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DIRECT investments play an important role in the economic growth of Malaysia.
Direct investments recorded a net outflow from 2008 to 2015 but turned positive from 2016 to 2022 helped by higher foreign direct investment (FDI).
Direct investment data include investments into the country by foreign interests and investments abroad by domestic investors and companies.
Malaysia remains an attractive investment destination despite macro headwinds and weaker global growth forecast for 2023 and 2024 by international agencies like the World Bank and the International Monetary Fund.
Data from the balance of payments show FDI inflows into Malaysia remain resilient during shocks like the Covid-19 pandemic of 2020 and the financial global crisis of 2008 to 2009 when the country attracted RM13.3bil and RM5.1bil net inflows respectively.
FDI surged to RM50.4bil in 2021 and a record RM74.5bil in 2022, driven by policies placing emphasis on FDI, a strong recovery and the spillover effects of trade diversion activity due to tensions between China and the United States.
The jump in inflows was led by multinational corporations relocating to circumvent high tariffs imposed and also by the growth of high quality investments mainly in the manufacturing sector, the Economic Outlook 2024 Report stated.
FDI has a positive effect on generating employment with some 44.7% or 700,000 employment opportunities created in 2000 to 2022 sourced from foreign owned projects in the country.
Such investments also help enhance employee skills, transfer of knowledge and technological capabilities and enhance the competitiveness of local companies on the global scale.
From a sectoral basis the focus of FDI into Malaysia has shifted from commodity based to manufacturing and services sector over the past decades.
Some 97% of FDI in 2022 was in the manufacturing and services sector due to a strategic change in policy direction towards value added activities and development of the services sector as the main engine of growth of the economy.
The evolution of the manufacturing sector from a conventional industrial production process to an inclusive concept also helped, the report noted.
Malaysia’s main source of FDI is from Asian countries like Hong Kong and Japan, which accounted for 35% or RM497bil of the total FDI inflows between 2010 to 2022.
But for 2022, North America accounted for 49.8% of total FDI inflows into Malaysia.
Direct investments abroad (DIA) by Malaysian businesses has averaged RM35.7bil from 2005 to 2019 but the weaker ringgit has seen DIA trend lower from 2016 to 2018 and drop sharply in 2020 due to the Covid-19 pandemic before rebounding post pandemic.
DIA are primarily in the services sector such as financial and insurance and takaful. South-East Asia remains the main destination for DIAs of Malaysian companies, growing from 44% of DIA in 2010 to 50% in 2020.
DIA to Europe has gained traction, growing from 16% of total DIA in 2010 to 36% in 2022 while to North America it has risen from 0.5% of total DIA to 6.9% over the same period driven primarily by the attractive investment returns.
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