Economists say Malaysia’s Covid-19 lockdown is a bump in the road for foreign direct investment (FDI), not a roadblock. Most FDI is committed for the long term, they told The Star’s StarBiz, so a rough few months should not change where the money goes.
Lee Heng Guie, executive director of the Socio Economic Research Centre, expects the lockdown to dampen sentiment. He still sees FDI inflows improving this year, with better prospects over the medium term. He gave three reasons. A strong recovery in global growth, led by the United States and China, should push companies in advanced economies to invest abroad. The Digital Blueprint Programme should draw money into software and hardware infrastructure and 5G. And the eventual start of the Regional Comprehensive Economic Partnership (RCEP) will make Malaysia more competitive.
A Standard Chartered survey in April put Malaysia first among Chinese companies looking for room to expand in Asean.
Homework for the government
Lee said that while the emergency continues and Parliament is not sitting, the government needs to roll out the 12th Malaysia Plan (2021-2025) and the New Industrial Master Plan quickly. “Domestic and foreign investors are anxious to find out what the medium and long-term strategic measures and initiatives are to drive the country’s growth and investment path forward,” he said.
AmBank Group chief economist Anthony Dass also expects a better year than 2020, though much rests on global and domestic conditions. He did not rule out delays, since investors may prefer a wait-and-see stance until the domestic situation settles. Even so, he said, most FDI is long term and investors can look past a temporary setback.
Total approved investments fell 22.4% to RM164bil in 2020, from RM211bil in 2019. Dass said this year could bring a smaller contraction, or growth of 2% to 5%. That hinges on handling Covid-19 cases and stepping up vaccination to reach herd immunity by year-end. He also called for clear and consistent policy, including the standard operating procedures during movement restrictions, and a strong political institution.
Before the latest lockdown, Malaysia had drawn FDI worth RM81.9bil from 240 companies, Dass said. About RM44bil of foreign investment is under evaluation, much of it in technology, innovation, green technology, electric vehicles and financial technology. He urged Malaysia to follow South Korea, Japan and Taiwan, which chose quality over quantity, and to press foreign joint-venture partners for technology transfer agreements.
Travel and chips
Woon Khai Jhek, senior economist at RAM Rating Services Bhd, thinks the panic withdrawal seen last year is unlikely to repeat, given a better global economy and vaccination under way. Tax incentives will keep mattering, he said, but so will letting foreign investors travel for site visits. Investment appetite will stay subdued for the next few months because of the tighter movement control order. Net FDI inflows rose to RM9.1bil in the first quarter, the second straight quarter of acceleration.
The Malaysian Investment Development Authority (Mida) has set up a one stop centre to speed approval for business travellers, plus a business travellers centre at KLIA. Woon sees the brightest prospects in electrical and electronics, helped by the global chip shortage. The sector makes up close to 40% of Malaysia’s exports.
Wellian Wiranto, an OCBC Bank economist, said travel difficulties will hurt Malaysia’s appeal for now, because senior decision-makers cannot easily visit for due diligence. Strict protocols, he said, are the long-term answer: “This will reverse some of the negative factors and allow FDI capital to flow back into Malaysia.”
