Private Investment to Remain Flat in 2019?

MITI has set a “realistic” target of RM200 billion for approved investments in 2019. In 2018 it was RM201.7 billion while in 2017 it was RM200.6 billion. So for almost three years private investment remains flat!

Why? Domestic direct investments (DDI) has declined by 17%. So although foreign direct investments (FDI) increased by 48%, DDIs declined to RM121 billion from RM146 billion. In other words, DDIs share of total private investment declined to 60% from 73% in 2017.

MITI is focused on electrical and electronics, aerospace, chemical and chemical-related manufacturing, amongst others. Of the major foreign investors, China at RM19.7 billion was the largest followed by Indonesia (RM9 billion), Netherlands (RM8.3 billion), Japan (RM4.1 billion) and the U.S. (RM3.2 billion).

So how do we improve DDI?

The usual top seven measures to stimulate private investment may include tax “breaks”; Government spending; pump priming; reduction of interest rate; stability of wage level; price policy; and reduction of monopoly privileges. Some of these are being pursued by the Government while others are not within the Government’s present ambit or ability.

John Maynard Keynes used the term “animal spirits” in his “General Theory” referring to “spontaneous urge to action...” George Akerlof and Robert J Shiller in their book “Animal Spirits” describe five different aspects of animal spirits:

·       confidence;

·       fairness;

·       corruption and anti-social behaviour;

·       money illusion; and

·       stories

They place great emphasis on confidence about the future to unleash animal spirits. Basically, do people feel good things will happen in the future; will they be treated fairly; and, will their interests be taken care of. If rules of governance and societal attitudes are against them, they would be reluctant to invest in new ventures.

Nevertheless, MITI needs more dialogue with key players in the industry; selective discussions on a one-to-one basis with companies with a cash-pile in their books; re-look at incentives available; more conducive investment environment, with less red-tape; and remove “hidden” taxes that dis-incentivises businesses. Maybe, with more forums, dialogues and one-to-one sessions the Government will be seen as an enabler and encourager for the investment eco-system.

Reference:

Private Investments unlikely to grow much in 2019 - Tan Xue Ying, The Edge Financial Daily, Friday, March 15, 2019.