IN A NUTSHELL 8

by Hazrul Izwan

as well as Europe have been recorded between 2010 and quarter three 2011, will Malaysia be able to sustain its investment inflows from these troubled regions in the current economic conditions and in the long run?

Improved global and domestic economic conditions, coupled with positive business confidence and better corporate earnings both for foreign and local companies are needed for Malaysia to sustain its net FDI inflow in coming years. Currently, investment inflows have been channelled mainly into the manufacturing, services and oil and gas sectors. Looking at some notable investments by the UAE and Chinese companies recently, the real estate sector will also play an important role as a foreign direct investment contributor moving forward.

T h e g o v e r n m e n t ’s c o n t i n u o u s implementation of the ongoing Economic Transformation projects will be a catalyst to induce more FDI inflows to the country. Nevertheless, Malaysia must not be complacent to think that the rest of the world is not planning to push their wares as well. Astute emerging economies around the region have evidently contributed to higher levels competition in the business arena, whether it be more competitive labour costs, improved tax incentives or even better transparency levels.

The full report of The 2012 A.T Kearney FDI Confidence Index® is available from http://www.atkearney.com/

Crisis, in the FDI context, strikes in many forms. Investment values could fall marginally if not drastically or existing investments made may not expand as much as initially agreed upon. At its worst, approved projects may be put on hold, delayed or cancelled completely.

The decline patterns of global net FDI inflows over the past five years (shown in Figure 12) portray a typical boom-bust cycle that seems recur globally over the short to medium term, taking precedent from the crises of 1997 and 1988. This is yet another unsurprising picture of how regional turmoil can unexpectedly get the best out of strong economic performance across the globe.

WILL RECOVERY DRIVES A ‘NEW HIGH’?Despite the slower economic growth, Malaysia’s FDI witnessed an encouraging expansion

In Malaysia’s case, the crisis caused a sharp deterioration of 65.5% from 2008 to 2009 before experiencing a slight rebound last year.

The year 2010 proved to be a recovery point for most countries including Malaysia, with a sharp V-shaped rebound amounting to close to US$10 billion of FDI inflows last year. Positive investor sentiment for 2012 contributed to Malaysia’s ranking within top 10 in an FDI confidence index survey by A.T. Kearney, improvement from 21st position in 2010. This is supported by recent Malaysia Industrial Development Authority (MIDA) statistics, where Malaysia received more than US$8.5 billion worth of investment inflows in the first three quarters of year 2011.

At of end 2010, the country’s top three FDI contributors are the USA, Singapore and Japan. These countries have also contributed more than 25% of the total FDI to Malaysia for the period of 2000 to 2010. While positive inflows by the U.S.

Figure 12: Global Foreign Direct Investment (FDI) inflows, 2005-2010

Source: United Nations Conference on Trade and Development (UNCTAD)

2005

-

2007

2008

2009

2010

2.5

2.0

1.5

1.0

0.5

0

(US$’t)

Source: DOSM, Bank Negara, MPI Research

Positive investor sentiment for 2012

contributed to Malaysia’s ranking within top 10 in an FDI confident index survey for 2012 by A.T

Kearney

2007

average

1.47

1.97

1.74

1.19 1.24

-37%

-15%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

e

35

30

25

20

15

10

5

0

(RM’b)

Figure 13: Malaysia Foreign Direct Investment (FDI) inflows, 2000-2011e

Y2K Bubble bust & Sep 11 terrorist

attact crisis

2008/09 subprime

crisis

Support level

Resistant level

+13-17%