July 26, 2010

Low FDI: Not Necessarily Bad

 
Top banker Datuk Seri Nazir Razak today cautioned that the 2009 plunge in Malaysia’s foreign direct investment (FDI) needed to be studied carefully before jumping to conclusions. 
 
A United Nations report showed that the once-roaring Asian Tiger’s FDI plunged 81 per cent last year, going below even the Philippines — long considered South East Asia’s basket case economy.

“It doesn’t mean that the net investment flow is lower, is necessarily bad,” the CIMB Group managing director and chief executive told reporters here.

“Look at the quality of the investments and look at the facts in terms of the timing of investments.
“It could be some delays. It could be a big, lumpy Malaysian investment overseas that distorts the net number,” added Nazir, who is also the younger brother to Prime Minister Datuk Seri Najib Razak.

He said cited CIMB and Maybank’s “huge” investments into Indonesia as possible factors that contributed to lower FDI figures so far this year.

“Is that a bad thing? It’s a good thing because, in the long term, it is beneficial for Malaysia that Maybank invests and earns return from Indonesia,” he said.

“So I don’t think we should be jumping and getting overexcited about this investment data that’s come out.”
Najib has come under fire from opposition parties for Malaysia’s lacklustre FDI rates, which have fallen faster than regional counterparts such as Singapore and China even while capital outflows dampened private domestic investment.

The World Foreign Investment Report (WIR) 2010 released by the United Nations showed that FDI in Malaysia plunged 81 per cent last year, trailing behind countries like the Philippines, Vietnam, Thailand, Indonesia and Singapore.

The report revealed that Malaysia suffered a large 81.1 per cent drop in FDIs compared to far healthier figures in Thailand (30.4 per cent), Vietnam (44.1 per cent) and Indonesia (44.7 per cent).

In May, Minister of International Trade and Industry Mustapa Mohamed announced that investments in the country for Q1 2010 amounted to RM5.2 billion.

FDIs made up RM3.2 billion of this total, with Singapore, Taiwan and Japan being the biggest contributors.
Mustapa said the investment amount was still relatively low against the total amount of RM32.6 billion in investments received last year.

Najib has been trying to lift Malaysia’s profile as a destination for foreign investment to help the country achieve an average GDP growth of at least 6 per cent per annum over the next five years.

However, his administration has insisted that the GDP growth target is still achievable despite warning that the economy may slow down in the second half of the year due to external factors.