Malaysia’s FDI inflows appear to be holding steady despite the credit crunch and global economic downturn. To what do you attribute this?
As a small and highly open economy, Malaysia’s economic outlook will inevitably be influenced by the current uncertainties in the global economic and financial development. Although these uncertainties would have some impact on Malaysia, the country’s economy is expected to remain resilient because of the country’s strong fundamentals, diversified export base and low exposure of local financial institutions to the US subprime market.
The government has put in place two major economic plans: Ninth Malaysia Plan (9MP) and the Third Industrial Master Plan (IMP3), which have taken off smoothly. These economic plans serve as a guiding force and with their implementation, the nation’s economy will move on track to reach the goals set under both plans. With the government’s commitment, economic progress will continue to be achieved in an environment of efficient management and workable policies. The outlook for the Malaysian economy in 2008 remains favourable with GDP projected to expand by 5% to 6% in 2008.
Malaysia continued to attract substantial investments into the manufacturing sector for the first seven months in 2008. Total investments approved during this period amounted to RM43.5bn ($12.8bn), of which foreign investments totalled RM32.5bn. MIDA, as the principal agency in promoting investments, is pleased to note that figure has once again surpassed the annual investment target of RM27.5bn established under the IMP3.
Malaysia’s ability to attract investment flows reflects the country’s competitiveness as a manufacturing and export base. The Malaysian economy is well positioned to weather a slowdown in the global economy, due to a number of factors, which include:
• Domestic demand, which has emerged as a key driver of growth; and
• Malaysia’s export markets, which are increasingly diversified.
We note that the road ahead for the rest of the year is challenging given the current unpredictable global scenario, but we nevertheless remain positive. We are currently negotiating a few projects involving sizeable investments and we hope that these projects will be approved by the year end, giving us another successful year.
How do you, as MIDA director-general, intend to maintain this good performance?
MIDA will continue to chart out its plans in line with the country’s objectives to promote investments in the manufacturing and services sectors. In this respect, we will intensity our promotional efforts to promote foreign and domestic investments in these sectors.
Malaysia is now moving towards a knowledge-driven economy and the government will continue to promote FDI into higher value-added, high-technology and knowledge-intensive projects in the manufacturing sector. Malaysia is no longer competitive in labour-intensive industries.
Working closely with relevant government agencies, we are now promoting new growth areas to diversify the manufacturing base. The new growth areas targeted for promotion include:
• information and communications technology;
• machinery and equipment;
• aerospace industry including aviation services;
• medical devices; and
• advanced materials.
Renewable energy has also been identified as an important source of energy for the future and is Malaysia’s fifth major fuel resource after coal, oil, natural gas and hydro. This includes renewable energy from biomass, solar, mini-hydro and municipal waste. Renewable energy from biomass and solar energy accounts for 90% of the renewable energy potential. Under 9MP, the government will continue to encourage the utilisation of renewable energy.
Over the past four decades, MIDA has assumed a pivotal role in transforming the Malaysian economy, particularly so in the development of the manufacturing sector in Malaysia.
To further serve foreign investors, MIDA has set up three additional offices in Guangzhou (China), Mumbai (India) and Dubai (UAE), to complement its existing network of 16 worldwide offices in Europe, North America, Australia and Asia-Pacific.
MIDA also plans to open up seven more overseas offices in the next two years. The opening up of these new offices will further strengthen MIDA’s operations at the international level and we hope to attract more investments from these countries. The opening up of new offices in developing countries such as China, India, Thailand and Indonesia will definitely facilitate crossborder investment activities for Malaysian companies venturing abroad.
As this is a newly added role, MIDA will facilitate Malaysian companies to venture abroad under the Government’s crossborder initiatives. Malaysian companies will need to enhance their capabilities and capacities to meet global challenges.
To enhance the competitiveness of Malaysian companies, Malaysia will need to increase the availability of skilled and knowledge workers, strengthen R&D capabilities and improve technological readiness.
What are your most pressing priorities in your new role? What are your key concerns about Malaysia’s international competitiveness and how do you intend to address them?
Malaysia continues to be a cost-competitive business location for foreign investors in the manufacturing and services sectors as a result of a variety of pull factors, which include a resilient economy, investor-friendly policies, developed infrastructure, and the availability of desired human resources required by the industry.
However, with the high oil and food prices currently prevailing, which is actually a global phenomenon affecting many economies, the outflows of FDI from all major economies of the world will be affected.
There is also global competition for FDI from both developed and developing countries as they are improving their investment environment and offering more attractive incentives in efforts to stay ahead of competitors.
As the new director-general of MIDA, I have to ensure that the organisation continues to bring in good investments from abroad and expand domestic investments. With the current global uncertainties, we must continue to ensure that sustainable growth of investments can be achieved. For 2006 and 2007, we have seen very good results as approved investments amounted to RM46bn in 2006 and RM59.9 bn in 2007.
The approved figures for January to July this year have also been good, whereby we have total approvals amounting to RM43.5bn. We cannot, however, rest on our laurels and therefore must work even harder to top these figures.
The government continues to take necessary measures by implementing new policies as well as fine-tuning existing ones to meet global challenges in attracting foreign investments into the country. Efforts will also be intensified to target and promote investments in industries in which Malaysia has a strong competitive advantage as well as in new growth areas such as the renewable energy sector.
Some of the recent measures include:
• reducing the corporate tax from 26% in 2008 to 25% in 2009. With this reduction, Malaysia’s corporate tax rate is among the most competitive in Asia.
• continuously improving the public sector’s delivery system. Over the past year, several measures have been undertaken to expedite and to reduce the timeframe for approvals by companies.
• the establishment of the Cabinet Committee on Investment, the High Level Committee for Special Incentives, the District Industry Implementation Units (DIIU) and the formation of the high-level public-private sector Special Task Force to Facilitate Business (PEMUDAH).
Malaysia has moved up four places to rank 20 out of a total of 181 economies surveyed in the World Bank Doing Business 2009 Report. Malaysia’s improved ranking was achieved on the back of initiatives by PEMUDAH, which has, since its inception in February 2007, relentlessly pursued the objective of easing the formalities in major aspects of doing business in Malaysia to make the country a cost-competitive destination for investment.
The government has also targeted improvements in its human capital, infrastructure and incentives. Investment in human capital has been given greater emphasis to sustain economic resilience and growth, and to create a knowledge-based economy. The government continues to develop and upgrade the country’s infrastructure to meet investors’ needs.
Malaysia makes available to investors a wide range of fiscal and non-fiscal incentives. These incentives include corporate tax exemptions and import duty exemptions on raw materials and components/equipment.
The provision of fiscal and non-fiscal incentives have enabled Malaysia to attract investments in new areas of growth and emerging technologies in various industrial sectors that are deemed to be strategic or having high impact to the economy. These are projects that are value-added high-tech capital intensive and capital intensity and contribute significantly to foreign exchange earnings.
International headlines about Malaysia’s political situation have not been very favourable in recent months. Does this worry you? And how can you ensure that Malaysia’s appeal to international investors will not be dented by it?
Malaysia continues to be a politically stable country with strong democratic foundations and institution. This has been the hallmark of the country’s political scenario since independence in 1957. The very fact that Malaysia’s 12th general election was held without any untoward incidents speaks volumes for the country’s political maturity, despite the change in government in five states.
The results have proven that Malaysia’s electoral process is legitimate and was carried out in an environment that was free, fair and transparent, which clearly points towards the fact that Malaysia is a mature democracy.
There was a smooth transition of power to the coalition parties forming the new state governments, which have also pledged to pursue business-friendly policies to ensure the states under their administration remain competitive to investors.
The government has assured all existing and potential investors of its continued pro-business policies. Investment policies and incentives packages formulated and implemented by the federal government are expected to continue. Local and foreign investors remain unperturbed by the election results, as they view this new political development positively, with Malaysia having strong democratic foundations.
The government will continue to formulate and implement business-friendly policies and incentive packages to attract foreign investments into Malaysia. The election results will not in any way diminish the government’s efforts to further enhance Malaysia as a competitive location for FDI.
The government will also continue to invite industry leaders and the private sector for consultations through dialogue sessions to obtain feedback from the business community. This allows the government to understand the business operating environment better so that appropriate measures can be taken to resolve any issues that arise.