Malaysia
Rebranded and recharged, MIDA aims to be the powerhouse that fuels Malaysia’s high-income-nation aspirations.
RISING to the skies in a cluster of glass and steel at KL Sentral’s swanky hub of rapid development, MIDA Sentral is a striking architectural vision as bold as its redefined role in the country’s economic transformation.
This, plus its spirited new logo and earlier name change from ‘industrial’ to ‘investment’, speaks volumes about MIDA (or Malaysian Investment Development Authority)’s evolution from an advisory agency for the Ministry of Trade and Industry in 1967 to what it is now and aims to be.
The agency now has wider powers and bigger responsibilities, and a vision to transform the economy under the country’s ambitious New Economic Model (NEM) and Economic Transformation Programme (ETP).
Essentially, it will strive to realise the Government’s aspirations to achieve high-income status for the country.
Bearing this responsibility and eagerly hoping to execute this vision is MIDA’s chief executive officer Datuk Noharuddin Nordin, whose primary aim, among others, is to generate quality investments in new and emerging technologies.
Rebranding needed
‘We need to rebrand our image as a centre for technology and global activities,’ Noharuddin tells Malaysian Business.
This new direction would address the views held by many that Malaysia’s private investment of about 10% of Gross Domestic Product (GDP) is too low for comfort to drive future growth.
Dr Yeah Kim Leng, chief economist at Rating Agency Malaysia, says: ‘Our private investment is only at 10% of GDP whereas in the pre-Asian Financial Crisis period, it was hovering around 25% to 30%. If we can encourage the private sector to invest more, generating GDP growth of 7% would be quite achievable for Malaysia.’
All under one roof
Noharuddin intends to enhance MIDA’s position as a one-stop centre for potential investors, which would involve coordinating related activities of other public agencies. It would result in the benchmarking of Malaysia’s locational advantages compared with regional and global peers.
Should Malaysia be worried about its direct investment figures, both foreign and domestic?
Noharuddin says it is fortunate companies tend to invest now for future rewards. ‘We are banking on the fact that many companies are anticipating a recovery sometime in the future. For those with resources, they may start investing now so that they would be the first to take advantage of the recovery,’ he says.
‘Our first-quarter figures for this year show there is no slowing down of interest amongst foreign investors to this part of the world. But we still have to compete.’
Going for the right investments
Asked what Indonesia’s foreign direct investment (FDI) surpassing Malaysia’s indicates, he says: ‘Yes, Indonesia is getting more investments in absolute numbers. But are those the kinds of investments we want? Those investments go into resource extraction, targeting a large market population of 280 million and sourcing cheap labour.’
Noharuddin says Malaysia should not be comparing itself with countries like Indonesia, Vietnam or Cambodia. ‘If you are talking about the technology you want, your competitors are in London, New York, Los Angeles and Singapore. We have to be careful in setting our success,’ he advises.
Given all the efforts it has made to attract FDI, what more can Malaysia do? ‘We need to address the fundamental needs of the companies. And moving forward in terms of promoting FDI, we are going to be very selective. The investments we want would have to meet the national economic classification agenda,’ he says.
That means these investors have to help the country move away from labour-intensive industries up the value chain into high capital-intensive industries such as aerospace, pharmaceuticals and biotechnology. ‘These are the kinds of industries we want to attract,’ says Noharuddin.
Adopting the Right approach
Lee Heng Guie, CIMB Research’s head of economics, noted in a report that Malaysia had posted two successive years of higher FDI inflows in 2010-11. The country witnessed a strong rebound in gross FDI inflows to US$12 billion in 2011 and US$9.1 billion in 2010 from US$1.5 billion in 2009, the lowest level in recent years.
‘Last year, we emerged as the fifth most popular destination for FDI. But a 33.9% year-on-year drop in the first quarter of this year raises the question of whether Malaysia can keep the FDI floodgates open given the subdued global outlook,’ he said.
The challenge for the country, he added, was in designing the ‘right’ policy approach for foreign investment, including avoiding investment protectionism that would not only deter foreign interest but also turn away domestic investors.
‘The biggest shortcoming for Malaysia in attracting FDI would be the size of the economy. The limited domestic market makes it necessary for us to upgrade our global value chain. Malaysia has gained a strong footing in manufacturing, so the next question is whether it should expand beyond that into areas such as R&D (research and development),’ Lee noted.
Not just the numbers
Noharuddin says it is not about numbers but the quality of investments. ‘If you are indiscriminate in terms of bringing in investments, you end up having to cater for industries that are very labour-intensive,’ he says.
‘Where would they get their labour from? Malaysia would have to allow them to bring in foreigners. Hence, we would not be creating employment for locals but for people of other countries.’
More importantly, if those industries became entrenched in Malaysia, the country would continue to be perceived as a place to manufacture and assemble merchandise.
So what does Noharuddin view as quality investments? ‘These are investments that may not be huge in value but carry a niche technology.’ He says an example is the plant specialising in the design of integrated circuits for data storage being set up by Phison Engineering Corp’s Pua Khein Seng in Penang. ‘He has been in Taiwan for 15 years and we had been enticing him to come and set up operations in Malaysia,’ says Noharuddin.
Interestingly, Pua, when queried at a local conference three years ago on why he did not bring his investment back to Malaysia, replied that the country did not have the ecosystem to support his business. He said even if he were to bring in engineers from Taiwan, he would still have to return (to Taiwan) for parts and some design solutions.
Obviously Malaysia is now more ready since Pua has brought in the design phase of the work to Penang with an investment of RM30 million.
‘So the challenge for us at MIDA is to get other people to assess success in a different way,’ says Noharuddin. ‘By being selective, we hope to rebrand the country’s image whereby more design and creative work would be done in Malaysia,’ says Noharuddin.
‘That is why we have to be more sophisticated in assessing our success in investment. It’s not just about absolute numbers in FDI anymore. Malaysia has to retain talent and stem its “brain drain” to run high technology industries.’
Advice taken
With the knowledge and expertise it possesses, MIDA will also maintain a ‘global investment research and strategic foresight centre’ to position itself as a leading regional and global best practice Investment Promotion Agency (IPA) and knowledge-based centre. This would reinforce its role in advising the Government in formulating and implementing investment policies.
The advisory role is executed by the National Committee on Investment (NCI). A recent outcome of the advisory has been the empowering of domestic investments by Malaysian companies, particularly small medium enterprises (SMEs), when Prime Minister Datuk Seri Mohd Najib Razak announced five new measures to encourage domestic investments.
Noharuddin says one measure comprises a RM1 billion Domestic Investment Strategic Fund and the rest, tax incentives.
These initiatives are aimed at accelerating the participation of Malaysian-owned companies in the global supply chain of targeted industries such as aerospace, medical devices and solar energy.
‘The package of assistance will be granted on the merits of each case and the main objective is to enhance technological capabilities of domestic investors. The fund also aims to harness and leverage outsourcing opportunities created by MNCs (multinational corporations) operating in Malaysia and intensify technology acquisition by Malaysian-owned companies,’ he says.
Noharuddin feels the new measures would dispel the perception that the Government has been giving considerable incentives to foreign investors and not enough to locals.
MIDA to reach out
Still, he observes there is a lack of local awareness of available incentives. Towards this end, MIDA is stepping up its outreach programme and plans to organise smaller workshops in more areas and reduce the holding of big events and seminars, which is the general practice.
CIMB Research’s Lee thinks these initiatives, along with entry point projects (EPP) and business opportunities offered under the ETP, should spur private investment growth. Since its launch in October 2010, the ETP has secured RM199.7 billion in committed investments, and will create 352,349 new jobs and generate RM134.1 billion in incremental Gross National Income (GNI) by 2020.
‘Of this, RM13 billion investments have been realised and we expect higher realised investments of RM16 billion in 2012. Overall, we estimate private investment growth of 10.6% this year and 10.2% for 2013,’ says Lee.
Wait, there’s more
These strategies – rebranding Malaysia as the centre for high technology activities and generating investments in new and emerging technologies on an ecosystem approach – are not the end of the story. MIDA will also take steps to empower domestic direct investment (DDI) and diversify FDI.
The Government’s objective for domestic private investment is to attain 73% of total investments by 2020 under the ETP and to reduce dependency on FDI, which is expected to account for only 27%
‘We are at 56% (for domestic private investment), so we have still a long way to go. In 2011, of the total investments approved of about RM154.6 billion, domestic investments accounted for RM86.6 billion or 56% of total investments. The services sector’s share of domestic investments was larger at 74.6%,’ says Noharuddin
How does Malaysia compare to Singapore? ‘We have a very conducive environment for doing business at a very competitive cost. We can offer an environment similar to Singapore and definitely we are more competitive,’ he says.
‘Having travelled to many countries, I know how great our country is,’ he adds with some pride. ‘We have the amenities and the food. Of course, there is a bit of traffic jam (in Kuala Lumpur) but so has Bangkok. And the cost of doing business is a third of that in Singapore. We have land that Singapore doesn’t So we do not want to go the route of Singapore.’
By Gurmeet Kaur and Michael Sun
Malaysian Business
16 July 2012
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