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Foreign Direct Investment

Global foreign direct investment (FDI) flows in the first half of 2021 reached an estimated USD 852 billion, showing stronger than expected rebound momentum, with an increase of 78% of the partial-year growth rate on the previous year according to UNCTAD’s Investment Trends Monitor released on October 2021. The global FDI outlook for the full year 2021 has also improved from earlier projections. The current momentum and the growth of international project finance are likely to bring FDI flows back beyond pre-pandemic levels. Nevertheless, the duration of the health crisis and the pace of vaccinations, especially in developing countries, as well as the speed of implementation of infrastructure investment stimulus, remain important factors of uncertainty. Other important risk factors, including labour and supply chain bottlenecks, energy prices and inflationary pressures, will also affect final year results. (UNCTAD, October 2021). Covid’s impact on developing markets and shifting investment from China are major trends that will impact foreign investment in 2022.

According to UNCTAD's World Investment Report 2021, FDI inflows declined 55% to USD 3 billion. The FDI stock was about USD 174 billion in 2020. Multinationals in the M&A sector, such as those in the health and mining sectors (e.g. the acquisition of a stake in IHH Healthcare by Mitsui & Co, Japan and in Seb Upstream by OMV, Austria) have sustained the level of investment. According to the Department of Statistics Malaysia, FDI inflows recorded a net inflow of RM14.6 billion in 2020 compared to RM32.4 billion in the previous year, due to global economic uncertainties because of the pandemic situation. The decrease in FDI inflows was driven by lower equity and investment fund shares and higher loans extended to overseas affiliates. Services and manufacturing sectors were the main contributors to FDI flows in 2020, followed by Mining & quarrying. Investment in the Services sector was particularly in financial and utilities, while Manufacturing was largely in the electricity, transport equipment and other manufacturing subsectors. The main investors in terms of FDI flows are Singapore, Thailand and China.

Despite a difficult situation in 2020, Malaysia continues to be an attractive investment destination amid rising trade tensions across the world. The authorities seek to position Malaysia as a gateway to the ASEAN market by offering various incentives to foreign companies, notably the status of pioneer company and tax reductions associated with investments. The country benefits from a high-skilled and English-speaking workforce. As such, the country is ranked 12 out of 190 economies by the World Bank in its last Doing Business 2020 report, gaining three spots from the previous year. However, the government maintains a large discretionary power for authorising investment projects and uses it to obtain the maximum benefits from foreign participation and by demanding agreements that are advantageous in matters of transferring technologies or creating joint ventures.

The latest United Nation Asia-Pacific Trade and Investment Trends Report provides additional information on FDI in Malaisia and Asia-Pacific in 2021 and 2022.

 
 
Foreign Direct Investment 201820192020
FDI Inward Flow (million USD) 7,6187,8133,483
FDI Stock (million USD) 154,576168,059174,123
Number of Greenfield Investments* 190171100
Value of Greenfield Investments (million USD) 13,5738,9467,329

Source: UNCTAD - Latest available data.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

Country Comparison For the Protection of Investors Malaysia East Asia & Pacific United States Germany
Index of Transaction Transparency* 10.0 5.9 7.0 5.0
Index of Manager’s Responsibility** 9.0 5.2 9.0 5.0
Index of Shareholders’ Power*** 8.0 6.7 9.0 5.0

Source: Doing Business - Latest available data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Malaysia

Strong Points

Malaysia's economy is already relatively well internationalised and relies on diversifying and growing exports. The country has also managed to create a healthy business environment, ranked at the 12th position in terms of ease of doing business out of 190 countries in the World Bank's 2020 Doing Business Report. The country continues to strive to make its economy attractive to FDI by implementing a broadly liberal and transparent investment policy by proposing in addition: 

  • High cost-competitiveness
  • Attractive investment incentives
  • Developed infrastructure
  • A strategic position linked to the country's proximity to the main Asian markets
  • Important natural resources 
  • Strong dynamism of the services sector
  • High domestic consumption fuelled by high per capita income and low unemployment.
Weak Points

The main weaknesses of Malaysia in terms of FDI are:

  • Bureaucratic and regulatory burdens
  • A shortage of skilled labour
  • Overall rise in labour costs, creating a risk of erosion of the country's price competitiveness
  • The country's economy also remains vulnerable to a slowdown in demand from China, its main trading partner and to the prices of natural resources (gas and oil)
  • The country's unity is rather fragile given regional, ethnic and religious disparities.
Government Measures to Motivate or Restrict FDI
Malaysian governments have traditionally been open to foreign direct investments, which have been an integral component of the country's economic development. Within the framework of its economic development plan, Malaysia has provided tax incentives to attract foreign investment in strategic sectors of activity, such as "pioneering status" for industry sectors, agriculture, and tourism, the "Bionexus label" for the biotechnology sector and the "MSC status" for companies in the ICT and multimedia sectors.
The 2020 budget includes measures aimed at further incentivizing foreign investment, with special emphasis on investments being redirected from China, through the "China Special Channel". The government also established the National Committee on Investment, an investment approval body jointly chaired by the Minister of Finance and the Minister of International Trade and Industry, to expedite the regulatory process with respect to approving new investments.
Malaysia has various national, regional, and municipal investment promotion agencies, including the Malaysian Investment Development Authority (MIDA) and InvestKL. Further information can be sourced on i-Incentives, the portal that provides the information on investment incentives offered by the Federal Government of Malaysia.

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Investment Opportunities

The Key Sectors of the National Economy
Malaysia exploits its abundant natural resources (palm oil, rubber, tin, wood, oil, natural gas), and has developed the electronics and chemicals sectors. It also has a high value-added products industry, such as semiconductors and other electronic products. Financial services; tourism; communications content and infrastructure; education; agriculture; and health care are among the important economical sectors for the country..
High Potential Sectors
The national government has recently called for investments in high technology and research and development, focusing on artificial intelligence, "Internet of Things" device design and manufacturing, smart cities, electric vehicles, automation of the manufacturing industry, telecommunications infrastructure, and aerospace.
Privatization Programmes
Although the government restated its commitment to privatize companies in several key sectors (i.e. transportation, agriculture, utilities, financial services, manufacturing, and construction), no timeline for the process has been set.
The Malaysian Government established the Public-Private Partnership Unit (UKAS) to provide guidance and administrative support to businesses interested in privatization projects and large-scale government procurement projects, as well as to oversee transactions ranging from contracts and concessions to sales and transfers of ownership from the public to the private sector.
Foreign investors may participate in privatization programs, but foreign ownership is limited to 25% of the privatized entity’s equity.
Tenders, Projects and Public Procurement
Tenders Info, Tenders in Malaysia
Asian Development Bank, Procurement Plans in Asia
DgMarket, Tenders Worldwide
 

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors
The Government restricts investment in those branches of production deemed to be essential for national development, such as the automobile industry, as well as in low value-added branches of production, which are labour-intensive. Foreigners have limited access to services, such as financial services, professional services (legal, for example), accounting and architecture.
Government Linked Corporations (GLCs) continue to dominate the market in several sectors, including transportation, agriculture, utilities, financial services, manufacturing, and construction.
Sectors in Decline
Agriculture, mining.
 

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