Enduring myths and realities about FDIs

Foreign direct investment (FDI), the net inflow of long-term investments, is a rather fickle condition as the chart for quarterly FDI net inflows for Malaysia shows below.

It is further complicated by two other considerations. Approved investments are more like fairy tales and castles in the air - pie in the sky, approved but not necessarily committed or already invested. But they offer some indication of the future even if highly imperfect.

And then there are actual, real investments. This is the moment of truth when fluff disappears into thin air and myths are busted. As the cloud lifts, the cold hard facts emerge into view on the ground measured by net investment inflows into lasting ventures.

When Prime Minister Anwar Ibrahim says there were RM330 billion in total approved investments for last year, it does not mean that this amount of investments was made. They were approved but have not yet transformed into actual investments on the ground.

Also, these are total approved investments, both domestic and foreign. Out of this total, 57 percent were foreign and 43 percent were local, amounting to RM188 billion and RM142 billion respectively.

However, actual FDI for 2023 was about RM38 billion compared to approved investments of RM188 billion, or just one-fifth of approved investments.

Two factors are at play here. First, that astounding RM330 billion comprises mere approvals, not iron-clad commitments in the form of agreements - more like the infamous memorandums of understanding of the days of yore.

Those were the heydays of the go-go nineties when Dr Mahathir Mohamad and Co under Malaysia Inc traipsed around the world to get FDI commitments. We even had an MOU king who signed them left, right and centre but delivered none.

There is an unfortunate eerie uneasy resemblance to the current situation with Anwar as well who is claiming hundreds of billions of investments, most of which are not going to be realised any time soon.

The second factor is that these investments are not committed for 2023 but can extend to an investment over years and even decades. For example, Microsoft’s US$2.2 billion investment (over RM10 billion) in Malaysia spans four years.

The reality

Now, it is time to abandon mythology for reality. Let’s look at that chart again of net investment flows. It shows quarterly inflows over the last three years. The only discernible trend is that investment picked up sharply in late 2021/early 2022. It’s a no-brainer explanation - pent-up, catch-up investment post-Covid-19.

Can the Madani government claim any credit so far for the supposed rise in investments or take the blame for the fall later? The honest answer - no, Anwar’s claims of record approvals for investments notwithstanding.

Look at the last bar on the chart, for the first quarter of 2024. FDI plunged to RM5.45 billion from RM17.55 billion in the last quarter of 2023, a precipitous drop of just over two-thirds. It was attributed to lower inflows in equity and investment fund shares and a shift in debt instruments leading to a net outflow there.

Is the Madani government at fault? No. It’s simply the ebb and flow of the tide of investment, sometimes fast, sometimes slow. The trick is to turn the trend of the tide in our favour. But we’ve not begun to do anything to switch our fortunes in the long term - that’s the government’s fault. They have yet to start the ball rolling.

To think that repeated whirlwind tours through multiple countries will garner FDI when years of efforts have not succeeded as well is to be naive in the extreme at best and to resort to misleading grandstanding at worst. The government must start the process of rebuilding the country, whose edifices are beginning to crumble.

Walk the talk

FDIs and domestic investments are about conducive investment climates. That involves multiple, complex factors and interactions. It means strategic, long-term measures translated to clear, careful execution on the ground. The talk must be followed by action.

We need to improve infrastructure (eg, what’s happening to MRT in the KL/Klang valley where at least RM50 billion was spent), not only for FDI but for ourselves so that we are not stuck in endless traffic, wasting precious time that could be better utilised.

We need to improve education to ensure not only that we have a trained workforce but a continually adaptive one which has the intelligence and skills to change nimbly with the vacillating world conditions to ensure we can still get fair incomes by successive productivity increases.

We need to streamline and reevaluate the incentives we give for FDI and give similar ones to local investors. Why do we have better incentives for foreigners than locals? Who benefits if investments use cheap foreign labour to produce their goods here? How do we get to more value-added investments?

We need our leaders to stay put in the country, put their heads together, get expertise in and prioritise what needs to be done and execute without delay. We need to focus on domestic issues where we can make positive changes rather than foreign ones where we will have no impact at all.

What foreigners want before investing here is stability, investment friendliness, great infrastructure, good quality of life, educated smart locals, no red tape, efficiency, corruption-free measures, better productivity, progressive thinking, less extremism etc, etc.

This is what we Malaysians want too because that will improve the quality of our own lives and stop wastage.

Take care of ourselves and our country and the investments will surely flow in. They have in all countries in the world, which have focused on the basics instead of grandiose schemes and cheap talk that help no one. - Mkini

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P GUNASEGARAM believes that charity begins at home.

The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.