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Surging foreign investments

Surging foreign investments

13 Dec 2021

Foreign direct investment (FDI) into Malaysia is set to surge by next year with technology and green tech-based investments being the new potential growth areas for foreign inflow.

The spread of the Omicron variant, meanwhile, is not expected to put a dent on FDI inflows.

Malaysian Institute of Economic Research (MIER) head of research Shankaran Nambiar views digitalisation as the new driver of growth worldwide, noting that Malaysia was no exception.

“The same is the case with the green economy. Environmental issues and climate change are being taken very seriously.

“I will expect that new investments in these two areas will be the new growth areas for investment and Malaysia will be seen to be the destination for FDIs in these areas.

“The demand for investment in tech, be it IT-related or high-tech manufacturing that is green-related, will see an upsurge,” he told StarBiz.

FDI inflows into the country plummeted to RM14.6bil in 2020 from RM32.4bil in 2019 before rebounding to RM30.2bil in the first nine months of 2021.

Most of these investments went into the manufacturing sector. This was underpinned by the global recovery and general improvement in investor sentiment.

FDI increased by RM4.6bil to record a higher inflow of RM12.8bil in the third quarter of this year.

The Statistics Department said manufacturing remained the main sector for foreign investment in Malaysia, followed by financial and wholesale and retail trade.

As at the end of the third quarter of 2021, approved FDI stood at RM769.6bil, while direct investment abroad was RM543.9bil.

Nambiar, like other economists, expects stronger inflows of FDIs in 2022. Despite the Covid-19 pandemic and the emergence of the Omicron variant, he opined that this will not hinder foreign investments.

As countries come to terms with the fact that the virus would be around over the next few years, he said this would keep the pressure to forge ahead with the Fourth Industrial Revolution (IR4.0) and related technologies.

Towards this end, he noted that technologies that revolve around automation, robotics and the like would see a surge in the coming year and this would attract stronger FDI inflows in Malaysia.

Socio-Economic Research Centre (SERC) executive director Lee Heng Guie is also bullish on FDI inflows next year.

He attributed this to stronger prospects of economic recovery, the implementation of the 12th Malaysia Plan (12MP) and the National Investment Aspirations.

He said these would help sustain FDI inflows amid uncertainties.

Notably, risks for investors include the new Covid-19 variant, the potential impact of tighter global monetary stance on global growth and lingering concerns about domestic political pressures.

The National Investment Aspiration is a forward-looking strategy aimed at attracting quality investments driven by innovation, high-technology, green economy and greater inclusion of domestic supply chains.

Lee said Malaysia hopes to attract high quality and technology-intensive investment as well as green technology investment to provide more high skilled job opportunities.

According to the Malaysian Investment Development Authority (Mida), in terms of approved FDI in the manufacturing sector, foreign investors have been investing in electrical and electronic products, fabricated metal products, chemical and chemical products, machinery and equipment, food manufacturing, plastic and scientific measuring equipment.

Meanwhile, AmBank Group chief economist Anthony Dass expects around RM150bil to RM180bil in total approved investments in 2021, with FDI to remain the main contributor.

Supported by the various initiatives and incentives as proposed in Budget 2022, he anticipates that the International Trade and Industry Ministry would continue to attract investments.

“The nation’s pace of vaccination, booster jabs, moderate improvement of the economy, healthy economic fundamentals and positive outlook on the global trade and economy will continue to support the flow of FDIs in 2022,” said Dass, who is also a member of the Economic Action Council Secretariat.

While the possibilities to attract higher inflow of FDIs cannot be ruled out, he said downside risk remains, given the stiff competition among regional peers in attracting FDIs.

Malaysian Rating Corp Bhd chief economist Firdaos Rosli does not expect the Omicron variant to impact FDI inflows as investors adopt a long-term outlook in their investment decisions.

“The new variant appears not to be any more severe than previous Covid-19 variants. I think the government can tackle it by the horns in the short term,” he noted.

As in previous years, he expects private investments to continue to eclipse public investments but not significantly.

He anticipates year-on-year private investments in 2022 to be at 6.7% versus public investments at 5.8%. This projection, he said, is based on the assumption that the economy would remain fairly predictable throughout next year.

OCBC Bank economist Wellian Wiranto said the bank’s baseline expectation is for the virus situation to come under better control, which would be a tailwind for FDI investments as well.

This could come in the form of improved economic outlook and hence, better business sentiment that would propel investment decisions.

He said the fact that any would-be FDI investor could now travel more freely to Malaysia to assess the on-the-ground situation better would further facilitate investments.

“The opening of a vaccinated travel lane with neighbouring Singapore, a big FDI source country, is a case in point.

“In terms of sector, we are likely to see a continued push in some of the hot sectors, including semiconductor chip manufacturing, with Malaysia’s role as a major global testing and packaging hub being a key attraction.

“In terms of headwinds, political stability may continue to be a feature in some investors’ minds, even if the recent relative stability would have been much welcomed,” Wellian noted.

To stay ahead of the competition in terms of attracting FDIs, Dass said it is important for Malaysia to chart a clear economic direction and communicate it well to multinational companies (MNCs).

Such clarity would place the nation on a better footing to be a favoured destination for selective quality investments that could create value for local companies and which are not too labour intensive that require foreign workers.

“Malaysia should have a more coordinated approach in its efforts to lure FDIs into the country and the focus should be on providing effective aftercare to investors once they arrive in the country to ensure their investments here stay on for the long term.

“Finally, we need a strong and stable government, consistency and fast implementation and outcomes. And we must be prepared for more Covid-19 variants and hence, be more proactive with simpler and standardised standard operating procedures that will not shy away investors,” he said.

To spur FDIs, MIER’s Nambiar said more engagement with MNCs and foreign trade missions may be necessary in order to come out with bolder proposals.

SERC’s Lee said: “As long as the government requires businesses to get licences and permits, pass inspections, pay fees and comply with other regulations, it is in business interest to make these compliances as painless as possible.

“At times, the regulations and rules have placed unreasonable burden on businesses and have stifled innovation as well as affected the cost of doing business. This has also impacted their commitment to invest.”

Source: The Star