MOF: Malaysia needs to adopt balanced, strategic approaches to FDI, DIA
13 Oct 2023
It is crucial for Malaysia to adopt balanced and strategic approaches to foreign direct investment (FDI) and direct investment abroad (DIA) that encourage high quality and high value investment.
It is also vital to transfer valuable knowledge and resources to further accelerate economic growth and expedite the transition into an advanced economy, the Ministry of Finance (MoF) said in its Economic Outlook 2024 report released today.
As envisaged under the Madani Economy framework, Malaysia aimed to be a leader at the global front, hence efforts shall be focused on increasing its competitiveness and promoting the nation as a prime investment destination, according to the MoF.
“In this regard, a comprehensive investment policy with concerted efforts between government agencies and private sectors will be intensified.
“At the same time, Malaysian companies should also actively explore new emerging markets and venture into greenfield investments such as environmental, social and governance (ESG) related investments,” it said.
According to the report, Malaysia has maintained its strong position globally, ranking second-highest in Southeast Asia and 14th out of 171 countries in the DHL Global Connectedness Index report in 2023 and 27th in the IMD World Competitiveness 2023.
“Regardless of global headwinds following the Covid-19 pandemic, the ranking by various agencies further reinforced Malaysia’s position as a competitive and attractive investment destination,” it added.
The MoF said that despite recording negative growth during the Global Financial Crisis of 2008-2009 and the recent Covid-19 pandemic, Malaysia was still able to record net inflows of RM5.1 billion in 2009 and RM13.3 billion in 2020.
The net inflows of FDI surged more than threefold in 2021 to RM50.4 billion and registered a historic peak of RM74.6 billion in 2022.
The report said that in terms of the flow of FDI into Malaysia by continent, East Asian countries particularly Japan and Hong Kong have invested the most, comprising about 35 per cent of total FDI from 2010 to 2022 amounting to RM497 billion.
According to the report, DIA contribution in the services sector expanded from 61 per cent in 2010 to 72 per cent in 2022, partly due to a surge in the wholesale and retail trade sector.
Southeast Asia remained the preferred investment destination for Malaysian companies which accounted for 44 per cent of total DIA in 2010, expanding to 50 per cent in 2022.
“Malaysian companies’ investment in Europe had gained traction with a significant increase in share of DIA from 16 per cent in 2016 to 36 per cent in 2022, and in the North American market contribution from 0.5 per cent in 2010 to 6.9 per cent in 2022.
“Both markets’ attraction can be attributed to attractive investment returns,” it said.