Dr Jane Terpstra Tong explains the methodology used in the Index.  

The Business Environment Index (BEI) 2012, which is the only diagnostic tool designed to measure the business-friendliness of local governments, was launched at Monash University Sunway campus.

Deputy President (Strategy) Professor Mahendhiran Nair said that the Index would provide a valuable platform for Malaysian researchers, policy makers and industry to identify ways to strengthen government systems.

It also allows policy makers and industry players, he added, to obtain feedback and insight to decide on policy and strategies so that they worked for Malaysia.

The 2012 Business Environment Index, or BEI, is a Malaysia-specific diagnostic tool to benchmark and rank local business environments that can be influenced by federal, state, and local policies and regulations.

(From left) Dr Jane Terpstra Tong, Ms Anthea Mulakala and The Asia Foundation Director of Economic Development Ms Veronique Salze Lozac'h.

The Index itself was designed by The Asia Foundation to measure business-friendliness of local governments through its Economic Governance Index (EGI) initiatives. The EGIs are already in use in Cambodia, Vietnam, Indonesia, Sri Lanka, Bangladesh, and now, Malaysia.

The Index identifies high and low-performing districts and reveals the successes and challenges faced by the SMEs– experiences critical to a robust and dynamic private sector in Malaysia.

In Malaysia, 635 randomly-drawn SMEs in six states and 11 districts were asked to share perceptions of their local business environment.  

The 11 districts were then ranked in order of business friendliness across nine areas of economic governance that are relevant to local economic growth in Malaysia, including entry costs, transparency, informal charges, property rights, and crime and security.  

According to the BEI pilot study, Kemaman in the state of Terengganu ranks the highest followed by Sepang in the state of Selangor. Ampang Jaya ranks the lowest while Petaling Jaya ranks the second lowest. Both districts are located within the state of Selangor.

The BEI rankings of Petaling Jaya and Ampang Jaya are dramatically different from their scores awarded in the government’s Star Rating System in which they both scored among the highest.  A key difference between the two assessments is that the BEI relies on the experience and perceptions of local business people while the Star Rating System focuses on the internal structure and various aspects of government functions and uses internal officers as judges.

BEI advocates believe that by combining the results of the BEI and the Star Rating, it would be possible to develop a better understanding of both the strengths and weaknesses of current governance practices.  

“The Malaysia BEI tells us what is working and what is not,” said Country Representative for The Asia Foundation in Malaysia Ms Anthea Mulakala.

“This diagnostic tool identifies the best performers and provides practical successes, which can be emulated by other districts. Across Asia, governments have embraced the Foundation’s indices as a sophisticated, empirical tool to measure local reform and government performance,” she added.

Ms Mulakala also said she hoped that the Malaysia Index could be run at a national level.