KUALA LUMPUR: Malaysia holds strong prospects for foreign direct investments (FDI), thanks to mega infrastructure plans like the High-Speed Rail, East Coast Rail Link, and China’s One Belt One Road initiative.
The weaker ringgit has made Malaysia a more attractive investment destination, said UOB Bank economist Julia Goh.
“Expanding intra-regional trade and investments will drive more two-way flows, create new development opportunities, and expand high value-added activities that pave the way for higher-income jobs,” she said in a report.
Goh described Malaysia’s FDI, on a net basis, as stable, averaging RM9 billion per quarter since 2010.
Since 2010, FDIs entering Malaysia have racked up promising growth of 35 per cent per annum CAGR (compound annual growth rate) to a cumulative of RM253 billion.
“The positive news on Malaysia and China signing RM144 billion worth of agreements, and the Saudi Aramco and Petronas US$7 billion deal in developing RAPID has been eye-catching in lifting sentiment.”
Last week, the Malaysian Investment Development Authority (MIDA) released its annual investment performance.
While the markets have been ‘preoccupied’ with President Donald Trump’s policy proposals, the US central bank interest rate outlook and geopolitics, they led to the sale of RM36.4 billion worth of Malaysian bonds since November 2016.
“What has been overlooked is the cushioning effect from FDIs which totalled RM41 billion in 2016 (from RM43 billion in 2015).
“Relative to portfolio investments which are more volatile, direct investment flows are more stable with a longer term investment horizon.”
She noted that FDIs continued on a general uptrend over the years with Singapore (RM115 billion), Japan (RM70 billion), China and Hong Kong (RM53 billion), the Netherlands (RM48 billion), and United States (RM36 billion).
“The bulk of FDI flows in recent years have been from Asia particularly China and Hong Kong, Singapore, Japan and South Korea, and the sectors of interest are mining and quarrying (including oil and gas), manufacturing, construction, wholesale and retail, information and communication, finance, and shared services.”
She also noted that although the number of projects and investments rose last year, there was a 15 per cent decline in job creation which could be due to the low domestic content and high import intensity of the projects.
For capital intensive and highly specialised projects, the number of jobs created may also be fewer.
“However, we think that the High Speed Rail (HSR) will generate enhanced stimulus and growth effects via improved transportation and connectivity between Malaysia and Singapore.”
There will be greater economic benefits from positive spill over effects to the other “second-tier” towns on the HSR route, which works to unlock and rebalance intercity growth while local residents will benefit in terms of education, jobs, wages, and wealth effects.
On the outlook for 2017, Goh said it is positive that although MIDA has set a lower approved investment target for 2017 with RM55 billion for manufacturing and RM75 billion for services excluding real estate, largely due to caution on external uncertainties.
“We think prospects for FDI remain positive particularly with the weaker ringgit.”