Despite the uncertainties in the global economic situation, Johor and Sarawak have flourished to become the states that received the highest manufacturing investments in the country for the first three months of this year.
However, economists believe that it is too soon to discuss greater investment inflows into the country.
“Investment inflows tend to be volatile and lumpy, so it is not that surprising to find one state attracting more investments than usual in any particular quarter.
“Having said that, we would not want to discount the success of Sara-wak Corridor of Renewable Energy and Iskandar Malaysia as development corridors, in attracting greater investment flows,” Malaysian Rating Corp Bhd (MARC) chief economist Nor Zahidi Alias tells StarBizWeek.
“There’s a possibility that there is an element of a changing structure in Malaysia’s economy that could explain this divergence, but it’s too soon to tell,” he adds.
Statistic data released by Malaysia Investment Development Authority (Mida) showed that Johor led in total capital investment in the manufacturing sector with RM5.65bil in the first quarter ended March followed by Sarawak with RM3.04bil.
“Traditionally, Penang and Selangor have the highest total investments in the manufacturing sector because the two states have better infrastructure and ecosystem,” says Mida deputy chief executive officer II Datuk Phang Ah Ting.
He says Sabah and Sarawak are the emerging states, adding that the resource-based industry is now mainly investing in Sabah while energy-intensive companies are venturing into Sarawak.
Sarawak is the second biggest contributor to Malaysia’s foreign direct investment after Johor, mainly by Score’s Samalaju project.
In terms of the number of projects approved, Selangor, Johor and Penang topped the list with 43 projects, 32 projects and 21 projects respectively.
Although Sarawak has only four projects approved for the quarter, the state actually recorded the highest investment value per project at RM760.8mil, according to CIMB Research economist Lee Heng Guie in a report.
For the full year, Mida is targeting total investments of RM148bil, comprising RM48bil for manufacturing, RM60bil for services and RM40bil for the primary sector.
The target is lower than last year total investment of RM162bil but 45% higher than last year’s target of the total investment, which was RM101bil.
“Last year we achieved more than what we had targeted. Our target for this year is in line with the Economic Transformation Programme (ETP) target and 10th Malaysia Plan (10MP) that requires 10.9% growth per annum, or a total of RM148bil a year, from 2011 to 2015,” Phang says.
The 10MP has identified 12 national key economic areas (NKEAs) – oil, gas and energy; financial services; wholesale and retail; palm oil; tourism; electrical and electronics; business services; communications, content and infrastructure; education; agriculture; and healthcare.
The ETP, implemented in 2012, is certainly a successful economic development platform.
“We also think that the ETP, by highlighting Malaysia’s strengths in boosting the economy towards high-income status, has helped raise awareness and created an environment in which foreign investors would be comfortable in investing their funds,” Zahidi explains.
Phang points out that Malaysia is no longer a “low-cost manufacturing hub” and Mida is targeting to attract quality investments into the country, as it is currently working to move up the value chain to becoming a high-income and knowledge-based economy.
He says that the country is undertaking a cluster “eco-system approach” moving forward and focusing on industry that brings research and development, create a “spin-off” effect and advance electronics such as 3D printing, robotics, aerospace, medical devices, and sensor.
“By being selective, we can attract the kind of investments that will assist us to achieve our national goals.
“Malaysia’s growth and changing economic structure is likely to attract precisely the kind of investment we need,” Zahidi says
“As Malaysia’s population grows more affluent, the labour force become more skilled, and the domestic market becomes broader, a selective approach to approving FDI will become more beneficial,” he adds
Moving forward, Zahidi believes that Malaysia will continue to attract a fair share of FDI.
“Some of the trends over the last decade, such as the emergence of China as a competing investment destination, are much less acute, and Malaysia already has the basic logistical and regulatory infrastructure in place on which foreign investors can leverage their investments,” he says.
He points out that the investment flows tend to rise and fall with the global economy, thus some setbacks should be expected if the global economy turns for the worse.
“But if trends stay as they are, positive growth in FDI can reasonably be expected over the near-term,” he adds.
Foreign investments remained the driver for private investment in the manufacturing sector. FDI in the manufacturing sector, accounted for 45.7% or RM8.39bil of the total inflows for the first quarter 2013.
Private investments in the manufacturing sector were 50.7%, or RM20.8bil, of the total inflows into the sector last year.
The total approved investment in the first quarter 2013 declines 22.4% to RM11.7bil for the fourth quarter.
Phang says there was a significant decline in investment within the manufacturing sector, especially in the electrical and electronics (E&E) sub-sector mainly due to the weak global economic environment.
“For this year, we hope to see the E&E sub-sector move upwards in terms of improvement in investments as there would be some recovery in the global economy as well as pro-business policy in place,” Phang notes.
The services sector plays an important component in Malaysia’s economy, which contributed more than 51% to gross domestic product (GDP).
“The sector complements the growth and development in the manufacturing sector, thus the Go-vernment will continue to intensify its efforts to promote and develop the services sector,” says Phang.
Under the ETP, the Government has targeted to increase the service sector contribution to 67% of the GDP by 2020.
Historically, most of the services sector private investments were from domestic investments.
According to data by Mida, in the first quarter 2013, the services sector accounted 66% of the total domestic investments at RM31bil and only 10% of the total FDI at RM18bil.
“To date 44 services sub-sectors have been liberalised to accelerate FDI inflow into the country,” says Phang.
The liberalisation allows 100% foreign ownership and more importantly be able to attract high a level of investments, Phang notes.
“It creates spin-off jobs and allowing foreign multinational companies (MNCs to set their global excellence centre, global fulfilment centre and global delivery centre in Malaysia.
“We beginning to see the trend happening in many existing MNCs in the country completing their supply chain, by setting up global or regional hubs headquarters,” he adds, citing Motorola and Intel as examples.