Ease rules, be more business-friendly to attract FDIs, say economists

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PETALING JAYA: Three economists say Malaysia needs more business-friendly regulations and less bureaucracy if it wants to continue attracting foreign direct investments (FDIs) during the Covid-19 pandemic.

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While FDIs into Malaysia increased 3.1% to RM31.7 billion (US$7.6 billion) in 2019, the sum is just a fraction of the record US$156 billion that Asean countries pulled in last year.

The United Nations stated last month global FDI flow fell almost 50% in the first half of 2020 because of the economic fallout from the worst health crisis of the century, which had made investors more picky.

Nazari Ismail of Universiti Malaya’s Business Strategy and Policy Department said Malaysia should do away with certain rules and regulations pertaining to investments which slow down processes and add to the cost of doing business.

“Some licensing systems result in a situation where the regulations are seen to protect the interests of small groups of politically connected people,” he told FMT.

“They impose restrictions on opportunities for non-connected people to enter certain industries and also undermine the free market system, thus undermining the interests of consumers.

“These are the kind of rules and regulations that we need to get rid of.”

Nazari said outdated policies that need to be looked at include those regarding hiring practices as well as local content requirements.

He said globalised companies need flexibility in their operations, and rules and policies that prevent companies from hiring the best workers or obtaining the best input for production will discourage foreign investors.

‘Mida is stepping up to the plate’

Sunway University economics professor Yeah Kim Leng praised the Malaysian Investment Development Authority (Mida) for its closer engagement with international business chambers and sharper focus on quality investment in the service sector and high-end manufacturing.

Yeah noted that while Malaysia has successfully secured investments in smart factories, aerospace, medical devices and green technologies, Mida needs closer coordination and support from all levels of government if the country is to be a top-flight investment destination.

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“We need ‘end-to-end’ facilitation of investors to build production facilities and run their operations smoothly. This will help build up investors’ trust and confidence and consider Malaysia as an investors’ haven,” the former group chief economist at credit rating agency RAM Holdings Bhd said.

“It is comforting that Mida is stepping up to the plate, but we need a whole-of-government teamwork to outcompete our neighbours.”

Yeah argued that while top-level government support is crucial for Mida to succeed in pulling in domestic and foreign investments, a conducive operating environment is just as important.

He said the efficiency of federal bodies, state agencies and local authorities involved in issuing permits and licensing will play a critical role in ease of doing business.

‘Get more MNCs to invest’

Centre for Market Education CEO Carmelo Ferlito, meanwhile, said recently announced policies, such as restrictions on the hiring of foreign workers and expatriates, had dented investors’ confidence in the country.

Ferlito said that if Malaysia wants to remain competitive in attracting FDI and multinational companies (MNCs), as it has in the past, it needs to “rediscover” the business-friendly approach that was typical of past governments.

He pointed to the Principal Hub incentive implemented by Mida as one of the best of its kind. The scheme was first introduced in 2015 to encourage MNCs to set up their regional or global bases in the country.

Mida has approved 35 Principal Hub projects with total approved investments of RM35.5 billion under the incentive, starting in October 2019. This hub project potentially created more than 2,700 high-value jobs.

Regulations introduced last year allow companies that have yet to establish a presence in Malaysia to enjoy tax rates of up to 0% for 10 years if they fulfil certain criteria under this hub incentive.

“Malaysia is a small country, and the presence of MNCs is vital to the survival of the economy,” Ferlito said.

“Malaysia needs to rediscover the spirit of the past and let fears brought in by the pandemic fly away because foreign companies benefit everyone by creating job opportunities – and Malaysia cannot afford to lose them.” – FMT

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