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.
Property rights and investor protection
Strong protection of land ownership and intellectual property, effective compensation for expropriation, dispute settlement mechanisms accessible to all investors, and a protective network of international investment agreements are the building blocks of Malaysia’s efforts to improve the quality of its investment environment. Malaysia has gradually moved towards an enabling regulatory framework for investors and more effective investors’ rights. It has also made continuous efforts to improve the land ownership registration system. The electronic system has shortened registration times for land titles and transfers and has made formal recognition of land rights easier, but there remains a lingering problem of fraud of titles.The country is endowed with an enabling legal framework for the protection and promotion of intellectual property (IP) rights and has ratified the main IP-related conventions, bringing itself in line with international standards. As a complement to the legal framework, the government has made concerted efforts to ensure that the protection of IP rights is effectively implemented, through the establishment of specialised IP courts as well as various awareness programmes.Investors are also fairly well protected in the event of expropriation. Protection against illegal expropriation is soundly provided for both at a domestic level and in Malaysia’s investment treaties. The country’s standards of compensation for expropriation are consistent with international best practices.Malaysia has reformed its judiciary in order better to meet the needs of business. With the recent creation of commercial courts and the modernisation of the caseload management system, the government aims to address the lengthy and complex procedures for enforcing contracts. In parallel, Malaysia has actively and successfully promoted alternative dispute settlement (ADR) mechanisms through mediation, conciliation and arbitration. Kuala Lumpur has been promoted as a venue for arbitration, and Malaysia, which has enacted a fine-tuned Arbitration law, is now regarded as one of the top promoters of ADR in the region.Malaysia’s legal framework for FDI comprises a web of investment agreements, including an extensive network of bilateral investment treaties, broad preferential trade and investment agreements and its membership of ASEAN. Malaysia has not yet developed a consistent approach in its agreements but is clearly moving over time towards sounder investment protection and liberalisation. In a number of respects, Malaysia’s treaty programme is at the forefront of very innovative practices. It contains detailed investor-state dispute settlement provisions and commits Malaysia to consent to arbitration in the main international arbitration fora.