KUALA LUMPUR: The National Investment Council (MPN) should study the viability of improving the legislative side of investments in Malaysia, as it is one of the ways to further strengthen the investment ecosystem and boost investment activities, said an economist.
Bank Islam Malaysia Bhd chief economist Firdaos Rosli said this includes introducing overarching investment legislation, citing South Korea's Foreign Investment Promotion Act (Fipa) 1998 and Vietnam's Law on Investment as an example.
Additionally, he said the MPN should consider proposing an Act or a guideline on Bumiputera-related investments, which focuses on the services industry rather than trade.
“Unlike most countries, Malaysia does not have a single Act to oversee foreign investments. There is no specific regulation or guidelines either.
“As such, investors may view Malaysia's overall foreign direct investment (FDI) policy as discretionary because some authority and ministry commands absolute power to approve FDI or the percentage of foreign ownership, such as in the telecommunications industry where the Multimedia Communication Act 1998 is very powerful,” he said to Bernama.
Firdaos also pointed out that there are other variables that can affect investors' confidence, such as equity requirements and local representation, although many services sub-sectors have been fully liberalised following the global financial crisis.
Malaysia is committed to improving the ecosystem
Previously, Prime Minister Datuk Seri Anwar Ibrahim, who chaired the MPN's first meeting, said the government is committed to improving and strengthening Malaysia's economic and investment landscape in order to retain and expand both FDI and domestic direct investments (DDI).
During the meeting, the MPN agreed to improve the ecosystem of the country's Investment Promotion Agency (IPA) by implementing an initiative, which, among others, will streamline the functions and roles of the economic regions with regard to investments.
MPN also agreed to empower the Malaysian Investment Development Authority (Mida) as the country's main investment promotion agency.
Firdaos lauded the government's efforts to improve and strengthen the economic and investment landscape, saying that Malaysia must consistently find ways to press the fast-forward button to improve investors' confidence, investment certainty and predictability.
Although Malaysia's overall scores in the Organisation for Economic Co-operation and Development's (OECD) FDI Restrictiveness Index have improved since the 1990s, it still ranked among the lowest, suggesting other countries have done significantly better in improving their respective investment environments, he said.
He noted that according to the International Institute for Management Development's (IMD) World Competitiveness Ranking, Malaysia dropped seven positions, from the 25th spot in 2021 to 32nd out of 63 countries surveyed last year — the country's worst performance to-date after being ranked fifth back in 1996.
Firdaos added that the Czech Republic and Saudi Arabia ranked lower than Malaysia in 2021, but both have now outranked the country at the 26th and 24th position, respectively.
“I think there is a sizeable gap between investment promotion and authority in this country. In my opinion, Mida should be Malaysia's single and highest investment authority, not just in terms of promotion,” he said.
When asked if Malaysia would be able to return to being a major investment destination in the region, Firdaos said that Malaysia needs to look outwards but act inwards because it all depends on how aggressive the neighbouring countries are in attracting foreign investments.
Apart from Thailand, Indonesia and Vietnam, he said Cambodia and Laos are also becoming more attentive to changes in the investment landscape, particularly in manufacturing and construction/infrastructure development-related investments.
“Laos' FDI-to- gross domestic product (GDP) is not only higher than Malaysia's, but it is also more broadly competitive than Malaysia from the eyes of OECD countries,” he said.
Addressing red tapes, more engagements
Meanwhile, Bank Muamalat Malaysia Bhd chief economist and social finance head Dr Mohd Afzanizam Abdul Rashid said red tape and bureaucracy are among key issues that will hinder private firms from investing in the country if left unaddressed.
“While the competition for FDIs has become more intense, heightened uncertainties with respect to the global economic outlook also means that the cost of capital has increased.
“In that sense, companies would have to be extremely careful in doing their due diligence, and contending with red tape and bureaucracy would only lead to higher costs of doing business, which might force these investors to look for other places to invest,” he said.
Mohd Afzanizam said Malaysia has more than 100 investment incentives, implemented by 32 government agencies.
“This includes specific incentives in economic corridors like Iskandar Malaysia, the East Coast Economic Region, the Northern Corridor Economic Region, the Sabah Development Corridor and the Sarawak Corridor of Renewable Energy, along with incentives such as Pioneer Status, Investment Tax Allowance and Reinvestment Allowance.
“Therefore, addressing bureaucracy would help improve the investors' experience when they plan to set up shop in Malaysia,” he added.
Professor Geoffrey Williams, Dean of the Institute of Postgraduate Studies at the Malaysia University of Science and Technology said Malaysia's net FDI has been falling since 2016 despite good levels of inward investments.
He said this was mainly due to many Malaysian companies investing overseas because growth opportunities and the marketplace are much larger.
“So in the face of international competition, the MPN and IPA must identify the blockages clearly and remove them quickly.
“They must engage openly and honestly with all stakeholders, rather than make up a list of issues without direct evidence,” he said.
Williams said Mida must be reformed to keep up with the changes, and if it is to play a full role in investment promotion, it must take a broader view of potential investors, not just focus on large brand names.
“Moreover, it must focus on jobs and the supply-chain growth here, not just on outfits that repatriate profits without benefiting Malaysia,” he said.
During the MPN's first meeting, Anwar stated that total investments approved in various economic sectors in the first quarter of 2023 (1Q2023) stood at RM71.4 billion — a 59.7% increase from RM44.7 billion in 1Q2022 — encompassing 1,265 projects that have the potential to generate nearly 24,000 jobs for Malaysians.
Williams said the increase in total approved investments was positive, as it reflects investors' interest and the government's willingness to approve investments quickly.
“However, [it is] only when the investment actually takes place that we will see the fruits of this.
“The high 1Q figure coincides with a big push by the new prime minister, but we do not expect this momentum to continue for the rest of the year,” he said.
Source : The Edge Markets
