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Wednesday, 12 March 2008

2007 Investment Climate Statement - Malaysia

Openness to Foreign Investment


The Government of Malaysia (GOM) encourages foreign direct investment (FDI) by providing a number of incentives, particularly in export-oriented high-tech industries and "back office" service operations. The GOM also hosts international trade shows and advertises broadly to attract FDI. Many U.S. companies have operations in Malaysia, including Intel, Microsoft, Dell, GE, UPS, Mattel, and Motorola, just to name a few.

However, Malaysia’s profitability for FDI is narrowing, as lower-wage manufacturing is becoming less competitive and the GOM remains reluctant to make reforms needed to attract higher-tech industries and realize its stated goal of “moving up the value chain.” In October, the UN Conference on Trade and Development (UNCTAD) reported that in 2005 global FDI increased by 29% and FDI to Southeast Asia increased by 45%. However, FDI to Malaysia decreased by 14% during the same period. A longer term outlook shows a similar trend. Total FDI inward stock for Southeast Asia increased by 42.4% from 2000 to 2005, while total FDI inward stock for Malaysia decreased by 9% over the same time period.[2] UNCTAD ranked Malaysia as the 6th largest destination for FDI in 1995; based on final 2005 figures, Malaysia now ranks 62nd.

According to the Malaysian Industrial Development Authority, third quarter figures for projects approved in 2006 indicate a substantial increase in domestic manufacturing start-ups, but 2006 approvals for foreign manufacturing start-ups remain comparable to 2005 levels. (Note: approval statistics are not directly comparable to actual FDI statistics. Also, manufacturing investment statistics do not capture investments in services or upstream oil and gas production.)

An in-depth study of the investment climate, conducted by the GOM in collaboration with the World Bank and published in 2005,[3] identified Malaysia’s top two economic constraints as 1) its regulatory burden, especially for services, and 2) its shortage of skilled labor. Two similar studies, one conducted by UBS and the other by the Institute of International Finance, reached similar conclusions.

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