Image credit: The Star
PETALING JAYA: Business experts are calling for improved policies to drive more robust and broad-based private investments as the government works on strengthening domestic direct investment (DDI) to revive the economy.
As over 98% of Malaysian companies are small-medium enterprises (SMEs), they say a facilitative environment for these to expand and grow is crucial for post-pandemic economic recovery.
National Chamber of Commerce and Industry of Malaysia (NCCIM) vice- president Datuk Ng Yih Pyng said it was important for the government to retain DDI while at the same time, attract foreign direct investment (FDI).
“A majority of Malaysian businesses are SMEs. Retaining DDI will help increase the country’s corporate tax revenue and job opportunities, and also raise personal tax revenue that reduces the country’s deficit.
“It will also instil confidence in Malaysians to reinvest in the country,” he said in an interview.
According to an NCCIM survey in 2020, 78.2% of 227 business respondents indicated that a “weak investment climate” was the top factor restraining business investment decisions in Malaysia.
Over half of the respondents also thought that investment promotion policies – be it at the federal or state level – favoured FDI relative to DDI, causing disappointment among domestic investors.
Following the survey, the NCCIM had in April, submitted a proposal to Prime Minister Datuk Seri Ismail Sabri Yaakob, who said that the government would study the results and refine them.
Recognising DDI as “the most important element in economic recovery”, Ismail Sabri said the government would boost its potential and continue to be committed to improving the quality of local authority services.
Ng said an enabling environment and a conducive investment climate were vital to support reinvestment.
Calling on the government to offer a competitive corporate tax rate and to provide a good investment climate and facilitation, Ng said it should also ensure a predictable regulatory environment as well as stable economic and political conditions.
“Malaysia’s corporate tax rate of 24% is still higher than our neighbouring countries. Singapore’s tax rate is only 17% while Thailand, Vietnam, Indonesia and Cambodia also have lower tax rates of 20%.
“We suggest that the government provide a more competitive tax rate of 15% for all SMEs that meet the national SMEs’ definition,” he said, adding that this would help companies grow and expand.
Tunku Abdul Rahman University College Economics and Corporate Administration Department senior lecturer Dr Foo Lee Peng said the government should take a proactive approach in encouraging DDI.
“Instead of waiting for potential domestic investors to approach, they need to tailor policies to overcome domestic imperfections that hinder the smooth integration of indigenous economy,” she said.
Foo, who specialises in SMEs and international trade, said the government should encourage DDI for prospective investments that would deepen linkages in the domestic supply chain and build new growth clusters.
“Companies invest in deals, not in countries. In addition to typical incentives, the government can offer a strong value proposition to potential domestic investors, for instance, infrastructure and access to readily available resources and supply chain ecosystems that meet their specific needs,” she said.
According to the Malaysian Investment Development Authority, approved DDI amounted to RM97.9bil (31.9%) of the total approved investments last year while the remaining 68.1% came from FDI.
“Statistically, Malaysia’s FDI was significantly higher by 224.9% from RM64.2bil in 2020, while DDI declined marginally by 5.13% from RM103.2bil the year before.
“In Selangor, DDI is still a strong source of investment in 2021,” she said.
Foo said although the weak investment climate was “a global issue” that had caused uncertainties and made companies more careful in their investment decisions, domestic and foreign investments could complement each other during these trying times.
To encourage more DDI, Foo called for Invest KL and Invest Selangor to engage in after-investment care.
“These two agencies should focus on the demonstration effects from existing satisfied investors, exploring the potential for reinvestments and cluster development because of follow-up investments.
“In addition, as most of the companies are SMEs, they may lack the experience in investing and thus are reluctant to reinvest.
“It would be good if there is an incentive for them, like a tax incentive for first-time domestic investors,” she said.
Foo said while seeking domestic expansion was challenging, businesses should conduct proper market research to identify whether they were ready.
She also urged businesses to explore export-oriented industries and take advantage of the existing export-oriented industrialisation policy.
Source: https://www.thestar.com.my/news/nation/2022/06/28/experts-call-for-better-ddi-policies-to-revive-economy