PETALING JAYA: Greater attention should be paid to the insufficient long-term investments in the agriculture and, mining and quarrying sectors as this may constrain future production, says Phillip Capital Research.
“These developments warrant closer attention from both industry participants and policymakers to encourage investment and support the long-term sustainability of the two primary sectors,” it added.
The research firm said the agriculture sector has recorded negative net fixed capital formation for five consecutive years.
“This suggests capital accumulation has been insufficient to offset fixed-capital consumption, potentially limiting the sector’s productive capacity.
“As agriculture is relatively labour-intensive, low capital investment may also constrain opportunities to improve productivity through mechanisation and technology adoption,” it added.
It noted that under-investment in the agriculture sector risked food security as it could weaken domestic food production and increase reliance on imports, which, in turn, could increase household food costs and create additional challenges in maintaining food security and affordability.
“Greater dependence on imported food would expose Malaysia to foreign-exchange fluctuations and imported inflation, as global food prices are vulnerable to weather-related disruptions, geopolitical tensions and supply chain shocks,” it said.
It pointed out that the mining and quarrying sector faced persistent investment shortfalls, as net fixed capital formation had weakened significantly since the Covid-19 pandemic, with the sector recording only one year of positive net fixed capital formation since 2020.
Sustained under-investment could constrain the sector’s future productive capacity, particularly as the industry faced increasing pressure to transition towards more sustainable production methods.
It said increasing fixed capital investments for the green transition had become increasingly important as Malaysia advances its net-zero ambitions and the global economy transitions towards lower-carbon production.
“Investment in cleaner technologies and decarbonisation will help the sector adapt to evolving environmental requirements and changing market expectations,” it said, adding that this would also help the sector remain competitive in the longer term.
It said Malaysia’s overall economy remained in a relatively favourable position, with an improving output-capital ratio and positive net fixed capital formation but this reflects the performance of the manufacturing and services sectors.
“Their positions suggest that these sectors have maintained relatively strong output alongside continued capital accumulation,” it said.
Between 2015 and 2025, Malaysia’s overall output-capital ratio increased from 33.6% to 35.1%. The ratio rose steadily before the Covid-19 pandemic, but declined significantly in 2020 and 2021 amid disruptions to economic activity. It subsequently recovered gradually, exceeding its pre-pandemic level in 2024 at 34.7%.
“Overall, maintaining adequate capital investment is essential to ensuring that Malaysia’s economic growth is supported by a sufficiently expanding and productive capital base. While the aggregate position remains relatively favourable, targeted efforts to stimulate investment in weaker- performing sectors will be important to sustain productive capacity,” it said.
