Malaysia Foreign Direct Investment nosedive by 81 % in 2009 vs 2008

Posted on July 24, 2010

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23 Jul : According to the World Investment Report 2010 unveiled, FDI plunged 81 percent from RM23.47 billion  in 2008 to just RM4.43 billion last year. Malaysia’s performance also pales in comparison with neighbouring economies like Thailand and Indonesia whose FDI figures did not contract as severely, despite the global financial crisis.

The severe dip also places Malaysia in the red for the first time in the last 15 years, with figures for cumulative FDI  surpassing incoming investments by about US$1 billion (RM3.21 billion).

Speaking at the UN Headquarters in Kuala Lumpur  , Universiti Malaya economist Rajah Rasiah said that Malaysia’s poor performance casts doubts over whether it can achieve the targets set to achieve high income status.
“Malaysia is fortunate to be in a good neighbourhood, located among growing countries. The three largest recipients of FDI are located in Asia (but) Malaysia does not even make the top 10 list of recipients,” he said.
Conversely, Malaysia is “doing well in FDI outflows”, ranking fifth in the list of South, East and Southeast Asian countries investing abroad.

“Speaking to fund managers, I get the impression that we have the resources to invest locally but not many viable options to do so. Even local investors find us less attractive,” he said.
The main stumbling block, he said, remains our narrow human capital pool which leaves industries stagnating in low-end production. He added that while foreign investor laud the ease of doing business in Malaysia, a lack of skilled labour, research and development and technological capabilities is placing the country on the losing end of the increasingly competitive FDI battle.
Malaysia has 300 to 400 science and technology workers for every 100,000 persons, as opposed to 3,000 in countries which made the transition from middle to high income status, he said.
Similarly, the country is under-investing in research and development at only 0.64 percent of GDP, while others like Taiwan and South Korea are investing about 3 percent of theirs.
The bottom 40 percent of the population should also be assisted insofar as developing their skills to meet the shortage in industry.
“In assisting the lower income population, we should look at developing skills like precision engineering and die casting, which are sought after by foreign investors,” he said.

Full report at : http://www.malaysiakini.com/news/138165

The FDI in 2009 plunged 81% from 2008 while the FDI outflow in 2009 was 5.81 times than the inflow. Malaysia could not compete with Thailand and Indonesia in attracting FDI.  Overall in  Southeast Asia region, Malaysia only took up a paltry share of 3.75% of total FDI of RM118 billion.

On Mar 16, PKR’s Anwar Ibrahim in Parliment Anwar asked Minister of International Trade and Industry Mustapa Mohd  to explain why foreign investments into the country had dropped compared with the situation in other countries and the reasons for Malaysis’s discouraging performance. The reply given by the Minister was just a general statement saying that he was confident both foreign and domestic investments would continue to increase in Malaysia given the government’s transformation announced in January and the various steps taken to strengthen the economy. He said Malaysia is still competent in luring more foreign investments this year despite stiff competition.  And he make a ” stupid” statement saying ” “In terms of competitiveness, we admit we are operating in a stiff environment but this does not mean foreign investments in the country has declined sharply,”. To support this, he quoted that Coca-Cola is reinvesting RM 1 billion over the next 15 years. Dear Minister, quoting one company’s investment does not proof your statements. It is analogous to a kid who came back and told his parents ” Pa, I got 3rd prize in the contest ” but he conveniently forgot to tell his parents there were only 4 contestants.

A week later at a forum in Hong Kong , Prime Minister Datuk Najib said Malaysia with the New Economic Model should see increased foreign direct investment (FDI) this year after the government implements administrative reforms.  Again – general statements without substance. We already know by now that the NEM was subsequently questioned by PERKASA and under pressure, Najib had gave in to accommodate PERKASA’s demands to maintain the 30 % bumiputra allocation.

As the figures show, the country’s investment scenario was even worsen with increased outflow of RM 459 billion in 2008/2009.  Most existing foreign companies are reducing their investments with new commitments and local ones with losing confidence in the country  are seeking  opportunities abroad.  The outflow just  shows that investors, including Malaysian firms, find investment opportunities no longer attractive  in Malaysia and that’s why they are shipping out.  Perhaps just to suppress the fear of us rakyat, Zainal Aznam Yusof, a council member at the National Economic Advisory Council said  the sizeable increase in Malaysia’s outward investment in 2008, as in previous years, is a reflection of Malaysia’s more globalised and integrated position in the world economy. Another example of corporate b*%$%^&t !

Last month, Najib warned that the later half of 2010 will see a great reduction in growth. This is not suprising as the fruits of the investors is not increasing but declining. With reduced investments, we will see another serious issue coming up – increased rates of unemployment especially with the flood of new school leavers and graduates into the market .

There will be many explanations for these drop in FDI. As usual, the government will try to explain it away referring to global decline in the world economy. The government will again conveniently not compare herself with our neighbouring countries. We will again be assure of a rosy picture in 2011, 2012. The  FDI figures is a clear indicator of the   lack of confidence and trust of the foreigners in the country’s socio-economic performance. Malaysia cannot continue to pretend that its economic fundamentals are still strong.

The opposition parties will have a field day over the next few weeks questioning the government’s failure in this.

I was in the manufacturing industry for the last 30+ years,  exporting our products to mainly USA and Europe markets. It was labor intensive and we have to compete with other countries such as Thailand, Indonesia, Philippines, South Korea, Bangladesh, India, Vietnam, Cambodia and  China. Our industry employed about 70 % foreign labor , mainly from Bangladesh, India, Indonesia with some minority from Myanmar, Nepal, Vietnam, and Cambodia. We used to joke our factory was a mini United Nation. We are not the only ones depending on foreign labor . Most manufacturing, construction, and even services such as retail, restaurants, service centers etc in Malaysia depend heavily on foreign labor. Such a labor scenario is not attractive to foreign investors who desire a long term commitment in the country.  Foreign labor in Malaysia comes in for a 2 year term and could be extended another 3 years , and this again depend on Government policy which changes every year. Recruiting and retraining new labor with old labor going back home is another expensive cost in operations. Added to this, there are hidden unofficial operation costs when foreign labor is used – all these add to increased production costs to the investors. It’d be prudent to invest in a country with a lesser dependence on foreign labor.

The quality of our school leavers and  local graduates is disappointing. The government had to create jobs to absorb a big number of unemployable graduates in the civil service. The government civil service is now so bloated with 1.2 million staff servicing a 28 million population. that jobs are created and indirectly raises the government bureaucracy and red-tape. To give a false illusion of hope to the rakyat and a self gratification of achievement, the Education Ministry had systematically reduced the examination standards, the end result being a pool of substandard graduates. In my past 20 years, I have interviewed and recruited such school leavers and graduates –  to say they meet my expectations is a lie. After recruitment, we have to spend money again to retrain them in many basic skills in communication, computing an writing too. Of course there are high quality graduates but sadly their numbers are low,  and they have either migrated or have being employed by the bigger  MNC’s or GLC’s. Foreign investors will immediately see and sense this labor quality once they start operations here.

The costs of doing business in Malaysia is often plagued with additional unofficial costs – the layman called it corruption. The businessman will take this into their books as service charges/fees.  This is an open secret in this country . The government will continue to said it is not a serious issue and is under control , and MACC was thus setup to combat this disease. Till now, I view the MACC as just a showpiece , a gun without bullets or when issued with,  is with rubber bullets which cannot kill only hurt. There are countless cases of corruption cases brought against the accused but eventually thrown out by the courts due to either insufficient evidence, last minute change in witness testimonials, technical issues etc.  Those convicted were 99 % acquitted upon appeal. MACC last week reported that their prosecution success rate was in the 80% range but they didn’t said the prosecution rate against the sharks was close to 0 % while  the ikan bilis cases took up most of the cases successfully prosecuted. High profile corruption cases example the commissions paid for purchase of submarines are openly pushed away as a no-case in Parliment. Unaccountable riches of certain Ministers are not investigated , and if investigated till now is still in the process of investigation. Any insinuation of corruption against opposition members are swiftly pounced upon by the police  while those who are aligned to BN are not, as the official police report not received yet . The independency of the judiciary is doubtful as it is so obviously aligned to the ruling coalition. Such a corruption culture and biased judiciary do not promote foreign investor’s confidence.

Lastly, the resurgence of racial issues especially those created by PERKASA only generate  more instability and uncertainty  in the country’s investment climate. Ibrahim Ali , its leader will till his grave will deny this. But to me so far all his rhetoric’s and theatricals points me to this purpose – to eventually create a majority Malay hold in the country’s economy. If he succeed and uncontrolled, foreign investment could even be nationalized.

PM Datuk Najib wishes to resolve all these with his 1Malaysia, NEM, Pemandu’s KPI , NKRA etc is still all talk till now. I have yet to see any concrete results. In the last 15 months since assuming as PM,  I have seen Najib’ strong resolve and also seen his weakness in succumbing to political pressure to change decisions . He is now well known as a FLIP-FLOP policy maker. Such behaviour from a Prime Minister do not give investors confidence., only frighten them. I find it a joke that this week he said we Malaysians must improve and not be ” lebih kurang” , a description which I find fits him perfectly.