THE East Coast Rail Link (ECRL) is now back on track at reduced cost, from the original RM65.5 billion to RM44 billion. Will it be a track to nowhere as critics have argued due to its non-commercial viability, or will it spur further economic growth?

Criticisms on the unviability of the ECRL project – with a huge capacity unmet with passenger and cargo loads, a humongous cost even though the price has been re-negotiated down, ill-affordability, and serving mainly China’s interest, are all valid concerns.

From China’s perspective, the ECRL, one of the dozen plus Belt and Road Initiative (BRI) for the tri-continents of Asia, Europe and Africa, cannot be stalled or cancelled. Doing so would be a slap on the face of Xi Jinping and trigger serious ramification on similar BRI infrastructure elsewhere and perhaps even threatens China’s rise as a major economic power and geopolitical influence.

From Malaysia’s perspective, having to fork out another RM21.78 billion as termination cost is illogical. Fiscal spending for infrastructure is a zero sum economic decision where funds allocated now may deprive of needful expenditure in the future. Besides, we have to also contend with the ugly sights of concrete stumps and construction sites as sore memories of a corruptible past.

Commercial viability is an important factor. But other factors are also important for consideration to revive the ECRL project that has already been inked and started. An important economic factor is the multiplier effect. Economists at IMF have calculated the long-run multiplier for fiscal infrastructure in developing countries to be 1.6. Of the total project sum of RM44 billion, 40% goes to local companies participation. This translates to RM28.16 billion (RM17.6 billion multiplied by 1.6) extra income from economic multiplier in the long run.

There should be maximum effort to ensure that the RM17.6 billion awarded to local participating companies is spent locally and to minimise leakages. Leakages will reduce the economic multiplier. It matters little if the contracts are awarded based on affirmative action policy so long as the local contractors are qualified and incomes are circulated within the economy to generate more income.

Decentralisation of large economic projects to the east coast is another important factor. New townships and pockets of economic activities at the focal points of stations along the ECRL corridor will stimulate investments, generate employment, raise the value of assets, and income. It is a step forward to tackle development disparity and to narrow the socio-cultural and knowledge-technology gaps between the west and east coast states.

Kuantan may in time transform into a major port of entry for imports from China and be a viable competitor to Port Klang. Whether ECRL helps save time, with loading and unloading at both ends, is uncertain. It may be so if transshipment time is taken into consideration at the Singapore port of call.

The ECRL project comes at an opportune period of a world economic downturn. The US Federal Reserve has just signaled that there will be no interest rate hike this year, and is ready for a reverse from the current 2.5%. There is a sharp decline in US Treasury bond yields that is also signaling declining interest rate. These are strong signals, among others, for a global economic recession.

The economies of US and EU, like Japan, are trapped in a very low interest rate, low inflation and low growth, thereby threatening persistent stagnation and deflation. These regions can no longer provide the locomotive for growth. While China’s current growth rate at 6.2% is still impressive, its private sector debt at US$3 trillion (RM12.4 trillion) is not encouraging for sustained growth. Nevertheless, China is still a ray of hope for economic leadership to most Asian countries.

Malaysia cannot escape but eventually be engulfed in the global decelerating growth. Hopefully, capital injection into the ECRL project stimulates more economic activities and income to help cushion the recession ahead.

Our foreign policy and national interest are important factors too. With China as a top-trading partner, our national interest warrants that trade and political issues are conducted in the most cordial and diplomatic manner. It is in the interest of both countries to ensure the success of the ECRL. A 50:50 joint venture between China Communication Construction Company Ltd and Malaysia Rail Link Sdn Bhd to operate and maintain service after the ECRL completion gives some comfort towards the uncertainties of its viability.

All factors considered, the ECRL project with the supplementary agreement looks good to go. – April 18, 2019.

* Captain Dr Wong Ang Peng is a researcher with an interest in economics, politics, and health issues. He has a burning desire to do anything within his means to promote national harmony. Captain Wong is also a member of the National Patriots Association.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.