Written by: Averroes
(1.0) Introduction
(1.1) Definition of FDI
Foreign Direct Investment (FDI), in one way can be defined as the transmission of capital, technological transfer, new skills, knowledge and technique in firm production and competition between local as well as foreign producers, together with exports-imports that results in economic growth.
Another definition for FDI is that, it is where foreign countries invest their assets into another country's domestic structure, equipments and organisations, but does not include stock markets. For a better picture, a country's economic performance could be assessed by the large pool of investors keen toward a certain nation.
Moreover, it is a form of investment that involves the insertion of oversea funding to a project in another country, such as country A to B. On the long run, it revolves around collaboration of expertise, cross border acquisition, transfer of technology, greenfield investments and joint-venture.
(1.2) FDI, a brief contemplation
As a developing country, Malaysia is among the earliest countries in Southeast Asia to recognise the importance of FDI. FDI could assist in a sustainable economic growth and performance of Malaysia as well as to foster the welfare of her people. This dynamically altered Malaysia's manufacturing sector.
This massive influx of FDI came to Malaysia in the 1980s through the advent of policies, the Investment Incentives Act 1968, Industrial Co-ordination Act 1975, Free Trade Zones Act 1971 and provisions of export incentives. Most of the FDIs are injected into the electronic sectors.
Interistingly enough, Malaysia also invests in other countries, through her own multinational companies such as Petronas, Khazanah and Sime Darby.
Consequently, the more the FDI, more firms would improve the gross domestic product (GDP) by enhancing skills, knowledge and techniques in their production process. Malaysia is also considered to be the 2nd growing economy in Southeast Asia.
There are splendid positive offshoots from FDI, which would be explained below. Also, there are multifarious means to encourage FDI into Malaysia and reasons why FDI is constantly flowing. This assures that Malaysia maintains a strong competition with our ASEAN neigbours.
(2.0) Positivity of FDI
To summarise, here are the benefits of FDI into a particular country;
(i) Nurtures new technologies, inputs and production systems. These may include, but not limited to highways, railways, interior transport waterways, sanitation, sewers, internet and telecommunications.
(ii) Stimulate economic growth, which promotes entrepreneurship, a well-refined financial system. Research indicates that, the higher the quality of FDI, domestic investment, labour and finances, it equates to a faster growth of GDP (some suggest that FDI and GDP do not complement each other).
(iii) Builds up capital accumulation, better resource allocation and human augmentation
(iv) Allows more job opportunities and reduces unemployment
(3.0) Reasons why FDI is flowing
Apart from the positivity of FDI, Malaysia success in attracting FDI could be demonstrated as in these listed variables;
(i) Sound macroeconomic management and financial systems. One suggest that Malaysia should reduce her corporate tax rate, which is an effective policy instrument. Hence, Malaysia could reconsider lowering their corporate tax rate.
(ii) Sustainable economic growth, such as good infrastructure, exchange rate and market size. In terms of exchange rate, foreign countries prefer other country's with lower exchange rates for cheaper travelling purposes and ease of engaging in trade in the foreign exchange market.
Depreciation makes the host country assets less expensive, in contrast to the investing country without risking a high cost of capital. For superb infrastructure, foreign countries definitely prefer the host with such amenities.
Some suggest that Malaysia's central bank, Bank Negara Malaysia should devalue the ringgit, to increase FDI flows. This comes at a high cost and sacrifice to our own currency, for the sake of more FDI. However, this remains non-conclusive, and may cause our people to have lower wages.
(iii) Country's with large populations (market size) receive the highest FDI, such as in Central and Eastern Europe. Though, this may not be the case for Indonesia and the Philippines. Market size is dictated by the number of buyers and sellers in a specific market, or in other words, consumers and sellers with their share of needs toward goods and servcies.
(4.0) Improvements
The author believes that there are many factors or criteria that we could improvise on to garner more FDI attraction in Malaysia, though others may address their economic theories differently from him;
Firstly, we should ameliorate the current political climate and instability in Malaysia. If we are able to create better laws to tackle issues on corruption, nepotism, public order and safety, cronyism, favouritism, fragile governance and alike, more countries are favourable to invest into our country and not be tangled with criminal or scandalous dramas.
Secondly, we still need to fill in the weaknesses in our financial strategies and regulations as a whole. This requires in-depth research and discourse from all relevant stakeholders. For instances, inflation is a key to attract FDI and if there is a policy or regulation that may reduce it, FDI would increase. The higher the inflation, the higher the price of goods and services and activities in production.
Moreover, this point may also include reduce company or corporate tax as mentioned, offer incentives and open more barriers that were narrow previously. Perhaps, the National Economic Policy and the subsequent Malaysia Plans may be further studied.
Thirdly, our infrastructure has to be improved to attract FDI. Malaysia has among the busiest airports, trade ports, highways and communications in the world, but more contemporary and modern technologies could be made as to rival neigbour countries in their respective infrastructure and technology.
Lastly, education is a quintessential element to induce FDI. It is where human capital and education intertwine to give birth to a class of high-skilled workers from different educational backgrounds, such as business, science, engineering and so forth. Most Malaysians are able to speak in English which is convenient for foreign investors.
(5.0) Conclusion
To conclude, we should applaud and welcome more FDIs into our country, as Malaysia is still a developing country and reaching the status of a high-income nation. As Malaysians, the author hope that we would become loyal and patriotic citizens by serving our country if downright fidelity and contribute our manpower and resources to make our nation better for our current generation and those to come.
(6.0) References;
Alzaidy , G., Niaz Ahmad, M. N., & Lacheheb, Z. (2017). The Impact of Foreign-direct Investment on Economic Growth in Malaysia: The Role of Financial Development. International Journal of Economics and Financial Issues, 7(3), 382–388. www.econjournals.com.
Fazidah, Nor, Determinants of Foreign Direct Investment in Malaysia (June 8, 2013). Available at SSRN: https://ssrn.com/abstract=2276388 or http://dx.doi.org/10.2139/ssrn.2276388
Kalam, Khaled. (2018). Foreign Direct Investment Determinants in Malaysia. British Journal of Business Design & Education. 11(1), 1-17. Retrieved from, https://www.researchgate.net/publication/330555790_Foreign_Direct_Investment_Determinants_in_Malaysia
OECD Proceedings. (n.d) Foreign Direct Investment and Recovery in Southeast Asia. Retrieved from, https://www.oecd.org/investment/investmentfordevelopment/40818364.pdf
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