Malaysia is beginning to reap the benefits from its economic transformation programme, part of which involves a move away from labour-intensive industry to more value-added activities such as high technology. The result has been an increasing flow of investments from major economies including the United States, Japan and South Korea.
The transformation is part of the ambitious Vision 2020 first set out by former premier Mahathir Mohamad, to make Malaysia a developed nation by 2020, with per capita income rising to US$15,000 from $9,000 now.
Thailand is also striving to attract more value-added manufacturing, especially since the minimum wage was increased by 40% at the start of this year. Higher wage costs have affected labour-intensive industries such as garments and food processing, many of which are expected to move to lower-wage countries such as Cambodia, Laos and Vietnam.
In Malaysia, recent foreign direct investment (FDI) figures show that the country has been on the right track for the past two years, according to Datuk Noharuddin Nordin, CEO of the Malaysian Investment Development Authority (MIDA).
“We are more selective in terms of investment promotion,” he said. “Labour-intensive industries might have to move to neighbouring countries. If we want to achieve our goal of being a developed nation, we have to focus on quality investments, on value-added manufacturing.”
The number of approved investment projects in Malaysia this year is likely to be lower than in 2012, but their value is a different story. Approved projects in the first quarter totalled 144, compared with 804 for all of 2012.
Total capital investments for approved projects in the first quarter were 49.3 billion ringgit, an increase of 44% from 34.3 billion ringgit in the same period last year.
Of the approved projects, foreign-invested ventures were worth 18.3 billion ringgit or 37.1% of total investment, up from 8.7 billion and 27% a year earlier. Domestic investment rose to 31 billion ringgit from 23.6 billion but its share slipped to 62.9% from 73% a year earlier.
Investments from top countries such as the United States, Japan, South Korea and the Netherlands in the first quarter rose significantly in terms of value. The US became the largest investor at US$816.13 million, compared with $96.66 million in 2012.
Japan followed with $547.74 million, compared with $912.71 million for all of 2012. South Korean ventures were worth $493.91 million, not far from the 2012 full-year figure of $534.96 million. The Netherlands accounted for investment value in the first quarter of $388.85 million, higher than its full-year 2012 record of $272.8 million.
Mr Noharuddin said most of the money from American, Japanese and Korean investors was going into high technology and innovative industries such as electronics, medical equipment and renewable energy.
Some countries can offer the high technology that Malaysia needs, and these three countries are among them. South Korean companies are interested in investing in renewable energy, automotive components and advanced electronics, he added.
The rising interest shown by the US, Japan and South Korea in Malaysia could cause some concern for Thai industries and policymakers. As Asean becomes more closely integrated and barriers fall, a manufacturer can set up operations wherever the best conditions are best and serve a 10-country market. Some considered moving out of Thailand, or choosing other countries for future expansion, after they suffered terribly from Thailand’s worst floods in six decades in 2011.
However, Mr Noharuddin does not think there was any correlation between the setback Thailand suffered during the floods and recovery period and Malaysia’s growing FDI.
“Malaysia and Thailand have offered different strategies to foreign investors,” he said. “If a company comes to Thailand, it knows that Thailand is more competitive than other countries. If it chooses to come to Malaysia, it means we’re more competitive.”
He insisted that the rise of the FDI flowing into Malaysia did not represent any relocation from Thailand.
According to Thailand’s Board of Investment (BoI), approvals in the first quarter of this year continued to grow, to 610 projects, both local and foreign, with a combined value of 275 billion baht. Foreign projects totalled 338 worth 157.67 billion baht, led by Japan with 176 approved investment projects worth 87.48 billion baht.
Mr Noharuddin views the well-established facilities and integrated supply chain in industries such as electronics, renewable energy and automotive components in Malaysia is a strength that will attract foreign investment. The policy to produce skilled workers to serve these industries is also a supporting factor.
Industrial activities in Malaysia were gradually changing, he said. Some of the less competitive industries, mainly labour-intensive ones, will have to move out of the country. This will also help solve the problem of the influx of low-skilled foreign workers into Malaysia, which has social implications as well.
He admitted that the Malaysian government also faced complaints from some industries when it decided to shift its focus to high-tech manufacturing. However, the government believes that now that it has made the decision, it has to move forward progressively.
“We have been facing what Thailand is suffering right now,” said Mr Noharuddin, referring to the impact of the jump in daily wages. “It’s easy for new investors to start focusing on innovative production, but it’s not easy for existing manufacturers. They can’t shut down production and lay off foreign workers. So, we’re trying to find a solution for this problem.”
He expects the uptrend of investment in high-technology industries to continue throughout 2013. Currently, MIDA is negotiating investments worth 42.1 billion ringgit to be concluded within this year.
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Writer: Nalin Viboonchart