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Malaysian investors flock overseas
Publication Date : 19-10-2012
If you ate seafood during the Sydney Olympics or World Rugby Cup in Australia, it was probably supplied by a Malaysian company. Ditto fish and chips in London during Wimbledon.
Golden Fresh, an importer of processed seafood, which started its operations in Butterworth, Penang, is one of the many Malaysian companies that have expanded abroad and now compete on the global stage.
Malaysian companies have ventured abroad since the 1980s, enriching the country through repatriated profits and taxes and international expertise. But the dilemma now is that investment outflows exceed inflows, particularly in the past five years.
As a result, economists say Malaysia could miss its economic growth target of 6 per cent a year, which Prime Minister Najib Razak's administration has pledged to turn the country into a high-income nation by year 2020.
"It is a concern," said Dr Zakariah Abdul Rashid, executive director of the Malaysian Institute of Economic Research, which receives government funding.
"The economy is now increasingly reliant on domestic investment and consumption to drive expansion, but Malaysian companies, even government-linked ones like Sime Darby and CIMB, are investing overseas."
Julia Goh, an economist at CIMB Investment Bank, said the government cannot stop Malaysians from investing abroad.
"Malaysia is a small market and, hence, there are push factors for companies to expand overseas if they want their businesses to grow," she said.
The bulk of these investments abroad were made by government-linked companies, including national oil firm Petronas, which is investing in oil exploration and production overseas. On a smaller scale, privately-owned companies such as OldTown White Coffee have restaurant franchises in Indonesia and Singapore.
In 2007, the net outflow of capital stood at 9.3 billion ringgit (US$3.06 billion), but it quickly widened to almost 26 billion ringgit the following year. It narrowed to 10 billion ringgit last year, but has since surged again.
Malaysian companies invested 19.5 billion ringgit abroad in the first half of this year, surpassing the 13.6 billion ringgit that flowed in.
Two years ago, Najib's administration launched a wide- ranging Economic Transformation Programme offering investors tax incentives and funding assistance to spur domestic investments.
But net outflows continued. More than two-thirds of investments abroad were in the services sector, namely financial services and wholesale and retail sectors.
These are the same sectors earmarked for growth in Malaysia.
"As long as Malaysians see a higher rate of return investing overseas, they will still do that," said Dr Zakariah. "It is a structural issue that the economy faces."
Economic woes in Europe and the United States and a slowdown in China have not helped.
"For 2012, the gross inflows of foreign direct investments are envisaged to be moderate, reflecting increasing uncertainties in the global environment," he said.
Malaysia is also competing with other regional markets, such as Indonesia and Vietnam, which have opened up.
In some ways, the lower foreign investment could be self-inflicted, said Nor Zahidi Alias, chief economist at Malaysian Rating Corporation. "Malaysia is being much more selective in approving foreign investments with less of an emphasis on labour-intensive manufacturing," he said.
US$1 = 3 ringgit