Malaysia saw an 87 percent increase in foreign direct investment (FDI) last year compared to the 2003 inflow of US$2.473 billion (RM9.3 billion). The country is expected to attract more such investments this year, stated a United Nations report.

Its share of total FDI flow into Southeast Asia also saw a four percent increase in 2004 compared to the previous year, during which Malaysia attracted 14 percent of investments into the region.

The increase corresponded with the 48 percent hike in FDI inflow into Southeast Asia from the previous total of US$17.36 billion (RM65.79 billion) as well as the US$46 billion (RM 174.34 billion) increase of FDI in Asia and Oceania from 2003's inflow of US$101billion (RM382.79 billion).

China received the dragon's share of Asia's FDI amounting to more than US60 billion (RM227.4 billion) in FDI. This is an increase of 13 percent from 2003. At the forefront of South Asian countries, India received US$7 billion (RM26.53 billion), corresponding to a 30 percent rise.

These figures were revealed in the annual World Investment Report (WIR) unveiled in Kuala Lumpur yesterday by the head of the National Economic Action Council secretariat Dr K Govindan.

"FDI inflows to developing countries remain concentrated in the top five recipients, these being China, Hong Kong, Brazil, Mexico and Singapore," said UN resident coordinator Dr Richard Leete (left) in his opening address.

"In Southeast Asia, FDI inflows surged by 48 percent with Malaysia ranking second only to Singapore. The WIR suggests that prospects for FDI appear to be favourable in 2005," he added

Targeted policies

According to Leete, while there was only a slight rebound (two percent) in global FDI to US$648 (RM2455.9) billion after "three years of declining flows", developing countries enjoyed a surge of 40 percent in such investments from 2003.

This compares favorably to 2004's 14 percent decline of FDI in developed countries.

Although the bulk of R&D expenditures worldwide are by developed countries, developing Asia's share increased over the years and has been described as "the most dynamic recipient" by the report.

Leete said this trend is reflected in the increasing internationalisation of R&D activities, particularly in developing countries like Malaysia where they have become more complex.

"Developing Asia is the most dynamic recipient and the share of developing Asia has soared from three percent in 1994 to 10 percent in 2002. The increase was particularly conspicuous for China, Singapore, Hong Kong and Malaysia," he added

He said that such developments in Malaysia were due in part to the coherent and targeted policies of the government towards higher value-added and knowledge-based activities.

"The policy stance was aimed at ensuring that FDIs opened up opportunities for developing new skills and accessing technology and imbuing a culture of innovation for local firms and institutions.

"By so doing, Malaysia has been able to connect with international networks of innovation, upgrade industrially and technologically, thereby maximising the benefits derived from FDIs," he added.

Lessons to be learnt

However, Govindan (right) said what was more important than the numbers in the WIR and 'who's getting more FDI and who's getting less' was the lessons to be gleaned from it.

He said despite the progress that Malaysia had made since the 1970s towards industrialisation and the upliftment of "thousands of families out of poverty", it still faced a significant challenge in keeping up the 'investment momentum' by creating new niches for FDI and R&D.

Govindan also said that while R&D was undergoing the process of internationalisation with China and India among Asia's biggest investors and recipients for FDI, Malaysia could still face stiff competition from smaller countries as Vietnam and Sri Lanka.

"If countries did not get full benefits from FDI and R&D, they only have themselves to blame," he added.

He said among the issues that the federal and state governments face in trying to attract FDI and foreign expertise were regulatory inhibitions to setting up businesses as well as the lack of skilled local workforce and human resources.

Malaysia, he added, needs to develop its comparative advantage in those areas that attract FDI, on the one hand, while forming 'global partnerships' with companies and agencies in other countries that had advanced far ahead in their respective fields.