KUALA LUMPUR, Jan 11 — Foreign direct investment (FDI) that feeds Malaysia’s reliance on construction and cheap foreign labour will not aid the country’s aim to be a developed nation, Tun Dr Mahathir Mohamad said today.

Although conceding that this was the practice in years past, the former prime minister wrote on his blog today that continuing with the tradition will result in Malaysia appearing to be high-income only on paper.

“For a country to become developed we need to diversify. Building spectacular buildings and shining skyscrapers alone will not make us a developed country whatever may be the per capita income or the GDP,” he added.

The former prime minister added that repressed wages as a result of the dependence on foreign labour will also increase pressure for the country to turn to imports to mitigate rising prices, which he said will lead to the demise of national industries such as carmaker Proton.

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“Our stress now is on making foreign goods cheaper for our consumers. This leads to outflow of funds, contributing to deficits. The diminished market for local products including cars may result in the cessation of production locally,” he wrote on his blog today.

Dr Mahathir warned that this would become a vicious cycle that will erode the purchasing power of Malaysians, ultimately harming the country’s economy as a whole.

The advisor to Proton added that existing FDI was largely centred on the construction industry, which he said was both foreign labour-intensive and lacked the technological transfer that was needed to move Malaysia up the value chain.

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He also noted that foreign workers repatriated billions of ringgit in wages from Malaysia’s economy.

“What we need to improve our income is to have investments in hi-tech industries, particularly by Malaysian investors. Better qualified Malaysians can work in these hi-tech industries,” he added.

But he also warned that indiscriminately dispensing incentives to foreign investors rather than promoting local industries meant Malaysia risked “rescuing” firms that were otherwise uncompetitive in their home markets, at the expense of Malaysian industry.

Using the example of Australian automotive vendors now fleeing abroad as its vehicle manufacturing industry nears demise, Dr Mahathir pointedly said Malaysia would welcome these with open arms.

“Australian investments will qualify as FDI. Malaysia welcomes FDI and will give incentives. Local investors need not be helped,” he said.

Today, Dr Mahathir also said Malaysia must decide how it wants to achieve the stated goal of becoming a high-income nation come 2020.

“Do we just want high income for some but low per capita as seen in some oil producing countries or do we want growth and development so as to qualify as a developed country?”

Prime Minister Datuk Seri Najib Razak previously stated that the country’s goal was to reach high-income nation status by 2020.