It is undeniable that our country is currently experiencing a major short fall in regard to Foreign Direct Investment (FDI). From being in the top tier of preferred ASEAN countries to invest in, Malaysia is now ranked behind the Philippines, Singapore, Indonesia and Vietnam, posting a drop of 68% in FDI for the year 2020 – 37% more than South East Asia’s average decline of 31%.

While this can be seen as an indication that our country is less preferred by foreign investors, there are factors to be examined alongside measures that can be taken to overcome this setback.

In what can be considered Malaysia’s fall from grace has prompted UMNO Youth Chief ,Dr Asyraf Wajdi Dusuki to demand an explanation from the Senior Minister for International Trade and Industry on how the Government plans to ensure that our Malaysia’s FDI will not slip further.

Major Factors Contributing to The Decline of Malaysia’s FDI

To understand the basis in the sharp decline in Malaysia’s FDI, a big-picture approach needs to be applied while taking into consideration all possible factors. To do this we need to go back to major events that occured in recent years.

This fiasco began post #GE14 due to the decisions made by Barisan Nasional’s successor that shook the confidence of foreign investors. From sudden cancellation of multi-billion Ringgit projects undertaken by foreign partners to the halting of key infrastructure development projects – there was no way our country could avoid being sidelined by foreign investors.

The failure of Pakatan Harapan’s government to maintain the upstanding policies and diplomatic relations fostered by its predecessors, their willingness to break promises given via contracts signed prior to their term, the improper strategies that deteriorated previously-healthy relationships with key foreign investors are all underlying factors which contributed to Malaysia’s poor performance in 2020.

It is clear that the significant drop in Malaysia’s FDI is a culmination of ill fated, prolonged backtracking and inconsistent decision making by the then Federal Government.

There are other factors we need to understand. While China remains the biggest investor in all South East Asian countries, Malaysia’s over reliance on China’s investment in the past years is crucial factor that contributed to the decline in last year’s FDI. The flow of foreign investment took a plunge when China’s investment stopped after most major contracts Malaysia signed with China were either cancelled, halted or revised unilaterally.

Not to mention, the added accusations of corruption involving Chinese conglomerates and Malaysia’s prominent leaders, which has made things worse.

The COVID-19 pandemic has further shifted investor preferences when it comes to deciding which country they want to invest In, and the size of a country’s population is one of example. Indonesia’s population of almost 300 million is one Malaysia will never have – this has made Indonesia a preferred destination for multinational corporations such as Tesla, who was recently rumoured to have chosen to create an Electric Vehicle (EV) battery supply chain for its fleet of vehicles in Indonesia.

The market size of Indonesia fits well with Tesla’s outlook, include the added advantage of manpower surplus that Indonesia has. Indonesia’s position as the world’s biggest nickle producer has given its government the upper hand in luring Tesla publicly. Nickle is a crucial substance in producing EV batteries and the Indonesian government has changed its policies to stop the export of nickle despite being one of the world’s top exporter.

The Indonesian government’s vision of seeing EVs roaming its cities by 2030 has led to the establishment of a full nickle supply chain – from extraction, processing into metals and chemicals to be used in the EV battery production.

The spill-over effect of Malaysia’s strong economic growth in 2015 to 2017 which was felt throughout 2018 and 2019 constitute part of the factor affecting the Malaysia’s FDI. Confidence in the growth of our economy in the past years has contributed to healthy inflow of foreign investment in both years. It is unfortunate that during the 22 months of Pakatan Harapan’s rule, time was wasted on never ending politically driven witch-hunts, instead of policies that could have propelled Malaysia’s economy further.

The constant propagation of untruthful facts, for example the ballooning of national debts to the trillions, which was cleverly crafted via an unconventional accounting method, has created negative sentiments that affected Malaysia reputation to this day.

Such are the result of entrusting an unqualified accountant to the helm of Ministry of Finance. In its effort to appear as a champion in good governance, the Pakatan Harapan government failed to realise the after effect of the continuous spread of fake news especially those relating to the economy and financial management of the country. All of the wrong moves has weaken Malaysia’s economy. As what happened in the 22 months of Pakatan Harapan’s rule, it just doesn’t make sense how we could’ve gain investor’s confidence when the narrative by the then Finance Minister was constantly highlighting our dire state of debt that has surged past RM1 trillion. Such ill intended narratives clearly does not strengthen our economy thus resulting to its bad effect to be felt through 2020.

The Way Forward

There is a lot to be learned from neighbouring countries when it comes to FDI. Strategic policies implemented by Indonesia and Singapore in the last few decades have resulted in both countries to become the preferred destination for foreign investors to invest in. Take Indonesia as an example where its government have a clear vision in creating an investor friendly environment.

Besides introducing a fully electronic Online Single Submission System (OSS) which can expedite, synchronize and integrates business licensing application across various ministries, the Indonesian government has released sixteen Economic Reforms Packages in the past four years alone. That is how aggressive the Indonesian government is in ensuring continuous flow of investment to aid the development of its economy.

The current Malaysian Government needs to ramp up its effort to shore up foreign investment for 2021. It can start by creating positive sentiments towards attracting additional FDI to help counteract the economic downturn. The period of Emergency should be utilized to the government advantage by releasing more Economic Reform Packages and introducing more effective policies in spurring the economy. The Government needs to be bold to ensure that Malaysia is not being left behind while the world economy is recovering from the impact of the pandemic.

The introduction of the RM35 billion Pelan Jana Semula Ekonomi Negara (PENJANA) as announced by Prime Minister, Tan Sri Muhyiddin Yassin came at the right time. The 40 or so short-term economic recovery measures which are aimed at increasing FDI or will have an impact on FDI in Malaysia encompasses measures that will stimulate both foreign and domestic business investment. Some bold steps needs to be taken to enhance the measures under PENJANA.

One improvement that can be made is in relation to PENJANA’s 34th initiative, aimed to make Malaysia an attractive horizon for businesses. In attracting foreign companies to relocate their business into Malaysia, the Government allocation of RM50 million for this initiative needs to be increased to an amount that is significant and attractive enough to foreign businesses.

The advantageous tax rates combined with allowances offered must be at a rate that is competitive with our neighboring countries while the length for the special tax rate offered should be extended for at least another three to five years. Since there are many factors involved if a foreign company were to relocate their business into Malaysia such as the risk of relocating, long term benefits should be offered to really make Malaysia attractive.

Concentrated efforts and undivided commitment by various government agencies and ministries such as the Malaysian Investment Development Authority (MIDA) under the Ministry of International Trade and Industry (MITI) are needed to facilitate the relocation of foreign companies to Malaysia. The same goes to facilitating the inflow of investment in high value, high tech and high impact sectors.

The acceleration of processing time for manufacturing licence applications together with other related license application are crucial and this must match the expedited process offered by countries like Singapore and Indonesia. This can easily be done via the creation of an integrated online platform across all ministries to create a seamless expedited process for related applications from application for licensing up to application for tax breaks and incentives.

On top of that , the government needs to craft a well-structured and an all-out outreach campaign to raise awareness on all of the benefits of investing in Malaysia. It is high time to fully utilize all offices of Malaysian missions abroad to assist in disseminating the good offerings to targeted multinational corporations in each foreign countries they are operating in.

Creation of a laser-focused program targeted to corporations from the world’s economic power houses, according to the identified sectors are to be distributed accordingly to each respective Malaysian mission abroad. Not to forget the establishment of an online presence to conduct media campaign across all media platforms.

More efforts are needed to encourage co-operation and commercial partnership between local and foreign companies in line with the increasing global and domestic demand, while providing direct support measures such as tax breaks for hard-hit sectors such as hospitality, transportation and construction, will definitely bring fruitful result not just to the economy but also to ensure Malaysia’s 2021 FDI returns to the highest within South East Asia.

All of the measures suggested above need to be drastically implemented not just to enable Malaysia to attract more foreign investment but also to retain the existing investment to avoid those businesses from shifting out of Malaysia.

The last measure needs to be in place is by strategically widening up the option of Malaysia’s foreign investor. During this pandemic era, multi-national corporations from all over the world are searching for alternative investment destinations for them to invest in. While this presents an opportunity, Malaysian Government must avoid from depending on a single nation to be its biggest investment partner.

Over reliance on China as how Malaysia did in the past is a mistake that should never be repeated again. This could be avoided by leveraging on Malaysia’s strong bilateral relations with the United States, leading European countries as well as the 2nd biggest growing economy, India.

It is not all doom and gloom for Malaysia, as how the opposition in Pakatan Harapan are claiming. IMF forecasted Malaysia’s GDP for 2021 at 7%, the third highest right behind China and India while Moody’s Investor Service has affirmed Malaysia’s A3 rating with a stable outlook. The forecast by the former and rating by the latter translates into foreign expert’s confidence in Malaysian economy.

By stepping up the effort in boosting our economy through bold and drastic measures, the current government will definitely achieve success not just in building a stronger economy that will be beneficial to all Malaysian but also denying the never ending fake news propagated by the irresponsible self-serving political leaders who has never stop in their effort to tarnish the image of our beloved country. I urged all Malaysian across all political divide especially the business communities to strive together to build a resilient economy in going through this testing time of our generation.

* Bastien Onn is a Malaysian politician. He is also currently the UMNO Youth Exco

Source: Astro Awani

Malaysia’s FDI: Major factors and the way forward

The government is set to generate economic growth and 500,000 job opportunities this year despite the highly challenging environment.

Finance Minister Tengku Datuk Seri Utama Zafrul Tengku Abdul Aziz (picture) said the government acknowledges the 4.8% unemployment rate for December, which is the same for November 2020.

“The increase in the number of health workers can also be considered as one of the initiatives to create new employment opportunities in the ‘critical employment’ category.

“In this regard, the National Employment Council has estimated that more than 160,000 new jobs will be created in 2021 through committed investments,” he said in the 40th Economic Stimulus Implementation and Coordination Unit Between National Agencies (Laksana) report on Facebook yesterday.

Tengku Zafrul said the Health Ministry’s (MoH) Covid-19 screening capability has been enhanced and that as of Feb 5, nearly 1.2 million tests have been conducted with a cumulative total of over 6.4 million tests.

The 2021 budget also allocated RM1 billion in additional funding and allocation focused on supplies, such as additional reagents and screening kits, as well as personal protective equipment especially for health workers.

“We hope that with the increase in screenings, following instructions to employers to conduct screening tests on their employees, we can identify those with symptoms faster, enabling speedier isolation to curb the spread of the pandemic,” he said.

Through the Malaysian Economic and Rakyat’s Protection Assistance Package’s additional allocation of RM3.25 billion for 2021 to address the pandemic, MoH has also applied to the Public Service Department to increase their number of health workers by 11,280 to maintain service quality.

To this end, the package has also approved the recruitment of 3,500 health workers beginning end-January 2021.

On the topic of social security, the Prihatin MySalam initiative has approved 67,000 Covid-19 related claims, with a total value of RM35 million as at end-January 2021.

Moving on to the short-term National Economic Recovery Plan (Penjana), Tengku Zafrul said the Phase 1 of the Wage Subsidy Programme (WSP 1.0) is still ongoing and has achieved a distribution value of RM12.76 billion for 322,177 employers and 2.64 million registered employees.

Through the Hiring Incentive and Training Assistance Programme, a total of 130,828 employees have secured employment. Manufacturing as well as wholesale and retail trade are among the key industries and sectors that employ workers.

The minister also informed that the Tekun Business Recovery Scheme specifically for micro-small and medium enterprises (SMEs) with a fund of RM100 million has achieved its objective by benefitting 14,946 micro-SMEs.

Concurrently, a total of 6,507 applications were approved with a total loan value of RM1.23 billion under the Penjana SME Financing programme.

For the Penjana Tourism Sector Financing, as of Jan 29, there were 573 applications and of this total, 277 applications have been approved with a total financing of RM55.4 million.

The value of tax exemption utilised by hotel and accommodation operators has reached RM1.37 billion, an increase of RM533.42 million compared to RM836.56 million in the previous week.

Among the initiatives to support the tourism sector are individual tax relief up to RM1,000 on travel expenses and a full exemption on tourism tax for foreign tourists.

Tengku Zafrul noted that his ministry welcomes the initiative of creating a travel bubble between Malaysia and Indonesia to boost the tourism industry and its recovery in both countries.

Meanwhile, for WSP 2.0 under Kita Prihatin, a total of RM741.16 million has been channelled to 64,345 employers to enable them to continue operating and maintain 518,793 employees.

Source: The Malaysian Reserve

Govt aims to create 160,000 new jobs this year

KUALA LUMPUR (Feb 12): Malaysian small and medium enterprises (SMEs) should lead in the innovation and development of local products using indigenous technologies.

In an email interview, ManagePay Marketing Sdn Bhd chief executive officer Tan Chia Wei told theedgemarkets.com that BuyMalaysia.com is a home-grown e-commerce platform that is in place to spur domestic innovation.

ManagePay Marketing is a unit of ManagePay Systems Bhd (MPay).

Tan said BuyMalaysia.com aims to represent Malaysia in the digital economy by showcasing the best Malaysian made products the nation has to offer the world through its e-marketplace.

“Our aspiration is to inspire Malaysian SMEs to continue to produce high quality products, while they focus on creating tangible yet innovative ways to connect the SMEs and their products to the world,” she said.

Tan said since 2017, BuyMalaysia has onboarded a wide range of businesses in a myriad of categories.

“From local snacks to innovative gadgets, specialty drinks to natural beauty products, local fashion brands to automotive accessories.

HK, Australia, Singapore, Brunei, India, Indonesia, UAE, UK

“Their humble export efforts to date, although small in volume, have brought their merchants’ product range to Hong Kong, Australia, Singapore, Brunei, India, Indonesia, the UAE, and the UK,” she highlighted.

She said through the MPay network, the firm has developed relationships which had flourished into exciting collaborations.

Tan said some notable projects that BuyMalaysia is expected to roll out this year include a series of virtual pitching events where SMEs will present their products to a host of importers in the US, who have expressed keen interest in reselling products offered on BuyMalaysia through both digital, as well as brick and mortar channels.

“Another is a popular mother and baby fashion and accessory retail brand in Oman, keen to ODM their own fashion label and the third and most exciting is a party in the US BuyMalaysia has been in talks with to connect them to health, wellness and beauty manufacturers here in Malaysia, wanting to leverage on the potential of the herbal industry with its increasing global popularity and Malaysia being a treasure trove of some 15,000 plants with potential medicinal and wellness values.

Bahrain

“The platform has also  pulled in keen interest from Bahrain for tropical fruits,” she said.

Tan said BuyMalaysia takes every effort to authenticate the merchants it onboards and their products.

“The products must be made in Malaysia and adhere to internationally recognised manufacturing standards to be listed for export.

“It is not just about selling products, it’s about branding Malaysia as a place to source high-quality and innovative products,” she said.

Tan said another small-scale programme to be launched is the global Rakan BuyMalaysia program, where the e-marketplace is in the midst of appointing Malaysians abroad to be affiliates to promote products listed on BuyMalaysia to the community they now live in.

“We built a group buy solution for our future Rakans, where they can collect and track orders to the volume to keep logistics cost per unit affordable.

“This program was in fact inspired by a gripe from one of our local snack SMEs who said that although there was interest from overseas, the cost of shipping small quantities to places like the UK, Australia, and New Zealand where many Malaysians reside, limited the demand,” she said.

Tan also hinted at an announcement that is a-brewing in March.

“And it is very much to do with our belief that our focus should be on the development of local products using indigenous technologies.

“It will be a collaboration between industry (BuyMalaysia), academia, and local government to inspire our next generation to develop high-quality marketable products,” she said.

Source: The Edge Markets

Malaysian SMEs should lead in innovation and production, says CEO

KUALA LUMPUR: The rollout of vaccination programmes scheduled for the end of this month will further boost the Malaysian economy and help in creating more jobs possibly by the second half of 2021, the Malaysian Employers Federation (MEF) said.

Executive director Datuk Shamsuddin Bardan said more employers would be ready to employ people for a longer term rather than just providing short fixed-term contracts or contract-based jobs as practiced currently.

“But as for now, I think even with short fixed-term contracts, fresh graduates and the unemployed should appreciate it if employers offer them such jobs because the reality is the employers are facing hard times too due to the unprecedented event of COVID-19.

“We are not sure of the businesses’ long-term outlook,” he told Bernama.

Shamsuddin said the federation has raised with the government the issue of how difficult it is for the employers to offer employment for a period of at least one year as a precondition to be eligible for employment incentive and it hopes that the private sector can still be eligible for the wage subsidy incentive provided by the Social Security Organisation (SOCSO) even if they only offer shorter term jobs.

Nevertheless, he said, the private sector will try to do its best to assist the government in providing jobs to the locals during this difficult period.

The government has approved a total of RM12.76 billion under the Phase One Wage Subsidy Programme (PSU 1.0) as of Jan 29, 2021 .

A total of 322,177 employers and 2.64 million employees have received PSU 1.0 benefits under the Prihatin Rakyat Economic Stimulus Package (PRIHATIN) and the National Economic Recovery Plan (PENJANA).

For the Phase Wage Subsidy Programme (PSU 2.0) under the Prihatin Special Supplementary Initiative Framework, a total of RM741.16 million has been channelled to 64,345 employers to continue to operate and maintain employment for 518,793 workers as of Jan 29, 2021.

Shamsuddin also said that 2021 would see more people to be upskilled and reskilled via the RM2 billion Penjana Human Resources Development Fund (HRDF) initiative launched in June last year.

Among others, the initiative aims to upgrade Malaysians through upskilling and reskilling programmes, focusing on workforce marketability and job matching.

“This pandemic is a long-term problem for us all, so we need a strong partnership between the government and the private sector so that together we can break the chain and move forward to improve the economy.

“(This is to ensure that ) at the end of the day, businesses can be sustained and we help reduce the number of retrenchments, which is critical at this time, while creating more jobs,” he added.

On Tuesday, the government said that it aims to create 160,000 new jobs this year via committed investments. It is optimistic that the set targets can be achieved despite the country still being under the Movement Control Order (MCO).

Prime Minister Tan Sri Muhyiddin Yassin yesterday chaired the second meeting of the National Employment Council with MEF being one of the 10 council members involved.

Source: Bernama

Vaccination programmes will boost Malaysian economy, lead to more jobs by second half

KUALA LUMPUR (Feb 9): Malaysia and the United Arab Emirates (UAE) have agreed to foster greater cooperation, especially in boosting economic opportunities, as both countries are focused on a strong and resilient economic recovery from the Covid-19 pandemic.

In a statement today, the Foreign Affairs Ministry said its Minister Datuk Seri Hishammuddin Tun Hussein and UAE Minister of Foreign Affairs and International Cooperation Sheikh Abdullah Zayed Al Nahyan held a constructive and productive meeting in Abu Dhabi yesterday, with both Ministers expressing satisfaction at the current state of bilateral ties between the two countries.

“In this regard, the two Ministers discussed important initiatives under four priority areas of cooperation in the post-pandemic era, namely trade and investments, agriculture and food security, health and diplomatic exchanges,” it said.

According to the Ministry, the working visit had provided a new impetus to the strong and brotherly ties between Malaysia and the UAE, adding that the latter was one of Malaysia’s main trading partners, with the total trade between the two nations valued at US$6.43 billion in 2019.

The UAE is also Malaysia’s largest export destination and second-largest source of imports in the West Asia region, said the Ministry.

Given Malaysia’s strategic location in Southeast Asia, the Ministry said Malaysia s committed to being the gateway for the UAE to enter the region’s market, which is home to over 650 million people.

According to the statement, Hishammuddin returned to Malaysia today and will undergo mandatory quarantine in compliance with the Covid-19 standard operating procedures (SOP) as stipulated by the Health Ministry.

Source: Bernama

Malaysia, UAE to foster cooperation, boost economic opportunities

By : Lee Heng Guie

Malaysia’s private investment growth rate and share of GDP has been decelerating in recent years. Weighed down by external and domestic factors, private investment momentum had moderated from 12.1% pa in 2011-2015 to 4.8% pa in 2016-2019. Among these are an uneven state of global economic conditions post 2008-09 Global Financial Crisis; weakening domestic economic growth; weak investment climate, including high regulatory and compliance costs; lingering uncertainty about policy transition as well as political instability. In the first nine months of 2020, private investment declined by 13.2% yoy as the COVID-19 pandemic-induced recession and extremely weak sentiments have caused businesses and companies to slash capital spending.

The Malaysian Investment Development Authority’s approved domestic direct investment (DDI) had declined by 6.4% pa from RM175.1 billion in 2014 to RM125.5 billion in 2019 while approved FDI increased by 5.0% pa from RM64.6 billion in 2014 to RM82.4 billion in 2019. In Jan-Sept 2020, approved DDI contracted by 21.6% to RM67.2 billion to make up 61.2% of total approvals while approved FDI went down by 34.9% to RM42.6 billion. For the period 2010-2019, DDI had accounted for a higher share of total approvals, averaging 69% amid a declining share in recent years. FDI share of total approved investment was averaging 31% pa for the same period.

Actual FDI inflows into Malaysia had declined by 5.3% pa in 2016-19 from an average growth of +6.2% pa in 2011-15. In the first nine-months of 2021, FDI inflows contracted sharply by 70.5%, which collaborated with the United Nations Conference on Trade and Development (UNCTAD) Investment Trends Monitor, which estimated Malaysia’s FDI down by 68% in 2020 and amounting to just US$2.5 billion (RM10.1 billion), compared to the ASEAN region that lost 31% on average to reach US$107 billion. Gross FDI also declined by 0.3% pa in 2016-19 compared to +1.5% pa in 2011-15.

Investments

Private investment is an important component of the overall economy. Sustaining private investment, which is made up of domestic and foreign investment, is needed to expand and diversify our industrial base; raise productive capacity and increase economic growth; accelerate technological progress; create high-income paying jobs and increase exports.

Domestic and foreign investments can have strong complementary or substitution interactions between each other. Policymakers are often being asked whether we should focus efforts on domestic investment or foreign investment. There are questions whether foreign direct investment crowd in domestic investment, or foreign direct investment crowd out domestic investment?

Substantive research studies had validated the benefits of FDI, which amongst others include employment creation, the deepening of industrial base through technology transfer and technical know-how, enhance linkages with domestic firms, embrace better business practices management, establish business network and access to international markets as well as supporting domestic financial system and capital market.

Sustaining high quality domestic investment is equally important and must continue to be facilitated in driving Malaysia’s economy and expanding industrial structure, especially the development of small-and medium-size enterprises (98.5% of total business establishments; 38.9% of GDP in 2019; 48.4% (or 7.3 million) of total employment; and 17.9% of total exports).

Granted, domestic investment size and value of capital investment in the manufacturing sector is smaller (RM48.6 million per project) relative to that of foreign investment (RM121.7 million per project) as well as less capital- and high technology-intensive investment during the period 2010-2019, the nature and type of domestic investments span a cross section of sectors and businesses and, hence, create usually many more jobs than FDI.

Backed by a pool of capable domestic businesses and SMEs in the home market, multinational corporations would be keen to expand existing operation and set up new plants in an environment where the existing ecosystem is able to support their operations, especially our domestic players are capable to integrate with high-value added global supply chains.

Indigenous industries

Domestic indigenous industries are the backbone of Malaysia’s investment and industrial development. They are deep-rooted in Malaysia and are here to stay and, hence, should be given further investment facilitation at the federal, state and local authorities in a coordinated manner. Time is of the essence for investors to secure a fast and quick approval of their investment applications and resolve matters, including operational issues relating to doing business.

The departments and agencies at all levels (federal, state and local authorities) play a decisive role in creating a predictable enabling business investment environment while efficiently facilitating investment at ease, regardless of domestic investors/companies (large, SMEs and small businesses) and foreign investors.

A renewed focus on improving the regulatory and investment facilitation offers a key to reducing friction costs in government-business interactions. Common government-to-business pain points are delays; lack of transparency in the approval process; paperwork burden; duplication; inconsistency and complexity. While most businesses would welcome fewer regulations, what they really want is to spend less time and effort on compliance.

There is widespread agreement that federal, state and local authorities need to refocus on removing the obstacles that businesses face in fostering an environment conducive to investing and doing business here. It’s in the government’s interest to make regulations and compliances as painless as possible. Policymakers must harness the power of investment by making both domestic and foreign investment work together to generate the maximum benefit for our economy.

Lee Heng Guie is Executive Director of the Socio-Economic Research Centre (SERC).

Source: Bernama

Choosing between Domestic and Foreign Investment

As Malaysia gradually emerges from the ravages of the pandemic, foreign investments will be key to nurturing the nascent economic recovery.

Domestic investments alone will not be enough to maximise the country’s growth.

That is why today foreign direct investments (FDIs) comprise 40 per cent of total investments in the country. Covid-19 has battered FDIs worldwide. The United Nations reports that global FDIs slumped by 42 per cent last year.

Malaysia was not spared from this collapse. We suffered a two-thirds drop in FDI flows. Nevertheless, the Malaysian Investment Development Authority is confident that it will pull in about RM48 billion in FDIs this year and next.

As the world turns a corner in combating the pandemic, and green shoots of economic recovery sprout, there will be a hunger for FDIs. To gain an edge over the competition and to attract high-quality investments, the government intends to develop a new investment strategy.

Already measures are in place for greater investor experience. Investors now enjoy seamless facilitation. A project acceleration and coordination unit, and other platforms such as i-Incentives, have been established to realise planned investments.

The late Carl Sagan, a planetary scientist, once said: “You have to know the past to understand the present.” George Santayana, an American philosopher, extended this sage advice: “To know your future you must know your past.”

Let us then revisit the industrial strategies of the past to decide what should be our future initiatives.

We have had three industrial master plans. The first, spanning from 1986 to 1995, advocated the development of free-trade zones and industrial parks to attract FDIs, with generous tax breaks to key multinational companies (MNCs). This was to forge linkages between foreign and domestic firms.

The Industrial Master Plan Two from 1996 to 2005 adopted a strategy of developing clusters of competing firms that were backed by supporting activities such as research and development.

The Third Industrial Master Plan (2006-2020) continued this cluster policy. It focused on the development of high-value added industries which already had a constellation of related and supporting industries. The targeted clusters were resource- and non-resource-based.

These past plans served us well. FDIs had increased from RM2 billion to RM35 billion over the period of the three plans. Our strategies for the future must, therefore, reflect the successful initiatives of the past.

First, the government should continue with promoting clusters. Here, competitors co-locate with their supporting industries in a particular geographical region.

Such agglomeration will reduce transaction costs as they make available a ready access to information, talent, supplies, and research and promotional support. All these will ensure the competitiveness of the firms in the cluster.

This is how we started the electrical and electronics cluster in Penang in the early 1970s. Incentives should therefore be offered to attract top-notch MNCs with cutting-edge technologies and their related industries to locate together.

Second, the emphasis on manufacturing should be retained. Although it contributes only a quarter of the total output compared with about two-thirds by the services sector, manufacturing creates more jobs. It also has the potential for economies of scale and continuous technology upgrade.

Third, a greater liberalisation of the services sector could be considered in the push for more foreign investments. For example, in the telecommunications sector, only 70 per cent of foreign participation is allowed for network-service-provider licences.

Similarly, there is a 70 per cent limit on foreign ownership in insurance companies. There are also restrictions on the opening of branches by foreign banks. In the oil and gas sector, foreign firms are restricted to a 49 per cent equity stake.

FDI promotion should be balanced by national interest. The manufacturing sector has already been opened up for full foreign ownership. Opening up strategic services sectors to full foreign ownership might not allow strategic partnership between local and foreign firms and the consequent transfer of technology.

The writer is the Institute of Medicine, Science and Technology (AIMST) University Vice-Chancellor

Source: NST

Retain industrial clusters to attract more foreign investments