Hazree said any decision to invest in a particular country is highly dependent on its political stability, policy consistency and predictability, as well as the ease of doing business.
“In recent years, Malaysia’s Asean neighbours have gained an advantage and are able to offer more favourable terms to potential foreign investors in terms of tax exemptions, setting-up grants as well as lower labour costs,” he told FMT Business.
In the past, he said, political stability was a major selling point for Malaysia as it provided an assurance to investors that their business interests would be well looked after through consistent long-term policy implementation.
Since 2018, however, the country has seen a downtrend in its ability to attract FDIs as evident in its decline to 25th place on Milken Institute’s Global Opportunity Index last year, from its 14th place in 2017.
Hazree said although Malaysia fared better than its regional peers, apart from Singapore, in terms of its FDI appeal, it still lags when it comes to business perception and economic fundamentals.
He noted that despite a solid policy foundation, Malaysia’s efforts to attract FDIs were hampered by enforcement weaknesses and revelations of systemic corruption, raising the likelihood of Indonesia and Vietnam pulling ahead.
“To stay competitive, there must be strong political will to design and enforce policies that would once again make Malaysia an attractive prospect for foreign direct investments,” he said.
Following the Sheraton Move in 2020, which resulted in the fall of the Pakatan Harapan (PH) government, the country has seen a number of administrative changes, both at federal and state levels, fraying the nerves of investors.
Attempts to salvage the situation via an MoU between PH and the ruling Ismail Sabri Yaakob-led coalition have brought limited progress in moving policy reforms forward.
Hazree also noted that the government’s focus on institutional reforms failed to directly address trade and investment issues.
“Proposed tax reforms, particularly the reintroduction of the goods and services tax (GST), have given rise to concerns about rising business costs as well as the costs of living,” he said.
Center for Market Education CEO Carmelo Ferlito pointed to the government’s frequent policy changes and reactionary approach as weaknesses.
Every move made by the government appears to be based on emotions or political calculus rather than a sound and balanced strategy grounded on trade-off analyses, Ferlito said.
“Inconsistent policies, excessive interference by the government in economic matters, and a negative attitude towards foreign workers, multinational corporations and expatriates are among the biggest problems keeping investors away from the country,” he said.
Hazree said that moving forward, Umno remains the best bet for political stability in Malaysia. The party has been a bulwark of stability despite having to face down internal friction throughout various points in its history, he said.
Recent headlines have revealed a fracture within the ranks of Umno between factions loyal to party president Ahmad Zahid Hamidi along with former prime minister Najib Razak, and Ismail.
Hazree believes the party’s current struggles serve as an important litmus test in the strength of Malaysia’s institutions and the rule of law.
“On the one hand, seeing Zahid and Najib being brought to justice may weaken Umno as it will lose two of its biggest political heavyweights, but the prospect of cleaning up its name and reputation along with fresh leadership may just be the catalyst to bringing back Umno’s dominance,” he added.