Reversing slumping investments

KUALA LUMPUR: Private investments in Malaysia have been slowing down since 2012 and the government should have a comprehensive plan to strategise a reversal of this trend.

The revival of large-scale infrastructure projects such as the East Coast Rail Link (ECRL) and Bandar Malaysia will help to spur private investment, moving forward, but the gestation period for these projects would take a few years.

According to Socio-Economic Research Centre (SERC) executive director Lee Heng Guie, Malaysia’s private investment growth has slowed sharply from 21.4% in 2012 to only 4.5% in 2018.

This year, Lee expects the growth figure to moderate further to 4.3%. However, a more optimistic Bank Negara has forecast a higher private investment growth of 4.9% for 2019.

“Private investment momentum has moderated from 13.6% per annum in 2011-2014 to 6.1% per annum in 2015-2018. Not only that, the share of machinery and equipment to gross fixed capital formation declined progressively from 43% in 2010 to 37.3% in 2018,” he told reporters during SERC’s briefing on its quarterly economy tracker for the first quarter of 2019 (1Q19) yesterday.

Lee added that a comprehensive and investor-friendly investment policy is needed and the government should act as a facilitator in the domestic business scene.

“However, this does not mean that the private sector should just stand still. I hope the private sector will do its part and step up its investments to further prop up the economy,” he said, adding that the recent revival of several mega-infrastructure projects such as the ECRL and Bandar Malaysia would help to spur private investment, moving forward.

Lee urged the government to introduce a national investment strategy plan to re-energise the country’s private investments over the long run.

“Post 1997-98 Asian financial crisis, Malaysia’s private investment-to-gross domestic product (GDP) ratio rebounded from an average of 11.2% in 2001-2010 to an average share of 16.1% in 2011-2018. The ratio has barely moved in recent years.”

The renewed interest in Malaysia as a regional strategic investment hub is likely to boost the country’s private investment growth, which has consistently lost its momentum post-2012.

A mixture of catalysts, which include the revival of the RM44bil China-funded ECRL, the multi-billion-ringgit Bandar Malaysia project and more investments from the United States could be the new growth drivers for the Malaysian economy.

This could further cement Malaysia’s position as a stable regional manufacturing hub.

Uptrend seen: Lee expects Malaysia’s economic growth to pick up from July.

While Chinese money coming into Malaysia has been anticipated as a result of the ECRL and Bandar Malaysia, what has not been expected is more American money coming into Malaysia, particularly in the manufacturing sector.

On Monday, Prime Minister Tun Dr Mahathir Mohamad said he had met American businessmen who had put in billions of dollars after the Pakatan Harapan government took over on May 9.

“In the nine months, they have invested billions in Malaysia. I think there are other investments coming in. Maybe processing the investment proposal is a bit slow. We are doing quite a lot – we have a lot of investments coming in. The confidence in the country has returned,” he told The Star.

In 2018, approved manufacturing investment from the US grew 184.9% or RM2.1bil from RM1.1bil in 2017 to RM3.2bil.

The US also remains Malaysia’s top trading nation in North America and its third-largest trading partner in the world at RM155.68bil or an 8.3% share of Malaysia’s total trade.

Exports to the US reached RM90.73bil, while imports were at RM64.94bil, both driven by manufactured goods.

In terms of implemented projects, the US is the second-largest investor in Malaysia in sectors such as electrical and electronics, medical devices, renewable energy and aerospace valued at RM74.01bil.

Meanwhile, the foreign direct investment (FDI) planned by manufacturers from China rose 410.8% or RM15.8bil from RM3.9bil in 2017 to RM19.7bil in 2018.

Besides manufacturers from China and the US, Malaysia’s Finance Minister Lim Guan Eng has also indicated that Indonesian investors are widening their footprint here.

“Indonesian investors intended to invest RM9bil in 2018 from a mere RM0.5mil in 2017, which makes Indonesia the second-largest source of foreign manufacturing investment after China,” said Lim last month when unveiling Malaysia’s 2018 FDI numbers.

Speaking on the economic outlook for 2019, Lee expects Malaysia’s economic growth to pick up from July onwards, after a projected slower performance in the first-half period.

The think tank has revised its GDP projection for 2019 to a range of 4.5% to 4.7% from 4.7% earlier.

“Businesses are generally feeling more upbeat for the second half on a relatively more stable policy environment,” said Lee.

SERC anticipates private consumption to grow by 6.8% this year, while public consumption is expected to expand by 1.8% in 2019.

However, public investment is expected to contract 4.8% this year.

For 1Q19, Lee said the Malaysian economy is likely to expand by 4.4%. For context, the country’s GDP grew by 5.4% in 1Q18 and 4.7% in 4Q18.

“Exports in the first three months of the year would be a drag. Consumer spending will continue to support the economic growth, although it would not be as strong as in the fourth quarter of last year,” he said.Mohamad said he had met American businessmen who had put in billions of dollars after the Pakatan Harapan government took over on May 9.