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Economists Explain Why Investors Prefer Other Asean Countries Instead Of Malaysia – As Indonesia Rises, Events In Malaysia Cast A Sinking Feeling

Favorable long-term growth prospects, an attractive investment climate and consistent policies are some of the many reasons which led international investors to opt for other Asean countries instead of Malaysia, said an economist.

Speaking to FMT, Sunway University economics professor Yeah Kim Leng also highlighted the importance of political stability, good governance, low corruption and “a top level, coordinated promotion effort” as some of the key factors why Singapore, Indonesia and Vietnam have successfully attracted high profile investments of late.

The three countries received more than 80% of the record US$156 billion in foreign direct investment (FDI) that Asean countries pulled in last year, according to Unctad, the United Nations trade agency. Only 5%, or just RM31.7 billion (US$7.8 billion) went to Malaysia.

“Malaysia will have to up its performance in all these soft and hard factors that attract the various types of efficiency-seeking, market-seeking and resource-seeking investors,” Yeah told FMT.

Noting that Indonesia’s efforts to eradicate corruption had resulted in sharp improvements in their world ranking, Yeah also said Indonesian president Joko Widodo’s re-election last year had “ignited international investors’ interest” in his infrastructural push and industrialisation plans.

Yeah, a former group chief economist at credit rating agency RAM Holdings, also said Indonesia’s coordinated investment promotion strategy had allowed the government to “excite leading global companies” with its huge and growing market base of around 270 million people.

In addition, Yeah said Indonesia’s potential to develop its vast natural resources was eyed by global companies looking for resource-based investment opportunities.

Yeah was commenting on a recent Facebook post by former prime minister Najib Razak who said there was a lack of effort to attract foreign investors in the past two years.

Najib said US tech giants Tesla, Amazon and Google were eyeing Indonesia as an investment option and asked what Malaysia’s investment agencies were doing to attract FDI.

While FDI into Malaysia increased 3.1% from RM30.7 billion in 2018 to RM31.7 billion in 2019, it is a marked decrease from the previous two years. Malaysia recorded RM41 billion in 2017 and RM47.2 billion in 2016.

Noting that the country had trade offices, investment missions and various staff who promoted the country abroad, senior economist at the Malaysian Rating Corporation, Firdaos Rosli disagreed that Malaysia’s investment agencies “were not doing enough” to attract investment.

He explained that the country’s investment agencies were only performing their duties within the present regulatory space.

“What is our comparative advantage?,” he asked. “That is the million dollar question.

“Our regulations are perfect for attracting low-value investments. But when other countries are also offering the same range of incentives, we are limiting ourselves to compete in a losing space.”

Echoing Yeah’s comments on the hefty size of the Indonesian domestic market, Nazari Ismail of Universiti Malaya’s Business Strategy and Policy Department described it as the “main reason” international investors were flocking to Indonesia – with lower cost of operations also being a key factor.

“Indonesia has a population of 267 million people, so it is certainly difficult to match them in terms of market potential and also the cost of operations,” he said.

“That is why the companies (Tesla, Amazon and Google) also ignored Singapore, which is also much more expensive compared with Indonesia.

“So I will not fault the Malaysian government on this issue unless you also want to increase our population to be as big as Indonesia and bring down our wages to match them, both of which are not realistic options.”

As Garuda rises, events in Malaysia cast a sinking feeling

The Garuda, a mythological bird, symbolising the virtues of knowledge, power, loyalty and discipline served as a mount for a Hindu God as a vehicle for flight.

Indonesia on Jan 18 passed a law to relocate its capital to East Kalimantan from the overpopulated and sinking Jakarta. The relocation is the direct consequence of its slow physical sinking. Is Malaysia also ‘sinking’?

The new capital city, Nusantara will cover at least 216 square miles. Indonesian president Joko Widodo said: “This (capital) will not only have government offices. We want to build a new smart metropolis that can be a magnet for global talent and a centre of innovation”.

We recall rather similar assertions when Malaysia shifted its administrative capital to Putrajaya, many years ago.

It was the golden age for Malaysia being the darling of foreign investors given its excellent infrastructure, talent pool, and economic vibrancy underpinned by a sound political environment with policies that charted the course to greater heights on multiple fronts.

One can’t help but draw comparisons on the opportunities currently being offered by Malaysia and the tremendous potential which will be unleashed with the invigoration at Nusantara. Will Malaysia be able to capitalise on Nusantara?

Malaysians are also experiencing a “sinking” feeling. This is not attributable to earth movements. It is related to the cerebral senses. It encompasses integrity, loyalty, discipline, and moral values among others.

Indicators to this “sinking feeling” include the drop in corruption perception index (CPI) rankings, declining level of quality foreign investment, escalation of business costs, foreign labour exploitation, rising prices, and quality of life among others.

More disconcerting – and to further exacerbate this anxiety – is the failure of certain institutions to exhibit good governance. It embraces accountability and transparency when probed on questionable practices of double standards.

Some oversight bodies appear emasculated and much focus is spent on discrediting whistleblowers. At the extreme, there are instances of institutions being weaponised for political benefit.

Holistically, is Malaysia backsliding given its overdependence on foreign labour, smaller landmass, cost structure, corruption, rise in fundamentalism, erosion of moral values, and the migration of talent abroad due to outdated policies?

This fretfulness is compounded by the recent changes of the helmsman – three prime ministers in three years.

This contrasts sharply with what is observed at the immediate neighbours in the region. It has caused a certain degree of trepidation. At the state level, there is unpredictable flux.

The Milken Institute’s Global Opportunity Index, which evaluates countries to measure their potential attractiveness to foreign investors, ranks Malaysia first in emerging Southeast Asia. However, political uncertainty may result in cautiousness.

Let not Malaysia take the erroneous step of shooting itself in the foot. The country should get its footing intact as neighbours’ progress and it cannot continue to rely on past robustness to take it into the next decade of intellectualism and digitalisation.

To ensure consistency, a resilient political environment is crucial to drive policies to sustain and grow the economy.

Over the hilt political bickering, backstabbing, horse trading, character assassinations, or abuse of institutions to promote political gain will only serve to drive the nail into the coffin in Malaysia’s quest for future peace and economic prosperity.

At its core, the strong leadership in Indonesia which has the Garuda as its emblem is paying dividends as the country marches forward.h

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