Prof Rajah Rasiah, who is a distinguished professor of economics at Universiti Malaya’s Asia-Europe Institute, said these countries are engaged in sophisticated technology and are very selective with regards to FDIs.
Apart from aggressively evaluating the investments before approving them, he said one of the strategies employed by these countries is to ink technology transfer agreements with their foreign joint venture (JV) partners.
“In most cases, national firms would eventually acquire the JV companies, access their technologies and market the products. See what these countries have achieved today?
“We did not use those kinds of agreements … we just simply accepted whatever form of agreements here,” he told Bernama.
Asked if being selective on the FDIs would put a cap on the investment inflows into the country, Rajah, who is also the first holder of the Khazanah Nasional Chair of Regulatory Studies, brushed off such thoughts.
He said Japan, Taiwan and South Korea would never be concerned about that, as attracting the right FDIs was what mattered most.
“Once they have attracted those FDIs, they will ensure that their objectives are being met, rather than seeing the investments creating leakages that the economy does not benefit from.
“In short, we should choose quality over quantity,” he said.
Dependence on foreign labour
On the side effects of lax FDIs, Rajah said the excessive number of foreign labourers in Malaysia was one of them, no thanks to the overheating economy that occurred in the 1990s.
“I mean, a large number of FDIs could re-create the overheating situation that happened between 1990-1997 when supply was unable to meet the huge demand.
“Demand for infrastructure was so great back then. So, unfortunately, we had to hire a huge number of foreign labourers to meet the (demands from the) FDIs that we should not have actually invited in. That blunted our capacity to upgrade our investments to higher value-added activities,” he said.
According to Rajah, selecting high-quality investments — especially those that come with technological knowledge transfer programmes — would help Malaysia achieve its long-desired goal of becoming a high-income nation, as more highly paid engineers or highly skilled technicians would be nurtured.
“Remember, the gross domestic product (GDP) is measured by value-added factors, comprising wages, salaries and profits.
“Wages and salaries can only rise rapidly if we are moving from low value-added activities to high-value added activities,” he added.
Asked if it was too late for Malaysia to be selective on FDIs, Rajah dismissed the concerns, saying that the government or national firms should give more emphasis to research and development (R&D) efforts, as well as issues pertaining to patenting and property rights.
“R&D is one of the key areas that the government should focus on moving forward, provided that it can be connected with commercialisation.
“We need to make sure that there is a greater coordination between the universities and industries so that whatever research is done is appropriated by the industries. Society will benefit as a whole as it would boost Malaysian companies’ competitiveness,” he said.
On Malaysia’s investment performance in 2020, Rajah said he was impressed by Malaysia’s investment performance last year when the country saw its 2020 current account surplus expand to a nine-year high, against a backdrop where the economy was badly battered by the Covid-19 pandemic.
“I think Malaysia has done very, very well, to some extent. I’m surprised at our investment performance amid the pandemic last year,” he noted.
Rajah lauded the government’s quick response in dealing with logistical issues amid the Covid-19 pandemic to ensure that the supply chain would not be disrupted during the enforcement of the movement control orders.
“We ended up exporting massive amounts of gloves, masks and so on. Therefore, in the economic sense, I think we have done well,” he said.
In February, the Department of Statistics Malaysia announced that Malaysia posted a current account surplus of RM62.1 billion in 2020 — the highest surplus in nine years since 2011, driven by the favourable performance of the goods account as well as a narrower deficit in primary and secondary incomes.
Touching on news reports that foreign investors are favouring neighbouring countries over Malaysia, Rajah said political uncertainty is off-putting as international investors are often concerned about a country’s political stability.
“When you have an uncertain political environment, that is the response you get as investors will move away from risks or uncertainties,” he said.