Losing the numbers game
By Selena Tay, FMT
It is a sad but true fact that for the past five years or so Malaysia has constantly been losing out in terms of foreign direct investment (FDI). Either our regional competitors have caught up with us or we have stalled. In any case, at the end of the day we have lost out.
This is in no small part due to the lack of political will by the Barisan Nasional (BN) government in the areas of policy-making and political expediency. Where numbers are concerned, the salient point to note is in the area of FDI wherein those of our neighbours which used to be trailing us have now surpassed us.
The 2010 World Investment Report (WIR) issued by the United Nations Conference on Trade and Development (UNCTAD) showed up some ugly truths about Malaysia, wherein it has made “great achievements” for the first time in financial history.
Listed below are three historical events:
Losing out in FDI to neighbouring countries
In 1998, for the first time, Thailand overtook Malaysia in attracting more FDI, and in 2005 it was the turn of Indonesia. Vietnam defeated us for the first time in 2008 and the Philippines followed suit in 2009.
In the 2010 UNCTAD World Investment Report, Singapore is way ahead in the stratosphere, hovering close to the US$17 billion mark, Thailand at a distant second with US$5.9 billion, Indonesia nearing US$5 billion and Vietnam with more than US$4 billion, the Philippines at US1.95 billion and Malaysia standing at US$1.38 billion.
Malaysia only succeeded in defeating Cambodia, Myanmar, Brunei, Laos and Timor-Leste. It looks like Malaysia is now in the Little League. Malaysia’s position in the FDI world ranking was 62nd in 2006 but it suffered a tremendous drop to 123rd in 2009, which is such a massive decline in the space of just three years.
Biggest drop in FDI in 2009
Southeast-Asian nations that registered a drop in FDI in 2009 were Thailand with 30.4%, Vietnam (44.1%) and Indonesia (44.7%). But that is nothing compared to Malaysia’s drop of 81.1%!
Thailand is considered to have done better than Malaysia as there was a year-long political turmoil caused by the Red Shirts organising sit-ins in the capital city of Bangkok. Despite that, their decline was not as great as ours.
Singapore, Brunei, Philippines and Myanmar chalked up an increase in FDI.
Another first for Malaysia: FDI outflow more than inflow in 2009
This refers to the country’s investment overseas being more than overseas investment in the country. Malaysia was the only country in Southeast-Asia to achieve this distinction when Malaysian FDI outflow was US$8.04 billion compared with the FDI inflow of US$1.38 billion, thus yielding a net negative FDI flow of US$6.66 billion.
This negative FDI indicates that Malaysia is fast becoming an unattractive investment destination despite what the federal government claims. This can be attributed to the investors’ (local as well as foreign) lack of confidence in the existing government policies as well as the lack of robust economic growth that will generate healthy returns for their investments.
Malaysian FDI flows has been in the negative since declining from US$1.09 billion in 2005 to a net negative of US$0.02 billion in 2006 to a net negative US$2.7 billion in 2007 and a net negative of US$7.67 billion in 2008.
The year 2009 was also the first time Malaysia obtained less than US$2 billion in FDI with the figure of US$1.38 billion. In 1996, Thailand’s FDI was around US$2 billion while Malaysia raked in US$7.3 billion.
Fast forward a decade later to 2006 and Malaysia obtained US$6 billion while Thailand attracted US$9.5 billion. And in 2009 Malaysia’s FDI was a miserable US$1.38 billion while for Thailand, it was US$5.9 billion.
In 1996, too, Malaysia’s FDI at US$7.3 billion was not too distant from Singapore’s FDI at US$9.68 billion. But now Singapore, at close to US$17 billion, has forged ahead leaving us to bite the dust and compete with countries such as Thailand, Indonesia and Vietnam.
All these are due to Malaysia having a number of issues such as troublesome bureaucratic red tape, flip-flop decision-making such as omission of the Equal Opportunities Commission due to pressure from certain quarters, unclear policies (where is the New Economic Model – NEM Part 2 – which was supposed to be rolled out in June 2010 and then postponed to the later part of 2010 only to be abandoned altogether?) and a lack of skilled labour.
These factors contributed to Malaysia’s lack of attractiveness as an investment destination.
Weak institutions
Bailouts, monopolies and oligarchies are also detrimental to investors as are over-protectionist policies. Taking six months for the foreign investors to obtain a work permit compared to less than a week in Singapore besides the extremely slow Internet service are also putting off the foreign businessmen.
However, Malaysia survived all these setbacks due to the revenue from oil and gas. Otherwise, it would have gone bankrupt long ago. Another issue is the weak judiciary which has an indirect effect on the FDI.
A logging company by the name of Seruan Gemilang Makmur Sdn Bhd had on May 25, 2007 obtained a judgment from the Kuantan High Court against the Pahang government and the Pahang director of forestry (the defendants) for the sum of RM37,127,471.60 with the interest thereon at 8% per annum to be paid from Dec 31, 2000, till the date of settlement.
