Malaysia needs policy review on declining foreign interest

The country must outline or target strategic industries in the high value-added tech and crucial industries that link the supply chains


MALAYSIA needs a revised principle for its business operating environment to continue attracting external investments amid declining foreign interest, said economists.

Recently, the Cabinet approved the National Investment Aspirations (NIA), which is a framework that outlines Malaysia’s reform policy for investment.

Senior Minister (Economy Cluster) cum International Trade and Industry Minister Datuk Seri Mohamed Azmin Ali previously mentioned that the reform will centre around revitalising Malaysia’s investment climate, attracting high-quality interests and creating high-income jobs.

Universiti Kuala Lumpur Business School economic analyst Assoc Prof Dr Aimi Zulhazmi Abdul Rashid said a reset is required in several areas, including Malaysia’s investment policy, targeted industries that are aligned with the global demand and the status of the country’s political stability.

“From the foreign investors’ point of view, especially the multinationals, the rapid changes in the international trade such as the US and China tariff war, Covid-19 pandemic and Brexit have certainly altered their investment strategy in the region, including Malaysia.

“Malaysia should have anticipated the plunge in FDIs (foreign direct investments) over the five-year trend at least, then it is a matter of other countries such as Vietnam to catch on and be on par with Malaysia.

“The reset may have negative outcomes in the short term. However, it can be mitigated with a healthier economic growth for the long term,” he told The Malaysian Reserve.

The shift in large corporations’ investment strategies has greatly affected Malaysia with many investors shifting to countries that are cheaper, more cost-effective and closer to their value chain, he explained.

He added that multinationals with large manufacturing operations that thrive on low-cost productivity will likely choose countries with cheaper labour costs such as Vietnam and Indonesia.

“All of the factors contribute equally to the reduction of foreign investments into Malaysia. Nonetheless, the volatility of the global economy has greatly influenced the current income.

“Not only the labour costs from the countries are cheaper, but the workers’ skills have also improved in terms of communication and vocational skills in addition to the countries producing a large domestic market.

“Thus, competitors for such types of investments to Malaysia are no longer limited to Singapore and Thailand, as other countries in the region are relatively on par with Malaysia in most aspects,” he said.

Aimi Zulhazmi said the newly launched reform policy is an important catalyst for Malaysia’s business environment which has been long-anticipated and should be executed in line with the 12th Malaysia Plan.

“The policy reform is crucial as many multinationals are currently weighing their global strategies and actively looking at fresh incentives or initiatives offered to them, and thus Malaysia must capitalise on the current operating state.

“Malaysia must outline or target strategic industries that are not only in the high value-added technology but also crucial industries that link the supply chains.

“The strategic location of the country must be expanded and exploited to link all modes of transportation efficiently so that Malaysia becomes an integral part of the international network,” he said.

According to a report by the United Nations Conference on Trade and Development, the FDI into Malaysia plummeted by more than two-thirds to just US$2.5 billion (RM10.25 billion) in 2020.

The plunge was the worst compared to other countries in SouthEast Asia, with a large portion of the decline attributed to the Covid-19 pandemic.

However, the FDI into Malaysia has been recorded in a shaky pattern in the past 15 years and had bottomed at RM5.1 billion in 2009, an aftermath of the global financial crisis.

Meanwhile, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid (picture) said the NIA should address the current predicament and fit the current demand of foreign investors.

“Malaysia has always been a pro-business and investor-friendly country. This is reflected in the government policies via tax incentives, economic zoning and various government agencies that are responsible to hand-hold the incoming investors.

“The country has all that it takes to attract foreign investors. In that sense, the NIA should strengthen the value proposition that can be offered to the foreign investors who wish to participate in the country’s long-term growth stories,” he said.