PETALING JAYA: Foreign direct investment (FDI) in Malaysia is expected to increase by next year, with investment in technology and green technologies being the potential new growth areas for foreign inflows.
The spread of the Omicron variant, meanwhile, shouldn’t dampen IDE inflows.
The Research Director of the Malaysian Institute of Economic Research (MIER), Shankaran Nambiar, sees digitalization as the new engine of global growth, noting that Malaysia is no exception.
“The same goes for the green economy. Environmental issues and climate change are taken very seriously.
“I expect new investment in these two areas to be the new investment growth areas and Malaysia will be seen as the destination for FDI in these areas.
“The demand for investment in technology, whether related to IT or high-tech manufacturing related to the environment, will see an upsurge,” he told StarBiz.
FDI inflows into the country dipped to RM14.6 billion in 2020 from RM32.4 billion in 2019 before rebounding to RM30.2 billion in the first nine months of 2021.
Most of these investments went to the manufacturing sector. This development was supported by the global recovery and the general improvement in investor confidence.
FDI increased by RM4.6 billion to register a higher inflow of RM12.8 billion in the third quarter of this year.
The Department of Statistics said manufacturing remained Malaysia’s top foreign investment sector, followed by finance and wholesale and retail trade.
At the end of the third quarter of 2021, approved FDI stood at RM769.6 billion, while outward direct investment was at RM543.9 billion.
Nambiar, like other economists, expects stronger FDI inflows in 2022. Despite the Covid-19 pandemic and the emergence of the Omicron variant, he felt it would not hamper foreign investment .
As countries come to terms with the fact that the virus will be around for the next few years, he said it will keep the pressure on to move forward with the Fourth Industrial Revolution (IR4.0) and related technologies.
To this end, he noted that technologies that revolve around automation, robotics and others would see a surge in the coming year, which would attract greater FDI inflows into Malaysia.
The executive director of the Socio-Economic Research Center (SERC), Lee Heng Guie, is also optimistic about FDI inflows next year.
He attributed this to better prospects for economic recovery, the implementation of the 12th Malaysian Plan (12MP) and national investment aspirations.
He said it would help keep FDI inflows amid uncertainties.
Notably, risks for investors include the new variant of Covid-19, the potential impact of tighter global monetary policy on global growth, and lingering worries about domestic political pressures.
The National Investment Aspiration is a forward-looking strategy to attract quality investment driven by innovation, high technology, green economy and greater inclusion of national supply chains.
Lee said Malaysia hopes to attract high-quality, technology-intensive investment as well as green technology investment to provide more high-skilled job opportunities.
According to the Malaysian Investment Development Authority (Mida), in terms of approved FDI in the manufacturing sector, foreign investors have invested in electrical and electronic products, fabricated metal products, chemical and chemical products, machinery and equipment, food manufacturing, plastic and scientific measuring equipment.
Meanwhile, AmBank Group Chief Economist Anthony Dass expects around RM150bn to RM180bn in total approved investment in 2021, with FDI remaining the main contributor.
Supported by the various initiatives and incentives proposed in the 2022 budget, it anticipates that the Department of International Trade and Industry will continue to attract investment.
“The country’s immunization pace, booster shots, moderate improvement in the economy, sound economic fundamentals and a positive outlook on global trade and economy will continue to support FDI inflow in 2022,” said Dass, who is also a member of the Economic Action Council Secretariat.
While possibilities of attracting larger FDI inflows cannot be ruled out, he said a downside risk remains, given the fierce competition among regional peers to attract FDI.
Malaysian Rating Corp Bhd’s Chief Economist, Firdaos Rosli, does not expect the Omicron variant to impact FDI inflows as investors take a long-term perspective in their investment decisions .
“The new variant does not appear to be more severe than previous variants of Covid-19. I think the government can tackle it by the horns in the short term,” he noted.
As in previous years, he expects private investment to continue to eclipse public investment, but not significantly.
It projects year-over-year private investment in 2022 to be 6.7% compared to public investment of 5.8%. This projection, he said, is based on the assumption that the economy will remain fairly predictable through next year.
OCBC Bank economist Wellian Wiranto said the bank’s basic expectation was for the virus situation to be better controlled, which would also be a tailwind for FDI investments.
This could take the form of an improved economic outlook and, consequently, a better business climate that would propel investment decisions.
He said that the fact that any potential FDI investor can now travel more freely to Malaysia to better assess the situation on the ground would further facilitate investments.
“The opening of a vaccinated traffic lane with neighboring Singapore, a major source of FDI, is an example of this.
“In terms of the sector, we are likely to see a continued push in some of the hot sectors, including semiconductor chip manufacturing, with Malaysia’s role as a major global testing and packaging hub being a key attraction.
“In terms of headwinds, political stability may continue to be a feature in the minds of some investors, even if the recent relative stability would have been welcomed,” Wellian noted.
To stay ahead of the competition in terms of attracting FDI, Dass said it was important for Malaysia to chart a clear economic direction and communicate it well to multinational enterprises (MNEs).
Such clarity would place the nation on a better footing to be a preferred destination for selective quality investments that could create value for local businesses and are not too labor intensive requiring foreign workers. .
“Malaysia should have a more coordinated approach in its efforts to attract FDI to the country and the focus should be on providing effective aftercare to investors once they arrive in the country to ensure that their investments here remain for the long term.
“Finally, we need a strong and stable government, consistency, rapid implementation and results. And we need to be prepared for more variants of Covid-19 and therefore be more proactive with simpler, standardized standard operating procedures that won’t scare investors away,” he said.
To boost FDI, MIER’s Nambiar said more engagement with multinationals and foreign trade missions may be needed in order to come up with bolder proposals.
SERC’s Lee said: “As long as the government requires companies to obtain licenses and permits, pass inspections, pay fees and comply with other regulations, it is in the interests of companies to make these compliances as painless as possible.
“Sometimes regulations and rules have imposed an unreasonable burden on businesses and stifled innovation while affecting the cost of doing business. It also had an impact on their commitment to invest.