Getting out of the middle income trap: Upping the ante with investments



Investment is the precursor to production and consumption. While it is a part of the economic composition, it is also a good indicator of future economic growth. This is why under the Economic Transformation Programme (ETP), much emphasis is placed on investment growth and requirement, especially private investment as the engine of economic growth.

We must also be clear about the value chain of investment. An investment is only good if it is eventually realised. Hence, committed investment is but an indication of the potential realised investment in the future. It is merely the pipeline. In between, committed investment may be staggered over a number of years. This is sometimes known as planned investment.

Much capital has been made about the supposed collapse of investor confidence in the ETP, just by looking cursorily at the committed investment of RM179.2 billion and RM32.1 billion in 2011 and 2012. This is missing the woods for the trees. For one, these figures were merely committed and not realised per se. In addition, much front-loading of big ticket projects, which will take several years to realise, took place in 2010/2011. Stripped on these initiatives, the investment levels in 2011 and 2012 were fairly similiar.

Based on provisional numbers, the investment realisation rate for ETP projects were healthy. For 2011-2012, 86% or RM25.4 billion of the RM29.6 billion planned for the period has been realised. This momentum is expected to pick up in the next three years with investments of about RM21 billion, RM25 billion and RM22 billion planned for 2013, 2014 and 2015 respectively.

Be that as it may, ETP investment does not represent the entire investment or economic universe, which extends beyond the 12 national key economis areas (NKEAs). Rather, it serves as a catalyst for economy-wide investment growth.  This can be clearly seen from a few respects.

One, for two consecutive years, private investment has outperformed targets set. Realised private investment of RM94 billion and RM139.5 billion were recorded in 2011 and 2012 against targets of RM86 billion and RM127.9 billion respectively, or 9.3% and 9.1% above targets.

Two, private investment growth post-ETP in 2011 and 2012, on a compounded annual growth rate (CAGR) basis, was three times higher at 17% compared to 5% pre-ETP between 2005 and 2010.

Three, private investment strongly outpaced public investment at 57% and 58% of total investment in 2011 and 2012 respectively. This compares favourable with 54.6% in 2005 or 51.7% in 2009, albeit a poorer year for investment.

Four,  total investment as a percentage of Gross Domestic Product (GDP), has risen from the range of about 20% to 22% between 2005 and 2009 to 23.5% and 26.7% in 2011 and 2012 respectively. This was driven mainly by private investment which moved from about 12% of GDP pre-ETP to 13.4% and 15.5% in 2011 and 2012 respectively.

In addition, since its launch in 2010, the ETP has expanded its Entry Point Projects (EPPs) under the NKEAs from 131 to 152 EPPs in 2012. 149 projects within those EPPs were announced with RM211.34 billion in committed investments secured as at end 2012. By 2020, this is expected to translate into RM135.64 billion in Gross National Income (GNI) with 408,443 jobs to be created. New EPPs can only be launched with the commitment of the private sector who will act as investors.

The increase in investor confidence is further reflected by the recognition from various international institutions. In AT Kearney’s FDI Confidence Index, Malaysia jumped to the 10th spot in 2012 from 21 in 2010, striding ahead of France, Canada, Turkey, South Korea, Thailand and Vietnam. It is also the subject of case studies by no less that Harvard Business School and Princeton University, two Ivy League institutions of higher learning in the United States.

The ETP is a marathon, not a sprint. There are still seven years to go before its results can be fully tabulated. Lots more need to be done, especially in ensuring that the business environment continues to be competitive and robust, but two years into the journey, the results indicate that the programme is on track. The investment pipeline continues to be positive and investor interest in Malaysia is clearly on an uptrend.

Like it or not, it is about the investments and that is plain as day.

Ku Kok Peng is director of Investments for the Economic Transformation Programme (ETP) at the Performance Management and Delivery Unit (PEMANDU).



Photo Credit: cHOpiL via Compfight cc

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