Malaysia: High-tech lure for FDI

In his keynote address during the launch of the World Investment Report 2013 here on June 26, he said the Malaysian Investment Development Authority (Mida) is adopting a selective approach in attracting quality investments in high-technology projects.

These projects, handled by local and multinational technology firms, will play a part in providing more value-added exports.

"Malaysia's participation in the global value chain is ranked highly with value-added exports constituting 68% of total export," said Mustapa.

Global value chains are defined as the share of a country's value-added exports that are part of an integrated international production network.

The manufacturing sector makes up the bulk of Malaysia's FDI inflow, unlike other Asean countries where investments are mainly concentrated in the infrastructure and services sectors.

The United Nations Conference on Trade and Development (Unctad) noted that due to a considerable wave of relocation in manufacturing within the region, some Asean countries have gained ground as attractive FDI locations for labour-intensive manufacturing.

The World Investment Report is compiled by Unctad to analyse global investment trends.

The report noted that the Malaysian manufacturing sector is currently making a transition from labour-intensive investments into high-technology investments.

"Malaysia's strategic policy measures are in line with Unctad's recommendations. In our view, Malaysia continues to be attractive to foreign investors," said Mustapa.

In 2011, Malaysia was ranked 11th out of the top 20 economies with the highest FDI rates of return at 17%.

The minister added that private investments are on track to meet key performance targets under the Economic Transformation Programme (ETP).

In the first quarter of 2013, private investments grew by 11.8% year-on-year to RM38.5 billion, achieving 24% of the overall target of RM160.3 billion set for this year.

According to the report, 2012 marks the first year where developing economies surpassed developed economies as FDI recipients.

Global FDI inflows reached US$1.35 trillion (RM4.3 trillion) last year, with developing economies making up 52% of total investment inflow.

Developed economies trailed at 42% with transition economies making up the remaining 6%.

According to Unctad head of investment trends and issues Masataka Fujita, global trade is increasingly driven by global value chains.

"Value-added trade contributes nearly 30% to developing countries' GDP on average," he said.

"There is a positive correlation between participation in global value chains and growth rates of GDP per capita," he added.

The UN think tank predicts a moderate rise in global FDI inflow for this year to US$1.45 trillion.

However, Unctad predicts significant risks, including structural weaknesses in the global financial system and policy uncertainty among emerging nations, which may put a dent in investor confidence.

This article first appeared in The Edge Financial Daily, on June 20, 2013.