Posted on 01 Dec 2011
WHILE Malaysia's foreign direct investment (FDI) for the first nine months of 2011 looks impressive, the question is whether all of it will come through, considering the economic woes in the West.
An economist at a local bank-backed brokerage said that barring any unforeseen circumstances, it usually took three to five years for the FDI to be realised once it had been approved.
“It (the FDI) has not been realised yet; merely approved. The investments are just pledges made by investors to invest in a particular project. If economic conditions worsen, it might not happen.
“If the global environment is good, then the possibility of realisation is higher,” he said.
He said once the investments were approved, it could take as long as five years for them to be realised.
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“If there are buildings to be built, it could take up to five years for the full investments to be realised.
“If there are already facilities exeisting, then it may take three years for the investments to be realised,” he said.
Malaysia's FDI rose 42% to RM26.4bil in the first nine months of 2011 from RM18.6bil in the previous corresponding period.
In a statement on Monday, International Trade and Industry Minister Datuk Seri Mustapa Mohamed said that this year's FDI was expected to surpass the RM29.3bil achieved for the whole of 2010.
While the FDI inflows for the first and second quarters of 2011 were strong at RM10.1bil and RM11.07bil respectively, they however moderated in the third quarter to RM5.17bil.
Mustapa said the nine-month FDI inflows and private investments indicated that the various initiatives introduced by the Government to spur economic growth were showing positive results.
The Government had initially targeted total FDI to hit RM32bil this year. The FDI in 2009 stood at RM5bil.
The economist said investments announced under the Economic Transformation Programme (ETP) had a higher realisation rate.
“Projects that fall under the ETP are committed investments and monitored by the Performance Management and Delivery Unit (Pemandu),” he said.
Pemandu comes under the Prime Minister's Department that oversees the ETP's implementation.
At the latest ETP update earlier this month, it was revealed that computer giant IBM and Japanese electronics firm Toshiba would be investing RM1bil and RM268mil respectively, while a top-ranked technology company, US-based Akamai Technologies, had also pledged to invest in Malaysia.
Other notable investments into Malaysia this year include Panasonic Corp's commitment to invest RM1.9bil in a new solar manufacturing facility; Vale SA, the world's largest iron-ore exporter, which is investing RM15bil over the next 10 years to develop a mega distribution centre; Stuttgart-based technology company Robert Bosch GmbH's RM2.2bil investment in a solar panel manufacturing plant; and Japanese tyre maker Toyo Tire & Rubber Co Ltd, which is investing RM1.2bil over the next four years to expand its operations in Perak.
RAM Holdings chief economist Dr Yeah Kim Leng said that in “normal economic times,” FDIs had a 80% to 90% implementation rate.
“If prospects are weaker, the implementation rate could fall to 70%. There could even be delays in the implementation, especially projects that have elements of uncertainty, usually those tied to contemporary demand,” he said.
Yeah said he expected the bulk of Malaysia's nine-month FDI amount of RM26.4bil would be realised. He concurred that the realisation period of the investments could take as long as five years.
“For greenfield and brownfield projects that have a longer gestation period, it could take up to five years. Projects that have faster start-ups, such as mergers and acquisitions, have a quicker turnaround period and will be realised sooner,” he said.
Yeah also concurred that projects under the ETP were “by and large committed already”.
“Companies here will stake their reputation on these projects, so they will likely be implemented,” he said.
Some observers believe that Asian countries need to look to other markets in the region to withstand the economic crisis in the United States and Europe.
On whether the FDI into Malaysia will be affected, Yeah said the outlook for Asian markets was still positive.
“We don't see any uncertainties in established markets derailing projects in Asian markets,” he said.
According to the Malaysian Industrial Development Authority, the bulk of the investments in the first eight months of 2011 was from the electronics and electrical sector, totalling RM8.55bil. This was followed by investments in the basic metal and chemicals segments, totalling RM5.19bil and RM4.7bil respectively.
In the January to August 2011 period, the highest number of investments was from Japan, totalling RM2.47bil. This was followed by the United States and Saudi Arabia, with investments totalling RM2.36bil and RM2.17bil respectively.
