FDI continues its steady stream

FDI continues its steady stream

16 Jul 2022

IN 2021, Malaysia registered a foreign direct investment (FDI) inflow of RM48.1bil. The biggest beneficiary was the manufacturing sector with an inflow of RM29.5bil, followed by the services sector at RM12bil and the mining and quarrying at RM5.8bil.

This was the highest inflow relative to the pre-pandemic trend. Between 2010 and 2019, the average flow was only around RM35.9bil.

The momentum in the investment trend continued into 2022.

In terms of approved investments, Malaysia attracted a total of RM42.8bil in the manufacturing, services and primary sectors, involving 910 projects based on the Malaysia Investment and Development Authority’s (Mida) latest numbers as of the first quarter this year.

As of June 7, 2022, there were 268 projects with proposed investments of RM14.4bil in the manufacturing and services sectors.

Clear winners

The manufacturing and services sectors are the clear winners when it comes to FDI. These sectors are important to economic growth since they contribute to around 80% of the economy.

Within the manufacturing sector, the largest beneficiary was the electrical, transport equipment and other manufacturing with an inflow of RM18.4bil.

Within the services sector, the biggest chunk went to the finance and insurance sectors with RM5.8bil.

Foreign investors’ appetite for the region significantly increased after the pandemic, where all of the South-East Asian economies experienced a total inflow of US$175.3bil (RM781bil), led by Indonesia, Vietnam and Malaysia.

There are several reasons why Malaysia continues to be the top destination for investment.

The first is the strong regulatory framework that provides stability and security for long-term investors who want their investments, research and products to be protected.

In this region, not all economies can offer that.

Funding is also crucial for investments in workers, capital and products.

Another reason is Malaysia’s deep financial access that allows businesses to easily obtain funds and loans or list themselves in the equity market.

New fundraising avenues such as crowdfunding and peer-to-peer lending platforms that grew substantially during the pandemic were also an attractive reason for foreign investors to access the market in Malaysia.

Incentives galore

Apart from that, the government also provides incentives.

Under Budget 2022, the government allocated a RM2bil special fund to attract foreign companies to invest in Malaysia, and zero income tax up to 15 years for manufacturing and services companies that relocate their operations to Malaysia.

Mida is also doing its part to attract investors to come to Malaysia.

During the Covid-19 pandemic, the authority established a Project Acceleration and Coordination Unit or Pacu to provide faster and more efficient implementation of approved projects.

Mida also revamped its promotion and facilitation measures by launching the InvestMalaysia portal in March 2021, allowing potential investors to submit and manage their applications online, including approvals for manufacturing licences, incentives and exemptions from Customs duties.

Another attraction is Malaysia’s trade partnership with key economies.

Malaysia is a member country of the Regional Comprehensive Economic Partnership or RCEP, and the Indo-Pacific Economic Framework or Ipef agreement with the United States.

This would allow foreign investors to tap into other economies through Malaysia.

According to the World Bank Doing Business 2020 Report, Malaysia is ranked 12th with 81.50 points amongst 190 global economies. This was an improvement from 15 the previous year and 24 the year before. In the region, only Singapore is ranked above Malaysia, at number two.

Fruitful ventures

All of these are already bearing fruit for Malaysia. Several recent multi-billion-dollar projects in Malaysia proved our country’s allure as a manufacturing hub.

US-based Sensata Technologies has spent RM790mil in expanding its manufacturing facility and will spend an additional RM510mil in the next five years expanding its technology and manufacturing capacity.

Chinese solar module manufacturer Risen Energy is looking to invest RM42.2bil in the Kulim Hi-Tech Park. Germany’s Infineon also plans to raise its investments by RM8bil in the same sector. Sector-wise, E&E is the clear winner.

This shows that Malaysia continues to be the favoured destination for investors. Recently, Australia has promised to look into Malaysia for investment, and China has also expressed the same intention.

Sustainability is now a vital component for business longevity. In this context, Malaysia has not fully tapped the full potential yet. This is in line with Miti’s National Investment Aspiration (NIA) policy in enhancing ESG standards in business practices.

More companies are committed to net-zero emission by 2050 or earlier.

Key sectors

Miti has also identified five key sectors under the NIA initiative that can attract more foreign investment in R&D, manufacturing facilities and new technologies. These sectors are electrical and electronics, pharmaceutical, digital economy, aerospace and chemicals.

The global economy is expected to face some headwinds next year. However, Malaysia is still strong given the improvement in the labour market. The government is also striving to keep inflation in check.

Moving forward, Mida has identified 446 investment prospects, including companies in the manufacturing and services sectors with a potential value of RM150.4bil as of June 1, 2022. This suggests the promising prospect on Malaysia’s FDI moving forward.

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Source: The Star