Foreign direct investment (FDI) inflows to Malaysia rebounded more than six fold last year to US$9.1bil from the US$1.4bil in the preceding year, UN Conference on Trade and Development's (Unctad) annual investment survey reports.
“The strong rebound in the country's FDI inflows reflected growing confidence among investors about doing business in Malaysia,” Datuk Jalilah Baba, director-general of the Malaysian Industrial Development Authority (Mida), told reporters at the launch of the World Investment Report 2011 (WIR11) here yesterday.
“It was an encouraging recovery for Malaysia after the country suffered a sharp drop in FDI inflows in 2009 at the height of the global economic crisis that saw, among other things, foreign investors repatriating funds to their own countries and refraining from making new investments,” she said.
According to the Unctad study, the strong rebound in Malaysia's FDI inflows was in line with the trend of global economic recovery last year, with emerging economies, notably those from Asia, leading growth.
The WIR11, subtitled “Non-equity modes of international production and development”, said that while global FDI inflows rose 5% to US$1.24 trillion last year, they were still 15% below their pre-crisis average and nearly 37% below their peak of US$1.97 trillion in 2007. Economies in the South, East and South-East Asia region registered strongest FDI inflows growth at 24.1% to US$299.7bil in 2010. This was followed by developing economies in general with an increase of 12.3% to US$573.6bil, while developed economies saw FDI inflows fell 0.1% to US$601.9bil in 2010.
Manufacturing remained the leader in terms of attracting FDI inflows to Malaysia, with the sector accounting for 54.9% of the total FDI inflows to the country last year. This was followed by the services sector, which accounted for 34.1%.
In terms of regional performance, Malaysia ranked third among the Asean countries, after Singapore and Indonesia, which attracted FDI inflows of US$38.6bil and US$13.3bil respectively last year.
Malaysia's level of FDI inflows for 2010 was the highest recorded by the country over the last five years, with the last peak being in 2007 when FDI inflows stood at US$8.6bil.
For International Trade and Industry Minister Datuk Seri Mustapa Mohamed, the strong rebound in FDI inflow to Malaysia last year only made him feel vindicated, especially after being grilled so intensively last year for the steep decline in FDI inflows in 2009.
“I was bashed left, right and centre at Parliament last year because of the results for 2009,” he quipped.
“But I've always maintained that Malaysia's economic fundamentals remain strong, and the new high level of FDI inflows to the country last year is testament to that,” he said at the launch.
Mustapa added that Malaysia was on track to achieve an FDI target level of US$10bil this year, given the fact that the country already had a strong start, with FDI inflows reaching US$3.7bil during the first quarter of the year. A bigger portion of FDI inflows this year would be directed to the oil and gas sector, he said.
Mustapa also said he expected the trend of rising FDI inflows to Malaysia to continue through the next few years, especially as the rollout of projects under the country's Economic Transformation Programme gained momentum.
“The Government has the political will to address the structural issues facing the country's economy, and going forward, we look forward to creating an environment which encourages innovation and entrepreneurship to continue to promote private investment as the main driver of the country's economy,” he said.
In addition, he said further liberalisation for the services sector was only to be expected, as the country strived to attract more FDI inflows to the sector, which the Government hoped would gain importance in terms of economic contribution to the country.
However, while Malaysia's FDI inflow had rebounded, it was also interesting to note that investment outflow from Malaysia remained on a rising trend too, with outflow reaching US$13.3bil in 2010, up from US$7.9bil in 2009.
While some of these outflows were desirable and represented Malaysia's investment overseas through mergers and acquisitions as well as greenfield and other types of investment, UN resident coordinator for Malaysia Kamal Malhotra said it would be useful to conduct a more disaggregated analysis of why these capital outflows had grown so large even though there was an urgent need for Malaysia's high domestic savings to be put to productive use at home.
“A challenge for Malaysia since the 1997/98 Asian financial crisis has been the large divergence between its domestic savings and investment rates as a percentage of GDP,” Malhotra said.
Malaysia's investment rate halved from 45% of GDP in 1995 to around 22% GDP in 1999. At the same time, its domestic savings rate rose from an already high of 40% of GDP to 42% of GDP.
“This remained the case for the next decade with investment as a percentage of GDP being very low and trailing savings as a percentage of GDP by over 20 percentage points,” Malhotra quoted a UNDP study.