International Review of Business Research Papers Vol. 1 January 2008 Pp Foreign Direct Investment in Malaysia: Trends and Prospects Dawood Ali M.Mithani*, Shabbir Ahmad** and Adam Mohd Saifudin*** This paper reports on a study analyzing recent trends, pattern and prospects of the foreign direct investment (FDI) in Malaysia in the post financial crisis period.Mithani, Ahmad & Saifudin 252 Table: 1 FDI Flows: World, ASEAN and Malaysia (US $ Million) Years World ASEAN Malaysia * 14500** 3203** Sources: UNCTAD, World Investment Reports, 1998, 2002, 2004, 2006 * Ministry of International Trade and Industries, MITI Report, 2003, ** Association of South East Asian Nations, ASEAN Economic Report 2005 5.
In the event of declining inflows of FDI, Malaysia has to shift towards inward looking policies and search other alternatives to sustain its growth and economic prosperity by seeking more investment outflows as a global player. Introduction In the new economic era of the 21 st century, foreign direct investment (FDI) set a remarkable trend for expanding and strengthening global business of several developing countries.
The success of export-lead growth strategy in the ASEAN-5 (Indonesia, Malaysia, Philippines, Singapore, and Thailand) region is categorically attributed to the FDI inflows in these countries In the Asia Pacific belt among the ASEAN (Association of South-East Asian Nations) countries, however, Malaysia as a promising nation has acquired a unique position of rapidly growing newly industrialized open economy in the past two decades. Mithani, Faculty of Business Management, University Utara Malaysia, MALAYSIA **Shabbir Ahmad, Central Bank of Pakistan, PAKISTAN ***Adam Mohd Saifudin, Faculty of Business Management, University Utara Malaysia, MALAYSIA 2.
Malaysia, on the whole, represents a rising trend of FDI inflows over the years since 1970.
From the bottom of US$ 94 million FDI inflows in 1970, the Malaysian economy had received a peak level of US$5741 million FDI inflows in 1996.
In the case of country s M&As purchases had an average of US$ 525 million during , it has reached to a peak of US$ 3685 million in There was a substantial decrease in 2004, amounting US$ 816 million. Mithani, Ahmad & Saifudin 254 Table: 3 Malaysia Cross-border Merger and Acquisitions (M & As), Overview: US$ Million Year Sales Purchases (Annual Average) Source: UNCTAD, World Investment Report, It is heartening to note that there has been a rising trend in outward investment flows of Malaysia in recent years.
It has a quantum jump from US70 million in 2003 to US$ 2971 million in In Malaysia, Petronas Petroliam National Berhad has made remarkable achievements globally.To enhance the positive effect of FDI on the growth process of the Malaysian economy the flow of FDI into export-oriented sector and use of domestic inputs by the foreign-oriented firms need to be encouraged.It is suggested that for sustained flow of FDI, continual price stability, macroeconomic balances, good governance and economic liberalization reforms are crucially important in the country.It is interacted to draw some useful lessons for the benefits of policy makers in developing economies.. FDI Growth Trends in the ASEAN and Malaysia Globally, FDI has increased dramatically over the years. The Worldwide FDI inflows had an upward trend in 1997 onwards seemingly unaffected by the Asian financial crisis-the inflows of FDI, however, have largely been canalized towards industrial countries.Even by 2001, developed countries remain the prime destination of FDI, accounting for more than 75 percent of global inflows.Source: UNCTAD, World Investment Report, In recent years, cross border Merger and Acquisitions (M&As) activity caused increasing share of a country in the expanding global FDI inflows.Table - 3 refers to the data on cross-border M&As purchased by Malaysia during It shows that from the bottom of US$ 220 million average during the amount of the cross border M&As sales of the country had gone up to a peak level at US$ 1454 million in 2005.Indeed, Benchmarked against itself, Malaysia has made lots of improvement.But compared with other countries, especially in the area of foreign investment, it needs to act more speedily, (Joseph Tan, Singapore-based Economist of Standard Chartered, quoted by Jasin, A. Table: 2 FDI Inflows in ASEAN-5, Countries: (US$ million) Country World ASEAN Indonesia Malaysia Philippine Singapore Thailand Note: Figures in the parenthesis refer to year on- year growth ratio.Data in Table -1 suggest that in the new millennium 2001 onwards the ASEAN countries experienced a declining trend of FDI inflows from 505 million in 2001to $ million in 2003, as against the rising trend of the world FDI inflows from billion to US $ million to US $ million in the same period.In expert s opinions, this is attributed to a diversification of the world FDI inflows towards other channels the new emerging markets such as China, India and African countries.