News Room - Business/Economics

Posted on 12 Feb 2009

Investments grow in Malaysia

WHEN the announcement on investment statistics was made Tuesday, the headline numbers were eye catching.

 

Approved investments hit a record RM62.8bil and that full implementation of those approved projects would lift employment by just over 100,000 jobs.

 

Those numbers are more than commendable given the arguments that political risk in Malaysia has risen since the past general election and reflects the faith international investors have in Malaysia as a manufacturing base.

 

It’s also good to hear, seeing what the global economy is like, that the International Trade and Industry Ministry was looking at new methods and techniques to attract foreign direct investments (FDIs) into Malaysia.

 

But the numbers also tell another story. Firstly, it was lifted by over RM12.5bil by the massive aluminium project in Sarawak.

 

Another number that stands out is the drop in the total number of potential jobs those foreign projects would generate.

 

While the amount of new foreign money for manufacturing projects doubled to RM34.2bil in 2008 from RM17.3bil a year earlier, the number of jobs these new projects will create is smaller than the previous year at 58,518 from 65,703, possibly an indication of less labour-intensive projects being approved.

 

The total number of jobs created rose because the expansion and reinvestment planned by companies should require more workers than the previous year, which will be good news for skilled workers but not so for the rank-and-file seeking employment.

 

But the real worrying number is the shrinking of local investment. The numbers from the ministry said investment by local manufacturers in new projects nearly halved to RM7.8bil from RM13.9bil in 2007. Local companies were also committing less money for expansion and diversification in 2008.

 

That may be countered from an increasing amount of FDI outflows Malaysia has been recording over the years but it might also reflect the crowding out effect private companies have been concerned with over the past few years.

 

But the main worry now is the implementation rate of those projects and there are a number of hurdles ahead that may influence that.

 

The harsh economic reality may well remove the gloss of those high investment numbers as manufacturing companies from all parts of the world have been cutting back on production and jobs as demand has slumped.

 

Expansion will also need cash and, as approval and application rates for loans in Malaysia have fallen over the past few months, getting financing for new projects may prove to be difficult.

 

Adding to the woes will be exports, which have fallen off the cliff in a number of countries. That will most likely influence just how quickly companies will be willing to start expansion plans that have already been laid down but yet to be executed.