Global foreign direct investment (FDI) flows are expected to plunge 40% this year from the US$1.54 trillion (RM6.55 trillion) registered in 2019. Meanwhile, in Asia, FDIs are forecast to fall between 30% and 45%. Yet, this sombre and uncertain outlook has not dimmed the potential of Selangor as an investment destination.
“The Covid-19 pandemic affected FDI as lockdown measures slowed the implementation of existing projects. In the short and medium term, falling corporate earnings and a slum in global and regional demand will cause multinational corporations (MNCs) to reassess and, maybe, postpone new investments. In the long term, however, diversion of investments [to new locations] will increase the resilience of global supply chains and improve the autonomy of critical supplies,” says Datuk Hasan Azhari Haji Idris, CEO of Invest Selangor Bhd.
Despite the negative outlook for the global economy and contracting FDI, Invest Selangor has already secured several projects from MNCs, and Hasan says more are in the pipeline. Investing opportunities can still be found, as global companies are paying more attention to Southeast Asia amid the rise of economic nationalist policies among the world’s major economic superpowers. “The growing trend of nationalist policies, especially in the US, India and Brazil, has led to a diversion of FDI. We have been seeing increasing interest among MNCs to move into Southeast Asia. Furthermore, the Covid-19 pandemic highlighted the vulnerabilities of a concentrated supply chain. I expect there will be a shift in the global value chain post-Covid-19 and FDI will slowly move into this region,” he says.
Besides looking to attract investment from companies that are planning to relocate or expand outside China, owing to rising tensions between the world’s two largest economies, Invest Selangor is also looking at opportunities from MNCs that want to relocate away from countries critically affected by the Covid-19 pandemic.
“At this stage, investors are prioritising business sustainability as the pandemic hit global trade and investment on an unprecedented speed and scale. But there are investment opportunities to be found and our main challenge is stiff competition from other countries in the region. To keep up with the momentum, we are aggressively promoting and engaging with our international partners such as the Malaysian Investment Development Authority’s (Mida) foreign offices, international chambers and business associations via virtual platforms. This enables us to understand post-pandemic business sentiment in different countries,” says Hasan.
According to Mida, Selangor was the top investment destination in the country last year, with 315 approved projects. The state also topped the list of most investments with RM17 billion in approved manufacturing projects, which surpassed Invest Selangor’s target for 2019 by 70%. “More than 20,000 people will benefit from the potential employment created from projects we received last year. Selangor was also the highest recipient of domestic direct investment in the country in 2019. We have not neglected direct domestic investment and continue to see expansion among domestic businesses operating in industries such as plastic and rubber products and food and beverage this year,” says Hasan.
Invest Selangor has yet to change its investment target of RM12 billion in the manufacturing sector for 2020. “It is still too early to estimate the full impact, although the Covid-19 pandemic will clearly affect investments in the state this year. Interestingly, our engagement with industry players has also revealed a silver lining in terms of increasing digitalisation among business,” says Hasan.
“Sentiment among the business community in Selangor is that they are ready to further develop their digital capabilities after this pandemic. This information allows us to strategise and develop a suitable approach to attract potential investors to Malaysia and Selangor over the next six months.”
Invest Selangor plans to retain current investors by continuing active engagement with local and foreign companies to ensure sustainability of their operations in the state. The state agency is also looking to explore opportunities in new sectors, especially those related to Industrial Revolution 4.0 (IR 4.0).
“We are also undergoing our own digital transformation and have created a virtual hub to engage and network with our stakeholders. This hub, known as the Selangor Business Hub, will be launched in mid-August. It comprises Investment Selangor Bhd’s Investment Promotional Programme, Virtual Selangor International Business Summit, Virtual Selangor Information Technology and E-commerce Council Programme and Selangor Halal Business Hub,” says Hasan.
Penjana’s attractive tax incentives
Invest Selangor expects Malaysia’s fourth economic stimulus package, Pelan Jana Semula Ekonomi Negara (Penjana), to further position the country as the preferred investing destination in the region. “Penjana provides a variety of new and enhanced fiscal incentives, from tax incentives to deductions, for the manufacturing sector and the establishment of new businesses,” says Datuk Hasan Azhari Haji Idris, CEO of Invest Selangor Bhd.
Key features in this stimulus package include:
- 0% tax rate for 10 years for companies in the manufacturing sector that make an investment in fixed assets of between RM300 million and RM500 million;
- 0% tax rate for 15 years for companies in the manufacturing sector that make an investment in fixed assets exceeding RM500 million;
- 100% investment tax allowance for three years for an existing company in Malaysia that relocates its foreign facilities in the country;
- A special reinvestment allowance for selected manufacturing and agricultural activities for the year of assessment 2020 to 2021; and
- Approval of a manufacturing licence for non-sensitive industries within two working days.
Success stories from the golden state
Selangor, the golden state of Malaysia, appeals to investors with its strategic location, infrastructure and rich talent pool. Representatives from four companies talk to The Edge about their operations in this state and their post-Covid-19 plans. They are Kavan Jeet Singh,
CEO of UPECA Aerotech Sdn Bhd; Mitsuo Honda, Senior General Manager of Daikin Malaysia Sdn Bhd; Toyokatsu Okamoto, Managing Director of Panasonic Manufacturing Malaysia Bhd; and Datuk Zulkarnain Mohamed, Senior Operations Director of Spirit AeroSystems Malaysia Sdn Bhd.
The Edge: Why did you decide to establish operations in Selangor?
Kavan Jeet Singh: Upeca Aerotech chose to establish in Selangor for a few reasons. Key considerations; definitely the good infrastructure and readily available large factories, reliable utilities and connectivity to KLIA and ports. Adding to that was also the availability of suitably trained work force. Then in 2019 we established a second 180,000 sq. ft. facility in Subang to be close to our customer, Spirit AeroSystems Malaysia.
Mitsuo Honda: The presence of multinational corporations, well-established local corporations, world-class infrastructure and a well-connected global supply chain makes Selangor the preferred investment destination for manufacturing activities. Invest Selangor is also an excellent state promotion agency and has consistently met our needs and greatly assisted in expediting all the necessary approvals for our projects.
Toyokatsu Okamoto: Panasonic Manufacturing Malaysia was established in Selangor more than 50 years ago. At that time, industries, attracted by its geographical location, were just starting operations in this state. Now, Selangor remains an attractive location because of its advanced infrastructure and stable, mature townships.
Datuk Zulkarnain Mohamed: Spirit AeroSystems decided to establish a footprint in Asia in 2007 and selected Malaysia with Selangor as its choice of location. The selection was based on the available infrastructures, existing trained/skilled workforce, excellent engineering capability, good education and training system.
Selangor is the Aerospace/Aviation Center for the nation with major hubs for aviation activity in KLIA and Subang. The industry support structure has already been established and functioning.
The incentives package offered by the Malaysian Government through MIDA was attractive to start a competitive and successful venture.
Please describe your operations here.
Kavan: Upeca Aerotech are a comprehensive aerospace manufacturing company. Our capabilities range from CNC machining, sheet metal, surface treatment, electroplating and assembly of aircraft structures. We have over 500 employees operating from two facilities within Selangor and a total combined size of nearly 290,00 sq. ft.
Honda: We are the only air-conditioning manufacturer in the country that produces a wide range of heating, ventilating and air-conditioning equipment for the domestic and global markets. Daikin Research and Development Centre is also based in Selangor and its work allows us to enhance our products, develop advanced air-conditioning technologies and expand our market around the world. Daikin Malaysia Group has 4,300 employees, of which 20% are engineers and technicians.
Okamoto: We are an electrical appliances manufacturer with two factories in Shah Alam. This is where we manufacture 11 products, including ceiling fans, home showers and kitchen appliances. As at June, we had a total of 2,129 employees, which include 290 in the management team and 1,908 in production. The majority of our workforce are production workers, of which 30% are foreigners. We require a steady supply of labour, but there is often a shortage of local workers for 3D (dirty, dangerous and difficult) jobs.
Zulkarnain: Spirit AeroSystems Malaysia has established itself as the lead aerostructures company in Malaysia and one of the biggest in the Asia Pacific. In June 2018, we opened and began operations in a 50,000 square-foot manufacturing facility adjacent to other buildings on our campus in the Malaysia International Aerospace Centre near Kuala Lumpur. The site serves the two largest commercial aircraft manufacturers, Airbus and Boeing, through parts assembly for the Airbus A320/321 and A350, and the Boeing 737 and 787. In Subang, product capabilities range from wing components to fuselage components for the listed programs. Spirit AeroSystems Malaysia has established a competitive supply chain in Malaysia which supplies 60% of our current demands.
Our safety, quality and delivery achievements are considered best in class. This is due to the skill level, discipline and dedication of the employees towards being the best.
The skills needed for aerostructures assembly are those which involve high precision drilling, fastening and understanding of the high engineering and quality standards to produce parts.
Can you tell us about your plans?
Kavan: The global business and economic situation remains uncertain. Whilst our priority is on ensuring a safe working environment for our employees, we will continue to manage our costs corresponding to the reduced business in the near term and ensure we are ready to take on the challenges as our markets begin to recover.
Honda: The Covid-19 pandemic has increased demand for air purifiers and Daikin Industries Ltd Japan has appointed Daikin Malaysia as an additional manufacturing base for these products. We plan to invest an additional RM13 million in our production facilities and on mould and die fabrication that we plan to outsource to local manufacturers. We are indeed fortunate to have a conducive supply ecosystem [in Selangor] that allows us to localise the production of components, especially plastic injection moulds.
Okamoto: We will continue to enforce safety measures such as sanitising the premises, daily temperature checks, wearing masks and practising social distancing in work and rest areas. We will also introduce more high-quality products with special safety features for consumers and work towards achieving ‘smart factory’ status by 2030. Panasonic Manufacturing Malaysia will also embark on a green technology project to conserve the use of energy and natural resources. Finally, we will continue with our expansion plans, which are expected to increase our current production of fans capacity by 35%.
Zulkarnain: The ongoing global pandemic continues to impact the demand for new commercial aircraft and the airline industry as a whole. Although this has been an unprecedented time in our industry, we remain focused on fulfilling requirements to our customers. We are confident in the future of the aviation industry, and in our ability to navigate through these challenges to emerge as a stronger company. Spirit AeroSystems will continue to work with our customers to prepare for and meet future production needs aligned with market demand.