FDIs: Why Approvals Are Up but Inflow Down

 

The Statistics Department (DOSM) recently reported on foreign direct investment (FDI) into Malaysia - inflow plummeted from RM15.6 billion in the first quarter to RM1.6 billion in the second quarter of this year. 

In their overseas missions, both Prime Minister Anwar Ibrahim and Investment, Trade, and Industry Minister Tengku Zafrul Abdul Aziz routinely announce huge investment commitments made. Mida said in February, Malaysia attracted RM378.5 billion of approved investments in the services (RM252.7 billion), manufacturing (RM120.5 billion), and primary (RM5.3 billion) sectors last year, a 14.9 percent increase compared to RM329.5 billion in 2023. Domestic investments accounted for a substantial 55.0 percent or RM208.1 billion of the total approved investments, while foreign investments contributed 45.0 percent, amounting to RM170.4 billion. 

Impressive, but why are these figures not being translated into actual FDI? The short answer is that commitments and even approvals don’t become investments until two to three years later. There are some valid explanations. Foreign investments are lumpy in nature but might take some time to materialise. There may be changes in investment decisions or even higher repatriation of income by foreign investors. 

According to MIDA, its approved FDI figures for the manufacturing and services sectors represent proposed investment projects with foreign equity participation that have been granted licences, incentives, permits, grants, soft loans and so on by relevant ministries and agencies. They are measured based on capital expenditure (capex) and operating expenditure (opex) such as land, building and resources. By the same token, approved domestic investment (DI) figures measure similar data but by domestic investors. 

DOSM’s figures, broadly, measure inflows and outflows of foreign investments. They capture financial transactions, including for equity such as shares and reinvested income. This figure refers to investments by non-residents via transactions of financial instruments including equity, reinvestment of earnings and debt instruments (such as inter-company loans and advances as well as trade credits). 

Mida does not provide actual FDI figures. The DOSM does. It is instructive to note that actual FDIs in 2024 were RM51.5 billion, up from RM38.6 billion in the preceding year. 

That’s still far from the approval figures of RM380 billion and RM330 billion for 2024 and 2023, respectively, and indicates that these figures must be used with considerable caution.

Perhaps the most instructive of charts for FDIs is as above, which shows volatility in yearly figures but a steady uptrend for cumulative FDIs. The actual FDI (in blue) peaked in 2022 when the Madani government was in power for barely a month and therefore could not claim credit. In 2023, when it was in power for a full year, the actual FDI declined, but made a good recovery in 2024. Considering that actual FDI for the first two quarters was just RM17.2 billion (15.6+1.6), the full-year figure is likely to be much less than last year’s RM51.5 billion. 

We may safely conclude that in the short term, FDIs simply don’t reflect the quality of the government, although in the longer term, it is likely to, especially if investment conditions and incentives remain steady. The seeming paradox of rising approvals and falling of actual FDIs is likely to remain and some people interpret differently to suit their arguments, including yours truly! 

References:

Comment | The paradox of rising approvals and falling FDIs, P Gunasegaram, Malaysiakini, 19 August 2025

My Say: Approved investments versus FDI: Manipulation or truly a non-issue? Tengku Zafrul/The Edge Malaysia, 25 August 2025