KUALA LUMPUR: Direct investments abroad (DIA) by Malaysian companies had increased at a rapid pace in 2017, said Bank Negara Malaysia.
In its 2017 annual report, the central bank said this reflects the maturity of domestic firms and limited domestic natural resources, facilitated by strategic national policy initiatives.
Since 2001, on average, the stock of Malaysia’s DIA increased 20.7 per cent per annum, from RM31.7 billion in 2001 to an outstanding RM522.5 billion as of last year.
From 2005 through 2014, DIA flows averaged RM39.1 billion per annum, or 4.7 per cent of nominal gross domestic product (GDP).
Since 2015, however, DIA flows have moderated somewhat, with average outflows amounting to RM33.7 billion per annum, or 2.7 per cent of GDP between 2015 and 2017. This reflected a more cautious approach given greater uncertainty in the global growth environment and low global oil and commodity prices since December 2014.
The depreciation of the ringgit in this period, which rendered investments abroad more expensive for domestic firms, may have also contributed to the moderation.
As at end-2017, DIA was accumulated mainly in the financial services sub-sector (34.7 per cent of outstanding DIA), followed by the mining and agriculture (15.8 per cent and 7.8 per cent, respectively), and the information and communication services (9.1 per cent).
By destination, DIA was channelled mainly to Southeast Asian economies, particularly Singapore and Indonesia, followed by European countries, and North America, particularly to Canada.
Bank Negara said despite a challenging global economic environment, income on DIA remained stable for the past six years since 2012, reflecting the resilience of these investments.
Of the DIA income earned, 51 per cent (RM44 billion) was repatriated with roughly equal share between government-linked companies (GLCs) and private companies.
The remaining 49 per cent (RM41.8 billion) of DIA income retained overseas were used for reinvestment or paying off borrowings.
Bank Negara said while it is often acknowledged that DIA should facilitate greater market access, contribution to Malaysian exports via DIA had yet to be a reality.
It said only the plantation sector recorded some DIA related exports of equipment, machineries and fertiliser amounting to RM121 million between 2014 and 2016.
This amount is negligible compared to total exports from the country of RM2.33 trillion in the corresponding period.
“From this perspective, DIA has failed to spur Malaysian exports,” it said.
Besides that, Bank Negara said the success of Malaysian companies undertaking large scale overseas projects such as highways, power plants, and residential and commercial projects help to establish and elevate Malaysian corporates’ reputation abroad.
As at March 2017, Malaysia’s corporates successfully completed 866 international projects with a combined value of RM92 billion and there are 55 projects still in the pipeline worth RM25 billion.