A little more than a year after its launch, the Iskandar Development Region (IDR) already has several projects on the table involving foreign investors from the Middle East and Asia Pacific. Middle East investors in particular have not been put off by the global market turmoil.
Last August, a consortium of blue-chip investors from the Gulf Co-operation Council announced a record $1.2bn investment in phase one of Iskandar Development Region. The announcement, which represents the costs of the land acquisition only, takes Malaysia’s annual rate of FDI above $6bn in 2007, a post-Asia-crisis high. Government officials said the real investment over time would probably be 10 times the current figure.
The investment by the consortium of Mubadala Development Company of Abu Dhabi, Kuwait Finance House, Millennium Development International Company (a member of Saraya Holdings of Saudi Arabia) and Abu Dhabi-based Aldar Properties makes the project the single largest foreign real estate development in Malaysia, one of the largest real estate developments in the region and one of the largest single foreign investments ever in Malaysia.
“They have confidence in Malaysia,” says prime minister Abdullah Ahmad Badawi. “They have confidence that political stability is continuing and that the government policy is a pro-business policy, pro-private-sector, pro-investment.”
Khaldoon Khalifa Al Mubarak, CEO and managing director of Mubadala, the $900bn investment fund of the Abu Dhabi government, says: “I think this will be a flagship development for the region, not just for Malaysia. I think its location will provide many opportunities for many special developments.
“You will see first-class developments across the board from property component to the financial component to the recreational component. Each of these components has a clear business case and we’re committed to quality.”
As a mostly Muslim country and with the government’s pro-business measures, Malaysia is well positioned to attract Middle Eastern investors. Saudi Telecom recently bought a 25% stake in Maxis Communications, the country’s biggest mobile phone operator; and a consortium led by the Kuwait Al Sabah royal family and investors from Abu Dhabi moved to take over construction company Putrajaya Perdana.
Choong Wai Kee, head of research at Citigroup Malaysia, says that the level of interest coming from the Gulf countries will increase partly because of high oil prices. “You see a lot of money available for investment and the Gulf countries are quite good at scouting out good investment ideas or good investment destinations, so I think the trend is definitely up in Malaysia,” he says.
The Malaysian government has made a substantial effort to develop this relationship. It sees the Iskandar deal with Gulf investors as a vindication of its strategy. “This shows they have confidence that political stability is continuing in Malaysia,” says Mr Badawi.
General Electric (GE), which already has a substantial presence in Malaysia, is also committed to Iskandar. It has signed a strategic partnership agreement with Malaysian property developer UEM to build a new Asian boomtown in Iskandar.
A spokeswoman for UEM Land said the two firms would explore opportunities to develop Nusajaya, the region’s single-largest parcel of land spread across 24,000 acres, which is owned by parent UEM World.
“We think it’s a great opportunity for security, water and energy, so I think it’s going to be a really substantial growth opportunity for us,” says Jeffrey Immelt, GE’s CEO. “These enterprise zones have great potential for GE if we have good local partners.”
Stuart Dean, president of GE Southeast Asia, says the vision is to leverage both companies’ strengths to create a world-class development in Nusajaya.
Nusajaya, one of the five key flagship zones of the IDR, is scheduled to start up in 2011. UEM Land is the developer of the sprawling, integrated urban development site. There are seven growth catalysts for the zone: the residential component, a 2400-acre international resort,
600-acre EduCity, 700-acre MediCity, 688-acre Puteri Harbour waterfront development, 320-acre Johor State New Administrative Centre and 1300-acre Southern Industrial and Logistics Cluster.
There will eventually be 100,000 residential units. So far, 16,000 houses have been built and occupied, including those built by other developers.
In addition to investors from the US, Europe and the Middle East, a 54-member delegation led by Yu Ping, vice-chairman of the China Council for the Promotion of International Trade, recently visited Johor to explore business opportunities in the IDR. The delegation included the chairmen of five Chinese engineering, construction and property companies, and representatives of the China-ASEAN Business Council and International Co-operation Association for Middle and Small Size Enterprises.
While China and India represent major new potential investors, Malaysia continued to draw FDI into the manufacturing sector from traditional investors in 2007, registering strong double-digit growth of 65% to RM33.4bn ($10.4bn), compared with RM20.2bn in 2006. This was the third consecutive year of growth in FDI from RM17.9bn in 2005 and RM13.1bn in 2004.
The government can congratulate itself on achieving a big boost in FDI in high-value added and capital-intensive projects, mainly in the electronics and electrical industry, which recorded about RM13.7bn in foreign investments in 2007, up 59% from RM8.6bn in 2006. Other major areas of FDI inflows included petroleum products and petrochemicals (RM5.3bn) and basic metal products (RM4.9bn). FDI in new projects also surged in 2007, registering a near two-fold increase to RM17.3bn from RM9.2bn in 2006.
In the thriving petrochemicals sector, US firm ConocoPhillips is planning to expand its Malaysian joint venture refinery with Petroleum Nasional (Petronas), in Malacca.
The expansion for the 47%/53% Conoco-Petronas joint venture is expected to be ready in early 2010. It will increase the capacity of its hydrocracking unit to produce more distillates, including diesel and heating oil, in its 128,000-barrel-a-day refinery. The joint venture plant mainly refines crude oil imported from the Middle East, and the output is distributed in Malaysia and other parts of Asia.
A major new investor in manufacturing is Germany’s Q-Cells AG, the largest independent solar cell manufacturer in the world, which has chosen Malaysia to set up its first manufacturing facility for photovoltaic products in Asia, with an investment exceeding RM1bn. The company is expected to invest more than RM1bn between 2009 and 2010 under the phase one development of its manufacturing facility.
The investment by Q-Cell is also expected to spur the development of a solar industry cluster in the country, an area that has been targeted for promotion. Q-Cells’ manufacturing facility is the second major photovoltaic-related investment in Malaysia, after US-based First Solar’s facility.
Another new area of development is biophotonics, in which Malaysia’s Petra Group, a leader in environmental technology, biotechnology and information and telecommunications technology, has signed a joint venture with the UK’s St Andrews University to commercialise the university’s research in this field. St Andrews, which has several biophotonics patents, is acknowledged as a global leader in this new field of medical science that focuses on using forms of light to treat medical conditions such as cancer.
In a related field, Symmetry Medical of the US, the largest orthopaedic outsourcing company in the world, is set to invest $20m to build a manufacturing facility for orthopaedic products in Malaysia. The facility, the company’s first in Asia, is expected to be completed in two years. Symmetry Medical will produce orthopaedic implants and instruments, and has acquired four acres of land to build a 50,000-square-foot manufacturing facility.
It also plans to make Malaysia its international procurement centreto support its operations in the US and Europe.