KUALA LUMPUR: To propel the Malaysian economy to a high level amid uncertainty in the global economic landscape, investment in infrastructure is needed to attract long term foreign investment as this will have spillover effects on the other economic sectors, economists say.
Bank Muamalat (M) Bhd chief economist Mohd Afzanizam Abdul Rashid said infrastructure investment is important to ensure the inflows of long term foreign investment.
Furthermore, he says investing in infrastructure also has positive spillover effects to other economic sectors.
“Infrastructure is very capital intensive and it’s project based.
“It would easily create excitement among investors as there will be various players to be involved in the projects.
“To some degree, it would be a source of attraction just like in Indonesia when they decide to shift the capital city to Kalimantan i.e. the Ibukota Nusantara. It’s about a spark but it has to be realistic and credible,” he told StarBiz.
He said the local economy has yet to reach the advanced economic stage.
Therefore, he said investing in key infrastructure such as expressways, rail related projects, telecommunication, renewable energy (RE) and electric vehicle (EV) charging stations and many more are critical for improving the growth potential for the country’s economy.
Afzanizam said infrastructure projects would help to increase the country’s productivity level which, in turn, would translate into higher income as there would be more skilled labour to be employed.
He said, for example, the Mass Rapid Transit projects have garnered a lot of interest in the Malaysian market as they are expected to have spillover effects on other sectors.
Similarly, projects like the east coast rail line which is supposed to focus on the transportation of cargo between Kuantan port and Port Klang.
The spillover effects, he said would be felt in the construction, building material and services sectors like the financial, architecture and engineering consulting.
Bank Muamalat (M) Bhd chief economist Mohd Afzanizam Abdul Rashid
“These projects become a spark which has resulted in strong interest among foreign investors in the Malaysian capital markets. And we saw the foreign ownership in listed shares at one time was in excess of 20% for considerable periods,” he noted.
Malaysia’s gross domestic product (GDP) grew 5.8% in the second quarter from a year ago, according to advance estimates released by the Statistics Department.
This follows a 4.2% expansion seen in the first quarter of this year, which reflects the economy is on track, and possibly to surpass the government’s projection of between 4% and 5% economic growth this year.
Juwai IQI global chief economist Shan Saeed said an important economic strategy in the modern era is infrastructure. He added global investors have found a new way of analysing the country’s ability to invest in infrastructure, the new asset class for sustainable growth parameters.
“All the governments basically, among others, are focusing on reducing debt and improving their fiscal side of the balance sheet (fiscal discipline) to entice the global investors for long term investments.
“Countries like China, Indonesia, Australia, Vietnam and India are investing heavily into infrastructure and treating it as an asset class where pension, endowments and institutional investors can park funds to get solid returns.
“Asean needs US$1.2 trillion, Africa needs US$2.5 trillion in infrastructure investment in the next three to five years and that makes the regions very attractive for global smart and sophisticated investors,” he said.
Juwai IQI global chief economist Shan Saeed
Shan said overall Malaysia has done well in terms of maintaining macroeconomic stability and focusing on infrastructure investment.
Highlighting the importance of infrastructure investment, he said such investment would send positive signal to the market, adding that debt reduction, fiscal management and prudent monetary policy play the groundwork in the macro equation.
“We at Juwai IQI project that Malaysia should be able to achieve a GDP growth of between 4.3% and 4.8% in 2024. One of the Nobel laureates, the late Robert Fogel, advocated about infrastructure in 1964 and how it has a positive impact on the GDP growth equation.
“Now infrastructure is the new asset class for the governments to focus upon to attract global investors. The Belt and Road Initiative is a good live example in the modern era for global connectivity, lifting masses out of poverty and offering good dividends for economic growth in the long run.
“In my opinion, Asean would become the growth story for the global economy in the next three to five years due to its demographics (young population), strong consumption pattern and above all economic stability at the macro level,” Shan said.
On the measures needed to undertake firm investments into infrastructure, Afzanizam said the government needs to strategically arrange the narratives so that the investors would clearly see the end game.
“The end game for investing in infrastructure is to be urbanised without compromising the sustainable features. So, this would include how RE and EV would come into the picture. Another end game would probably be on improving connectivity between the two nations , Singapore and Malaysia, such as the Kuala Lumpur-Singapore High Speed Rail project.
“Energy security could also be the end state as Sarawak for example is aiming to export to the regional market. The narratives would allow the investors to connect the dots and would be able to appreciate which ultimately would make them more convinced to invest in Malaysia.
“Establishing a clear and credible storyline of our economic development is crucial in attracting the foreign capital. It’s like a sales pitch but with a broader scale as we are looking at the country’s development and endeavor to transition towards an advanced nation,” he added.
