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The objective of this report is focused on promoting Malaysia to attract China, India and Middle East to invest in the country. Based on the past performances, it is shown that Malaysia's gross domestic product (GDP) has been growing at an average of 6.5% per annum since 1957 up until 2005. Although Malaysia did suffered a slump in the economy in 1997-1998 due to the Asian financial crisis and the recent global financial crisis in 2009 brought down the GDP by 3%. Since it's independence from the British, Malaysia's economy has been diversifying from its primary sector and slowly moving towards the secondary and tertiary sector and this contributes to a large proportion of the GDP in the country. Malaysia's export level also affects the level of economic growth as it relies heavily on it. Besides export, the foreign and domestic investments have improved Malaysia's economic growth as it contributes to a large percentage. Foreign direct investments within Malaysia are such as electronics, business and financial services, ITC, transport equipment, heavy industry, chemical, plastic and rubber, food, beverages and tobacco, light industry, property, tourism and leisure, life sciences, logistics and distribution and lastly consumer products. Investors of such are as the United States who is the major foreign investor to Malaysia followed by Japan, Germany, United Kingdom and Netherlands since 2002.
Importance of Foreign Direct Investment (FDI)
Foreign direct investment plays a significant role in aiding the economic growth in the developing countries such like Malaysia because it is the most efficient and effective way to getting the country's economy to be fully developed due to the external source of finance being parked in the country. Secondly, foreign direct investment helps in creating more job opportunities in Malaysia when foreign investors set up their company in the country. Sometimes, investors from abroad set up their manufacturing factories in Malaysia with their more advanced technologies may be benefiting the country with the transfer of technology and this means that Malaysia has now acquired a new way of doing things. Evermore, skilled and experienced workers that are brought down to the company from abroad to manage the new manufacturing can pass on their skills to the new local employees hired in Malaysia so that they can learn how to carry out the task properly. This will generate extra employments and income for the locals in Malaysia and would hence improve the economy growth in the country as more high employment and increase in income leads to higher standard of living.
Suitable Industries and Businesses
For China, Malaysia may attract them to come set up their manufacturing company in the country as the raw materials are available here such as palm oil and natural rubber if they are in food industry that makes margarine and car industry that produces tyres and other parts that requires rubber respectively. This will reduce their shipping cost and also because Malaysia is located in a very strategic area, China can ship their goods to the neighboring countries as well to earn extra profit.
As for India, Malaysia has the Multimedia Super Corridor (MSC) facility which provides high speed internet connection so they can easily venture into the Information Technology (IT) business that India is renowned for. Middle East could set up Islamic Banks in Malaysia as they are good in the banking sector.
In terms of politics, Malaysia's political situation is rather stable compared to the other neighborhood countries like Thailand, Cambodia, Vietnam and Indonesia. Like Thailand, there has been a recent case in 2010 where the government war threatened to be overthrown by the "red shirts" protesters by street protesting and riots in the central of Bangkok where malls were set on fire and there were people injured from the circumstance.
With regards to the economic situation, Malaysia's economic growth has been escalating at the median rate of 6.5 percent, which is rather moderate but in recent news discussed in new strait times newspaper, it is published that the government is planning to raise RM1.3 trillion from the private sectors to road map investment and this would in turn provide an expected job creation of 3.3 million and also would tremendously help with Malaysia's goal of becoming a high income developed country by year 2020. (Kamarul Yunus, 2010)
One of the main strength in the social and cultural in Malaysia is due to their multiracial populations that consist of Malay, Chinese and Indian as the main three and also other smaller ethnics groups that make up only 1.2% of the whole population on Malaysia. It is strength for foreign direct investment because different countries like China, India and Middle East are able to work together and communicate fluently with the different groups of people with Mandarin, Tamil, Bahasa Melayu or English, as most of Malaysian is able to communicate articulately in at least two different languages.
Also, in comparison of Cambodia and Malaysia, the foreign investors would be more attracted to Malaysia because of its better infrastructure. A good infrastructure in the country is essential for efficiency of delivery of goods and services. Infrastructure are such as good roads, lighting, building and information technology communication (ITC). There are also different ways companies can transport their goods to places like by air, land and water and they are all relatively efficient.
Labour is also another strength in Malaysia as majority of the people have received higher education of at least 11 years before joining the labour force and many companies also provide skill training to further improve the productivity of the labour. In contrast, most of the people in Indonesia, Cambodia and Philippines did not have the opportunity to acquire higher level of education as their country are less developed and does not give as much priority to education in comparison to Malaysia.
Other strength of Malaysia that may attract FDI is that Malaysia is at a very strategic location and foreign investors that set up their production factory can easily ship their goods to be sold to other neighboring countries like Indonesia, Thailand and Philippines. investors would be more attracted to investing in Malaysia because of the differences in infrastructure as the building, roads and power supplies in Cambodia is still very backdated and underdeveloped.
Although political situation in Malaysia is relatively stable but the federal government as known as Barisan National or National Front is not always in agreement with the opposition parties such as the Pakatan Rakyat also known as the People's Alliance concerning the welfare of the society. Another challenge that comes up against attracting the foreign direct investment into Malaysia would be tough competition of labour cost of Vietnam as it is now known as the second China whose cost of labour is among the cheapest compared to other countries. Furthermore, Malaysia's currency, Ringgit, have also been appreciating against the US dollar, this means that the cost of investment is more expensive for the investors abroad as the currency is now higher at the selling rate of 3.127 per dollar. (Malayan Banking, Sept 22, 2010) even more, the corporate taxation in Malaysia is rather high so foreign investors will not be attracted to invest in Malaysia as high taxation rate equals lower profit level and this does not comply with the profit maximization goal of the company. Malaysia has a very strong Islamic value that might deter foreign investors from investing in the country. This is also backed up by the recent issue of the use of the word "Allah" by the Christian and has caused some conflict in the nation and the investors abroad may be afraid that the issue might be fatal and will cause instability and war in the country.
As the business consultant of the World Bank, I strongly recommend that the government should take action to further improve on their infrastructure to attract higher FDI into the country. The government should plan to build subways like the ones in Japan, UK, and London. Government should also give incentives like giving foreign investors 100% equity ownership when they invest in the manufacturing sector or the government could also reduce corporate taxation to increase FDI into the country.
Overall, Malaysia is country with a lot of advantages to attract FDI because of its strategic location, its improving infrastructure, political stability, educated labour force and most importantly their multiculturalism which attracts countries like China, India and Middle East because they are able to communicate fluently with the people in the country as Malaysia is a multilingual population.