Building on the trust and accumulated results between Malaysia and Japan, our country ought to lure a bigger volume of Japanese investments strategically after Covid-19. This is an extremely competitive game because other countries in Asean will do the same. Hence, what kind of strategy must we formulate?
Inward investment was nearly US$3.3 billion(RM14.4 billion), US$3.8 billion, and US$2.8 billion in 2016, 2017, 2018, respectively. A drop of US$1.0 billion in 2018 was because of the change in government, which initially had created uncertainty in political and economic environment. It is quite realistic to say Malaysia still can attract additional US$1-2 billion every year from 2021. It is doable if the following three realities were seriously considered.
Firstly, Malaysia's exports to Japan in electrical equipment and electronics are quite similar to those in China. Associate Professor M. Affendy Arip of UNIMAS and me have substantiated the nature of intra-industry trade (IIT) between Japan and China, and between Japan and Malaysia, is largely determined by relative differences in terms of geographical factors being influenced by climate, culture, religion, and other non-economic factors.
Hence, it is important for Malaysia to put more emphasis on strengthening research and development (R&D), and then apply these results in strengthening productivity-driven growth so as to enlarge local contents that are of higher added value.
Secondly, Malaysia must strengthen labour productivity. Malaysia was the highest in 2000 when compared with other countries, but has dropped to the fifth place in 2018, overtook by Thailand, Vietnam, and China in that ascending order. Malaysia has to do harder to attract addition US$1-2 billion annually in 2021 and beyond.
Thirdly, the World Bank's Ease of Doing 2020 shows Malaysia overall ranks the 12th, higher than Thailand (21st), and China (31st). She ranks the 2nd in "dealing with construction permit," the 4th in "getting electricity," the 33rd in "registering property, the 37th in "getting credit". But, Malaysia ranks the 126th in "starting a business". Clearly, Malaysia has to do better in 2021 and beyond.
Japan Bank for International Cooperation (JBIC) conducts annual survey: Prospects for Overseas Business Operations by Japanese Manufacturing Companies in 2019 saw Malaysia ranked 10th (and for the next 3 years) while India, China, and Vietnam was ranked the 1st, 2nd, and 3rd, respectively. That suggests Malaysia still can attract more investment from Japan.
I strongly urge Malaysian enterprises—all sizes—to solicit Japanese investments in food processing, palm oil products, AU, E&E, PM, GM, C, financial technology and its services, commercial services (including e-commerce), and logistics management in distribution.
Malaysia has strong competitiveness especially in halal and Islamic finance. Nikkei Asian Review reported that Malaysia exported RM43.3 billion worth of halal products in 2017. About half of them comprised cosmetics, chemicals and other goods. The journal has also projected global halal market will reach US$3 trillion in 2023. Hence the size of halal markets will become even larger.
There are 2 billion Muslims today. Halal products are indeed hygienic and healthy. Hence their demand will surely go up because personal hygiene and health are the first preventive measure for epidemic after Covid-19. Thomson Reuters in 2017 ranked Malaysia as the 1st in Islamic Finance.
Malaysia is multi-racial and a pluralistic society are attractive. These characters can appeal to Japanese investors. Apart from Malay Muslims, Chinese Malaysians ability in language and cultural understandings, are helpful to Japanese investors especially in deepening and widening exports to China. Last but not least, Indian Malaysians can work well with Japanese investors for markets in South Asian countries.
We prospered in the past not because of but it was in spite of government interventions. Government still has to correct market failures. It ought to ensure level playing field in markets too. Government can transform part of its role to become entrepreneurial state, the term coined by Professor Mariana Mazzucato of University College London. This means our government can become a joint-investor with Japanese or/and with local entrepreneurs.
In order to create higher social benefits, we can invest in new technology and also give direction to their usages. Government can support human resources development, the creation of new markets in and outside Malaysia especially in halal products and Islamic financial products. They are powerful tools for government to work along side with entrepreneurs from within and from outside.
The time after Covid-19 will surely bring in more investment from Japan. We had better start talking to companies in The Land of the Rising Sun.
The writer is a professor at Reitaku University, Tokyo, and has been teaching Southeast Asia studies, international economics, integration, development economics and Asian economy since 1983