Malaysia has made some big foreign investment pledges, but can it walk the talk?

A key issue that the body would need to address is the mess of bureaucracy and red tape that investors have long complained about when seeking approvals to get their business off the ground.

  • Malaysia has a history of failing to follow through after signing numerous memorandums with foreign firms but this could change with a ‘monitoring process’
  • Analysts urge the government to establish a system to monitor and expedite processes to see through proposed investments

(SCMP) – It has been a big year of foreign investment announcements for Malaysia, with hundreds of billions of dollars promised as Prime Minister Anwar Ibrahim makes an aggressive push to reclaim the Southeast Asian nation’s position as a premier investment destination in the region.

Foreign direct investments (FDI) were key drivers of Malaysia’s period of explosive growth between the 1980s and 1990s. But the country’s attractiveness started to wane at the turn of the millennium amid increased competition from its larger regional neighbours such as Thailand and Vietnam that offer greater access to cheaper labour and natural resources.

Analysts tracking Malaysia’s FDI performance have pinned this partly on the country’s struggle to recover from the Asian Financial Crisis of the late 1990s, when the government imposed capital controls to stabilise the ringgit currency before they were replaced in 2005 with a managed float system that has been adopted by most of its regional peers.

However, successive administrations have also faced a recurring problem with realising their FDI goals.

Numerous memorandums signed between Malaysian and foreign firms are announced every year, promising billions of dollars of capital investment into Malaysia. But the final tally often never matches up to the announcements. Will Anwar’s administration be any different?

Not unless a proper mechanism is put in place to monitor and expedite processes to realise proposed investments, analysts say.

“It is extraordinary that the government does not have a monitoring process already. This shows how poorly managed the FDI process is,” said Geoffrey Williams, an economist with the Malaysia University of Science and Technology (MUST).

Last year, the government announced some 123.3 billion ringgit (US$26.2 billion) in approved investments in the first half of the year. The total sum of actual investments for 2022, however, came in at 74.6 billion ringgit, according to data from the national statistics department.

A government lawmaker suggested in April that a specific committee be established under the Ministry of Investments, Trade and Industry (MITI) – the gatekeeper of foreign investments – to keep a close eye on planned investments and to identify issues impeding progress so they can be addressed quickly.

The proposal came just days before Malaysian and Chinese firms signed 19 memorandums for 170 billion ringgit in investments across the infrastructure, renewable energy, telecommunications and tourism sectors in Malaysia.

In response, the government said in May that it had set up a special task force on the matter, though limited to the 19 planned investments from China.

Establishing a body specifically to oversee the implementation of FDI pledges would “send a message of urgency”, according to Shazwan Mustafa Kamal, an associate director with corporate advisory firm Vriens & Partners.

But it would also raise questions among investors as to the role of MITI and its supporting investment agencies in managing inbound investments and investor concerns.

“The devil will be in the details; [the body’s usefulness] will depend on the purpose of this body, and the make-up of its members and remit,” Shazwan said.

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