Inflow stays resilient


Juwai IQI global chief economist Shan Saeed

PETALING JAYA: As foreign investors eye the Asean markets due to the strong economic fundamentals coupled with the global supply chain diversification and rising geopolitical risks, Malaysia sets the tone to attract stronger inflows of foreign direct investment (FDI).

Economists are expecting a surge in FDI, with one even projecting a 10% to 15% growth for 2024.

OCBC Bank senior Asean economist Lavanya Venkateswaran told StarBiz she expects FDI momentum in Malaysia to stay strong this year as global supply chain diversification remains underway.

Furthermore, she said FDI inflows into the country in the first quarter of 2024 (1Q24) remained resilient at RM5.5bil, albeit significantly lower than RM19.6bil in 4Q23.

While these flows tend to be volatile in the quarter, annual inflows (not net FDI) were RM40.4bil in 2023 versus RM75.4bil in 2022, still above the 2012-2019 annual average inflows of RM36.5bil, she added.

FDI approvals picked up in 2023 versus 2022, with the highest approvals for electrical and electronic (E&E) products, machinery manufacturing and chemical sectors, among others.

Venkateswaran said Malaysia and Asean, more broadly, stands to benefit from geopolitics as it provides companies an alternative base of production from China.

“Economic fundamentals have improved in these economies over the past decade, with focus given on physical infrastructure, reducing red tape and expediting approvals.

“Moreover, fiscal consolidation and external stability remain key priorities, underscoring strong overall macroeconomic management.

“Intra-regional competition has also raised the bar for these economies. Malaysia has thus far maintained its competitive edge. That said, progress in the region has been rapid,” she said.

OCBC Bank senior Asean economist Lavanya Venkateswaran OCBC Bank senior Asean economist Lavanya VenkateswaranAuthorities in Indonesia, the Philippines, Vietnam and Thailand have pledged to attract more FDI inflows, making it imperative for Malaysia to remain reform oriented, Venkateswaran added.

Juwai IQI global chief economist Shan Saeed said that with rising geopolitical risks, higher uncertainty and stubborn inflation, investors would want to park funds in countries where growth stability is secure.

And Malaysia fits the bill, he said, noting that investors are analysing how governments are using economic tools – amalgamation of fiscal and monetary policies – to spur growth at the macro level.

He expects Malaysia to chart an FDI growth of 10% to 15% in 2024.

He attributed this to various factors, saying the government has been very aggressive in going out globally to convince investors to park funds in Malaysia due to its macroeconomic stability and consistency in policy framework.

Global investors are generally positive about the Malaysian economic outlook for 2024 and beyond, he noted.

For 1Q24, the nation’s gross domestic product (GDP) grew by 4.2%, driven by stronger private expenditure and positive turnaround in exports. It is on track to achieve the official estimate of 4% to 5% this year.

Furthermore, Shan said the government has been successful in attracting FDI due to its stable policy outlook and has been maintaining confidence at the macro level.

“Most global investors view government policies to be stable and in line with market expectations.

“The government’s strategy is to target big global brands like Microsoft, Tesla and Apple, and to send a message globally that Malaysia is ready to host these big brands because of a productive tech-savvy labour force and, above all, the macroeconomic stability in the economy.

“The key variables for global investors to ponder upon for long-term position in any country are macroeconomic stability, policy lever framework stability, growth stability – consumption and investment, productive labour force and strategic geography – for example the location of ports, availability of infrastructure,” he said.

Meanwhile, Malaysian Institute Of Economic Research executive director Anthony Dass said the overall outlook and sentiments on FDI flows remain favourable in 2024.

He said the Madani government’s policies and evolving investment policy landscape such as the New Industrial Master Plan 2030 and National Energy Transition Roadmap has been kicking in well, reflected by the stellar performance of FDIs in 2023 with approved investments worth RM329.5bil.

He said there is a growing focus by the government to develop sectors and industries that are of interest to investors and take advantage of the improving trade.

This includes Malaysia’s commitment to the Comprehensive and Progressive Agreement for Trans Pacific Partnership and Regional Comprehensive Economic Partnership, all of which bode well for bilateral trade.

Dass also said by increasing the emphasis on advanced economic complexity and developing the ecosystem for high value-added activities, this would yield positive outcomes and draw in more FDIs.

Malaysian Institute Of Economic Research executive director Anthony DassMalaysian Institute Of Economic Research executive director Anthony Dass

Bank Muamalat (M) Bhd chief economist Mohd Afzanizam Abdul Rashid said Malaysia has what it takes to attract FDI.

Politically speaking, he said the country has become more mature, noting that 2018 was a turning point and Malaysians have become more aware and attentive about economic policies and the politicians are responding to that.

In short, he said the democratic practices are very much alive, which is good for business and investment.

Furthermore, he said the government is pro-business.

“We have seen the proliferation of the Special Economic Zone, which has become the magnet to attract FDIs and more importantly, the coordination between state and federal governments have become more entrenched such as in Johor.

“This certainly would attract FDI as the application and approval process can be expedited and become seamless. In a nutshell, investor experience would be further improved through effective collaboration between the state and federal governments.”

He said another plus point is the country’s talent pool which are English conversant and highly educated. This would help the FDI to procure local talent as the share of skilled labour is gradually rising.

“The state of our infrastructure such as highways, roads, access to water and electricity and the move towards greener economy would also help to justify Malaysia as the right venue for investment.

“Not to mention the multiracial and deep culture that would make Malaysia really stands out for being socially cohesive. I think it is a question of how the government would make the sales pitch to the investors for them to come and invest in Malaysia,” Afzanizam said.

Bank Muamalat (M) Bhd chief economist Mohd Afzanizam Abdul RashidBank Muamalat (M) Bhd chief economist Mohd Afzanizam Abdul Rashid

Dass said to improve FDI attractiveness, there is a need to develop human capital and knowledge to boost productivity and employment, digitalisation and technology to support productivity.

The progressive wages could contribute towards the increase in wages, value-added activities and high-income jobs, which would drive FDIs into the country.

“To ensure a more sustainable FDI growth, we need to position ourselves to be more outward looking rather than to focus on inward policies with government support.

“Such measures may work well on a short term but risk losing competitiveness due to complacency and fall into the negative vicious cycle.

“With total capital investment in Malaysia over the past four years having surpassed RM1 trillion and realised investment averaging around 70%, the impact on the economy would be positive and domestic direct investment (DDI) would benefit from the spillover of FDI,” Dass said.

Taking a bullish stance on Malaysia, HSBC Asean economist Yun Liu said the country remains in an advantageous position in Asean when it comes to attracting FDI.

“It is not only a commodity exporter but also has a sizeable tech manufacturing sector and a well-diversified export portfolio.

“Attracting consistent FDI inflows into strategic sectors is a priority of the current administration. In particular, China’s rapidly expanding FDI footprint in Malaysia and Asean is an increasingly important trend,” she added.

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