Malaysia Dateline

Political instability in Malaysia causing foreign investors to seek greener pastures?

It seems that Malaysia’s political volatility has overflown into the country’s once fertile investing grounds.

According to a recent report by the United Nations Conference on Trade & Development (UNCTAD) , Malaysia’s foreign direct investment (FDI) plunged by a staggering 68% last year.

Malaysia had the worst drop in the region, while the Philippines performed the best with their FDI rising 29% to US$6.4 billion.

Many industry experts blame the distressing FDI figures on the political turbulence that has seized the country ever since an internal coup caused the previous Pakatan Harapan government to collapse.

According to Carmelo Ferlito, the head of the Centre for Market Education, the current political instability has meant investors have taken a “wait and see” approach.

Obviously, investors playing the waiting game does not augur well for an emerging market in the midst of a pandemic.

In December, the credit ratings agency Fitch downgraded Malaysia to BBB+, citing “deterioration in governance and continued political uncertainty could dampen investor sentiment, constraining economic growth.”

Steven Cochrane, chief Asia Pacific economist at Moody’s Analytics also pointed out that the government’s tendency to flip-flop on major infrastructure projects sends out the wrong message to potential investors.

For example, the KL-Singapore High-Speed Rail (HSR) which was recently cancelled “may signal that changes in leadership might cause contracts to be void if they had been signed with a previous administration,” he said.

Opposition MP, Dr. Ong Kian Ming fears that the current PN government’s overall ineptitude including their handling of the Covid-19 pandemic has done significant damage to the country economically.

“With this kind of economic and political leadership under the PN government, it would not be surprising if Malaysia finds itself being labelled as the new ‘sick man’ of Asia” he said.

The term “Sick Man of Asia” was once used to describe the Philippines due to its poor economic performance under Ferdinand Marcos.

The question remains however, if Malaysia is becoming increasingly unattractive to foreign investors, where exactly would they go? Experts believe the destination of choice lies with either Vietnam, Indonesia or Singapore.

The three countries received more than 80% of the record US$156 billion in foreign direct investment (FDI) of Asean countries according to UNCTAD.

In comparison, only 5%, or just RM31.7 billion (US$7.8 billion) went to Malaysia.

Sunway University economics professor Yeah Kim Leng highlighted in an interview recently that political stability and good governance are key factors as to why these three countries have successfully attracted high profile investments.

For example, Apple is reportedly shifting some iPad tablet and MacBook assembly lines to Vietnam from China as well as building new ones in Vietnam’s northeastern Bac Giang province.

Meanwhile the Indonesian government is currently in talks with Tesla to build a factory and maybe even a SpaceX launchpad there. Indonesia will also be home to Amazon’s US$2.8 billion localised data centre for its cloud computing services.

As for Singapore, it seems that Alibaba, Bytedance, Tencent, and other tech giants are contemplating setting-up their regional headquarters there.

While Malaysia’s political fire rages, its clear that potential foreign investments are quickly slipping through their fingers.

Unfortunately, with PM Muhyiddin Yassin on the brink of losing his parliamentary majority, and parliament itself being suspended under emergency decree until August, it may be a long time until those fires get put out.