Malaysia should relook at some policies to attract more quality investments, says World Bank

Its lead economist, Richard Record, said the country needs to reorient the incentive packages against the highly competitive landscape, moving towards automatic investment approval and incentive offerings that really put Malaysia on the map.

"There should also be a more coordinated promotion effort to get a higher return of investment and finally, it is important to have continuity in policy and direction as well as structural reforms," he told a press conference after the virtual launch of the bank's latest report, "Aiming High: Navigating the Next Stage of Malaysia's Development", today.

Record was responding to a question on how Malaysia could attract more foreign direct investment (FDI) to catch up with some other countries within the region.

To recap, Malaysia's net FDI fell 56 per cent to US$3.4 billion in 2020, as the COVID-19 pandemic hit economic activity globally and in the trade-reliant Southeast Asian nation.

Last year, the country's economy contracted 5.6 per cent, marking its worst performance since a 7.4 per cent fall during the Asian Financial Crisis in 1998.

Net foreign investment totalled RM13.9 billion in 2020, down from RM31.7 billion in the previous year, according to a report published by the Malaysian Investment Development Authority.

Meanwhile, country manager for Malaysia Firas Raad said there would be reliance on private investment but he stressed that Malaysia is in a very highly competitive environment as every country in the region is trying to attract investors.

"This is where reforms and initiatives have to be implemented to make sure Malaysia offers competitive offerings.

"What Malaysia is lacking compared to other countries are in the area of starting a business and in terms of its own insolvency framework. Perhaps these are two areas where Malaysia can do more to enhance the ability of investors to come in, and also to protect the investments once the investors put their money in the country," he said.

In the report, the World Bank said that Malaysia is likely to achieve a transition to a high-income economy between 2024 and 2028.

This, it said, is a reflection of the country's economic transformation development trajectory over past decades.

The report cautioned that further reforms are required for the country to successfully join the ranks of other leading and developed economies.

Firas noted that even in its earlier report released in December 2020, the World Bank has projected a positive growth rate for 2021 which is 6.7 per cent.

"That may be revised in the weeks ahead. These reports are specifically for the medium term and (show fundamentally) what Malaysia should be doing in different sectors, to be able to compete with other high income countries in the Organisation for Economic Co-operation and Development and others.

"It is very important to note that once Malaysia crosses the (high income) threshold in four to eight years, there's going to be a new benchmark -- not against the upper middle income countries which it is used to being compared to, but against a new club of competitors -- and has to really perform at that level and engage in deep structural reforms in different areas," he said.

By doing this, Firas said, Malaysia will be on track to boost its long-term growth and competitiveness.

This will increase the number of high quality, well-paying jobs and ensure that everybody is covered through a modernised social protection system.

"If Malaysia does embrace strong reform initiatives across the different sectors, it'll be able to double its growth rate, which is significant in the current environment," he added.