Image credit: Malaysiakini
PETALING JAYA: Malaysia needs to address issues relating to bureaucratic red tape and wastages to regain its lustre as a top investment destination in the region, said economists.
“The complex network of rules and bureaucratic procedures can often discourage potential investors,” said Goh Lim Thye, an economics lecturer at Universiti Malaya.
“Making one’s way through a maze of required approvals, permits and licences is not only time-consuming but also expensive.”
Goh said for Malaysia to return to its “glory days of attracting foreign investors”, the nation must refine its value proposition, and continuously strengthen its educational and infrastructural base.
“Challenges such as bureaucratic red tape, competition from neighbouring countries with lower labour cost, political instability, corruption, brain drain, limited natural resources, and dependence on exports remain as obstacles,” he said.
Malaysia University of Science and Technology economics professor Geoffrey Williams agreed that regulations and bureaucracy are huge factors impeding foreign direct investment (FDI) into the country.
Specifically, he said, they present major challenges in turning approved investments into actual investments.
To attract higher FDI, the government needs to streamline the processes by establishing a single reference point agency and fewer regulations.
“It’s as simple as that,” he told FMT Business.
Losing out to neighbours
Malaysia was once touted as an investment hotspot in Southeast Asia, and a gateway to other markets within the region.
However, the situation has changed much in the last two decades as its regional peers, such as Indonesia and Vietnam, have managed to catch up.
“These countries are now more open and so, investors are able to go there straight away,” Williams said.
He said the regional peers are also liberalising at a fast rate and improving in the ease of doing business. “They are now more welcoming to foreigners and offer an all-round better deal.”
Furthermore, he said, the larger size of these countries provide a strong advantage relative to Malaysia.
“Malaysia has a smaller population than others. Indonesia is nine times larger, the Philippines four times, Vietnam three times, and Thailand more than twice.
“They are all growing strongly with higher consumer incomes,” he said.
There’s still hope
Goh, however, said the race is not lost yet. He highlighted Malaysia’s strategic proximity to key markets such as China, India and Australia as a potential strength to attract FDI.
“Malaysia boasts robust infrastructure, a multilingual and skilled workforce, and stands out as a dynamic investment centre.
“This is further supported by its consistent economic performance, diverse industries, and a prominent position in the halal industry,” he said.
In 2022, Malaysia received US$17 billion (RM79.43 billion) in net FDI inflows, a 39% increase and marking a new national record.
For comparison, net FDI inflows into Southeast Asia increased by 5% from US$213 billion (RM995.17 billion) a year ago.
But, despite the impressive FDI inflow, Malaysia’s FDI inward stock has slowed from its peak in 2007, lagging behind Thailand, Indonesia and Vietnam.
FDI inflow measures the net change in FDI within a specific period, reflecting the country’s recent FDI activity.
FDI inward stock, in contrast, represents the total historical and cumulative FDI in a host country up to a certain date, which offers a long-term snapshot of foreign investment presence.
According to the United Nations Conference on Trade and Development’s data, Malaysia’s FDI stock in 2022 amounted to US$199.21 billion (RM930.71 billion).
This is lower compared to Thailand (RM1.46 trillion), Vietnam (RM1.01 trillion) and Indonesia (RM1.26 trillion).
Source: https://www.freemalaysiatoday.com/category/nation/2023/11/08/malaysia-must-tackle-red-tape-corruption-to-remain-an-fdi-hotspot/