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KUALA LUMPUR, May 7 — Malaysia’s surging export-led recovery masks the deeper issue of lacklustre domestic private investment, economists have said.
Despite forecasts of robust GDP growth of up to 11 per cent in the first quarter of this year, Malaysia’s private investment level is still only about half that of high income economies and one third the level of the pre-1997 Asian Financial Crisis, said Maybank Investment Bank’s chief economist Suhaimi Illias.
According to Suhaimi, the country needs to double the level of private investment, which currently stands at only about 10 per cent of GDP.
“That (20 per cent) would be consistent with the kind of ratios of high income economies,” he said.
The economist, however, believes resolving the issue of low domestic private investment would take time.
“It is not realistic to double the level of private investment in just one year.
“It is an ongoing process. You need to see local and private companies believe that they should invest in Malaysia and can make money in the country.”
He added that “throwing incentives” at private investors can only go so far and that the country needs a combination of reforms, incentives and economic restructuring.
“Throwing incentives, we’ve done that for so long and the private investment share of GDP is still languishing,” he said.
A report by Bank of America and Merrill Lynch released this week said private demand had yet to pick up amid falling government income and spending.
“Government revenues are picking up everywhere except in Malaysia and Taiwan where they are still falling,” said the report.
“Private demand has yet to show signs of taking over the growth baton from public demand.”
CIMB Investment Bank chief economist Lee Heng Guie said, however, that private investment is expected to show moderate growth this year as compared to last year.
“We expect private investment to pick up.
“Last year private investment collapsed. Given the prospect of economic recovery and better business sentiment we expect private investment to bounce back,” said Lee.
He said the country needs to re-energise the private sector by addressing cumbersome rules, rent-seeking activities and creating an environment that encourages competition and productivity.
Lee added that the New Economic Model (NEM) could help address some of the challenges faced by private investors.
AmResearch senior economist Manokaran Mottain also said the NEM would help solve the issue of private investment, which, he notes, has been dwindling.
He added that the growth of private investment could see potentially rapid growth this year as it was coming from a low base.
Manokaran said that to stimulate more private investment, the government needed to look at the ease of doing business, liberalisation of equity ownership, more attractive remuneration across the board to attract and retain talent, and more incentives given to companies to undertake research.
“We want to attract the best brains,” he said. “Private investment has to be strong and grow in double digits going forward to sustain economic growth.”
Malaysia’s March exports performed better than expected and surged 36.4 per cent year-on-year as compared with forecasts of about 22 per cent.
Economists have predicted Malaysia to grow between five and eight per cent this year due to improving external and domestic conditions.
Malaysia’s official first quarter GDP figures are expected to be released next week.
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