Friday, September 26, 2008

Malaysia Boleh: Only ASEAN country to experience net capital outflows

Foreign direct investment (FDI) outflow from Malaysia nearly doubled to RM38bn in 2007 from RM21bn in 2006, according to the United Nations Conference on Trade and Development World Investment Report. The RM38bn outflow was far higher than the RM29bn inflow, leading to a net outflow of RM9bn.

This is the first time ever that Malaysia has experienced net outflow, and Malaysia is the only one among 10 ASEAN countries to suffer net outflow. The poor numbers are even more disappointing given that 2007 was the year that the southeast asian region recorded it highest ever FDI inflow, up 81% to RM209bn.

Malaysia is rich in oil and agricultural potential and should be gaining large investments due to the boom in commodities. Instead we are not just lagging behind, we are in negative territory. There are myriad explanations for this, but they all boil down to one core reason: lack of confidence in the government.

Investors seek stability, transparency, and rule of law.

  1. On stability, Barisan has a clear majority in Parliament and needs only 8 more seats to have a 2/3rd majority, Anwar needs 30 MPs to take over. Who should be in the stronger position? And yet Barisan appears busier reacting to Anwar than actually governing. Stability also applies to government policies, which right now seem capricious – take the latest U-turn over the windfall tax for IPPs. Announced in June to very adverse market reaction and now removed. On one hand the government can say it is responding to market feedback. On the other hand, perhaps the implications of the action were not properly thought out in the first place.
  2. Transparency – the efforts to root out corruption do not seem to be working. Malaysia fell in Transparency International’s Corruption Perception Index from 43rd place (out of 179 countries) in 2007 to 47th (out of 180 countries) in 2008.
  3. Rule of law – ISA detentions of journalists and elected MPs which are not subject to judicial review give the impression of authoritarian government ignoring civil liberties. It also appears the law is selectively applied – Opposition politicians are quickly investigated when reports are lodged but action seems slower when it involves government personalities.

Investors have to be reassured that their investments will not be subject to sudden policy changes, they have access to independent judicial redress in the event of contractual disagreements and that their dealings with the government can be on open and transparent terms. What we need: 1) An Independent Commission Against Corruption and open court trials and jail terms for the corrupt. Not just “transfers” to another department, 2) The ISA to be used only as a last resort and certainly not against journalists reporting facts, 3) The police force acting as and being perceived as neutral, independent enforcers of the law.


Hasbullah Pit said...

I found your blog from tony pua blog.

Anonymous said...


Welcome to blogosphere + congrats on ur new appointment.

Anyway, I hope you will not turn into a politician but continue with sound analysis.

WOn't you say one main reason that ppl are not investing besides stability is competitiveness (are the returns on our company comparable, i dunno, din really check) and due to the credit crunch, well no crunch last year.

What do you think of this article in Today via Malaysian Insider?

Other half of money-flow story

KUALA LUMPUR, Oct 4 Datuk Seri Anwar Ibrahim thought he could take a swipe at the government at a forum in Hong Kong recently when he said that for the first time, Malaysian investment abroad had exceeded inward foreign investment in 2007.

However, it is not as alarming as it sounds. Anwar only told the audience half the story. The document he quoted from the bulky United Nations Conference on Trade and Development's World Investment Report 2008 should have been quoted in context.

What Anwar left out was the fact that both Malaysia's inflows and outflow growth had been positive, with outflows growing faster than inflows. Since early 2000, the foreign direct investment inflow and outflow gap has been narrowing, reaching near parity in 2006.

This trend was in line with what was happening in many of the developing economies in South, East and Southeast Asia. FDI outflows in these regions reached a new high of US$150 billion.

Also isn't Pakatan causing much of the instability?

Unknown said...

Capital outflow must be broken down into 2 segments since we are focusing on FOREIGN DIRECT INVESTMENT.

i. How much of the money which had gone out was caused by a withdrawal of invested capital. (As opposed to hot money flowing out because of poor market performance and a sliding ringgit caused by low interest rates)

ii. How much of the outflow was because of local capital flowing out for investments in foreign countries.

I see local money flowing out for investment overseas a healthy sign because these investments bear returns to the investors and contribute to the overall standing of the holding companies in Malaysia in the long run.

Jeremiah said...

Congrats on your new appointment.

I think you should be ready to criticise poor economic policies whether from DAP or BN. The biggest failure/questionable economics of Anwar's policy thinking is his recomendation of a cut in fuel prices. There is no justification for continued subsidies when oil is expensive and a non-reneable resource.

Avatar said...

Dear Chi Chang,

I've also arrived from Tony's blog. Impressive credentials :)

I think the public at large is confused about economic issues especially the sub-prime residential mortgage and credit default swaps.

How about a post or a series of posts on the current economic situation in US and what it means for us average Joes in Malaysia?

This would be useful information in DAP's publication or the Rocket. Something in lay person's language.

I was tempted to write something about it myself, but maybe you would do a much better job at it.