Here is food for thought. Thailand, a country that is having its fair share of domestic troubles, appears to be more successful than Malaysia on the investment front.

Thailand’s Board of Investment (BoI) said last week investment applications, both domestic and foreign, surged 80% in 2009 to 723.4 billion baht (RM1=10.22 baht), a reversal from a 32% drop in 2008. Of this amount, foreign direct investments (FDIs) accounted for 342.1 billion baht. For 2009, the BoI had only hoped to achieve investment applications worth 400 billion baht.

According to the BoI, 48% of the applications are for 100% domestic-owned businesses, while 28% are for those that are 100% foreign-owned. Japan tops the foreign investor list with 77.4 billion baht, followed by China with 43.2 billion baht and the US with 34.6 billion baht. Applications from Europe as a whole totalled 93.9 billion baht while Asean accounted for 45.9 billion baht.

Interestingly, China’s applications leapt from just 1.5 billion baht in 2008 to 43 billion baht in 2009.

Thus, if we needed a reminder that Malaysia is not running fast enough in the race for FDIs, then perhaps, there is no need to look further than Thailand. 

According to the BoI, Thailand, which had designated 2009 as Thailand Investment Year, remains an interesting investment destination despite the Map Ta Phut impasse and the global recession.

(Map Ta Phut in Rayong is Thailand’s biggest industrial estate. According to news reports, 65 projects in Map Ta Phut were suspended last year for failure to comply with constitutional requirements on environment and health impact assessments, following complaints from residents and non-government organisations. The cases are still pending, according to reports.)
CIMB Research, in a report, notes that investment applications more than doubled in the second half of 2009 from the first six months.

“Although several domestic issues continue to plague Thailand’s investment outlook, the improvement in investment applications is a promising sign of a recovery in private investments,” the report says.

It projects that private investments will rebound from a contraction of 11% in 2009 to grow 4.8% this year.

In contrast, total investments approved in Malaysia’s manufacturing sector came to RM19.9 billion during the first nine months of the year, a fall of 61.7% from a year ago. In the third quarter of 2009, total investments in the manufacturing sector fell 71% y-o-y. Investments were dragged down a sharp contraction of FDIs, which shrank 74% q-o-q and 78.6% y-o-y. In 2008, total investments (both foreign and domestic) amounted to RM62.8 billion.

The Malaysia Industrial Development Authority (MIDA), meanwhile, says it is optimistic that Malaysia’s FDIs in 2009 can still surpass the RM20-billion target per year set for the first five years (2006-2010) of the Third Industrial Master Plan (3IMP).
The 3IMP runs from 2006 to 2020.

The bulk of investments in Malaysia are still channelled into the manufacturing sector (around 45%) while less than 30% finds its way into services-related industries. An interesting point to note here is that the services sector, with 55%, is the largest contributor to Malaysia’s gross domestic product. The manufacturing sector contributes about 30%.
In comparison, some 60% of Thailand’s 2009 investment applications are in services and infrastructure, while 14% are for the electrical and electronics sector.

Thus, apart from boosting private investments, including FDIs, there is also the need to direct more investment flows into the services sector, especially when it will remain the main engine of growth for the economy in the years ahead.

Policymakers have been talking about raising the contribution of the services sector to 70%. Towards this goal, the government last year liberalised 27 sub-sectors in services, followed by a series of market opening moves, including the deregulation of the Foreign Investment Committee guidelines. More measures, in line with Malaysia’s desire to become a technology and knowledge-based economy, are expected to be announced when the government unveils the Tenth Malaysia Plan in June.

To stay in the race for FDIs and to boost private investments, policymakers will have to focus on making the investment climate more attractive for investors, where obviously the incentives must be more competitive than what our neighbours are offering.

Towards this end, a priority is to put in place the right kind of infrastructure to facilitate the growth of high technology industries. The Malaysian International Chamber of Commerce and Industry, for example, has been quoted in a recent news report as saying that Malaysia’s ICT infrastructure is a limiting factor and does not meet the needs of high tech industries.
There is also a pressing need to improve investor perception of Malaysia.

In this regard, the last thing this country needs is negative reports from international organisations such as the latest World Report 2010 by Human Rights Watch. In a nutshell, the report says that Malaysia’s attempts to improve human rights are “more rhetoric than reality”.

Thailand, despite its domestic problems, seems to be getting its act right in terms of boosting FDIs. Undoubtedly, Malaysia has taken some very bold steps under the new regime, but these may not be enough in an environment where investors increasingly are offered better propositions by other countries.



This article appeared in Corporat page of The Edge Malaysia, Issue 790, Jan 25 - 31, 2010