Monday, July 26, 2010

Foreign Direct Investments: What Happened to Malaysia?

The recent release of World Investment Report (WIR) 2010 by United Nations Conference of Trade and Development (UNCTAD) provided a picture that is nothing short of grim and ugly for the Malaysian economy especially in its attractiveness as a local and foreign investment destination. While the headline 81% drop in foreign direct investment (FDI) from US$7.32 billion to US$1.38 billion can be brushed of as a 'blip' due to a global financial and economic crisis in 2008-2009, a more in-depth study reveals that it was certainly not a one-off.

Our country's leadership should instead heed the loud alarm bells the data presented to prevent our economy from drifting aimless to a point of no return. The UNCTAD WIR 2010 data revealed five firsts for Malaysia:

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


Malaysia has lost out to Thailand in FDI for the very first time in 1998 while Indonesia exceeded us recently for the first time in 2005. Vietnam on the other hand, beat us in FDI for the very first time the year before, in 2008. While we have come to accept Thailand, Vietnam and even Indonesia as having gained competitiveness against Malaysia in recent years, we are suffering ignominy of attracting lower FDI compared to the Philippines for the first time ever in history. The Philippines attracted US$1.95 billion in FDI compared to Malaysia's US$1.38 billion.

Among Southeast Asian nations, we are now only attracting more FDI than Cambodia, Myanmar, Brunei, Laos and Timor-Leste. And for the first time ever, what was previously unimaginable that we may one day be compared to countries such as Cambodia and Myanmar is now a real possibility.


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


The global financial crisis has resulted in sharp declines in FDI for many countries in this region, especially given the region's reliance on investments from the United States and Europe. However, the Government cannot use the excuse of the crisis as the reason for the precipitous drop in FDI as we have performed the worst compared to all other countries big and small in the region.

While many of our regional competitiors suffered declines in FDI last year, none of them came close to what we experience. Thailand, Vietnam and Indonesia's FDI declined by 30.4%, 44.1% and 44.7% respectively, those figures are by far healthier when compared to Malaysia's 81.1% drop. This was despite the fact that Thailand was facing a year-long political upheaval while Vietnam was mired in a currency crisis.

On the other hand, Singapore, Brunei, Philippines and Myanmar still managed to register positive growth although for Singapore, the bulk of its decline in FDI was registered in 2008 which accentuated its improvement in FDI in 2009.


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


The WIR 2010 presented data for both the amount of FDI a country receives as well as the amount of FDI which originates from a country that was invested overseas. Out of all the countries in the region in 2009, Malaysia was the only country where our outflow of FDI amounting to US$8.04 billion is substantially greater than the FDI of US$1.38 billion received. All the other countries in the region had a net positive FDI flow in 2009.


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


For the first time ever the amount of foreign direct investment flowing out of Malaysia accumulated over time amounting to US$75.62 billion, or the “Outward FDI Stock” has exceeded our cumulative foreign direct investment coming into the country, which amounted to US$74.64 billion.


The trend of both local and foreign investors voting with their feet to seek greener pastures overseas is unmistakable when we look at the fact that Malaysia has been suffering from increased trend of FDI outflow over the past decade, as show in the chart above.

The above chart shows clearly that not only are foreign investors unwilling to invest in Malaysia, our own local investors as well as foreign investors who are already in the country have a total lack of confidence in the ability of our economy to generate an attractive return to their investments. Our net FDI flows have declined from US$2.56 billion in 2004 and US$1.09 billion (2005), to a net negative US$0.02 billion (2006), negative US$2.7 billion (2007) and negative US$7.67 billion in 2008.

The figures show clearly that there is money to be invested, they are just not investing in Malayisa. The investors now see improved and better opportunities in the region and abroad even during the times of crisis.


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


Looking at the FDI data over the past 20 years, Malaysia has shown an inability to grow its FDI while our neighbours are generally trending upwards in their ability to attract FDI. This is a reflection of our stagnating competitiveness while our neighbours continue to consistently increase theirs.

Finally, when we compare ourselves against our regional peers, it is a picture of increasing bleakness. Despite outperforming Thailand consistent in the 1990s and before, the last time we exceeded them in FDI was back in the year 2000, which means they have already beaten us for 9 consecutive years.

While Indonesia beat us once in 2005, they've now repeated the feat 2 years in a row in 2008 and 2009. ASEAN rising star, Vietnam has also done the same by attracting more FDI compared to Malaysia over 2008-2009. This is shown in the comparative chart below.

What New Economic Model?

While the proposed “New Economic Model” (NEM) by the Prime Minister Datuk Seri Najib Abdul Razak has correctly identified some of the fundamental problems with our economy which has led to our fall from grace, as well as proposing some key measures to restructure our economy, he has repeatedly backtracked from the NEM and shown little political appetite to implement the critical policies which will lead to improvements and greater competitiveness in our economy.

Datuk Seri Najib has since described and relegated the NEM to merely a “trial balloon” and backtracked from his commitment that affirmative action will be implemented by needs and not by race by reinstating the 30% bumiputera quota target in the 10th Malaysia Plan. The recent spate of privatisation projects have also not seen any political will on the part of the Government to implement open, transparent and competitive tenders, including the RM628 million construction of Malaysia's largest exhibition and convention centre, the development of the 3,000 acres of prime land in Sungai Buloh as well as the proposed major redevelopment of the old Sungai Besi airport into the KL Financial Centre.

Even the highly anticipated RM46 billion Mass Rapid Transit (MRT) project for the Klang Valley looks all but awarded to a Gamuda-MMC consortium without any open competitive tenders.

What is worse, despite Datuk Seri Najib's repeatedly insisted that the era where “the government knows best” is over, his administration continues to crowd out private investments by direct awarding mega-projects to government-linked entities such as the Sg Buloh land to an Employee Provident Fund joint venture with the Government or the Sg Besi airport redevelopment to the 1Malaysia Development Fund.

Without these necessary and critical changes to the Government's economic policies, the Malaysian economy will only continue to drift away from the radar of both local and foreign investors as our Ministers continue to indulge in their daydream of glory and success, while our neighbours will steadily and consistently improve their economies beyond our reach.

18 comments:

Anonymous said...

At the rate the country is heading, we will be beyond saving no matter who runs the country.
Good luck to whoever helms the country, now or later. Our children will have to become maids.

PJU Voter said...

Hi TONY,

The recent FDI findings DOES sound ALARMING but had we really DIG into it's CAUSED??? It could well due to any of the following or perhaps all of the followings:

A) 2 PARTY system (BN & Pakatan Rakyat). Although many might ARGUE that 2 PARTY SYSTEM is NOT the cause of it as many develop countries had successfully proven this possible. However, "Let's GET REAL"!!!, ok??? MALAYSIA is NOT READY to move forward with the so-called 2 PARTY SYSTEM!!! As much as we want to compare ourselves with the AMERICANS or the BRITISH but we ought to GET REAL & tell ourselves we are still a 3rd World COUNTRY.

B) 2 PARTY SYSTEM is NOT POSSIBLE to enable local FDI growth is due to the CONSTANT PUBLIC SPAT between BN & PR. PR who is now governing a few States is seen as NOT cooperating with the Federal Govt (BN) on various issues & vice-versa. Such NEWS are often seen in the MEDIA & how would any FOREIGN INVESTMENT COMPANY dare to put their $$$ here, correct???

3) PR is currently running their controlling States using their own sets of rule. Any GOOD ideas raised by BN would be INSTANTLY shot down by PR. Remember, FEDERAL GOVT has the $$$ & if PR doesn't comply & cooperate, it's 'the rakyat' of which SUFFERS.

4) PR MUST learn to be more OPEN MINDED. PR should look at FACTS & BENEFITS instead of their own POLITICAL GAIN. PR's NARROW MINDEDNESS in NOT wanting to cooperate with BN is slowly but surely making 'the rakyat' to SUFFER in the end.

5) PR leaders should learn to be WISER. The recent spat between Penang CM (Lim Guan Eng) & the SDO had brought more NEGATIVE EFFECT to Penang instead of GOOD. Imagine for a person like the Penang CM who got UPSET & FURIOUS PUBLICLY simply becos there wasn't any CHAIR allocated for him in some PUBLIC function, he made such a BIG HOO-HA over this issue by threatening to SUE this DONKEY & that MONKEY. Upon reading the ethics of this NARROW MINDED Guan Eng, would any FOREIGN INVESTORS dare to come to MALAYSIA???

I appeal to all PR leaders to OPEN their MIND be learn to be WISER. If they can comply to such BASIC requirements, I can assure MALAYSIA's FDI will shoot up by at least 80% next year.

The SECRET to UNLOCK the solution towards this issue is have PR leaders being MORE RECEPTIVE towards BN's proposal.

It's a WIN-WIN SITUATION!!!

PJU Voter said...

Hi TONY,

You asked "WHAT HAPPENED???". You really wanna know???

It's becos' of BARISAN NASIONAL & PAKATAN RAKYAT. The unwillingness for these 2 IDIOTIC POLITICAL PARTIES to cooperate is SCARING-OFF Foreign Investors.

These 2 IDIOTIC PARTIES are constantly ARGUING in the PUBLIC over the slightest issue. Take a look at Penang Chief Minister ethics when he found out there WASN'T any CHAIR allocated for him in some public function recently!!! This wanking Chief Minister nearly went INSANE in the PUBLIC!!!

As long as BN & PR aren't willing to COMPLY & COOPERATE, the FDI will only GO DOWN & DOWN & DOWN. At the end of the day, do you know who will SUFFER???

It's us...."THE RAKYAT"!!!

I'm gonna VOTE for CALON BEBAS come the next G.E.!!!

Celaka punya BN!!!,
Celaka punya Pakatan Rakyat!!!

Anonymous said...

I just heard on radio some ministry official believe malaysia is capable of getting RM150b FDI in 2015 but no supporting details.Let's not talk hypothesis about what great things can happen 5 years or 50 years from now.We the rakyat want to hear NOW what immediate actions the government can implement to save the economy and the poor rakyat which is increasing across all races each month.Perkasa kenapa diam ubi dalam isu ini?Ramai orang akan berperut lapar dan kamu asyik cakap perkara bodoh.

Anonymous said...

Good! let the stupid open the eye.Those kampong fellow dunno anything!

Anonymous said...

Haha
What makes you think our prime minister care? The whole f*#king government is just doing their best to grab as much as they can before the total collapse and run away from this country.

Asia Correspondent said...

Hey listen Im from the philippines and ofcourse I wanna say that when you said in number 1 is supposed to hurt me, but its the truth. Somethings happening to Malaysia, and reminds me of old Filipino politics.

Anonymous said...

LET me repeat. We ARE performing worst than Cambodia and Laos.

Performance is define as the productivity of work/resources. We have so much going for us in cost, energy, location, savings, commodities, productive minority, etc. The fact is that just to match Singapore's performance, we should be attracting HIGHER, much higher FDI levels. The fact is, its not that hard to do either given our advantages.

Being close to Cambodia and Laos, means we are almost certaintly performing WORST then them already.

We are already the sickest Man in South East Asia in reality, its just that the disease is not showing up. Do we have to look like a dead man to admit we are sick?

Anonymous said...

Firstly, as a businessman, let me say that I am not inclined to invest in Malaysia anymore. Reasons? Non-bumi investors are victimised by the civil service...too much frustration, unhappiness, anger....

PJU voter - you are either desperately poor or have no children. This conclusion comes from your apparent need for instant gratification, and the disinterest in the future of the country. It is obvious that BN will rape the country until bankrupt. And then continue to rape the country some more. Only a 2-party system can keep it in check. This will take time. Bite the bullet, take the pain, the day will come when the country will rise again. I don't care who is in power, but as long as there are 2 viable parties, the performance will surely improve.

Anonymous said...

There is money for a new building, but no money for scholarship. That shows the mentality, bricks and stones are more valuable than human resources.

· 康华 · said...

where have all the flowers gone?

LBP said...

Very obvious that the so-called "PJU Voter" as above is a hard-core BN supporter..so don't pretend to be a neutral guy here..and stop pointing fingers at PR

With all the "jokes"(direct and indirect) committted by the BN-led government, how much confidence does the foreign investor have? - examples: PKFZ scandals, Allah case, cow head case Teoh Beng Hock mysterious death, missing jet engines, collapsed state stadium roof in Terengganu, just to name a few...

Other facts such as BN misused/abused all government machineries and refused to let PR performs well at the state level...it is BN who refuses to accept the fact that Rakyat elected PR in some states..BN is only interested in grabbing power back from those states..so, whose fault is this?

Not to forget, the monkey show performed by BN in Perak (illegal power grab) is also one of the scandals hindering foreign investors from coming to invest in Malaysia...when foreigners look at our "judiciary boo boo", do you think they dare to invest big in Malaysia?

So, "PJU Voters", check your facts first before pointing fingers..and mind you, who is this Nik small Napoleon to call a people-elected Penang Chief Minister as "biadab"?...actions should be taken against him, but as usual, his BN bosses will unscrupulously protect him!

Anonymous said...

["..First of all, had Tony followed the FDI trends, he would have taken cognizance of the fact that UNCTAD’s data on Malaysia’s FDI inflows are completely wrong. Further, had Tony done his homework, he would have surely discovered that the data provided by the UN agency simply does not make any logical sense.

I am not sure how did UNCTAD arrived at the FDI figure of US$1.38 billion (RM4.4 billion) but MIDA had months ago had published in its website that Malaysia procured FDI worth US$6.48 billion in 2009. In fact the states of Sabah and Sarawak alone had attracted more than US$1.38 billion worth of FDI each in 2009. ..."] - Calvin Sankaran, Malaysia Insider

What's the position of the data declared by both the UNTAD and MIDA? Might 4 months ago mean UN's reckoning is complete?

Anonymous said...

Personally, after all the disappointments with the government, I can no longer put any trust and confidence on data, statistics and reports that are prepared/announced by any government's agencies.

Killer said...

UN's data are based on the govt's data so obviously there has been a mistake made, though whether intentional or genuine mistake is hard to say.

However Tony's comments now looks came back to bite on his ass and making him to look rather foolish.

Perhaps the quality of education in Singapore and Oxford is not that high after all.

Anonymous said...

When BN is strong the economy keeps growing but when PR becomes strong the economy is getting gloomy. That is the fact. Malaysian politics are not stable. We need a stong leader like Mahathir to lead, control and manage the country.

Awang Senior

Anonymous said...

The WIR report states that the prime causes of growing deficit in Malaysia's net FDI inflows are due to a narrow human capital base, lack of knowledge synergies from R&D labs and slow build up in technological capabilities.

Those weaknesses are being addressed by the Government and it takes some time to see results. Talent corporation, investment for top students to pursue studies in leading universities, high-caliber young talents in civil service,private sector to be offered incentives to provide vocational and skills training, and many more in the pipe line of NEM and 10th malaysia Plan.

Try to analyse and give a fair view.

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