FDI: does size matter? Better in or out?

http://marahku.blogspot.com/2010/08/fdi-does-size-matter-better-in-or-out.html
Here are some of the facts about FDI - FDI is the term used to explain investments made by foreign companies in Malaysia and they usually do this because we offer them cheap labour, cheap raw materials or massive tax breaks.

They are not here because they like us, they are here to milk the country dry so the Government always play a very careful game with them.

Remember post 1998 when Motorola just upchuck and left huge holes in the national employment figures?

OK so FDI numbers crashed and burned like a fake tian chua photoshop and people believe the government's explanation as much as they believe tian chua's fake photos.

So is it time to sell the house and move to Canada? go ahead if you want to....

Well, the reality is that global FDI dropped a whopping 37 per cent and this is due to the massive financial fraud that occurred on Wall Street last year and everyone is still counting their money to see how much they have left. So investing is not really high on their list of priorities.

Of course the opposition says that investors are fleeing because Anwar is being charged for sodomy and we laud them for this airtight buttplug but let us not ignore data, data from the World Competitiveness Yearbook which ranks us 10th and the World Investment Report (which says that we are still top 15 for FDI destination...

that's like being in the top 15 of countries money likes to visit.

So what happened? why did it drop by nearly 4/5ths? well it is a combination of factors... first we have to discount the 37 per cent global drop ... semua kena this one..

then there is of course the fact that we are moving up the value chain so cheap labour is no longer on the promise list... sure lose some more here one....

then there is the fact that we are still undergoing adjustments in terms of labour expertise and competitiveness as we move towards a higher value economy... in other words, the intention is there but the education system and labour availability is lagging behind - they say the Government is working on this ... I certainly hope so for all our children's sake.

There are those who ask why Malaysian money is investing abroad if things are good here?? well there are several reasons for that... money always move to lesser developed economies to find better returns so that is one explanation

then you also have to look at Japan and US, countries which are next exporter of capital.. actually being a net exporter of capital means being a capitalist... its good news if local money has spent on all it can in the country before searching for opportunities abroad.

Anyway, I think the situation is not as dire as the opposition makes it ( making things sound bleak is their job so you have to take a few pinch of salt with their prophecies of doom)

We do however have to look closely at US numbers, demand there is still weak and some say will continue to remain weak until third quarter when festive spending should kick in and help give it a boost

Europe looks like it is reaching the precipice and everyone is hoping all the relevant countries like Greece, Portugal, Ireland and to some extent the UK would pull the brakes on their wagon to stop the train falling into the abyss... Superman is probably busy somewhere else to rescue this train


Below is an official reply from MITI on teh FDI issue, it is clear and well written, if you need more go HERE and HERE

___________________________________________________________________


UNCTAD WORLD INVESTMENT REPORT 2010


1. What is the World Investment Report (WIR)?

· The World Investment Report is an annual report published by the United Nations Conference on Trade and Development (UNCTAD), since 1991.

· The UNCTAD WIR 2010 was released on 22 July with the theme “Investing in a Low Carbon Economy”. The Report discusses global and regional trends in FDI, recent policy developments and opportunities and threats in developing countries in the transition to a low carbon economy.


2. What are the reasons for the drop in the Foreign Direct Investments (FDIs) in Malaysia in 2009?

· The decline in FDI inflows into Malaysia to US$1.38 billion in 2009 is mainly due to:

(a) the global economic crisis which started in 2008 and continued in 2009, causing global FDI to decline by 37% as investors worldwide were more careful in making investment decisions involving large funds;

(b) Malaysia is in a transition from capital intensive to knowledge-based industry;

(c) Rising competition for FDI, from both new emerging market economies and established investment centres; and

(d) Many approved projects saw delays in implementation because of the then uncertain economic environment.


3. Some commentators were quoted that the WIR report reflected investor’s lack of confidence in doing business in Malaysia.

· The recent UNCTAD report showed that world FDI flows in 2009 fell by 37% affecting many countries, including Malaysia.

· Having seen the early signs of the decline in FDI, the government instituted wide-ranging reforms as early as April 2009. These reforms will take time to produce results.

· The WIR also reported that Malaysia remains one of the top 15 host countries for FDI for 2010-2012.

· Malaysia is also ranked as the 10th most competitive nation under the 2010 World Competitiveness Yearbook.


4. How do you account for the performance of Vietnam, Indonesia and the Philippines?

· Malaysia is currently promoting high value added, high technology, and high-wage investment into Malaysia in alignment with the Government’s effort to become a high income nation.

· Low value-added and labour intensive investments flow to the neighboring countries in the region. In addition, some of the countries such as Viet Nam and Indonesia which are in the process of developing their infrastructure have received high levels of investment in this sector.


5. In the WIR report, it states that the prime causes of growing deficit in Malaysia’s net FDI inflows are due to a narrow human capital base, lack of knowledge synergies from R&D labs and slow build up in technological capabilities.

· These are the concerns that the New Economic Model and the 10th Malaysia Plan are addressing. Several measures have been introduced including:

I. a new Talent Corporation to be formed, which will be tasked to source top talent both overseas and locally;

II. top students will continue to be awarded scholarships to pursue studies in leading universities;

III. the civil service will increase its focus on hiring high-caliber young talent;

IV. to improve the quality of students and local talent, the proportion of graduate teachers in primary schools will be increased from 28% to 60%. The Government will also implement measures to establish teaching as a higher value profession of choice;

V. the National Dual Training System (NDTS) programme (which stipulated that 70% training content is hands-on in the work place and 30% theoretical class at training institutions) will be expanded;

VI. the private sector will be offered incentives to provide vocational and skills training using the Public Private Partnership method; and

VII. The supply of quality human capital will be increased during the course of the 10th Malaysia Plan period.


6. How do you account for the FDI outflows?

· Malaysia is now a capital exporting country. Its large domestic savings had encouraged Malaysian companies to invest abroad to take advantage of good investment opportunities that offer high returns. For example, Malaysia has the expertise and capital to invest in banking, palm oil and infrastructure projects abroad. Other competitive and more developed economies are also in a similar situation; for example the US and Japan, both are capital exporters, have had large negative net FDI flows for many years. In 2009, Japan had - US$62.7 billion net FDI flow, while the US had - US$118.2 billion. This shows that negative net FDI flows per se do not mean that a country is in a dire condition.

· The investment outflows reflect Malaysia’s continued capacity to invest abroad through leading TNCs. A large part of Malaysia’s outflow is a result of cross border acquisitions.

· The financial success of our investments abroad impacts the Malaysian shareholders and affects the overall value of our local assets. Some of these companies have brought back to Malaysia billions in revenue which have strengthened the group’s ability to invest locally.

· In the longer term, these companies earn investment income which are then repatriated home as a new source of revenue. The contribution of investment income to GDP will continue to grow as Malaysian investments abroad mature over time.

· Some of the major Malaysian companies which have invested abroad include:

I. PETRONAS;
II. YTL Power International Berhad;
III. CIMB Group Holdings;
IV. Maybank Berhad;
V. Malaysia Airport Holdings Berhad; and
VI. Genting Berhad;

7. What is the Government doing to increase hi-technology/value-added investments?

· The Government has adopted a targeted approach to attract FDI in high technology and high-knowledge intensive areas. Emphasis is also placed on emerging sectors such as advanced electronics and semiconductor, pharmaceutical devices, alternative energy resources’, solar energy, photonic, opto-electronics, nano-technology, machinery and supporting the engineering industry which have already started to attract considerable FDI (for example, Q Cells, First Solar,Sun Power, Philips Lumileds Lightings, Supreme LED, Powermicro Technology and Ledzworld Technology).

· The recent award of 5 new banking licences to global banking institutions will result in substantial investments by these banks once they start operations in Malaysia. In addition, their operations will also lead to creation of new high-wage jobs.




8. What else did the WIR report say about Malaysia?

· Malaysia is one of the 16 largest recipients of greenfield investments in the manufacturing of environmental technology products such as wind turbines, solar panels, and bio-diesel plants.

· Malaysia’s efforts on investment liberalization:

I. Malaysia increased inter alia, the foreign shareholding threshold from 49% to 70% for insurance companies and investments bank;

II. allowed full foreign ownership in the wholesale segment of fund management; and

III. deregulated the purchase of real estate by foreigners.


9. What are the measures undertaken by the Government to mitigate this decline?

· The Government has introduced the “Government Transformation Programme” (GTP) and the Tenth Malaysia Plan (RMKe-10) which includes a strong monitoring system for FDI.

· The labs initiated by PEMANDU identified New Key Economic Areas (NKEAs) which are expected to attract a significant amount of new FDIs.

· Specific initiatives by MITI and its agencies:

I. targeting of specific priority sectors i.e., high value-added, high technology, capital intensity, knowledge intensive projects and new / emerging technologies;

II. promoting new growth areas within the manufacturing sector i.e., advanced materials, medical devices, ICT, machinery and equipment, biotechnology, aerospace, photonics, nanotechnology and optics;

III. promoting the services sector as the new engine of growth;


IV. empowering and corporatising MIDA to negotiate directly with investors and undertake real-time decision making on investments proposals.


· continue liberalization of investment policies in the manufacturing and services sectors including:

I. removal of restrictions on foreign equity holding for investments in new and expansion/diversification projects;

II. liberalization of the policy on expatriate personnel to promote technology transfer and the inflow of foreign skills into Malaysia; and

III. liberalization of 27 services sub-sectors to attract more FDI.

· Improving Government delivery systems, including initiatives undertaken by PEMUDAH to substantially cut red tape.


10. What is the expectation of Malaysia’s performance this year?

· Malaysia continues to undertake new initiatives to attract FDI. This is evident from the FDI inflow in the first quarter of 2010, which amounted to US$1.41 billion compared with US$1.38 billion in 2009.

· Additional initiatives are under study by the PEMANDU labs on the New Key Economic Areas (NKEAs). Several concrete investments have been identified and they will be announced later in the year.

Ministry of International Trade and Industry
Kuala Lumpur, Malaysia
28 July 2010