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.
- 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.
- 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.
- 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.