Importance Of Foreign Direct Investment To Malaysia Economics Essay

By August 6, 2017 Economics

Introduction

Malaysia, a little and unfastened economic system, is a multiracial state that is good known for its natural resources such as minerals, forestry every bit good as agribusiness ( Thomas White Organization 2010 ) . In the earliest old ages the major productions from Malaysia are Sns and gum elastics. In the 1840s, Malaysia ‘s Sn has contributed to about half of the universe ‘s Sn sectors and in the early twentieth century Malaysia ‘s gum elastics became the most exported merchandise taking to an economic roar for the state. In 1991, Tun Dr. Mahatir bin Mohamad the fourth Prime Minister introduced the Vision 2020 to promote the state to visualise a far-sight economic development in Malaysia ( Huq 1994 ) . Soon, Malaysia ‘s economic system was on the rise, pulling attending of investors all over the universe. However in 1997, Malaysia met up with a major economic crisis that was known as the Asiatic Financial Crisis which has caused many investors to loss their assurance in the Malayan market. But shortly, in the twelvemonth 1999, Malayan economic system was in a recovery manner, easy conveying back foreign investors ‘ assurance back into the state. After the major economic crisis passed, Malaysia ‘s economic system was back to its healthy and stable status ( K.S 2001 ) .

Importance of Foreign Direct Investment ( FDI )

One of the strongest parts to the growing and public presentation of Malaysia ‘s economic system is the Foreign Direct Investment ( FDI ) . In the early 1970s the authorities introduced the Investment Incentives Act 1968 doing Malaysia a free trade state. With the export inducements given to foreign investors, the FDI began to turn in the late eightiess. By conveying in more influx from the FDI, a larger per centum of foreign equity ownership in endeavor was given to investors. The FDI in a state undertakings an image of globalisation. It helps in increasing the efficiency to use the universe ‘s scare resources. With the presence of FDI in a state, it helps to convey in capital, new engineering, intangibles such as organisational and managerial accomplishments, and selling webs. Besides that, it helps in conveying in competitions, inventions, occupation creative activities that will help in the growing of the economic system. In Malaysia, The Malayan Industrial Development Authority ( MIDA ) is one of the subscribers that attracted FDI into Malaysia. With that, manufactured goods exported have taken up to 80 % of Malaysia ‘s entire exports in the twelvemonth 2005. Therefore, the FDI plays an of import in the development of a state ‘s economic system. ( World Trade Organization 1996 )

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Strength

Political

The political stableness in Malaysia is of import to pull more foreign investors to the state. There are three major races that can be found in Malaysia which are Malay, Chinese and Indian community. In May 1969, there was a major racial struggle that has lead Malaysians to populate instead harmoniously with each other in order to forestall another racial public violence from go oning once more. Since so, races of different sorts can be seen working, assisting, jesting together. The political power in Malaysia is chiefly controlled by Malays which are known as the Bumiputera. However the authorities parties such as United Malays National Organization ( UMNO ) , Malaysian Chinese Association ( MCA ) and Malayan Indian Congress ( MIC ) is formed as one authorities known as the Barisan Nasional ( BN ) . With these three parties, each race has their ain representatives to decide any racial struggles and therefore giving the state a more harmonious community ( Malaysia Truly Asia n.d. ) .

Economic

The economic tendency is to supply a image of the economic growing in Malaysia. The Gross Domestic Product besides known as the GDP is to mensurate the state ‘s entire end product. The economic in Malaysia has been in a lag. However, in this twelvemonth of 2010, Bank Negara Malaysia has announced that the GDP is expected to transcend 6.0 per cent. The first half of the economic growing was rebounded up to 9.5 per cent comparison to old twelvemonth in 2009 that has a negative of 5.1 per cent. Harmonizing to the cardinal bank governor Tan Sri Dr Zeti Akhtar Aziz, there is a high possibility that the economic system will go on to turn even though there is a lag among their trading spouses with other developing states. Since the economic system is financially strong, it is expected that there would be a uninterrupted steady influx from FDI ( Business Times 2010 ) .

The company revenue enhancement rate that has been taxed since the twelvemonth 2009 is at 25 % . Any income generated by local company which performs activities such as banking and insurance concern and sea and air conveyance projects has to pay the revenue enhancement imposed, other than that there is in no demand of paying the revenue enhancement as income is derived out of Malaysia is non nonexempt and it will go a withholding revenue enhancement in the other states ( MIDA 2010 ) .

As for the rising prices rate in Malaysia, it has been speed uping since the month of March 2010. The latest rising prices rate, which is in the month of July 2010 reached up to 1.90 % compared to the month in March 2010 which is 1.30 % ( Malayan Inflation Rate 2010 ) . Harmonizing to Bloomberg, the affected costs are the nutrient and conveyance countries ( Adam 2010 ) .

Furthermore, the current exchange rate, September 21st, 2010 for Malaysia against US Dollar is at 3.1370. Harmonizing to bank governor Tan Sri Dr Zeti Akhtar Aziz, the Malaysian Ringgit has been appreciating over the past old ages about up to 9 % ( Star Business News 2010 ) .

Social and Cultural

Malaysia is a multiracial state that consist of the Malay, Chinese and Indians. Each civilization has their alone traditions. The Malays for illustration celebrates Hari Raya, the Chinese celebrates Chinese New Year and the Indians, Depavali. Many faiths can besides be found in Malaysia excessively. For case, the major faith that is known in Malaysia is the Christianity, Buddhism, and Islams. Each faith patterns their supplications and jubilations in Malaysia harmoniously ( Dalat n.d. ) .

The assorted races and singularity of this state has attracted many foreign investors to Malaysia. Such as investors that comes from China, India and Middle East. Foreign investors from these states find it easier to put up a corporation in Malaysia as they are able to pass on easy with the locals. For illustrations, Chinese will be able to pass on with investors from China, Indians to investors from India and Malay to Middle East. Although there are differences in each race and civilization, nevertheless the community stays together as one.

Malaysia itself has already welcomed investors from China, India and Middle East. The Malayan Industrial Development Authority ( MIDA ) , lief invites more Chinese investors to research, trade and put in Malaysia. For case China has set up a company known as Wenzhou a endeavor that was set up in Malaysia has become a well-known company in Malaysia. Even Indians from India can be found puting in Malaysia. Harmonizing to MIDA, India ‘s house is set to put in companies that involves in pharmaceuticals and biotechnology in Malaysia. Not burying Investors from Middle East has besides invested in Malaysia such as puting up Muslim Banks ( Business Times 2010 ) .

Technology

Malaysia is one of the Asiatic states that are traveling into a technology-driven and high tech production based demoing that Malaysia has its possible to develop and contrive new engineerings despite the fiscal crisis that were faced in 1997 ( Mun Chow Lai 2004 ) . There are many engineering companies in Malaysia and one of them is the Malaysia Technology Development Corporation ( MTDC ) . MTDC provides incorporate ventures capital solutions for new thoughts and innovations ( Malayan Technology Development Corporation 2007 ) .

The engineering in Malaysia is easy progressing that by the twelvemonth 2020, The agribusiness National Key Economic Area known as the “ NKEA ” , expects that Malaysia will transform the agribusiness sector into an agriculture, which will non merely supply employment chances for those in rural countries but besides a encouragement in the state ‘s Gross National Income ( GNI ) . Furthermore, the wellness NKEA marks to develop more pharmaceuticals, wellness travel and medical engineering merchandises that will hike the market in the economic system ( Bernama 2010 ) .

Additionally, Malaysia has besides shown a develop web of Highways. The main road such as havens and airdromes throughout the peninsula has provided efficiency to many industries. Even the telecommunication with the latest digital and fire optics engineering has made Malaysia ‘s telecommunications to be an impressive enlargement for the past few old ages ( MIDA 2010 ) .

Labor

In Malaysia, investors benefits from acquiring more persevering, disciplined, educated and trainable laborers. Every Malayan young person in footings of instruction has to travel through at least 11 old ages of school instruction degree, therefore leting investors to happen it easier to develop these in young person in new accomplishments. As the demand for technically trained workers additions, the authorities has taken the enterprises to increase the figure of much more erudite and educated pupils in that field. Besides that, the relationship of both employer and employee are much more harmonious. The productivity are comparatively high even though the labor cost in Malaysia are rather low ( MIDA 2010 ) . Harmonizing the labor statistic late, the labour force has been on the rise since twelvemonth 2003. Comparing to the twelvemonth 2009, the labour force in Malaysia was at 11,090,000 but in the twelvemonth of 2010, it has raised up to 11,290,000 ( CIA World Factbook 2010 ) .

Challenges

The competition Malaysia faces with other Asiatic states has been stable and increasing in the past old ages. However, in the twelvemonth 2010, harmonizing to the World Economic Forum ( WEF ) the planetary fight index in Asia Pacific states has slipped two topographic points down to 26th place as compared to old study which was at the twenty-fourth topographic point. Likewise, in the old old ages of 2008 and 2009, Malaysia was reported in a worsening state of affairs. It was besides reported that the four chief countries which are the higher instruction, developing establishments, technological preparedness and labour market are the cause that every bit contributed in the worsening rate of the Malaysia ‘s competitory public presentation. Besides that, the wellness concerns such as malaria, HIV/AIDS and other disease are besides subscribers to the autumn ( Damodaran 2010 ) .

Additionally, in the Fieldss of political relations, any instability in political relations of the state would take to a lost or a clasp in foreign investors unless the political conditions are stable once more ( Lim 2010 ) . In this current twelvemonth 2010, Malaysia has been confronting many political issues as the resistances are acquiring stronger deciding in province struggles with the federal authoritiess. For illustration, harmonizing to the positions of Deputy International Trade and Industry Minister, of all time since the resistance has been knocking the Barisan Nasional in the twelvemonth 2008 and 2009, it has caused foreign investors to keep back taking to a bead of 81 % . Thus the stabilisation of political relations is of import to pull foreign investors once more ( Bernama 2010 ) .

Recommendations

Malaysia is a beautiful state full of natural resources that has more possible to develop and turn. However to accomplish economically, one of the chief parts comes from foreign investings. There are many challenges that the state needs to decide to increase the influx of foreign investors.

Since the higher instruction, developing establishments, technological preparedness and labour market are the cause that every bit contributed in the worsening rate of the Malaysia ‘s competitory public presentation, Malayan authorities must take the enterprises to forestall those higher educationalists non the leave the state. This can be done by giving those educated citizens better benefits and chance in order to forestall any encephalon drain by other states. This is besides to guarantee security in houses so that immature extremely educated groups are able to be advanced in new thoughts for the state so that rivals are attracted to vie in Malayan markets. As for the wellness state of affairs which is besides a factor to the worsening rate of competitions in the market, the wellness ministry must take immediate action when diseases are discovered in the state and show stairss of bar to maintain the state in a healthy status. By making so, it brings a sense of securities for foreign investors and pulling them to put in this state.

As mentioned above, Malaysia faces some political issues that has slowed down the Numberss of foreign direct investors or even put them to a arrest. Even though struggles may happen politically, nevertheless the state of affairs should be handled candidly to capture back the trust of the Investors. The authorities must be prepared to accept the people ‘s and the resistances ‘ unfavorable judgment as a agency of bettering instead than revenge by denying. A strong authorities must do certain that peace and harmoniousness is their precedence in order to guarantee foreign investors that their investings are in safe custodies.

Decision

In decision, to pull more foreign investors from China, India and Middle East, immediate stairss by the authorities must be taken because if a crisis were to protract, investors will probably shy away from the state. By holding a stableness of the political relations, economic sciences, societal and civilizations, engineerings and labor, these foreign investors will non waver to put as they would happen it confident to put in a state that is in a stable status.

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