Friday, October 3, 2008

Other half of money-flow story

Other half of money-flow story

KUALA LUMPUR, Oct 4 — Datuk Seri Anwar Ibrahim thought he could take a swipe at the government at a forum in Hong Kong recently when he said that for the first time, Malaysian investment abroad had exceeded inward foreign investment in 2007.

However, it is not as alarming as it sounds. Anwar only told the audience half the story. The document he quoted from — the bulky United Nations Conference on Trade and Development's World Investment Report 2008 — should have been quoted in context.

What Anwar left out was the fact that both Malaysia's inflows and outflow growth had been positive, with outflows growing faster than inflows. Since early 2000, the foreign direct investment inflow and outflow gap has been narrowing, reaching near parity in 2006.

This trend was in line with what was happening in many of the developing economies in South, East and Southeast Asia. FDI outflows in these regions reached a new high of US$150 billion.

Malaysia's outflow alone surged 82 per cent to more than US$10 billion. In terms of FDI stock, the trend towards reverse investments was also reflected in a 61 per cent spike in outward stock. In the same period, inward stock grew 42.5 per cent.

FDI outflow from Malaysia is not capital flight. It is the outward flow of funds by increasingly savvy home-grown transnational companies (TNCs) with strong balance sheets and confidence, which have decided to diversify outwards.

The very same thing happened to India in 2007 when Indian companies pumped US$15 billion into overseas ventures — surpassing foreign direct investment inflows in the country.

The Unctad report mentioned the growing number of TNCs in developing nations that are playing an increasingly prominent role in the infrastructure development of other developing countries.

Of the top 100 non-financial multinational firms from developing countries ranked by foreign assets in 2006, Malaysian giants Petronas, YTL Corporation, Genting, Telekom, Sime Darby and Maxis featured prominently.

The favourable economic situation at home in 2007 led many of these Malaysian giants to invest vigorously abroad. Some companies reinvested super profits from the commodities boom abroad.

Many of these multinational companies also took advantage of the ringgit's strong performance in 2007, which saw it increase in value from RM3.53 to RM3.31 to the US dollar.

Looking back, the quantum leap in FDI outflow also happened between 1993 and 1996 when the ringgit appreciated from RM2.70 to RM2.52 to the dollar.

It is still questionable whether the trend will continue. If it does, it would be good for Malaysia. It will be able to hedge its bets against a potential weakening of the ringgit, the downward trend of commodity prices and increasing costs at home due to spiralling inflation.

However, before Malaysia Inc starts to celebrate its status as a global player, it has to remember that the biggest overseas investor of all — the United States — is also the biggest FDI recipient.

Malaysia has to try its best to attract FDI amidst heavy competition from other developing countries. Its fall on the Inward FDI Performance Index to 71st position last year from 67th in 2006 is a cause for concern, even as its FDI inflow increased by 39 per cent to just over US$8.5 billion.

The political crisis in Malaysia has pushed the local stock market index from an all-time high of 1,524 points in January to just above 1,000. The cut in projected growth rates to 4.6 per cent by the Malaysian Institute of Economic Research amidst an inflation rate of 8.5 per cent is cause for concern for many foreign investors.

So, if Anwar ever wants to take a swipe at the government, he should at least remind himself that his attempts to overthrow the government by encouraging party hopping have in part caused political uncertainty and contributed to the decrease in foreign investments into the country. — Today

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