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Foreign Direct Investment

According to UNCTAD's World Investment Report 2024, FDI flows to Malaysia almost halved in 2023, reaching USD 8.6 billion compared to 16.9 billion one year earlier. At the end of the same period, the total stock of inward FDI stood at USD 201.7 billion. The main investing countries in 2023 were the Cayman Islands (MYR 43.7 billion), the Netherlands (MYR 35.5 billion), the USA (MYR 21.5 billion), Singapore (MYR 17.5 billion), and the People’s Republic of China (MYR 14.5 billion). Data from the Malaysian Investment Development Authority (MIDA) show that, in the first nine months of 2024, Malaysia secured MYR 254.7 billion in approved investments, with MYR 160.7 billion in services, MYR 88.8 billion in manufacturing, and MYR 5.2 billion in primary sectors. Domestic investments accounted for 58.1% (MYR 148.0 billion), while foreign investments contributed 41.9% (MYR 106.7 billion). The top five foreign investors were Germany (MYR 30.9 billion), China (MYR 10.8 billion), the USA (MYR 8.4 billion), the Netherlands (MYR 4.9 billion), and Singapore (MYR 4.4 billion).

The investment landscape in Malaysia is strengthened by its strategic positioning and connectivity to Southeast Asian markets. It boasts ample land and natural resources, a well-established information and communications technology (ICT) infrastructure, a proficient English-speaking workforce, and a resilient ecosystem of manufacturers and suppliers. Key sectors, such as medical devices, semiconductors, and solar panels, contribute to Malaysia's robust economic environment. However, being a nation reliant on exports, Malaysia is highly responsive to fluctuations in global economic conditions and 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. Depending on the specific industry, foreign investments may be obliged to fulfil local participation requirements, including equity ownership or representation on boards. Commonly, restrictions on foreign equity ownership manifest through mandated minimum or majority stakes, either held by local Malaysians or Bumiputera entities (representing ethnic Malays). Overall, Malaysia has a good business environment, ranking 3rd among the 133 economies on the Global Innovation Index 2024, 57th among the 180 on the 2024 Corruption Perception Index, and 45th out of 184 countries on the latest Index of Economic Freedom.

 
 
Foreign Direct Investment 202220232024
FDI Inward Flow (million USD) 17,1368,46811,259
FDI Stock (million USD) 199,049201,236222,706
Number of Greenfield Investments* 154230235
Value of Greenfield Investments (million USD) 23,67537,85129,385

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 government 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. The 2022 budget includes a special fund of up to RMY 2 billion to attract strategic FDI.
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
Malaysia retains a central role in oil (Petronas), transport and postal services (Pos Malaysia).
Sectors in Decline
Agriculture, mining.
 

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