outward foreign direct investment: the malaysian experience emeritus prof. dr. mohamed ariff and...
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Outward Foreign Direct Investment: The Malaysian
Experience
Emeritus Prof. Dr. Mohamed Ariff
and Greg Lopez
Malaysian Institute of Economic Research
MIER 2
Presentation Outline
• Key OFDI Trends
• Key Factors– Push Factors– Pull Factors – Strategic Reasons
• Conclusion
MIER 3
OFDI as a % of South, East and SE. Asia Total FDI Stock
1
20
38
64
56
90
66
50
4 5 4 5
1317
9
12
12
11
21
1 7
4 6
13
0
10
20
30
40
50
60
70
80
90
1980 1985 1990 1995 2000 2005
Hong Kong Taiwan Malaysia Singapore
Source: UNCTAD
MIER 4
OFDI as % of GDP
1
56
235
265
42
61
94
612
2534
7
1619
2822
16
2131
7
21
541
0
50
100
150
200
250
1980 1985 1990 1995 2000 2005
Hong Kong Taiwan Singapore Malaysia
Source: UNCTAD
MIER 5
OFDI Flows 1980 - 1992
201
293
260
226
242
210
249
214
198
273
129
175
115
100
150
200
250
300
350
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992
Source: UNCTAD
US million
MIER 6
OFDI Flows 1993 - 2005
1,063
2,3292,488
3,768
2,675
863
1,422
2,026
267
1,905
1,370
2,061
2,971
100
600
1,100
1,600
2,100
2,600
3,100
3,600
4,100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: UNCTAD
US million
MIER 7
OFDI - Top Ten Locations (1993 -2005)
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
Labu
an IO
FC USA
Sing
apor
e
Indo
nesi
a
UK
Hon
g K
ong,
SAR
Cay
men
Isla
nds
Bel
gium
Chi
na, P
R
Net
herl
ands
Mau
ritiu
s
Source: BNM, various years
RM million
MIER 8
Trends - Destination (1999 - 2005)
ASEAN - ex Singapore
13%
Other Asia4%
Industrialised countries
34%
IOFC26%
Asian NIEs18%
African countries5%
Source: BNM 2006
MIER 9
Trends - Sectors
Manufacturing30%
Oil and Gas19%
Agriculture5%
Others (mainly construction)
3%
Services43%
Source: BNM 2006
MIER 10
Trends - Investment Type
• Malaysian controlled companies (GLCs & RCCs) - 61% of OFDI (1999 - 2005)
• Mainly through equity & joint ventures
• Funded internally (62%)
MIER 11
Trends - Investment Type
• OFDI by NRCCs - 39% (1999 - 2005)
• NRCCs investment were essentially extension of inter - company loans to related companies abroad (91%)
MIER 12
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.
MIER 13
Push Factors - Tight Labour Market
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Source: Nambiar 2007
Unemployment
MIER 14
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)
MIER 15
Cyclical Push Factor
• Recession of 1985 and Financial Crisis of 1998
• Market saturation in certain sectors
MIER 16
Institutional Push Factors
• Government policies
– Economic Nationalism and affirmative action (1970 - 1980s)
– Tax exemption, tax incentives & special funds (1991 - present)
MIER 17
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
MIER 18
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
MIER 19
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
MIER 20
Strategic Pull Reasons
• South - south co-operation– Diversifying markets (moving away from
the U.S., E.U. and Japan)
• Access to resources (oil & gas)
MIER 21
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.