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.


Anonymous said...

We can talk and blog till the cows come home about how we are losing FDIs, how we are falling behind the rest in the region.

But the key here is knowing is one thing. How about the people talking and blogging doing something real to reverse this trend?
How about you guys starting to take things into your own hands (without talking about how hopeless the government is in attracting these investments - because this we already know) Surely creative and critical thinking is not all about thinking? Surely its all about doing. Surely quality education did not gave us the ability to merely think and talk and blog. Please also start to do...

Anonymous said...

I am not surprised by this report at all. According to Wikipedia, our PM and finance minister received a Bachelor of Arts in Islamic Studies from the University of Malaya in 1964, having originally wished to pursue a degree in Economics but failing to meet the required standard after failing his statistics paper. If a country is managed by a man with poor economics knowledge and corrupted mind, there is nothing the Rakyat can do except to sack him in the coming General Election before another financial crisis hits us!

Anonymous said...

I debated whether to comment on this before you paint the whole picture and decided to make this point:

FDI plays many roles in a country growth and development and while its important to Malaysia, its decline alone does not bode impending doom. In my view the biggest worry about falling FDI is basically confidence in future i.e., in other words that by NOT investing, foreigners are basically saying that they have very low expectation of our future. In fact, what is more important is to look at the component of FDI in the last few years. Not only is it declining, the percentage of NEW investors rather than existing ones expanding their capacity or renewing the capital equipment should be examined. Every indication is that new investors are very few and far between which means that our industries are not climbing up the value chain. What I have noticed that, after much ballyhoo about total productivity in 1990s, our government no longer publish productivity numbers. What exactly has our productivity numbers have been in the last 5-10 years?

The truth is FDI while its an important source of capital, actually is more important as a source of productivity increase and climbing the value chain. Its is extremely difficult to climb the value chain and productivity gain without FDI and definitely does not continue for long without it. Malaysia in fact has been able to afford its NEP and corruption simply because of the capital and productivity afforded by FDI.

So since we know the NEP and corruption has not abated in Malaysia, what we are essentially is hawking our future with declining FDI.

Anonymous said...

To Anon 1.07pm

How and who are we take things into our own hands to reverse the loss of FDIs? The gerrymandering of electoral constituencies in our country makes it impossible to deny a 2/3 majority to the present administration. A rural vote is equivalent to at least 5 urban votes due to deliberate skewed drawing of electoral boudaries.

Surely you don't expect us, the common people, to crawl up to the foreign companies and beg them to invest here? You are blaming the people, and NOT the corrupt government, for the loss of FDI in our country!

Anyway our elegant and pious PM who failed his Stats 101 paper but has a BA(Islamic Studies) is offering his sembahyang hajat to tarik ALL the FDI in the world over to our country. So who says we need an economist to run the country?

Anonymous said...

That's the problem with us, we keep blaming the corrupt government. But do remember it's us who voted in this government, and it's not likely that this government is going to be voted out anytime soon. People like Tony have come and gone and brought issues like this a thousand times in the past. But most importantly is how people like Tony can translate their blog and talk into real action. Just by talking is not going to get those investors in either, that is not going to put rice on the table. If we feel better just talking and criticising, by all means do so. But the fact remains is that what we are doing (blogging, talking, debating) is all just creating awareness and showing how suppposedly intelligent we are looking at the nation's issues. If at the end of the day none of what are doing actually improves the lives of our people then what's the point?

Anonymous said...

Ooops.. did his dad whack him for failing his Statistics paper? Corporal punishment has been banned for quite a while now as it is believed to cause its recipients to grow up into sex perverts. So maybe the Monsoon Cup incident...

Let's pray hard that his sembahyang hajat brings in the FDIs, and not rainclouds. The Johor folks will curse and run amok if they have to swim to the relief centres for a third time running.

Anonymous said...

It is scary to read that our country is faltering in its steps. Losing our position competitively to a country smaller and having less resources is shameful.Just recalled 30 years ago, my mum would buy towels from Singapore because the exchange rate was favourable then(RM1=S$1.10).How things have changed now. 30 years on, it is as painful going downsouth as it is going to Australia. Speaking of Australia, there was an article saying we should change our slogan from Malaysia Boleh to Malaysia Bodoh!

I worry about our country. I worry about the next generation. How can we pick ourselves up, clean up our act and move forward?

Anonymous said...

and he is also the Finance Minister..

Anonymous said...

Having this man as our PM cum Finance Minister is in fact very dangerous. This man likes to sleep and accoording to Lim Kit Siang, it took him 3 years to realise how inefficient is the goverment sector in processing the applications of foreign investors. And so what? After telling this to the mainstream media, the sad thing is no action is taken at all, and no target is set for improvement! This man is weak, lazy, and too corrupted to bring Malaysia forward. He only cares how to create wealth for his family members. When another financial crisis hits us, this man sure cannot withstand and will run away from this country along with all the money he sucked from the Rakyat!