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FDI in Malaysia

Since 2010, FDI in Malaysia has been going back and forth between USD 9 billion and USD
12 billion, placing the country as the highest recipients of FDI in the region. In 2017, FDI
flows dropped to USD 9.5 billion, for the first time since 2010, due to a backdrop in general
decline of investments in Southeast Asia (UNCTAD Worlds Investment Report 2018).
According to the Malaysian Investment Development Authority (MIDA), most of the
investments came from Switzerland, China, the Netherlands, Singapore, and Germany (56%
of foreign investments in 2017). Although China is the top FDI source for two years in a row,
the investment value has dropped by 18.7% to RM3.9 billion in 2017. China’s investment
has diversified into many industries such as transport equipment, non-metallic product,
electronics, and rubber products. Manufacturing industry has attracted RM 13.9 billion, while
FDI in the services sector reached RM28.8 billion and RM 4.3 billion in the primary sector.
The authorities want to make Malaysia into 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 23rd out of 190 economies by
the World Bank in its Doing Business 2018 report. 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.

Foreign Direct Investment 2015 2016 2017


FDI Inward Stock Flow (million USD) 10,082 11,336 9,543
FDI Stock (million USD) 116,744 122,030 139,540
Number of Greenfield Investments 171 211 150
FDI Inwards (in % of Gross Fixed Capital Formation) 14.3 13.0 n/a
FDI Stock (in % of GDP) 39.7 41.0 n/a
Source: UNCTAD, Latest available data.

FDI inflows by country and industry.


Main Investing Countries 2017, in %
China 21.0
Switzerland 14.6
Singapore 8.6
Netherlands 7.0
Germany 5.3

Main Invested Sectors 2017, in %


Services 52.6
Manufacturing 25.4
Mining 7.8
Source: Malaysian Investment Development Authority.
Investing 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
24th position in terms of ease of doing business (World Bank Doing
Business Report 2018). 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 The Malaysian government is encouraging FDI primarily by seeking to


to Motivate or Restrict consolidate its economy. This is why, for example, Malaysia is seeking
FDI to liberalise the expatriate employment system in the manufacturing
sector in order to promote transfer of technology and to facilitate the
arrival of qualified personnel in its territory. In order to consolidate
strong domestic demand, the government has allowed households to
benefit from lower income taxes and has also significantly increased
the salaries of civil servants.
Fiscal consolidation remains one of the priority objectives of the
government, which aims to achieve a balanced budget in 2020, with
the creation of 3.3 million jobs over the same period. To avoid the trap
of remaining stuck in the group of middle-income countries, the
government has put in place since 2010 a strong program of economic
transformation. The six major objectives of this program are: 1. To
consolidate internal consumption as a driver of growth; 2. To develop
the knowledge economy; 3. To urbanise the country; 4. To consolidate
public finances; 5. To move the flagship industries upmarket to build
global centres of excellence; 6. To strengthen the economic weight of
SMEs.

It is within the framework of this economic development plan that


Malaysia has also included 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.