Political instability hurts Malaysia as investment hub, say experts

PETALING JAYA: Political instability and foreign labour uncertainties are among the issues hampering Malaysia’s efforts to attract companies to invest in the country, say economists.

The Malaysian Investment Development Authority (Mida) recorded RM19.5 billion from foreign investment in the first six months of 2020, with its chairman stating he expects Malaysia to continue being a regional investment hub despite the Covid-19 pandemic.

However, Sunway University economics professor Yeah Kim Leng says although Mida’s innovative approach to attract investment hits the right notes, it is insufficient as long term investors are very particular about political stability.

“A stable government is crucial for foreign investment to hit the desired high single-digit growth rate,” said Yeah.

Goh Lim Thye, a senior economics lecturer at Universiti Malaya (UM), noted that a 2013 report by the World Bank had highlighted the significantly reduced investment in the Middle East and North Africa from 2003 to 2012 because of adverse political shocks.

Goh said that Singapore’s stability had made it stand out from the competition despite the global economic outlook.

Carmelo Ferlito, the head of the Centre for Market Education, part of the Institute for Democracy and Economic Affairs (IDEAS), said that Malaysia has done well in the past decade to attract foreign investment despite being a small market.

However, he said, the current political instability has meant investors have taken a “wait and see” approach.

The trio were commenting on a recent statement by Mida chairman Abdul Majid Ahmad Khan that Malaysia will remain an attractive investment target despite the Covid-19 pandemic and uncertain global economy.

He said Malaysia’s advantages included a sturdy and reliable local supply chain network, and long-term sustainable growth prospects.

Ferlito said recent government policies on foreign workers and expatriates had placed Malaysia “in a very bad position” and urged that labour policies be discussed with international chambers of commerce.

“No foreign company will be willing to come here and not have the freedom to at least choose their top managers. I expect more MNCs to leave Malaysia precisely because of this,” he said.

Ferlito said a ban on foreign workers would hurt manufacturing companies with large-scale assemblies, warehouses and logistics systems, the type of operations which require a large number of foreign workers.

He said he had seen multinational corporations pack up because of the impossibility of hiring manufacturing workers.

Goh agreed that a ban on foreign workers would severely hurt the economy.

He said unofficial estimates say that Malaysia hosts up to six million foreign workers, or 18.6% of the country’s 32.6 million population – a far fry from the 2.1 million documented by the human resources ministry.

Expert Cited

Related JCI Publications