KL banking on services to pick up some of the slack, as even domestic investors hold back
By PAULINE NG
IN KUALA LUMPUR
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in Kuala Lumpur A SIGNIFICANT drop in investments is on the card for Malaysia this year after the country attracted a record RM63 billion (S$26.3 billion) in manufacturing investments last year, almost 75 per cent of which came from foreigners.
Last year was the fifth consecutive year of growth in foreign direct investment (FDI) and indicates that Malaysia remained competitive in manufacturing, International Trade Minister Muhyiddin Yassin said yesterday in an annual review of the manufacturing and services sectors.
His ministry approved 12 investments of RM1 billion and above totalling RM38 billion or 61 per cent of all investments approved.
These investments were mainly in capital-intensive projects in metal products, electrical and electronics (E&Es), petrochemicals and transport equipment.
But Mr Muhyiddin acknowledged that the investment outlook this year is challenging because of the global downturn, which will likely worsen before it improves.
The World Bank reckons FDI flows into developing countries are expected to plunge almost a third to US$400 billion this year, from an estimated US$580 billion in 2008.
But even domestic investors are holding back, spooked by sharp falls in global and local demand and tightening credit.
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Heavily reliant on earnings from petroleum products, palm oil and E&Es, Malaysia has been hit by the collapse in commodity prices and shrinking demand for E&E products.
And its textile, plastic, car parts and other manufacturers have been hurt by the crisis of confidence, with orders shrinking by half in some sectors.
With exports continuing to tank, manufacturers have appealed to the government to help them cut costs.
And the government has made several concessions, including a promised reduction of 7-10 per cent in power prices from March.
Malaysia is banking on services to pick up some of the slack and has indicated that it will allow the gradual liberalisation of some non-financial services.
But it has been slow to give any details because of sensitivities over the New Economic Policy (NEP) - an affirmative action pro-Malay policy.
Mr Muhyiddin said some service sectors will be liberalised 'sooner than later' but added: 'We will slowly liberalise (the NEP), wherever possible and when we are ready.'
Although FDI accounted for the bulk of investments in manufacturing, it comprised a mere RM5.5 billion or 11.5 per cent of almost RM48 billion of investments approved in the services sector.
Total approvals in this sector last year were considerably lower than the RM66.4 billion approved in 2007.
Australia emerged as the largest source of foreign investment last year. Rio Tinto's proposed RM12.5 billion aluminium smelter, in a joint venture with local conglomerate Cahya Mata Sarawak, accounted for the bulk of the RM13 billion approved.
The proposed smelter is in Sarawak - to tap hydro-electric power from the Bakun dam - so the state topped the investment list, receiving a total of RM16 billion.
It was followed by the more developed states of Selangor, Johor and Penang, with investments approved of around RM11-13 billion.
It is uncertain whether any of the approved projects will be put on hold should the global economy deteriorate further.
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