FDI into Malaysia crucial for economic growth

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Mah Siew Keong, Minister of Plantation Industries and Commodities of Malaysia

By Mah Siew Keong

Malaysia is an open economy which has benefited significantly from inward foreign direct investments (FDI) into the country, resulting in the creation of new jobs, stellar economic growth, as well as driving valuable technology and skills transfer.

Malaysia’s business friendly policies have been successful in attracting investment in the country over the decades from thriving economic centers such as Singapore, Hong Kong, China, Japan, Arab Saudi, US and UK, among others.

In the past, the rise of Japan in the 1980s resulted in large Japanese investments into Malaysia. Back then, Japanese investments were associated with a ‘flying geese’ pattern, a concept introduced by Japanese scholars describing a leader goose which is Japan, leading the rest of the Asian economies in formation.

Today, this pattern might still hold, but with China potentially taking over the role of the lead goose by investing in Asia as well as the rest of the world.

Malaysia benefiting from China’s investments, beneficiary of BRI

In the above context, the rising tide of China’s investments in Malaysia has become a hot topic in the media, sparking much debate among industry commentators and politicians alike. Chinese investmentshave beenunfairly judged as a new phenomenon here when in reality it has been a carefully planned strategy over decades in making.

Malaysia was the first country in ASEAN to establish diplomatic relations with China through the efforts of the second Prime Minister, Tun Abdul Razak Hussein. For over 40 years, both countries have mutually benefited from their strengthened diplomatic relations.

Malaysia-China economic relations further intensified over the last decade, helped by China’s accession into the World Trade Organisation in 2001.

This has been a mutually beneficial relationship. With China being the world’s second-largest economy, it certainly is a very big market for Malaysian companies to tap into.

Likewise, Malaysia too will stand to benefit as China expands its massive Belt and Road Initiative (BRI) in the region.

The country will gain good advantage from the connectivity between the two countries, with the main focus on the reduction of barriers for international relations, and improving the air, land and sea infrastructures.

It is unfortunate that over-politicisation and misinformation have come to define the discourse on Chinese investments in Malaysia.

Chinese approved foreign direct investments (FDI) into Malaysia’s manufacturing sector grew from RM0.6 billion in 2010 to RM3.85 billion in 2017. So, the notion that China is only interested in infrastructure-led investments is unfounded. Besides, China’s involvement in infrastructure projects in Malaysia is hardly new.

Since 1973, Japan International Cooperation Agency (JICA) provided Malaysia loans to many large critical infrastructure projects in the country such as the Kuala Lumpur International Airport, Port Klang Power Station Project and Pahang-Selangor Raw Water Transfer Project. Likewise, the Asian Development Bank provided loans for the Bintulu Deep Water Port of USD53.8 million back in 1979. The World Bank also offered financing in a number of power, water and port-related infrastructure projects throughout Malaysia during the premiership of Dr. Mahathir Mohamad.

But one must remember that in November 2016 alone, Malaysia signed more than 10 Memorandum of Understandings (MoUs) and other agreements with global partners worth over RM144 billion, followed by even more multi-billion Ringgit MoUs in the following year.

In other words, Chinese investments into Malaysia in cumulative terms are only a fraction when compared with investments from other countries. Without counting for present value, investments coming from JICA alone is at least RM33 billion in total. The actual amount may go above and beyond that figure.

This is especially so because Chinese and other FDIs in Malaysia have been mostly greenfield.Greenfield FDI is when a foreign investor sets up new factories and facilities, creating more new jobs rather than just taking over existing Malaysian companies.

For example, FDI in manufacturing projects in 2016 are expected to generate more than 10,000 new jobs. Chinese steelmaker Alliance Steel alone is reported to create 3,500 jobs with 70 percent of them going to Malaysian workers.

Fear-mongering detrimental to Malaysia’s growth path

These fear-mongering attitude towards FDI is detrimental to the Malaysian economy. It is also unfair to single out a particular country in reference to FDI in order to gain political mileage. The impact of creating such alarmist views and anti-trade approach will actually hurt local small and medium sized enterprises that are ultimate beneficiaries for trades and potential employment.

For instance, tech giant Huawei employs 2,300 staff in its Malaysia operations, with 75 percent of the jobs going to locals. Huawei also reportedly trains 20,000 engineers annually at its centre in Cyberjaya, whilst also facilitating ICT training for more than 10,000 teachers and students through joint programmes with numerous local universities.

Chinese investments in Malaysia will surely provide ample opportunities for technology and skills transfer and with its rising eminence on the global stage, Chinese investments in Malaysia will only continue to grow in the coming years.

Rather than parlay into negative sentiments, Malaysia must embrace these opportunities brought by Asia’s leading economy, much like how Japan did previously.Let us acknowledge the fact that Malaysia and her people have come to benefit and grow tremendously from these foreign investments and opportunities to expand our own economy and resulting livelihoods.

Mah Siew Keong is the Minister of Plantation Industries and Commodities of Malaysia. Views expressed by the author in this article are his own and do not necessarily reflect the opinion of BusinessWorld and its owners.