Cracks appear in Malaysia’s building spree

What happens when Malaysia’s 20th-century development dreams meet the political and environmental realities of the 21st century?

Spring Energy is the just the sort of homegrown, super successful, keenly entrepreneurial company that developing nations across the world crave. Based in a tidy three-story building not far from central Kuala Lumpur, the company’s influence extends across the Malaysian peninsula.

Spring Energy operates six quarries across Malaysia, four ready-mix concrete batching plants, three asphalt plants, and a fleet of trucks, concrete mixers, and paving equipment. The company and its customers supply building materials for skyscrapers, smooth roads and industrial yards, boulders for sea walls and stone for high-speed rail lines.

Never in its 21-year history, though, has Spring Energy signed as many construction contracts as it has in the last two years. The company now counts 1,000 employees.

Its overflowing order book is a pure reflection of the infrastructure construction boom that over the last decade has altered Malaysia’s peninsula and island landscape.

But on May 9, 2018, Najib Razak, who had held office as Malaysia’s prime minister since 2009, was ousted in a shock election defeat. Najib, who also served as the country’s finance minister, had sponsored about $100 billion in rail, port, energy, road, and real-estate infrastructure projects as essential assets in turning Malaysia from a middle-income country into a top-tier Asian economic power.

Malaysia tends to look quite good from the outside. But if you [scratch]the surface and look underneath, things are slightly different.

Steve McCoy, sustainability consultant

Elections have consequences, and in Malaysia’s case, apparently big ones. Malaysia’s new prime minister is 93-year-old Mahathir Mohamad, who led the country from 1981 to 2003.  Deciding factors in his victory were Mahathir’s persistent criticism of the costs of some big projects, and charges of corruption in how a number of such projects were financed from 1Malaysia Development Berhad (1MDB), a national infrastructure investment fund that Najib started and supervised.

Within eight weeks of taking office, Mahathir took a red pen to most of the really expensive projects, cancelling a 40-kilometer (25-mile), 26-station, $11.25 billion metro rail  line in Kuala Lumpur, and suspending two big rail projects. One is the 350-kilometer (220-mile) high-speed rail line between Kuala Lumpur and Singapore, citing costs he said would reach $27 billion. The principal contractor for the line was scheduled to be named in the fall.

These decisions imperil the development of Bandar Malaysia, a 190-hectare (468-acre) mixed use $40 billion real-estate project planned for a shuttered military air base and centered around Kuala Lumpur’s high-speed rail terminal. Bandar Malaysia was one of the principal projects promoted by 1MDB.

The other is the 688-kilometer (428-mile), $14 billion passenger and freight train line between Kuala Lumpur’s port on Malaysia’s west coast, across the center of the peninsula, and north along the east coast to Pengkalan. The Chinese-financed and constructed rail project is connected to the tide of capital flowing to Malaysia from China’s Belt and Road Initiative, a $1 trillion project to build new trade and commerce routes from Beijing and Shanghai to Europe, Africa and Southeast Asia.

Before the May 9 election, Malaysia was engaged in one of the most prodigious building sprees in its 61-year history, planning and constructing roads, rail lines, ports, housing and office buildings, energy systems, water supply and treatment infrastructure. Some of the largest transportation, manufacturing and real-estate projects in the world are under construction along Malaysia’s east and west coasts, its two Bornean states, and in its largest cities.

But as Malaysia churned toward its 30-year-old goal of becoming what Najib called “a top-20 nation,” the gale of construction and its cost pushed it to a new reckoning. Monumental public spending on infrastructure, a sizable portion connected to the alleged massive plunder of 1MDB funds, has produced signal consequences for the country’s political and financial stability. Malaysia’s national debt more than doubled under Najib’s administration, threatening its credit rating.

It also put at risk the safety of Malaysia’s globally significant tropical forests, rivers and marine ecosystems. Not since the Asian financial crisis of the late 1990s, which plunged Malaysia and other Southeast Asian nations into a deep recession that devalued currencies, has the country been so shaken.

In the spring, Mongabay was on the ground, at the front lines, to report on the mammoth infrastructure construction projects occurring against the backdrop of the national election. Our intent was to understand the dimensions of Malaysia’s contemporary makeover and the environmental consequences for a nation of 31 million people that ranks as Southeast Asia’s fourth-largest economy.

We discovered that while the concerns about the security of air, water and land are justified, Malaysia’s big investment in new operating equipment also produced unexpected economic gains, as well as considerable financial and political challenges.

Over the coming weeks, in this and five other reports, Mongabay will assess the development strategy in Malaysia’s 11 peninsular states, and its value or its flaws as a model for 21st-century nation building. We did not visit the two states on the island of Borneo, where a big highway is being built and a Chinese-financed natural gas pipeline was just blocked.

As might be expected, Malaysia’s infrastructure development is a story evolving in many dimensions. In Kuala Lumpur, Malaysia is steadfastly realising transportation and real-estate development goals it set over two decades ago to ensure that the capital is competitive with Shanghai, Hong Kong, Singapore and Jakarta as a principal center of international finance in Asia.

Much of it displays Malaysia’s interest in joining environmental performance with infrastructure investment.

Mongabay will examine Najib’s grand vision of connecting the capital region with fast, clean and convenient rail transport—and the ways in which this year’s elections may derail those plans.

In Kuala Lumpur, we look at the $1.3 billion River of Life project, one of the world’s largest river restoration attempts. Its target is the Klang River, which flows through Kuala Lumpur and essentially served as an open sewer. The multi-phase program, underway since 2012, fits wastewater treatment with stormwater management and diversions, trash and grease control, and urban park construction. Now 90 percent complete, the project is intended to make the Klang’s water clean enough for swimming and to lure shoreline development.

Our project also will report on how flooding, mudslides and other severe ecological disasters are challenging real-estate development and seabed reclamation on Penang Island, one of the country’s fastest-growing areas.

We look at Kuantan, where titanic industrial parks, a new port, the expensive East Coast Rail Link project, and mixed-use real-estate development are planned to serve China’s Belt and Road Initiative. Malaysians worry that China’s sphere of influence, which Citibank researchers estimate could amount to $100 billion in Malaysia alone over the next two decades, is too robust. Prime Minister Mahathir latched onto the issue as part of his winning election campaign.

And we will report on new construction practices and environmental challenges in Johor, Malaysia’s southernmost state, bordering Singapore, where a Chinese real-estate developer is building Forest City. The mammoth mixed-use project, constructed on artificial islands reclaimed from the sea, is the largest real-estate investment by a Chinese developer outside China. Its scale and land-acquisition practices, mimicking similarly enormous projects in China, also became an issue in the elections over concerns about the extent of Beijing’s influence in Malaysia.

This project comes during a socially raucous season, a time when political decisions are having significant economic outcomes. Events are moving fast. Mahathir launched audits and turned investigators loose to determine how 1MDB operated, where it invested sovereign funds, how much was allegedly stolen, and the extent of the losses.

Among its investments was a big financial center that is under construction in Kuala Lumpur and appears on solid financial footing.  Another investment in a natural gas plant, and Chinese financial deals to pay off some of 1MDB’s debt, may have been diverted to personal accounts of 1MDB managers, including Najib. The former prime minister denies any wrongdoing.

Investigators dispatched by the new prime minister have recovered tens of millions of dollars in cash, jewelry and luxury goods from residences owned by Najib. In May, Mahathir barred Najib and his wife from leaving the country. Then, in early July, Najib was arrested and charged with theft and money laundering. He was released on bail and remains under investigation.

The 1MDB fund is insolvent and cannot pay its debts, Mahathir announced after the election. The new finance minister says the government will be held responsible for around $13 billion in liabilities. The losses pushed the national debt to $250 billion, the government said, and concerns over the debt have caused the stock market to fall 5 percent. Analysts in Asia said Malaysia’s financial crisis could erode the country’s international reputation for political and financial stability and weaken government programs, including for land conservation and environmental enforcement.

“The financial situation of the Malaysian government is more severe than previously thought,” wrote Kota Hirayama, an emerging market economist for SMBC Nikko Securities, a Japanese financial services group, in a May report.

“The government has been opaque,” added Steve McCoy, a sustainability consultant based in Kuala Lumpur.  “We don’t really know how bad things are.  We don’t know how they are paying for this stuff that’s been built.”

Since its independence from the British in 1957, Malaysia has amassed a record of economic development and resource conservation that is better than most, not only in Southeast Asia but also around the world.

In the span of two generations, and especially in the last eight years, devotion to economic expansion and income growth turned a developing tropical country into one of the most prosperous nations in Asia. The country was deliberate and persistent in gaining its contemporary global status.

Nearly from the moment it became a nation, Malaysian leaders embraced a planning strategy that set out development and social goals in successive five-year plans. Ever since, Malaysian leaders have agreed to increasingly sophisticated means to invest public and private funds, much of it from foreign financial institutions, for constructing the apparatus that makes it possible for a modern state to move, eat, work, bathe, trade and live. Since the 1990s, those plans have included clear environmental safeguards.

“Malaysia’s development experience is a rich source of solutions and lessons for developing countries in Asia and in other regions transitioning out of poverty,” wrote the authors of a World Bank report in 2016.

One of the priority lessons is Malaysia’s devotion to new civic equipment. Generations of national and regional leaders rejected the chronic underinvestment in transportation, water, ports, government facilities and the like that has characterised infrastructure spending in the United States and other democracies.

Another priority lesson is that Malaysia turned aside from the “growth at any cost” principle that wrecked land, water and air in China, India, the Philippines and so many other countries. A sizable share of the country’s considerable natural bounty is intact.

Malaysia measures its environmental achievements in a number of dimensions. According to government reports, Malaysia has safeguarded more than half of its forest cover and has promised to keep it that way in its commitments under the 2015 UN Climate Accord. 

More than 22,000 square kilometers (8,500 square miles) of its territory are permanently protected as reserves or parks. Some 63 marine ecosystems have been secured in a network of sanctuaries that span almost 16,500 square kilometers (6,400 square miles). Air and water quality are improving, according to government assessments. Malaysia has done this while nearly eradicating absolute poverty, raising incomes and electrifying almost every home.

“Malaysia tends to look quite good from the outside. We have shiny nice veneer,” said Steve McCoy, the sustainability consultant. “But if you [scratch]the surface and look underneath, things are slightly different.” 

This is a six-part series on infrastructure projects in peninsular Malaysia. The series will explore the magnitude and environmental consequences of massive infrastructure projects undertaken in the name of modernising Malaysia. Read the first part of the series in full here. Republished with permission from Mongabay.com

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