This article first appeared in The Edge Malaysia Weekly on September 9, 2024 - September 15, 2024

SINCE 2021, Malaysia has experienced a significant surge in total approved investments, mainly driven by foreign direct investment (FDI).

The escalation of the US-China trade war and shifts in the global supply chain have positioned Malaysia as a strategic hub, attracting increasing levels of FDI from global giants such as Intel Corp, Texas Instruments, Infineon Technologies, AT&S, Amazon Web Services, Microsoft Corp and Geely Holding.

In 2022, foreign investments increased to RM163.3 billion, making up a substantial portion of the total RM264.6 billion in approved investments. This upward trend continued into 2023, with FDI reaching RM188.4 billion out of a total RM329.5 billion, indicating Malaysia’s growing appeal as a key player in the shifting global economic landscape.

According to the Malaysian Investment Development Authority (Mida)’s announcement last week, the country secured RM85.4 billion in foreign investments during the first half of 2024 (1H2024), with Austria leading the contributions at RM30.1 billion, followed by Singapore (RM16.5 billion), China (RM9.8 billion), the Netherlands (RM4 billion) and Taiwan (RM2.4 billion).

Notably, foreign investments represented 53.4% of the total approved investments of RM160 billion, while domestic investments made up the remaining 46.6% or RM74.6 billion.

The RM160 billion in total approved investments marked an 18% increase year on year (y-o-y), from RM135.6 billion in 1H2023. These investments span the services (RM97.2 billion), manufacturing (RM60.1 billion) and primary (RM2.7 billion) sectors, and involve 2,948 projects expected to create 79,187 new jobs.

Now, with a decent performance in 1H2024, can Malaysia build on its current momentum and attract high-quality investments in 2H2024, or will global uncertainties slow its progress?

Interestingly, local media reported last week that Intel had partially paused its new chip packaging and testing project in Penang. This project is part of Intel’s US$7 billion (RM30.3 billion) investment in Malaysia, first announced in 2021.

However, in a brief email response last Thursday, an Intel spokesman clarified to The Edge that there have been no official changes to the company’s plans. The spokesman emphasised, “Malaysia will remain an important market as we build on our long and proud history here.”

Most economists whom The Edge spoke to believe that Malaysia should be able to build on its strong momentum from 1H2024 and maintain robust investment inflows in 2H2024.

OCBC Bank senior Asean economist Lavanya Venkateswaran highlights that foreign investment approvals were up about 40% y-o-y in 1H2024 versus 1H2023, likely driven by the electrical and electronics (E&E) and the broader manufacturing sector.

“The outlook for the rest of the year remains optimistic as Malaysia looks to further capitalise on its position in the global semiconductor supply chain, move up the value chain in terms of E&E production and diversify the sources of FDI into other important manufacturing sectors as well as services,” she says.

Lavanya adds that the government’s proactive approach to building a strong FDI pipeline, continued progress on the domestic economic reform agenda, clarity on fiscal consolidation, as well as steady advancements in terms of improving the ease of doing business, buoy FDI prospects for the rest of this year and next.

She goes on to say the continued upward trend in the global E&E sector could further support investment in the sector into 2H2024. Broader manufacturing such as machinery and appliances could also benefit.

“The strategies laid out in the National Semiconductor Strategy [NSS] serve as a strong blueprint to advance and develop the existing semiconductor sector. The various medium-term plans laid out since mid-2023 suggest that the government understands the challenges it will face include those related to the labour market such as upskilling, attracting and retaining talent,” Lavanya elaborates.

Maybank Investment Banking Group chief economist Suhaimi Ilias highlights that Malaysia’s 1H2024 performance of 18% y-o-y growth to RM160 billion showed continued robust approved investment, in turn signalling a positive outlook for the realised (nominal) private sector investment component of gross domestic product (GDP) which accelerated to almost 12% in 1H2024, as compared to 6.5% in 2023.

“We see sustained momentum in 2H2024 to realise the 5% growth in full-year approved investment targeted by the Ministry of Investment, Trade and Industry (Miti). This outlook also takes into account around RM170 billion worth of committed and potential investments secured from Prime Minister Datuk Seri Anwar Ibrahim’s visits abroad so far this year,” he remarks.

Suhaimi notes that the 1H2024 approved investment was underpinned by a revival in domestic direct investment (DDI) following FDI-driven investment approvals in 2021-2023.

He expects this to continue in 2H2024. The technology sector (including E&E and data centres), green sector (such as renewable energy and solar) as well as the real estate sector (namely industrial parks and logistics, warehouses and fulfilment centres) are anticipated to become approved and realised investments.

Suhaimi points out that political stability enables the government to focus on policymaking. Therefore, Malaysia was able to release macro blueprints such as the Madani economy framework, as well as the supporting road maps, master plans, initiatives and strategies, including the National Energy Transition Roadmap (NETR), New Industrial Master Plan (NIMP) 2030, Johor-Singapore Special Economic Zone (JS-SEZ) and NSS between 2H2023 and 1H2024.

“This is on top of the ongoing geopolitical uncertainties that benefited Malaysia in terms of trade and investment diversions for risk management, as well as supply chain security and resilience. Further focus should be on facilitating business and investors via efficiencies of public service, as well as addressing structural issues like education system reform and talent retention, attraction and development,” he stresses.

UOB KayHian Wealth Advisors head of investment research Mohd Sedek Jantan concurs that the most critical factor shaping Malaysia’s foreign investment landscape in 2H2024 is the increased clarity and stability of government policies and plans.

“Foreign investors do not merely rely on policy announcements; they scrutinise the concrete implementation and stability of these initiatives before making any commitments. This is especially true for Malaysia, where the unity government is still relatively new, and investors have needed time to assess its stability and direction,” he observes, adding that sustained progress and a stable government framework are paramount in maintaining investor confidence.

If these factors align favourably, Sedek believes Malaysia could see increased FDI inflows, leading to job creation, technological advancements and overall economic growth.

“The implementation of high-value projects and enhanced trade ties could bolster economic performance. Conversely, any adverse global economic developments or policy missteps could dampen investor confidence, potentially leading to reduced investment inflows and slower economic growth,” he warns.

Economist and international relations analyst Samirul Ariff Othman shares the view that political stability and policy continuity are key pillars that support Malaysia’s investment landscape.

“While the country has made progress with policies aimed at liberalising key sectors and enhancing the ease of doing business, further reforms are essential. Streamlining regulatory processes, reducing bureaucratic hurdles and ensuring consistent policy signals will reassure investors and foster a more predictable business environment,” he explains.

However, Samirul — who is also an adjunct lecturer at Universiti Teknologi Petronas and a senior consultant with Global Asia Consulting — cautions that Malaysia’s economic performance in 2H2024 may face challenges due to geopolitical tensions.

“While FDI might continue to flow, especially from China, the broader economic landscape could be hampered by external pressures and the ongoing global economic uncertainty.

“The success of 2H2024 will largely depend on how Malaysia navigates these geopolitical currents and whether it can turn approved investments into tangible, productive assets that drive sustainable growth,” he says.

In a nutshell, while 1H2024 showed promise in terms of FDI, 2H2024 presents a more complex scenario, Samirul reiterates.

“The emphasis must shift from merely approving investments to ensuring that they deliver real economic benefits. Moreover, managing geopolitical relationships will be crucial, as Malaysia seeks to maintain a delicate balance between major global powers while safeguarding its own economic interests,” he says.

Brain drain has been a persistent and substantial issue that Malaysia has been facing for a long time.

UOB KayHian’s Sedek reckons that to retain talent, the government must focus on improving the overall quality of life, creating more high-paying job opportunities, and offering career development programmes.

Fostering a culture of innovation and entrepreneurship can also help attract and retain skilled professionals, while collaboration between universities and industries can enhance the commercialisation of research findings. Besides, innovation hubs and clusters play a vital role in fostering knowledge exchange, attracting talent and accelerating the development of new technologies.

For instance, he says, previous government initiatives such as the Performance Management and Delivery Unit (Pemandu) and Malaysian Global Innovation and Creativity Centre (MaGIC) had contributed to improving innovation and enhancing government delivery processes.

To attract and retain talent, Malaysia must invest in science, technology, engineering and mathematics (STEM) education as well as technical and vocational education and training (TVET) training, says Sedek.

“By aligning educational programmes more closely with industry needs and emerging technologies, the government can ensure that graduates possess the skills required for the modern workforce. This can be achieved through increased funding, updated curricula and stronger partnerships with the private sector,” he says.

Meanwhile, Sedek points out that a strong ringgit could have mixed effects on investment appeal.

“While it can indicate economic stability and lower inflation, it can also increase the cost of doing business for foreign companies. To address this, Malaysia must focus on improving its overall competitiveness, including factors such as infrastructure, labour market conditions and regulatory environment,” he says. 

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