Right on the money there - Loki Bhai.
When will our 'Maal Chacha' understand that you need to lower taxes to attract FDI and keep local businesses in the country....
Thailand's tax rate is probably even lower - they get as much FDI as Malaysia if not more, at the detriment of course of Malaysia. A lot of FDI in these two countries is from Japan moving its sunset industries to these countries. In spite of having spectacular labor rate attractiveness compared to both of these countries (and Thanks to the idiotic FDI policy and lack of initiative to build infrastructure by our Gandoo govt.) we could not attract enough Korean or Japanese sunset investments like in these countries or even Vietnam/Indonesia for that matter.
We would've attracted electronics factories for export instead of simply local consumption like we did in this case.
More food for thought on Malaysian FDI inflow from an interesting paper by Malaysian scholars....
"Foreign direct investment (FDI) has been seen as a key driver underlying the strong growth performance experienced by the Malaysian economy. Policy reforms, including the introduction of the Investment Incentives Act 1968, the establishment of free trade zones in the early 1970s, and the provision of export incentives alongside the acceleration of open policy in the 1980s, led to a surge of FDI in the late 1980s.
To attract a larger inflow of FDI, the government introduced more liberal incentives including allowing a larger percentage of foreign equity ownership in enterprise under the Promotion of Investment Act (PIA), 1986. This effort resulted in a large inflow of FDI after 1987(the inflow of FDI grew at an annual average rate of 38.7 percent between 1986 and 1996).
Apart from these policy factors, it is generally believed that sound macroeconomic management, sustained economic growth, and the presence of a well functioning financial system have made Malaysia an attractive prospect for FDI. (Ministry of Finance, 2001).
The major areas of investment by foreign companies are in sectors such as electronics and electrical products, chemicals and chemical products, basic metal products, nonmetallic mineral products, food manufacturing, plastic products, and scientific and measuring equipment.(Ministry of Finance, 2001)."
"FDI is thought to be growth-enhancing mainly through the capital, technology and know-how that it brings into the recipient country.
By transferring knowledge, FDI will increase the existing stock of knowledge in the host country through labor training, transfer of skills, and the transfer of new managerial and organizational practice.
FDI will also promote the use of more advanced technologies by domestic firms through capital accumulation in the domestic country (De Mello, 1997, 1999).
Finally, FDI is thought to open up export markets and to promote domestic investments through the technological spillovers and the resulting productivity increase. In theory there are several potential ways in which FDI can promote economic growth.
For example, Solow-type standard neoclassical growth models suggest that FDI increases the capital stock and thus growth in the host economy by financing capital formation (Brems, 1970).
Admittedly, in neoclassical growth models with diminishing returns to capital, FDI has only a "short-run" growth effect as countries move towards a new steady state.
Accordingly, the impact of FDI on growth is identical to that of domestic investment. In contrast, in endogenous growth models, FDI is generally assumed to be more productive than domestic investment, since FDI encourages the incorporation of new technologies in the production function of the host economy (Borensztein et al., 1998). In this view, FDI-related technological spillovers offset the effects of diminishing returns to capital and keep the economy on a long-term growth path.
Moreover, endogenous growth models imply that FDI can promote long-run growth by augmenting the existing stock of knowledge in the host economy through labour training and skill acquisition, on the one hand, and through the introduction of alternative management practices and organizational arrangements on the other (see, e.g., de Mello, 1997).
Thus, through capital accumulation and knowledge spillovers, FDI may play an important role for economic growth."
So to continue, what are the standard Industrial classification for manufactured (and exported) items that developed Malaysia? And where do we stand now as far as manufacturing and maybe exports (my comments in red)? Correct me if I am wrong.
- electrical products
- Electronic Components - bolts, clamps, fasteners, rivets, lighting, semi conductor, integrated circuits, microprocessors, cables and wires, switches, sensors, keyboards, sockets, timing devices, laser modules, solar devices, test and inspection equipment, scientific and technical instruments etc. (some export of specialized components such as household/industrial switches/circuit breakers but huge cable and wires sector for domestic consumption).
- Computer and Office Equipment -computer hardware, peripherals, software and office automation equipment (zero to no export except local assembly/consumption of laptops/PCs and peripherals (such as Wi-Fi routers and power backup devices by private and public sector ).
- Telecommunications equipment - (some minor manufacturing, negligible export)
- Consumer Electronics - LCD/LED televisions, stereos, speakers, video recorders, CD players, radios, cameras, wireless devices, kitchen appliances (huge local manufacturing/assembly sector, regional exports growing, no exports to first world markets yet)
- Consumer Electrics - (huge local manufacturing sector, exports growing)
- Industrial Electronics and Electrics (some minor to middling manufacturing, some minor to middling exports)
- chemicals and chemical products - (growing local manufacturing sector, exports growing)
- basic metal products -
- Spun-aluminum, formed and sand-cast aluminium cookware export is established,
- Non-stick cookware exports growing along with kitchen electrics.
- Forged/sand-cast pipes and accessories of various metals and types is also huge sector.
- Steel Fastener industry is sufficient for local demand but will export to grow.
- Prefab Metal buildings are a huge industry sufficient to meet local demand and exports are rapidly climbing.
- Forged metal products are again-nascent, and slated to grow with automotive and agro-machinery assembly efforts.
- nonmetallic mineral products
- Stone Products - (some minor handicraft-related manufacturing, negligible export)
- Clay Products - (huge local manufacturing sector especially crockeries, sanitary-ware, tiles etc., exports growing)
- Glass Products - (huge local manufacturing sector especially plateglass, coated glass and crockeries etc., exports growing)
- Cement and Manufactured Concrete Products - (huge local manufacturing sector mainly for local consumption)
- food manufacturing - (huge abattoir, prepared/preserved foods manufacturing sector, exports established and growing further)
- plastic products- (huge local manufacturing sector with extruded, roto-molded and injection molded sectors, exports established to first world markets and growing)
- scientific and measuring equipment - (zero to none as far as I know, but there may be niche manufacturing for export in the SEZs)
to be continued.....
