Foreign Investors Pull Out of Malaysia Amid COVID-19 and Political Instability...

Last Year's FDI $2.5 Billion, Down 67%
Prime Minister Muhyiddin with Weak Political Base
Instability Worsens Due to Failure in National Control
Prolonged COVID-19 Lockdown Also a Factor

[Asia Economy Kuala Lumpur Correspondent Hong Seong-ah] Foreign direct investment (FDI) in Malaysia last year decreased by 68% compared to the previous year due to COVID-19 and political turmoil. This represents the largest decline among ASEAN (Association of Southeast Asian Nations) member countries.

According to the United Nations Conference on Trade and Development (UNCTAD), FDI inflows into Malaysia last year amounted to $2.5 billion (approximately 2.81 trillion KRW), down 68% from $7.8 billion the previous year. ASEAN's total FDI last year was $107 billion (approximately 120.268 trillion KRW), a 31% decrease from the previous year. Malaysia's FDI decline was significantly larger than the overall ASEAN decrease.

Additionally, Vietnam attracted $14 billion (approximately 15.736 trillion KRW), down 10% from the previous year, while Singapore and Indonesia attracted $58 billion (approximately 65.192 trillion KRW) and $18 billion (approximately 20.232 trillion KRW) respectively, each experiencing declines of 37% and 24%. Thailand's FDI also fell by 50% to $1.5 billion (approximately 1.686 trillion KRW) compared to the previous year.

Although foreign investment attraction was generally sluggish, ASEAN countries received investments from overseas companies in future new business sectors and digital economy production bases such as big data. Global companies like Tesla and Amazon significantly increased investments in Indonesia, including factory construction and data centers, while Apple announced plans to relocate some iPad and MacBook production facilities to Vietnam. Furthermore, Chinese companies such as Alibaba, ByteDance, and Tencent have been gathering in Singapore.

On the other hand, Malaysia's investment environment deteriorated compared to the previous year due to political turmoil. In 2018, Malaysia achieved a regime change for the first time in 61 years since its independence in 1957. However, in March 2020, Prime Minister Mahathir Mohamad suddenly resigned, and Muhyiddin Yassin was appointed as the new prime minister. Muhyiddin, with a weak political base, failed to control the government, which heightened investment uncertainty. Peter Mumford, Asia representative of Eurasia Group, said, "The sharp decline in FDI in Malaysia was largely due to escalating internal political instability and accelerating economic nationalism."

Some experts analyzed that the sharp drop in FDI last year was more due to the prolonged COVID-19 lockdowns than political factors. Economist Diana Del Rosario stated that the strict lockdown measures implemented in the second quarter of last year led to negative growth, resulting in a loss of foreign investment. Malaysia imposed lockdown measures from March 18 last year and began easing restrictions gradually from May.

There are also criticisms that the domestic investment environment is problematic. Manokaran Mottain, chief economist at Alliance Bank, argued that the FDI ratio should be increased through institutional environment improvements. He emphasized, "A stable investment environment must be provided to global companies," and added, "Investment inflows should be promoted by enhancing transparency, simplifying business procedures, and easing restrictions on hiring foreign workers."

Moreover, there are concerns that Malaysia's telecommunications sector, including internet services, is underdeveloped relative to its economic level. Malaysia's internet speed is slower than Laos and Myanmar and comparable to Iran and Kenya. Although Thailand's per capita GDP is half that of Malaysia, its internet speed is more than three times faster.

Experts emphasized, "Malaysia is an attractive investment destination, ranking 27th in global competitiveness and 12th in business rankings," and added, "If foreign investment is expanded through infrastructure development, tax incentives, and regulatory reforms, Malaysia has a high potential to rapidly attract FDI in the future."

This content was produced with the assistance of AI translation services.