Foreign direct investment in Malaysia has weathered the storms of 2020.
Despite the pandemic and a shifting political landscape, Bank Negara Malaysia (BNM) data showed direct investment of RM689.1 billion in the third quarter of 2020
Singapore, Hong Kong, Japan and the Netherlands were the largest sources of overseas investment, with the manufacturing, financial and insurance, and mining and quarrying sectors attracting the lion’s share of FDI[i].
The government is preparing now for the build-back of the economy, with a range of incentives and long-term recovery initiatives in place to build on effective short-term pandemic relief measures.
Malaysia’s highly skilled workforce, strategic location at the heart of Southeast Asia, investor-friendly policies, physical infrastructure and technological capabilities have long proven attractive to international investors.
Recognising the importance of FDI for economic development, the Malaysian government has steadily liberalised foreign equity restrictions over the past decade. Several business sectors, such as manufacturing and certain service sectors, now permit 100% foreign ownership on a case-by-case basis. The Malaysian government and regulatory bodies also maintain considerable discretionary power to authorise investments into the country on a case-by-case basis.
The Malaysian government was quick to mitigate the economic impact of COVID-19 with short-term reliefs and initiatives. Now the country is backing longer-term recovery measures, including incremental liberalisation of equity conditions by various regulatory bodies.
Incentives worth more than USD60 billion have been unveiled as part of the country’s economic recovery plan for the years 2020 and 2021.
The government has also allocated RM1 billion as a special incentive package for high value-added technology, supporting R&D investment in aerospace and electronics clusters in industrial parks.
Consistent with goals to position itself as a gateway for the ASEAN market, the Malaysian authorities have also formulated several incentives for foreign entities, including the status of pioneer company and tax reductions associated with foreign investment.
While discussing Budget 2021 initiatives to promote FDI, Finance Minister Tengku Datuk Seri Zafrul Tengku Aziz emphasised that the government was committed to ensuring that Malaysia continued to be a preferred destination for FDI and domestic direct investment.
With government backing, and clear incentives in place to build back better, the skies are definitely clearing for FDI in Malaysia.
We have contributed a chapter to the latest Doing Business with Malaysia Guide produced by IMA in association with the UK Institute of Export & International Trade. Click HERE to download the full guide, or contact any of our Kuala Lumpur advisers listed below.
[i] The Malaysian Investment Development Authority (MIDA)
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© Herbert Smith Freehills 2021