Monday February 18, 2008
Are we keeping pace with FDIs?
By GREGORE PIO LOPEZ
MALAYSIA’S reliance on foreign
direct investment (FDI) is well noted. Historically, it was FDIs that laid the
backbone of the Malaysian economy – under British imperialism, plantation
(rubber and palm oil) and mining (tin, petroleum) and after independence, the
manufacturing sector (electrical and electronics).
FDI has played an important
role in financing long-term economic growth in Malaysia. However, since the
financial crisis of 1997/98, the changes in Malaysia’s FDI stock have been a
cause for concern, especially when compared to its competitors.
The UN Conference on Trade and
Development (Unctad) reports that global FDI stock has risen from US$551bil to
US$12 trillion since 1980, with most of the FDI concentrated in developed
countries. In 2006, 70% of FDI stock was located in developed countries while
developing countries accounted for only 26%.
The lion’s share of the FDI
stock in developing countries was in the East Asian economies. Together, they
accounted for 38% of FDI to developing countries.
Malaysia cannot emulate China, India,
or Vietnam but should emulate
Singapore and Hong Kong given similar socio-economic conditions.
FDI stock in China increased
from US$1.1bil in 1980 to US$293bil in 2006, with a significant jump recorded
since the 1990s. If the FDI stock in Hong Kong, the gateway to China, was included,
the performance would be all the more startling.
FDI stock in Hong
Kong alone increased from US$21bil in 1980 to US$769bil in 2006.
This is truly remarkable, as Hong Kong does
not offer any incentives for FDI compared to other developing economies. India, another
awakening giant, too has been recording tremendous growth in FDI stock. In
1980, FDI stock in India
was only US$452mil. This grew to US$51bil in 2006.
In Asean, the star performers
are Singapore and Vietnam. FDI
stock in Singapore
rose from US$5bil in 1980 to a staggering US$210bil in 2006. As for Vietnam, FDI
stock increased from US$1bil in 1980 to US$33bil in 2006. This was remarkable
considering that Vietnam was
at war until 1975 and faced economic embargo from the US until 1994.
started like Singapore
with an FDI stock of US$5bil in 1980. In 2006, its FDI stock stood at only
US$53bil, which paled in comparison with Singapore’s US$210bil. Furthermore,
for the years 2001 to 2005, FDI stock fell lower than the US$53bil recorded in
2000. This is distressing as Malaysia
has all the prerequisites as a favoured FDI destination and provides generous
incentives to foreign investors.
There are several reasons why Malaysia is failing to attract and retain FDI in
comparison to the frontrunners, especially Singapore
and Hong Kong. The main problem has much to do
In the World Bank's Doing
Business 2007 Report, which measured “the ease of doing business,” Singapore was at the top while Hong
Kong ranked fifth. Malaysia
was only ranked 25th. It takes 11 days to start a business in Singapore and Hong Kong and 30 days in Malaysia, while addressing licensing issues in Malaysia takes 281days compared to 129 in Singapore and 160 in Hong
The World Economic Forum's
Global Competitiveness Report and the IMD World Competitiveness Yearbook
provide similar findings on institutional challenges in Malaysia.
cannot emulate China, India, or Vietnam
but should emulate Singapore
and Hong Kong given similar socio-economic
conditions. Lessons from Singapore
and Hong Kong call for a return to meritocracy
in the Malaysian civil service and an arm's length relationship between
politicians and civil servants.
· The writer is senior research officer at the
Malaysian Institute of Economic Research.
The Star Online, 2008)