FEATURE-Malaysia's stalling reform threatens investment

By Liau Y-Sing

KUALA LUMPUR, Dec 26 (Reuters) - Malaysia's drive to woo investment is losing traction, as efforts to get rid of red tape and inept bureaucrats falter, threatening to put it further behind neighbouring Singapore.

A year after the authorities vowed to speed up the business approval process, businessmen are still battling unwieldy procedures and inert government staff.

"Civil servants have become more courteous, they smile more than usual but the bureaucracy, the red tape, is still there," said Mohd Ghouse Mohd Noor, who is setting up a hospital resort in Penang state in northern Malaysia where he hopes to entice visitors for medical treatment.

Ghouse said potential investors from the United Arab Emirates had been scared off by the red tape encountered at government departments.

"They are still passing us from one person to another. Nobody seems to know who is responsible and who should look into matters," he said of the bureaucracy. "Some of our investors say to us 'You go and solve your problem first'."

While Malaysia's record in attracting foreign investment would be the envy of many developing countries, it is still much harder to open a business here than in Singapore.

It takes nine steps and more than a week to register a business in Malaysia compared with five steps in five days for Singapore, according to the World Bank's Doing Business Index 2008.

Many blame Malaysia's civil service for being slow, unresponsive and opaque, and it continues to disappoint despite a state-led revamp aimed at winning more investment.