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29th July, 2010
KUALA LUMPUR: Concerns over Malaysia losing out on foreign direct investment (FDI) is misplaced as the country remains the top 15 host nations for investment in 2010-2012, says International Trade and Industry Minister Datuk Seri Mustapa Mohamed.
He said the government was constantly wooing high-end quality investments to place the nation in the high growth trajectory.
Even in the World Investment Report 2010 by the United Nations Conference on Trade and Development (UNCTAD), it was clearly stated that it regarded Malaysia as among the most advanced nation, keen to attract high-end investments.
“Malaysia is keen on high value-added and technology-based investments in alignment with the government’s efforts to become a high-income nation.
“We are not disputing the numbers but the government is also not keen in attracting low-end category investments such as processing and assembling. We don’t give any incentives for them.
“We did that in the 70’s but not anymore,” he told a media briefing on “The World Investment Report 2010 by UNCTAD which stated that FDI inflow to Malaysia dropped 81 per cent to RM4.43 billion (US$1.381 billion) last year from RM23.47 billion in 2008 (US$7.381 billion).
However, FDI inflow in the first quarter of 2010 was US$1.41 billion.
The drop in FDI inflow last year was not something that was exclusively experienced by Malaysia. In fact, even among the top 10 FDI destinations experienced a slump in investment inflow as the world FDI flows in 2009 shrunk by 37 per cent, affecting many countries.
Even the United States, the top recipient of the global FDI in 2009 amounting to US$130 billion, fell 58.8 per cent from US$316 billion in 2008.
Given the direction taken by Malaysia, neighbouring countries like Vietnam, Indonesia and the Philippines received substantial investment flow.
“In addition, some of the countries such as Vietnam and Indonesia which are in the process of developing their infrastructures received high levels of investment in this sector,” said Mustapa.
For instance, developing countries like India, among the top 10 FDI destinations listed in the WIR, is looking at 20,000km of road construction, which attracts huge investment.
“We don’t have that kind of requirements. Similarly in Vietnam, they are in need of infrastructures such as power plants, while in Malaysia we have energy reserves of about 45 per cent,” said Mustapa.
UNCTAD also noted that in recent years the relocation of some manufacturing activities from Asian economies that have become more advanced such as China and Malaysia has provided opportunities for latecomers to become part of the Transnational Corporations’ (TNCs) regional production networks.
As for the large FDI outflow, Mustapa said the investment outflows reflected Malaysia’s continued capacity to invest abroad through leading TNCs. A large portion of Malaysia’s outflow is the result of cross-border acquisitions.
“The financial success of our investments abroad impacts the Malaysian shareholders and affects the overall value of our local assets. Some of these companies have brought back to Malaysia billions in revenue which have strengthened the group’s ability to invest locally,” he said.
In the long term, these companies earn investment income which are then repatriated home as a new source of revenue, he said.
“The contribution of investment income to GDP will continue to grow as Malaysian investments abroad mature over time,” said Mustapa.
He cited that other competitive and more developed economies were also in a similar situation; for example the US and Japan, both are capital exporters, have had large negative net FDI flows for many years.
In 2009, Japan had US$62.7 billion net FDI flow, while the US had US$118.2 billion.
“This shows negative net FDI flows per se don’t mean that a country is in a dire condition,” said the minister.
On the cause of growing deficit in Malaysia’s net FDI inflows as stated in the report such as narrow human capital base, Mustapa said these are the concerns that the New Economic Model and the 10th Malaysia Plan would address.
Several measures have been introduced, including a new Talent Corporation to be formed, which will be tasked to source for top talents, both overseas and in the country.
He said the civil service will increase its focus on hiring high-calibre young talents and to improve the quality of students and local talents, the proportion of graduate teachers in primary schools will be increased to 60 per cent from 28 per cent currently.
Mustapa said the government has also introduced the Government Transformation Programme (GTP) and the 10th Malaysia Plan, which have a strong monitoring system for FDIs.
The labs initiated by PEMANDU, the Performance Management and Delivery Unit, identified New Key Economic Areas (NKEAs) which are expected to woo significant amount of new FDIs.
Specific initiatives by MITI and its agencies are targeting specific priority sectors, high value-added, high technology, capital and knowledge intensive projects and new emerging technologies, promoting new growth areas within the manufacturing sector, advanced materials, medical devices, ICT, machinery and equipment, biotechnology, aerospace, photonics, nanotechnology and optics.
It is also promoting the services sector as the new growth engine.
The corporatisation of the Malaysian Investment Development Authority (MIDA) will also help lure more foreign and domestic investments.
“The empowerment is already there. There has to be a shift in the mindset, the ability to react fast to changes and feedbacks,” said Mustapa.
The new MIDA need to strive in full force, he said.
However, as the government strives hard to constantly attract high-income investments, certain people are smearing the country’s name, said Deputy Minister of International Trade and Industry Datuk Mukhriz Mahathir.
“Malaysia is said to becoming a Taliban nation and having Kangaroo court, such remarks will severely impact investors’ perception of our country,” he said.
He questioned why those who highlighted the decline in FDIs are not acknowledging the fact that the same report stated that Malaysia was still on the list of top 15 host investment destinations for 2010-2012.
“One can be an opposition in the country, but not against the country. You don’t need to create an impression that the country is so bad that investors should not consider us as a potential investment destination.
“Malaysia is not a failed state, neither it is a bankrupt nation,” stressed Mustapa, adding that the competition out there was enormous and “we urge those people to put a stop from running us down. It is the country’s and our kid’s future.”
“No country is spared from challenges, but efforts are being put in place and it takes time to crystalise,” added Mustapa.
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