FDIs not flowing as freely into Malaysia, says Tengku Razaleigh

Eva Yeong, The Sun Daily

Malaysia is no longer attracting foreign direct investments (FDIs) as freely as it used to, said former finance minister Tengku Razaleigh Hamzah, adding that the country is not investing enough to meet its aspirations.

"Private investment now makes up a smaller portion of the country's gross domestic product (GDP). Although we continue to maintain a relatively high national savings rate, some of those savings have gone overseas," the Gua Musang member of parliament said in his keynote address on "Pragmatism in the Face of Present Economic Outlook" at the MIER National Economic Outlook Conference 2013/2014 here yesterday.

"Malaysia has become a premature exporter of capital, a characteristic that is unbecoming of a growing, high potential economy.

"There is also this silent issue of capital flight, whether it is in the form of over-invoicing by corporates or personal wealth leakages," he added.

On the domestic production front, he said the nation depends on a relatively narrow spectrum of growth drivers, while the government's revenue base is just as limited and the issue of fuel subsidies has to be addressed quickly.

Tengku Razaleigh said the removal of petrol subsidies is imperative as it is a drag on government finances and an impediment to proper resource allocation.

"In order to protect the average consumer, perhaps we can begin by applying an implicit subsidy cut on large engine capacity vehicle owners via a higher road tax," he said.

Minister in the Prime Minister's Department Tan Sri Nor Mohamed Yakcop said private investment is expected to account for 30% of the country's total investments next year.

"Private investment, which grew marginally by 2.5% during 2005 to 2009 period, registered a double digit growth of 15.5% in 2010 and 12.2% in 2011.

"Even more encouraging, it grew on an annualised basis of 22.2% in the first half of this year," he said at the opening of the event.

Meanwhile, RAM Holdings Bhd senior general manager and group chief economist Dr Yeah Kim Leng. said domestic-based sectors and services need to grow at a faster pace in order to have a sustainable domestic-driven growth.

"Domestic demand has actually helped the Malaysian economy offset the global demand over the last decade and more importantly, in the post global financial crisis year of 2010 and 2011, domestic demand has actually been offsetting the negative growth from exports," he told reporters on the sidelines of the conference.

"Domestic demand can help smoothen Malaysia's output fluctuations.

"Use domestic demand to enhance resilience because Malaysia is such an open economy with exports contributing more than 100% of GDP. We are actually subject to a lot of these external demand shocks," he added.

Yeah said next year's GDP growth will remain above 5% with RAM Ratings maintaining its forecast of 5.3% for 2013.

He said the two major risks are the continuing Eurozone debt crisis that could potentially result in double dip for the global economy and the fiscal cliff.

"If these two don't happen, Asia, with improving indicators from China and other emerging countries, will be in a strong position to capitalise on the regional growth and demand.

"Combined with our resilient domestic demand, there won't be any major shock to our investor confidence and consumer spending," he added.