Stories Of The Year: A blockbuster year for foreign investment
13 Jan 2025
THE year 2024 has been a blockbuster one for Malaysia in terms of investment announcements, as global big names Microsoft Corp, Google LLC and more recently Oracle Corp disclosed multiyear billion ringgit investments into the country. The momentum has continued to build up from the news flow in 2023, with YTL Power International Bhd’s planned artificial intelligence (AI) cloud and supercomputer facility powered by Nvidia Corp; Amazon Web Services’ cloud computing infrastructure; and Vantage Data Centre’s data centre campus.
The investments announced in 2024, which are yet to be registered as approved investments by the Malaysian Investment Development Authority (Mida) at this point, are indications of what is to come in the years ahead for the approved foreign investment (FI) numbers.
Notably, Google and Microsoft’s applications are in the evaluation stage and are expected to receive approval by the first quarter of 2025, according to the Ministry of Investment, Trade and Industry (Miti).
For now, Malaysia’s cumulative nine-month approved FI for 2024 (9M2024) looks decent, although some would say it could be difficult for the full-year number to surpass the amount recorded in 2023.
With another quarter left to be accounted for and no guarantee that the numbers for approved FI will look better than the previous year’s, Minister of Investment, Trade and Industry Tengku Zafrul Tengku Abdul Aziz reminds observers to look at the bigger picture.
“What is most important is that the overall investments have increased by 10.7%. These numbers are encouraging as a total of 4,753 new projects have been approved during this period, set to create 159,347 new jobs for Malaysians. This strong performance underscores Malaysia’s enduring appeal to investors, particularly domestic investment (DI), which accounted for a significant 58.1% of the total approved investments, valued at RM148 billion.
“It is good to see increased domestic businesses’ show of confidence in the government’s clear policies, and these businesses’ commendable resilience even in challenging times,” he says, adding that the higher total investment figure is a reflection of overall investor confidence in the government’s economic and reform initiatives, as well as renewed interest in this region’s investment potential.
According to Mida, the 9M2024 approved FI amounted to RM106.7 billion, representing 41.9% of the total approved investments of RM254 billion. The higher proportion of 58.1% is attributed to DI. Note that the 9M2024 approved FI is lower than the RM125.7 billion approved FI recorded for 9M2023, when the total approved investments amounted to RM230.20 billion. Nevertheless, announcements on investments from global players coming into Malaysia created a buzz and gained coverage in the foreign media while contributing to lifting the local bourse.
Where did investment growth come from?
There are two main sectors of approved investment recorded by Mida, being services and manufacturing. The primary sector constitutes a small portion of overall investment.
The services sector makes up the bigger portion of approved investments and is typically driven by DI. On the other hand, the manufacturing sector has made up 30% to 45% of total approved investments each year in the last decade, with the exception of 2021, and is typically driven by FI and investments in the electrical and electronics (E&E) industry.
For 9M2024, services made up 63.1% of the total approved investments, where RM121.5 billion came from DI and RM39.2 billion was derived from FI. The top three service subsectors were information and communications (RM71.1 billion), real estate (RM48.8 billion) and support services (RM10.3 billion).
(Refer to the chart “Manufacturing sector sees more FDI investments than services” on facing page.)
Meanwhile, the manufacturing sector constituted 34.9% of total approved investments for 9M2024, where RM66.9 billion stemmed from FI and RM21.9 billion from DI. The top three subsectors were E&E (RM47 billion), chemicals and chemical products (RM7 billion) and transport equipment (RM7 billion).
The top foreign investors for 9M2024 were Germany, with approved investment of RM30.9 billion, followed by China with RM10.8 billion and the US at RM8.4 billion.
Not at the top, nor at the bottom
It is well documented that the Asean region has been a prime beneficiary of the China-US trade war that started under President Donald Trump in 2018. Businesses — both global and Chinese — quickly moved to diversify geographically, adopting a “China + 1” strategy to mitigate the potential impact from the trade war.
On account of this, foreign direct investment (FDI) inflows into the region have also increased since the start of the trade war. Malaysia ranks fourth in Asean, behind Singapore, Indonesia and Vietnam, according to 2023 data by United Nations Trade and Development (Unctad).
Unctad defines FDI inflows as cross-border investments in the form of financial instruments (equity and debt).
In 2023, Asean FDI inflows increased marginally by US$1 billion to a record US$230 billion against a backdrop of declining global FDI inflows.
Singapore has been a clear leader as a recipient of FDI inflows in Asean. In 2023, the city state’s FDI increased 13% to US$160 billion, accounting for 69% of the FDI inflow. One of the main reasons for the growth in FDI in Singapore is the growth in investments in the finance sector and a significant rise in investments in professional and administrative support services, including family offices, research and development and regional headquarters, according to the Asean Investment Report 2024.
A large part of the rise in the FDI for Singapore stemmed from US firms, which UOB Global Economics and Markets Research opines in a Sept 2 note, it is highly probable some of the flows coming through Singapore to Malaysia originated from American or European companies.
In 2023, Malaysia’s FDI inflows declined to US$8.7 billion from US$16.9 billion in 2022. But on a cumulative basis, FDI inflows for Malaysia jumped 10.6% per annum between 2020 and 2023, compared to a compound annual growth rate of 7.7% between 2014 and 2019, noted UOB.
While not at the top of the league, economists believe that Malaysia continues to be in a sweet spot for attracting and increasing FDI inflows, on account of better economic growth prospects, enhanced investment climate and supportive business ecosystem.
The Associated Chinese Chambers of Commerce and Industry of Malaysia’s Socio-economic Research Centre executive director Lee Heng Guie adds that the various economic transformation plans under the Madani Economy framework, such as the New Industrial Master Plan (NIMP) 2030, National Energy Transition Roadmap (NETR) and New Semiconductor Strategy (NSS) and Mid-Term Review of the 12th Malaysia Plan, are set to enhance investment opportunities for investments in high-growth high-value sectors.
“Malaysia still needs to constantly enhance her investment climate, maintaining policy consistency and clarity, as well as ensuring good execution of policies to sustain the continued inflows of quality FDI in an era of economic complexities and also contending with stiff competition from regional players such as Indonesia, Vietnam and Singapore,” he says.
While the government has embarked on a series of reforms to address competitiveness issues, Lee also opines that the government needs to redouble efforts to reduce business pain points, address structural impediments and situational challenges.
It is more pressing now than ever to double down on such efforts, given how the Trump administration next year is causing much uncertainty surrounding steep tariffs that it has threatened to slap on China. On the other hand, if blanket tariffs were to be implemented, it could disrupt exports, heighten costs and potentially lead to a new round of currency weakness, notes UOB.
There are also questions surrounding trade surpluses, where countries with big trade surpluses with the US, apart from China, could also be a “target” for import tariffs.
Malaysia’s trade surplus with the US has widened from RM23.4 billion in 2017 to RM72.3 billion in 2023, notes Lee.
Future proofing against external threats
Tengku Zafrul says it is inevitable that Malaysia is impacted by potential tariff hikes on China, given the economic interdependence between Malaysia and China.
Nevertheless, Miti seems prepared to mitigate the effects as much as possible by diversifying the country’s market base. One is by focusing its efforts on attracting investments from other countries apart from the US and China.
He also highlights how Malaysia has been actively expanding its market base, forging deeper ties with countries like the Krgyz Republic, Kazakhstan and Uzbekistan while the 16 signed and implemented Free Trade Agreements and bilateral and regional FTAs would help to diversify the export profile and market and bolster supply chain resilience.
“This multifaceted approach helps create a more stable economic environment less susceptible to external shocks,” he adds.
The minister also says that major manufacturing supply chains take years to be reconfigurated, indicating that there are still opportunities for trade diversification by global companies, as investors favour regions that are seen as neutral — an advantageous position for Malaysia and Asean.
“All these bode well for further reshoring, near-shoring and friend-shoring of supply chains to Southeast Asia, and Malaysia. To retain and enhance these investments, Malaysia’s biggest leverage lies within Asean’s principle of neutrality and centrality.
“The Asean chairmanship will enable Malaysia to further leverage this stance; Asean’s collective advantages and market size; as well as Asia’s current status as the world’s growth engine, accounting for 60% of global growth this year,” he explains.
Malaysia will take on the role of Asean chair for one year from Jan 1.
There is also the country’s participation in major trade blocs such as the Regional Comprehensive Economic Partnership and Comprehensive and Progressive Agreement for Trans-Pacific Partnership that can help to cushion against the unilateral imposition of tariffs and open access to alternative markets.
“Moving up the value chain and promoting industries like AI, electric vehicles, and green energy would make Malaysia less vulnerable to global trade disruptions,” Tengku Zafrul says.
What would 2025 look like for investment?
As uncertain as the outlooks for 2025 may be, many are optimistic, albeit cautiously, of the prospects for foreign investment in 2025.
A strengthening economy, financial resilience, stable political conditions, reforms and strategic positioning have been among the reasons touted by Malaysia for foreign investors this year. Investors have bought the idea, evident by the return of foreign inflows into Malaysia, and will continue to make Malaysia an attractive destination for investors in the year ahead.
“Based on approved investment data up to 9M2024 thus far, the outlook for both private FI and DI looks promising. In recent months, many companies have decided to establish Malaysia as their services hub, in line with its rising attraction as a data centre hub for the region.
“Those MNCs (multinational corporations) include Ant International (digital business hub which will tap local tech talent to drive its global operations); Zimmer Biomet (a world leader in medical technology) and the London Stock Exchange Group,” shares Tengku Zafrul.
He adds that these investors have said that Malaysia is not only a strategic location but also has excellent digital infrastructure — a result of the digital investments approved over the years.
“Based on the 9M2024 approved investment figures, coupled with various public announcements by MNCs on establishing Malaysia as their regional or global hub, we can expect a similar level of investor confidence as we head into 2025.
“Miti strongly believes that investor confidence is also anchored on our strong implementation rate of over 82% for approved investments, as well as strong execution of policies such as NIMP 2030, NSS, GIS or NETR,” he says.
However, Mida admits that attracting investment is becoming increasingly challenging in today’s landscape as investors become more discerning and demanding.
“Malaysia’s tax system is undergoing reform to attract quality investments and adapt to globalisation. The Global Minimum Tax framework necessitated re-evaluation of corporate tax structures, and Mida has worked with policymakers to ensure competitiveness while complying with international standards,” says Mida, adding that the country has pivoted to incentives beyond taxes, such as grants, infrastructure support and streamlined regulatory processes to attract investment.
Source: The Star Malaysia
