The country’s ‘go-to’ investment play of tax and investment incentives is no longer unique and has become generic
by RAHIMI YUNUS / pic by TMR FILE
MALAYSIA needs fresh strategies to escape its current position as investment laggard to its neighbours.
According to a recent United Nations (UN) report, Malaysia lost the most investment in 2020 behind neighbours like Singapore, but also a less familiar position behind Indonesia, Thailand and Vietnam.
Malaysian Rating Corp Bhd senior economist and head of research Firdaos Rosli said Malaysia’s “go-to” investment play of tax and investment incentives is no longer unique and has become generic as other countries catch up with infrastructure.
“There is little we can offer that other neighbouring countries cannot. Tax and investment incentives, for example, have been Malaysia’s top-selling points to foreign investors at the time when other countries are offering the same.
“It appears that Malaysia is racing to the bottom by diluting our revenue generation over time,” Firdaos told The Malaysian Reserve (TMR).
He said Malaysia’s infrastructure development has not been able to play catch up with economic growth.
For instance, he said a recent report by Speedtest stated that the country’s mobile Internet speed is lower than that of Laos and Myanmar and at par with Iran and Kenya.
He said Thailand’s Internet speed is more than three times higher than Malaysia.
He added that global companies that once flock to Malaysia to manufacture goods have now changed strategies and are going to new industries like services.
With the Covid-19 pandemic, he said investors are evaluating Malaysia as a long-term play.
Regardless, Firdaos said Malaysia continues to be an attractive investment destination being ranked 27th quite highly in the IMD World Competitiveness Ranking 2020 and 12th in the World Bank’s Doing Business 2020 Rankings.
He said Malaysia needs to have a deep discussion on what are the national interests and be able to determine its own growth drivers, not by other foreign or external parties or economists.
According to a recent UN Conference on Trade and Development (UNCTAD) report, Malaysia’s foreign direct investment (FDI) declined by 68% to US$2.5 billion (RM10.1 billion) in 2020.
The report stated that FDI in South-East Asia contracted by 31% to US$107 billion, with Singapore’s fell by 37% to US$58 billion, Indonesia’s down 24% to US$18 billion and Vietnam’s dropped by 10% to US$14 billion.
Global FDI decreased by 42% to an estimated US$859 billion from US$1.5 trillion in 2019.
Crewstone International Sdn Bhd chairman Datuk Wira Jalilah Baba told TMR that the UNCTAD and other organisations are using net inflow in its calculation which is the gross inflow minus gross outflow.
From Crewstone’s calculation and argument, she said the gross outflow should not be counted in the net figure because it involves payments such as loans and credits to non-residents.
If only gross inflows are counted, she said Malaysia should be registering about RM109 billion in FDIs.
As it is, she said Malaysia needs to improve costs of doing business such as the corporate tax rate and develop more highly-skilled talents particularly to cater to high technology companies.
Williams Business Consultancy Sdn Bhd founder and director Dr Geoffrey Williams said Malaysia has recently closed down or cut back a number of big infrastructure mega-projects as a key reason for the fall in FDI last year.
Besides being affected by external factors such as Covid-19, he said the FDI regime here is also less liberal and still requires local ownership and joint ventures as the main type of investment vehicle.
He also said the political environment is not a big issue because FDI is a long-term decision and not based on short-term politics.
“Malaysia has been successful in the past but other countries are catching up so the FDI strategy here needs to be refreshed. The Ministry of International Trade and Industry and Malaysian Investment Development Authority should reach out to stakeholders to find out what they want and then change policies to give them what they want,” Williams told TMR.
He said easing ownership regulations will help particularly in the automotive and supply industries.
He further said foreign investors also want freer access to government procurement because these are big budgets especially if they involve infrastructure investment.
Williams said an efficient and low-tax system with investment incentives is always good but this can also be provided elsewhere.
“I feel it is much more the look, feel and ethos of the country which makes it attractive beyond the basic business considerations. That is why a refresh is required,” he added.
Read our earlier report