Need to boost FDI

PETALING JAYA: Eleven years ago during the Global Financial Crisis, Malaysia’s approved private investments almost halved while the net foreign direct investment (FDI) took a 78.6% plunge.

That situation would likely repeat this year on the back of a double whammy of the coronavirus (Covid-19) pandemic and oil price rout.

The economic turmoil brought about by the pandemic has shaken both local and multinational companies alike and they will be taking a step back with their pockets sewn shut as they hold off their investment decisions.

Malaysia recorded RM207.87bil of approved investments last year, which was just a 1.72% improvement from 2018. It comprised RM125.49bil of domestic direct investment (DDI) and RM82.38bil of FDI.

To even get anywhere close to that level would be a Herculean task, let alone surpass it as economists felt the dip in approved investments this year could be close to 50%.

Approved investments had only started picking up in 2018 with a 3.65% increase to RM204.36bil from RM197.17bil in 2017, which was a 7.39% decrease from 2016.

The DDI had only managed to reverse its two-year downturn with a mere 1.02% rise last year.

Although Malaysia’s FDI rose in 2018 and 2019, there was a noticeable decreasing quarterly trend since the second quarter last year from RM29.3bil to RM20.2bil and then down to RM16.8bil and RM16.08bil in the third and fourth quarters respectively.

Net FDI has also been dipping annually since 2017.

Socio-Economic Research Centre executive director Lee Heng Guie(pic below) said behavioural changes in households’ and businesses’ spending in a new normal path post Covid-19 could mean a re-orientation of global supply chains and supply networks as well as investors’ approach to investment inside and outside the country.

“Weighed down by widespread economic damages and financial ramifications worldwide and domestically as inflicted by the pandemic, we expect sharply weaker DDI and FDI prospects in 2020.

“Highly cautious investors’ sentiment and significantly undermined balance sheet are expected to result in a sharp decline of an estimated 42.8% in total approved projects to about RM120bil in 2020.

“Approved DDI projects are expected to decline by 40.2% while that of FDI would contract by 46.6%, ” he said.

The United Nations Conference on Trade and Development in its latest Investment Trends Monitor report, expected the downward pressure on FDIs to be 30% to 40% during 2020-2021 due to the disruptions caused by the pandemic.

Lee said that on the domestic front, Malaysian investors and companies are expected to rebuild their impaired balance sheets before committing to investing while working to stabilise and regain their loss momentum post Covid-19.

He added that both services and manufacturing sectors would continue to attract the bulk of total investment inflows in Malaysia and the country’s FDI appetite will still be in the technology, chemical-based and bio-medicine and digital network sectors, such as electronics and electrical machinery, nanotechnology, pharmaceutical and 5G.

“We think that the government should continue to play an effective facilitator through enhancing the domestic investment climate, ease regulatory and compliance costs and provide appropriate incentives to accelerate the transformation into automation and digitalisation.

“Quality investment of high value added and value creation is of paramount importance. These include big data centres, 5G infrastructure and charging stations for new energy vehicles, solar energy and healthcare, ” he said.

UOB Malaysia senior economist Julia Goh (pic below) projected investment approvals this year could drop to RM100bil as the outlook is bleak for Malaysia’s investment momentum despite encouraging investment approvals last year.

She said this was due to the triple shocks of supply, demand and financial, arising from the effects of the Covid-19 pandemic globally, alongside the collapse in global crude oil prices.

“We project 2020 full-year investment approvals to halve to RM100bil.

“A slower pace of project materialisation will also indicate tepid real private investment growth for 2020, which we forecast a 12% decline, ” she said.

AmBank Group chief economist Anthony Dass said as a result of the combination of supply disruptions and weak demand that has impacted consumer and business confidence, weak FDI and DDI will weigh on the domestic economy.

He said there could be a drop in approved investments from 2019 but it was unlikely to be significant.

Dass expected locals and multinationals to put their investment decision plans on hold until further clarity on the pandemic emerged.

“It will weigh on our growth through services, employment, SMEs and current account of the balance of payment.

“It is important to note that FDI has assumed a paramount role in a dynamic and vibrant industrialising nation and substantial inflows of FDI in the manufacturing sector over the last 50 years have been instrumental in Malaysia’s rapid economic growth.

“Hence, what is important is for the government to stay focused and continue to seek quality FDI with high-value added and high technology features, ” he said.

Dass added that the government has to intensify efforts in facilitating more DDI with greater specialisation in catalytic sub-sectors such as chemicals and chemical products, electric and electronics, machinery and equipment industries and high-growth sub-sectors due to their strong inter-linkages with other sub-sectors and their capability to support the development of the manufacturing sector overall, as well as related services.

“The presence of foreign companies has also provided local SMEs access to valuable technology transfers and exchange of know-how. These are crucial in developing their capabilities, hence enabling our SMEs to be part of the lucrative global supply chain.

“Thus, there is an urgent need to undertake extensive reforms in the investment process to improve the ease of doing business for foreign and domestic investors, ” he said, adding that DDIs should also be encouraged to aggressively pursue export opportunities in new overseas markets.

ward pressure on FDIs to be 30% to 40% during 2020-2021 due to the disruptions caused by the pandemic.

Lee said that on the domestic front, Malaysian investors and companies are expected to rebuild their impaired balance sheets before committing to investing while working to stabilise and regain their loss momentum post Covid-19.

He added that both services and manufacturing sectors would continue to attract the bulk of total investment inflows in Malaysia and the country’s FDI appetite will still be in the technology, chemical-based and bio-medicine and digital network sectors, such as electronics and electrical machinery, nanotechnology, pharmaceutical and 5G.

“We think that the government should continue to play an effective facilitator through enhancing the domestic investment climate, ease regulatory and compliance costs and provide appropriate incentives to accelerate the transformation into automation and digitalisation.

“Quality investment of high value added and value creation is of paramount importance. These include big data centres, 5G infrastructure and charging stations for new energy vehicles, solar energy and healthcare, ” he said.

UOB Malaysia senior economist Julia Goh projected investment approvals this year could drop to RM100bil as the outlook is bleak for Malaysia’s investment momentum despite encouraging investment approvals last year.

She said this was due to the triple shocks of supply, demand and financial, arising from the effects of the Covid-19 pandemic globally, alongside the collapse in global crude oil prices.“We project 2020 full-year investment approvals to halve to RM100bil.

“A slower pace of project materialisation will also indicate tepid real private investment growth for 2020, which we forecast a 12% decline, ” she said.

AmBank Group chief economist Anthony Dass (pic below) said as a result of the combination of supply disruptions and weak demand that has impacted consumer and business confidence, weak FDI and DDI will weigh on the domestic economy.

He said there could be a drop in approved investments from 2019 but it was unlikely to be significant.

Dass expected locals and multinationals to put their investment decision plans on hold until further clarity on the pandemic emerged.“It will weigh on our growth through services, employment, SMEs and current account of the balance of payment. It is important to note that FDI has assumed a paramount role in a dynamic and vibrant industrialising nation and substantial inflows of FDI in the manufacturing sector over the last 50 years have been instrumental in Malaysia’s rapid economic growth.

“Hence, what is important is for the government to stay focused and continue to seek quality FDI with high-value added and high technology features, ” he said.

Dass added that the government has to intensify efforts in facilitating more DDI with greater specialisation in catalytic sub-sectors such as chemicals and chemical products, electric and electronics, machinery and equipment industries and high-growth sub-sectors due to their strong inter-linkages with other sub-sectors and their capability to support the development of the manufacturing sector overall, as well as related services.

“The presence of foreign companies has also provided local SMEs access to valuable technology transfers and exchange of know-how. These are crucial in developing their capabilities, hence enabling our SMEs to be part of the lucrative global supply chain.

“Thus, there is an urgent need to undertake extensive reforms in the investment process to improve the ease of doing business for foreign and domestic investors, ” he said, adding that DDIs should also be encouraged to aggressively pursue export opportunities in new overseas markets.