Outward%20Foreign%20Direct%20Investment:%20The%20Malaysian%20Experience

1
Outward Foreign Direct Investment The Malaysian
Experience

• Emeritus Prof. Dr. Mohamed Ariff
• and Greg Lopez
• Malaysian Institute of Economic Research

2
Presentation Outline

• Key OFDI Trends
• Key Factors
• Push Factors
• Pull Factors
• Strategic Reasons
• Conclusion

3
OFDI as a of South, East and SE. Asia Total FDI
Stock
Source UNCTAD
4
OFDI as of GDP
Source UNCTAD
5
OFDI Flows 1980 - 1992
US million
Source UNCTAD
6
OFDI Flows 1993 - 2005
US million
Source UNCTAD
7
OFDI - Top Ten Locations (1993 -2005)
RM million
Source BNM, various years
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Trends - Destination (1999 - 2005)
Source BNM 2006
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Trends - Sectors
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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Push Factors - Tight Labour Market
Unemployment
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.