Malaysia saw a modest growth of investments in the first half of 2015 (1H15), with new approved direct investments totalling RM113.5 billion, up from RM112.0 billion in 1H14.
Total investments realised up till June under the 10th Malaysia Plan (10MP, 2011-2015) was RM813.5 billion, exceeding the plan’s target of RM740 billion. This was despite the slower growth of private investment (3.9%) in the second quarter of 2015 (2Q15).
The services sector accounted for 54.4% or RM61.7 billion of total investments, followed by the manufacturing sector with RM49.5 billion (43.6%) and the primary sector with RM2.3 billion (2%).
Minister of International Trade and Industry Dato’ Sri Mustapa Mohamed (pic) says: “Malaysia’s economy has done fairly well. This demonstrates continued investor confidence in the government of Malaysia. This is also testament to Malaysia’s structural economic fundamentals, which underscores the resilience of the country’s economy, especially when one considers the challenges we face with external headwinds, the drop in oil prices and the rise of the US dollar.”
CIMB economist Jarratt Ma notes that although investments moderated in 2Q15, investment approval numbers remained encouraging, and believes that the weaker ringgit should sustain foreign direct investment (FDI) inflows.
Total investments approved were for 2,487 projects and expected to generate about 101,780 jobs, many of which will be in high-tech and high value-added industries. The services sector continued to account for the largest share of total potential employment with 60,750 jobs or 59.7% of the total, followed by the manufacturing sector with 39,990 jobs (39.3%) and primary sector with 1,040 (1%).
Investment in the services sector grew moderately by 4.9% year-on-year (yoy) in 1H15. The slower growth was mainly due to the lower investment in the real estate sector (RM15.9 billion vs. RM29.1 billion in 1H14). Besides the real estate and distributive trade sectors, almost all other services sub-sectors registered growth.
Subsectors under the National Key Economic Area (NKEA), including hotel & tourism, health services, education services, ICT (comprising telecommunication and MSC Status companies) and business services (including regional establishments and support services) all saw increased investment.
In the transport sector, the approval of three new highways brought total 1H15 sector investment to RM12.8 billion vs. RM6.3 billion for the whole of 2014.
Further strengthening investment ecosystems
“Malaysia’s strategic location, supported by the government’s ongoing commitment in pursuing pro-business and pragmatic policies, continued to be the catalyst in making Malaysia an attractive destination for global businesses to set up their regional business hubs in the country,” emphasised Mustapa.
In 1H15, 101 regional establishments with investments of RM3.0 billion were approved. Another four Global Operations Hub projects were approved with investments valued at RM2.6 billion. These global and regional operations provide professional services that include supply chain management, financial & treasury management, and data & information services to their global network of companies.
Investments in the primary sector decreased yoy from RM10.1 billion to RM2.3 billion. This was due to lower investments in the upstream oil & gas activities and lower global crude oil prices.
Investments in the petroleum products industries totalled RM25.4 billion (51.3%) while the non-oil sectors received RM24.1 billion, mainly in transport equipment, electrical and electronic (E&E), fabricated metal, non-metallic mineral products and chemical products. More than 25% of projects in these five sectors reported having value-added of 60% and above, reflecting the continued efforts by Malaysian manufacturers to move into higher value added activities.
In 1H15, 255 Malaysian-owned manufacturing projects with total investments of RM11.2 billion were approved in the non-oil sector. Malaysian manufacturers were active in the machinery manufacturing, wood and furniture, fabricated metal products (including engineering support services), transport equipment and food manufacturing industries. Notably, 42% or 107 of these projects proposed to export at least 50% of their outputs, denoting the strength of the Malaysian companies to compete in the global market.
Job opportunities created by the 255 projects totalled 17,210 or 43% of total job opportunities from projects approved in 1H15. Young Malaysians with technical and vocational qualification looking to a career in the manufacturing sector will find many opportunities in the more than 6,000 jobs to be created in Selangor, Johor (3,580), Penang (2,960), Perak (1,170) and Kedah (1,140).
Johor registered the highest level of investments of RM27.0 billion in the manufacturing sector from January to June 2015, up 72% from RM15.7 in 1H14. The other top 10 leading states in terms of value of investments were Melaka (RM6.2 billion), Penang (RM4.3 billion), Selangor (RM4.2 billion), Perak (RM3.0 billion), Kedah (RM1.1 billion), Pahang (RM1.0 billion), Negeri Sembilan (RM0.94 billion), Sarawak (RM0.64 billion) and Sabah (RM0.34 billion).
Foreign sources of investment were from the East Asia economies of Japan, Hong Kong, China, Korea and Taiwan (RM7.4 billion or 56.4.6%), Americas (RM2.3 billion) and Europe (RM1.9 billion). Investments from East Asia were mainly in the fabricated metal products, non-metallic mineral products and E&E industries, while more than 80% of investments from the USA were in E&E. Investments from European countries were in a wide range of industries, from E&E and machinery manufacturing to resource based industries of paper products, petroleum products and food manufacturing.
Mustapa highlights that Malaysia continues to strengthen the investment ecosystems within the manufacturing sector to facilitate growth. The country aims to further attract more quality investments from both local and foreign sources to encourage new product innovation in the country. These approved projects are also expected to generate strong multiplier effects which include the growth of domestic companies/engineering supporting industries, cluster development, local sourcing, strengthening of R&D activities and human capital development.
From 2010 to 2014, a total of 4,158 manufacturing projects were approved, and 3,206 (77%) of these projects have been implemented thus far, with 2,961 in production and 245 undergoing machinery installation or factory construction. Total capital investment for these implemented projects amounted to RM172.9 billion. A total of 454 manufacturing projects approved since January 2014 are already in operation.
Dato’ Sri Mustapa reaffirms that, “The task ahead is challenging, and therefore the coordinated efforts of all Ministries and departments, and State governments are necessary for us to maintain our competitiveness. MITI and its agencies, particularly MIDA will continue to assume a stronger role in facilitating the implementation of approved projects. MIDA as the lead coordinating investment promotion agency for the country will intensify its handholding and facilitation efforts.
We will continue to engage the business community in assisting companies to weather the current global economic uncertainties. Programmes include dialogues with foreign and local chambers, and industry associations; roundtable meetings; and Turun Padang events.”
Efforts to attract more quality foreign investments will be stepped up. Trade and investment missions planned for 2015 will cover major capital-exporting countries in North America, Europe and Asia, particularly China. In 1H15, Malaysia attracted 10 manufacturing projects from China with investments of RM1.2 billion. There has also been an increase in merger and acquisition activities in the eco-glass and metal industries.
Taking advantage of China’s outward investment strategy
Malaysia is also positioning itself to take advantage of China’s outward investment strategy namely the One Belt, One Road Initiative. To further facilitate Chinese investments, MIDA has expanded its overseas network in China by establishing a new office in Beijing, in addition to its existing offices in Shanghai and Guangzhou,” elaborates the Minister.
As at June 2015, MIDA has 299 projects in the pipeline with investments worth RM21.8 billion for the manufacturing and services sectors. These projects are mainly in Food Manufacturing, Transport Technology, Chemicals & Advanced Materials, E&E, Healthcare, Education and Hospitality.
CIMB’s Ma projects private investment to moderate in 2015 amidst increased uncertainty over global growth, but remain positive. “Lower oil prices will affect future investments in the mining sector, but should be supported by continued investments in the manufacturing and services sectors. Investments will also be supported by the strong investment approval numbers in 2014, as well as various efforts by the government, including the Services Sector Guarantee Scheme for SMEs, along with ongoing Economic Transformation Programme (ETP) projects. FDI is also likely to continue flowing in to take advantage of the weaker ringgit.”
RHB economists expect private investment “ to grow at a slower pace of 6.0% yoy in 2H15 (1H15: +7.5%) on the back of uncertainties caused by the GST implementation, made worse by lower oil prices and a clamp down on the property sector. The weakness in the ringgit will likely prompt some investors to delay their investment as well.”
“Public investment, however, is projected to rebound by 1.6% y-o-y in 2H, from -3.7% in 1H, resulting in a smaller contraction of 0.7% for 2015, after contracting by 4.7% in 2014,” RHB adds. “This is on the back of an acceleration in development spending by the government and the progress in the implementation of some large infrastructure projects. Flood-recovering and rebuilding activities in the East Coast will also help to sustain the growth of public investment.”