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FDI Growth in Malaysia Will be Driven by Digital Economy

FDI Growth in Malaysia

Malaysia’s attractiveness as a hub is growing increasingly apparent to companies around the world. As part of promoting Malaysia as an investment destination, the country’s government has taken an active role in creating initiatives, including competitive investment incentives and tax policies, to attract foreign direct investment (FDI) focusing on technology and the digital economy.

Malaysia’s highly-skilled workforce and well-established manufacturing sector make it an attractive investment destination within ASEAN.

According to the Malaysian Investment Development Authority, in the first six months of 2019, the country attracted RM45.9 billion in FDI, up 97.2 per cent year on year.

The Malaysian government is committed to furthering economic stimulation and investments and improving human capital and productivity as part of its Budget 2020.

One report believes that the following three key trends will continue to draw foreign investments into Malaysia.

  1. Rise of the Digital Economy in Malaysia

Rapid technological advancements in recent years have led to the remarkable growth of the digital economy. In Malaysia, the digital economy is expected to contribute 20 per cent to the economy by 2020, up from 17.8 per cent in 2015.

In particular, e-commerce is expected to exceed RM110 billion by 2020, making up nearly 40 per cent of Malaysia’s digital economy.

The optimism toward the growth of e-commerce in Malaysia is partly attributed to the Digital Free Trade Zone (DFTZ) launched in 2017.

Through the DFTZ, Malaysia aims to attract investments to help drive cross-border e-commerce and trade and the growth of the local logistics industry.

In addition, the aim is to drive exports for SMEs by working with global and regional online marketplaces to increase demand for Malaysian goods.

The Malaysian Digital Economy Corporation (MDEC) encourages the development and testing of next-generation technologies such as financial technology (FinTech) and blockchain.

Within FinTech, digital payments, as a key pillar of the digital economy, accounted for two-thirds of the total FinTech investment deals in 2019. It is expected that Malaysia will see continued growth in this area in the coming years.

The other initiative by MDEC is a Digital Talent Development Strategy Framework that will address the growing demand for a digital-savvy workforce. As the digital skillsets of Malaysians continue to deepen, the quality of the workforce will also help sustain the country’s investment appeal.

  1. Industry 4.0 gaining ground

To increase the productivity and competitiveness of its industrial sectors, the Malaysian government is accelerating business digital transformation through the implementation of Industry 4.0 technologies such as AI and IoT.

It is offering wide-ranging incentives including tax breaks for the electronics sector and related intellectual property, automation equipment capital allowance for services, provision of incentives for digitalisation and innovation efforts, and a generous RM2 billion Industry Digitalisation Transformation Fund.

This commitment by the Malaysian government represents good opportunities for foreign companies that have embraced or are looking to implement Industry 4.0 technologies into their business operations.

  1. Growing Green Technology

The third trend drawing more foreign investments into Malaysia is the development of green technology. For example, the Ministry of Finance’s Green Technology Financing Scheme aims to accelerate the production and use of green technology and products in various sectors by providing financing support through financial institutions.

These sectors include energy, building, manufacturing, transport, waste management and water. As the scheme is open to Malaysian majority-owned companies, foreign investors specialising in this area can consider partnering local firms to tap the incentive for their ventures in Malaysia.

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