But are things really that bad? What are the country’s prospects for attracting investments?
One person who does not share the gloom is Datuk Abdul Majid Ahmad Khan.
Eight months into his job as chairman of the Malaysian Investment Development Authority (Mida), Abdul Majid gets the feeling that Malaysia can rise again to its Asian Tiger status.
“No doubt, we have lost our lustre as an Asian Tiger economy. I want to bring this status back,” quips the seasoned civil servant, who is also the former Malaysian Ambassador to China.
Abdul Majid, who was appointed as Mida chairman in April, reckons the road to Tiger status isn’t difficult.
“We have the talent, experience and are business-friendly. But what is needed is harnessing this to create an eco-system that makes us an attractive investment destination,” he adds.
Recently, The World Bank Doing Business 2020 Report ranked Malaysia 12th among 190 economies worldwide, a further improvement from the 15th spot the previous year.
Clearly, something right is being done in the context of making Malaysia a business destination.
Just this week, the government announced that it has approved some fresh investments to the tune of RM5.4bil into the manufacturing sector that is set to create over 1,000 job opportunities, whereby 80% will be for Malaysians.
Mida has been tasked with attracting and deciding on investments both from foreign and local sources into the areas of manufacturing and services.
Another piece of good news is that since the onslaught of the US-China trade war, Malaysia has received 72 applications from companies that are interested in expanding or relocating their operations to Malaysia.
“These companies are from Japan, Singapore, the US, China, Canada, Hong Kong and Taiwan,” Abdul Majid tells StarBizWeek, adding that the potential diversion of US imports away from China to other countries is estimated at up to US$140bil. This refers to the potential amount of products and services that other countries which are not imposed with the same tariffs can attempt to export to the US.
“Nomura Global Economics has opined that Malaysia stands to benefit the most, in particular from its exports of electronic integrated circuits, liquefied natural gas and communications apparatus,” says Abdul Majid.
While that may be the case, the Mida chairman says all investment proposals stemming from the trade war have to be vetted to ensure they are going to be long-term sustainable deals.
“We only want the long-term investments coming in. Intel Corp, a US-based company, is a good example of this. It has been here for almost 50 years.”
In fact, while Malaysia is a clear beneficiary of the trade war, Abdul Majid stresses that the country should not be carried away by the euphoria surrounding that theme and instead be focused on attracting investments that fall within the country’s development agenda.
He cites the Shared Prosperity Vision (SPV) 2030 and Industry 4.0 as announced by the government as guidelines.
Fifteen areas have been identified under SPV 2030 and these include creating an Islamic finance hub, growing the digital and green economies as well as expanding logistics and transportation in a sustainable way.
Notably, the SPV 2030, which was launched in early October, is hailed as Malaysia’s new development narrative in an effort to restructure the economy to better spread wealth and income disparities.
Last year, Malaysia launched the National Policy on Industry 4.0 known as Industry4WRD. The idea behind this initiative is to drive the country to increase productivity in the manufacturing sector, which in turn will contribute positively to the nation’s economic growth.
In addressing the question about weak business sentiment, Abdul Majid points to the latest foreign direct investment (FDI) and domestic direct investment (DDI) figures, which shows a small growth despite the uncertain economic times (see table).
For the first nine months of the year, Malaysia’s approved investments in the services, manufacturing and primary sectors rose 4.4% to RM149bil from RM142.6bil a year ago.
These investments involved 4,025 projects and will create 93,841 new jobs.
Of the total investments, DDI accounted for RM82.7bil or 55.5%, while FDI made up 44.5% or RM66.3bil.
“Mida’s role is not only to attract and promote FDI into the country but we are also working with local companies to increase investment, especially in the area of automation and digitalisation, as well as research and development,” Abdul Majid says.
Focusing on niche investments
In the fight for investment, though, Malaysia has to compete with regional countries from the likes of Singapore, Thailand and Indonesia to the Philippines.
Many of these countries are raising the stakes by giving out very attractive financial investment incentives that Malaysia will find hard to match.
On this issue, Abdul Majid has an interesting response. He reckons fighting on financial incentives alone is not the best strategy.
“We are aware of all the competition, but we can’t keep competing on financial incentives because there is no end to them,” he stresses.
Instead, he believes that Malaysia should focus on its niche in creating a business-friendly environment and develop an ecosystem that could attract high-technology, high value-added and knowledge-based industries.
“But first, we need to organise our delivery because people want things to move fast and this can only be achieved by pushing through digitalisation,” he says.
Aside from workflow, Abdul Majid points out that talent shortage in the country could be a drag, especially in creating the right ecosystem for technology companies to spur growth.
One of the key findings of a report by international recruitment firm Hays, entitled “Asia Salary Guide 2019”, is that employers in Malaysia have raised concerns over their ability to find candidates with the skills essential for business growth in 2019.
The report reveals that 46% of employers are not confident of finding the talent with the skills they need to meet operational requirements in the year ahead. This number has grown from 35% in 2018.
To upgrade the local workforce, Abdul Majid says Malaysia needs to reduce its reliance on foreign workers by investing in automation, as well as getting foreign companies operating in Malaysia to hire local talent.
“We have a policy where locals have to make up about 80% of the workforce of the foreign companies operating in Malaysia. The focus also is to attract fewer labour-intensive industries,” he points out.
“We have highlighted many times that we need to be focused on getting high-quality investments into Malaysia and no longer the labour-intensive ones. After all, you cannot compete with markets like Myanmar.
“Right now, we are in a transition period to move up the value chain and to reduce our reliance on foreign workers.
“It is important for us to be successful in this transition process. Otherwise, we will continue to be stuck in the middle-income trap,” Abdul Majid says.
The challenge, though, is about upgrading the skill sets of Malaysian workers. To be sure, this is a problem being faced by many countries. Efforts, however, are being taken to address this issue.
Mida, for example, is conducting studies to identify the talent gaps within important industries such as E&E, chemical and petrochemical, medical device and the pharmaceutical manufacturing sectors.
“We also work on promoting local SMEs to upgrade themselves in terms of innovation and new technology adoption to be competitive with overseas companies.
“SMEs are a key enabler in producing the ecosystem I refer to, in order to attract new industries into Malaysia.
“However, the lack of awareness and financial constraints have slowed down the process,” he admits.