Premature de-industrialisation

THE notable gap between foreign direct investment (FDI) related to the manufacturing sector versus the services sector is an eye-opener.

This is because despite the services sector getting much more FDI, it is the manufacturing sector that really brings about the spillover effects into our economy.

Here are the latest statistics: in 2025, the services sector attracted close to RM60bil in FDI inflows. The manufacturing sector, meanwhile, only clocked in RM2.6bil.

But in terms of FDI income – a measure of the financial returns generated by overseas investments – the manufacturing sector broke the charts, with a staggering RM55.5bil for last year.

The services sector only generated RM35.5bil in FDI income.

This shows disproportionate values being generated by FDI and begs the question if Malaysia is embarking on what is termed as premature de-industrialisation.

The picture gets clearer when one understands that it is very likely that the bulk of the RM60bil in FDI inflows for the services sector was related to digital infrastructure, of which data centres make up the bulk.

Interestingly, going by the Statistics Department, the FDI income from the services sector was made up of financial and insurance and takaful activities as well as wholesale and retail trade. No digital-related services income was mentioned.

While it is true that there were some investments and reinvestments of foreign companies in the financial and trade arenas, surely the bulk of the RM60bil in services FDI came from data centre-related investments, just going by the headline announcements we keep hearing.

A traditional manufacturing investment, more so in the semiconductor space, will likely enhance local supplier networks, engineering capabilities and technology transfer. It will also boost skilled employment and the country’s export capacity.

Just this week, the government said Malaysia’s semiconductor exports rose 50% in the first four months of the year and this was despite the United States-Iran conflict.

Isn’t it clear then that Malaysia should focus its FDI on such sectors rather than on others that provide questionable economic spillovers while draining our resources such as water and electricity?