Addressing weak and contracting private investments


  • Business
  • Monday, 20 May 2019

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PETALING JAYA: The government should seriously look into the causes of the subdued growth in private investments which, if not addressed, could affect the country’s long-term economic goals.

“Private investments should be a key priority for the government as its vitality is critical for sustaining our economic growth on a sustained basis, raise future growth potential, create high income jobs and increase exports,” Socio-Economic Research Centre (SERC) executive director Lee Heng Guie told StarBiz.

“The contraction of domestic approved investments by 8.8% per year from RM175.1bil in 2014 to RM121.2bil in 2018 for four consecutive years from 2015-2018 is a worrying trend,” he added.

Lee noted that the declines when viewed on a larger scale were across-the-board: services (-10.5% per annum), manufacturing (-2.3% per annum) and primary sector (-9.1% per annum).

In the recently released economic numbers for the first quarter of 2019 (1Q19), private investment growth fell to a multi-quarter low in the first quarter, growing by only 0.4% year-on-year (y-o-y).

In comparison, the country’s private investment expanded by 1.1% in 1Q18 and 5.8% in 4Q18.

“The weakening private investment growth reflects investors’ cautiousness on lingering external uncertainties and still adjusting to domestic policy transition. We hope the government can consider urgently implementing measures and initiatives to raise the prospects of private investments. This is an important matter that needs to be looked into,” Lee said.

“These include further simplifying the regulatory procedures, easing the cost of doing business, introducing competitive tax incentives and, more importantly, policy clarity and the direction of the economy ahead,” he added.

He noted that Malaysia has a corporate tax rate of 24% which is high compared to some in the Asean region, such as Singapore at 17%, Thailand 20% and Vietnam 20%.

Lee said the overall declines in private investments were still worrying despite some near to medium term catalysts such as the revived East Coast Rail Link (ECRL) and Bandar Malaysia as well as a small rise (2018: 0.5% to RM201.7bil) in approved investment data.

OCBC Bank Research said in a report that fixed investments declined by 3.5% y-o-y, which was possibly due to business concerns on the economic environment and the ongoing government consolidation.

“Public investments declined by 12.6% y-o-y while private investment grew at a slow pace of 1.1% y-o-y. As economic concerns and government consolidation will likely continue for the rest of this year, we are still expecting at this point for investment to come out weaker for 2019,” OCBC Bank Research said.

OCBC noted that the ECRL and Bandar Malaysia projects may provide a boost to the economy but there are still no certain details on when it would actually restart.

Meanwhile, Lee said that there could be opportunities to boost private investments with the ongoing trade war that is happening between the US and China.

“Malaysia could benefit from the US and other countries, which may consider a relocation to make Malaysia an alternative regional production hub for goods,” Lee said.

Other than that, Lee said policymakers need to also quicken reforms that can help Malaysia catch up with its peers.

“Thought should be given to supplying a skilled and creative workforce, adapting to a rapid shift in technological advancement and providing state-of-the-art infrastructure. Other matters include good governance and best business practices,” Lee said.

He suggested that there should be an establishment of a National Investment Strategy Plan to revitalise private investment, with equal emphasis being placed on direct domestic investment, especially for small-and medium-enterprises and high quality foreign direct investments.

“I think there needs to be a critical examination of the factors restraining business investment decision. This can include economic and investment prospects, external uncertainties, domestic policy uncertainty, regulatory and investment policies, cost of capital, profitability or even the ‘crowding out’ effect from the participation of government linked companies in the private sector,” he said.

“There should also be a fairer, competitive and efficient tax system as well as lessening the complexity in administration to minimise compliance costs and reduce business costs as well as discourage tax avoidance and evasion,” Lee added.

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