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Outward Foreign Direct Investment in Malaysia: Trends, Factors, and Strategic Insights

Explore the key trends, factors, and strategic reasons behind Malaysia's Outward Foreign Direct Investment (OFDI) experience, examining push and pull factors, investment types, and institutional influences. Gain insights into the Malaysian OFDI landscape and its implications.

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Outward Foreign Direct Investment in Malaysia: Trends, Factors, and Strategic Insights

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  1. Outward Foreign Direct Investment: The Malaysian Experience Emeritus Prof. Dr. Mohamed Ariff and Greg Lopez Malaysian Institute of Economic Research

  2. Presentation Outline • Key OFDI Trends • Key Factors • Push Factors • Pull Factors • Strategic Reasons • Conclusion MIER

  3. OFDI as a % of South, East and SE. Asia Total FDI Stock Source: UNCTAD MIER

  4. OFDI as % of GDP Source: UNCTAD MIER

  5. OFDI Flows 1980 - 1992 US million Source: UNCTAD MIER

  6. OFDI Flows 1993 - 2005 US million Source: UNCTAD MIER

  7. OFDI - Top Ten Locations (1993 -2005) RM million MIER Source: BNM, various years

  8. Trends - Destination (1999 - 2005) MIER Source: BNM 2006

  9. Trends - Sectors MIER Source: BNM 2006

  10. Trends - Investment Type • Malaysian controlled companies (GLCs & RCCs) - 61% of OFDI (1999 - 2005) • Mainly through equity & joint ventures • Funded internally (62%) MIER

  11. Trends - Investment Type • OFDI by NRCCs - 39% (1999 - 2005) • NRCCs investment were essentially extension of inter - company loans to related companies abroad (91%) MIER

  12. Structural Push Factors • Economic growth - RGDP grew at 6.5% on average from 1957 - 2005 • GDP per capita (at current prices) grew on average at 7.0% (1957 - 2005) • Gross domestic savings increased from 29% of GDP in 1981 to 43% in 2005. MIER

  13. Push Factors - Tight Labour Market Unemployment MIER Source: Nambiar 2007

  14. Push Factors - Private Sector Development • No. of listed companies on the MSE grew at an average of 5.6% per annum (1981 - 2001). • KLCI grew at an average of 3.1% per annum (1981 - 2001) • Prior to crisis, MSE was the 4th largest in Asia (market capitalisation) MIER

  15. Cyclical Push Factor • Recession of 1985 and Financial Crisis of 1998 • Market saturation in certain sectors MIER

  16. Institutional Push Factors • Government policies • Economic Nationalism and affirmative action (1970 - 1980s) • Tax exemption, tax incentives & special funds (1991 - present) MIER

  17. Key Determinants • Rising cost of labour especially in relation to the cost of labour in the region • Wealth accumulation (individuals & companies) • Raise capital cheaply in the MSE MIER

  18. Structural Pull Factors • Low cost of factor (labour, raw material) prices in the region (labour intensive companies - manufacturing & textiles); • Markets; • Resource seeking (PETRONAS, plantation companies MIER

  19. Institutional Pull Factors • Investment and Trade Agreements • Investment Guarantee Agreements; • ASEAN Free Trade Agreement; • The WTO Agreement; • Institutions • MIDA, MATRADE and EXIM Bank • MASSA & MASSCORP MIER

  20. Strategic Pull Reasons • South - south co-operation • Diversifying markets (moving away from the U.S., E.U. and Japan) • Access to resources (oil & gas) MIER

  21. Findings • No conclusion can be made as the nature of the study is limited • Two trends can be identified • State led • NRCCs (inter - company loans) • State involvement in OFDI significant • GLCs are significant players • Other push and pull factors similar to general reasons for OFDI • More in depth research using firm level data is needed. MIER

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