FINGERS IN MANY PIES

Malaysia 2016 | ECONOMY | FOCUS: OUTWARD INVESTMENT

Financial globalization is associated with global shifts in economic flows. Malaysia, traditionally a recipient of FDI, is increasingly a major player in the global investment market.

Since 2007, when investment amounted to $8.37 billion, outflows of capital have surpassed inflows. By 2010, Malaysian outward investment accounted for around 1% of world total and 5.6% of national GDP. This is significant considering outward FDI was virtually zero until around the 1980s, and were less than a quarter of inward investments from 1985 to 1995.

Since the time of Prime Minister Tun Dr. Mahathir bin Mohamad, the government has been encouraging Malaysian companies to venture abroad. Under the Third Industrial Master Plan (IMP3) and the Ninth Malaysia Plan (9MP), Malaysian businesses were given incentives to invest abroad. Structural changes and sustained economic growth associated with higher labor costs and a fall in export competitiveness, as well as notable liberal policy and government encouragement, have all contributed to this changing of tides. In the Asia-Pacific region, most of the flows are channeled to Australia, Singapore, and Indonesia. The UK, Germany, and the Netherlands are the major European recipients of Malaysian outward FDI, in the sectors of energy, mining and quarrying, and financial services.

Petroliam Nasional Bhd (PETRONAS), the national oil company of Malaysia, is the largest overseas Malaysian investor with operations in over 30 countries in both upstream and downstream activities. Infrastructure conglomerate YTL Corporation is also one of the largest contributors to Malaysia's surge in outward FDI and leads the list of Malaysian companies with international ventures. This list also includes Genting, Telekom Malaysia, and Sime Darby. IOI and Kuala Lumpur Kempong Bhd (KLK) have significant investments in plantations and resource-based manufacturing in Indonesia, Germany, and the Netherlands. In financial services, Malaysian banking groups, most notably Maybank and CIMB have important overseas operations and representative offices across the globe. In 2012, CIMB acquired Royal Bank of Scotland's units in Asia Pacific.
Among the most significant Malaysian outward investments in recent years is the Battersea Power Station in South West London. The site, which appeared on the cover of Pink Floyd's 1977 album Animals, has been bought and is being redeveloped by a consortium of three Malaysian companies consisting of the Employees Provident Fund, the country's largest pension fund; private developer S P Setia; and the property division of palm oil giant Sime Darby. Several high profile celebrities have already snapped up apartments in what is expected to become London's most upmarket residential spot. With a gross development value of $12.1 billion, the site will also host retail and dining areas, as well as green spaces. What is interesting about this project is that it not only marks a step forward in Malaysia's outward investment agenda but also in its bilateral relations with the UK. Prime Minister Najib Tun Razak visited the site in 2013, and during the Mayor of London Boris Johnson's reciprocal visit in December last year, the design for a public space within the site called Malaysia Square was unveiled. Malaysia is now the second biggest investor in London's property scene, and in 2012 was the single largest investor in Britain, with $2.12 billion worth of investments.