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Doing more to attract FDI flow

Doing more to attract FDI flow

26 Jan 2021

Improving investment climate is key, say economists

PETALING JAYA: The Covid-19 pandemic has caused foreign direct investment (FDI) into Malaysia to plunge and economists feel more has to be done to reverse the trend.

“This is not unexpected and if you compare it with other countries in the region, it is not an isolated trend,” Socio Economic Research Centre’s executive director and senior economist Lee Heng Guie told Starbiz.

Lee said things could be better this year but he felt the government should do more amid the downturn to attract higher FDI inflows.

The United Nations Conference on Trade and Development (UNCTAD) estimated, in its Investment Trends Monitor report yesterday, that FDI into Malaysia dropped by 68% to Us$2.5bil in 2020.

UNCTAD said FDI inflows into the Asean region decreased by 31% to Us$107bil.

It said Vietnam saw inflows falling by 10% to Us$14bil while Singapore’s FDI inflows fell by 37% to Us$58bil and Indonesia’s inflows fell by 24% to Us$18bil.

Malaysia’s decline, according to the report, saw a larger magnitude drop compared with its neighbours.

The decline in FDI into Malaysia is comparable with the decline in FDI flows to developed economies, which declined by 69%, said the report.

According to official government statistics, the first nine months of 2020 had seen net FDI flows declining by 70.5% from Rm26.3bil in 2019 to Rm7.8bil in 2020.

“The official figures for the year 2020 have yet to be released by the government.

“We are looking at a trend where the fall in FDI appears to be larger than our neighbouring countries,” Lee added.

The country can do more to attract FDI flows like what is being done by some neighbouring countries.

“These countries have improved investment climate to facilitate investment into their countries.

“Special incentives can come from lowering taxes or further smoothening all the regulatory actions.

“Case in point is in Indonesia where it has the Omnibus Law, which had helped improve investment climate,” he said.

The government here had also done its best to attract more companies to invest in the country.

Alliance Bank chief economist Manokaran Mottain said, in an earlier report, that the country’s competitiveness has declined over the years, even as regional countries such as Myanmar, Cambodia and Indonesia are becoming more business-friendly.

“While we acknowledge that Malaysia has good rankings in several global indices, the fact is that there are still many areas where the country can improve on to attract foreign investors. The lack of transparency, lengthy process to obtain a business licence and high cost of compliance such as foreign workers levy are among the factors that have affected foreign investors’ interest in Malaysia,” Manokaran was reported as saying.

According to Lee, Malaysia has a lot of catching up to do, noting that investment climate reform should be the aim as it tries to bounce back from the Covid-19 pandemic.

“The government doesn’t only have to look at tax aspects but other factors that would influence whether a company would invest into the country.

“They should ease all the common ‘pain points’ at the regulatory, local government, federal government and local authorities on this matter,” he added.

There had been this long-standing point of political stability which was the country’s main selling-factor.

“However in recent times, this does not appear to be the case. The government needs to provide more stable economic conditions and a good investment climate,” Lee said.

The corporate tax rate in Indonesia is at 22% compared with Malaysia’s 24%, he pointed out..

“By 2022, Indonesia is going to bring this corporate tax rate down further to 20% and this is a commitment from the government there,” he said.

Source: The Star