Malaysia Solid middle ground
Tan Hon Yik and Khairul Idham Ismail of Naqiz & Partners examine the factors that make Malaysia an attractive foreign investment destination
M
alaysia is a great hub, especially for those in the manufacturing, industrial and technolo- gy sectors. Operations are relatively low-cost, and the population generally speaks a high- level of English. The country is in a good location with easy access to the rest of the Asean
region, including to more expensive hubs such as Singapore, and resource-rich destinations such as Indonesia. The Malaysian government has been pushing Malaysia as a high-knowledge economy to attract
more high-level investment and services. If the upcoming general elections go well and the govern- ment receives a strong mandate, foreign investors can expect further initiatives. Over the past 12 months, Malaysia has seen good growth in the automotive sector, and there have
been a number of related deals. The automotive industry is also eagerly awaiting the announcement of the revised National Automotive Policy which should provide additional incentives for investments in the automotive sector especially in relation to electric vehicles. In the past year, there have also been more privatisations of publicly-listed companies, typically
because the companies themselves are doing well but the market is undervaluing their shares. These privatisations have been seen across a wide range of industries from food and beverages to real estate and property. Information communications technology investment has also developed recently, due to the estab-
lishment of the Multimedia Super Corridor in Cyberjaya. The main political risk in Malaysia are the next general elections. These have been delayed and pol-
iticking is affecting the business of governing, meaning foreign investors are holding back until the politicians sort themselves out. This should, however, only be a matter of time as they must be called in the first quarter of 2013. Aside from the general elections, issues in Malaysia are similar to those that investors face across Asia: there must be a clearer articulation of government policy in relation to foreign investors, especially in relation to government-related businesses such as finance and oil and gas.
Controls and incentives The key regulations governing inbound FDI in Malaysia are sector-specific. Most of them, especially in relation to manufacturing activity, are controlled by the Ministry of International Trade and Industry (Miti). Malaysia’s central bank, Bank Negara, also has a fair number of currency-related rules and regulations related to trading and offshore loans. Retail investment is governed by bodies such as the Ministry of Domestic Trade and Consumer Affairs which have been quite active recently for FDI in hypermarkets and joint ventures in the retail sector. Other key rules are Bursa Malaysia’s listing requirements and the Code of Takeovers and Mergers. The main FTA affecting Malaysia is the Asean Free Trade Area and other Asean regulations. There
are also individual FTAs, although there are unlikely to be any concrete developments for the next 12 months. Additional agreements with Australia and the US have not yet crystallised. After the economic crisis, Bank Negara maintained very tight capital controls, but those have grad-
ually been lifted over the last few years. These do not hinder business development as they deal pri- marily with serious issues related to money laundering and anti-terrorism financing. In terms of incentives, there are a number of government-run organisations, such as the Malaysian
Economic Transformation Programme, which encourage foreign investors to push money into the economy. In the ICT sector, the Multimedia Development Corporation has oversight over investments and
is able to grant financial and tax incentives supported by Miti. The Malaysian Industrial Development Authority is another important body looking toward foreign investment in the manufacturing sector. More recently, new agencies such as the Performance Management & Delivery Unit and Invest KL
have been set up to attract sector-specific investments. The Malaysian International Islamic Financial Centre has also been set up for the promotion of Islamic banking and finance businesses.
www.iflr.com IFLR|FOREIGN DIRECT INVESTMENT 015
“
Foreign investors
are holding back until the politicians sort themselves out
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