Have We Recovered on FDIs?

Foreign direct investments (FDI) were key drivers of Malaysia’s period of explosive growth between the 1980s and 1990s. But the country’s attractiveness started to wane at the turn of the millennium. This is amid increased competition from its larger regional neighbours such as Thailand and Vietnam. Both these countries offer greater access to cheaper labour and natural resources.

Analysts tracking Malaysia’s FDI performance have pinned this partly on the country’s struggle to recover from the Asian Financial Crisis of the late 1990s. The government imposed capital controls to stabilise the ringgit currency before they were replaced in 2005 with a managed float system.

Source: https://theedgemalaysia.com

In 2022, the government announced some 123.3 billion ringgit (US$26.2 billion) in approved investments in the first half of the year. The total sum of actual investments for 2022, however, came in at 74.6 billion ringgit, according to data from the national statistics department. That’s just above 60% of that announced.

Malaysian and Chinese firms recently signed 19 memorandums for 170 billion ringgit in investments across the infrastructure, renewable energy, telecommunications and tourism sectors. A special task force has been set-up to monitor this.

A key issue is the need to address the mess of bureaucracy and red tape that investors have long complained about when seeking approvals to get their business off the ground.

The PM was “very disappointed” to hear complaints of delays in approvals by Malaysian authorities from representatives of American companies on the sidelines of the United Nations General Assembly in New York recently. The glacial pace of government approvals goes back years, but was exacerbated by the strict lockdowns imposed by the government during the Covid-19 pandemic.

The government offers dozens of incentives handled by at least 32 agencies, which could also be region-specific depending on the industry. Cutting red tape and improving the ease of doing business would be a good first step. Also, there is a need to spell out and implement clear policies so that investors know what they are getting into. A decisive government will also win over investors. It is almost a no-brainer to find the cause for delays and remove the impediment. Otherwise, it will be seen as another leakage that may cost the investor dearly. In addition, the PM has to be less vociferous on Palestine. Why is he not vocal on Rohingyas or Ukraine? Government’s vocal views on Gaza situation will not help investors from U.S., especially if the Hamas International Financing Prevention Act is implemented. The U.S. is the top FDI investor for Malaysia in 2022 and third largest trading partner (in 2022). Can we afford to lose this?

Reference:

Malaysia has made some big foreign investment pledges, but can it walk the talk? Joseph  Sipalan, South China Morning Post, 28 September 2023