Thursday, January 18, 2007

Malaysia Gets Marginalised

Is Our Economic Future Being Jeopardised to Protect the Interest of a Few?

The following is an analytical report on the Malaysian economy, with specific reference to Foreign Direct Investments (FDI) into Malaysia which I wrote for a local publication. As it's rather long, I'll break it up into 3 postings over the next couple of days.

Economist Chua Hak Bin of Citigroup Global Markets in Singapore declared that “The country is running the risk of being marginalised.”
“Malaysia is quickly dropping off the radar screens of global investors. Whether measured in terms of FDI (foreign direct investment) draw, stock market capitalisation or trading volumes, Malaysia is slipping down the ladder... [the Malaysian economy today is] a pale shadow of itself compared to 10 years ago.”
So how bad is the state of the economy?

FDI into Malaysia fell some 14% to US$3.97 billion (RM14.4 billion) in 2005 based on data in the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2006.

While FDI into Malaysia fell 14%, overall FDI into Southeast Asia increased substantially by 45%. Like the performance of Malaysian football which is in a state of perpetual decline, the country's ability to attract foreign investment hit rock bottom when Indonesia attracted 32.6% more FDI. It marked the first time that Malaysia fell behind our less-developed neighbour Indonesia.

In fact, we won the embarrassing accolade of being the only country amongst eleven Southeast Asian countries which FDI declined in 2005.

FDI inflows into Malaysia have been almost stagnant since 1990. From 1990 to 2000, the country drew an average US$4.7 billion in foreign investment each year, roughly the same as the figure in 2004. China, in contrast, sucked in US$72.4 billion in foreign investment last year, more than double the average yearly amount it absorbed between 1990 and 2000.

In 1995, Malaysia was placed sixth in a United Nations ranking in terms of global FDI destinations, with its stock market capitalisation the second largest in Asia (excluding Japan) after Hong Kong. However, our position on the FDI ranking plunged to 62nd last year, while our stock market capitalisation slipped to sixth largest in Asia (excluding Japan). The dramatic decline of fortunes was achieved all within a short period of 10 years.

What it could have been...

In 1996 when our FDI into the country peaked at US$7.3 billion, we were only US$2.4 billion or 33% behind Singapore, who attracted US$9.68 billion. Citibank said that
“The tall ambitions of becoming a regional financial hub, an IT hub (the Multimedia Super Corridor) and even an aviation and shipping hub looked achievable then and even threatened neighbouring states.”
Then, Malaysia was widely considered as a serious and credible economic threat to Singapore. However, within a short span of a decade, Singapore now attracts an enormous 400% more FDI or US$20.1 billion last yaer. Malaysia, which once competed with Singapore for foreign investments, is now under threat from traditional economic laggards such as Thailand, Indonesia and Vietnam. The Citibank report also added that
"Singapore's GDP, with less than one-fifth of Malaysia's population, is now almost the same size. Grand ambitions have been scaled back, with government policies now being more guarded and reactive."
The next post will cover the other concern of sharply declining private investment in the country, worrying examples of Malaysia being passed over by high-tech investors as well as some of the problems which are turning away investors from this country.
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