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Healthy FDI inflows key

Healthy FDI inflows key

08 Apr 2024

Foreign direct investment (FDI) is crucial and should be further stepped up to bolster the electrical and electronics (E&E) industry, a vital pillar of the nation’s economy, according to HSBC Malaysia.

The bank’s head of global banking Christina Cheah told StarBiz investments by major international companies and a strong E&E ecosystem have contributed to Malaysia’s rise to prominence as a significant hub for the global chip assembly, testing and packaging processes.

At the same time, she said the expansion of sectors like electric vehicles (EVs), renewable energy, aerospace and the digital economy would support the demand and growth of the wider E&E ecosystem.

According to HSBC Global Research, electronics have fuelled substantial investment since the Covid-19 pandemic, accounting for 64% of Malaysia’s total manufacturing FDI in 2023.

It said Malaysia has been topping Asean as one of the main beneficiaries of consistent and quality FDI inflows, as much as 6% of gross domestic product as of the third quarter of financial year 2023. And more than half of the investments have flown into its manufacturing sector, where arguably a large share is concentrated in the electronics sector.

“To draw greater investments into the E&E sector and for the country to move further up the E&E value chain, intensifying efforts to revitalise the industrial sector and drive new economic growth as highlighted in the country’s New Industrial Masterplan 2030 (NIMP 2030) will be crucial.

“This will involve creating augmented capabilities in higher value adding production areas to support the E&E industry’s next phase of expansion. Additionally, improved tax incentives to catalyse the setup of innovation hubs and attract talent to work in the research and development segment are needed to enhance outcomes for the country.

“Malaysia’s goal of becoming an integrated hub for the E&E industry would also be supported by strengthening the capabilities of small and medium enterprises and the vendor ecosystem surrounding the sector.

“Effectively capitalising on free trade agreements such as the Regional Comprehensive Economic Partnership, Comprehensive and Progressive Agreement for Trans Pacific Partnership and others will be fundamental to driving export growth into the sector,” she noted.

For Malaysia, Cheah said there are benefits in opening up market access to both strengthen cross-border trade and economic ties with free-trade agreements partners to spur greater investments and help local businesses expand internationally.

She said implementing further reforms to make it easier for multinationals to invest in the country and improve ease of doing business while also promoting sustainable practices would also be key to attracting greater FDI. This aligns with the strategies laid out in the Malaysian government’s National Energy Transition Roadmap (NETR) and the NIMP 2030, she added.

Furthermore, Cheah said banks such as HSBC are uniquely positioned to partner with the government and clients as they look to establish and grow their presence both into and within Malaysia and beyond and can help build stronger and more connected trade and investment flows.

Separately, she said as one of the leading E&E manufacturing hubs in Asean, Malaysia has the potential to lead in producing high-value E&E parts and components for EVs, servicing the whole automotive supply chain, comprising semiconductors, sensors, automotive electronics, transceivers, batteries, and vehicle assembly.

“Malaysia has ramped up its efforts to attract greater investments into the EV sector, by introducing supportive policy measures, to boost the country’s position as a leading E&E manufacturing hub in Asean and a key link in global supply chains. Among the tax breaks that will stimulate increased investment in the automobile sector are pioneer status and investment tax allowances.

“With reduced initial investment costs, businesses will find Malaysia to be a more alluring destination to start or expand their manufacturing operations,” she said.

On top of increasing its efforts to encourage more foreign investments in EV production, the government has also introduced policies to push the uptake of EVs in the domestic market inclusive of road tax exemptions for EVs along with subsidies for EV charging infrastructure purchases by consumers. Malaysia’s NETR for instance targets to have the penetration of electrified vehicles (including hybrids) and four-wheeler share of the vehicle fleet reach 80% by 2050.

Meanwhile, Cheah said to create the administration and infrastructure needed to draw in additional FDI into targeted industries and accelerate the development of the overall E&E sector and elevate the country’s position in the EV value chain, banks would remain crucial partners with the government.

“We continue to work closely with the national investment promotion agencies such as Malaysian Investment Development Authority and InvestPenang, chambers of commerce and business communities to support the wider growth of the E&E industry in the country.

“To unlock significant flows of capital required to build a resilient EV ecosystem, it is crucial to bring together public and private finance.

“A clear articulation of public sector support through the policy framework and financing available from the government can catalyse private investment by reducing the risk profile of EVs and the infrastructure required to enable its sustainable development.

“By providing the funding necessary to support the growth of the EV ecosystem and meeting the needs of the whole value chain, banks can play a crucial role in promoting more EV adoption,” she said.

Source: The Star