FDI – Your Money is My Money and My Money is My Money!

Malaysia’s Foreign Direct Investment

(US$ billion)

2004

2005

2006

Inward
Flow

4.62

3.96

6.06

FDI Stocks

52.75

47.52

53.57

Outward
Flow

2.06

2.97

6.04

FDI Stocks

15.88

21.79

27.83

*annual average

Source: UNCTAD

According to Bloomberg, foreign direct investment (FDI) refers to the acquisition abroad of physical assets such as plant and equipment, with operating control residing in the parent corporation. As a developing country, the inward flow of foreign direct investment should widely exceed its outflow.

This is because foreign investors will pump in money to developing countries with high economic growth rates. Data obtained from the UN Conference on Trade and Development shows that the inflow and outflow of FDIs in Malaysia is reaching a breakeven point with US$6.06 billion of inflows and US$6.04 of outflows.

Globalization has tore asunder many of the old norms like geographical distance and national borders. In our current world, money is free to flow to locations that are most profitable. Knowing this, the increasing outflows of capital shows that many of the local companies are moving to locations that are have higher growth rates and incentives.

Increasing FDI outflows may not be a bad sign as it shows that local companies are investing abroad to gain access to new markets and resources. Outsourcing and the need for lower cost manufacturing may also be an important factor for the increasing outflows of FDIs from Malaysia.

However, Malaysia’s protectionists policies is not helping local companies to be more competitive and productive. On the contrary, such policies breed complacency and neglect on the part of local businessmen that are fighting in a less vibrant environment.

Should this continue, our local workforce and businessmen would lose its appeal (because we are less productive) compared to those of neighbouring countries like Vietnam and Thailand (both of which is siphoning of our FDIs).

According to history, a community or society improves in the face of challenges. Protectionists policies are dangerous as they create a world where it is easier than reality to survive. In doing so, our citizens would lose their expertise and exposure needed to survive in an increasingly competitive world.

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