As we look ahead to the second half of 2024, several key factors will shape Malaysia's foreign investment landscape, with significant implications for the nation's economic performance.
The first half (1H) of the year has seen a robust influx of Foreign Direct Investment (FDI), particularly in sectors like technology and manufacturing.
However, much of the focus remains on "approved" investments rather than those that have been fully realized and materialised.
This gap between approval and execution raises questions about the true impact of these investments on the economy, especially when considering the sustainability and long-term benefits of such projects.
Looking forward to the second half (2H) of 2024, Malaysia's economic performance may face challenges due to these geopolitical tensions.
While FDI might continue to flow, especially from China, the broader economic landscape could be hampered by external pressures and the ongoing global economic uncertainty.
The success of 2H will largely depend on how Malaysia navigates these geopolitical currents and whether it can turn approved investments into tangible, productive assets that drive sustainable growth.
In a nutshell, while the first half of 2024 showed promise in terms of FDI, the second half presents a more complex scenario.
The emphasis must shift from merely approving investments to ensuring that they deliver real economic benefits.
Moreover, managing geopolitical relationships will be crucial, as Malaysia seeks to maintain a delicate balance between major global powers while safeguarding its own economic interests.
Counting your chickens before they are hatched In the second half of 2024, several key factors are likely to shape Malaysia's foreign investment landscape, with significant implications for its economic performance.
These factors include geopolitics, sector-specific trends such as the rise of data centres, environmental concerns, and the growing influence of China as a foreign investor.
1H 2024 saw strong inflows of foreign direct investment (FDI) into Malaysia, but much of the focus has been on *approved* investments, rather than those that have been fully realised.
This distinction is critical, as the Government often highlights impressive approval figures without giving enough attention to the actual materialisation of these investments.
For instance, while there has been a surge in approvals for data centres, questions remain as to whether government agencies such as MIDA (Malaysian Investment Development Authority) has fully accounted for the environmental impacts—specifically, the heavy use of water and electricity associated with these facilities.
Malaysia's energy and water resources will face increasing pressure, and without a comprehensive cost-benefit analysis, these data centers may yield less long-term value than anticipated.
Material Gains
The chairman of MIDA should take a more transparent approach in clarifying which memoranda of understanding (MoUs) or pledges actually result in realised investments.
Too often, the headlines celebrate MoUs and ambitious pledges, especially with major investors like China, but the follow-through in terms of tangible, realised investments can be murky.
For example, Malaysia has seen a number of high-profile MoUs with Chinese companies, many involving large-scale projects in infrastructure, energy, and technology.
However, the public and even policymakers are often left in the dark about how many of these agreements translate into real economic activity on the ground—whether that's factories being built, jobs being created, or technology transfers taking place.
It's critical for MIDA to move beyond just celebrating the signing of deals and provide a clear breakdown of which commitments are progressing into actual
investments and which ones remain stalled or abandoned.
This would not only boost investor confidence but also provide the government and the public with a clearer picture of Malaysia's economic trajectory.
Transparency in this area would ensure that foreign investment, particularly from key partners like China, is being effectively tracked and managed to deliver the promised benefits to the Malaysian economy.
Looking ahead, while the second half of 2024 may see Malaysia continuing to attract significant foreign investment, the challenge will be ensuring that these investments are not only approved but also realized and aligned with Malaysia's long-term economic and environmental goals.
If MIDA shifts its focus from merely approving investments to ensuring they are achieved and sustainable, Malaysia could see a stronger performance.
However, much will depend on how Malaysia navigates its increasingly complex relationships with both China and the U.S.
The geopolitical landscape will likely continue to influence the types of investments Malaysia can attract, as well as the country's broader economic trajectory.
Foreign Direct Investment (FDI), Ringgit, Manpower
If we want to focus solely on foreign direct investment (FDI), then it's essential that we prioritize attracting only the highest-quality investments.
The key here is to send a clear and strong message to global investors that Malaysia is shifting away from its traditional reliance on low-skill, labor-intensive industries.
Our focus is now on high-skilled sectors like ICT and semiconductors, which are the engines of the future economy. This shift isn't just a policy adjustment; it's a reimagining of Malaysia's role in the global supply chain.
By emphasising innovation and highvalue industries, we can position Malaysia as a premier destination for tech and manufacturing giants looking for both skilled labour and a business-friendly environment.
And when it comes to the ringgit, exchange rate fluctuations should not be our main concern.
In the long run, the value of the ringgit will be determined by the productivity of our economy, not short-term currency movements.
By focusing on raising productivity—through innovation, education, and infrastructure development —we can ensure that the ringgit stabilises in a way that reflects our economic strength.
It's productivity, not currency volatility, that will ultimately drive our competitiveness on the global stage.
Therefore, if we are laser-focused on attracting high-quality FDI, we need to communicate that Malaysia is more concerned with building an innovative, skilled workforce than chasing short-term currency gains.
Investors will see the long-term value in a nation that prioritises sustainable growth over quick wins.
In the short run, the biggest manpower challenge facing Malaysia is ensuring that workers are available when businesses need them.
Global business cycles are increasingly volatile, and when disruptions hit—whether it's a pandemic, a supply chain shock, or geopolitical instability—production grinds to a halt because of a lack of available labour.
This is a pressing issue that can derail economic momentum in the blink of an eye.
But looking beyond these short-term fluctuations, the real challenge lies in the long-term transformation of our workforce.
As Malaysia shifts toward high-tech, high-value industries, the demand for skilled workers will only intensify.
The problem is that our current ratio of high-skilled labor isn't where it needs to be to support this economic evolution. We are entering a world where advanced production techniques, automation, and digitalisation are the norm, and yet, we find ourselves with a workforce that is not yet fully prepared to meet the demands of these industries.
This is not just a skills gap—it's a skills crisis that we must address with urgency.
If we want to keep pace with the future of manufacturing and technology, we need to double down on education, training, and workforce development now.
It's a race against time to ensure that Malaysia has the talent pipeline to power the next generation of economic growth.
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Economist Samirul Ariff Othman is an adjunct lecturer at Universiti Teknologi PETRONAS (UTP), 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.