Notwithstanding this, economists still expect Malaysia’s economy to remain resilient as they see it as a beneficiary of the US-China trade tensions. They are of the view that the country is well placed to benefit from the possible relocation of some international companies out of China to avoid US trade tariffs.
However, it does raise the question of whether prospects of foreign direct investments (FDIs) in Malaysia will remain attractive as weak global economic prospects tend to dampen foreign investors’ sentiment.
Economists The Edge Financial Daily spoke to pointed out that the trade war, Brexit uncertainty, as well as volatility in the financial and commodities market suggest that the external environment is not conducive for making new investments.
Socio-Economic Research Centre executive director Lee Heng Guie said the Malaysia government should not be distracted from ensuring better domestic investment climate and growth catalysts to attract new FDIs, as well as retain existing investors.
He believes the measure to roll out a special investment package to entice Fortune 500 companies to invest in high value added and technology-based sector in Budget 2020 is a good catalyst to spur growth.
In the national budget for 2020, the government will make available up to RM1 billion worth of customised packaged investment incentives annually over five years, as part of the strategic push to attract targeted Fortune 500 companies and global unicorns in high technology, manufacturing, creative and new economic sectors.
AmBank Group chief economist Dr Anthony Dass is of the view that Malaysia will continue to be an attractive investment destination, noting that total stock of FDIs rose by 10.3% to RM667.5 billion in the second quarter of 2019, compared with RM605.1 billion a year ago.
In the first half of 2019, Malaysia’s approved FDIs rose by 97% to RM49.5 billion from RM25.1 billion in the same period last year, with FDIs from the US being the highest at RM11.7 billion, followed by China at RM4.8 billion.
Dass said the government’s continuous efforts to take proactive measures to increase FDIs will potentially stimulate the economy.
He said the World Bank’s Doing Business 2020 report, which ranked Malaysia higher by three spots to 12th place, should continue to place the country on the FDI radar screen.
“Furthermore, the country is moving towards developed nation status and so focus will need to continue to be given to high-quality and high-technology investments, as well as reducing the dependency on foreign labour,” he said.
Meanwhile, Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said the investment climate will be challenging going forward.
He said investment parameters such as the payback period, the internal rate of return, as well as net present value may not be so supportive, at least in the short term.
“However, if one takes a long-term view, there is always a business case to invest in Malaysia. The country is still deemed a developing economy and therefore, there is a lot to be done to elevate the country’s economic status,” he added.
Mohd Afzanizam said the government must understand the needs and wants of investors, adding that it should also facilitate the investment process to make it seamless and convenient for the private sector to implement their investment plan.
“Government efforts to spearhead institutional reforms should also help to build confidence among the investment community. Apart from that, streamlining the existing tax incentives for investment should also contribute to smooth implementation. At the moment, there are multiple tax incentives and government agencies to promote investment,” he noted.
As trade disputes dampen global growth and business confidence, and in the context of Malaysia’s comparatively high levels of government liabilities and limited fiscal space, the World Bank maintained that there is a strong case for the country to undertake structural reforms to boost trade and private investments — both foreign and domestic — and to facilitate productivity growth.
The World Bank Group’s lead economist for Malaysia Richard Record said measures to reduce the cost of doing business, as measured by the World Bank’s Doing Business Project, are an important part of these efforts.
The World Bank launched the Doing Business 2020 report last Friday, recommending three areas to improve ease of doing business if Malaysia wanted to further improve its ranking to be top 10.
In the report, it said Malaysia should make it easier to get credit, enforce contracts and resolve insolvency to increase the ease of doing business in the country.
“However, other steps will be needed too, such as strengthening skills and human capital, closing the gap between men’s and women’s economic opportunities, and addressing market distortions arising from unhealthy competition,” Record said.
Source: The Edge Markets