UNCTAD World Investment Report (WIR)
In the grand theater of global investments, the UNCTAD World Investment Report 2024 casts a spotlight on Malaysia, revealing a mixed performance amid a dynamic ASEAN landscape. The numbers tell a sobering tale: Malaysia's FDI inflows dipped to US$9.3 billion US Dollars (USD) in 2023 from US$10.1 billion USD the previous year. While this decline highlights the economic headwinds and global uncertainties buffeting Malaysia, it underscores the competitive pressures within ASEAN, a region increasingly vying for a slice of the investment pie.
Contrast this with the broader ASEAN narrative, where countries like Singapore, Indonesia, and Vietnam are flexing their economic muscles. Singapore remains the heavyweight champion, drawing in a staggering US$114 billion USD in FDI, thanks to its political stability, advanced infrastructure, and status as a financial hub. Indonesia and Vietnam, with their robust economic reforms and strategic investments in high-growth sectors, attracted US$29 billion USD and US$20 billion USD respectively, showcasing the diverse appeal within ASEAN.
Rewind to the World Investment Report 2023, and the picture for Malaysia was slightly rosier, with US$10.1 billion USD in FDI inflows. The drop to US$9.3 billion USD in 2023 might seem modest, but it signals deeper issues. The global economic slowdown, geopolitical tensions, and internal challenges such as regulatory hurdles and policy inconsistencies have played a part in dampening investor enthusiasm. It's a stark reminder that maintaining a competitive edge in the ever-evolving global market requires relentless effort and adaptation.
More than a decade ago, investments trickled and the Malaysian Investment Development Authority (MIDA) had the same chairman then. For the first time in history, Malaysia's allure as an investment destination plummeted below that of the Philippines, as starkly portrayed in the UNCTAD World WIR 2010. The numbers were nothing short of shocking: an 81 per cent freefall in foreign direct investment (FDI) from US$7.32 billion USD to a mere US$1.38 billion USD. This wasn't just a dip; it was a nosedive that highlighted several critical issues.
First, the global financial crisis of 2008-2009 sent ripples through the world's economies, Malaysia included, shaking investor confidence to its core. As the dust settled, it became clear that Malaysia's competitiveness was under serious threat. Bureaucratic red tape, inconsistent policies, and a lack of transparency in government regulations made investors wary. Meanwhile, regional rivals like Singapore, Thailand, and Vietnam offered more enticing climates with streamlined procedures and robust incentives.
The structural weaknesses within Malaysia's economy were laid bare. Overreliance on low-cost labor and commodities had left the country vulnerable, in dire need of modernization and diversification. Recognizing the urgency, the Malaysian government launched the Economic Transformation Programme (ETP) in 2010. This ambitious initiative aimed to catapult the nation into high-income status by 2020, focusing on twelve key economic areas, including energy, palm oil, financial services, and tourism.
Reforms were rolled out to enhance the business environment. Bureaucratic hurdles were lowered, transparency was improved, and investment procedures were streamlined. The focus shifted to high-value sectors such as technology, green energy, and advanced manufacturing. Incentives were introduced, sectors were liberalized, and foreign participation was actively encouraged.
Despite these efforts, the journey back to investor confidence has been fraught with challenges. Policy consistency remains a critical concern for investors who crave stability and predictability. Global economic fluctuations and geopolitical tensions continue to play a significant role in influencing FDI trends. Meanwhile, regional competitors are not standing still; they continue to refine their investment climates, keeping the pressure on Malaysia.
The WIR 2010 was a much-needed wake-up call. It spurred Malaysia into action, leading to significant policy shifts and reforms. While there have been notable improvements, maintaining and enhancing Malaysia's attractiveness as an investment destination requires relentless effort in an ever-evolving global and regional landscape.
Today, while Malaysia has made strides, the road ahead demands a recalibrated strategy focused on high-value sectors, streamlined regulations, and fostering a more predictable investment climate.
In essence, the UNCTAD World Investment Report 2024 paints a nuanced portrait of Malaysia—one of potential tempered by challenges, within a region that is rapidly redefining the investment landscape. For Malaysia to reclaim its allure, it must navigate these complexities with agility and vision, ensuring that it doesn't just keep pace with its ASEAN peers, but sets new benchmarks in the global investment arena.
IMD World Competitiveness Ranking 2024
In the latest IMD World Competitiveness Ranking 2024, Malaysia has plummeted to the 34th position, a notable drop from its 27th place in 2023. This decline marks a significant moment as Malaysia now ranks below regional peers Thailand and Indonesia. This drop is particularly stark given Malaysia's position in the top tier within the Asia-Pacific region not too long ago.
The fall in ranking is symptomatic of broader issues affecting Malaysia's competitiveness, which has been in decline since 2014. Key factors contributing to this decline include reductions in economic performance, government efficiency, and business efficiency. Despite maintaining its position in infrastructure, Malaysia experienced sharp drops in specific areas such as the domestic economy and productivity and efficiency.
Comparatively, regional neighbors like Singapore have surged ahead, reclaiming the top spot in the global ranking, highlighting the widening gap in competitiveness between Malaysia and its peers. This downward trend underscores the growing challenges Malaysia faces in sustaining its economic attractiveness and competitiveness on the global stage.
In the May 11, 2023 edition of Business Today, I elaborated on the pressing need for Malaysia to enhance its attractiveness to investors. Despite a marginal improvement in the IMD World Competitiveness Ranking 2023, where Malaysia climbed to the 27th position, the subsequent year witnessed a more dramatic and pronounced drop to the 34th position in 2024. This sharp decline highlights the ongoing struggles Malaysia faces in maintaining its competitive edge.
The efforts to reverse this decline have yet to yield significant results. Key areas such as government efficiency, business legislation, and productivity continue to lag behind regional peers, exacerbating the challenges. Malaysia's rankings in education and business efficiency, critical components for long-term competitiveness, remain particularly low. Despite some progress in infrastructure and tax policy, these improvements have not been sufficient to counterbalance the broader systemic issues.
Regional competitors like Singapore, Indonesia, and Vietnam have continued to advance, implementing robust reforms and attracting substantial foreign direct investment (FDI). In contrast, Malaysia's journey towards reversing its decline has been fraught with obstacles, including regulatory inconsistencies and a less dynamic business environment.
To address these challenges, Malaysia must adopt a comprehensive strategy that includes increasing investment in research and development, optimizing the labor market, updating policies and regulations, and leveraging advanced technologies to drive productivity growth. Without such measures, Malaysia risks falling further behind in an increasingly competitive ASEAN landscape.
Loosing our way?
The Malaysia-US relationship has roots stretching back to August 31, 1957, when then-US Secretary of State John Foster Dulles sent a letter recognizing the newly independent nation to its first Prime Minister, Tunku Abdul Rahman. This set the stage for a close relationship that weathered the Cold War and flourished into the early 2010s.
But in recent years, Beijing found its opening, signing unfavorable and corrupt deals that led to the destruction of environmentally sensitive areas, the displacement of vulnerable populations, and saddling Malaysia with heavy debt while offering little in the way of job creation or basic utilities. Since then, US influence has steadily declined, with successive Malaysian administrations showing little interest in foreign relations until Anwar Ibrahim was sworn in as the tenth Prime Minister. Anwar initially took the usual line of being a friend and trading partner to all countries, except Israel, with which Malaysia has no diplomatic relations.
However, following the tragic events of October 7, 2023, Anwar adopted a decidedly anti-Western and especially anti-US stance regarding the ongoing conflict in Gaza. He seized every opportunity to condemn US support of Israel while emphasizing his close relationship with the leadership of Hamas, a group listed by the US as a terrorist organization.
These actions have irked the US, which has increased scrutiny on Malaysia's role in trafficking Russian and Iranian oil and gas products and its function as a base to launder Chinese products into the global market, particularly electric vehicles and solar panels.
Intensified and coordinated efforts are needed to raise awareness of how China leverages its vast resources to shape the narrative in Malaysia. Strong government-togovernment relations are crucial, with the US needing to reassure Malaysia that despite differences, it can offer safeguards and guarantees against China's economic pressure. These could come in the form of market access, tariff exemptions, and favorable trade arrangements, which will become increasingly important given Malaysia's position as a major rare earth supplier and a key player in the global semiconductor chain.
Allowing China to dominate the narrative has led to Malaysia's bid for BRICS membership. However, effective diplomacy can reverse this trend. Indonesia previously announced a membership bid but withdrew, realizing that BRICS would not enhance its international participation but place it at a disadvantage under China's dominant influence. Malaysia, facing similar issues, could easily be convinced to reconsider its position on BRICS through adept and strategic diplomacy.
Bamboo bending with the wind?
Recent developments are casting a stark light on the Malaysia-US relationship, threatening to undermine security and diplomatic efforts aimed at maintaining free navigation in the South China Sea, while simultaneously solidifying China's influence over what was once a key US ally in the region.
Announcement of Malaysia's formal application for BRICS membership, intriguingly timed during Chinese Premier Li Qiang's visit, has significant ramifications. With Malaysia highlighting its geographical position along the Malacca Strait, a critical shipping route linking the Pacific and Indian Oceans, imbues its potential BRICS membership with strategic importance. This move signals in the clearest possible terms that Malaysia is decidedly in the Chinese sphere of influence, having adopted the very same talking points that China wishes to impose on other South China Sea claimants. This shift highlights Malaysia's pivot towards China, signaling a shift that could reshape the geopolitical dynamics of Southeast Asia.
*Economist Samirul Ariff Othman is an international relations analyst and a senior consultant with Global Asia Consulting (GAC). Samirul has a background as a senior researcher at the Malaysian Institute of Economic Research. The viewpoints articulated are solely those of the author.