Malaysia should ‘race to the top’ in drawing foreign investors, says think tank

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Malaysia is in a good position to attract foreign direct investment flows.

PETALING JAYA: A think tank said Malaysia’s deep integration into existing global and regional supply chains puts it in prime position to capitalise on the current supply-chain relocations due to the Covid-19 pandemic.

The Institute for Democracy and Economic Affairs (IDEAS) said with many firms considering relocating their production hubs, especially to Asean, Malaysia was in a good position to attract these foreign direct investment (FDI) flows.

In light of these supply-chain reconfigurations, alongside Malaysia’s competitiveness in specific sub-sectors and relative success in flattening the Covid-19 curve, the government should take advantage of this window of opportunity to attract much-needed FDI, it said in a statement.

IDEAS held its third Kuala Lumpur Roundtable (KLR) today, with the discussion focused on Malaysia’s long-term Covid-19 economic recovery strategy.

“Malaysia should prioritise the development of regionally competitive, high-technology sub-sectors, as attracting FDI to these industries will help form the basis for our long-term development and industrial upgrading,” noted IDEAS’ research manager Lau Zheng Zhou.

Tan said: “Investment incentives alone will not be sufficient. We should prioritise a ‘race to the top’ approach in encouraging foreign investment through fostering good institutions and developing physical and human capital.”

Pointing out that Malaysia should focus more on nurturing a sophisticated industrial ecosystem in strategic sub-sectors to be a regional manufacturing hub, he said the lack of compatible SMEs in these industries remained a pressing concern.

Highlighting the importance of SME upgrading and realignment to better meet the needs of relocating multinationals (MNCs), he also said the government should continue to support SMEs in transitioning out of low-value adding activities to better facilitate the creation of a sophisticated supply network.

Strengthening the partnership between both types of firms will maximise the spill-over benefits from FDI, including knowledge and technological diffusion, enabling SME supplier firms to increase their competitiveness and resilience.

The KLR participants, said the IDEAS statement, pointed out the key steps needed to achieve this FDI-driven recovery such as more explicit targeting of tax incentives; a sustainable, gradual plan to reduce dependence on foreign labour; the promotion of skills and digitalisation; and trade liberalisation, including ratification of regional trade pacts.

The KLR called for clarity and transparency in political processes as this would lead to policymaking that can achieve meaningful reform.