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Malaysia: Drop in Foreign Direct Investments

Categories: East Asia, Malaysia, Economics & Business

The recently released United Nations World Investment Report 2010 brought to light the shape of the Malaysian economy to its citizens: Foreign direct investment (FDI) has dropped 81% from 2008 to 2009, from US$ 7.32 billion in 2008 to US$ 1.38 billion in 2009.

News portal Malaysiakini explained it in simpler terms [1]:

The 2009 FDI is less than half of the annual average FDI inflow between 1995 to 2005, which encompasses the long recovery period following the 1997 economic crisis.

Tony Pua, a Member of Parliament in the Democratic Action Party (DAP), one of the opposition parties in Malaysia, wrote in his blog about what the statistics mean [2]:

1. For the first time ever in history, Malaysia attracted less investment than the Philippines.

2. Compared to the previous year 2008, Malaysia suffered by far the biggest decline of FDI in Southeast Asia.

3. Malaysia was the only country in Southeast Asia to have register a net negative Foreign Direct Investment Flow.

4. For the first time ever, cumulative Outward FDI Stock exceeded cumulative FDI Inward Stock.

5. Barring a “blip” in 2001 when we attracted only US$0.55 billion in FDI, this is the first time we've attracted less than US$2 billion in FDI over the past 20 years.

Regina Lee from Malaysiakini quoted [3] RAM Holdings group chief economist Yeah Kim Leng's comment on the issue:

…should the FDI that has flowed to the neighbouring countries rather than Malaysia, be of high value and be more technology driven, then we could very well lose out on the opportunity to be the regional meeting point. Especially when Asean is mulling region-wide economic cooperation. The lack of FDI could also mean that the country may not be able to upgrade its investments and could in the end, “hollow out”. It could result in de-industrialisation. In the short term, Malaysia could lose skilled and unskilled workers. In the medium to long term, we will need to focus on higher value and technology driven investments to put us back ahead of our neighbouring countries. Malaysia could end up being caught in the middle-income trap

However, Malaysian news agency Bernama reported that the Ministry of International Trade and Industry (MITI) has released a statement [4] announcing that FDI “for the first quarter of 2010 nearly matched the full year of 2009″. Its minister, Datuk Seri Mustapa Mohamed, said in the report:

FDI inflows totalled RM5.06 billion for the January to March 2010 period, compared with RM5.66 billion for all of 2009.

Meanwhile, The Star newspaper quoted [5] CIMB Group Holdings CEO Datuk Seri Nazir Razak as saying:

It doesn’t mean that lower net investment flow is necessarily bad … We need to look at the quality of the investments and look at the facts in terms of the timing of investments.

Kamal Malhotra, the United Nations’ resident coordinator for Malaysia, summed it up [6]:

Although concerns over declining investment and engaging private sector participation in the economy were dealt with in the New Economic Policy and 10th Malaysia Plan, the challenge for Malaysia will, however, be in converting the lofty vision and content of these documents into implementation reality in the next five to 10 years