Bank on the competitive edge, up the game plan for FDI, says Economist - MIDA | Malaysian Investment Development Authority
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Bank on the competitive edge, up the game plan for FDI, says Economist

Bank on the competitive edge, up the game plan for FDI, says Economist

26 Jan 2021

As investors are still grappling with economic predicaments caused by the year-long pandemic, think tanks believe that as a clearer picture of the country’s growth emerges, a dramatic return in foreign direct investment (FDI) is in sight, though not equivalent to the pre-pandemic level.

Malaysia is no exception in the battle for funds.

According the United Nations Conference on Trade and Development (UNCTAD), global FDI is set to recover only in 2022. It was projected to decrease by up to 40 per cent in 2020, from its 2019 value of US$1.54 trillion, first time since 2005 the FDI slips below US$1 trillion.

The FDI is projected to decrease by a further five to 10 per cent in 2021.

However, with its competitive edge from best logistics, as well as physical infrastructure facilities, a successful story of industrial zones to abundant skilled labour supply, the situation would soon change, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said.

And this is one of the features that distinguishes Malaysia from other countries in the region.

“But news or developments (of declining investment) of these kinds signal that Malaysia needs to be aware of the needs of investors so that they can continue to invest and grow their business here.

“Hence, issues such as bureaucracy and information sharing on investment incentives and how the government and the authorities can help in their investment in Malaysia need to be improved,” he told Bernama.

Mohd Afzanizam said a strong coordination among ministries and government agencies are needed to facilitate and build a better environment for local and foreign companies to invest in the country.

“Overall, the investment prospects for 2021 are challenging despite the good outlook.

“This is like a more positive external environment after US President Joe Biden announced a US$1.9 trillion economic stimulus package.

“In addition, there is an expectation that the technology sector will record an encouraging performance on the back of global semiconductor sales projected growth of 8.4 per cent this year, China’s gradual economic recovery, and the implementation of global vaccination programme that will facilitate the economic opening process in the future,” he added.

In addition, the low interest rate environment expected in 2021 helps encourage lending and financing activities among entrepreneurs for the purpose of expanding production capacity and productivity.

However, Mohd Afzanizam opined that the COVID-19-led Movement Control Order (MCO 2.0) has somewhat limited business activities which could hamper business expansion efforts, domestically.

Meanwhile, Universiti Malaya senior lecturer Dr Mohammad Tawfik Yaakub believes the government has an advantage in attracting more investment from, among others, Asia-Pacific Economic Cooperation (APEC) and ASEAN economies following their close ties.

“I feel that Malaysia is still a choice location and is able to attract mega investments but not this year, as industry players and international investors are also affected by the contraction of the world economy which warrants them to slow down planning and restructure investment strategies.

“So, the withdrawal of investment if it happens, does not reflect the country’s actual current investment situation,” Mohammad Tawfik, who is from the Faculty of Economics and Administration, said.

He said the government is seen ready to revitalise the FDI via two ministries, namely the Ministry of International Trade and Industry (MITI) (led by Datuk Seri Mohamed Azmin Ali) and that of the Prime Minister’s Department (headed by Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed).

“Certainly, the experience of these two ministers put them in good stead to attract more foreign investors who are just waiting for a signal from the government to start entering Malaysia, especially after the vaccine is obtained and distributed comprehensively,” he said.

Mohammad Tawfik also proposed that the government reduce the current tax tariff or implement any reduction in stages to attract new foreign investors.

“Even incentives to more focused foreign investors such as rental premium rates and strategic locality selection also play a role.

“For example, by further expanding strategic industrial areas such as the Kulim Hi-Tech Park in Kedah where a cargo airport will be developed and will be closer to the Penang Port compared to access to other localities that have only one facility (either airport or port).

“The distance between the port and the proposed Kulim cargo airport is only about 20 minutes away,” he added.

In the nine month of 2020, Malaysia recorded RM109.8 billion worth of approved investments in the manufacturing, services and primary sectors, according to MITI.

The manufacturing sector contributed RM65.3 billion or 59.5 per cent, followed by services (RM42.8 billion or 39.0 per cent) and primary sector (RM1.7 billion or 1.5 per cent).

These investments involved 2,935 projects and will create 64,701 jobs in Malaysia.

Of the total investments approved, the domestic direct investment (DDI) accounted for 61.2 per cent, or RM67.2 billion, while the FDI made up the rest or RM42.6 billion.

The top five sources of approved FDI for the three sectors were China (RM17 billion), Singapore (RM8 billion), the US (RM2.8 billion), Switzerland (RM2.8 billion), and the Netherlands (RM2.4 billion).

Compared to the corresponding period last year, the DDI in the manufacturing sector saw a leap of 45.5 per cent to RM25.9 billion while the value of approved FDI increased by 3.2 per cent to RM39.4 billion.

As for 2021, MITI has identified 23 high-impact projects potentially capable of bringing in investments worth RM75.4 billion into the country.

Source: Bernama