TradePromotion

Invest in Malaysia

2017-2-6 12:02:10

Malaysia stands out as one of the economic success stories in Asia over the past few decades. From a plantation economy at the time of independence,

with rubber and tin representing one half of GDP, Malaysia has become a diversified, open economy. Poverty, which was widespread at the time, is now virtually eradicated, except in certain pockets of the country. GDP per capita is now seven times as high as it was in 1980 (in purchasing power terms) and Malaysia has become one of the countries the most integrated into the global economy through trade. The distribution of income among ethnic groups has also improved dramatically since the 1960s. Malaysia is now the second richest economy within the Association of Southeast Asian Nations (ASEAN) after Singapore.

Malaysia has set itself the goal of becoming a high-income economy by 2020. This will require annual growth of private investment of 10.9% or RM 148 billion. Recognising that there are challenges in meeting this goal, the New Economic Model (NEM), inaugurated in 2009, compiled well over 100 different recommendations. A new Performance Management and Delivery Unit was created to ensure that reforms are implemented. Strategic initiatives include the Economic Transformation Programme to stimulate private investment and the Government Transformation Programme to make the government leaner and more consultative, with measurable targets in the form of National Key Result Areas and Strategic Reform Initiatives.

The government has begun since 2009 to liberalise rules for foreign investors in service sub-sectors. Many of these sectors play a key role in the competitiveness of all sectors and of all firms, including small and medium-sized enterprises. Recognising the contribution of services to competitiveness, the government has announced that it will continue to liberalise the rules for the services sector, for both domestic and foreign firms.

Foreign investment has also been facilitated by the removal of the Guidelines of the Foreign Investment Committee which initially governed all foreign acquisitions in Malaysia but is now restricted to certain investments in property. Intellectual property (IP) is recognised, under the Economic Transformation Programme, as a pillar for transforming the economy. IP rights have been strengthened through the National IP Policy, the creation of IP courts and awareness raising programmes, but investors still complain of weak enforcement of IP rights.

Malaysia has a good track record in investment promotion. The Malaysian Investment Development Authority has been tasked as the lead agency to coordinate activities of all investment promotion agencies to ensure consistency at different levels of government. After-care service is being given greater emphasis by MIDA to facilitate investment. Overall, investment promotion is being geared towards capital- and knowledge-intensive projects, offering high value-added and high technology.

Weak corporate governance is widely recognised as one of the causes of the Asian financial crisis, and Malaysia has done much to improve standards in this area. The Malaysian Code on Corporate Governance was issued in 2012 and new institutions have been created. For GLCs, the government launched the GLC Transformation Programme to improve the performance of GLCs. Corporate governance reforms have included some responsible business conduct initiatives where Malaysia has made laudable progress in many areas, including high-level political endorsement, while co-ordination and oversight remain difficult.

These many and varied reforms are already starting to affect investor perceptions, and foreign direct investment reached an historic high in 2011 in absolute terms. Domestic investment has also shown some improvement. At the same time, private investment has never fully recovered to the levels in real terms seen before the Asian financial crisis in 1997. This Review documents the reforms that Malaysia has undertaken over time and examines areas where further reforms could address remaining shortcomings in the investment environment and place the Malaysian economy of its trajectory towards developed country status by 2020.