Malaysia has been recognised by the Milken Institute’s annual foreign direct investment (FDI) attractiveness ranking as the emerging southeast Asian country with the most potential to lure foreign investors.

The country of 33 million people outpaced its ‘emerging’ regional peers in an accompanying report to the think tank’s 2022 Global Opportunity Index, which assesses how friendly and supportive 126 countries’ institutions and policies are to foreign investment. 

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Thailand placed second for its FDI appeal among the seven emerging Asian economies benchmarked in the report. It was followed by Indonesia, Vietnam and the Philippines, while Laos and Cambodia trailed even further behind.

In 2021, Malaysia was the top emerging southeast Asian destination for greenfield FDI, with projects worth more than $24.3bn announced, according to the latest fDi Markets data. This was more than double Vietnam’s tally of $9.9bn, and almost three-times the value of greenfield FDI in Indonesia.

Research directors at the Milken Institute, Claude Lopez and Oscar Contreras, told fDi that despite emerging Asia’s successful FDI record its attractiveness cannot be taken for granted. 

“While emerging southeast Asia is already an economic powerhouse and a key player in global supply chains, increased protectionism and global trade tensions have created new challenges for the region,” they said.

fDi Markets figures show that emerging southeast Asia’s share of global greenfield FDI fell from 13% in 2016 to just under 8% in 2021.  

But as Indonesia currently holds the G20 presidency and will host the G20 summit in October 2022, Ms Lopez and Mr Contreras expect the emerging southeast Asia region to attract even more international attention.

Malaysia outperformed its peers in three of the five categories used to calculate the index, including its relatively business-friendly institutional framework and deep financial services sector. It is home to Asia’s third-largest bond market.

The Milken Institute also recognised positive steps taken by the country in recent years. These include a move to relax FDI restrictions and enact policies to capitalise on trade developments, such as the Regional Comprehensive Economic Partnership (RCEP).

Despite lagging slightly behind Thailand in the business perception category, Malaysia was by far the best performing economy in the measure of its international standards and policies. The country ranked 46th out of 126 countries globally, while its closest regional rival, the Philippines, ranked 67th.

Several recent multi-billion dollar projects in Malaysia pay heed to its allure as a manufacturing hub. US-based chipmaker Intel announced plans in December 2021 to invest $7bn to expand its chip packaging facility in the state of Penang.

Meanwhile at the Kulim Hi-Tech Park in northern Malaysia, Chinese solar module manufacturer Risen Energy will invest RM42.2bn ($10.1bn). This is the most capital intensive project ever recorded by fDi Markets in the Asia-Pacific electronic components sector.

But even as Malaysia attracts mega projects and exceeds its emerging market peers in the 2022 index, developed economies continue to dominate the top spots of the ranking.

“Developed countries consistently rank among the top performers and attract most global capital flows,” said Ms Lopez and Mr Contreras. “This will likely remain true in the near future, given the tremendous uncertainty in the global economy and investors’ tendency to stay in ‘safe countries’ under such circumstances.”