Weaker investment in capital stock a concern, says DoSM

by S BIRRUNTHA / pic by MUHD AMIN NAHARUL

MALAYSIA’S accumulated fixed asset investment or gross capital stock (GKS) grew 2.7% year-on-year to RM5.17 trillion in 2020, according to the Department of Statistics Malaysia (DoSM).

Chief Statistician Datuk Seri Dr Mohd Uzir Mahidin (picture) said simultaneously, the net capital stock (NKS), which represents the wealth of Malaysia’s economy, reached a value of RM3.22 trillion last year.

He added the NKS climbed slowly at 1.8% compared with 3.6% in the previous year.

According to Mohd Uzir, from 2018 till now, the value of the national capital stock has grown slowly due to the declining gross fixed capital formation (GFCF).

He noted the slow growth momentum of capital stock can be seen more clearly in 2020, where there was a double-digit decline in GFCF of 14.5%.

This is due to the investment of fixed assets for all economic activities that were affected by the Movement Control Order which was implemented over the past year following the outbreak of Covid-19.

The magnitude of this decline is the worst on record since the 1998 Asian Financial Crisis. The impact of declining capital stock can also be seen in the world’s major economies including the US, Japan and the UK, he wrote in a statement yesterday.

Based on economic activities, Mohd Uzir said capital stock for the services sector grew slowly at 2.5% in 2020 compared with 4.2% in the previous year, driven by the subsectors transport and storage, and information and communication which climbed slowly at 0.4% while the finance, insurance, real estate and business services rose 5.8%.

Capital stock for the manufacturing sector increased marginally by 0.4% compared with 3.5% in 2019, influenced by petroleum, chemicals, rubber and plastics products and electrical, electronic and optical products which edged up slowly at 0.8% and 0.6% respectively.

The non-metallic mineral products, basic metal and fabricated metal products slipped 0.8% while textiles and wood products decreased 2.6%.

As for the mining and quarrying sector, Mohd Uzir said the capital stock declined to 0.02% in 2020 while the construction sector expanded 4.3% and the agriculture sector gained 1.6%.

“Looking at the type of assets, structure remained as the main contributor to the capital stock with a contribution of 80.2%, equivalent to RM2.58 trillion supported by other structures and non-residential.

“The greater asset value of the structure, as well as the longer lifespan compared to other assets, are major factors in the dominance of the structure in the overall value of fixed assets in Malaysia,” he noted.

Mohd Uzir said this was followed by machinery and equipment with a contribution of 11.4% worth RM368.86 billion, as well as other assets with a contribution of 8.4% and recorded RM270.25 billion.

He also pointed out that Malaysia’s asset composition is similar to the asset composition of other countries, including South Korea and Singapore.

Overall, Mohd Uzir said the performance of capital stocks in the last three years has been deteriorating, coupled with the outbreak of the Covid-19 pandemic which has affected overall economic activity.

“The country’s ability to continue to expand in the future will be disrupted if this slowdown in investment growth prolongs, as it will have a detrimental effect on the production capacity. Investment in fixed assets, especially automation-oriented assets, needs to be increased in line with the Industrial Revolution 4.0 for the country’s transition to a high-income economy.

“Efforts towards reforming the investment ecosystem must be taken to ensure sustainable economic growth,” he said.