Push away the dark clouds

Investors will go where they get the best bang for the buck. Malaysia must ensure that it remains relevant to not only foreign investors but also domestic ones to drive growth. — IZZRAFIQ ALIAS/The Star

MALAYSIA’S standing within the business community took a hit following the World Competitiveness Ranking 2024 released by the Swiss-based International Institute for Management Development (IMD).

The seven-notch drop to 34th out of 67 countries was made more painful by neighbours Indonesia and Thailand, which leapfrogged Malaysia to 25th and 27th respectively. Singapore remains the most competitive country in the world, according to the annual ranking list.

Malaysia’s ranking, the worst in five years, highlights the deteriorating business climate with the country’s slight edge over Thailand evaporating.

IMD World Competitiveness Centre director Arturo Bris in a report said the ranking provides a timely performance indicator.

“It serves as a benchmark for these countries to measure their progress and identify areas for improvement, offering a clear path towards their economic development but also supporting global goals such as the sustainable development goals.”

What is concerning for Malaysia is the cause of the drop was largely due to the decline in business and government efficiency.

Malaysia was ranked 40th in business efficiency, down eight spots from 32nd the previous year. In the sub-factor of productivity and efficiency, Malaysia fell 17 spots to the 53rd rank, while the sub-factor of management practices declined 11 places to 42nd.

It was also reported that Malaysia suffered a decline in all five sub-factors within business and government efficiency.

Do these declines matter? They do because the constant declines signify our lagging efficiency.

Government efficiency, meanwhile, ranked 33rd, down four spots from 29th the previous year.

Infrastructure, a key determinant for foreign investors, remained at 35th while economic performance was eighth, a spot lower than previously. Our domestic economy fell a whopping 19 spots to 35th.

The sub-factors of business legislation fell five places to 50th, societal framework fell three places to 42nd and public finance dropped two spots to 35th.

International investment and employment, however, rose by one and three spots respectively to 28th and 18th. It was not surprising given the performance of foreign direct investment in Malaysia.

The Malaysian Investment Development Authority (Mida) reported that between January and March this year, (1Q24), Malaysia attracted RM83.7bil of approved investments in manufacturing (RM43bil, 51.3%), services (RM39.3bil, 47.0%) and primary (RM1.4bil, 1.7%) sectors.

Mida says overall approved investments recorded a 13% increase from the same period last year.

This is because Malaysia managed to attract investors although the report also listed out five challenges that could influence future investments.

The challenges are increasing investment in research and development to boost business resilience; optimising the labour market to maximise workforce productivity; updating policies and regulations to improve global competitiveness; leveraging advanced technologies to accelerate productivity growth; and mitigating increasing costs through strategic productivity enhancements.

Those broad-based concerns seem generic but the malaise is indeed worrying.

Malaysia has seen interest in STEM (science, technology, engineering and math) decline over the years by not maintaining and keeping young children interested in such fields.

Furthermore, inadequate investment in research and development (R&D) is biting the country now.

Malaysia’s gross expenditure on R&D fell to 0.95% in 2020, the lowest since 2010. The lack of spending on R&D also translates to lower productivity, which is another area of concern that has been highlighted.

The continued reliance on low-skilled foreign labour is another weak point. The stream of cheap foreign labour stunts efforts to automate industry, which would in turn improve productivity.

If the trend continues, Thailand and Indonesia will reap the rewards at Malaysia’s expense.

After all, investors will go where they get the best bang for the buck. Malaysia must ensure that it remains relevant to not only foreign investors but also domestic ones to drive growth.

This article first appeared in Star Biz7 weekly edition.

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