across the four to five years of analysis. Starting in 2022, the survey was conducted both online and offline (CAPI method) in order to reach more respondents. The CAPI method for Laos started in 2023. The number of Laos respondents increased from 43 in 2022 to 107 in 2023. In terms of affiliation, Laos respondents from across four categories namely the academic/think-tanks/research institutions; the business/finance sector; civil society/NGOs/media; and the regional /internationals have increased in 2023 as compared to 2022, while respondents from the government sector decreased[14] in the same period.)
Major Powers’ Economic, Political and Strategic Influence in Laos
A five-year analysis of the State of Southeast Asia Survey reports from 2019 to 2023 shows that while China continues to enjoy a certain degree of influence in Laos, its economic power has been perceived to be declining, with the exception of 2020-2021 (Chart 1). The most significant decline was recorded for 2022-2023; China’s economic influence in Laos plunged from 86.4% to 20.6% (Chart 1), while China’s political-strategic influence in Laos decreased from 75% to 30.8% in the same period (Chart 2).
A growing number of Laos’ respondents have also indicated worry about China’s growing economic influence (an increase from 65.8% to 72.7%) while an increasing number of respondents welcome the US’ growing economic influence (from 0% to 50%) from 2022-2023.
In the same period, ASEAN’s economic influence among Laos respondents increased from 2.3% to 29.9%; Australia’s influence increased from 0% to 16.8%; and the EU’s influence increased from 6.8% to 16.8%. Japan, South Korea, the UK, and the US all registered an increase in economic influence among Laos respondents.
Similarly, Australia (0 – 14%) and the EU (0 – 17.8%) recorded the largest increase in political and strategic influence, while ASEAN, India, South Korea, the UK, and the US registered a smaller degree of increase among Laos’ respondents in the period 2022-2023.
Chart 1: In your view, which country / regional organisation is the most influential economic power in Southeast Asia? (Laos’ Respondents)
Chart 2: In your view, which country/regional organisation has the most influence politically and strategically in Southeast Asia? (Laos’ Respondents)
State of Southeast Asia Survey reports from 2019-2023
Laos’ Perceptions of Major Power Leadership
A four-year analysis has shown that Laos’ respondents generally favour China with regards to leadership in championing global free trade (Chart 3). However, while China’s popularity soared in the period 2021-2022, it plunged from 61.4% in 2022 to only 14% in 2023 (lower than ASEAN’s and the EU’s). On the flip side, confidence in ASEAN increased from 6.8% to 26.2%; Australia from 0 to 10.3%; and the EU from 6.8% to 25.2%. Perceptions about the US have remained rather constant in the last three years (between 14% and 15.9%).
With regard to leadership in maintaining the rules-based order and upholding international law, Laos’ respondents’ confidence in China has consistently decreased over the past four years from 26.1% in 2020 to 5.6% in 2023 (Chart 4). In the period 2022-2023, the EU became Laos’ top option at 29%, an increase from 13.6% in 2022, while confidence in Australia increased from 0% to 17.8% following Russia’s invasion of Ukraine. Greater confidence is also recorded for New Zealand and the UK. China’s “no-limit” partnership with Russia, along with ASEAN countries’ (including Vietnam) concern about China’s more aggressive stance in the South China Sea may have contributed to the declining confidence.
Chart 3: Who do you have the most confidence in to champion the global free trade agenda (Laos’ respondents)
State of Southeast Asia Survey reports from 2020-2023
Chart 4: Who do you have the most confidence in to provide leadership to maintain the rules-based order and uphold international law (Laos’ respondents)
State of Southeast Asia Survey reports from 2020-2023
Impact of China-US Rivalry on Laos
If ASEAN were to align itself with one of the two strategic rivals (the US or China), an overwhelming majority of Laos respondents, from 2020-2022, chose China over the US (Chart 5). However, in 2023, 58.1% of respondents chose the US, while only 41.1% of respondents chose China.
In the survey done in 2023, when asked about seeking out “third parties” to hedge against the uncertainties of the US-China strategic rivalry, the biggest group of Laos’ respondents (42.1%) chose the EU while Japan (18.7%) and Australia (16.8%) were in the second and third places respectively.
Chart 5: If ASEAN were forced to align itself with one of the two strategic rivals, which should it choose? (By Laos’ respondents)
State of Southeast Asia Survey reports from 2021-2023
Summary of Findings
The findings have revealed that while China continues to have some degree of influence over Laos politically and economically, its influence has declined, particularly between 2022 and 2023. Confidence in China as a global leader to promote free trade or to uphold a rules-based order has also declined among Laos’ respondents. China’s COVID restrictions on borders and suspension of Laos’ exports have affected Laos’ businesses and farmers.[15] As such, there is a growing sentiment in the preference among respondents for middle powers, particularly the EU and Australia, to play a greater leadership role. Confidence in ASEAN has also increased with regard to its economic role in the region following the entry into force of the Regional Comprehensive Economic Partnership (RCEP) in January 2022 and the diversification of production sites from China to Southeast Asia as a result of the intensifying US-China rivalry. Economic growth in neighbouring countries including Thailand and Vietnam has resulted in an increase in their trade and investment with Laos.[16]
In the 2023 survey, when asked what could potentially worsen Laos respondents’ positive impression of China, the majority chose “China’s interference in my country’s domestic affairs (including influence over the ethnic Chinese citizens of my country)” at 56.7% and “China’s use of economic tools and tourism to punish my country’s foreign policy choices” (43.3%). This demonstrates that the growing presence of China in Laos may inevitably lead to concerns over domestic interference.
Apart from the trends in major powers’ influence and rivalry, Laos’ respondents have generally displayed neutrality (significantly above the regional average) in their outlook toward regional and international developments. This includes indicating the “neutral”, “not sure” or “no comment” options in questions relating to the Myanmar crisis, tensions in the Taiwan Strait, the Quadrilateral Security Dialogue (QUAD), the Indo-Pacific Economic Framework for Prosperity (IPEF), and China’s Global Security Initiative (GSI). This could possibly indicate a passive or neutral stance of Laotians toward global developments or a preoccupation with economic developments rather than political-strategic affairs.
LAOS’ MIXED VIEWS OF CHINA
It is without doubt that trade and investment relations between Laos and China have been growing. The two-way trade volume between the two countries was estimated to be US$4.15 billion in 2021, and increasing by approximately 20% yearly.[17] China accounts for more than 80% of Laos’ agricultural exports,[18] resulting in a trade surplus for Laos. China is also the main source of infrastructure financing in Laos. There are at least 815 projects funded by China (mostly under the BRI) to an amount of over US$16 billion since 1989.[19]
Among China’s infrastructure investments in Laos, the China-Laos railway is one of the most significant and controversial projects, considering its hefty price tag of US$6 billion.[20],[21] As a result of Laos’ significant reliance on China’s infrastructure financing, its total debt exposure to China (the largest single bilateral lender) is estimated to be approximately US$12.2 billion or 64.8% of its GDP,[22] resulting in some observers accusing China of ‘debt trap’ diplomacy.
In the past two years, rising debt is further exacerbated by the impact of the COVID-19 pandemic, inflation, and the rapid depreciation of the local currency the Lao Kip (more than 45% against the US dollar) making Laos’ debt repayment more expensive and putting the country at risk of defaulting. As a result, the public has expressed concerns[23] for fear that its sovereignty could be implicated in the case of compromising lands or national assets for debt repayment.
However, despite the growing debt, these infrastructure loans are generally viewed as necessary to expedite Laos’ economic development and trade. The China-Laos railway for example could be Laos’ best bet to boost its connectivity to turn its unfavourable land-locked status into a land-linked status with the second largest economy in the world. It is expected to boost the country’s GDP by US$81.63 million[24] (cost of freight to reduce by more than 30%) and tourism from China by at least 20%.[25] Apart from enhancing its connectivity with China, the railway with its ‘dry port’ is expected to be linked to the Greater Mekong Subregion[26] so that Laos can be an important logistics hub within continental Southeast Asia. This will not just boost its economic performance but also increase the people’s confidence in the Lao People’s Revolutionary Party.[27]
Another controversial development in Laos is the growing number of hydropower dams[28] built under the BRI which have the potential to turn Laos into the “battery of Southeast Asia”. While sustainable energy is sought after by the region, there are concerns over safety,[29] environmental damage[30] and livelihoods, including the potential effects on downstream states (Cambodia, Thailand and Vietnam), as well as worries about China’s increasing control over Laos’ energy resources. The China Southern Power Grid Company has a majority share under the Électricité du Laos Transmission Company Ltd and can effectively control the electricity export of Laos under a 25-year concession agreement.[31] Other concerns include the erosion of Laos’ social fabric due to these developments as well as local businesses being taken over by Chinese nationals who are not able to converse in the Laotian language.[32]
As such, while there are clear economic benefits brought about by China, there are also rising concerns and pushback against China’s growing presence and influence in Laos. Some scholars have noted that if Laos’ dependence on China increases, it could lead to China’s interference in the domestic affairs of Laos.[33] This has also been indicated as Laos’ top concern in the State of Southeast Asia Survey.
There are however views that Laos’ interest in China goes beyond economic interest. Danielle Tan[34] has noted that Laos’ reliance on its external environment, especially China, could be a deliberate strategy to put regional powers in competition with one another in order for the country to avoid being drawn into the orbit of just one of them (China, Vietnam or Thailand), and to enhance its bargaining powers with investors. As such, playing Vietnam against China helps promote Laos’ autonomy and independence.
BEYOND CHINA’S INFLUENCE IN LAOS
While China is an important partner for Laos, it is certainly not its only partner. Political, economic and cultural ties with several countries shape Laos’ foreign relations. It has been observed that Laos has an impressive track record when it comes to balancing the interests of competing diplomatic partners.[35]
According to the Lowy Institute Asia Power Index 2023 Edition (Chart 6),[36] China’s influence in Laos may be significant but it is not the top influencer in particular categories including trade and investment, diplomatic and defence dialogues, arms trade, online search interest, foreign media flows, and travel destinations. Thailand comes out tops in trade and investment as well as other aspects of soft power influence including online search interest and travel destination. Where arms trade is concerned, Russia overtakes China as the leading arms exporter to Laos.
Vietnam, on the other hand, has the greatest influence in diplomatic and defence dialogues as well as foreign media flows. Laos’ relations with Vietnam continue to enjoy primacy at the political level and the Lao Peoples’ Revolutionary Party (LPRP) maintains high level relations with the Vietnamese Communist Party (VCP).[37] The two countries have practised “twinning” or “sister province” arrangements since the beginning of their diplomatic ties (a socialist form of para-diplomacy between local authorities),[38] including increasing transport connectivity between cities. Such efforts to interweave Vietnam[39] and Laos beyond any prospect of delinking cannot be replicated or diminished by China’s rise.[40],[41] An interview by the author with Laotian government officials also noted that the government and the LPRP conduct monthly visits to Vietnam, a practice that is not carried out with any other countries including China.
Chart 6:
Source: Lowy Institute Asia Power Index 2023 Edition[42] (data selected and arranged by author)
CONCLUSION
China’s relations with Laos are expected to expand because of the growing economic linkages between the two countries. However, an increasingly assertive China and the deepening of US-China rivalry will place greater pressure upon Laos to move towards neutrality or to increase its reliance on ASEAN and its member states, or middle powers such as the EU, Australia, Japan and South Korea.
Statistics have shown that although China has some degree of influence over Laos, it is not controlling the country. State of Southeast Asia survey findings have also revealed that the prevailing attitude in Laos with regard to major powers’ regional influence is shifting away from China, particularly in the past year.
Greater autonomy will certainly bode well as Laos assumes the ASEAN Chairmanship next year. It will then have a chance to play a leadership role in the region, deepen relations with all major powers and further diversify its relations.
ENDNOTES
For endnotes, please refer to the original pdf document.
| ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute 30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735 Get Involved with ISEAS. Please click here: /support/get-involved-with-iseas/ | ISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed. Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission. © Copyright is held by the author or authors of each article. | Editorial Chairman: Choi Shing Kwok Editorial Advisor: Tan Chin Tiong Editorial Committee: Terence Chong, Cassey Lee, Norshahril Saat, and Hoang Thi Ha Managing Editor: Ooi Kee Beng Editors: William Choong, Lee Poh Onn, Lee Sue-Ann, and Ng Kah Meng Comments are welcome and may be sent to the author(s). |