Is Malaysia Making A Return to The Investment Radar? (Part 1)

In 1997, Malaysia Government imposed capital controls during the height of Asian financial crisis, in order to save the country from potential financial bankruptcies. In doing so, the Government had effectively "separated" Malaysia from the outside world, for instance, making its currency (Ringgit) non-tradable internationally, limiting the amount of funds that can be expatriated overseas, fixing the currency relative to USD at 3.80, etc. Since then, foreign investors had gradually shunned Malaysia for other better investment options, and the emergence of China and India as the emerging market investment destination of choice have not helped the course for Malaysia.

The results were clearly shown in year 2005 whereby Malaysia's relatively declining statistics on Foreign Direct Investments (FDI) compared to other ASEAN countries has truly worsened. It was also the first time in history FDI for Indonesia overtook Malaysia's and it was truly a bitter pill to swallow! On the other hand, while other countries continue to liberalise their markets and making it easier for foreigners to invest in their respective countries, Malaysia's reform were relatively slow although the Government did lift the capital controls back in 2005, and started to liberalize trade. In addition, Malaysia continued to stumble upon and continued to rely upon policies that were either outdated or non-investors friendly! By the end of 2006, Malaysian Government, led by Prime Minister, Datuk Seri Abdullah Badawi, finally vouched that Malaysia need a drastic transformation, in order to prevent the country from sliding further down the competitiveness charter!

In my next post, I shall look at some of the key reforms made recently by the Malaysian Government.