Budget 2021 vital to boost investment - MIDA | Malaysian Investment Development Authority
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Budget 2021 vital to boost investment

Budget 2021 vital to boost investment

12 Nov 2020

Budget 2021 plays a delicate role in not only strengthening households’ purchasing power, but also in creating an accommodative investment environment for local companies and foreign investors.

Incentives and measures under the budget are expected to make Malaysia a competitive investment destination, at a time when foreign direct investments (FDIs) are evolving to be geographically diverse with a shift in focus towards the South-East Asian region.

Following the Covid-19 outbreak, the need to revive private investments in Malaysia has become more pressing. In 2020, the Finance Ministry projected the country’s private investment to tumble by almost 12% year-on-year with the value of total investments falling to a multi-year low.

Next year, however, private investments are expected to rise by 6.7% partly due to the low-base effect and also measures introduced under Budget 2021.

Dubbed as the mother of all budgets, experts said that it is an all-encompassing instrument for the business sector, covering large corporations to small and medium enterprises (SMEs) to micro businesses.

The budget, which was tabled on Nov 6, contains a slew of targeted incentives to spur investments by local companies as well as attract global investors.

Among others, a RM1bil special incentive package was introduced to encourage companies to invest in high value-added technology, while Bank Negara will also provide a RM500mil “High Technology Fund” for high-tech and innovative companies.

Meanwhile, Bank Pembangunan Malaysia will be providing RM1.4bil for the National Development Scheme to develop the domestic supply chain. In addition, a total of RM500mil has been allocated for bumiputra entrepreneurs to increase their involvement in key economic sectors.

Economists welcomed the measures under Budget 2021 that are aimed to spur investments, improve business sentiment and enhance access to business.

Sunway University professor of economics Yeah Kim Leng said government support in the form of wage subsidies extension, access to funds and guarantees, and various reliefs to low business costs would be welcomed, especially by large and mid-sized firms that are considering downsizing, relocating or exiting.

He added that the measures to encourage foreign companies to relocate into Malaysia, particularly the low income tax rate of between 0% and 15% for high quality manufacturing and services investments, will increase Malaysia’s appeal as a regional production and services hub.

“It will not be a game-changer unless policy execution and implementation consistency are cascaded to the operating level involving the federal ministries, state governments and local authorities.

“The strategies to strengthen public service delivery are therefore critical to realising an investment bonanza from the low-tax environment and minimal regulatory and administrative burden faced by both local and foreign investors, ” he said.

Meanwhile, member of Economic Action Council secretariat Anthony Dass opined that Budget 2021 meets the immediate needs to encourage recovery, growth and investment.

He highlighted several measures under Budget 2021 as key to make Malaysia a more attractive investment for foreign investors.

They include a proposed extension of the principal hub incentive with relaxed conditions and the introduction of a new global trading centre incentive.

In addition, the preferential tax rate for some manufacturers has also been extended to 2022. It has been extended to cover services, particularly high-technology, research and development as well as medical-related services.

“The proposals, combined with proposed relaxation to the licensed manufacturing warehouse and free zone regimes, place us on a better footing and attractiveness, particularly as a supply chain hub.

“It is now key to monitor and measure the implementation of the budget closely against the desired objectives, ” he said.

Dass, who is also the chief economist of AmBank Group, was also positive on the budget’s RM15bil allocation for large infrastructure projects such as the Pan-Borneo highway, Gemas-Johor Baru double-tracking and electrification project and phase one of the Klang valley double track project.

“Building a strong infrastructure network, including an upgrade of broadband infrastructure bodes well for investment and growth, ” he said.

Looking into 2021, Dass expects Malaysia to be on the FDI radar screen as the renewed interest in FDIs into this region remains on the card.

“There is still potential upside for high value-added FDIs. We remain among the top in relocation opportunities for supply chain shifts besides Vietnam and Thailand, ” he pointed out.

Concurring with Dass, Malaysian Investment Development Authority (Mida) chief executive officer Datuk Azman Mahmud (pic below) said the country continues to be a competitive location for investors, despite the global economic turmoil.

He told StarBiz that within the domestic manufacturing sector, a total of 740 projects worth RM65.3bil were approved in the first nine months of 2020, compared with RM56bil in 669 projects in the corresponding period of 2019.

Domestic participation

Of these, domestic direct investment (DDI) in the manufacturing sector saw a leap of 45.5% to RM25.9bil while the approved FDI recorded RM39.4bil.

“This is an encouraging testament despite the United Nations Conference on Trade and Development reporting that global FDI flows fell 49% in the first half of 2020 compared with 2019 due to the economic fallout from Covid-19.

“FDI is projected to decrease by a further 5% to 10% in 2021 and to initiate a recovery only in 2022, ” he said.

While the global economic climate remains uncertain, Azman pointed out that the government hopes to accelerate economic recovery through investment activities that have a multiplier effect on the economy.

Referring to several Budget 2021 measures under Mida, Azman believes that they will potentially encourage the inflow of foreign investments into the country.

The measures are the relocation incentive, the establishment of a global trading centre, extension of the principal hub incentive as well as the preferential tax rate for pharmaceutical products including vaccines.

The government has also announced substantial allocations for matching grants and incentives for investors to leverage upon.

“This will potentially create strategic spillover to the local business community and rakyat through creation of business opportunities for local companies, utilisations of local services, generation of high value jobs as well as the transfer of technology and skills to Malaysians, which will ultimately spur the recovery of Malaysia’s economy in maintaining the well-being of the rakyat in trying times.

“Overall, Mida is hopeful that the measures under Budget 2021, together with the strategic value propositions of Malaysia, will be able to spur local and foreign investments towards uplifting the country’s economy to its full potential amid the pandemic, ” he said.

Azman added further that initiatives related to digitalisation are crucial to encourage companies to shift towards automation, enabling more people and processes to move online. The measures would also help companies to move up to higher value-added activities and sharpen their competitive edge.

Federation of Malaysian Manufacturers (FMM) president Tan Sri Soh Thian Lai (pic below) has also lauded the Budget 2021 measures tailored towards the business community.According to him, many of the measures are seen as being either direct or indirect support to new and existing investors.

Access to financing

The initiatives and incentives under Budget 2021 also facilitate greater access to financing, SME development, driving the acceleration of digital adoption and automation and enhancing the human capital via reskilling and upskilling.

“Among the measures welcomed include the extension of the Penjana special tax incentives to attract FDIs to relocate their manufacturing to Malaysia from 2021 until 2022, which we strongly believe should also be extended to existing investors which had received approvals for expansion, diversification or new projects in 2019 as well as to domestic investments.

“These are ‘captive’ investments which can immediately take advantage of the incentives to deliver the desired results more quickly, especially in terms of multiplier effect on their existing suppliers namely the SMEs and realised project implementation.

Global trading centre

“FMM also welcomes the introduction of the global trading centre given the recent trend is the diversification of Malaysia’s export markets with greater focus on higher value-added manufacturing activities.

“This would incentivise companies to use Malaysia as a procurement or distribution hub, while allowing investors performing more complex and greater value-add functions to continue using the principal hub model which has lower concessionary tax rates, ” he said.

Other measures welcomed by the manufacturers are the RM3.7bil allocation under the Maritime Development and Logistics Scheme, Sustainable Development Financing Scheme, Tourism Infrastructure Scheme and Public Transport Fund extended until Dec 31,2023 introduced to support and facilitate trade, as well as the RM1.4bil National Development Scheme to develop domestic supply chains.

Soh told StarBiz that the measures targeted to micro businesses and SMEs alone across the manufacturing and other sectors amounted to RM33.6bil.

“FMM views the measures introduced in the budget as wide-ranging and targeted at every segment of the economy and covering all sizes of companies from large and multinational companies, mid-tier companies, SME to micro-enterprises, all of which have been impacted by the Covid-19 pandemic in one way or another, ” he said.

Source: The Star Posted on : 12 November 2020