The spatial configuration of private investments by economic actors in Perak

Abstract

The analysis conducted in this thesis defines the functional characteristics of the economic and spatial configuration of the urban system of Perak (Peninsular Malaysia). Drawing on an evidence- based line of argument addressing several, to urban structure related, challenges that Malaysia is currently facing, the thesis explores the urban configuration of Perak with the aim to determine the centrality of the regional urban structure. Contrary to the commonly used hierarchical approach of studying urban structure, it analyses economic dynamics from a functional perspective following insights of the relevance of performance beyond city size by studying connections, interdependencies and functional linkages between urban centres and its economic agents. Within this context, patterns of private investment are utilised as evidence for the presence of agglomeration economies, local specialisation and complementarities within the urban system of Perak. The industry composition of the region reflects the economic history of the exploitation of spatial non-homogeneities on the one hand but is also consistent with more recent economic policy of attracting manufacturing firms on the other hand. Statistics show that most of the investment projects undertaken over the past ten years in Perak are domestic firms expanding current economic activities. As such firms often have historical or personal ties to the region, investment decisions show most resemblance of path dependency. To put it differently, these firms act as separate entities striving for efficiency and internal economies of scale. The other – much smaller – group of economic agents, implementing new investments do this mainly due to low costs of land and labour while being able to perform economic activities in proximity the main metropolitan urban regions of Peninsular Malaysia. The inertia of Perak is reflected in its below-average investment performance as the state experiences relatively low numbers of incoming projects and capital flows. This is in contrast to expectation in the context of Perak’s economy which ranks fourth-best of the country. Several reasons with regard to the organisation of regional assets are at the basis of this underperformance. These assets, conceptualised in this thesis as conditions for the emergence of agglomeration economies, are related to human capital, specialised services, connectivity and policy. As more traditional economies declined or moved away, associated knowledge and expertise disappeared from the region. This is recognised by economic agents encountering difficulties regarding human capital because of brain drain effects, mismatches between supply of human capital and industry demand, and issues in the attractivity of Perak and its industrial zones. Quality jobs for workers due to higher levels of urban mass in major urban agglomerations such as Kuala Lumpur and Penang turn out to be attractive enough to cancel out accompanied diseconomies. Similar challenges arise as economic agents try to draw on specialised services as the region seriously lacks providers of specialised knowledge and skills. Another point of concern, as the analysis indicated, is connectivity. As transportation and distribution linkages by road are considered to be appropriate, other forms of hard infrastructure are not. The port of Lumut, which is a bulk terminal, is commonly named inoperable as most of the manufacturing firms cannot use its facilities. Moreover, some firms even indicated that even though they could make use of it, they prefer not to because it is unreliable. In addition to the port of Lumut, the airport of Perak unsuitable because of its limited destinations and length that makes it impossible for larger airplanes to land. Industrial zones are also said to suffer from poor

Page | 84 management and industry focus. This thesis has found no evidence of soft connectivity in the form of business linkages and partnerships. Firm’s nature of path dependency and the tendency to organise as a centralised system to foster efficiency do not motivate firms to establish relationships with other economic agents. As a result of insufficient supply of human capital, specialised services and connectivity, economic actors maintain extraregional linkages with economic agents or urban centres outside of the region. This is exemplified by firms that temporarily hire knowledge workers from Malaysian metropolitan regions or abroad for more complex business process, the occurrence of subcontractor partnerships with firms outside of the region, and the fact that many firms utilise sea- and airport facilities in Penang and the Klang Valley. As these conditions for the emergence of agglomeration economies are absent or at least inadequate, it can be concluded that Perak’s current urban configuration is incapable of generating sufficient mass for certain urban functions to be sustained or to be viable at all. The incapability to generate sufficient mass to facilitate certain urban functions is a result of poor integration hampering a network structure of urban centres. An inadequate organisation of conditions can be sought in the performance of regional governments as they play a principal role in shaping the investment environment. There is a lack of policy alignment in different political layers and institutions as industrial plans consist of overlapping, duplicating and contradicting spatial planning. In addition, terms as clusters, specialised industrial estates and industrial hubs are used interchangeably whilst explanatory notes for the effective implementation of such policy measures were missing. The absence of institutional thickness hampers the implementation of supportive policies that provide grounds for the organisation of agglomeration economies leading to critical mass. Inefficient instruments to develop complementarity lead to fragmentation and affect economic performance. This is exemplified by different urban centres that fulfil roles and maintain functions that duplicate and are non-beneficial to one another. It results in a situation where urban centres in Perak are not regarded as central in their role or distinct function. Even though cities are in proximity, they lack functional linkages and act as separate entities. Investment analyses confirm this view as the spatial configuration of private investments is dispersed over the region where spatial concentrations of unrelated investments in industrial areas occur. As a result, urban centres attract rather random investments thus making the industry composition of urban centres more diversified. Hence, the region is not able to successfully combine mass from the wider urban network that is higher than the total of what each of the centres can attract individually to increase overall competitiveness and compete with states as Selangor, Johor or Penang.