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.
Investment framework in support of green growth
Malaysia has placed increasing emphasis on pursuing a sustainable growth path, acknowledging that a “growth first, environment later” approach is no longer feasible. It leads the ASEAN region on environmental performance measures and the government has resolved to become a leader in the global green revolution. An array of policies and legislation has been put in place, including a National Policy on Climate Change, a Green Technology Policy and a Renewable Energy Policy and Action Plan. The government has also created dedicated funds to catalyse private investment in renewable energy, green buildings and low-carbon transport. In addition, the government offers financial incentives for investment in green sectors, such as import duty exemptions for solar PV equipment. In 2011, a feed-in tariff was introduced for various sources of renewable energy, complemented by power-purchase agreements, which led to strong interest from power producers and an increase in installed renewable energy capacity. Some challenges remain and must be addressed if Malaysia is to surge ahead with its environmental initiatives and attract additional private investment for its green sectors. Malaysia remains dependent on fossil fuels and fossil fuel subsidies are still in place, despite previous efforts to eliminate them. There is significant potential for renewable energy generation from biomass, solar power and hydro power but investor interest has been disproportionately skewed towards solar, at the expense of other energy sources. Also, more efforts are needed to attract the support of local financial institutions for funding green projects. Addressing these gaps can help make Malaysia a more attractive destination for green investment.