MALAYSIA’S new private investment cycle is taking shape.
The domestic catalysts and pull factors as well as external push factors to shape a sustained upturn in Malaysia’s private investment cycle are firmly in place.
Private investment comprising both domestic direct investment (DDI) and foreign direct investment (FDI) are equally important and reinforcing each other to expand capital formation and build capital stock, contribute to higher economic growth, create higher income jobs and expand exports to raise national income.
After recovering from the Covid-19-induced economic malaise, Malaysia’s private investment has rebounded to grow by 7.2% (15.3% of gross domestic product) in 2022, to 4.6% (15.5% of GDP) in 2023.
Its momentum accelerated further to 9.2% (17.1% of GDP) in the first quarter 2024 (1Q24), and will continue to charge ahead over the medium term, estimated to be between 10% and 13.5% in 2024-2026 (see chart).
Securing and sustaining growth in high-quality private investment is crucial to lifting Malaysia’s potential, raising productive capacity, increasing technological capability and accelerating the country’s transition to a high-value-added and high-income nation. Among the two bold targets of the Madani Economy Framework are making Malaysia one of the 30 largest economies of the world, and one of the top-12 on competitiveness and ease of doing business.
We have reasons to believe that Malaysia is on the cusp of strong investment expansion cycle to propel Malaysia for its next economic take off.
In a fast-evolving, disruptive and unpredictable global landscape, Malaysia must seize the moment to accelerate economic and industry transition in the high-tech sector, semiconductosr, artificial intelligence, data centres, renewable energy, and climate-mitigation projects.
This is critical to build a sustainable and greener path for growth, while meeting climate targets.
With the on-going geopolitical conflicts and tactical shifts in the tussle between great powers, trade wars as well as geo-economic reconfiguration of supply chains for economic security, Malaysia’s strategic location and its neutral foreign policy, has emerged as a sweet spot for investors looking to diversify their operations, “friend-shoring” of supply chains and de-risking by shifting production out of China under the “China plus One” strategy as a result of the US-China tussle.
Malaysia is the surprise winner from US-China chip wars. With there having been calls for “Taiwan plus one”, Malaysia stands to benefit from a diversification of future investment beyond Taiwan.
The rolling out of several national strategic plans, such as the New Industrial Master Plan (NIMP) 2030, the National Energy Transition Roadmap (NETR) and National Semiconductor Strategy (NSS) to anchor the Madani Economy Framework, will catalyse quality investment in high-growth sectors to enhance Malaysia’s economic complexity and global competitiveness.
The NIMP provides a strategic direction towards the high-tech sectors – electronics and electrical products, chemicals, pharmaceuticals, aerospace, and the digital economy.
The NETR reinforces Malaysia’s commitment towards net-zero carbon emissions and greatly reducing coal in power generation by 2050 via six energy transition levers (energy efficiency, renewable energy, hydrogen, bioenergy, green mobility and carbon capture, utilisation and storage).
The latest estimates on the effectiveness of the NETR flagship projects and initiatives showed investments involved will be worth RM60.7bil compared with RM25bil projected earlier.
Prime Minister Datuk Seri Anwar Ibrahim’s 31 official investment missions abroad to 19 countries between November 2022 and May 2024 have successfully generated potential investments of RM353.6bil in 2023 and RM77.6bil between January and May 2024
In 2022-2023 and 1Q24, we have attracted a total of RM680.9bil in investments approved by the Malaysian Investment Development Authority (Mida) in the manufacturing, services and primary sectors. FDI constituted 58.6% of total approvals (RM398.7bil) while DDI (41.4% at RM282.2bil).
During the period, the manufacturing sector garnered the largest share of 41% of total approvals with a value at RM279.2bil, of which the electronics and electrical products (E&E) sector made up 53.4%.
FDI in the E&E sector accounted for 96.3% of total approvals of RM143.4bil.
Malaysia has established itself as a prominent player in the global semiconductor ecosystem as reflected in its ranking of sixth for semiconductor exports while also contributing 7% of the global semiconductor trade and 13% of global chip assembly, testing and packaging activity.
A notable wave of investment commitments have come from prominent entities such as Google, Apple, Microsoft, ByteDance, Infineon and Amazon Web Services (AWS).
In 2021-2023, a total of RM144.7bil in digital investments have been approved, of which data centres made up RM114.7bil. Over the last two years, Johor has attracted 50 data centre investments.
The NIMP’s strategic initiatives will enhance Malaysia’s integrated involvement across front-end and back-end activities such as the semiconductor equipment manufacturing, wafer fabrication, and integrated circuit design in the semiconductor system.
In an ambitious move, the NSS has unveiled a three-phase plan backed by RM25bil in fiscal support and targeted incentives, designed to transform Malaysia into a global powerhouse in the semiconductor industry over the next decade.
The plan hopes to secure: At least RM500bil in investments for the first phase, driven by domestic direct investments in integrated-circuit design, advanced packaging, and manufacturing equipment, coupled with foreign direct investments in wafer fabs and semiconductor equipment; establish at least 10 Malaysian companies in the design and advanced packaging segments, each with revenues ranging from RM1bil to RM4.7bil by the second phase; and a further 100 semiconductor-related local companies with revenues approaching RM1bil.
The investment realisation rate of approved projects is also crucial.
The government has been introducing administrative reforms to expedite the process. Midathrough the Project Implementation and Facilitation Office is committed to ensure that approved manufacturing projects can be implemented immediately through increasing the effectiveness of the investment monitoring and facilitation process in order to accelerate and increase the rate of project implementation.
From 2021 to 2023, on average, annual figures showed that more than 85% of approved manufacturing projects have been implemented
The establishment of the Johor-Singapore Special Economic Zone (JS-SEZ) will also become a new engine of growth, turbo charging Johor in particular, and Malaysia in general.
Both Johor and Singapore can complement each other, focussing on increasing the movement of goods and people across their shared border.
The JS-SEZ will attract firms in sectors such as technology, semiconductors, medical equipment, food-processing, data-centres, renewable energy, and financial services.
In conclusion, attracting the right kind of quality investments will transform the Malaysian economy, pushing for the next phase of economic advancement. Our narrative is that Malaysia offers a compelling growth and boundless investment opportunities in this region.
In the rapidly evolving and complex world, navigating investment opportunities in Malaysia requires both domestic and foreign investors to have better understanding of the global and domestic market landscape.
By fostering a more business-friendly environment and thriving investment ecosystem, Malaysia can unlock the full potential of its investment opportunities, entrepreneurial spirit and innovative capabilities.
Malaysia has diversity as a selling point to differentiate us from other countries in the region.
That diversity lies in our natural resources, industries, markets, products, languages, ethnicities, and culture.
Lee Heng Guie is Socio-Economic Research Centre executive director. The views expressed here are the writer’s own.
