MALAYSIA’S new private investment cycle is taking shape. The domestic catalysts and pull factors as well as external push factors to shape a sustained upturn in Malaysia’s private investment cycle are firmly in place.
Private investment comprising both domestic direct investment (DDI) and foreign direct investment (FDI) are equally important and reinforcing each other to expand capital formation and build capital stock while contributing to higher economic growth, creating better income jobs and expand exports to raise national income.
After recovering from the COVID-19 pandemic-induced economic malaise, Malaysia’s private investment growth has rebounded to grow by 7.2% (15.3% GDP) in 2022 and 4.6% (15.5% of GDP) in 2023.
Its momentum accelerated further to 9.2% (17.1% of GDP) in 1Q 2024 and will continue to charge ahead over the medium-term estimating between 10% and 13.5% in 2024-2026.
Securing and sustaining high quality private investment growth is crucial to uplift Malaysia’s potential growth, raising productive capacity, increase technological capability and accelerate Malaysia’s transition to a high value-added and high-income nation status.
We have reasons to believe that Malaysia is on the cusp of strong investment expansion cycle for its next economic take-off in a fast-evolving, disruptive and unpredictable global landscape.
Malaysia must seize the moment to accelerate economic and industry transition in the high-tech sector, semiconductor, AI (artificial intelligence), data centre, renewable energy and climate mitigation projects. This is critical to build a sustainable and greener path of growth while meeting climate targets.
Bullish outlook
First, with the on-going geopolitical conflicts and tactical shifts in the tussle between great powers, trade tariffs war as well as geo-economic re-configuration of supply chains for economic security, Malaysia’s strategic location and its neutral foreign policy appeal has emerged as a sweet spot for foreign investors looking to diversify their operations, friend-shoring of supply chains and “de-risking” by shifting their production out of China under the “China plus One” strategy as a result of the US-China tussle.
Malaysia is the surprise winner from US-China chip wars. While there has been a calling of “Taiwan plus one”, Malaysia stands to benefit from a diversification of future investment away from Taiwan.
Second, the rolling out of several national strategic plans, namely the New Industrial Master Plan (NIMP) 2030, the National Energy Transition Roadmap (NETR) and National Semiconductor Strategy (NSS) to anchor the MADANI Economy Framework would catalyse quality investment in high growth sectors to enhance Malaysia’s economic complexity and global competitiveness.
The NIMP provides a strategic direction towards the high-tech sectors – electronics and electrical products, chemicals, pharmaceutical, aerospace and digital economy.
On the other hand, the NETR reinforces Malaysia’s commitment towards net-zero carbon and close to completely phase out coal in power generation by 2050 via six energy transition levers – energy efficiency, renewable energy, hydrogen, bioenergy, green mobility and carbon capture as well as utilsation and storage (CCUS)).
The latest estimates on the effectiveness of the NETR flagship projects and initiatives showed that investments involved will be worth RM60.7 bil compared with RM25.0 bil projected earlier.
Third, Prime Minister Datuk Seri Anwar Ibrahim’s 31 official and investment missions abroad to 19 countries from November 2022 until May 2024 have successfully generated potential investment values of RM353.6 bil in 2023 and RM77.6 bil from January to May 2024.
In 2022-2023 and 1Q 2024, the Malaysian Investment Development Authority (MIDA) has attracted a cumulative of RM680.9 bil in approved investments in the manufacturing, services and primary sectors. Foreign direct investment (FDI) constituted 58.6% of total approvals (RM398.7 bil) while domestic direct investment (DDI) accounted for RM282.2 bil (41.4% share).
During the period, the manufacturing sector has garnered the largest share of 41.0% of total approvals to value at RM279.2 bil, of which the electronics and electrical products (E&E) sector made up 53.4%. FDI in the E&E sector accounted for 96.3% of total approvals of RM143.4 bil).
Quality investments
Malaysia has established itself as a prominent player in the global semiconductor ecosystem as reflected in her sixth ranking for semiconductor exports while also contributing 7% of global semiconductor trade and 13% of global chip assembly, testing and packaging activities.
There has also been a notable wave of investment commitments from prominent entities such as Google, Apple, Microsoft, ByteDance, Infineon and Amazon Web Services (AWS). In 2021-2023, a total of RM144.7 bil of digital investments has been approved, of which data centres made up RM114.7 bil. Over the last two years, Johor alone has attracted 50 data centre investments.
The NIMP’s strategic initiatives will enhance Malaysia’s integrated involvement across the front-end and back-end activities such as the semiconductor equipment manufacturing, wafer fabrication and integrated circuit design in the semiconductor system.
In an ambitious move, the NSS plan has unveiled a sweeping three-phase plan backed by US$5.3 bil (RM25 bil) in fiscal support and targeted incentives which are designed to transform Malaysia into a global powerhouse in the semiconductor industry over the next decade.
The plan hopes to:
(a) Secure at least RM500 bil in investments for Phase 1 driven by DDI in IC (integrated circuit) design, advanced packaging and manufacturing equipment coupled with FDIs in wafer fabs and semiconductor equipment;
(b) Establish at least 10 Malaysian companies in the design and advanced packaging segments, each with revenues ranging from RM1 bil to RM4.7 bil by Phase 2; and
(c) A further 100 semiconductor-related local companies with revenues approaching RM1 bil are envisioned.
Fourth, the investment realisation rate of approved investment projects is crucial. The government has taken an approach in making administrative reforms to expedite the process.
MIDA through its Project Implementation and Facilitation Office (TRACK) is committed to ensure that approved manufacturing projects can be implemented immediately through increasing the effectiveness of the investment monitoring and facilitation process in order to accelerate and increase the rate of project implementation.
For the period 2021-2023, on average, the annual implementation showed that more than 85% of approved manufacturing projects have been implemented.
Fifth, the establishment of Johor-Singapore Special Economic Zone (J-S SEZ) will become a new engine of growth, turbo-charging Johor in particular, and Malaysia in general.
Both Johor and Singapore can complement each other by focusing on increasing the movement of goods and people across their shared border. The JS-SEZ will attract firms in the technology, semiconductors, medical equipment, food-processing, data-centres, renewable energy and financial services sectors.
In conclusion, attracting the right kind of quality investments will transform the Malaysian economy, pushing for the next economic take-off. Our narrative is that Malaysia offers a compelling growth and boundless investment opportunities in this region.
By fostering a more business-friendly environment and thriving investment ecosystem, Malaysia can unlock the full potential of its investment opportunities, entrepreneurial spirit and innovative capabilities.
Malaysia has “diversity” as selling points to differentiate us from other countries in the region. These diversities are natural resources, industries, markets, products, languages, ethnicities and culture, among others. – Aug 7, 2024
Lee Heng Guie is the executive director at Socio-Economic Research Centre (SERC) Malaysia.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
