Business

Saturday November 21, 2009

Lessons from 9MP – private investment is key


WHILE the Government acknowledges that the country’s economy has underperformed under the 9MP, it believes the way forward is to focus on building resilience so that the economy can weather the future storms well.

It is estimated that the real GDP growth rate achieved under the 9MP would average at 3.2% per year, which is markedly below the Government’s target of 6% per year. The shortfall is largely due to the global financial crisis that has put a deep dent in the country’s exports.

Datuk Noriyah Ahmad says Malaysia has ample domestic resources that can be mobilised to stimulate private investments.

However, domestic components of growth, in particular private investment, have also underperformed. Private investment is estimated to have decline 0.4% per year from 2006 to 2010, compared with the Government’s growth target of 9% per year under the 9MP.

The declining trend of private investment is worrying. As it is, private investment had already dropped from over 30% of GDP prior to the Asian Financial Crisis in the late 1990s to around 11% of GDP last year. The foreign direct investment (FDI) as a percentage of GDP also fell from an average of 6.3% between 1990 and 1997 to 3.3% last year.

Maybank Investment Bank Bhd chief economist Suhaimi Illias points out: “One of the key takeaways from the shortfall of the 9MP is this: private investment was not driving growth.”

“We’ve been too complacent, and have not been aggressively getting private investment to the forefront to drive growth ... many plans were in place, but the problem was execution,” he says.

The Government reckons the need to rejuvenate private investment as key for the country to achieve strong growth for the medium to long term. This is evident in some of its recent efforts such as the allocation of RM15bil under the private finance initiative facilitation fund to support private investment activities.

While it is understandable that the FDI inflow will continue to be sluggish, given the weak external environment and competition from regional peers, the Government aims to implement more aggressive measures to spur domestic investments.

“FDI is still important to our economy, but we want quality FDI. As it is, we have already lost our appeal as a low-cost investment destination. So, we need to change our strategy in this area,” Economic Planning Unit director-general Datuk Noriyah Ahmad says.

But, as Noriyah indicates, Malaysia has ample domestic resources, thanks to its high national savings, that can be mobilised to stimulate private investments.

According to the Asian Development Bank (ADB), Malaysia’s savings-investment gap last year stood at US$20.8bil, about the same level for the preceding three years. This compares with Singapore’s savings-investment gap last year which was US$31.33bil, and that of Indonesia and Thailand were US$23.35bil and RM21.16bil, respectively.

The savings-investment gap measures the difference between a country’s gross domestic savings and its total investments. Ideally, the savings should equal the total investments for an economy to be considered as using its resources optimally. A huge positive savings-investment gap indicates the potential of domestic resources driving investment growth.

Asian economies tend to have high savings rate because their cultural values generally promote savings, and discourage high consumption.

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