Stepping up its game to attract foreign investors
06 Apr 2023
When the news about Indonesia planning a US$34bil (RM149.6bil) “smart capital city” broke out some time ago, it caused quite a stir among Malaysian policymakers.
The fact that Nusantara, which borders Sabah and Sarawak, is also designed to be a new investment hub for Indonesia, has made the threat to Malaysia’s investment appeal more pronounced.
Meanwhile, up north, Thailand has also been securing multi-billion-dollar investment pledges from global businesses, including BYD Auto, Foxconn and Amazon Web Services.
Thailand, Asean’s second largest economy after Indonesia, had in October 2022 adopted a five-year investment promotion strategy as the country tries to ramp up investments in innovative, high-tech and green industries.
These developments are taking place as multinational companies are moving their production bases out of China and into South-East Asia and Malaysia is already significantly lagging behind some of the neighbouring countries.
According to Socio-Economic Research Centre (SERC) executive director Lee Heng Guie, Malaysia’s foreign direct investment (FDI) inflow was recorded at an average of US$7.9bil (RM34.8bil) per year between 2017 and 2021.
This was well behind Singapore (US$87.5bil or RM384.9bil), Indonesia (US$20.7bil or RM91.1bil), Vietnam (US$15.4bil or RM67.7bil) and the Philippines (US$9.2bil or RM40.5bil).
The good news is that Malaysia has been consistently ranked higher than its regional peers like Thailand, Vietnam and Indonesia in all the world’s benchmarking measurements such as ease of doing business, competitiveness, global opportunity index and digitalisation.
With intense competition building up in the region, Malaysia has no choice but to step up its game in making itself more attractive to domestic and international investors.
Even Prime Minister Datuk Seri Anwar Ibrahim acknowledged that more must be done to meet the needs of those looking to invest in Malaysia.
Economists generally feel that Malaysia has good infrastructure readily in place to support business needs.
SERC’s Lee told StarBiz that Malaysia has the “hard infrastructure” for air, land and sea, as well as Internet connection to support investment.
“What we need to do is to further enhance them through regular maintenance and upgrading as well as expansion.
“In the case of digital network and infrastructure, the 5G infrastructure must be sped up, especially in the industrial park,” he said.
Malaysia University of Science and Technology (MUST) economics professor Geoffrey Williams opined that Malaysian infrastructure and talent are sufficient to attract foreign investment.
“Malaysia has a strong graduate workforce many are ready and available for work and are underemployed in existing jobs.
“Nearly 900,000 are outside of the labour force and are available.
“Around 43.5% are in STEM subjects compared to 35.8% in Germany, 34% in India, 30% in South Korea and less than 20% in the United States.
“So there is a big talent pool here,” he said.
However, Williams concurs that there is still a huge room for improvement.
Echoing a similar stance with SERC’s Lee, Williams urged for the improvement of the country’s 5G roll-out.
He also said the 5G deployment should be more market-led by breaking Digital Nasional Bhd’s monopoly.
It is well-known that Malaysia’s 5G roll-out has been riddled with controversies and scepticism since the start, considering that Malaysia adopted the the single wholesale network model for the deployment of 5G.
Williams also called for a change in Malaysia’s “anti-foreigner” investment environment in order to be more appealing to foreign investors.
“Permanent residence should be easier, investments grants and loans should be opened to foreign companies located here.
“Dealing firmly with modern-day slavery and labour abuses is important. These have hit foreign worker recruitment, caused product bans and international supply contract terminations.
“Allowing foreign graduates to stay here easily after graduation will increase the talent and entrepreneur pool,” he said.
Williams added that the anti-foreigner sentiment could be seen in the issues arising from the tweaked Malaysia My Second Home programme under the previous government as well as in the handling of foreign labour.
“Visa programmes are generally more difficult and recruiting foreigners is still very hard.
“The issue of the brain-drain also reveals anti-foreigner sentiment because there is a net talent gain when foreign talent comes in.
“This is not recognised because it is perceived as a talent loss as if only local talents matter,” according to him.
SERC’s Lee also said that the country needs to have an “open mind” in the recruitment of foreign talent and skilled manpower to augment the pool of local manpower.
“The approval process must be expedited,” he said.
Prime Minister Anwar said on April 4 that Malaysia must be prepared in terms infrastructure and skills to respond well to the upcoming wave of investments.
However, Bank Islam Malaysia Bhd chief economist Firdaos Rosli does not think that hard infrastructure is a major deciding factor for investors.
He pointed out that foreign investments from Japan and the US in the 1970s and 1980s poured into Malaysia despite the country’s low-quality infrastructure back then.
“What is a concern, though, is the soft infrastructure bit to attract foreign investments.
“Malaysia does not have a single investment authority, while investment promotion activities overlap at the state and federal levels.
“We often track investments through approvals or committed rather than realised investments, which can represent an incomplete picture of Malaysia’s investment outlook,” he said.
Firdaos also said that “it gets more complicated” when the domestic investment climate tends to follow leadership changes at the ministry and federal levels.
He highlighted the need to solidify investor confidence through long-term outlook of the economy, because investors value investment predictability and transparency.
“I think we should not compete for the same pool of investors as our neighbouring countries.
“Countries with a larger population size always have the upper hand in attracting investments, so the government should focus more on our “X” factor.
“We tried attracting industry champions to spearhead industrial development in the past, but it did not pan out as intended because of the high intervention cost,” according to him.
Looking ahead, Firdaos believes that the government should reassure foreign investments of predictability in areas such as government procurement, the labour market and intellectual property rights.
This is important for instilling a greater sense of regulatory coherence between Malaysia and the source country.
“Policy stability, not political stability, is critical in investment promotion,” he said.
MUST’s Williams also agreed that there should be less government interference, breaking up of monopolies, responsible privatisation and reducing crowding out effect, in order to allow more space for private investment.
“This reform agenda must be pushed hard,” he said.
SERC’s Lee believes that Malaysia still has what it takes to remain an attractive destination to foreign investment in Southeast Asia.
Nevertheless, he said Malaysia’s investment environment needs a transformational shift in approach to improve the country’s attractiveness to foreign investors.
“Good sense and strong political will must prevail to reset our national development agenda.
“Good governance ecosystem (institutional reforms) as well as radical economic reforms must be pursued to provide policy certainty and clarity in restoring both public and investors’ confidence and trust,” he added.
Source: The Star