PETALING JAYA: Although there could be initial hiccups, economists say the RM120bil domestic direct investment (DDI) boost from government-linked investment companies (GLICs) under the Gear-up programme overall will benefit the economy and enhance global competitiveness via private sector investments.
However, they said the Ministry of Finance (MoF)-led programme should be, among others, well- structured, carefully implemented and the six GLICs under the programme should possess relevant financial expertise to manage high-risk investments.
MoF in a statement on Aug 8 said it is spearheading a programme at synergising efforts across GLIcs to catalyse growth in key economic sectors.
The first phase of the programme would see six leading GLICs collectively pledging RM120bil in DDIs over the next five years, on top of RM440bil in public market investments under their steady state investment programmes.
These investments are primarily directed towards high-growth high value industries such as the energy transition sector, advanced manufacturing, especially in the semiconductor space, investments across all life cycles of firms from start-ups, venture capital to mid-tier companies and finally to support listing of such companies.
The six GLICs are Khazanah Nasional Bhd, the Employees Provident Fund, Retirement Fund Inc or KWAP, Permodalan Nasional Bhd, Lembaga Tabung Haji and Lembaga Tabung Angkatan Tentera.
OCBC Asean senior economist Lavanya Venkateswaran.
OCBC Bank senior Asean economist Lavanya Venkateswaran told StarBiz the Gear-up programme sounds promising because GLICs serve as a natural link between the public and private sectors.
Incentivising GLICs to increase domestic investments, in a thoughtful and well-structured programme, can catalyse private sector investments, she said.
“Moreover, the programme has linked specific GLICs to specific sectors allowing for greater synergies. Raising investment spending across the government, quasi-government and private sectors can boost potential growth prospects over the medium-term.
“However, there is a risk that some investments will not materialise as anticipated. That said, the six GLICs chosen for the first phase of the programme have a strong track record and hence, risk and investment management mechanisms are likely to remain prudent.
“These new schemes will be work-in-progress at least during the initial periods and there will be room to fine tune investment criteria, increase collaboration and further mitigate risks,” she noted.
UCSI University Malaysia associate professor of finance Liew Chee Yoong
UCSI University Malaysia associate professor of finance Liew Chee Yoong said the programme would likely benefit the economy. The RM120bil investment in sectors such as energy transition and advanced manufacturing, particularly in semiconductors, will drive technological innovation and sustainability, creating high-value jobs and boosting Malaysia’s global competitiveness.
Supporting businesses across all life cycles, from startups to listed companies, he said, would foster entrepreneurship, improve access to capital and enhance the overall business ecosystem, potentially leading to long-term economic growth.
A potential drawback is the risk of the investments ending up suffering financial losses, especially in high-risk sectors like startups and venture capital, he said.
Additionally, focusing heavily on domestic investments might reduce the diversification of portfolios, potentially increasing vulnerability to domestic economic shocks, said Liew, who is also a research fellow at the Centre for Market Education (CME).
He said to further fine-tune the programme, it is crucial to establish clear performance metrics and regular monitoring to ensure the high risk investments that the GLICs are undertaking are effectively contributing to the desired economic outcomes.
Additionally, he said fostering partnerships with private sector entities and implementing innovative investment strategies could enhance the overall impact of the GLICs’ investments.
“Furthermore, creating a balanced investment portfolio that includes a mix of safe and high-risk ventures might also help these GLICs to mitigate potential financial risks.
“This initiative represents a significant step toward achieving Malaysia’s economic aspirations. However, careful implementation and ongoing evaluation are critical to ensuring that the GLICs’ investments deliver the intended benefits without compromising their financial stability.
“Engaging with industry experts and stakeholders throughout the process will also be essential to assist the GLICs to navigate the complexities of their high risk investments,” Liew said.
Bank Muamalat (M) Bhd chief economist Mohd Afzanizam Abdul Rashid
Commenting on the GLICs investment in DDI, Bank Muamalat (M) Bhd chief economist Mohd Afzanizam Abdul Rashid said what the country needs is quality of economic growth.
He said this would mean more investment among the private firms to upgrade themselves, scale up and venture into high value added and complex business.
Essentially, he said when the investment component is high, there should be a better productivity level as the production methods become highly based on technology which then would result in higher demand for skilled workers.
He said this is where the GLIC role would come into play as they become the enabler in light of their deep pockets and better understanding of capital markets. That way, he said, more savings from GLICs will be re-channelled into investment.
In terms of any drawbacks to the economy from these investments, Afzanizam said ideally, the investment should be highly diversified and on this note, under this programme, each GLIC has been assigned with specific task.
“Therefore, risks of over concentration in specific investments could be mitigated since each GLICs are assigned with specific areas, so there should not be overlapping in sector exposure,” Afzanizam noted.
He also stressed that the GLIC role as enabler is highly critical to promote domestic investment. However, he said by doing this, there must be a conscious decision that any investment would not crowd out the true blue private sector, especially those entrepreneurs that really do their business.
“I think we need to acknowledge that managing investment funds and running a business are two different disciplines. The latter tend to be more risk taker and the former tend to optimise their risk-return profile. So decision making and dynamics can be quite different,” he said.
Centre for Market Education CEO Carmelo Ferlito
Meanwhile, CME CEO Carmelo Ferlito said although DDIs are a key driver for any economy, the direction of the investments should be a response to market signals rather than a response to what the government believes to be strategic.
For example, the government may decide that the gold industry is strategic and therefore force every constructor to build rail tracks in gold. The gold industry would be stimulated for a short term, but this would make train fares totally unaffordable and bring many other industries to collapse.
“Therefore, investments can be successful and bring long-term benefits to the economy only if they are placed in a direction dictated by the market,” Ferlito said.
