KUALA LUMPUR, Jan 21 — Malaysia cannot stay a low-cost manufacturing hub if it is to become a high-income nation, Datuk Abdul Rahman Dahlan said today.

The federal minister in charge of the Economic Planning Unit under the Prime Minister’s Department added that the country’s economic future lies in developing its services sector, which contributes as much as 80 per cent to the employment and GDP of developed nations.

"In an effort to break out from the middle income trap and provide higher income jobs — particularly knowledge-based jobs, for Malaysians, the government had made a deliberate effort to develop the services sector and rebalance our economy. This effort had started since 2009,” he said in a statement.

"The Forest City project which Tun Mahathir had repeatedly attacked using a racial bias is an example of such a FDI in the services sector,” he added, in response to the retired prime minister.

Tun Dr Mahathir Mohamad had criticised the Najib administration yesterday for accepting foreign direct investment (FDI) from China, especially in the Johor-based Forest City project, claiming it would open the doors to mass migration of Chinese nationals here that would jeopardise Malaysia’s sovereignty.

Abdul Rahman countered by saying that FDIs were not just about investment in the manufacturing industry.

"Mahathir needs to understand that Malaysia has out-grown that model and we can no longer compete based on low-cost manufacturing industries as this would mean to continue depressing Malaysian salaries and income — a chief complaint of Malaysians before 2009.

"It is sheer insanity to keep on doing the same thing and expecting a different result,” he said.

He added that manufacturing is still reeling in foreign investors, citing 2015 data showing nearly 40 per cent of its FDI or RM17.1 billion in the sector.

But he said investments in the services sector has since 2009, "boomed from RM30 billion to as high as RM150 billion in 2014 and RM115 billion in 2015”.

He added that the government has to be "more selective” now and prefers manufacturers who can give high added value to improve Malaysia’s chances of escaping the middle-income trap.

Abdul Rahman also refuted Dr Mahathir’s claim that Johor is only attracting FDI via land sale to foreigners, saying the southern state has displaced Selangor and Penang as the top state in attracting manufacturing investments.

He also sought to allay concerns that Malaysian rights, especially of its Bumiputera community, will be sold in return for foreign investments, saying there were state and federal laws to protect citizens.

"This is a promise we intend to keep. Neither will we allow politicians to use racist arguments to sabotage our economy and put in jeopardy our plans to bring Johor and Malaysia into high-income status,” the Sabahan said.