GLOBAL expectations are for foreign direct investments (FDIs) to decline this year but Malaysia is banking on several bright spots that will provide strong linkages to domestic industries.
By the second month of the year, the Malaysian Investment Development Authority (Mida), which promotes foreign and domestic direct investments, already had RM33.8 billion worth of investments in the pipeline.
“If we were to approve these projects today, we would have more than 300 projects from sectors such as chemicals, machinery, food technology, electrical and electronics, hospitality and clean technology, as well as regional establishments.
“It is quite pleasing to have that kind of numbers in the beginning of the year,” said Mida chief executive officer Datuk Azman Mahmud.
Global investment flows have risen 36 per cent to a record US$1.7 trillion (RM6.9 trillion), the highest since the global financial crisis, but they are largely due to cross-border mergers and acquisitions that included major electronics industries.
In the case of Malaysia, a softening in the real estate sector also impacted the numbers for last year’s performance.
“So if you single out real estate and oil and gas (which led to a 21 per cent drop in investments), the numbers were clearly due to headwinds around the world,” said Azman.
Last year, FDI inflows into Malaysia reached RM39.5 billion, 11.8 per cent higher than in 2014.
“Our manufacturing sub-sectors, such as wood products, saw a 134 per cent jump in investments last year, along with petroleum products, fabricated metal products, non-metallic products, transport and equipment,” he said.
The services sector also saw a boost to transport services by 151 per cent.
So there were pockets in the economy where things were not as bad as perceived, he pointed out.
“Our fundamentals are there — the economy has been restructured to be more consumption-based, growth is targeted at four to 4.5 per cent and there is commitment to lower the fiscal deficit — all these have been commended by international institutions like the International Monetary Fund and the World Bank.”
The recalibration of the fiscal 2016 Budget in January indicates how Malaysia monitored the situation and has been able to remain resilient to shocks.
“Yes, there will be challenges this year but for the business community, the country’s fundamentals and other criteria, such as the country’s standing in the ease of doing business, are both important,” said Azman.
In the final lap in becoming a developed nation, Malaysia has to accelerate its growth in high value-added and high-tech investments and towards this end, Mida continues to enhance its ecosystem approach for both the manufacturing and services sectors.
Last year, Malaysia attracted RM186.7 billion in mostly high-quality private investments.
Companies such as Honeywell and Schmidt + Clements have held groundbreaking ceremonies in their expansion drive.
Honeywell, which is an aircraft engine and avionics manufacturer, is planning an expansion drive in Malaysia after joining the Principal Hub initiative, the first global company to do so.
Schmidt + Clemens, a producer of special steel components and a supplier of services for plant operators and mechanical equipment manufacturers, plans to add more machines at the Sendayan Tech Valley plant in Seremban.
For Mida, this year’s strategies will be further guided by the 11th Malaysia Plan’s (11MP) catalytic sectors that have been earmarked, namely chemicals, advanced electronics, machinery and equipment, medical devices and aerospace.
“From the feedback on the programmes we have held, we hear positive sentiment towards business opportunities, even taking cognisance of the external uncertainties,” said Azman.
Are many still holding back their investment plans?
“We’re still seeing oil and gas players wanting to change and enter the aerospace industry, likewise in the case of the automotive sector. That is a very positive feature and we are happy to see it happening soon.”
But for Azman, his team will still face challenges even with the recovery in the global landscape.
With the 11MP rolled out, Mida has to match higher targets as the country seeks quality projects that will spur the economic transformation towards a developed nation status in 2020.
The investment promotion agency did well under the 10th Malaysia Plan (10MP), with private investments growing by an average of RM160.5 billion per annum, surpassing the target of RM148 billion.
The budget recalibration will impact its promotional activities but Azman has directed his team to re-invent and be more creative in deliverables and activities.
His team recognises the need to raise the bar and be ahead of the curve to realise the aspirations of the growth blueprint over the next five years, including preparing for the fourth industrial revolution.
And there have also been winds of change to reckon with since the global financial crisis.
“For instance, growth in the electrical and electronics (E&E) sector last year did not make it to the top seven but it already hit the top four in the first quarter of this year.”
As to whether it was sustainable, Azman admitted that was hard to say since it was more inclined towards a short-term cycle.
“The graph points up and down but in the overall E&E picture, machinery and equipment and chemicals are also enumerators for the other industries as well.”
China’s growth may not be in the double-digit range now but Mida finds that a six to seven per cent growth outlook is still good and it has its own strategy to tap investments from the second-largest economy in the world.
Some investments are already in Johor’s infrastructure scene and the trend will likely continue.
“We are also targeting the green tech sector like solar, for which we have been receiving a good level of interest from Chinese companies which are facing challenges entering the European Union,” he added.
Malaysia is the third-largest solar hub in the world, with the largest global players having set up operations here.
Aerospace is another sector that the government is aggressively pursuing, having set up the aerospace council to pursue the strategy of attracting original equipment manufacturers to set up shop in Malaysia.
Would talent remain an important issue in all these pursuits?
“The talent issue is everywhere. Despite all that noise (about talent shortage), jobs have been created, projects have been approved and the amount had surpassed the 10MP’s RM148 million target,” added Azman.
As to whether Malaysia’s neighbours, such as Vietnam, Indonesia and the Philippines, might be a challenge to its investment performance, he pointed out the differing FDI pursuits.
“Vietnam is in a good position for labour-intensive manufacturing activities while Malaysia’s natural progression towards higher value-added activities has attracted companies to do so.
“In my recent visit to Japan, I found those with operations in Malaysia are scaling up and putting in more research and development, for which I was happy with the confidence they have in our talent, people, ability and political stability.
“Indonesia and the Philippines also offer a lot of opportunities in infrastructure, labour-intensive industries and manufacturing products for the domestic markets whereas they are looking at Malaysia as a regional hub and for value-added activities.”
Companies like Samsung continue to make Malaysia an important base although its subsidiary, Samsung Electronics Display (M) Sdn Bhd, has ceased operations in Seremban.
Various measures will bolster Malaysia’s ability to face domestic and external challenges, including the Asean Economic Community, Trans Pacific Partnership agreement and Regional Comprehensive Economic Partnership.