Outlook on FDI in Malaysia is positive, says Asian Development Bank

Di Mauro: My experience and reading tells me that cherry picking on sectors doesn't work, what really matters is the productivity of the firms.

KUALA LUMPUR, Aug 8 - Foreign direct investments (FDI) into Malaysia are expected to increase over the next year despite a projected moderated economic growth and other external risks, said the Asian Development Bank (ADB).

ADB's principal economist in the Southeast Asia Regional department Dr Bernard Ng Thiam Hee said there is potential for FDI to increase despite the concerns because Malaysia remains very competitive, especially in the exports sector.

The government recently said Malaysia had seen a decline in FDI over the past year, with foreign equity outflow of RM14.8 billion between May and July partly due to market uncertainties and contraction in the global economy.

"At the same time as we see certain tariffs placed on Chinese products, there would then be a reshuffling of the supply chain to take productions out of China and move it to other countries including Malaysia," he said on a panel at the Business Foresight Forum 2018 organised by the Securities Industry Development Corp (SIDC) here earlier.

Citing recent reports on BMW moving some of its production of the X5 sports utility vehicle to Thailand that would otherwise have been exported from a plant in South Carolina, US to Chinese customers, he noted that similar moves could happen regionally as well including Malaysia.

He was responding to a question on whether Malaysia's FDI would be impacted with a projected lower economic growth rate next year and other external risks facing the economy.

ADB said it has maintained its economic growth forecast for Malaysia at 5.3% for 2018 and 5% for 2019.

"We see some sort of rationalistion of the government's investment plan so that would have some impact. But it would be offset by the presumably stronger consumer demand and private sector demand," he said.

"Yet we do also incorporate the possibility of the risk of bigger trade relationships. We also see in the latest IMF forecasts, they are already forecasting a slower trade growth. So these are some things that may contribute to the slower performance next year. That said, 5% is still a good growth," he said.

Also on the panel was former International Trade and Industry Ministry secretary-general Tan Sri Dr Rebecca Fatima Sta Maria, who said it is more important for Malaysia to be concerned with ensuring that it provides a business friendly environment for foreign investors.

"At the end of the day when investors look where to put their money, they want to go to a place where they know this is what would happen in the next 10 years for example, rather than having this very opaque policy that could change overnight. Focus on fixing ourselves, then it would be a natural process," she said.

She said given that Malaysia is pushing for a more industrial revolution 4.0 friendly environment, then it should ensure that it prepares the market with the necessary skills.

"Then the investments would flow in naturally as opposed to having labour policies that are unclear or attract industries dependent on cheap labour," she added.

On the other hand, National University of Singapore Business School Professor Dr Filippo di Mauro, who is also on the same panel, varied his opinion slightly saying that countries need not be so concerned with what type of sectors they should focus on growing to attract FDIs.
"My experience and reading tells me that cherry picking on sectors doesn't work, what really matters is the productivity of the firms," he said, noting that there has been a decline in technology exports across most Asean countries over the past few years.

"The growth of sectors differs in countries, say garment production may not be regarded productive here but in Italy, it is. What countries should do is to create conditions whereby firms are more efficient and really improve those that aren't," he said.

Source: The Edge Malaysia

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