Investment by US electronics firms in Malaysia plunged 30 percent year-on-year in 2002 and may suffer further this year amid weak global sentiment, an industry group said today.

Capital investment by the Malaysian American Electronics Industry (MAEI) fell to RM1.6 billion, down from RM2.3 billion in 2001, said American Malaysian Chamber of Commerce (Amcham) president Timothy Garland.

But annual export sales of MAEI, which groups 18 large US firms here, grew around 20 percent to exceed RM50 billion in 2002 according to preliminary figures, he said.

Export sales in 2001 fell six percent year-on-year to RM41.4 billion.

Garland said 2003 would be a challenging year for Malaysia as foreign direct investment (FDI) worldwide shrank due to heightened business risks due to an expected war in Iraq.

Being cautious

US companies were also gradually shifting lower-end production to China to tap the world's biggest market, he said.

"FDI globally is falling, so it will be down in Malaysia to reflect the global trend. People are being cautious at this point in time with looming effects of potential war," he told AFP .

"We expect low-cost FDI in manufacturing to move to other hotspots but we see higher value-added FDI coming here," he said, citing high-technology and services support sectors."

MAEI, whose members include Motorola, Intel, Seagate, Western Digital and Texas Instruments, has urged the Malaysia to allow investors to buy goods from China at competitive rates to prevent them from relocating.

The group, which exports more than 90 percent of its output, is the top contributor to Malaysia's electronics export earnings, accounting for RM189 billion or 56.6 percent of the total in 2001.

Malaysia is the the US market's seventh largest source of electrical and electronics products.

Upfront grants

In its annual dialogue with the trade ministry in April last year, Amcham suggested upfront grants, longer tax holidays and reducing the 28 percent corporate income tax to woo foreign investors.

Amcham, which has more than 350 members including MAEI, urged the government to consider removing the ringgit peg, fixed at RM3.80 to the dollar since 1998, saying it posed a barrier for increased FDI.

Immigration policies should also be revised to allow inflow of needed talent in specialised areas such as engineering and technology, it said in a document released o­n its website.

It called for faster liberalization in the services sector to ensure quality service at competitive prices.

The issue of competitiveness will be highlighted in a new stimulus package, designed to boost the economy and woo investment, to be unveiled by Prime Minister Dr Mahathir Mohamad at the end of March. AFP