Malaysia’s States: Open for Business, Yet Not Always Transparent
In the lowest category, Perlis, Kelantan, Kedah and Pahang were deemed to have provided insufficient disclosure of budget documents. Kedah and Kelantan did not release any form of budget documents to the public.
Tricia Yeoh, Fulcrum
Malaysia is enjoying strong inflows of foreign direct investment. To up its game, it needs to channel such flows to less-developed states.
Prime Minister Anwar Ibrahim announced recently that Malaysia had attracted potential foreign direct investments (FDI) of RM76.1 billion (US$17.2 billion) as of March 2024. The first-quarter performance follows investments of RM329.46 billion in 2023. However, FDI remains concentrated in more industrialised states such as Penang and Selangor. For lesser-developed states to benefit from FDI flows, they would need to up their game in terms of transparency and oversight.
Recent investment pledges include Intel’s RM30 billion, Texas Instruments’ RM14.6 billion, Microsoft’s RM10.5 billion and Google’s RM9.4 billion in manufacturing and digitalisation activities. While these investments are positive, they mostly benefit highly developed and industrialised states such as Selangor, Kuala Lumpur, and Penang. The 2023 statistics showed Penang leading in total capital investment, followed by Kuala Lumpur and Selangor. These states benefit from valuable resources such as land, talent and infrastructure. Kuala Lumpur and Selangor are centrally located, with major airports, ports, and higher education levels.
There are, however, pressing problems. At the Selangor ASEAN Business Conference 2024, state chiefs of Selangor and Penang expressed serious concerns over the lack of industrial land. Penang has limited industrial land, and 31 per cent of Selangor is reserved as permanent forest. To increase FDI further, Malaysia faces a two-pronged problem: the problem of land saturation in highly developed states, and the need for lesser-developed states to attract foreign investors.
How can lesser-developed states do so when there is significant variation between states in economic competitiveness? Not all states have advantages like geography (Selangor, Kuala Lumpur, Johor), natural resources (rare earths in Perak and Pahang, oil and gas in Kelantan, Terengganu, Sabah and Sarawak) and high levels of industrialisation (Penang, Selangor and Kuala Lumpur). Only a handful of states such as Selangor and Johor have well-performing State Economic Development Corporations (SEDCs), which own large plots of land and industrial parks. Further, past practices on water services have an impact on the price users pay in each state.
