MALAYSIA: Kelantan's Islamic Economics

Aug 97

A Sleepy Backwater Awakens
New business opportunities beckon in Kelantan. Where Islamic zeal is tempered by pragmatism

By Salil Tripathi

Dusk falls early on the deserted streets of Kota Bharu. At the new Square Point Hotel, its managing director, Phua Thye Ming, surveys the near-empty cafe and says: “It’s so quiet and lonely at night. We want the tourists to spend, but where’s the entertainment?”

Kota Bharu is the capital of the northeastern Malaysian state of Kelantan, a sleepy agricultural backwater ruled by Parti Islam Se-Malaysia (PAS), a fundamentalist party which presents itself as the torchbearer of Islamic ideals and values.

Like other hoteliers, Phua, 46, is not permitted to serve liquor. But the ban is easily sidestepped. Over dinner in a Chinese restaurant across town, a man laments: “Come on, we are businessmen, lah. What is this? No night club? No drinks? No karaoke? This is terrible,” as he gulps whiskey served in a plain glass to make it look like tea.

Kelantan is the nyet state of Malaysia - no pubs, no gambling, no billiards lounges, no video-game centers and no mingling between men and women in supermarket checkout queues. Not long ago, scandalized authorities renamed a beach outside Kota Bharu: The Beach of Passionate Love (Pantai Cinta Berahi) is now called the Beach of Moonlight (Pantai Cahaya Bulan).

Partly because of Kelantan’s dour and sleepy image, economic development has been sluggish: It is one of the poorest of Malaysia’s 13 states. But things are set to change. Today, the building cranes dotting the skyline of Kota Bharu are signposts to a brighter economic future.

The business and investment climate has improved dramatically since a rapprochement last year between PAS and the United Malays National Organization (UMNO) of Prime Minister Mahathir Mohamad, which dominates the National Front government in Kuala Lumpur. The two sides have often been at loggerheads since 1990, the year PAS won power, partly because UMNO has painted PAS as a party of strict zealots bent on driving investment and technology away.

But relations brightened after the dissolution last year of Semangat 46, PAS’s junior partner in the alliance ruling Kelantan. Semangat’s founder, former Finance Minister Tengku Razaleigh Hamzah, a one-time archrival of Mahathir, opted to rejoin UMNO and fold the party.

The improved federal-state relationship has sparked new interest in Kelantan among venture capitalists. UMNO-linked companies are scouting around for business openings, while entrepreneurs from the tiny ethnic-Chinese community have embarked on a number of new projects. (Kelantan’s 1.3 million people are overwhelmingly Malay and Muslim. This sets it apart from much of Malaysia, where ethnic Chinese form a big minority, up to one- third of a population of 21 million.)

In April, Mahathir provided a big boost to investors’ confidence by attending the signing of a joint-venture agreement for a huge petrochemical plant between Keloil Sdn. Bhd., a subsidiary of the Kelantan state government, and the UMNO-linked KUB Holdings Bhd.

The significance of his presence was not lost on the business community. Anuar Tan, a businessman-turned-politician in Kota Bharu, says: “Earlier the K.L. tycoons were scared that if they came to Kelantan, the government would get upset. Now with the PM’s green light, they will come like ants, because Kelantan is the cake.”

The past reluctance of Kuala Lumpur businessmen to invest in Kelantan arose partly because of adverse publicity given to some of its more controversial proposals, such as one (never implemented) to segregate the sexes in cinemas. Businessmen close to UMNO steered clear of Kelantan, worried about losing contracts elsewhere.

Moreover, as Malaysia’s only opposition-ruled state, Kelantan was low on the priority lists of federal agencies and ministers. The state has attracted only $478 million in investment since 1988, a tiny portion of Malaysia’s total of $77 billion. “It is not a figure to be proud of,” admits Wan Zulkifle Wan Yusoff, chief executive of the State Economic Development Corp. (SEDC). Still, he is confident things will now improve.

Kelantan’s strategic importance is greater than its size suggests. Bordering Thailand, it faces the South China Sea and is conveniently close to the ports of Cambodia, Vietnam and Thailand. Its location has exciting development potential. But, despite having a coastline, it has no port of its own.

Last year Kelantan formed a joint venture with the Thai Petroleum Authority for the storage and bottling of liquefied petroleum from the joint Thai-Malaysian exploration area in the South China Sea.

Now other projects are being dusted off, including horticulture and aquaculture schemes, and the extension of a proposed highway. Two cement plants are under construction, and work is about to start on a new fisheries port. “People are talking of mega-projects, in billions,” says Hu Pang Chaw, a local journalist.

One promising field for expansion is tourism. Kota Bharu, with its mosques, minarets and palm trees, has seen a spate of new holiday projects. Developers have built five new hotels, and more apartments and offices are planned. The SEDC wants to build a heritage township in Semerak, a picturesque fishing community outside Kota Bharu.

Hotelier Phua and his friends are confident that the future is bright. Phua is developing a beach resort and an office tower. Fellow ethnic-Chinese businessman Tan Kok Hwa, 48, has even more ambitious plans. His company, Teong Hoe Construction Sdn. Bhd., is embarking on a $50 million development in Kota Bharu that will include a hotel run by the Marriott-owned Renaissance group, a shopping center, a 159-unit condominium and an amusement arcade. “People have nowhere to go,” he says. “Other cities have large-scale shopping complexes. My project will be a landmark in Kelantan’s development.”

Kelantan Chief Minister Nik Aziz Nik Mat acknowledges that relations with Kuala Lumpur have warmed considerably, and, while ruling out political cooperation, has expressed optimism that economic cooperation between PAS and UMNO will bring further benefits. “The prime minister [Mahathir] told me that in future the treatment will improve. We were accused of being extremists, but that portrayal was wrong. He has found that the image was distorted,” says Nik Aziz, a devout believer who is widely revered in Kelantan as Tok Guru, or Venerable Teacher. His weekly sermons are packed affairs, and he is known to interrupt meetings if they run into his prayer time.

Still, Kelantan needs to reform its land code if it is to secure big-ticket investment. The code prohibits non-Malays from buying land and properties freely. The limited amount of land available for non-Malays is in small plots, making any integrated project difficult.

Another question that worries potential investors is whether women are allowed to work. The answer is: yes. Women wearing tudung (headscarves) work at hotels, offices, banks and fast-food restaurants, and they throng the central market stalls in Kota Bharu. The more relaxed attitude on gender issues can be gauged from the fact that women have recently reappeared on advertisement billboards (but the city council insists that a white tudung is painted around the heads of female movie stars).

Of course, the development of Kelantan may be bought at a high price. Many supporters of PAS fret about changes to their tranquil way

of life. “There is a deep psychological fear among PAS leaders that industrialization and commercialization will bring in vice and corruption among the people,” points out Goh Kean Seng, principal of Chung Hwa High School, a parochial Chinese school in Kota Bharu.

Kelantan is still a world away from Penang’s high-tech factories. It has a long way to go before it can fit into Mahathir’s dream of a fully developed nation by 2020. But business costs are rising on the west coast, and the east coast may now be a magnet for smart money. In somnolent Kota Bharu, property developer Tan Kok Hwa says: “I was born here. I know this town. We are getting there.”