Manufacturing investments are likely to moderate this year as external headwinds remain, although global growth concerns have eased, said economists.
CIMB Investment Bank chief economist Lee Heng Guie is maintaining a conservative manufacturing investment approvals target of RM43 billion for the year, taking into account both external and domestic developments.
"External headwinds remain although global growth concerns have eased."
Lee said while foreign direct investment (FDI) in Malaysia has been sustained at healthy levels of RM25 billion a year since 2009, challenges remain, given rising competition from emerging Asean countries such as the Philippines, Vietnam and Indonesia.
On the domestic front, the looming general election will weigh on investor sentiments, he said.
Total approved manufacturing investment rose 47.9 per cent quarter-on-quarter to RM9.1 billion in the fourth quarter of 2012, from RM6.2 billion in the third quarter.
However, it contracted for the third consecutive quarter by 52.3 per cent year-on-year in the fourth quarter, resulting in a decline of 26.8 per cent in total manufacturing investment approvals to RM41.1 billion in 2012, from RM56.1 billion in 2011.
"Approved manufacturing investments had a bumpy ride, partly due to the statistical base effect," he said, adding that lower approved investments were seen in electronics and electrical products, the basic metal industry and the non-metallic mineral industry.
Total manufacturing investment fell 52.3 per cent year-on-year to RM9.1 billion in the fourth quarter while for the whole year, it fell 26.8 per cent to RM41.1 billion.
About 71.2 per cent of the total manufacturing investment approvals in the fourth quarter were for new projects on the back of the improved investment climate and the Economic Transformation Programme (ETP).
Lee noted that there was no let-up in foreign interest even though its share of total approved investments eased to 50.8 per cent versus 49.2 per cent for domestic investors.
He said the RM1 billion domestic investment strategic fund to accelerate the participation of Malaysian-owned companies in the global supply chain of targeted industries, coupled with domestic business opportunities under the ETP, should spur direct domestic investments in the coming years.
Alliance Research chief economist Manokaran Mottain said the government's drive to spearhead the services sector to support Malaysia's economic growth was reflected by the investment approval rate of 72 per cent, or 5,536 projects, in 2012.
"Overall, while encouraged by the record increase in gross investment into the country, we are concerned by the sharp drop in foreign direct investments.
"Nonetheless, on consolation, the trend is widely experienced in most economies in the region, given the strong external headwinds that led the emerging economies in the region to see moderating growths in 2012," he said.
"On the local front, the government's continued drive to actively promote domestic investments as outlined in the ETP is slowly but surely transforming the reliance of FDI as source of growth like in the 1980s and 1990s," he said.
"Given the rising gross investment, we believe the country's growth will be continued to be driven by domestic demand, at a time when the economy is being challenged by global external uncertainties from Europe and the United States."