LETTER | Timely emphasis on domestic direct investment

The recent announcement by Prime Minister Anwar Ibrahim to set domestic direct investment (DDI) as one of the leading performance indicators to generate investment in the country is a good initiative that should be lauded.

This move will indirectly reduce the country’s dependence on foreign direct investments (FDIs), which has sparked fierce competition among developing countries especially in Southeast Asia.

The total investment approved in the manufacturing sector for Malaysia in 2021 is RM195.1 billion, of which 92 percent were FDIs, while for 2022, the total investment approved was RM84.3 billion, of which 78 percent were FDIs.

Of course, as a developing country, Malaysia still needs FDIs, especially to offer quality job opportunities and encourage technology transfer.

However it is time for the country to encourage local companies to improve their own technologies and capabilities and be comparable with foreign multinational companies.

It is because local companies are rooted here and will remain in this country.

In contrast, foreign companies tend to move their operations to other countries after the period of tax exemption incentives they enjoy is over.

Encouraging SMEs

If implemented, this noble effort will encourage local companies, especially small and medium enterprises (SMEs), to thrive and indirectly help them contribute more to the country.

SMEs in Malaysia contribute 38.9 percent to the national economy and 48.4 percent to total employment, whereas in China, SMEs contribute 60 percent to the national economy and 75 percent to full employment.

In Germany and Japan, SMEs contribute 55 percent to the economy and contribute 60 percent and 70 percent to total employment, respectively.

To make this effort a success, several proactive steps need to be taken by the government.

Among them is the reactivation of the Domestic Investment Strategic Fund (DISF) by the Malaysian Investment Development Authority (Mida).

This focuses on accelerating the shift of Malaysian-owned companies in targeted industries into high-value-added, high-technology, knowledge-intensive and innovation-based industries.

The DISF aims to harness and leverage outsourcing opportunities created by multinational corporations operating in Malaysia, intensify technology acquisition by domestic companies, and allow them to obtain international standards in strategic industries.

Incentives and initiatives

This incentive was similar to the incentives offered in Singapore, such as the research and innovation scheme for companies and the centres of innovation provided by the Singapore Economic Development Board to support technology development and innovation activities.

As a result, many local companies in Singapore succeeded in boosting business by acquiring foreign companies and technology.

Among them was the acquisition of MRA Systems LLC by ST Engineering, which made ST Engineering a globally prominent manufacturer of aircraft components and equipment.

Given this, the proposed incentives and initiatives aforementioned need serious attention by the government.

This will encourage local companies either SMEs or large local companies to continue to grow and innovate, which will not only leapfrog the country to the top 30 list of most significant economies, as targeted in Madani Economy.

However, more importantly, it will put the country in the top 20 nations in the global innovation index, where Malaysia is currently ranked 36th.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.