D-8 Gears Up to Face Challenges for Malaysia’s Investment and D-8 (2 of 2)

Kuala Lumpur, Malaysia | May 24, 2009 by D-8 Secretariat

Overseas investors can own 70 percent of local insurers, Islamic and investment banks and sellers of Shariah-compliant insurance, up from 49 percent, Prime Minister Najib Razak said

Malaysia’s approved foreign direct investment in the manufacturing industry plunged 79 percent in the first quarter amid slumping global demand for the country’s products, a minister said, as quoted by Bloomberg.

The Southeast Asian nation approved 3.3 billion ringgit ($931 million) in foreign direct manufacturing investment from January to March, International Trade and Industry Minister Mustapa Mohamed told reporters in Kuala Lumpur. That compares with about 16 billion ringgit a year earlier.

“The deepening global economic downturn damped investment prospects in the first quarter,” Lee Heng Guie and Julia Goh, economists at CIMB Investment Bank Bhd., wrote in a report yesterday. “The tough external environment and weak domestic business sentiments are expected to undermine manufacturing investment prospects in 2009 and 2010.”

Malaysia expects to attract 26 billion ringgit of foreign direct investment in 2009, about half of last year’s total, Finance Minister Najib Razak said on March 10. The government predicts the economy may shrink as much as one percent or expand that much at best this year.
Total approved manufacturing investment from both foreign and local sources was 7.5 billion ringgit in the first quarter, down from 22.7 billion ringgit in the same period last year, Mustapa said.

Singapore is Malaysia’s biggest investor, with approved investments of 820.6 billion ringgit last quarter accounting for about 25 percent of the total, followed by Japan and Taiwan, according to a statement on the ministry’s Web site.

Raising Foreign Ownership Limits

To cope with the investment slupms in the slowing economy, Malaysia also raised foreign ownership limits at non-commercial banks and will let in more overseas lenders for the first time in more than a decade.

Overseas investors can own 70 percent of local insurers, Islamic and investment banks and sellers of Shariah-compliant insurance, up from 49 percent, Prime Minister Najib Razak said earlier last week. Malaysia will issue three licenses to foreign banks in 2011, the first since Bank of China received a permit in 2000.

Najib, 55, scrapped shareholding caps for overseas companies in dozens of services industries last week after projecting a 50 percent plunge in foreign investment this year. Today’s proposal may expand the economic contribution from the finance industry after decades spent promoting Malaysia as an exporter and manufacturing base for Intel Corp. and Motorola Inc.

“It’s good for the banking industry,” said Pankaj Kumar, who manages $540 million of assets as chief investment officer at Kurnia Insurans Bhd. in Kuala Lumpur. “The government’s intention is to expand the pie so banking institutions will become a larger part of the whole equation.”

Manufacturing accounted for about 26 percent of Malaysia’s gross domestic product in the fourth quarter, compared with 12 percent for the finance, insurance and real-estate industries, according to data from the government’s statistics department.

New Islamic Banking Licenses

Malaysia’s central bank will also issue two new Islamic banking licenses this year, another two to sell Islamic insurance, and as many as two specialized permits to overseas commercial banks, Najib said at his office outside Kuala Lumpur. He kept the foreign shareholding cap on commercial banks at 30 percent.

In office for less than a month, Najib has promised to deliver change including the gradual removal of benefits for the ethnic Malay majority in the multiracial nation.

“The economy is at a crossroads,” said Suhaimi Ilias, an economist at Maybank Investment Bank Bhd. in Kuala Lumpur. “There is a need to change tack in development strategy.”

The liberalization is part of Najib’s plan to increase the proportion of Malaysia’s gross domestic product derived from services to 60 percent from 55 percent in 2008, and wean the country off export revenue.

Exports Slump

Income from overseas sales of made-in-Malaysia electronics and from crude oil and palm oil has slumped amid the global recession, and Malaysia can no longer rely on income from exports and manufacturing, according to Suhaimi.

According to today’s proposal, foreign banks already incorporated in Malaysia, such as the U.K.’s Standard Chartered Plc, will be able to add four new branches in Malaysia in 2010.

The government expects the $181 billion economy to expand 1 percent this year or shrink the same amount at worst. Many economists expect a larger contraction.

The benchmark Kuala Lumpur Composite Index pared some of the day’s losses after the announcement. The measure was down 1.1 percent at 3:47 p.m. local time after falling as much as 1.8 percent.

Last week’s proposals by Najib involved dropping a rule in 27 services sectors, from healthcare to tourism, that required foreign companies to set aside 30 percent of their shares in Malaysia for ethnic Malay investors.

Among Malaysia’s commercial banks, Australia & New Zealand Banking Group Ltd. has a 19 percent stake in AMMB Holdings Bhd., the fifth-largest lender by assets, while Hong Kong’s Bank of East Asia Ltd. owns about 20 percent of smaller bank Affin Holdings Bhd. Primus Pacific Partners Ltd., a Hong Kong investment firm, owns 20 percent of EON Capital Bhd., which specializes in car loans.

Among D-8 countries, Malaysia is recorded in the top rank of the member with highest FDI, total trade, intra-trade, and export. To cope with the current crisis, D-8 has already set up plan to establish a D-8 Working Group on Investment & Development.

“We plan to push the start button for this Working Group, and introduce them in the 27th Commission meeting this year,” said D-8 Secretary General, Dipo Alam, in his office on Friday. He said that the organization has a great confidence in the collaborative efforts from member states to handle the current crisis.

Source: Bloomberg, Various, D-8.

Read Also

• Malaysia is Keen to Enhance Islamic Finance Sector: Zeti
• Malaysia, Indonesia Growth Accelerate on Manufacturing & Investments
• D-8 Gears Up to Welcome the Revival of Micro-insurance and Islamic-Bond Market
• Again, Malaysia Leads Islamic Finance to Promote Sukuk
• Islamic Finance Showing Evolution And Strong Growth, Malaysia Says
• D-8 Witnesses Growth in Sukuk Market
• Foreign Investment Ups in Iran Despite Global Downturn
• Indonesia, Malaysia Expect Trade to Hit $15billion
• Turkish Government, Business Now Poised To Face Deepening Crisis
• Malaysia and Islamic banking industry: insights for D-8 finance, banking, and insurance cooperation