Outward Foreign Direct Investment: The Malaysian Experience: Outward Foreign Direct Investment: The Malaysian Experience Emeritus Prof. Dr. Mohamed Ariff and Greg Lopez Malaysian Institute of Economic Research


Presentation Outline: Presentation Outline Key OFDI Trends Key Factors Push Factors Pull Factors Strategic Reasons Conclusion


OFDI as a % of South, East and SE. Asia Total FDI Stock: OFDI as a % of South, East and SE. Asia Total FDI Stock Source: UNCTAD


OFDI as % of GDP: OFDI as % of GDP Source: UNCTAD


OFDI Flows 1980 - 1992: OFDI Flows 1980 - 1992 Source: UNCTAD US million


OFDI Flows 1993 - 2005: OFDI Flows 1993 - 2005 Source: UNCTAD US million


OFDI - Top Ten Locations (1993 -2005): OFDI - Top Ten Locations (1993 -2005) Source: BNM, various years RM million


Trends - Destination (1999 - 2005): Trends - Destination (1999 - 2005) Source: BNM 2006


Trends - Sectors: Trends - Sectors Source: BNM 2006


Trends - Investment Type: Trends - Investment Type Malaysian controlled companies (GLCs & RCCs) - 61% of OFDI (1999 - 2005) Mainly through equity & joint ventures Funded internally (62%)


Trends - Investment Type: Trends - Investment Type OFDI by NRCCs - 39% (1999 - 2005) NRCCs investment were essentially extension of inter - company loans to related companies abroad (91%)


Structural Push Factors: Structural Push Factors Economic growth - RGDP grew at 6.5% on average from 1957 - 2005 GDP per capita (at current prices) grew on average at 7.0% (1957 - 2005) Gross domestic savings increased from 29% of GDP in 1981 to 43% in 2005.


Push Factors - Tight Labour Market: Push Factors - Tight Labour Market Source: Nambiar 2007 Unemployment


Push Factors - Private Sector Development: Push Factors - Private Sector Development No. of listed companies on the MSE grew at an average of 5.6% per annum (1981 - 2001). KLCI grew at an average of 3.1% per annum (1981 - 2001) Prior to crisis, MSE was the 4th largest in Asia (market capitalisation)


Cyclical Push Factor: Cyclical Push Factor Recession of 1985 and Financial Crisis of 1998 Market saturation in certain sectors


Institutional Push Factors: Institutional Push Factors Government policies Economic Nationalism and affirmative action (1970 - 1980s) Tax exemption, tax incentives & special funds (1991 - present)


Key Determinants : Key Determinants Rising cost of labour especially in relation to the cost of labour in the region Wealth accumulation (individuals & companies) Raise capital cheaply in the MSE


Structural Pull Factors: Structural Pull Factors Low cost of factor (labour, raw material) prices in the region (labour intensive companies - manufacturing & textiles); Markets; Resource seeking (PETRONAS, plantation companies


Institutional Pull Factors: Institutional Pull Factors Investment and Trade Agreements Investment Guarantee Agreements; ASEAN Free Trade Agreement; The WTO Agreement; Institutions MIDA, MATRADE and EXIM Bank MASSA & MASSCORP


Strategic Pull Reasons: Strategic Pull Reasons South - south co-operation Diversifying markets (moving away from the U.S., E.U. and Japan) Access to resources (oil & gas)


Findings: Findings No conclusion can be made as the nature of the study is limited Two trends can be identified State led NRCCs (inter - company loans) State involvement in OFDI significant GLCs are significant players Other push and pull factors similar to general reasons for OFDI More in depth research using firm level data is needed.