Malaysian economy in trouble - malaysiakini report

Report from Malaysiakini.com

Foreign direct investment (FDI) outflow in Malaysia has exceeded inflow for the first time ever, underscoring fears that investors might be losing confidence in the government and its economic policies.

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"This is a period when we should be riding the commodity boom. Perhaps this is a sign of a prolonged lack of confidence in the government and its economic policies," economist Dr Lim Teck Ghee told Malaysiakini.

"There is a need for a comprehensive analysis which is not only focused on statistics. We must ask ourselves what are foreign and local investors telling us about our market and policies."

According to the United Nations Conference on Trade and Development World Investment Report 2008 released today, FDI outflow in Malaysia surpassed inflow by RM8.99 billion in 2007.

Malaysian outflow had surged by 81.9 percent to RM38 billion in 2007 from RM20.89 billion the year before. Inflow, on the other hand, increased by only 39 percent to RM29.07 billion versus RM20.91 billion in 2006.

Within the 10-member Asean trading bloc, Malaysia was glaring as the only country to record a negative flow.

This took place despite the fact that the Southeast Asian region recorded its highest ever FDI inflow - which leapt 81.1 percent to RM209.2 billion in 2007 from RM115.5 billion in 2006.

More Malaysians investing abroad

Zainal Aznam Yusoff, a member of the Malaysian Economic Council, told a the press conference held after the report’s release that the net outgoing was caused by Malaysians investing more of their money abroad.

"Malaysia is actively integrating and going into Asean and beyond," said Zainal, adding that a sizeable chunk of the off-shore investments made by Malaysians went into countries such as Singapore, Indonesia, China and Middle-East.

Building infrastructure, such as telecommunications, agriculture, manufacturing, finance and mining were favoured investments. "We are quite diversified," Zainal said.

He said another reason for the greater outflow was because many Malaysian firms had partaken of cross border acquisitions - a stance in keeping with the government’s call to invest abroad.

"The overall balance of payment is fairly healthy, despite the sizeable outflow," said Zainal when quizzed about the figures.

"So you can’t generalise. You must look at the second and third round effect of the benefit you get from the repatriation of money that comes back here and what you use it for," he said.

Act now to avoid marginalisation

Zainal, however, said the latest data indicated that FDIs might trend further down, given the global economic downturn.

Asked if the various economic growth corridors planned by the government could arrest or offset the declining trend, Zainal said the growth zones were at still infancy stage and thus any inflows may not be reflected by next year.

"I very much doubt you will see very much substantial inflow. There are a lot of stories about investors making promises. It is one thing to make a commitment, but the actual bringing in of the funds will take some time," he said.

However, he expects Iskandar Malaysia (formerly known as Iskandar Development Region) to be the first to show results.

Menwhile, Lim - a former World Bank economist - urged the government to take quick action or risk facing further marginalisation from global investors.

"We must find what kind of changes are needed to meet the investors needs, such as changes to the New Economic Policy, which continue in labour, property and the stock market and they will constrain our development," Lim said.- MALAYSIAKINI

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