Transcript Outward Foreign Direct Investment: The Malaysian Experience

Outward Foreign Direct
Investment: The Malaysian
Experience
Emeritus Prof. Dr. Mohamed Ariff
and Greg Lopez
Malaysian Institute of Economic Research
Presentation Outline
• Key OFDI Trends
• Key Factors
– Push Factors
– Pull Factors
– Strategic Reasons
• Conclusion
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OFDI as a % of South, East and SE. Asia Total FDI
Stock
90
90
Hong Kong
Taiwan
Mal aysi a
Singapore
80
70
66
64
60
56
50
50
40
38
30
21
20
10
0
20
12
6
13
11
5
2005
1
7
4
5
9
4
1980
1985
1990
1995
2000
4
1
Source: UNCTAD
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17
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OFDI as % of GDP
265
250
Hong Kong
Taiwan
Singapore
Mal aysi a
235
200
150
100
94
50
31
1
0
5
1
1980
21
4
7 7
1985
21
19
56
42
16
16
61
12
6
1990
34
25
1995
28
22
2000
2005
Source: UNCTAD
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OFDI Flows 1980 - 1992
US million
350
300
293
273
260
250
249
242
226
200
214
210
201
198
175
150
129
115
100
1980
1981
1982
Source: UNCTAD
1983
1984
1985
1986
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1987
1988
1989
1990
1991
1992
5
OFDI Flows 1993 - 2005
US million
4,100
3,768
3,600
3,100
2,971
2,675
2,600
2,329
2,488
2,100
2,026
2,061
1,905
1,600
1,422
1,100
1,370
1,063
863
600
267
100
1993
1994
1995
Source: UNCTAD
1996
1997
1998
1999
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2000
2001
2002
2003
2004
2005
6
OFDI - Top Ten Locations
(1993 -2005)
RM million
100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
Source: BNM, various years
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Mauritius
Netherlands
China, PR
Belgium
Caymen Islands
UK
Indonesia
Singapore
USA
Labuan IOFC
-
Hong Kong,
SAR
10,000
7
Trends - Destination (1999 2005)
Industrialised
countries
34%
IOFC
26%
Other Asia
4%
Asian NIEs
18%
African countries
5%
ASEAN - ex
Singapore
13%
Source: BNM 2006
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Trends - Sectors
Agriculture
5%
Others (mainly
construction)
3%
Services
43%
Oil and Gas
19%
Manufacturing
30%
Source: BNM 2006
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Trends - Investment Type
• Malaysian controlled companies (GLCs
& RCCs) - 61% of OFDI (1999 - 2005)
• Mainly through equity & joint ventures
• Funded internally (62%)
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Trends - Investment Type
• OFDI by NRCCs - 39% (1999 - 2005)
• NRCCs investment were essentially
extension of inter - company loans to
related companies abroad (91%)
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Structural Push Factors
• Economic growth - RGDP grew at 6.5%
on average from 1957 - 2005
• GDP per capita (at current prices) grew on
average at 7.0% (1957 - 2005)
• Gross domestic savings increased from
29% of GDP in 1981 to 43% in 2005.
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1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Push Factors - Tight Labour
Market
Unemployment
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Source: Nambiar
2007
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Push Factors - Private
Sector Development
• No. of listed companies on the MSE
grew at an average of 5.6% per annum
(1981 - 2001).
• KLCI grew at an average of 3.1% per
annum (1981 - 2001)
• Prior to crisis, MSE was the 4th largest
in Asia (market capitalisation)
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Cyclical Push Factor
• Recession of 1985 and Financial Crisis
of 1998
• Market saturation in certain sectors
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Institutional Push Factors
• Government policies
– Economic Nationalism and affirmative
action (1970 - 1980s)
– Tax exemption, tax incentives & special
funds (1991 - present)
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Key Determinants
• Rising cost of labour especially in
relation to the cost of labour in the
region
• Wealth accumulation (individuals &
companies)
• Raise capital cheaply in the MSE
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Structural Pull Factors
• Low cost of factor (labour, raw material)
prices in the region (labour intensive
companies - manufacturing & textiles);
• Markets;
• Resource seeking (PETRONAS,
plantation companies
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Institutional Pull Factors
• Investment and Trade Agreements
– Investment Guarantee Agreements;
– ASEAN Free Trade Agreement;
– The WTO Agreement;
• Institutions
– MIDA, MATRADE and EXIM Bank
– MASSA & MASSCORP
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Strategic Pull Reasons
• South - south co-operation
– Diversifying markets (moving away from
the U.S., E.U. and Japan)
• Access to resources (oil & gas)
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Findings
• No conclusion can be made as the nature of the
study is limited
• Two trends can be identified
– State led
– NRCCs (inter - company loans)
• State involvement in OFDI significant
– GLCs are significant players
– Other push and pull factors similar to general reasons
for OFDI
• More in depth research using firm level data is
needed.
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