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Thursday, March 10, 2005
Malaysia FDI drops 16%



Report by Liau Y-Sing

Foreign direct investment [FDI] in Malaysian factories fell 16 percent in 2004, and while the gomen played down the impact of China, it pledged to improve policies to attract more foreign money. FDI in 2004 amounted to 13.1 billion ringgit (USD3.4 billion) compared with 15.6 billion ringgit in 2003. In 2004, Germany, Singapore, the United States, Japan and Taiwan were the main investors. The investment was mostly in the electrical and electronics sectors, printing and publication and petroleum chemical products. The fall in FDI came despite a relaxation in foreign equity ownership and expatriate employment rules.

China is a keen competitor to Malaysia for FDI and because of her lower labour cost, some manufacturing and investment have shifted to China from Malaysia. As to what is truly Malaysia's loss and China's gain, it is anyone's guess.

Our MINIster Rafidah attributes the decline to prevailing global trend and that even though China is a competitor, she is not a threat. She said that in many areas, China is often a partner. But if Malaysia does not do something to attract more FDI, she may find the FDI taking an even bigger tumble than the 41% experienced in 2002! So it looks like MINIster Rafidah and her backroom boys and girls will have to crack their heads to come out with policy changes to attract the greatly needed FDI. If not she will find those states which economy depend on manufacturing especially Penang will continue to be gloomy. In the boom days, Penang was certainly the "Pearl of the Orient". But already many factories have shifted to China and Thailand were costs are lower.

As to how much our insistence of continuing with the USD-Ringgit peg of 1USD=RM3.8 is contributing to the decline of FDI, one cannot be too sure. But obviously factories starting up or expanding will have to foot out more ringgit for their imported machineries. Much has been said as to when the peg will be removed, and according to some the window of opportunity to do so is narrowing or closing. But like the PM, MINIster Rafidah insists that the peg will stay as :: "It's never working against us. So far it's been very good for us. It has provided the kind of predictability which businesses require." So it looks like the peg will stay, for now.




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