OECD Investment Policy Reviews: Malaysia 2013
Malaysia stands out as one of the economic success stories in Asia. Foreign direct investment (FDI) has played a major role in the growth and diversification of the economy, and has been a key part of an outward-oriented development strategy. As an early mover in terms of export-led development, Malaysia has traditionally received significant amounts of foreign investment relative to the small size of its economy. Today, Malaysia is a net outward investor, with its companies increasingly becoming regional and global players.
In spite of this enviable performance, the Malaysian economy is confronting numerous inter-related challenges as it strives to attain developed country status by 2020. Private investment as a share of GDP has declined, and FDI as a share of total FDI in ASEAN has decreased since the early 1990s.
The government has engaged in ambitious reforms across the board which have led to increased liberalisation and more efficient regulations and have contributed to a strong enabling environment for business. Malaysia will also continue to benefit from a dynamic and rapidly integrating region, thereby retaining the attention of investors.
OECD Investment Policy Reviews: Malaysia presents an assessment of the investment climate in Malaysia, including the institutional and legislative framework for investment. It focuses on policy options in the areas of investment, infrastructure, finance, responsible business conduct, corporate governance and green investment and discusses measures to help revive both foreign and domestic investment.
Infrastructure development
Malaysia has good quality infrastructure and its population enjoys good access to basic services such as electricity and water. Infrastructure is a core part of government’s development policies and the bedrock of the economy, with the government allocating more funding to infrastructure than to any other sectors in each of its national development plans since 1966. The private sector has also played an active role in developing Malaysia’s infrastructure, providing USD 54 billion in investment between 1990 and 2011. Private investment has increased over time, thanks in part to the government’s efforts to liberalise the telecommunications, transport and electricity sectors. In the water sector, a major restructuring took place in 2006, leading to a smaller role for the private sector in financing projects. Moving forward, the government needs to find ways to bring the quality of infrastructure in Sabah and Sarawak up to par with that in Peninsular Malaysia. Moreover, the tendering process can be strengthened by reviewing the process of unsolicited bids and direct contract negotiation. The mismanagement of certain projects suggests that better upstream planning and project supervision is needed to improve efficiency. Given the expected increase in the urban population and rising demand for all infrastructure services, a concerted effort is needed to attract additional investment in the infrastructure sub-sectors and propel Malaysia into a modern and developed country.