(Printed in The Edge on November 7th. 2022)

Malaysia’s traditional reading of the proposed 2023 Budget was brought forward earlier to October 7^th, 2022, and the surprising announcement of the dissolution of Parliament happened literally the next day, sending many economists and financiers into a tizzy. “What happens to the Budget just read?” was one of the big questions on everyone’s mind. The vague answer from the Government was that it may be the same Budget or a different one was not reassuring. 

Mind you, the proposed 2023 Budget has not been approved by Parliament and the current Prime Minister (PM) stated it would be presented again after the 15^th. General Elections.

As it is, Malaysia’s government is an unprecedented patchwork one. After 61 straight years in power, the ruling Barisan Nasional (BN) coalition lost to the Pakatan Harapan (PH) one in the 14^th General Elections. However, barely two years after the historic win, the PM then resigned and pulled his party, Bersatu, out of the PH coalition, collapsing the Government. This was in the teeth of the highly dangerous CoVid-19 pandemic, then just starting. Unable to hold a General Elections at that time without endangering millions of people, His Majesty the King with the full support of Their Majesties the Rulers’ Council (Malaysia has 9 Sultans, each taking 5-year turns at being the King of the country), asked every Member of Parliament who they would support as Prime Minister. The majority declared for the new leader of Bersatu, a veteran politician himself, and so a new coalition of formerly opposition parties of mainly BN and Bersatu joining together to form one government, called Perikatan Nasional (PN). Dogged by uncertainty as to whether Bersatu’s chief did actually have the majority of Parliamentarians behind him (all this during a raging pandemic, no less), he resigned and passed the PM-ship to one of his Deputy PMs, a capable man from BN. A year or so later, after the CoVid-19 lockdowns were lifted nation-wide, Parliament was dissolved.

With three different lead parties forming the government, one must ask, what kind of a Budget would come to Malaysia for 2023 given, for the first time ever, Malaysia had three different parties leading the Government? In just about every other country in the world, a political party has its own distinctive foci on the economy; hence, who is in charge pretty much has a different Budget compared to another party who was in charge earlier.

So, let us look at the 3 major spending categories for the Budget in Chart 1 and the 5 major Sector categories in Chart 2 below to see if there were indeed major changes applied by each of the 3 governments, first by BN in 2017, then by PH in 2018 and 2019, then Bersatu in 2020 and 2021, and then back to BN in 2022. Here we define it by which party the sitting PM is from, rather than the coalition per se. We arbitrarily define a “major change” as changing the proportion of the Budget assigned to it by at least 10 percentage points, e.g. if the Economic Sector’s allocation moved from 8% to 18%.

Table 1 Division of Expenditure by Federal Malaysian Government by Use

Year	Percent of Annual Budget
	2017	2018	2019	2020	2021	2022
Supply	60.2	61.3	61.5	57.9	53.4	50.3
Obligations	21.5	21.7	20.6	22.7	23.5	24.8
Development	18.3	17.0	17.9	19.4	23.1	24.9

Source: Respective Treasury Budget Reports

It is rather obvious from Table 1 that there was no major change on a year-to-year or administration-to-administration basis. However, for the “Supply” category, there was a significant change from 2017 to 2022, i.e., over 6 years. The peak was during PH’s term in 2018 and 2019 at 61+% of the national Budget, before the PN government (led both by Bersatu and BN respectively) brought down “Supply” spending, most probably to spend on the CoVid-19 fight and aid to those worst affected by what turned out to be a 2-year national lockdown. We investigated the veracity of this assumption and display the results below.

Table 2 Operational Expenditure by Sector

Year	Percent of Annual Budget
	2017	2018	2019	2020	2021	2022
Economy	7.7	8.7	6.0	7.1	7.2	8.1
Social	40.0	38.4	35.3	40.5	41.0	41.1
Security	11.4	11.2	9.0	11.2	10.9	10.8
Administration	5.3	6.9	6.1	7.8	8.2	5.3
Others	35.6	34.8	43.6	33.4	32.7	34.7

Source: Respective Treasury Annual Reports

It appears there is one major change, between 2019 and 2020, where the “Others” was reduced from 43.6% to 33.4% but it was done by the same Bersatu government, and hence, isn’t a reflection of economic philosophy of the party.

Otherwise, the structure of the Budget appears rigid and relatively inflexible year-to-year.

A review of the 2020, 2021, and 2022 Budget papers at the Treasury website does not reveal how the aid spending for the pandemic was accounted for. Indeed, many of the Ministerial accounts were not even posted for 2021 and 2022. Given the lack of clarity, we can only conclude that these drops did happen but the why is unknown.

Hence, one must come to the conclusion that throughout basically 3 different parties leading the government since 2018, no imprint was made on the Budget for the country that would show their respective distinctive economic strategies. This means that, for 2023, the Budget that Malaysia is going to get is the same old, same old.

The problem is that in Budget 2023, there was no visible economic strategy other than handing out money to the less fortunate and most vulnerable. One is reminded of the saying, “Give a man a fish and he eats a meal, teach him how to fish and he eats for a lifetime”. The real danger is to generate dependency, and this would be a heavy burden to carry forward. Missing rather visibly is what has happened to the steps on the continuous journey towards Malaysia becoming a Developed Nation? Or has that been abandoned already, defeated are we by the Middle-Income Trap?

Here’s the tough part: the IMF (International Monetary Fund) recommends that post-pandemic fiscal budgets be as flexible as possible, to meet any unforeseeable contingencies, like war (look at what happened to Ukraine) or natural disasters. Can Malaysia cope without such flexibility? It is too easy to resort to additional borrowing; those have its limits and Malaysia is awfully close to them. Disaster awaits beyond the rim….

(Published in The Edge, October 10th, 2022)

US Fed Chairman Jerome Powell recently hiked the US Fed Funds Rate by 75 basis points to between 3.00 to 3.25%, and signalled that by the end of the year, they were targeting an interest rate of 4.5%. This means that another 125 basis points of interest rate hikes are in the offing. He went on to say that their final target is to bring inflation down to 2%, from August 2022’s 8.3% year-on-year. That presages some very vigorous movements for the US Dollar (USD), and some rather bleak outlooks for other currencies that do not act to preserve the value of their currencies.

The current downswings of the Malaysian Ringgit against the USD have many worried how long it would last and how much their lives would change. Thoughts of whether they would be shoved into poverty, hunger, or hopelessness have popped up foremost in their minds.

Why would a currency like the USD have so much sway in Malaysian’s lives? Based on the European Central Bank (ECB) in 2021, the USD is the currency in roughly 40% of all trade invoices globally. Former Malaysian Prime Minister Muhyiddin was recently quoted as saying the food import bill for last year was RM63 billion. One can do the math easily and find that upward changes in USD would lead to higher costs of food in Tanah Airku. This was evidenced recently by the crisis in the price of chicken in Malaysia (sparked by the cost of its feed which is 100% imported into the country) and of broad-based food inflation. What’s worse is that, it is not a one-off event: Russia’s unwarranted aggression against Ukraine has pushed wheat and corn prices stratospherically, and oil & gas prices teeter on the brink of another atmospheric flight with the Northern Hemisphere’s winter coming up and Russian supply sanctioned. This is on top of a four-year drought in South America, big exporters of grains and feeds to the world.

With all this doom rolling in like a killer tsunami, thoughts and actions must now turn towards defending theRakyat. In our last article in The Edge we pointed out that BNM (Malaysia’s Central Bank) has done well in managing forex (foreign exchange) risks for itself, but now we must ask whether we have the experience to handle what is happening in the US economy as the consequences hit the Rakyat. 

What is happening to the US economy is a major fight against stagflation. In the 1970s and 1980s, they had a major battle against it that is eerily similar to what it is today. In that episode, lasting 16 years, the US had emerged from the Vietnam War and the huge amount of wartime spending that was needed was in their economy, they were forced to abandon the Gold Standard, and the Oil Crisis happened, sending inflation zooming upwards and GDP (Gross Domestic Product) skidding downwards.

Chart 1 

 The data range we chose was from 1972, a year before the Oil Crisis, to 1987, when the US stock market crashed on Black Monday, changing economic fundamentals substantially. Some datapoints popped out:

1. The US CPI went from 3.27% in 1972 to a high of 13.55% in 1980, before going down to below 2% a year before the 1987 crash, and
2. US interest rates, using Fed Fund Rates, started at 5.33% in 1972 before going as high as 18.9% in 1980 and thereafter falling to 6.77% in 1987.

Chart 2

This entire stagflation episode took 16 years to fight. This was not a sprint but an ultra-marathon. The current one looks likely to be another long battle, too.

How did Malaysia do during this period?

Quixotically, Malaysia started the period already at high interest rate levels and kept them high throughout the period, with a peak of 12.4% in 1982. This seems to say we were fighting two different crises, one before the period and one during. Further, inflation started at 3.2% in 1972, hit a high of  17.3% in 1974, and ended at 0.3% in 1987 which indicated an overkill, as Malaysia’s GDP dropped from 7.8% in 1984 to a -1% recession in 1985, kicked along by severe drops in rubber and tin prices, two commodities forming a large bulk of Malaysia’s export earnings then.

Chart 3

As one can see in the chart above, Malaysia’s interest rates were in double digits from 1980 to 1987 (and skirting around 10% in the years before) while from 1982, the US’ trended downwards from under 10% to 6.77% in 1987.

Despite the higher interest rates’ posture by Malaysia, the Ringgit actually fell against the USD in the period of 1980 to 1987:

Chart 4

This seems to say that if another country’s economy doesn’t recover as fast or policy action meant for another purpose is lagging in ending or even implementation as the case may be, then that country’s currency (herein Ringgit) will lose value against another’s (herein USD).

However, this chart added mystery to the whole thing:

Chart 5

Basically what it says is that the US and Malaysian economies were countercyclical to each other but given what happened, counter-intuitively, Malaysia was not immune to what was happening in the US and the transmission of higher inflation through its causes did happen and Malaysia was hit as well.

Nowadays, as we had argued several times before, things have changed. Due to Malaysia pegging the Ringgit to the USD in 1998, our economy is pro-cyclical with the US’ as this chart shows:

Chart 6

Does this mean this time, Malaysia will be hit worse?

(Published in The Edge in September 2022)

The recent fall of the Ringgit (RM) against the US Dollar (USD) has had many in the country voicing their concerns as to imported inflation and even forwarding suggestions that the RM should be re-pegged against the USD to avoid such volatility. Indeed, the RM has fallen, at the time of writing, by around 7.2% for the year to date. That is a huge movement. Quixotically, other currencies against the RM have remained more or less where they are, even though many have had their interest rates raised markedly. Hence, some have asked, is it just a matter of time before the RM falls against them too?

There is another matter that needs to be examined that swirl around the same issue: whether the falls of the RM presage losses at Bank Negara Malaysia (BNM) as they fight to moderate the movement of the RM.

The past many years, since the 1990s, have thrummed with rumors of forex (foreign exchange) losses at BNM, once accused of such to the tune of RM31.5 billion during the years 1988 to 1994, that was investigated by a Royal Commission of Inquiry (RCI). The report was completed, and matters extended for further investigation. It has since been categorized by the Royal Malaysian Police as requiring “No Further Action” due to the lack of evidence to pursue investigations.

As avid readers, we sometimes wander over to the esoteric and as a financial economist, it means going as deep and as wide as needed to find the answers to burning questions. It is always a joy to find a book written by a non-mainstream writer, and the fresh perspectives brought about by M.A. Akinkunmi in “Central Bank Balance Sheet and Real Business Cycles” was eye-opening. The shocking revelation in that was that book claimed that central banks did not have to follow accounting rules. This set us off in investigating whether some questions we have always had could have been answered by this.

We were happy to find that as far back as the 2012 BNM Annual Report stated that the accounts have been prepared in accordance with the Central Bank Act of 2009 and the applicable Malaysian Financial Reporting Standards (MFRS), and that it (the central bank) will comply as closely as possible to the requirements of the MFRS and their Act. Then, of course, we have the Jabatan Audit Negara (National Audit Department) to keep things on the straight and narrow.

In so checking, we came across a note to the category Risk Reserves in the accounts, that noted it was,

“Used to account for unrealized revaluation gains or losses arising from changes in exchange rates and market prices and to absorb any potential future losses resulting from unfavorable circumstances not within the control of the Bank. The Exchange Rate Fluctuation Reserves, Revaluation Reserve, and Contingency Reserve, which was presented in previous years as “Other Reserves” have been consolidated and renamed as “Risk Reserves”.

That Annual Report also states that for “Market Risk”, it is defined as,

“Market Risk is the exposure of the Bank’s investments to adverse movements in market prices such as foreign exchange rates, interest rates, and equity prices. Market risk is monitored on a daily basis and all of the investments and instruments will have a marked to market value. Investments are guided by a benchmark policy approved by the Board of Directors which reflects the long-term investment objectives and acceptable risk-return profile. “Active Risk” may be taken through investments and instruments that can be different from the benchmark though must be within approved investment guidelines. The degree of “active risk” is measured and controlled through using limits that must be adhered to. Sensitivity analysis and stress testing are undertaken to assess potential marked-to-market losses from adverse movements and volatility in the market”.

The 2021 Annual Report said basically the same thing, hence it is obvious that if there are forex losses, one will find it within this category, specifically an entry called “Movements During The Year” which are nowadays specifically stated.

Thus, how has BNM been performing? We look at the year 2013 to 2016:

Category (RM million)	2013	2014	2015	2016
Risk Reserves At Year Start	13,966	39,947	52,827	112,716
Transfer From P&L	3,900	3,350	4,700	3,900
Movement In The Year	22,081	9,530	56,539	9,325
Risk Reserves At Year End	39,947	52,827	112,716	126,741

All seemed quite well, and then we turn towards 2017 to 2021:

Category (RM million)	2017	2018	2019	2020	2021
Risk Reserves At Year Start	126,741	118,657	113,477	131,436	144,746
Transfer From P&L	4,900	5,000	5,400	0	0
Movement In The Year	-12,984	-10,180	12,959	13,310	7,437
Risk Reserves At Year End	118,657	113,477	131,436	139,346	152,183

There were two years of losses (i.e., negative values in the year’s movements), 2017 and 2018, both absorbed by the amount of Risk Reserves already there plus a small “Transfer from the Profit & Loss” side of things. Hence, all appears well.

Checking the Movements in the Year against the changes of the RM against the USD for 2013 to 2017, to see how sensitive the financials are against forex movements of the RM versus the biggest use currency in the world, we find:

Category	2013	2014	2015	2016	2017
Risk Reserves At Year Start	13,966	39,947	52,827	112,716	126,741
Transfer From P&L	3,900	3,350	4,700	3,900	4,900
Movement In The Year	22,081	9,530	56,539	9,325	-12,984
Risk Reserves At Year End	39,947	52,827	112,716	126,741	118,657
Change in RM/ USD (%)	-6.6	-6.2	-18.5	-4.3	10.9

For the years 2017 to 2020, they are:

Category	2018	2019	2020	2021
Risk Reserves At Year Start	118,657	113,477	131,436	144,746
Transfer From P&L	5,000	5,400	0	0
Movement In The Year	-10,180	12,959	13,310	7,437
Risk Reserves At Year End	113,477	131,436	139,346	152,183
Change in RM/ USD (%)	-2.1	0.9	1.8	-3.8

It appears that the linkage between RM/ USD’s movements are random and poorly correlated to BNM’s “Movement In The Year” (i.e., the forex gains or losses) as it were. This, of course, can be due to proper management practices such as diversifying the assets under BNM to avoid concentration risk, and minimal operational intervention in the currency markets. The large Risk Reserves amount held ensures that losses can be absorbed. Congratulations to BNM. There seems little to worry about the possibility of large forex losses for BNM currently. 

Nonetheless, as we had pointed out in our recent paper, “How Low Can the Malaysian Ringgit Go?”, there is a need to tame the volatility of the Malaysian Ringgit, and there are two ways to do that, either through direct intervention, or through deepening the Malaysian Ringgit market. The first option, of course, means that forex losses could be visibly large at the central bank.

Malaysia, of course, does not need that.

Fresh article, never before published.

Whenever I mention the seating of a Prime Minister (PM) or a President, inevitably, after surprised look on faces of whomever I am talking to, they usually ask things like, “He cannot sit himself down, aaa?” or “Why, what’s wrong with his chair now? Too keras (hard), is it?”, and even, “Aiyo! Lazy fella! Ask him to sit himself down, lah!”

Seating a PM has hardly anything to do with a chair, sofa, or bangku (stool). No, the choice of a cushion or kayu (wood) doesn’t come into it, no matter how one feels about the person to be seated. 

Seating a PM or a President is a program of initiatives that the newly elected leader will begin his first 100 days with. The 100 days program started on US President Theodore Roosevelt’s own initiative, but few have emulated him, either for probably fear of failure or having no concrete ideas of what to do. The exception is current US President Joe Biden. 

Biden’s first 100 days was by all accounts a roaring success and now, two years on, huge gains have been made by his Administration. The commercial equivalent is the “First 90 Days” in which CEOs and Chairpersons outline their policies and directions, plus the targets they want to achieve in the first 3 months of their being in charge. This works to solidify their grip in leadership of the organization or country. Foundation setting, in other words. 

Michael Watkins, in his best-selling book, “The First 90 Days”, noted this,

“The actions you take during your first three months in a new job will largely determine whether you succeed or fail. Transitions are periods of opportunity, a chance to start afresh and to make needed changes in an organization. But they are also periods of acute vulnerability because you lack established working relationships and a detailed understanding of your new role. If you fail to build momentum during your transition, you will face an uphill battle from that point forward.”

Let us take the US President Biden’s first 100 days as an example. He was inaugurated on January 21^st, 2021, and on that day, he was facing, in his words, 

“…the worst pandemic in a century (referring to CoVid-19). The worst economic crisis since the Great Depression. The worst attack on democracy since the Civil War (referring obviously to the Capitol riots on January 6^th, 2021),” 

to quote his 99^th day speech to the US Congress on April 29^th, 2021.

Those three items were his strategic issues, namely, a pandemic, an economic crisis, and civil disturbance that threatened the US. While the first two could be planned by his team beforehand, and thus, “seating” him, the last was something he had to handle on the fly. He could, arguably, handle it in such a way because he already had plans for implementation for the first two strategic issues, and had time and resources for that one unplanned strategic threat. That last issue, tock much time and attention to resolve, as one can see but it did not stop President Biden from moving his country forward, because there already was a plan, i.e., his 100-day plan.

He launched the American Rescue Plan, as part of his 100 days initiatives. This is what it achieved in 100 days:

1. A promise of getting 100 million shots of vaccines into peoples’ arms. He got 220 million shots in, compared to the US population of 337 million (and we know how vaccine-averse Americans are), thereby releasing Americans from its immobility due to the fear of infection,
2. Sending US$1,400 “rescue” checks to 85% of the American households, hence allowing them to begin spending again, and thus kickstarting the economy,
3. Providing food and rental assistance to millions of poor Americans,
4. An additional 800,000 Americans enrolled in the Affordable Care Act,
5. Improving health care for Veterans, addressing the opioid crisis, and being on track to cutting child poverty to half by the end of the year, and
6. Creating 1,300,000 new jobs in the first 100 days.

He also launched the American Jobs Plan, a huge investment to upgrade US transportation infrastructure, modernizing US roads, bridges, highways, building and rebuilding ports and airports, rail corridors, and transit lines. Among its targets and achievements:

1. Replacing all of America’s lead pipes and service lines so everyone can have clean water,
2. Connecting all of America with high-speed Internet, including the 51% of rural US that isn’t connected,
3. Installing 500,000 charging stations along roads so electric vehicles can be used widely,
4. “Buy American” goods and services when implementing economic plans, thus impacting American manufactories positively, 
5. Raising the US Minimum Wage to US$15 an hour,
6. Raising the nondefense research funding to raise technological level of the country, and
7. Proposing equal pay among the sexes.

He topped off this list with the words of warning, 

“But the rest of the world is not waiting for us. I just want to be clear: From my perspective, doing nothing is not an option.”

He further announced the America Families Plan that day, on his 99^th day in charge. It tackles four strategic challenges:

1. Access to good education. He coupled it with an additional 4 years of free education with pre-school and Community College (2 years each), on top of the 12 years already available,
2. Access to quality, affordable healthcare,
3. Up to 12 weeks of paid and medical leave a year, and
4. Tax credit for each child; with two kids, it’ll be an annual total of US$7,200 a year.

The momentum that he built in his first 100 days was so strong that it reverberated into the next two years. Recently, at his two-year anniversary, he announced the following achievements:

Item	2021	2022
Total jobs created by President Biden	5 Million	10.3 Million
Manufacturing jobs added under President Biden	282,000	738,000
Unemployment rate	4.6%	3.7%
Deficit reduction	US$350 Billion	US$1.4 Billion

There were a further 24 or so other achievements that were announced, the key ones were the US re-joining the Paris Agreement (an international agreement on climate change), rallying the world against the Russian invasion of Ukraine, and the historic confirmation of Mdm. Ketanji Brown Jackson, the first woman African-American to Supreme Court Justice.

That is the value of a 100-day plan. It turns adversity against you upside down and springs your country to greater heights.

Malaysia recently had a new Prime Minister and Unity government appointed. The Rakyat awaits their 100-day Plan. A strong platform to spring Malaysia upwards economically would be just the ticket now.

Edge Article April 2022. Published on 11th April 2022.

It is often said that the word for ‘crisis’ in Mandarin is written by using the characters for ‘danger’ and ‘opportunity’ together. The CoVid-19 pandemic since 2019 was indeed a global crisis; in order to halt the spread of the deadly virus, the entire world had to be brought into lockdowns of their countries, and consequently, their economies, that is in greater or smaller degree is still on today.

With the lockdowns came businesses shuttering, and the global supply transport infrastructure stood still. It sent authorities into panic mode to save their economies; most resorted to opening the monetary taps to keep economies breathing and people out of starvation. 

Much was ‘disrupted’, to use a wholly inadequate term, most importantly the Global Supply Chain (GSC) which Malaysia’s economy is very dependent upon. 

Indeed, Malaysia has built its economy to be dependent on Foreign Direct Investment (FDI) and being part of the GSC, ignoring conventional, centuries-old wisdom of building up a country’s industries with its own final products and brand names. The result? Malaysia is stuck in the Middle-Income Trap and the goal of being a High-Income Nation appears further than ever. With the World Bank recently raising the bar for High-Income Nations to US$12,695 a year in Gross National Income (GNI) from US$12,535 a year previously, Malaysia, whose GNI in 2020 was lower at US$10,570 from US$11,260 in 2019, it appears a daunting, if not impossible task (see our recent paper “Strengthening the Main Economic Aspect of Keluarga Malaysia”).

There are several aspects of following this strategy that is troubling. Any trainer will tell you that in order to inculcate good new habits into someone, the bad old ones need to be exorcised. Let’s look at 3 reasons why the FDI and GSC strategy is flawed:

The first is that, where Malaysia’s FDIs and GSC participation is concerned, they are mainly of the intermediate goods type, instead of the “whole value chain final products manufactured” type. This means thin margins and value-add to the domestic economy.

A very popular article in 2012 highlights the thinness of margins obtained by intermediate goods’ manufacturers. The article, penned by Matthew Yglesias (“FoxConn Getting By On $8 per iPhone”) noted that FoxConn which assembled all the iPhone 5 units in the world in 2012, made only US$8 each, while an unlocked iPhone 5 unit retailed for US$849 for the 64GB model. In other words, it made less than 1%.

This thinness filters upwards towards the value add to GDP (Gross Domestic Product). We compare intermediate goods producer Malaysia to South Korea, which has plenty of final products and brand names:

Table 1 Malaysia’s Foreign Sector Addition to GDP

Table 2 South Korea’s Foreign Sector Addition to GDP

It clearly shows that Korea gets a higher contribution to GDP from its foreign sector (C/A over GDP), never mind its far larger GDP figures. 

The second reason is that technological trickle down to the domestic economy from FDIs cannot be assured. Years of academic research on it is at best inconclusive as to whether FDI does spark such trickle downs and worse, most research does not make the critical difference between their samples being the FDI type that produces the whole chain that ends with a final product or whether they are the “stick part A to part B” type of intermediate goods production. Some examples below:

A study by Elvisa Torlak in 2004 on technology transfer in the transition countries of Hungary, Poland, Romania, Bulgaria, and the Czech Republic corroborated the theory that technology is transferred internationally through multinational firms within itself but provides no evidence of diffusion of technology from foreign to domestic firms. This means that XYZ in the US will transfer technology to its XYZ plant in Malaysia, but not to unconnected Pak Ali Satay and Microchips Sdn. Bhd. in Ulu Sembelit.

Lichtenberg and de la Potterie in their 2001 paper, “Does Foreign Direct Investment Transfer Technology Across Borders?” noted that: 

“The data indicates that FDI transfers technology only in one direction: a country’s productivity is increased if it invests in R&D-intensive foreign countries…. But not if foreign R&D-intensive countries invest in it.”

The third reason is that Malaysia has performed abysmally in attracting FDI, coming in last in 2018, and is next to Korea in a sample of Asian countries per the chart below. Korea honestly does not need that much incoming FDI as an already Developed Country. The chart below from our previous paper “Foreign Direct Investments in Malaysia, Part 1 – Has Malaysia Fallen Off the Beauty Parade?” with Malaysia right at the bottom in 2018 says it all:

Chart 1 Comparison of NET FDI Inflows Into Selected Asian Countries

Source: World Bank

The forecast for economic growth post the CoVid-19 pandemic is one of economic re-emergence for all countries. This is where each country will have to look after its own. Hence, while producers outside of the countries of origin will have a greater amount of orders from companies domiciled in their respective originating country (already evident recently), it is unlikely that new FDIs will come out. Rather, the movement, under US President Trump’s days was that of calling back US companies to produce within its borders. There is scant evidence that current President Biden has totally reversed that, given the benefits to the US’ own economy. China has turned inward, looking for its domestic economy to fuel its economic growth. Russia’s attack on Ukraine now adds the spectre of not only higher oil & gas prices, but also commodities, with Ukraine being huge global producers of wheat, corn, and sunflower oil. One doubts that with a war on, Ukrainian farmers can sow their crops in late Spring; this year’s harvest will likely be a poor one, driving up food prices globally. 

The setting for more FDIs globally is in poor light with tentative economic recoveries and global inflation on the near horizon; far better will it be to have local industries making final products for the needs of the people.

The case for de-emphasizing the current growth strategy for Malaysia of FDIs & GSC participation cannot be stronger. Time to emphasize local final products and brand names as a national economic strategy.

Huzaime Hamid is Chairman & CEO of Ingenium Advisors, Malaysia’s financial macroeconomics advisory.