By Zhen M
Global management consulting firm A.T. Kearney in its 2014 Foreign Direct Investment Confidence Index (FDICI), an in-depth view of forward-looking investment sentiment, puts Malaysia in the 15th spot, an impressive jump from last year’s 25th position.
The 2014 FDICI, released on Monday in the United States, highlighted Malaysia’s efforts in building “its competitive position in electronics, automotive, and machinery manufacturing to move up the value chain into high-technology skill-intensive segments”.
The FDICI, now in its 14th edition, examines overarching trends and ranks countries on how changes in their political, economic, and regulatory systems are likely to affect FDI inflows in the coming years.
“In spite of the slow and uneven economic recovery, business executives now feel more bullish about the global outlook. A majority of business leaders report that this optimism will translate into increased levels of FDI in the next 12 months… Corporations are becoming anxious to convert their massive cash reserves into productive investments with attractive risk-adjusted returns,” A.T. Kearney found.
“Asia attracts roughly one-third of all FDI and remains a top destination for international investors. With inflows down just 5% from 2011’s all-time high, the region is showing more resilience than others in the face of continued investor reluctance,” it highlights.
Malaysia moving very fast up value chain
Malaysia’s jump in ranking is well received by the investment community. Economists laud the significantly stronger investor sentiment as an achievement, especially in view of the rising cost of doing business in Malaysia. Arguably, it is a sign that Malaysia is moving very fast up the value chain.
Any improvement in global ranking is always a step in the right direction and serves to highlight Malaysia’s competitiveness and attractiveness as an FDI destination, says Chris Eng, Etiqa Insurance & Takaful head of research for the investment management division.
Policy, rather than ranking, is the main FDI pull factor. Ranking is more a marketing point; but it is a very convincing one. Moving up the ranks sends the message: ‘Things are improving. People like us!’ observes a veteran economist who declined to be named.
He notes that while it would be unlikely that such rankings would influence the investors who have decided on the countries they want to invest in, there remains a large segment of ‘the undecided’ who could be swayed. “These ‘fence sitters’ may apply to several countries simultaneously and probably even get an FDI approval for each… These are the investors we can attract with a high ranking.”
Eng (pic) adds that “it is always important for countries, organisations, and individuals to benchmark themselves in rankings as they serve as an indicator for areas of improvement.” He attributes Malaysia’s improvement in the 2014 FDICI to the twin effects of better investor sentiment following the 13th General Elections, which saw the incumbent government retaining its power, and “deteriorating conditions in other emerging markets”.
Another economist Business Circle spoke to highlights the fact that emerging markets in Asia are each going through their own domestic challenges. For instance, China is rebalancing its economy, India and Indonesia are going through structural reforms, and Thailand has its political crisis, ‘though that does not really deter FDIs considering that the changing of prime ministers and coups are nothing new and investors probably factor those in’.
Malaysia is undergoing subsidy rationalisation. The hikes in electricity tariffs and petrol prices, and the implementation of minimum wages have increased labour cost and the cost of doing business in the country. Malaysia’s attractiveness, hence, would depend on the policies supporting its goal in becoming a high-income nation and how fast it can move up the value chain, especially in terms of building a pool of quality human capital.
“The focus on human capital and productivity is the key moving forward. Take Japan for instance – two decades of deflation and still the economy is doing well,” opines the economist.
The 2014 FDI Confidence Index®