UM Don calls on government to choose quality FDIs over quantity

File photo of a worker inspecting a container at North Port in Port Klang outside Kuala Lumpur in this January 8, 2009 file photo. — Reuters pic
File photo of a worker inspecting a container at North Port in Port Klang outside Kuala Lumpur in this January 8, 2009 file photo. — Reuters pic

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KUALA LUMPUR, May 9 ― When it comes to foreign direct investments (FDIs), the government should emulate South Korea, Japan and Taiwan’s strategies by focusing on quality over quantity, said a leading economist.

Prof Datuk Dr Rajah Rasiah, who is a distinguished professor of economics at University Malaya’s Asia-Europe Institute, said these countries are engaged in sophisticated technology and are very selective with regards to the FDIs.

Apart from aggressively evaluating the investments before approving them, he said one of the strategies employed by these countries is to ink technology transfer agreements with their foreign joint-venture (JV) partners.

“In most cases, national firms would eventually acquire the JV companies, access their technologies and market the products. See what these countries have achieved today?

“We did not use those kinds of agreements.. we just simply accept whatever form of agreements here,” he told Bernama recently.

Asked if being selective on the FDIs would put a cap on the investment inflows into the country, Rajah, who is also the first holder of the Khazanah Nasional Chair of Regulatory Studies, brushed off such thoughts.

He said that Japan, Taiwan and South Korea would never be concerned about that, as attracting the right FDIs is what matters most.

“Once they have attracted those FDIs, they will ensure that their objectives are being met, rather than seeing the investments creating leakages that the economy does not benefit from.

“In short, we should choose quality over quantity,”  he said. 

Excessive Foreign Labours- Side Effect of Lax FDIs

On the side effects of lax FDIs, Rajah pointed out that the excessive number of foreign labourers in Malaysia was one of them, no thanks to the overheating economy that occurred in the 1990s.

“I mean, a large number of FDIs could re-create the overheating situation that happened between 1990-1997 when supply was unable to meet the huge demand.

“Demand for infrastructure was so great back then, so, unfortunately, we had to hire a huge number of foreign labourers to meet the (demands from the) FDIs that we should not have actually invited in, and that had blunted our capacity to upgrade our investments to higher value-added activities,” he said.

According to Rajah, selecting high-quality investments ― especially those that come with technological knowledge transfer programmes ― would help Malaysia achieve its long-desired goal of becoming a high-income nation, as more highly-paid engineers or highly skilled technicians would be nurtured.

“Remember, the gross domestic product (GDP) is measured by value-added (factors), comprising wages, salaries and profits.

“Wages and salaries can only rise rapidly if we are moving from low value-added activities to high-value added activities,” he added.

Never Too Late To Be Selective

Asked if it was too late for Malaysia to be selective on the FDIs, Rajah dismissed the concerns, saying that the government or national firms should give more emphasis on research and development (R&D) efforts, as well as issues pertaining to patenting and property rights.

“R&D is one of the key areas that the government should focus on, moving forward, provided that it can be connected with commercialisation.

“We need to make sure that there is a greater coordination between the universities and industries so that whatever research is done, it is appropriated by the industries, and the society will benefit as a whole as it would boost Malaysian companies’ competitiveness,” he said.

Malaysia Registered Impressive 2020 Current Account Surplus Despite Pandemic

On Malaysia’s investment performance in 2020, Rajah said he was impressed by Malaysia’s investment performance last year when the country saw its 2020 current account surplus expanded to a nine-year high, against the backdrop where the economy was badly battered by the Covid-19 pandemic.

“I think Malaysia has done very, very well, to some extent. I’m surprised at our investment performance amidst the pandemic last year,” he noted.

Rajah lauded the government’s quick response in dealing with logistical issues amidst the Covid-19 pandemic to ensure that the supply chain would not be disrupted during the enforcement of the movement control orders.

“We ended up exporting massive amounts of gloves, masks and so on, therefore, in the economic sense, I think we have done well,” he said.

In February, the Department of Statistics Malaysia announced that Malaysia posted a current account surplus of RM62.1 billion in 2020 ― the highest surplus in nine years since 2011, driven by the favourable performance of the goods account as well as a narrower deficit in primary and secondary incomes.

Touching on news reports that foreign investors are favouring neighbouring countries over Malaysia, Rajah pointed out that political uncertainty is off-putting, as international investors are often concerned about a country’s political stability.

“When you have an uncertain political environment, that is the response you get, as investors will move away from risks or uncertainties,” he said.  

Anticipations

On his anticipations for the FDIs, Rajah said he hopes the country would draw more FDIs which have a higher level of activities so that they could act as benchmarks for the local companies.

He also hopes to see the FDIs providing a working environment where Malaysian employees could gain experience and tacit knowledge, and subsequently establish a national firm with the skills and knowledge that they obtained from the foreign firms.

Rajah also wished that the FDIs would forge a complementary (crowding in) relationship, rather than a substitution (crowding out) relationship with the national firms.

“In that scenario, foreign investments are not destroying the local firms, instead, they would complement and assist them so that everybody grows together,” he said.

In March, Senior Minister cum International Trade and Industry Minister Datuk Seri Mohamed Azmin Ali had reportedly denied that Malaysia was losing out on foreign investments from multinational corporations to neighbouring countries.

Instead, he said that Malaysia had become more selective in its investment agenda, aiming to draw quality investments that are expected to have significant knock-on effects throughout the domestic economy. ― Bernama

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