Importance Of FDI In Developing Malaysian Economic Growth Essay

The federation of Malaysia was formed in 1963, ab initio dwelling of Malaya, Singapore, Sabah and Sarawak. Due to internal political grounds, Singapore was asked to go forth the federation in 1965 to go an independent province. Malaysia is separated into two parts viz.

the West and East Malaysia by the South China Sea. Malaysia is blessed with an copiousness of natural resources such as gas, coal, crude oil and the humid tropical clime creates a great status for works growing such as palm oil and gum elastic. These natural stuffs are what contribute to the economic system.

Before the 1970 ‘s, Malaysia was antecedently a natural stuff bring forthing economic system that produced gum elastic, Sn, etc that exported to the industrialized states. Much later, crude oil and palm oil were besides one of the natural stuffs being exported. However, since the 1970 ‘s a alteration has been noted in the development of the economic system of being a more export-oriented fabrication industry that produced fabric, gum elastic merchandises, electric and electronic goods etc. The authorities realised to increase GDP growing, the state had to switch from an export-oriented natural stuff bring forthing economic system into an export-oriented fabrication economic system. Not merely will employment rise, but it will besides profit GDP growing and economic public assistance.Importance of Foreign Direct Investment ( FDI )“ FDI is defined as a company from one state doing a physical investing into constructing a mill in another state. ” In other words, it is the constitution of a company by a foreign investor.

To put in Malaysia, it is required that 10 % of the entire equity in a resident company be held by the foreign investor. By and large there are two types of FDI ‘s ; outbound FDI and inward-bound FDI. An outbound FDI is when local capital is invested in foreign resources while an inward-bound FDI, the antonym of an outbound FDI is when foreign capital is invested in local resources.FDI is an of import and effectual manner to stir up the economic system as it is a major accelerator to development.

This is because with the puting up of companies and mills, employment will lift. With foreign money being pumped into the economic system to pay of rewards and wages to the employees, a multiplier consequence will make an injection of several times that will do a immense inflow of foreign money. As more foreign money is being pumped into the local economic system ( presuming there are no escapes of money ) GDP growing will surge that goes manus in manus with vision 2020 where Malaysia will accomplish a developed state position with a changeless 8 % growing rate every twelvemonth. This will in bend, conveying assurance into the economic system, farther bring forthing more FDIs. As the economic system is making good, development will of course take topographic point to better the quality of life.Furthermore, the acquisition of cognition for the transportation of engineering is a enormous advantage for the state. As companies and mills are being set up, heavy machineries and sophisticated engineering are being passed on to the local employees to run the concern.

In order to work the engineering, the local employees will so hold to travel for preparation. Thus the passing on down of cognition and engineering to the state is an built-in portion for developing states to foster better itself on a planetary graduated table.Suitable Industries and BusinesssForeign Investors from China can see embarking into the renewable energy sector. This is because, Malaysia have an ample supply of natural stuff and land handiness for such investings. Furthermore, a company from the Hong Kong called Sun Bear 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 investors from India can see embarking into the IT industry of Malaysia. This is because Malaysia is to the full equipped with high velocity cyberspace due to Multimedia Super Corridor ( MSC ) and therefore this can ease with the FDI when they invest and set up companies in Malaysia.Foreign investors from the Middle East can see embarking into the oil and gas industry. The Middle East is rich with an copiousness of oil and gas and so is Malaysia. Investors from there have a high expertness in the field and therefore, are suited in embarking into this sector. It is extremely recommended that the Middle East investors invest into the oil and gas industry to further enlarge the graduated table of production and therefore gaining one million millions to excite the economic system.StrengthsThe political position in Malaysia is n’t a immense concern to foreign investors as it is considered stable compared to neighboring states like Thailand. In Thailand, where street protests have escalated in recent old ages have kept foreign investors pending on their investing into the state due to national security.

The political instability and agitation has caused a immense disincentive for the state ‘s FDI and therefore, options have been considered. Malaysia, South of Thailand is an option for the disturbed political ambiance. With a stable political position in Malaysia, foreign investors can and will profit from their investings into Malaysia.A strategic location between the East and the West, Malaysia is in the epicenter of the ASEAN states. Investors from the Middle East, India and China will happen that Malaysia is the gateway to the ASEAN market that is some 558.

2 million people. Malaysia touting a population of merely 28 million will be the focal point of foreign investors as they can easy administer their merchandises to the neighbouring states.Natural resources in Malaysia are in copiousness.

Natural gas, oil, crude oil and coal have been found along the coastal Waterss of the state. As such, Malaysia has kept a competitory border to neighboring states as the monetary value of fuel is unusually lower than other ASEAN states. This is an effectual cost minimiser. Furthermore, natural stuffs such as gum elastic and palm oil are besides found in copiousness in the state. For those foreign investors who are be aftering to put in these sectors will profit as they will salvage on transit cost as they can bring forth the industrialized goods in Malaysia instead than importing natural stuffs to their states to bring forth the several goods.Malaysia is a multicultural state where three chief races viz.

the Malays, the Chinese and the Indians live harmoniously together. This has proven to be an advantage to foreign investors from China and India as they will hold no job pass oning with the local employees as they can talk in the same linguistic communication or idiom. This is decidedly a strength compared to other ASEAN states such as Thailand whose locals speak largely Thai and the Indonesians, Bahasa Indonesia. Although instructions can be conferred through a medium, it is at the foreign investor ‘s best involvement that they communicate straight with their employees.The labor market in Malaysia is reasonably educated with a literacy rate of 87.4 % ( estimated by UNESCO Institute for Statistics, July 2002 ) . With a higher literacy rate compared to other ASEAN states such as Laos 76 % , gives Malaysia the advantage of pulling FDI. Foreign investors will happen it easier to pass on and to develop the local employees to suit the demands of the occupation and therefore, understating the cost of preparation.

Technology and transit in Malaysia is considered better than many neighbouring states. With proper pitch roads and internationally-recognised ports, imports and exports can be done easy without holding to worry about the deficiency of substructure. This will guarantee FDI to put in Malaysia as they will non hold to worry or put excess security towards their transit of their goods. Furthermore with Multimedia Super Corridor ( MSC ) , a high velocity cyberspace connexion, FDI will be ensured that work in the resident state will non be restricted by communicating problems.

ChallengesOne of the chief challenges of pulling FDI to Malaysia is the Islamic image of the state. With the recent onslaughts on churches over the usage of the word “ Allah ” by Christians in publications has deterred foreign investors from puting in Malaysia. Concerns are being raised by foreign investors as they fear a spiritual struggle would turn lifelessly. “ This is non a healthy thing for perceptual experiences of Malaysia, ” Nicholas Jeffreys, president of the American Chambers of Commerce in Malaysia, told a concern conference.As mentioned, the political position in Malaysia is considered stable compared to other ASEAN states. However so, the recent formation of resistance party Pakatan Rakyat dwelling of DAP, PAS and KEADILAN have proved to be a job to the economic system of Malaysia. During the recent general election, the resistance party garnered five provinces that were antecedently held by the chief political party, Barisan Nasional. Politically jolted, both parties have been on each other ‘s pharynx, contending for power.

The political agitation in Malaysia has kept investors pending about puting in Malaysia as it is hard to acquire both province and federal authorities to suit at the same clip.In recent months, Malaysia ‘s currency has been steadily lifting against the US dollar, Euro and the British Sterling. It is of import to observe that a strong currency is non what foreign investors want as more money will hold to be forked out to purchase Malaysia ‘s currency. Furthermore, a strong currency will intend labour cost will increase.

This will be a reverse for the economic system as foreign investors will desire to take other ASEAN states of lower currency for a lower labor cost such as Vietnam or Cambodia.A bead in GDP rate over the last few old ages is another ground why foreign investors are still pending with their investing into Malaysia. With a autumn in growing rate, the economic system will contract and therefore, foreign investors will non be able to spread out their concern to the full and this will discourage aliens from puting into Malaysia.Corporate revenue enhancement on net income has a immense impact on foreign investors desiring to put into states. Among ASEAN states, Malaysia does non hold the lowest corporate revenue enhancement rates and therefore foreign investors may believe twice about puting into Malaysia.Heavy competition from other ASEAN states is besides another hindrance for investors to put in Malaysia. This is because, other neighboring states may take down corporate revenue enhancement rate in order to suit with the increasing FDIs.

Furthermore, the other states may plan or suggest better authorities policies to pull FDI into their several states. Vietnam, known as the “ 2nd China ” has shown a singular public presentation in pulling FDI and is one of the fastest turning economic systems of the universe, behind China. Thus, with a repute of that, Malaysia will hold to work harder to earn more support and FDI.RecommendationsIt is impossible to avoid the universe to cognize about Malaysia ‘s image of being an Muslim state. However so, precautional methods can be done to heighten the peaceful and harmonious dealingss in the state. Advertisement on a planetary graduated table to advance Malaysia as a symbol of racial and religion integrity can better Malaysia ‘s image.

Political instability in Malaysia may non be a major issue ; nevertheless, it is still a pressure affair that the federal authorities and the resistance are at changeless dunces. Disagreement is bound to stir up state of affairss therefore ; understandings must be made in order to ease the tenseness. The federal authorities and the resistance will hold to come to an understanding to supply the best installations and services to current and possible foreign investors.

With both parties working manus in manus, foreign investors will hold the assurance to desire to put in Malaysia.A strong currency deters investors from puting into Malaysia as entire costs will increase. In order to stay competitory, Malaysia can and may revoke back to the pegged exchange rate against the USD where economic system uncertainness can be abolished as investors will be certain that their current disbursals will non increase or diminish readily.A falling GDP due to the recent economic recession is non something the authorities can alter overnight. However, the authorities can promote disbursement by take downing involvement rates. This will do a multiplier consequence and excite the economic system.

Investors will so see a growing in GDP rate and invest in Malaysia. With public assurance, this will go a whole rhythm.Heavy competition from other states is due to attractive and moneymaking trades made by the authorities to pull FDI. The Malaysia authorities can make the same by presenting attractive trades, low corporation revenue enhancement, etc to pull FDI.DecisionFDI is an of import and effectual manner to stir up the economic system as it is a major accelerator to development.

There are many pros and cons to puting in Malaysia, pros being, political stableness, strategic location, an copiousness of natural resources and natural stuffs, a multicultural state, a high quality work force, good transit, while cons being, political instability, Islamic image, high currency, high corporate revenue enhancement and heavy competition. However so, recommendations have been made to minimise the challenges faced by foreign investors. Invest in Malaysia, and it shall put in you.