Private investments jump along with business loans

  • Business
  • Saturday, 12 Mar 2011

WITH the Economic Transformation Programme (ETP) gaining traction, economists are seeing some spillover effects in the country's real private investments.

This forecast is backed by recent forward-looking indicators. For example, total approved investment in the manufacturing sector jumped 44.6% to RM47.2bil in 2010. Meanwhile, as of January this year, business loan growth was up 12.7% and capital goods rose 5.3%.

Furthermore, both private investment and net foreign direct investment (FDI) inflows rebounded strongly by 13% to RM73.6bil and 448.6% to RM27.6bil respectively in 2010.

This is in stark contrast to 2009, when largely due to the global financial crisis, the private investment rate fell dramatically by 18.4% to RM65.2bil in 2009. Net FDI inflows slumped about 80% to RM5bil in 2009.

“These programmmes (the ETP) may well turn out to be the economic legacy Prime Minister Datuk Seri Najib Tun Razak will be remembered for,” says AmResearch Sdn Bhd senior economist Manokaran Mottain.

“Though it may be challenging and critical in winning back FDI into the country and in propelling Malaysia to fully-developed status by 2020, we are confident the reforms introduced under the NEM (New Economic Model) would help the Government achieve Vision 2020,” Manokaran adds.

Equally encouraged is CIMB research head of economics Lee Heng Guie who is estimating real private investment growth to rise by 9% to RM63.8bil in 2011.

He says that the near-term outlook for Malaysia's private investment is probably brighter than generally appreciated, although the policymakers still need to further enhance the investment climate.

“A sustained private investment growth will provide a strong base to drive the pace of GDP expansion going forward. Private investment's share to GDP will need to be raised to at least 15% from the current 9.6%,” says Lee.

Manokaran is encouraged by the development of the ETP projects and news-flow on details of implementation.

“The Government is taking proactive and bold steps towards transformation. This is a positive move to set the growth momentum needed in this decade,” says Manokaran.

He believes the Government has been continuously addressing the constraints that are hindering investment in the country.

This includes loss of competitiveness, complex licensing regulations, delays at one-stop approval, high cost of doing business, while also improving supporting infrastructures such as high-speed broadband services and shortage of skilled manpower both in the technical and professional spheres.

Manokaran says there are good reasons to be optimistic about the ETP, much more than the previous plans which had drawn knee-jerk skepticism.

“Providing a strong focus on a few key growth engines, coupled with a detailed approach and a course of action, the ETP is expected to be more successful than previous economic strategies,” he says.

Latest ETP update

The private investment target for 2010 is RM83bil, and this appears realistic as the ETP gains momentum. CIMB Research says that this is a reflection of renewed investor confidence.

At a briefing on the ETP's progress update held on Wednesday, Najib expressed confidence that Malaysia can achieve the RM83bil private investment target for 2011. He announced an additional nine new projects while recapping 14 others from eight out of the 12 National Key Economic Areas (NKEAs).

Combined, these 23 projects will produce RM14.75bil in investments, RM20.1bil in gross national income (GNI) and 88,354 jobs.

The Government also announced a total of RM50.6bil worth of investments that both local and foreign companies have committed to spend in 2011. This total amount was identified during an exercise carried out for the first time during the last quarter of 2010 by the Joint Investment Committee co-chaired by the International Trade and Industry Ministry and Pemandu to determine the investment commitment of both local and foreign companies.

The Prime Minister has indicated that the planned investment is on track to hit RM127bil this year, which comprises RM76bil from the ETP projects and RM50.6bil from other local and foreign companies as surveyed by Pemandu.

This is not too far away from the targeted ivate investment of an average RM115bil per year under the 10th Malaysia Plan (2011-2015).

Meanwhile, the electronics and electrical sector remains the largest sector in manufacturing, accounting for 39% of Malaysia's total exports last year.

In order to continually compete with other developing countries, the ETP aims to strengthen Malaysia's capabilities across the value chain, particularly in higher value-added upstream activities.

Through a collaboration with the Northern Corridor Implementation Authority (NCIA), QAV Technologies Sdn Bhd is stated to invest RM12mil in constructing a light emitting diode and solid state lighting certification centre.

A new LED manufacturing facility in Penang will also be established by Philips Lumileds Lighting, providing jobs for 300 skilled workers by 2020.

Among the key projects under the oil and gas sector announced Wednesday was the development of an integrated oil and gas hub on Pulau Daat in Labuan by RG Gas and Chemicals Sdn Bhd.

This venture will involve an investment of RM1bil over three years, whereby upon completion, this hub will provide land-based logistics and support services, and is expected to have a GNI impact of RM360mil for the first phase of its operations.

Year-to-date, the ETP has unveiled 60 initiatives with 46 Entry Point Projects (EPP) (which make up 35% of the planned 131 EPP) that produce RM95.4bil in investment, RM137.2bil in gross national income and 224,358 jobs.

CIMB Research said the biggest winners are wholesale and retail trade, oil, gas and energy, palm oil as well as communications content and infrastructure sectors.

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