Importance Of FDI In Expanding Malaysian Economic Growth

The federation of Malaysia was developed in 1963, at first comprising Malaya, Singapore, Sabah and Sarawak. Because of internal politics reasons, Singapore was asked to leave the federation in 1965 to be an independent condition. Malaysia is sectioned off into two regions particularly the West and East Malaysia by the South China Sea. Malaysia is blessed with an abundance of natural resources such as gas, coal, petroleum and the humid tropical local climate creates a great condition for plant progress such as hand oil and plastic. These recycleables are what donate to the economy.

Before the 1970's, Malaysia was previously a raw materials producing overall economy that produced plastic, tin, etc that exported to the industrialised countries. Much later, petroleum and hand olive oil were also one of the recycleables being exported. However, since the 1970's an alteration has been mentioned in the development of the economy of being a more export-oriented production industry that produced textile, rubber products, electric and digital goods etc. The federal government realised to increase GDP expansion, the country was required to switch from an export-oriented fresh material producing overall economy into an export-oriented making economy. Not merely will employment go up, but it will benefit GDP growth and monetary welfare.

Importance of Foreign Direct Investment (FDI)

"FDI is thought as a company in one country making a physical investment into building a factory in another country. " In other words, it's the establishment of any company by a foreign investor. To purchase Malaysia, it is necessary that 10% of the total collateral in a citizen company be held by the overseas investor. Generally there are two types of FDI's; outward-bound FDI and inward-bound FDI. An outward-bound FDI is when local capital is invested in overseas resources while an inward-bound FDI, the opposite associated with an outward-bound FDI is when international capital is committed to local resources.

FDI is an important and effective way to mix up the market as it is a significant catalyst to development. It is because with the establishing of companies and factories, job will rise. With international money being pumped in to the market to pay of pay and wages to the employees, a multiplier result will create an treatment of many times that will cause an enormous influx of international money. As more foreign money has been pumped into the local economy (presuming there are no outflows of money) GDP development will soar that should go together with vision 2020 where Malaysia will achieve a developed region status with a frequent 8% growth rate each year. This will subsequently, bring confidence into the economy, further generating more FDIs. As the current economic climate is doing well, development will in a natural way take spot to improve the standard of living.

Furthermore, the acquisition of knowledge for the transfer of technology is a tremendous advantage for the united states. As companies and factories are being create, heavy machineries and superior technology are being passed on to the local employees to use the business. In order to work the technology, the neighborhood employees will have to go for training. Thus the passing on down of knowledge and technology to the united states is an integral part for expanding countries to improve itself on a global scale.

Suitable Establishments and Businesses

Foreign Investors from China can consider venturing into the green energy sector. It is because, Malaysia offer an ample supply of raw material and land availability for such assets. Furthermore, a business from the Hong Kong called Sun Carry Solar Ltd. has made the first move to venture into the renewable energy industry in Malaysia. This is a stepping rock for future FDI from China into this sector.

Foreign traders from India can consider venturing in to the IT industry of Malaysia. It is because Malaysia is totally equipped with broadband internet credited to Multimedia Super Corridor (MSC) and so this can accomplish with the FDI when they spend and set up companies in Malaysia.

Foreign investors from the Middle East can consider venturing into the oil and gas industry. THE CENTER East is rich with an abundance of coal and oil therefore is Malaysia. Shareholders following that have a higher knowledge in the field and therefore, are suited in venturing into this sector. It really is highly recommended that the center East investors commit into the oil and gas industry to further enlarge the range of production and thus getting billions to energize the economy.

Strengths

The political position in Malaysia isn't a huge concern to foreign investors as it is considered stable in comparison to neighbouring countries like Thailand. In Thailand, where road protests have escalated lately have kept foreign investors pending on the investment in to the country due to nationwide security. The politics instability and unrest has triggered an enormous deterrence for the country's FDI and therefore, alternatives have been considered. Malaysia, south of Thailand is an option for the disturbed politics atmosphere. With a stable political status in Malaysia, overseas investors can and will benefit from their investment funds into Malaysia.

A proper location between your East and the Western, Malaysia is in the epicentre of the ASEAN countries. Buyers from the Middle East, India and China will find that Malaysia is the gateway to the ASEAN market that is some 558. 2 million people. Malaysia boasting a people of only 28 million will be the focal point of foreign investors as they can certainly deliver their products to the neighbouring countries.

Natural resources in Malaysia are by the bucket load. Natural gas, olive oil, petroleum and coal have been found along the coastal waters of the country. So, Malaysia has held a competitive advantage to neighbouring countries as the price of fuel is extremely less than other ASEAN countries. This is a highly effective cost minimiser. Furthermore, recycleables such as rubber and palm essential oil are also found in abundance in the country. For those international investors who are planning to spend money on these sectors will advantage as they will save on transportation cost as they can produce the industrialised goods in Malaysia alternatively than importing raw materials with their countries to produce the particular goods.

Malaysia is a multicultural country where three main races namely the Malays, the Chinese and the Indians live harmoniously jointly. This has shown to be an advantage to foreign buyers from China and India as they have no issue communicating with the local employees as they can speak in the same vocabulary or dialect. This is definitely a strength in comparison to other ASEAN countries such as Thailand whose local people speak usually Thai and the Indonesians, Bahasa Indonesia. Although instructions can be conferred via a medium, it is at the overseas investor's best interest that they talk directly with their employees.

The labour market in Malaysia is rather informed with a literacy rate of 87. 4% (estimated by UNESCO Institute for Information, July 2002). With a higher literacy rate compared to other ASEAN countries such as Laos 76%, gives Malaysia the benefit of attracting FDI. International investors will see it much easier to communicate also to train the local employees to fit the demands of the job and thus, minimising the cost of training.

Technology and vehicles in Malaysia is known as better than many neighbouring countries. With proper tar streets and internationally-recognised slots, imports and exports can be done easily without having to worry about the lack of infrastructure. This will ensure FDI to invest in Malaysia as they'll not need to worry or commit extra security towards their transportation of these goods. Furthermore with Multimedia system Super Corridor (MSC), a higher speed internet connection, FDI will be guaranteed that work in the resident country will never be constrained by communication troubles.

Challenges

One of the main challenges of attracting FDI to Malaysia is the Islamic image of the united states. Along with the recent problems on churches over the utilization of the term "Allah" by Christians in publications has deterred overseas investors from investing in Malaysia. Concerns are being increased by foreign investors as they fear a religious conflict would turn deadly. "This is not a healthy thing for perceptions of Malaysia, " Nicholas Jeffreys, leader of the American Chambers of Business in Malaysia, informed a business seminar.

As described, the political status in Malaysia is considered stable in comparison to other ASEAN countries. However so, the recent formation of opposition get together Pakatan Rakyat comprising DAP, PAS and KEADILAN have proved to be a challenge to the current economic climate of Malaysia. During the recent basic election, the opposition get together garnered five state governments that were recently held by the key political party, Barisan Nasional. Politically shaken, both functions have been on each other's throat, fighting for vitality. The politics unrest in Malaysia has placed traders pending about investing in Malaysia as it is difficult to get both condition and authorities to accommodate at the same time.

In recent calendar months, Malaysia's money has been continuously rising against the US dollar, Euro and the United kingdom Sterling. It is important to note that a strong currency is not what foreign investors want as additional money will have to be forked out to buy Malaysia's currency. Furthermore, a strong currency will mean labour cost increase. This is a setback for the market as foreign shareholders will want to choose other ASEAN countries of lower money for a lesser labour cost such as Vietnam or Cambodia.

A drop in GDP rate during the last couple of years is another reason why foreign investors are still pending with their investment into Malaysia. Having a fall in expansion rate, the market will contract and thus, foreign investors will never be able to grow their business totally which will deter foreigners from trading into Malaysia.

Corporate taxation on profit has an enormous impact on overseas investors wanting to commit into countries. Among ASEAN countries, Malaysia doesn't have the lowest corporate taxation rates and so foreign shareholders may think about making an investment into Malaysia.

Heavy competition from other ASEAN countries is also another deterrent for shareholders to invest in Malaysia. This is because, other neighbouring countries may lower corporate taxation rate in order to support with the increasing FDIs. Furthermore, the other countries may design or propose better government policies to appeal to FDI into their individual countries. Vietnam, known as the "second China" shows a impressive performance in appealing to FDI and is one of the fastest growing economies of the world, behind China. Thus, with a reputation of that, Malaysia must work harder to garner more support and FDI.

Recommendations

It is impossible to stay away from the world to learn about Malaysia's image to be an Islamic country. However so, precautionary methods can be carried out to improve the peaceful and harmonious relations in the country. Advertisement on a worldwide scale to market Malaysia as symbolic of racial and religion unity can improve Malaysia's image.

Political instability in Malaysia might not exactly be considered a major concern; however, it is still a pressing subject that the federal government and the opposition are in constant loggerheads. Disagreement is bound to stir up situations hence; agreements must be produced in order to help ease the tension. The federal government and the opposition will have to come for an agreement to supply the best facilities and services to current and potential foreign shareholders. With both gatherings working hand in hand, foreign buyers will have the self confidence to want to purchase Malaysia.

A strong money deters shareholders from spending into Malaysia as total costs will increase. To be able to continue to be competitive, Malaysia can and may revoke back again to the pegged exchange rate resistant to the USD where overall economy doubt can be abolished as investors will be certain that their current expenditures will not increase or reduce readily.

A falling GDP because of the recent economic downturn is not something the government can transform overnight. However, the federal government can encourage spending by lowering interest levels. This will cause a multiplier effect and stimulate the economy. Buyers will then see a progress in GDP rate and invest in Malaysia. With open public confidence, this can be a whole circuit.

Heavy competition from other countries is because of attractive and profitable deals made by the government to catch the attention of FDI. The Malaysia government can do the same by adding attractive offers, low corporation taxes, etc to draw in FDI.

Conclusion

FDI is an important and effective way to blend up the market as it is a significant catalyst to development. There are many pros and cons to buying Malaysia, benefits being, political stability, strategic location, an abundance of natural resources and raw materials, a multicultural country, a superior quality workforce, good transportation, while drawbacks being, politics instability, Islamic image, high currency, high corporate taxation and heavy competition. However so, advice have been made to minimize the difficulties faced by overseas investors. Spend money on Malaysia, and it shall spend money on you.

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